Cadbury Schweppes risked the wrath of Nelson Peltz, the activist shareholder, yesterday by scrapping plans for an estimated £400 million special dividend and refusing to outline growth targets for the coming year.

Todd Stitzer, the chief executive, said that the state of the global debt markets would make it impossible to return any cash to shareholders when the maker of products such as Dairy Milk and Snapple demerges its American drinks business this summer.

It came as Cadbury reported a 2 per cent fall in underlying annual profits and said that consumers could be hit by further price rises on chocolate because of increasing raw material costs.

Confirmation that Roger Carr, the deputy chairman, would chair the confectionary business from May also underwhelmed investors, given the recent turmoil at Mitchells & Butlers, the pub group that he also chairs, along with Centrica.

Shares in Cadbury plunged by more than 5 per cent, or 33p, to 579½p, making the group the second-biggest FTSE 100 faller of the day.

Mr Peltz, who has a 4.5 per cent stake and questioned the Cadbury management’s credibility in a scathing open letter in December, refused to comment yesterday. However, analysts said that the decision to forgo the dividend would raise more doubts in investors’ minds over the company’s prospects.

Graham Jones, a Panmure Gordon analyst, said: “While we always thought the maths of a cash return to shareholders was marginal, at best, the fact that Cadbury is going back on its previous statement is not very impressive.”

Cadbury has been working on a demerger of its soft drinks business – which owns brands such as Dr Pepper and Snapple – since it was forced to shelve a £6.5 billion sale five months ago because of the credit crunch. Mr Stitzer said that pressing ahead with a special dividend would have left the drinks unit to be called Dr Pepper Snapple Group — with too much debt and affected its investment rating at the time of its listing on Wall Street.

He argued that while investors would miss out on a cash payment, they would benefit in the longer run from a higher share price. “It’s a transfer of value,” he said. He insisted that the demerger was still set to take place by June this year and launched a fierce defence of the company’s potential after the demerger. “I think people are missing a trick,” he said.

Annual results showed that underlying profits fell 2 per cent to £915 million in the year to December 31 on sales of £7.97 billion, up 7 per cent.

Mr Stitzer said that revenue growth in the confectionary business was running at 7 per cent, the highest for a decade, after a marked revival in chocolate sales in Britain after the successful preChristmas advertising campaign. He added that while margins were down in the drinks unit, revenue growth of 4 per cent was good given challenging trading conditions.

Cadbury wants to increase margins from 10 per cent to the mid-teens over the next four years but it refused to specify targets for 2008, which one analyst claimed was “maddening”.

Mr Stitzer said that it would be “meaningful” growth after cost cuts and an expected sharp sales increase in developing markets. Ken Hanna, finance director, said: “We are not going to be tied down to short term goals.”

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