2009 half year results - investis cmsfiles.investis.com/cadbury_ir/res_press/2009-07-29/half...
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1
2009 Half Year Results
29 July 2009
2
Roger Carr
Chairman
3
Agenda
Chairman’s comments Roger Carr
First Half Highlights Todd Stitzer
Operational and Financial Review Andrew Bonfield
Strategic Update and Outlook Todd Stitzer
4
Todd Stitzer
Chief Executive Officer
First Half Highlights
5
First half highlights
Good financial performance
• Revenue growth of 4%
• Improved trading momentum as the half progressed
• Underlying operating margins up 145 bps
• Benefit of restructuring, good cost control and media deflation
• Reported currency margin 11.5%
• Pro-forma earnings per share up 12%; reported 24%
• Interim dividend of 5.7p; up 8%
Growth or change shown on a base business, constant currency basis
Vision into Action
Growth Efficiency Capabilities
Sustainability
Total confectionery share gain
Strong dividendgrowth
Efficientbalance sheet
4-6% organicrevenue growth
Mid-teens marginsby 2011
Improved returnon capital
7
Drivers of revenue growth and margin improvement
• Emerging markets
• UK market
• Chocolate category
• Gum and candy recovery
• Pricing power
Growth
Efficiency
8
Emerging market growth Emerging market contribution to revenue
1. Overall revenue growth in period
Emerging markets Developed markets
H1 2009
+31%
+69%
FY 2008
+40%
+60%
4%1
9
Case study
• Revenue up 20%
• Market share up 220bps
India
Consumer preferred brands & products
Internet page views
7m
10
Strong trend toward sugar-free gum up 500bps in five years*
Case study South America
Consumer preferred brands & products
Trident/Beldent up 23% in the first half
Product innovation
Stronger distribution
Creative marketing
+
+
* Source: Euromonitor11
UK market growth
Market performance
• Category grew 2%
• Cadbury grew 14%
• Market share up 210bps
Category focus & innovation
+1
7%
+1
2%
+1
4%
Q1 Q2 H1
2009 revenue growth
+230 bpsshare gainin impulse
£50mrevenue
from newproducts in
first half
12
Customerservicelevel
98.4%
An award winning year
13
Strong chocolate performance Revenue growth by quarter
Q1 Q2 H1
+7%
-2% -2%
+10%
+13%
+2% +2% 0% 0%
Consumer preferred brands & products
Gum
Candy
14
Re-launch of Cadbury Dairy Milk in ANZ
• New format
• Excellent acceptance levels
• Supply chain efficiencies
• Incremental improvements to profitability
* Nielsen: 4 weeks to end of May in Australia
Chocolateshare*
+120bps
15
Improving trend in gum and candy
+16%globally
in Q2
+23%in H1
+6%globally
in Q2
Percentages are year on year growth
+10%in US in
Q2
+15%in Q2
16
Pricing benefits in the first half Price realisation is essential to recover all input cost inflation
+4%
Price mix
Volumes RevenueGrowth
Price
MixDestocking
PortfolioRationalisation
• Price realisation by…
• Price point movements
• Resizing
• Changes in promotion
• Successful delivery through…
• Relevant innovation
• Effective marketing
17
Drivers of revenue growth and margin improvement
Efficiency• Vision into Action projects
• Effective cost control with supply chain and SG&A
• Emerging markets
• UK market
• Chocolate category
• Gum and candy recovery
• Pricing power
Growth
18
Impact of efficiency
SG&A
0
50
100
2008 2009 2010 2011
Central costs, SG&Aand outsourcing
Supply chainreconfiguration
% o
f ex
pect
ed a
nnua
l sav
ings
• Reduced head office costs
• SG&A cost savings
• De-layered organisation
Supply Chain
• Closure of gum facility in Barcelona
• Integration of Turkish gum manufacturing
19
Sustainability commitments
Performance driven, values led
20
Conclusions
Good revenue growth
• Market share gains
• Effective price realisation
• Steady volumes
UP4%
UP145bps
Growth
Efficiency
Excellent margin progress
• Gross margins broadly unchanged
• Media deflation and marketing phasing
• Significant Vision into Action cost savings
• Effective cost control with supply chain and SG&A
21
Andrew Bonfield
Chief Financial Officer
Operational and Financial Review
22
+1% volume
Growth drivers: price, volume & mix
FY 2008 H1 2009
+6%price mix
+6%price mix
4%growth
Destocking
PortfolioRationalisation
23
Margin analysis
Gross Margin
• Price, product mix and input costs
• Category mix
• Volume de-leverage
Gross Margin2008: 47.3%Net movement -20bps
2009: 47.1%
Trading Margin2008: 9.7%
Gross Margin -20bpsMarketing +90bpsSG&A & Other +100bpsInflation SG&A -25bps
2009: 11.2%
Trading Margin
• Marketing: media deflation and re-phasing to match second half innovations
• Vision into Action:reduction of SG&A costs
• Cost inflation, particularlyin emerging markets
24
Operating margin trackDetailed drivers of margin progression
+100 bps
-20 bps
-25 bps
Gross Margin
Inflation on SG&A
Vision intoAction
Savings
ForeignExchange
ConstantCurrency
+90 bps
Marketing
9.7%
11.5%
HY 2008 H1 2009
+35 bps
145 bps improvementat constant currencies
11.2%
25
Margin outlook
• Overall gross margin expectations remain unchanged reflecting:
• A more balanced recovery of higher input costs; and
• Modest improvement in category mix
• Improvement in marketing as a percentage of sales will be less than seen in the first half
• Fewer SG&A initiatives delivering full benefits, therefore cost improvement will be lower
Expected full year margin increase 80-100bps
26
Revenue and profit growthContinuing Operations
(57)Net interest
Half Year (£m) 2009 %Reported
% Constant currency
Revenue 2,767 13% 4%
Underlying profit from operations 319 35% 19%
margin 11.5% +180 bps +145 bps
Pension charge (3)
Underlying profit before tax 262 24% 11%
Underlying profit after tax 189 26% 13%
Pro forma EPS 13.9p 24% 12%
27
Britain & Ireland23% of group
revenues +12% revenuegrowth1 +220bps underlying
margin2
• Strong revenue growth and margin improvement
• Growth driven by market share gains led by innovation and strong seasonal sales
• Gross margins were slightly lower, reflecting input cost inflation
• Operating margins improved by 220bps
revenuegrowth1
underlyingmargin27% of group
revenues +11% +400bps• Strong first half performance
• South Africa driving top line growth
• Change programmes in Nigeria and Egypt help deliver good margin progress
Middle East & Africa
1. Defined as base business revenue growth2. Defined as base business underlying operating margin excluding BIC
Asia7% of group
revenues +12% +330bps• Strong growth in India as business continues to gain share
• Tough conditions in South East Asia start to ease
• Strong first half margin performance driven by increased revenues, partially offset by increased absolute marketing investment
13% of grouprevenues +3% +20bps
• Steady performance in the first half
• Good growth in Chocolate reflected share improvements
Pacificrevenuegrowth1
underlyingmargin2
revenuegrowth1
underlyingmargin2
1. Defined as base business revenue growth2. Defined as base business underlying operating margin excluding BIC
North America21% of group
revenues -3% +110bps• Modest growth in the second quarter after a slow start due to de-stocking
• In the US candy remained strong with Swedish Fish and Sour Patch Kids performing very well
• Mexican market is an area of modest concern due to weak economicconditions and Swine flu concerns
8% of grouprevenues +12% +170bps
• Sustained strong first quarter progress through the first half
• Good revenue growth helped generate a strong improvement in margins
South Americarevenuegrowth1
underlyingmargin2
revenuegrowth1
underlyingmargin2
1. Defined as base business revenue growth2. Defined as base business underlying operating margin excluding BIC
Europe18% of group
revenues -5% -310bps• Markets in Europe remained challenging
• Some improvements in the half, but remains a major cause for concern
• Acceleration of restructuring through management and organisational changes with an additional cost of £25m
revenuegrowth1
underlyingmargin2
1. Defined as base business revenue growth2. Defined as base business underlying operating margin excluding BIC
down £9m£52m total costsin first half
• Central costs reduced reflecting VIA initiatives implemented in 2008
• Benefits from VIA initiatives are weighted to the first half
Central(reported currency)
Technical guidance: 2009 update
• Vision into Action restructuring spend expected to be around £550m up from £450m due to:
• Increased costs as a result of sustained Sterling weakness
• Provisions on redundant properties increased to reflect property market deterioration
• Restructuring of European business
• £40m of the additional money should be charged this year
• 2009 Vision into Action restructuring now expected at £160m
• Period end net debt is £1.8bn reflecting higher levels of working capital
£75m
£25m
32
Financial highlights
• Good progress in revenue, market shares and margin
• Progress driven by the successful implementation of our Vision into Action business plan
• Strengthened financial position;
• Issuance of a £300m bond in March
• Receipt of proceeds for Australia Beverages
• Renewal of £450m banking facility for three years
Strong financial performance in first half of 2009
33
Todd Stitzer
Chief Executive Officer
Strategic Update and Outlook
34
First half category trends
Chocolate• Benefiting from a strong ‘stay at home’ trend
• Mainstream benefiting from trading down
• Affordable treats and gifts for the consumer
Gum• Greater impact from economic downturn
• In certain markets, consumer behaviour changed dramatically
• Innovation and marketing underpinning share gains and helping market growth
Candy• Performing well in traditional indulgent candies
• Improving in the cough/cold segment
35
Confectionery market growth
Average developed market growth
Average emergingmarket growth
Cadbury’s markets continue to show resilience
Average of Cadbury’s top 5 developed and top 5 emerging markets.Growth rates taken from Euromonitor
4%
2006
9%
3%
2008
12%
4%
2007
10%
3%
2011E
9%
2%
2010E
10%
2%
2009E
10%
First half market share performance
Gro
win
gD
eclin
ing
Mar
ket
Sha
re
50%
25%
25%
37
Building innovation momentum to capture share
Large bags£15m sinceApril launch
Fun on the FarmSub-brand
growth +14%
38
Building innovation momentum to capture share
BubbalooCadbury India
bubblegumshare 10%
ChicletsSugar-free
gum marketup 500bps
TridentTrident/Beldent
franchiseup 23%
39
Chocolate
Developed markets account for over 70% of Cadbury revenue
Source: Euromonitor and company estimates, average for 2005 - 2008
Market
Cadbury
0
1
2
3
4
5
6
7
2005 2006 2007 2008 2009E
+5.6%
+4.6%
%Average
Chocolate market remains positive for Cadbury’s business
Wedel relaunch
Drive share of new channels
CDM relaunch
Various renovations
Efficiencies
Chocolate innovations
Chocolate innovationsSnack bars
CDM relaunch
Fairtrade, innovations in CDM and countlines
9 m
ajo
r m
ark
ets
* Euromonitor 2008
France
NewZealand
Canada
SouthAfrica
Poland
Ireland
India
Australia
UK
#1
#6
#1
#3
#1
#1
#1
#1
#1
Cadburymarket position*
Growth initiatives
41
Fairtrade
• First major confectionery brand to go Fairtrade
• Builds brand equity
• Ensures security of supply of cocoa
• Will benefit several thousand farmers and their communities
Gum
Innovation driven strong out-performance
Market
Cadbury
+6.8%
+11.2%
Average
0
2
4
6
8
10
12
14
16
2005 2006 2007 2008 2009E
%
Source: Euromonitor and company estimates, average for 2005 - 2008
Invest behind stableroute to market
Renovation and platform extensions
Continued roll-out of new platformsPlatform extensions
Leverage new innovationsVarious platform extensions
Various renovations and extensions
Continued roll-out of new platforms
Continued roll-out of new platforms
Platform innovation core brand renovations and new products
Em
erg
ing
Deve
lop
ed
#2Russia
#1Turkey
#1Brazil
#1Mexico
#2Spain
#2Japan
#1France
#2US
Gum market outlook increasingly positive
* Euromonitor 2008
Cadburymarket position*
Growth initiatives
44
Trident Layers
• New platform in gum - initially targeted at the US
• Positive response from the trade
• In-store launch in September
45
Candy
Momentum building after period of SKU rationalisation
Market
Cadbury+3.6%
+3.2%
Average
0
1
2
3
4
5
6
7
2005 2006 2007 2008 2009E
%
Source: Euromonitor and company estimates, average for 2005 - 2008
Halls Creamy
Innovation
New flavours
Additional renovation and new formats
Eclairs renovation inIndia and China
Roll-out of The National Confectionery Co.
Extend strong brands, personalise week status
#1Canada
Spain
Venezuela
Brazil
Mexico
US
Indulgent
Traditional bags
Oth
er
Hall
s
Well positioned brands to capitalise on Candy market growth
* Euromonitor 2008
Cadburymarket position*
Growth initiatives
47
Halls Creamy
• Double-digit growth in the first half
• Excellent trade buy-in
• Encouraging repeat sales
• 280 bps share gain in Brazil
Recent growth has been price driven
2005 – 2006 figures not like for like
Price increases successfully recovered cost of raw materials
Price Mix Volume
Up 7%
2008
6%pricemix
Up 6%
2006
Up 5%
2005
Up 7%
2007
5%pricemix
H1 2009
Up 4%
6%pricemix
49
Continuing to invest in marketing and innovation
% of NSVTarget 1.5%
Science & Technology
% of NSV
Marketing spend
% of NSVTarget 15%
Innovation
Ongoing investment is driving volume growth
9
11
2006 2007 20081.0
1.5
2006 2007 20080
2
4
6
8
10
12
14
16
2003 2006 2007 2008
50
Well positioned to generate revenue growth in the future
momentum in market share
momentum in innovation
Need to continue momentum …
momentum in marketing
+
+
51
Improving efficiency
• Efficiency benefits of Vision into Action will come through
• Supply chain projects set to deliver expected savings in 2010 and 2011
• Central costs under control
• Well on track with SG&A savings
• Sustaining our investments in growth opportunities
• Further important initiatives in Europe
• Generate greater efficiencies to offset sustained economic weakness
52
Investor seminars
• Provide more insights into a pure-play confectionery business
• Our businesses
• Our categories
• Our change programmes
• Provide exposure to more of the Cadbury management
First seminar
• 11 November – Britain and Ireland
• Hosted by Trevor Bond and his leadership team
53
Positive outlook
2009
• Strong first half performance
• Expect to deliver against forecasts
Looking beyond 2009
• On track to deliver Vision into Action
• Good revenue growth of 4-6% per annum
• Mid-teens margins by 2011
54
Except for historical information and discussions contained herein, statements contained in these materials may constitute “forward looking statements” within the meaning of Section 27A of the US Securities Act of 1933, as amended, and Section 21E of the US Securities Exchange Act of 1934, as
amended. Forward looking statements are generally identifiable by the fact that they do not relate only to historical or current facts or by the use of the words “may”, “will”, “should”, “plan”, “expect”,
“anticipate”, “estimate”, “believe”, “intend”, “project”, “goal” or “target” or the negative of these words or other variations on these words or comparable terminology. Forward looking statements involve a
number of known and unknown risks, uncertainties and other factors that could cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward looking statements. These forward looking statements are based on numerous assumptions regarding
the present and future strategies of each business and the environment in which they will operate in the future. In evaluating forward looking statements, you should consider general economic conditions in the
markets in which we operate, as well as the risk factors outlined in our Form 20-F filed with the US Securities and Exchange Commission and posted on Cadbury plc’s website www.cadbury.com. These materials should be viewed in conjunction with our periodic half yearly and annual reports and other
filings filed with or furnished to the Securities and Exchange Commission, copies of which are available from Cadbury plc, Cadbury House, Uxbridge Business Park, Sanderson Road, Uxbridge UB8 1DH, UK and
from the Securities and Exchange Commission’s website at www.sec.gov. Cadbury plc does not undertake publicly to update or revise any forward looking statement that may be made in these
materials, whether as a result of new information, future events or otherwise. All subsequent oral or written forward-looking statements attributable to Cadbury plc or any person acting on their behalf are
expressly qualified in their entirety by the cautionary statements above.
55
Supplementary Information
56
Sales analysis – seven business basis
57
35238-10304Pacific
63512(9)67565B&I
21124-19168MEA
Half year (£m) 2008 Base Business M&A FXeffects
2009
Europe 496 (26) - 37 507
North America 553 (15) - 110 648
South America 196 23 - (6) 213
Asia 154 19 - 25 198
Central 4 (1) - - 3
Continuing Group 2,440 96 (9) 240 2,767
Underlying profit from operations– seven business basis
58
477-139Pacific
79111958B&I
224-810MEA
Half year (£m) 2008 Base Business M&A FXeffects
2009
Europe 35 (13) - 4 26
North America 108 2 - 25 135
South America 37 8 - (3) 42
Asia 11 7 - 2 20
Central (61) 12 - (3) (52)
Continuing Group 237 44 1 37 319
Input cost increases
Commodities: rising input costs
£m 2008 H1average
2009 H1 average
%Change
Current*
World sugar, c/lb 13.2 14.7 11% 19.4
Cocoa, £/tonne 1,306 1,701 30% 1,819
Oil, $/barrel 109 55 -49% 71
Milk, p/litre 26.8 27.8 4% 26.1
* Source: Bloomberg as at 23 July 2009
2009 price realisation should offset input cost inflation
59
Non-trading items
60
-1Sale of intellectual property
Half year (£m) 2009 2008
Disposal of non-core businesses - (6)
Reported 1 (6)
EPS drivers
Continuing ops UEPS pro forma
2008 11.2p*
Base business growth 1.4p 12.5%
Change in number of shares (0.1)p (0.9)%
Foreign exchange 1.4p 12.5%
2009 13.9p 24.1%
* Assumes share consolidation relating to the demerger was in place for all of 2008
Restructuring costs
62
(5)(13)Acquisition integration costs
(105)
-
(1)
(91)
2009
(3)Gumlink
Half year (£m) 2008
Restructuring
Restructuring - Vision into Action (48)
Separation and creation of stand-alone confectionery costs (14)
Total (70)
Net financing
63
(92)
(22)
(10)
(60)
(3)
(57)
2009
21
-
IAS 39 adjustments
Interest on tax and other provisions
£m 2008
Net interest (45)
Pension (charge) credit 16
Underlying net financing charge (29)
Statutory net financing cost (8)
Balance sheet
64
3,087
7
3,080
3,087
(1,763)
(552)
(482)
2
287
5,595
2009Half year (£m) 2008
Non-current assets 5,137
Net working capital 51
Assets held for sale less associated liabilities 3
Net retirement benefit liability (18)
Provisions and deferred tax liabilities (458)
Net borrowings – continuing group (1,700)
Net assets 3,015
Ordinary shareholders’ funds 3,006
Minority interests 9
Total capital employed 3,015
Cash flow
18-Pension funding
(216)
(163)
(53)
(102)
(66)
(213)
26
104
(3)
201
2009con’t ops
3Cash generated from operations
(63)Interest
(127)
(148)
(62)
(129)
18
98
3
138
2008con’t ops
Half Year (£m)
Profit from operations*
Restructuring
Depreciation
Other items
Working capital
Tax
Capital expenditure
Free cash outflow
* Profit from operations before intangibles amortisation, goodwillimpairment, restructuring, non-trading items and IAS39 adjustment
Borrowing profile
66
Half year 2009 2008
Net debt maturity profile
Less than 1 year 20% 37%
1-3 years 9% 8%
More than 3 years 71% 55%
Fixed rate debt:
% total net debt 53% 71%
Average interest rate 5.3% 4.6%
Group average interest rate 5.6% 5.5%
Debt profile
• Issued £300m 5-year bond at 5.375% in March 2009;
• Refinanced £450m revolving credit facility matures June 2012;
• After repayment of €600m bond in June 2009, £1.4bn of long term debt; V
alue
of
debt
inst
rum
ents
Total 0-1yrs 1-5 yrs 6-10 yrs
£3
50
m
£1
04
0m
Maturity profile
£1
,76
0m
£3
70
m
Strong balance sheet with good long-term financing
67
Sales, profits and borrowings by currency
Half year (£m) 2009 %
Sales generated in:US dollars 368 13%Sterling 551 20%Euro 363 13%Australian dollars 203 7%Other 1,282 47%
Underlying operating profit* generated in:US dollars 74 23%Sterling (5) (2)%Euro 44 14%Australian dollars 31 10%Other 175 55%
Net borrowings before currency swaps held in:US dollars 1,119 64%Sterling 621 35%Euro (89) (5)%Other 112 6%
* Profit from operations before intangibles amortisation,restructuring, non-trading items and IAS39 adjustment.Excludes American and Australian beverages.
68
Exchange rates
69
Rate vs Sterling 2008average
2009average
% change
US $ 1.85 1.50 (19)%
Canadian $ 1.96 1.80 (8)%
Euro 1.26 1.12 (11)%
Australian $ 2.20 2.10 (5)%
South African Rand 15.23 13.68 (10)%
Brazilian Real 3.35 3.27 (2)%
Mexican Peso 20.48 20.66 (1)%
Technical guidance: 2009 update
Includes £100m related toVision into Action£360-400mCapital expenditure
Unchanged28%Underlyingtax rate
Reflects a fall in asset values plus changes in actuarial assumptions at the end of 2008 used to derive the non-cash P&L charge under IAS19 - £33m unfavourable versus the prior year
£6m chargein 2009
Post retirementbenefits
Interest rate expected to reduce in 2009, reflecting improved financing spreads~ 6%Underlying
interest rate
Includes £160m related toVision into Action~£220mRestructuring
Assumes current exchange rates remain unchanged for the balance of the year
NSV ~ +5%UOP ~ +6%
Foreignexchange
Comment2009 Guidance
70