Cadbury Schweppes defies diet concerns

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Cadbury Schweppes yesterday reported a 10 per cent fall in half-year profits, as it counted the cost of integrating the Adams chewing gum business it bought last year.

The group is undergoing a major restructuring and cost-cutting plan under the leadership of Todd Stitzer. Underlying profits rose 2 per cent in the six months to 13 June to £371m, and turnover in the period was up 9 per cent to £2.95bn, helped by the acquisition of Adams.

In the face of growing health concerns on fattening foods, sales of chocolate in the UK remained buoyant for Cadbury, with sales up 3 per cent. Cadbury has 31 per cent share of the market in the UK and said it was now 11 percentage points ahead of its nearest competitor, Mars.

Sales of diet fizzy drinks are growing rapidly in the US and were up 23 per cent over the half-year. Dr Pepper volumes rose by 3 per cent. But the performance from non-carbonated drinks was flat and its Snapple brand continued to see sales decline.

Pre-tax profits fell from £294m to £265m as the group faced restructuring costs and goodwill amortisation from the integration of Adams. Interest charges also rose in the period to £98m as a result of Cadbury's higher borrowings.

Cadbury has also been hit by a weak dollar. The impact of currency wiped 7 per cent, or £25m, off operating profits and the group is expecting a similar impact in the second half. Mr Stitzer said he was "cautiously optimistic" about the group's performance for the full year, and sales are expected to meet the bottom end of expectations.

David Lang, an analyst at Investec, said the turnaround programme at Cadbury appeared to be going well. "We are still at an early stage - it was only October when the programme was announced. Things are going as well as can be expected," he said.

Mr Stitzer said that Cadbury's Fuel for Growth four-year plan, which is expected to deliver annual cost savings of £400m by 2007, was still on track to deliver savings of £75m this year. It is, however, costing £150m to implement.

The company outlined a number of factory closures and job losses last year. It said yesterday it would cut about two-thirds of the 5,500 jobs it planned to shed by the end of this year, but warned it would continue to experience above-inflation cost increases.

Shares closed down nearly 4 per cent at 455p as shareholders were disappointed that sales would be slow.