Cadbury posts strong result but competition puts pressure on Australian market share

Posted by Isobel Drake on 26th February 2009

Cadbury, the world’s second largest confectioner, has reported revenue growth of 7% as emerging markets and key brands build momentum.
“In 2008, Cadbury completed its transformation into a pure-play confectionery company,” Todd Stitzer, Cadbury’s CEO, reported. “Our strong revenue growth and significant improvement in operating margin demonstrate the relative resilience of our focused business model. Whilst we will not be immune from the continued weak economic environment, at this early stage in 2009, we expect to deliver revenue growth around the lower end of our 4-6% goal range and to make good progress toward our goal of mid-teens margins by 2011.”

Unlike many other global food manufacturers, exchange rate movements increased revenue (by 9%) and profit (by 13%) as the pound faltered.

Revenue momentum was further driven by price realisation and mix benefits of around 6% and volume growth of 1%. Price realisation, which includes price rises, adjustments in promotional frequency and product and package resizing, has been essential to recover cost pressures throughout the year, particularly in cocoa, sweeteners and oil based materials, the company advised.

In emerging markets, revenue growth was strong, up 12% for the year as a whole. Cadbury’s growth was particularly good in India (up 23%), South Africa (up 20%) and South America (up 18%). In developed markets, including the UK, US, Europe and Australia, market growth was more mixed and in most cases slowed somewhat towards the end of the year, reflecting the worsening economic climate. As a result, growth in developed markets was a more reserved 4%.

In 2008, Cadbury said they continued to benefit from a strong position in attractive higher growth categories and a focus on more advantaged brands, markets and customers. Growth was balanced across their three categories, with chocolate revenue up 6%, chewing gum up 10% and candy revenue rising by 6%.

Revenue from focus brands, markets and customers benefited from a strengthened global category model and increased focus on fewer, bigger initiatives. Our 13 focus brands grew by 8% with their three largest brands, Cadbury Dairy Milk, Trident and Halls ahead by 11%, 11% and 9%, respectively.

In Asia Pacific, revenue grew 6%, driven by strong growth in emerging markets. All business units grew revenue, with the exception of China following a product recall in October, and New Zealand, reflecting the withdrawal from the low-margin cocoa preparation market. Overall, chocolate was the key growth category.

“In Australia and New Zealand, whilst revenue grew overall, increased competition and the impact of weakening economic conditions limited opportunities to grow market share and recover the full impact of input cost increases,” the company explained. “During the year, our team in Australia started work on the separation of the confectionery and beverages businesses, including separating the combined sales teams and back office functions. In addition, work started on the major Vision into Action project to reconfigure the Australian and New Zealand chocolate and candy supply chains.”

They announced in December that their Schweppes business in Australia would be sold to Asahi for around $1.2b, although The Coca-Cola Company still maintains the right to make a counter bid by March.

“Cadbury is now well positioned as a focused pure-play confectionery business. As a result of actions taken in 2008, we have a strong financial position with secure long-term financing,” the company concluded.