Cadbury hits the profits sweet spot with chocolate and gum

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The Independent Online

Cadbury has revealed that consumers are refusing to give up their chocolate and chewing gum during the recession. The confectionery giant delivered tasty sales and profits in 2008 but trimmed expectations on revenue growth for this year.

The manufacturer said that global sales of its Dairy Milk chocolate and Trident gum brands jumped by 11 per cent last year, which helped the confectioner post pre-tax profits up by 57 per cent to £400m.

Todd Stitzer, Cadbury's chief executive, said: "In difficult times, people gravitate toward brands they know and love and affordable treats." City analysts have been concerned about customers trading down to own-label chocolate, but Mr Stitzer said that in the UK these products only account for about 6 per cent of total sales. Its UK business grew sales by 5 per cent, driven by "strong" growth in Dairy Milk, including new variants and formats, and the successful launch of Crème Egg Twisted and relaunch of Wispa. Cadbury's said that Wispa delivered sales of £25m since September 2008, a record for a launch.

Mr Stitzer also said that Cadbury's had benefited from more people staying in during the credit crunch and eating affordable treats, echoing comments made by the chief executives of Asda and Domino's Pizza recently. For the 12 months to 31 December, Cadbury's registered total sales up by 15 per cent to £5.38bn. Globally, Cadbury was boosted by sales of Halls sweets jumping by 9 per cent.

"The results are extremely robust and to some extent reflect the defensive nature of the group's operations. But Cadbury's is to some extent vulnerable to consumers trading down as the recession impacts on their disposable income," Jeremy Batstone-Carr, an analyst at Charles Stanley, said.

Cadbury's underlying operating margins grew by 150 basis points, largely driven by its Vision into Action cost reduction programme, which was launched in June 2007. However, Mr Stitzer warned that revenue growth would be at the lower end of forecasts. "We expect to deliver revenue growth around the lower end of our 4 to 6 per cent goal range and to make good progress towards our goal of mid-teens margins by 2011," Mr Stitzer said.

Emerging markets were the sweet spot of Cadbury's sales growth in 2008. Sales soared by 23 per cent in India, 20 per cent in South Africa and 18 per cent in South America. Emerging markets now account for 37 per cent of its total sales. Its growth in developed markets, including the US, UK, Europe and Australia, was less stellar but still came in at 4 per cent, although most regions experienced a slowdown in the second half.

In Europe, Cadbury increased sales by 4 per cent, helped by launching longer-lasting taste gum across three brands.