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Cadbury raises targets in face of Kraft bid


Cadbury, the UK confectionery group that is a takeover target for US food group Kraft, on Wednesday increased its full-year financial targets on the back of stronger revenue growth but said declines in sales volumes had worsened.

Cadbury reported sales revenue growth of 7 per cent for the third quarter, compared to growth of 4 per cent in the first half, as the company raised prices and sold more products with high profit margins, like sugar-free gum.

However, sales volumes, which were down 1-2 per cent in the first half, fell 3 per cent in the quarter.

Alex Molloy, analyst at Credit Suisse, said: “The numbers on the surface are strong although volume declines of 3 per cent are less impressive.”

Some analysts have expressed concern in recent weeks that Cadbury’s revenue growth is being driven too heavily by pricing.

Andrew Bonfield, Cadbury’s chief financial officer, said price increases on confectionery brands had contributed to the decline in sales volumes.

He also said Cadbury had been shipping lighter products, such as its Wispa chocolate bars, and making smaller products, such as reducing its 250g Cadbury Dairy Milk chocolate blocks in Australia to 200g.

Chocolate sales revenues, which were running at 10 per cent in the first half and account for nearly half of the group’s total sales, slowed to 7 per cent, while gum revenues, flat in the first half, rose 4 per cent on the back of growth in emerging markets. Candy revenues, also flat in the first half, rose 11 per cent.

Overall, Cadbury’s sales in emerging markets – which account for just over one-third of its total sales – grew twice as fast as sales in developed markets in the quarter.

Todd Stitzer, Cadbury’s chief executive, said emerging markets had been less affected by the recession than developed markets and were “coming back” a bit sooner.

Cadbury raised its full-year financial guidance, forecasting revenue growth in the “middle” of its 4-6 per cent goal range, having in February forecast growth in the “lower” end of the range. It also promised to deliver “at least” 135 basis points of improvement in underlying operating margins, which were 11.9 per cent last year, and said gross margins had risen 20 basis points in the year to date.

Analysts said the trading update reinforced the decision by Cadbury’s board to reject an indicative £10.2bn cash and shares takeover approach from Kraft last month – initially valued at 745p a share but today worth around 730p – but was not likely to change the amount of money the US food group could stump up for the UK company.

Roger Carr, chairman, reitered his belief that there was more value for Cadbury shareholders in the company remaining independent.

“The strength of our operating performance continues to underpin the board’s confidence in both our growth prospects and the potential for creating further, material shareholder value as a pure play standalone confectionery business”.

Cadbury shares were 1½p higher in afternoon London trading at 800½p. They have consistently traded above the indicative price offered by Kraft on the expectation that the US group will raise its offer.

Analysts believe Kraft can afford to pay about 850p a share without losing its investment grade credit rating. The US group, which will report its third quarter results on November 3, has until November 9 to make a formal offer for Cadbury.

Cadbury did not offer fresh guidance on commodity costs, which it has previously forecast would rise 6-8 per cent this year.

But Mr Bonfield said Cadbury was not concerned by rising cocoa prices, which are running at 29-year highs, because it had “adequate” positions for 2009. In 2010, “we’ll deal with it,” he said.

(Source:Financial Times)

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