A license granted by Mondelez International that Premier Foods holds to produce Cadbury cakes has been renewed and extended. After the news of the license renewal and extension broke, the uncertainty surrounding the company disappeared leading to an appreciation in the share price of the U.K.-based food company.
“The new agreement is clearly welcome to Premier Foods’ shareholders as it removes a degree of uncertainty over an important component of the group’s branded product portfolio,” said Shore Capital’s analysts.
Five-year validity period
The license now allows Premier Foods to produce cakes from the entire Cadbury brand range. This includes Marvelous Creations, Caramel, Crunchie, Flake and Oreo. And instead of three years, the new license’s validity period is five years. It also comes with an option for an extension of up to 2025 if certain performance criteria are met.
For Premier Foods, sales generated by products from the license granted by Cadbury comprise about 8% of the total. Compared to other food brands in its portfolio such as Oxo gravy, Ambrosia puddings and Mr Kipling Cakes, Premier Foods has seen faster growth in the sales of Cadbury cakes. In the last 24 months, Cadbury cake sales had increased by 19% compared to the 0.7% growth experienced in the market generally. The growth was also as a result of new products including Cadbury Amaze Bites.
More countries and territories
The renewal and extension of the licensing agreement will also see an expansion in the number of countries and territories the deal covers. Previously the license had been granted for 10 countries and these included the United Kingdom, United Arab Emirates, Australia, and the Republic of Ireland. The number of countries and territories has now been expanded to 46 and these include India, China, Japan, Canada and South Africa as well as couple of other countries in Middle East and the Caribbean.
Premier Foods is also looking to expand its production facilities. At a Premier Foods manufacturing plant located in Moreton, Cadbury Mini Rolls numbering more than one million are produced on a daily basis.
Earlier in January Premier Foods had indicated that it was discussing price increases on its products with retailers following the depreciation of the sterling pound. The retailers include Walmart, Sainsbury’s and Tesco.
While it was initially a part of Kraft Foods, Mondelez International was spun off from the U.S. food giant in 2012. Cadbury is not the only chocolate maker in the U.K. that Kraft Foods owns. Others include Fry’s and Terry’s.