19 June 2008 - Cadbury plc issues regular trading updates ahead of its first half and preliminary results. Today's update comments on year-to-date performance for the first half of 2008. Our 2008 first half results will be announced on 30 July 2008.
Following the demerger of Dr Pepper Snapple Group in May 2008, the Americas Beverages business will be classified as a discontinued operation and the results from the business will not be included within the continuing results of Cadbury plc.
Highlights
Strong first half revenue momentum: growth expected to be above 4% - 6% goal range
Good growth across all categories and double-digit growth in emerging markets
Margins at least 150bps ahead despite increased investment in marketing
Higher prices recovering increases in input costs
Benefits of early progress on cost savings and positive mix
Todd Stitzer, Cadbury’s CEO said: “We’re off to a strong start as a focused confectionery business and expect first half revenues above our goal range and good progress on margins. These results will demonstrate the strength of our total confectionery platform, the benefits of the significant investments made in recent years and the potential of our business. Despite the challenging economic outlook and further increases in input costs in the second half, we are confident of a successful outcome for 2008.”
Trading Performance
We expect strong revenue momentum in the first half with second quarter growth likely to be modestly higher than the 7% like-for-like growth reported for the first quarter. Good progress is being made on margins despite a further increase in marketing investment. Price increases have been implemented across the majority of our markets and these are recovering significant increases in input costs. Margins in the first half will benefit from positive product mix and previously announced “Vision into Action” cost reduction initiatives including downsizing central and regional functions and outsourcing non-core activities.
In Britain, Ireland, the Middle East and Africa (BIMA), revenue growth has been driven by higher marketing and double-digit growth from the emerging market businesses. Profit and margin progress in the first half will be strong with margins benefiting from a further improvement in Nigeria, cost reduction initiatives and lower one-off costs in Britain and Ireland. In Britain, revenue growth is expected to be ahead of the confectionery market which is ahead 2% year-to-date. The exit from some less profitable promotions has been more than offset by good growth in core brands, including Cadbury Dairy Milk.
In Europe, planned route to market changes in Russia and Turkey and lower market growth in Southern Europe have impacted performance. Gum growth remains strong reflecting the combination of market growth across the region and share gains in Southern Europe. In Turkey, we are integrating our existing distribution infrastructure with the Intergum business we acquired last year and revenues in the half are being impacted by the exit from a number of distribution arrangements. Overall, margins are expected to be lower in the region in the first half given the route to market reorganisation.
In the Americas, we have continued to see excellent revenue growth. In the US, the gum market is ahead 8% year to date, benefiting from the 2007 price increases and continued high levels of innovation activity. Growth continues to be driven by our Trident and Stride brands. Our performance in the US has been boosted by improved results from Halls which benefited from robust cough category growth. Revenue momentum in Latin America remains strong with good results from both gum and candy, particularly in Mexico where we have continued to make share gains.
In Asia Pacific, revenue growth in the half has benefited from an improved performance from confectionery in Australia and strong double-digit growth in emerging markets. In Australia beverages, revenue growth has strengthened in the last few months as we cycled the anniversary of the termination of a non-core manufacturing contract. In emerging markets, India has had another excellent half with good performances in all categories, and continued success of our Bubbaloo bubblegum brand.
Outlook
For the first half of 2008, we expect revenue growth above the top end of our 4% - 6% goal range and margin growth of at least 150 basis points (at constant exchange rates). Looking forward to the balance of the year, we will be cycling stronger second half comparatives. We expect our commodity cost increases for the year to remain in the 5% - 6% range, however, these increases are now expected to be weighted toward the second half. Overall, while we expect some bias in revenue and margin growth toward the first half, we remain confident of a successful outcome for 2008.
Update on Non-Underlying Items
Following the completion of the demerger on 7 May 2008, Americas Beverages will be classified as a discontinued operation and the results will not be included within the continuing operations of Cadbury plc. The appendices to this release include: i) the re-presented underlying results for Cadbury plc for the first half and full year 2007 with Americas Beverages reported as a discontinued operation; and ii) pro-forma earnings per share for the first half and full year of 2007 for Cadbury plc as if the demerger had been in effect since the beginning of 2007. From 2008, certain confectionery costs in respect of central supply chain, commercial and science & technology, previously included in central costs, will be charged to the regions. The appendices also include the regional profit from operations for the first half and full year 2007 on a comparable basis.
The reported results in the first half of 2008 will be impacted by restructuring and non-trading items principally relating to our cost reduction programme and the demerger. In the first half, we expect restructuring charges to be around £80 million, around half the charge anticipated for the full year. Tax and other costs related to the demerger are expected to be in line with expectations. Transaction related costs (such as financing fees, legal costs, advisor fees and taxation) will be charged against the discontinued Americas Beverages business and confectionery separation charges (such as certain IT separation costs and listing fees) will be treated as a non-underlying charge to the Cadbury plc business.
The movements in key currencies against sterling since the first half of 2007, principally the Euro and the Australian Dollar, are expected to have a positive impact on our reported results at the half year. Based on current rates, we would expect currency movements on translation to benefit revenues and operating profits, each by around 7% in the half.