Cadbury outlines restructure plans as revenue growth meets expectations

Posted by Daniel Palmer on 16th October 2008

Cadbury has announced third quarter revenue growth of 6 per cent, in-line with expectations, as the caution of consumers fails to dampen their profit expectations. Australian results, dragged down by a 5% decline in beverage sales, were not as impressive.

Cadbury reported a renewed focus on strengthening their global chocolate, gum and candy divisions and new initiatives in their Vision into Action (VIA) strategy. They will change their structure, with four regions to become seven; including Asia-Pacific being split into Asia and Pacific (Australia, NZ, Japan) sectors.

The structural changes will result in 250 job cuts, including a number of senior managers.

“The good third quarter performance was in line with our expectations. Our new streamlined organisation, together with additional cost reduction initiatives, will increase the focus on implementing our strategic plans and underpin delivery of our margin targets,” Todd Stitzer, Chief Executive Officer, said. “Despite weaker economic conditions, we expect strong profit growth for the year and reconfirm the revenue and margin guidance we gave in July.”

In Asia Pacific, revenues were 2% ahead in the quarter, with continued growth in confectionery, up 5%, partly offset by a weaker quarter in their Australian beverage business where revenues were 5% lower.

In Australia, Cadbury suggested confectionery revenue was impacted by year-on-year changes in promotional phasing and frequency and some trade de-stocking.

Commodity costs are also causing concern for the company, with further cocoa cost pressure expected next year. The company is currently implementing price increases in most of their primary markets to cover the impact of anticipated cost rises.

There was no further announcement as to the fete of their Australian beverage operations.

A review of their beverage operations in Australia (Schweppes) began a few months ago, with an update on the process expected to be given this month. Cadbury’s focus on chocolate, gum and candy and the drop in beverage revenue is likely to increase speculation about a possible sale of Schweppes.

The ACCC continues to monitor the situation.

VIA cost reduction initiatives
In June 2007, Cadbury presented the Group’s VIA strategy which included a significant increase in our margins to mid-teens by 2011. The continuing program has been updated, with new restructuring measures to reduce costs.

Reconfiguration of chocolate manufacturing in Australia and New Zealand
“Following a review of the confectionery supply chains in Australia and New Zealand, we have started a major programme of plant optimisation and supply chain reconfiguration to simplify our manufacturing activities, creating centres focusing on key technologies. As part of the programme, we expect to reduce SKUs by around 30% and see an incremental improvement in customer service. Around 330 positions will be removed over the next two years,” a Cadbury statement advised.

Further centralisation of European operations
Cadbury is to establish a single, state-of-the-art science & technology centre of excellence in Europe focusing on gum and candy.

Outsourcing of global facilities management
Cadbury has reached agreement with a global partner to progressively provide facilities management and related services to Cadbury. Subject to consultation, this will likely result in the transfer of a significant number of existing roles and third party contracts over the coming years.