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Cadbury on acquisition trail after flat profits

Cadbury Schweppes said it was considering acquisitions for its confectionery business yesterday as it announced flat half-year profits affected by the strong pound and tough competition in the US.

John Sunderland, chief executive, said: "In confectionery, the top six companies have less than 50 per cent of the market, so there are more opportunities there than in beverages where the top three [Coca-Cola, PepsiCo and Cadbury Schweppes] have 80 per cent-plus."

He said the company hoped to do one of two confectionery deals a year of around pounds 100m-pounds 200m each though none were under consideration. "The larger deals are just not available," he said.

Cadbury Schweppes' profits for the six months to 14 June were distorted by the sale of its half-share in Coca-Cola Schweppes Beverages which was completed in February. That deal added a net pounds 417m to the total, though stripping out disposal gains and the impact of the strong pound, half- year profits rose by just 2 per cent to pounds 236m.

Currency fluctuations knocked pounds 146m, or 8 per cent, off Cadbury Schweppes sales in the period and pounds 16m or 6 per cent from profits.

In the US, where the group has been battling against intense competition from Coca-Cola and Pepsi, total drinks volumes were 1 per cent higher with the Dr Pepper brand acquired outstripping market growth with a 4.3 per cent rise in volumes.

Seven-Up, Cadbury's lemon and lime drink, continues to suffer from increased marketing by Coca-Cola's rival Sprite brand. Seven-Up sales fell by 2.2 per cent in the half though Cadbury said the rate of decline was slowing. Coca-Cola has reported 4 per cent volume growth of Sprite though Cadbury claimed Sprite sales growth was slowing. "We're in it for the long haul," Mr Sunderland said.

One analyst said: "There is a feeling that things are not as gloomy in the US as some had feared though we will get bouts of adverse news from America."

Greenfield investments in markets such as Russia, China and Poland continue though the loss in Russia was pounds 4m higher. Sales have improved in Russia but continue to be hampered by low disposable income among consumers. The company said the operation should break even in three years.

In the UK total profits rose by 8 per cent to pounds 41m despite the UK business recording a pounds 5m loss. This was due to the sale of the CCSB stake which means the company now only gains franchise income while the UK business also supports a disproportionate amount of the cost structure. UK Dr Pepper sales rose 50 per cent though this was from a low base.

Group sales fell by 18 per cent to pounds 1.88bn. The 5.5p interim dividend is being paid as a foreign income dividend. The dividend was increased by 5.8 per cent.