Cloetta Fazer, the Nordic confectionery group, has posted a drop in first-half profits as price increases failed to offset rising commodity costs.

Operating profit amounted to SEK54m (US$8.5m) excluding a goodwill impairment charge of SEK90m linked to the upcoming demerger of the company. Last year, first-half operating profit stood at SEK112m.

The goodwill charge has been incurred as Cloetta, the Swedish half of the business, will see lower sales due to the break-up with Finnish confectioner Fazer.

Sales for the period, however, rose by 9% to SEK1.5m as a result of acquisitions and volume growth.

"Like the first quarter, the second quarter of 2008 was characterised by lower gross margins resulting from increased raw material costs and higher selling and marketing expenses," said CEO Jesper Åberg.

"The implemented price increases have not been sufficient to offset higher raw material costs, which has impacted gross margins and contributed to the year's weak earnings trend."