Cadbury raises bar on half-year sales in UK

Dairy Milk maker Cadbury today said higher prices left it on course to beat targets for the first six months of the year.

The group, which rebranded from Cadbury Schweppes earlier this month after spinning off its drinks arm, has been upping its prices to combat soaring commodity costs this year.

Cadbury – the world’s second largest confectionery firm – said interim revenues growth was on track to be above management goals of between 4% to 6%. Cadbury shares rose 5% as investors cheered the upbeat performance so far in its first half.

The group has sought to push through higher prices to combat 5% to 6% rises in commodity costs, but to the detriment of its market share.

Cadbury revealed that it had lost ground to rivals over Easter after holding back price cuts, although it banked a 3% rise in first quarter UK revenues despite the hit.

Cadbury also said the sales growth was being driven by a recent concerted marketing push, led by last year’s cult hit advertisement featuring a gorilla drumming to Phil Collins and more recently an ad showing racing airport trucks.

It is also in the middle of a cost cutting programme to boost performance, with plans unveiled last June to axe 7,800 jobs and close 15% of its factories worldwide.

The proposals included axing 500 jobs with the closure of the company’s historic site at Keynsham, near Bristol.

Outgoing chairman Sir John Sunderland, who is handing over the reins to deputy chairman Roger Carr on July 21, said the group had seen life as a standalone chocolate company get off to a “strong start”.

“This performance reflects the combination of increased marketing investment, higher pricing and successful early execution of our cost reduction initiatives,” he added.

The group demerged its American drinks business, Dr Pepper Snapple, through a listing on the New York Stock Exchange on May 7, returning Cadbury to its near-200 year old roots as a confectionery business.

The demerger came after Cadbury aborted attempts to sell the operation last year, as the crisis in credit markets hit the ability of potential buyers to raise finance.

The move left the remaining Cadbury operation as the number two in the world behind Mars, which stole pole position after its deal to buy the Wrigley chewing gum group just days before the demerger.

Standalone Cadbury has revenues of more than £5bn (€6.3bn) and underlying profit of around £500m (€627m).

There has been speculation that Cadbury would seek to consolidate with rivals to gain scale after the Mars deal.

Analysts at Numis Securities said today’s performance update would make the group more attractive to US chocolate group Hershey, reportedly a mooted merger partner.

A Numis note said: “We believe that one benefit for Cadbury of driving strong sales growth is that it looks attractive to Hershey.”

It added: “We continue to believe that Cadbury and Hershey are considering a merger and that, should this happen, Kraft and eventually private equity players should the debt market reopen may intervene.

“We see strong upside potential for the share price in that case.”

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