CANBERRA: Mondelez Australia, which is shrinking Cadbury chocolate bars to cut costs, increased profit by 43 per cent last year after slashing expenses and booking a $30 million tax credit.
Sales at Mondelez Australia, which makes Cadbury chocolate, Oreo cookies, Vegemite spread and Kraft peanut butter, have been largely stagnant for several years and slipped 2.8 per cent to $1.74 billion in the 12 months ending December.
But earnings before tax rose 7.6 per cent to $137.5 million in 2014, taking pre-tax profit growth over the last two years to 58 per cent.
After taking into account a $30 million tax credit, an adjustment related to accounts in a previous year, Mondelez’s bottom-line profit from continuing operations jumped 43 per cent in 2014 to $168.1 million.
The company, a division of Mondelez International, one of the world’s top 10 food companies, paid a dividend of $174 million, its first for two years.
“While we’re pleased to have made some modest progress, we continue to operate in an environment that’s tough for Australian manufacturers,” said managing director Amanda Banfield.
“We’re making good inroads by taking action to ensure the business remains sustainable and competitive (and) we’ve regained ground by focusing on cost reduction and efficiency increases, which we are using to invest in our well -loved brands.”
Mondelez, which also makes Philadelphia cream cheese and Natural Confectionery Co lollies, has been cutting costs and trimming investment on research and development to boost margins in the face of pricing pressure in supermarkets, increasing competition from retailers’ private label brands, and changing consumer eating habits. More than 60 per cent of its sales come from Woolworths and Coles.
Accounts lodged with the corporate regulator this week show that Mondelez’s research and development expenses fell 64 per cent to $8.1 million last year, administration costs fell 47 per cent to $70.4 million and marketing and selling expenses by 3.4 per cent to $196.6 million.
The company, which accounts for 50 per cent of the chocolate market in Australia, has also been shrinking the size of popular products such as Cadbury family blocks of chocolate, Freddo frogs and Caramello Koalas by between 10 and 20 per cent, rather than raising prices, citing higher packaging and raw material costs.
However, the latest accounts show that Mondelez’s cost of goods fell 0.5 per cent to $1.3 billion in 2014.
Under pressure from investors, Mondelez’s parent company unveiled a plan last year to cut $US1.5 billion ($1.8 billion) from annual costs using a program known as zero-based budgeting, which requires managers to justify expenses each quarter.
The strategy has paid off in spades. Mondelez International said this week that pre-tax profits had doubled in the first quarter of 2015, despite a 10 per cent fall in sales. “We’re making good progress executing our transformation agenda,” chief executive, Irene Rosenfeld said on Wednesday.
Last month, Mondelez Australia abandoned an application for a $16 million federal government grant to help fund a $66 million redevelopment of its Claremont chocolate factory in Tasmania. The company decided instead to commit $20 million to a less ambitious expansion plan.
Mondelez was created in 2012, when Kraft Foods spun out its global snacks businesses into a separate company. Kraft recently agreed to a $US46 billion merger with HJ Heinz.
