After Cadbury Bid: Kraft Intensifies Cost-Savings Plans

Northfield / IL. (wib / kf) Kraft Foods Inc. said it planned to boost its productivity and save on costs over the next two years as the company continues to push to strengthen its cash position and to turn around its internal operations. The move comes after days Kraft´s surprise 10,2 billion GBP bid to buy Cadbury PLC – which rejected the offer as too low.

Kraft´s latest remarks come as the food giant has pushed to make the case for its acquisition of Cadbury. The company´s executives have argued that their efforts to turn around the business have been working, making it the right time for the Cadbury deal. Still, the outcome of its offer for the British candymaker is still uncertain and Kraft has also been trying to make the case that it is confident in its ability to grow as a standalone company. Kraft is also faced with the task of reassuring its own investors. Its shares dropped after news of the Cadbury bid.

At the Barclays Capital Back-to-School Consumer Conference said Tim McLevish, Kraft´s Executive Vice President and Chief Financial Officer, that Kraft Foods «has a strong pipeline of cost-savings initiatives». The company expects «significant near-term savings in end-to-end productivity, including procurement, manufacturing and customer service and logistics. Plus, optimizing the efficiency and effectiveness of our corporate and business unit support functions will drive overhead leverage». As a result of these and other initiatives, Kraft Foods is targeting:

• Productivity as a percentage of cost of goods sold of greater than four percent by 2011, up from less than three percent in 2008.
• A reduction of about five days in its cash conversion cycle by 2011, from 46 days in 2008.
• Overhead as a percentage of net revenue of approximately 12,5 percent in 2011; down from about 14 percent in 2008.
• Operating income margins in the mid-teens by 2011, up from 12,3percent in 2008.

In addition, Michael Clarke, Executive Vice President and President, Kraft Foods Europe, outlined the pillars of the company´s growth and margin-improvement initiatives in Europe. These include greater focus on priority brands, end-to-end productivity and lower overheads. More details are available in the presentation «Kraft Foods Highlights Margin-Improvement Initiatives at Barclays Capital Back-to-School Consumer Conference» (PDF, 52 pages, 1’110 KB).