Dairy Milk sales keep Cadbury feeling sweet

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The Independent Online

Cadbury, the confectionary group, has revealed that it is to conduct a review of its global cost base, as it posted a 28 per cent rise in first-half pre-tax profit and robust sales of Cadbury's Dairy Milk, Trident sugarless chewing gum and the new Creme Egg Twisted Bar.

"Dealing with the macro environment is scary. We are dealing with cocoa prices up 30 per cent to 40 per cent and oil up 50 per cent from a year ago," said Todd Stitzer, Cadbury's chief executive. He declined to rule out further job losses or factory closures following the previous cut back it unveiled in June 2007.

Cadbury, which spun off its Dr Pepper Snapple drinks business in May, said it has put its remaining Australian drinks business under review, although it said this process will take months to complete. Rob Mann, a consumer analyst at Collins Stewart, said: "The review into the ownership of the final beverage operation in Australia shows once and for all there are to be no sacred cows."

The group said it had already delivered good benefits from its Vision into Actioncost-reduction programme, which it unveiled in June 2007, such as through reducing supply chain costs.

"Against a backdrop of more challenging economic conditions, we will take whatever measures are necessary in costs, prices, organisation structure and business portfolio to underpin and deliver the performance commitments we have made for 2008 and beyond," said Roger Carr, who has served on Cadbury's board since 2001 and became chairman early this year.

For the six months to 30 June, Cadbury posted pre-tax profits up by 28 per cent to £143m on total sales up by 7 per cent to £2.65bn.

As the group gorged on chocolate, which rose by 6 per cent, candy sales gained 7 per cent and gum jumped by 10 per cent. Cadbury said its three largest brands, Cadbury Dairy Milk, Trident and Halls grew sales by 9 per cent, 12 per cent and 13 per cent, respectively, globally.

Many consumers have refused to cut down on the simple pleasure of a bar of chocolate, which typically proves to be resilient, during an economic downturn. Mr Stitzer said: "We see confectionery as a particularly robust category in difficult times." He added: "We sell small treats. People tend to continue to consume those in difficult times. We think we have a business that's in the right space."

In Britain, Cadbury grew total sales by 3 per cent and its planned exit from some "less profitable promotions" was more than offset by good growth in core brands.

Mr Stitzer said overall demand remained strong and he was confident that prices rises next year would be enough to continue to offset rises in commodity prices.

But Mr Carr added: "There are some concerns that the pace of change will have to accelerate in the face of economic head winds and there remains much to do to unlock the full potential of this business." Mr Mann said: "We sense... a far more punchy desire to do what is necessary to reach the medium-term targets."

Cadbury is to increase its interim dividend by 6 per cent to 5.3p. Shares closed down 0.88 per cent at 620p.

Choconomics: why sales don't melt during recessions

Long before anyone noticed "lipstick economics" – the modern observation that sales of cheapish treats such as lipsticks hold up relatively well in a recession – we had what might be termed "choconomics": for chocolate too is a counter-cyclical economic curiosity, an inexpensive little treat to help us endure the gloom.

During most previous slumps – and especially in the Great Depression of the 1930s – sales of chocolate have bucked the general trend. Indeed, the "Hungry Thirties" were a golden age for chocolatiers. Some famous names were invented then, including Marathon (now Snickers, 1930) and Maltesers (1936, then known as "energy balls"). Such product innovation was mirrored in the development of marketing techniques, as we see from the charming press and posters ads of the time. The chocolate companies pioneered market research. It was the era when the great names of today – Cadbury, Nestlé and Hershey – became established. This "small-ticket" item was also cheaper and healthier than alcohol, hence the prevalence of Quaker interests in the industry (Joseph Rowntree, John Cadbury and Joseph Fry were all of that persuasion). We can't expect our chocolate to get cheaper, as it did in the 1930s, but its emotional pull should still ensure a sweet return for investors.

Sean O'Grady

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