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Cadbury Helps Kraft to Hit Sweet Spot

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Cadbury Helps Kraft to Hit Sweet Spot

Cadbury Helps Kraft to Hit Sweet Spot
September 16
10:06 2010

Kraft Foods has just outlined its new global development strategy and expects to deliver organic revenue growth of 5% or more, margins in the mid- to high-teens and earnings per share (EPS) growth of 9% to 11%. Following its $18.4b acquisition of Cadbury earlier this year, Kraft Foods became the undisputed world leader in snacks, a high-growth, high-margin category that now accounts for more than half of the group’s total revenue.

The enlarged Kraft Foods has an exceptional portfolio of global snacks power brands – led by Milka and Cadbury chocolates, Oreo and LU biscuits and Trident gum – with leading market shares in every major region, a full pipeline of innovation and a clear opportunity to grow its presence in what Kraft describes as the point-of-purchase ‘hot zone’.

Complementing the US-based food giant’s snacks portfolio are well-loved iconic regional and local brands in the beverage, grocery, cheese and convenient meals categories. Roughly 80% of these ‘heritage’ brands hold number one or number two positions in their respective categories and are household names among consumers who tend to be extremely brand-loyal. They also carry high margins and generate strong cash flow.

Irene Rosenfeld, chairman and chief executive of Kraft Foods.

“Today’s Kraft Foods is a global snacks powerhouse with an unrivaled portfolio of leading regional and local brands,” points out Irene Rosenfeld, chairman and chief executive of Kraft Foods. “This unique and complementary combination, together with our significant presence in high-growth developing markets, will deliver consistent growth in the top tier of our peer group.”

The combination of Kraft Foods and Cadbury provides the scale necessary to grow sales and distribution in new and existing markets, delivering a projected $1b in incremental revenue synergies. Kraft also expects to realise $750m of cost savings from integrating Cadbury by 2013.

More than half of Kraft Foods’ revenue now comes from markets outside of North America, such as Brazil, China, India and Mexico, where GDP and demand growth are strongest. Accordingly, by 2013, the proportion of business in developing markets will increase from a quarter of total revenue to roughly one-third.

Additional savings over the next three years from procurement, manufacturing and logistics will drive productivity gains in excess of 4% of cost of goods sold, according to Kraft Foods. These productivity gains, combined with flat overhead growth and pricing to offset input costs, will contribute to the expansion of gross margin.

“At Kraft Foods, we’re hitting our sweet spot,” she adds. “We’ve built a solid foundation for growth. By leveraging our scale, making strategic investments in marketing, sales and innovation and establishing a world-class cost structure, we will take our performance to the next level.”

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