Cadbury confident of its chocolates despite slowdown

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Bournville, October 16: : Cadbury, the world's second-largest confectionery maker, argues that even when times are tough, chocolate is an affordable treat and one of the last to be scratched off people's shopping lists.

But even this company, traditionally a "defensive" play which can weather hard times, now faces slowing economies, high cocoa prices, a new industry-leader as rival and the aftermath of salmonella and melamine health scares.

Founded by John Cadbury nearly 200 years ago as a family firm, Cadbury is now a widely recognized brand selling products in over 60 countries: as an institution, it has a memory of economic depression.

It saw demand slump in the 1920s and 1930s and had to drive costs sharply down, to make chocolate – at the time a relatively expensive product – affordable for Britain's expanding population.

"We are not immune from a more challenging environment but confectionery is a resilient category," its Chief Executive Todd Stitzer told a conference call this week. "We ... are less affected in difficult times."

Now once again the company, with annual confectionery sales of 5.1 billion pounds ($8.9 billion) and operating profit of 497 million in 2007, is cutting costs, closing factories and trimming chocolate bar sizes – without reducing the price.

It is also reissuing some discontinued lines in a bid to tempt sweet-toothed British consumers with nostalgia, along with a host of new products in gum and candy as well as chocolate.

"We are making major changes to streamline the company," Stitzer said.

Since his appointment in late 2003 he has improved the group's financial performance and split the then Cadbury Schweppes, spinning off beverage business Dr Pepper Snapple in May to focus Cadbury tightly on confectionery.

Cadbury has set a four-year 2008-2011 strategy to deliver 4-6 per cent underlying sales growth and mid-teen percentage margins by 2011, up from 10.4 per cent in 2007.

But its stock, which has underperformed the DJ Euro food and beverage industry index by 8 per cent since early September, earns hesitant recommendations from investment analysts.

Of 23 polled, nine have a "hold."

TASTE-MAKER

To judge by its leading UK market share of over 30 per cent, Cadbury has formed British tastes in chocolate. Its milky flavor appeals in the country where 92 per cent of chocolate is milk compared with just 65 per cent in continental Europe.