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Chocolate maker Lindt defies consumer gloom

Chocolate makers are winning their fight against high cocoa prices and economic gloom thanks to the strength of consumer desire for their products, results from Lindt & Spruengli showed on Tuesday.

The Swiss company, battling a strong Swiss franc into the bargain, said strong demand allowed it to raise its own prices in the half. It reported profit rising by almost a third and maintained its sales growth outlook for the year.

The results make it the latest branded confectioner to demonstrate more resilience in this year's downturn than during the last economic slump in 2008, when consumers traded down to cheaper chocolate.

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U.S.-based industry No. 1 Hershey raised its full-year outlook last month and Nestle, the maker of KitKat chocolate bars, has said sales at its confectionery unit grew 4.2 per cent in the first half.

Even in sluggish mature markets hit by the debt crises, consumers continued to buy Lindt's popular Lindor chocolate balls and gold foil-wrapped Easter bunnies.

"Particularly good progress was made in the important main European markets of Germany, France, and Italy, as well as by Lindt and Ghirardelli in North America," Lindt & Spruengli said on Tuesday, adding that it had increased prices in some markets and, unlike rivals, it would not do aggressive promotions.

The group's participation certificates, which have fallen 22.5 per cent so far this year, jumped 5.7 per cent Tuesday morning, outperforming a 1.3 per cent rise in the STOXX Europe 600 Food & Beverage index .

"The focus on premium products and a strong brand with a luxury image should allow to increase prices also in the future," analysts at private bank Wegelin said in a note.

"The share is a possible addition to a food-focused portfolio but a luxury premium has to be paid," they said, recommending Barry Callebaut shares as a less expensive alternative.

Chocolate makers have been struggling with soaring cocoa prices, which hit 30-year highs earlier this year but have since come down considerably. Lindt & Spruengli, however, protected its profitability through cost control and price hikes.

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"The increased costs of raw materials, namely for our key raw material, cocoa beans, are expected to remain extremely volatile on a high level," the group said.

Lindt said it was confident it would further gain market share and expand its business in growth markets. It is forecasting 6-8 per cent underlying sales growth this year and an increase in the operating profit margin of 20-40 basis points.

Net profit rose 29 per cent to 32.1 million Swiss francs ($40.2-million) in the first half, beating expectations of 24.4 million Swiss francs in a Reuters poll.

Sales growth in local currencies slowed to 6.1 per cent, down from a strong 9.2 per cent at the same period last year, while sales in Swiss francs fell 4.7 per cent to 1 billion francs due to the record-high currency.

"The sales figures came in line with expectations but profitability was better. While not too much should be read into profitability in the first half, it does bode well for the year as a whole," Kepler Capital Markets analyst Jon Cox said.

Lindt & Spruengli generates the lion's share of its sales and profit from the Christmas chocolate business in the second half of the year.

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