Cadbury Schweppes Plc, the world's largest confectionery group, plans to cut 7,500 jobs and close around ten plants as it seeks to catch up with the profitability of U.S. rivals after the sale of its drinks arm.
The British group said on Tuesday it will trim its current 50,000 confectionery workforce and 70 factories by 15 percent, admitting its operations were too complex. The cuts will be spread across the world over the next four years.
The London-based company, maker of Dairy Milk chocolate, Trident gum and Trebor mints, said a sell-off of its 8 billion pound North American Dr Pepper and Snapple drinks offered better value for its shareholder than a spin-off.
We believe a sale is the more likely outcome and we intend to return capital to shareholders, Chief Executive Todd Stitzer told a briefing after unveiling its new confectionery strategy.
He admitted the sweets business was too complex and needed streamlining. While giving no details of where and when the axe will fall, he said it can do better in the UK, Russia and China.
He stressed the stand-alone sweets group was targeting bolt-on acquisitions, appearing to rule out big deals, as he said the group planned to stay independent despite market talk that U.S. rivals and private equity groups were hovering.
We plan to transform our confectionery business from being the biggest global confectionery company to being the biggest and the best, Stitzer said.
Cadbury shares were off 0.3 percent at 704 pence by 0855 GMT after a strong run this year, while analyst Andrew Wood at Sanford Bernstein said the new strategy was good news for Cadbury's investors.
Even if no bid if forthcoming for Cadbury - which we still consider to be likely - shareholders should still benefit from management unlocking value from ongoing operations he said.
Analysts say Cadbury needs to convince investors it can accelerate growth as a pure confectionery player or it may be gobbled up by rivals such as U.S. firms Wm. Wrigley Jr. Co. , Hershey Co and Kraft Foods Inc.
The group, to be renamed Cadbury Plc after the expected drinks sale, raised its annual revenue growth goal to 4 to 6 percent from 3 to 5 percent and aimed to lift trading margins to the mid-teens percentage by 2010 from 10.1 percent in 2006.
The company said it had made a strong start to 2007 in both confectionery and beverages with sales up 9 percent and 5 percent in the first-quarter, and confectionery growth was seen near the top of its new range for its first-half.
Cadbury's confectionery operating margin in 2006 at 10.1 percent compared to Wrigley's 18.3 percent and Hershey's 20.3 percent, although the U.S. groups' higher margin structures are helped by their dominance in key markets such as the U.S.
Cadbury has been busy over the last two weeks agreeing small bolt-on deals to expand in Turkey, Romania and Japan, but a larger deal such as $18 billion Hershey is seen out of reach due to the Hershey Trust holding 80 percent of votes, analysts said.
In addition, Cadbury announced increased outsourcing of cocoa product and chocolate production to Barry Callebaut (BARN.S) in Poland which has resulted in the Swiss group supplying over a third of Cadbury's outsourced needs.
Cadbury shares have outperformed the FTSE 100 and DJ Food and Drink stocks by just over 20 percent since the start of 2007, helped by the big jump in March when Cadbury decided to split its confectionery and soft drinks businesses soon after activist investor Nelson Peltz built up a stake.