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Cadbury cuts jobs despite sales rise

Cadbury PLC, the world’s biggest lolly maker, is trimming its work force by 1.3% as it moves to streamline operations even though it reported better third quarter sales on Tuesday.

The maker of Dairy Milk chocolate and Trident gum posted a 6% rise in underlying sales for the three months to September 30, adding that it is on track to meet its annual sales and margin goals.

Cadbury said that the global financial turmoil made predictions about future trading difficult, but pointed out that its business is fairly resilient by nature.

“It is not possible to gauge with certainty what effect the most recent market turbulence may have on both trade customer and consumer behaviour,” it said in a statement to the London Stock Exchange.

“However, despite these increased headwinds we participate in a resilient category with a strong business model and continue to expect a successful outcome for the year.”

Shares in the company rose 6.6% to 531.5 pence. Cadbury also said that it is cutting 250 jobs as it breaks down its regional structure, eliminating its current four-region operation in favour of seven business units that will report directly to chief executive officer, Todd Stitzer.

The job cuts will include “a number” of senior managers.

It will also slash another 330 jobs in Australia and New Zealand, where it is reconfiguring its chocolate manufacturing.

Analysts have speculated for several months that the company will sell off its last remaining beverage operation in Australia – the former Cadbury Schweppes has already divested its US drinks operation, which has become Dr Pepper Snapple Group Inc.

The company’s move to streamline the business comes ahead of anticipated continued rises in its raw materials costs, particularly cocoa costs.

It said that expects commodity and input costs to rise 6-8% in 2009 after a previously forecast 5-6% rise this calendar year.

Cadbury is in the process of implementing price rises in most of its major markets, including an 8% rise in gum prices in the United States, to cope with the cost increases.

“We are firmly of the view that Cadbury has greater scope to take price than any other consumer company, with strong brands, a more diverse channel exposure and low ticket items,” said Collins Stewart analyst, Rob Mann.

However, Charles Stanley analyst, Jeremy Batstone-Carr, said that the company’s decision to maintain its margin target despite the anticipated benefits from restructuring indicated that cost pressures have increased over the summer.

He also noted that revenue guidance has only been maintained while Cadbury’s major competitors have generally increased guidance based on a gradual reduction in input prices.

“The company could be being deliberately cautious although we suspect that consumers may trade down to cheaper categories as the recession begins to bite,” he said.

AAP

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