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Expanded Restructering Plan in Kraft

Posted to the IUF website 01-Feb-2006

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"On January 30 2006 Kraft Foods announced an Expanded Restructuring Plan in addition to the Sustainable Growth Plan from 2004. Select committee in the European Works Council was informed in a telephone conference early January 31. Kraft will close up to an additional 20 factories and eliminate 8 000 jobs. It is a global plan including all levels in the company. Select committee understand from this announcement that Kraft will continue to have the main focus on cost cutting instead of growing the business and have focus on earning more money. We regret that 8 000 more Kraft employees can lose their jobs and all the uncertainty this announcement will create in the whole company. On all levels we must work actively to prevent closing of factories and downsizing. At the European Works Council meeting September 2005 Kraft employees asked for "a future to believe in". This was not the answer we wanted."

Bente Loevaas
Vice-chairwoman Kraft Foods EWC

Extract from the company's announcment:

Expanded restructuring program
In January 2004, the company announced a three-year restructuring program that was projected to deliver annual pre-tax savings of $400 million by the end of 2006 and result in one-time pre-tax costs of $1.2 billion. Through two years of the program, results have tracked favorably with cumulative savings reaching approximately $260 million (in-line with original 2-year projections of $260-$280 million), while total charges were approximately $940 million (better than original 2-year projections of $1,080-$1,160 million). Through the second year, the company has announced the planned closures of 19 production facilities (versus a 3-year plan of up to 20) and the elimination of approximately 5,500 positions (versus a 3-year plan of 6,000). Ongoing savings for the original restructuring initiatives are now projected to exceed original expectations and reach approximately $450 million annually, while the projection for one-time costs remains at $1.2 billion. The higher than expected savings primarily result from the substantial nature and accelerated timing of the North America reorganization announced in October 2005.

Building on the success of the 2004 program, the company has leveraged its business simplification initiatives and organizational changes to identify significant additional cost savings opportunities in an expanded restructuring program. Initiatives in this program include further organizational streamlining, supply chain restructuring and facility closures, and the company expects to close up to an additional 20 production facilities and eliminate approximately 8,000 positions at all levels of the organization (about 8% of its workforce) through 2008.

Thus far, the company has announced its intention to close production facilities in Broadmeadows, Victoria, Australia and Hoover, Alabama (Birmingham), US. The company has reorganized management in the European Union to more effectively manage its business in this competitive environment, while also reducing overhead costs. Additionally, to reduce operational complexity and enable facility closures, the company will expand the SKU reduction program that has been in place since 2004. The company eliminated approximately 20% of its SKUs in the past two years and plans to eliminate an additional 10% in 2006.

The expanded restructuring program adds approximately $700 million in incremental pre-tax savings and $2.5 billion in pre-tax costs to the original initiatives. Capital expenditures required for the expanded program are included within the company´┐Żs overall capital spending budget, which is projected to remain flat in 2006 versus 2005 at $1.2 billion.