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Worried consumers seek comfort with Cadbury

Comfort-eating, cash-strapped consumers are helping Cadbury to steer a sugar-filled course through the economic gloom.

As Britain's biggest confectionery company reported a 12 per cent rise in pre-tax profits during the first six months of 2008 to J143 million, Todd Stitzer, the chief executive, said yesterday that demand for his products remained strong, despite economic woes elsewhere.

"We sell affordable treats, not automobiles," he said. "People like to treat themselves and when they feel they can't indulge in more expensive treats, they can do with confectionery." Mr Stitzer said that consumers increasingly would reach for the company's chocolate, sweets and chewing gum as they faced up to what he called a "scary" wider economic environment.

Chocolate revenues rose 6 per cent, sweets sales gained 7 per cent and gum sales rose 10 per cent as revenue in total rose 7 per cent to J2.65 billion. Sales were particularly strong in emerging markets such as India, where sales rose 25 per cent, South Africa, up 16 per cent, and South America, with growth of 15 per cent.

The company was confident of meeting market expectations for the rest of the year and it remained committed to delivering mid-teen profit margins by 2011. It delivered an extra treat to shareholders by raising its interim dividend by 6 per cent to 5.3p a share.

However, the coming months will not be without their challenges for Cadbury, which, like other food manufacturers, is facing soaring commodity costs. The price of cocoa rose by 37 per cent in the first half of the year and Cadbury said that record oil prices would have an effect on its packaging and distribution costs.

Cadbury will tackle higher costs by raising prices and cutting promotions. It will also look at its cost structure and refused to rule out job cuts.

The group will also review the future of its Australian drinks business, which accounts for about 6 per cent of group sales, with a view to a possible sale. Analysts estimate that the unit, which has more than 20 per cent of the Australian soft drinks market, could fetch up to J600 million for the group.

Source: Times Online

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