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Confectionary giant Cadbury Schweppes has reported a fall in first-half profits, which have been eaten away by rising dairy prices as the future of the company's US drinks arm remains in the balance.

Underlying group operating profits for the six months to June 30th slumped by six per cent to £180 million, with the impact of a weaker dollar offsetting a six per cent rise in revenue to £2.3 billion.

The chocolate manufacturer said it was unlikely to see margins grow for the full year as a result of the rising cost of dairy products in its markets around the world and "significant re-investment" planned to fuel growth.

An investment of £10 million made by Cadbury to enter the UK chewing gum market was partially blamed for the drop in profits and the phasing of reported results from Cadbury Nigeria, business improvement costs and the impact of exchange rates were also said to have impacted upon margins.

Cadbury, the maker of various leading brands including Dairy Milk, warned that its performance was also likely be affected by the temporary closure of its confectionary factory in Sheffield - the result of the recent flooding that hit parts of England.

The company said that manufacturing had now resumed on a limited number of lines and that production at the plant was expected to increase over the coming weeks.

Cadbury, which was last year forced to recall over a million chocolate bars as a result of a salmonella scare at one of its UK factories, said that increased spending on advertising in its home market was partly responsible for a £5 million rise in marketing spend - which climbed to £245 million.

Nonetheless the manufacturer said it was upping its interim dividend payment by 22 pence to five pence a share, reflecting confidence in its prospects.

"We expect continued good revenue growth in the second half, while margins will be impacted by the combination of growth investment and higher input costs," said Cadbury chief executive Todd Stitzer.

"Our team remains focused on delivering the unexploited potential of our portfolio," he added.

Meanwhile Cadbury, which last week announced it was postponing the sale of its North American drinks business due to the volatility of debt markets, said it was still "fully prepared" to go ahead with the transaction if market conditions did not improve.

The company, which said that interest in the drinks unit remained "strong", said: "Should debt market conditions not stabilise sufficiently, we are now fully prepared to pursue a demerger process."