Dr Pepper goes flat for Cadbury

THE tough US soft drinks market has taken the fizz out of confectionery giant Cadbury Schweppes, with half-year profits falling 5% and little sign of brighter times in the coming months.

Favourites such as Dairy Milk and Maynard's Wine Gums grew strongly, but Cadbury has been knocked by falling demand for its 7UP and Dr Pepper brands.

Sales of Dr Pepper in the key US foodservice sector fell, and 7UP dropped 16% thanks to depressed market conditions and a distribution shake-up.

Group underlying pre-tax profits slipped to £365m in the six months to 15 June, from £386m. That was despite a 15% jump in overall sales to £2.7bn following the acquisition of the Adams chewing gum business in the US in March.

Cadbury's new chief executive Todd Stitzer said he was not disappointed with the performance, saying the group knew this year would be one of 'transition'. In February, Cadbury said it would miss its target of at least a 10% growth in earnings. It blamed the US fizzy drinks market and a revamp of its management structure.

'Overall we had a reasonable first half against a background of generally weak trading conditions in many of our key markets,' Stitzer said. '2003 is a transitional year for Cadbury, as we consolidate 7UP's new distribution arrangements, integrate Adams and bed down our new organisational structure. These changes are focused on establishing a stronger and more sustainable platform for future growth.'

But he offered the promise of only a broadly similar second half performance to the first. Cadbury is also seeking a finance director, as it revealed David Kappler has decided to leave next May.

Underlying operating profits in Cadbury's European beverages division fell by 2% once acquisitions were stripped out, due to falling sales in France, Germany and Spain.

However, the group is continuing to reap the benefits of its integration of Trebor Bassett, with confectionery sales up by 8% in Europe, Middle East and Africa on a strong Easter - the strongest growth since the early 1990s.

Stitzer, who succeeded chairman John Sunderland two months ago, said the integration of Adams was proceeding well. In the first 11 weeks of trading, the business behind Dentyne gum posted profits of £17m.

Shareholders will be paid an interim dividend of 3.65p a share, from 3.50p last time.

CADBURY Schweppes has been accused of flattering its profits by making optimistic assumptions about future investment returns.

The food group's pension fund assumes its investment in British equities will grow by up to 11% a year, a much larger assumption than in other funds. The average is 7.8%.

Cadbury, money broker ICAP and media group Scottish Radio were named as being optimistic about equity returns in accounting for their pension funds by accounting watchdog Company Reporting. However, Cadbury's finance director David Kappler denied the firm was unduly optimistic, given the current low price of equities.