Cadbury owner Kraft to split its business in two

CADBURY owner, US food giant Kraft, has announced it is to split its business to create two separate entities – one looking after confectionary and snacks and the other, its North American grocery business.

The announcement took the markets by surprise and coincided with the firm’s second quarter results, which showed a 13.3% rise in net revenues to £8.46bn ($13.9bn).

The decision will allow the company to focus on the high growth potential of its snacks business, which it said had revenues of around £19.5bn ($32bn), while still managing the US grocery operation, which is estimated to be worth around £9.7bn ($16bn).

Kraft said it expected to create the two companies through a tax-free spin-off of the North American grocery business to Kraft Foods shareholders.

The decision may also shed some light on the reasons why chief executive Irene Rosenfeld was so keen to acquire the Bournville confectioner and why she was prepared to pay £11.5bn to complete the deal.

In a statement, Ms Rosenfeld said: “As our second quarter results once again show, our businesses are benefiting from a virtuous cycle of growth and investment, which we fully expect will continue.

“We have built two strong, but distinct, portfolios. Our strategic actions have put us in a position to create two great companies, each with the leadership, resources and strong market positions to realise their full potential.

“The next phase of our development recognises the distinct priorities within our portfolio. The global snacks business has tremendous opportunities for growth as consumer demand for snacks increases around the world. The North American grocery business has a remarkable set of iconic brands, industry-leading margins, and the clear ability to generate significant cash flow.”

The company said that having successfully executed its transformation plan, and 18 months into the Cadbury integration, it had built a “global snacking platform” and a North American grocery business that now differed in their future priorities, growth profiles and operational focus.

It said the snacks business would focus on capitalising on global consumer snacking trends, building its strength in fast-growing developing markets and in “instant consumption channels”.

In addition to Cadbury, key brands will include Oreo and LU biscuits, Milka chocolates, Trident gum, Jacobs coffee and Tang powdered beverages.

The move is expected to be completed by the end of next year and Kraft said that throughout the process, management would remain focused on realising the benefits of the Cadbury integration and delivering strong business results.