The global commodity market continues to worry confectionery and sugar firms, as AB Foods profit is dented by sugar reforms, Nestle combats costs with price hikes, and Cadbury may be ripe for takeover.
AB Foods profits up despite sugar losses
UK-based Associated British Foods (AB Foods) yesterday reported a "much lower" sugar profit for the 24 weeks ended 1 March 2008, even though overall profits increased nine per cent.
The company said that sugar sales dropped 2.1 per cent to £567m (€706.6m), while operating profit in this division decreased 33.3 per cent.
George Weston, chief executive of AB Foods, blamed the drop on the ongoing European Commission sugar reforms, mentioning the 2.6 million tonnes of quota that was permanently renounced across the EU in February this year.
AB Foods also suffered from adverse weather conditions, and the company could not harvest all available sugar cane in South Africa and Zambia due to high rainfall, Weston added.
Overall, the company posted a 15 per cent increase in sales to £3,703m (€4,614.3m), and a nine per cent jump in adjusted operating profit to £282m, attributed to "strong growth" from the grocery, ingredients, agriculture and clothing divisions. The firm also said it predicted to "show progress" over the coming months.
However, AB Foods predicted that difficult economic conditions lie ahead for the firm, as "rising commodity prices and energy costs as well as volatile currencies affect our businesses directly."
Nestle posts growth in uncertain market
Global food giant Nestle, manufacturer of confectionery products such as the Kit-Kat bar, this week posted 9.8 per cent organic growth despite an "unusual degree of economic uncertainty."
Total group sales also went up, increasing six per cent to CHF1.5bn (€0.9bn), the company said.
This growth during the first quarter of 2008 was achieved partly by raising consumer prices as a way of combating high commodity costs, the company said.
Growth in the confectionery division was recorded as 2.1 per cent, slightly lower than 4.2 per cent posted for total food and beverages.
However, overall confectionery sales totalled CHF3bn (€1.9bn), and popular brands included Kit Kat in the UK, Germany and France. Local chocolate bars sold well in Latin American countries such as Brazil, Chile and Venezuela, the company said.
Paul Bulcke, Nestle chief executive officer, predicted further growth for the firm, and confirmed its outlook for underlying sales to rise at 7.4 percent in 2008, similar to the 2007 growth rate.
Cadbury is good takeover target, analysts predict
Market analysts Lehman Brothers predict that Cadbury may be ripe for takeover now that the firm plans to demerge its beverage division, according to the Telegraph.
The prediction has boosted Cadbury's share price after months of suffering under the credit crunch, the UK newspaper said.
Cadbury's would not comment when contacted by ConfectioneryNews.com.
The UK-based company first announced the demerger last June, after ruling out a number of possible private equity bids. This move leaves the confectionery market open to more consolidation, the analysts predicted.
"We believe Cadbury is the most strategically advantaged confectionery major and therefore the most attractive takeout/merger target," Lehman brothers said in a credit note.
This is not the first time that rumours of a Cadbury takeover have circulated, with Kraft and Hershey both being mentioned as possible bidders when Nelson Peltz acquired almost three per cent of the company late last year. Peltz later sent a threatening letter to the firm telling them to improve their financial performance.