Kraft cuts 8,000 jobs to offset spiralling costs

By Anita Awbi

- Last updated on GMT

Related tags Cost

US manufacturer Kraft Foods has announced a massive extension to
its three-year restructuring plan that will see a further 8,000
jobs and 20 production plants go, as the company absorbs rising
energy and ingredient costs.

In response to growing economic pressures the maker of Philadelphia cheese and Kenco coffee will drive operational costs down further, as last year's cuts failed to pull the company out of the doldrums.

The manufacturing giant could not confirm where the losses will take place, but a number of redundancies and plant closures are expected across Europe.

This week's financial results and restructuring announcement revealed that despite a rigid economy drive, fourth-quarter net revenues were $9.7 billion, up only 3 per cent on last year. And the company claims the quarter's operating income was essentially flat at $1.2bn.

For the full year, operating income increased 3 per cent to $4.8bn, held up by cost-cutting and the proceeds of the desserts business sale in the UK.

But the pressure is still on to maintain profits. The new restructuring programme is expected to generate another $700m in annual savings that will be used to strengthen the company both in the short- and long-term.

Commenting on Kraft's 2006 outlook, CEO Roger Deromedi said: "While we expect the challenging environment to continue in 2006, I believe that our combination of stronger Brand Value propositions and aggressive cost reduction programs will drive improved results this year and beyond."

The company said it is now on track to achieve consecutive pre-tax savings of $700m a year until 2008, in addition to this year's expected $400m annual savings brought about by the old restructuring plan.

The two economy drives together will bring total savings to $1.15bn by 2008, but will cost the company $3.7bn in restructuring costs.

A Kraft spokesperson told​: "We have seen some positive results from the last restructuring but we need to continue to reduce costs and we want to streamline the business further.

"The market is changing - it's very competitive,"​ she added.

The 2004-06 restructuring programme saw 19 plants close in Australia and America and 5,500 jobs go, but the savings made were not enough.

Now a number of positions in Europe will also have to be eliminated, the spokesperson said, but she could not comment further on the details.

Kraft revealed that price restraints in Europe have ratcheted up the pressure, and dissuaded the company from passing on soaring oil and gas prices to customers.

It blamed discounter and retailer store brands that generally lagged or did not follow Kraft's price increases. This affected sales, particularly in Germany where volumes dropped about 10 per cent in both the quarter and the year as discounters continued to control the market and dictate prices.

But companies across Europe are also feeling the squeeze. Around 25,000 jobs have been cut across Britain's manufacturing industry, including food, over the last three months, according to new figures from the Confederation of British Industry (CBI).

It said that meant 106,000 job losses in the last year "as employers sought to counter the rapidly-rising costs and stagnant prices by seeking greater efficiency and productivity".

The news follows a report by Britain's National Office of Statistics last week, which said manufacturers in Britain were facing the biggest strain in input and output prices for almost 30 years.

But Kraft remains optimistic. Deromedi said: "While 2005 was a difficult year for Kraft and several of the challenges we faced will continue in 2006, I am pleased by our progress in many areas, particularly in our fourth quarter U.S. market shares.

"The actions we've taken over the past two years have improved our Brand Value propositions and are enabling us to drive out costs even more aggressively."

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