January 18, 2010

Cadbury’s Todd Stitzer, the confectioner who dislikes sweet talk

Filed under: Uncategorized — ktetaichinh @ 3:01 pm

Todd Stitzer didn’t want to be thrust into the spotlight. If he had his way he would be safely ensconced in the world of chocolate and chewing gum, away from the media glare.

But the chief executive of Cadbury knows this is no time for shrinking violets. As the deadline for Kraft’s £10.4bn bid for the confectionery company ticks closer, the future of one of Britain’s most historic brands is at stake. The bid has forced the fish out of water.

Stitzer’s relationship with the City has never been easy – not for him the easy repartee of some of the FTSE’s more gregarious bosses. Despite his near seven years as Cadbury’s confectioner-in-chief, the 57-year old American’s formal, ivy league bearing has not always sat well with hard-nosed, cynical British investors and analysts

Sat in an office in Cadbury’s purpose-built headquarters on the outskirts of west London, Stitzer is up front and unapologetic.

“This is my personality – I am not a vigorous self-promoter,” he says. “I wasn’t put on this earth to be self-aggrandising. I was put on this earth to provide a secure life for my family and some modicum of professional accomplishment for myself. That’s just the way I am.”

Stitzer argues that the story of his time as chief executive should do the talking. The challenge for Kraft chief Irene Rosenfeld is that Cadbury investors seem to be listening.

“We would rather let our results speak for themselves,” says Stitzer. “And one of the unintended consequences of this situation is that because we have had to be forthright and informative, people are starting to recognise the magnitude and consistency of what we’ve done.”

Should investors come round to Stitzer’s way of thinking and throw their weight behind the company’s management, it would mark a significant step forward. The City’s belief in Cadbury’s plans in recent years has been half-hearted at best.

When Cadbury announced the 2002 acquisition of Adams, the American confectioner, the British company was pilloried. When Stitzer and his former finance director Ken Hanna unveiled the Vision into Action restructuring plan in 2007, the City greeted the pair’s profit margin targets with scepticism. Both are now producing results.

“When we announced Adams, the share price fell 30pc. On [Vision into Action] margins, people said we’d never do that. Go back as far as 1986 when we bought Dr Pepper/7-Up – everyone said we’d paid too much. Guess what, we made it work,” Stitzer says. “We’ve consistently proven people wrong.”

Cadbury’s defence strategy – led by Roger Carr, Cadbury’s bullish, confident chairman – has been based on underlining the results those deals have produced.

“We’ve grown the business 6pc a year for the last six years. We’ve increased our margins for the last 10 quarters and we are 70pc of the way to delivering our 2011 margin targets in half the time. Those are just facts,” Stitzer says. “Our defence document is about what we have done compared to what Kraft has done. Between 2004 and 2008, we increased profits 31pc; Kraft’s were flat. Since 2001, Kraft’s shares have been below $31 a share; our total shareholder return has been 31pc. People have to understand that the kind of performance that we’ve delivered is not necessarily the type of performance that will come from combining the two groups.”

So backed by those “facts”, how would Stitzer rate the defence?

“I think we’ve played a great game. Being able to stand on consistently excellent performance is the only objective business base on which you can stand when you’re trying to defend yourselves against one of these adventures,” he says.

An adventure might be a strange way to describe a takeover battle, but Stitzer – a keen tennis player described by one former colleague as a “fantastic competitor” – seems to have enjoyed it, even if he might not put it like that. “We were placed in a situation by someone else and reacted in a way anyone would to a challenge,” he says. “It’s strangely exhilarating. You’re treading that knife edge of adrenalin and danger.”

That danger has brought its spills as well as its successes. Most notably, the Takeover Panel gave Stitzer a slap on the wrist in September after words were attributed to him in a Merrill Lynch analyst note suggesting he thought the Kraft offer made sense.

Cadbury issued a statement following the report saying its chief executive’s comments had been “misconstrued”.

That issue is not the only one to have raised eyebrows. The period of the takeover battle – launched with Kraft’s opening 745p-a-share offer last September – has witnessed two results statements from Cadbury.

The first saw the company report a 7pc increase in revenues and upgrade its targets for the year. The second a 5pc rise in revenues and an increase in margin targets from mid-teens by 2011 to 16pc to 18pc by 2013.

Some greeted the numbers with scepticism, which riles Stitzer.

“People said ‘gee, Cadbury juiced their numbers’. But one of the most consistent things we say to people is that you have to deliver results the right way. If you deliver results the wrong way, it will come back to bite you. If you over promote your product in one period of time, you don’t sell enough of it in the next. It’s just as night follows day.”

That principled approach is one that Stitzer learnt young. A frequent churchgoer born to a YMCA director father and a mother who was a nurse, Stitzer is not afraid to wear his principles on his sleeve.

“Being principled is a part of my life and it’s been that way ever since I was a little kid,” he says.

“Cadbury is a principled company; it’s been that way since 1824. So there was this wonderful accident of Cadbury and Todd Stitzer coming together in 1983 and that’s been a great thing for me,” he adds.

All the principles in the world won’t be enough to win Cadbury investors over, however. About 20pc of Cadbury’s stock is owned by hedge funds who will not wait around for results, while institutional investors will have a longer but similar philosophy. Some analysts suggest Cadbury’s strategy of pointing out the contrasts between its and Kraft’s recent trading performances will also be insufficient. Of most importance, they point out, is that investors believe Cadbury’s claims about long-term growth. They want to be sure Stitzer hasn’t already played all of his cards.

“Carr and Stitzer have played their hand pretty well in terms of defence tactics. The soundbites they have used – such as Kraft being a ‘low-growth conglomerate’ and it being about the ‘offer not the bidder’ – have stuck,” one analyst says. “But it’s not just about the defence agenda. It’s about the future and with Cadbury, despite its recent success, there is still a lingering perception of under-delivery, which is a hangover from a tricky period between 2004 and 2006. Stitzer needs to show investors what is going to change about Cadbury that it can perform like a Reckitt Benckiser.”

Stitzer – a furious note-taker, who one ex-colleague describes as “leading with his head down” – is honest about that ‘tricky period’, which saw Cadbury hit by a salmonella outbreak, a marketing debacle and an accounting scandal in Nigeria.

“Are we perfect? No, we’re not. We had a challenging year in 2006,” he says. “You can’t do everything right, but we’ve been consistently more right than not for quite a long time.”

He is adamant that the growth targets can be met. “We have come from 9.8pc margins in 2007 to 13.5pc in 2009. We’ve set out new targets and those are not only realistic goals but we have plans in place that should deliver [them],” he says.

But can Cadbury match the holy grail of the consumer world – Reckitt like status? “If we deliver 16pc-18pc margins, we will be approaching Reckitt like margins,” Stitzer says. “And since Reckitt’s share price is in the high £20s-low £30s, and ours is about £8… being the Reckitt of the confectionery industry isn’t the worst goal in the world.”

Growth, he adds, will come primarily in India, South America and other parts of the developing world. “40pc of our current business is in emerging markets and our plan is for that to be 45pc within four years. There are bolt-on acquisitions that we would like to pursue once we get this settled,” he says. “We will have the debt capacity to fund acquisitions as well as significant cash flow to pay higher dividends. We’re getting to a point where our financial model will be very productive for shareholders.”

Stitzer believes the Cadbury machine still has plenty of petrol. “You can find analysts who believe that if we deliver at the mid-point of our 2013 targets, our share price will be comfortably over £10. That’s the world we’re shooting for. We think there is that kind of value that exists in our business.”

Which is exactly why Kraft has come knocking. And why the US company could decide to meet investors’ calls for a bid price of 850p a share ahead of tomorrow’s deadline for changes to its bid. Which will, of course, make Stitzer’s plans for the business largely redundant.

So, has the American thought about the future? “I need to stay focused on the defence. Whatever happens to me will happen to me.”

But he must have thought about his legacy after 26 years at Cadbury? “I would like to think that when my time is done here, people will say there was a sea-change in commercial and financial capability. And that we did it in line with our values. If I get some modicum of credit for delivering on both sides of that equation, that would be a great legacy.”

In the meantime, there is the small matter of a takeover battle to deal with


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