Kraft under pressure to raise its offer after Cadbury beats targets

Confectioner delivers strong revenue growth of 7 per cent in third quarter
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The Independent Online

The finance chief of Cadbury, which is a takeover target of US food giant Kraft, insisted it had a future as an independent confectionery business yesterday after it upgraded its full-year financial forecasts.

Cadbury, the maker of Trident gum and Dairy Milk chocolate, posted third-quarter revenue growth of 7 per cent, up from 4 per cent in the first half, after hiking prices and a change in its product mix. But the fall in its sales volumes widened to 3 per cent.

Andrew Bonfield, the finance director of Cadbury, said: "It shows that we have got good momentum in the business and that the strategy of focusing on a pure-play confectionery business that can deliver results [is right]." Its shares rose by 0.5p to 795p yesterday.

In early September, Cadbury rejected a £10.2bn proposed takeover offer by Kraft, which valued the UK-based group at 745p a share.

But three weeks later, Cadbury asked the Takeover Panel to impose a "put up or shut up" deadline on Kraft, which was set for 5pm on 9 November. Kraft is scheduled to unveil results on 3 November. Mr Bonfield justified the early decision to contact the Takeover Panel. He said: "The disruption of having a proposed offer out there is significant. It is difficult to hire employees over that time period. So we need to be able to move on one way or another."

Graham Jones, the Panmure Gordon analyst, said: "This [Q3 results] puts the ball firmly back in Kraft's court, and is exactly what Cadbury shareholders would have hoped for. We think this statement, plus confidence expressed about 2010 and 2011, significantly reduces the chance of Cadbury being acquired 'on the cheap'."

Alicia Forry, the analyst at Liberum Capital, said the figures from Cadbury would lead to earnings upgrades of at least 5 per cent to consensus, which underpins expectations that Kraft will have to bid above 800p. But she said that for a price of more than 850p a competing bid would have to emerge.

Cadbury said its third-quarter revenue growth of 7 per cent was driven by strong performances in the UK, where sales rose by 10 per cent, India, South Africa and South America. The group said its 2009 revenue growth would be in the "middle" of its 4 to 6 per cent range, up from its forecast in the "lower" end of the range in February. Cadbury also said that it expected its underlying operating margin to improve by "at least" 135bps in 2009, from 11.9 per cent in 2008. It also boasted a rise of 20bps over the year to date in gross margins. A change in its product mix to lighter products and higher confectionery prices contributed to the 3 per cent fall in volumes, but analysts expressed concerns its revenue growth might become reliant on price rises.