Swiss flavours and fragrance company Givaudan saw operating profit for the first half of 2003 knocked by lower gross margins and a rise in pension charges.
Despite an upbeat sheen, with the group reporting a 12.2 per cent rise in sales in local currencies and 1.1 per cent in Swiss Francs, gross profit was hit by raw material prices, changes in its 'portfolio mix' and the still lower margin savoury business acquired with Food Ingredients Specialities (FIS).
This resulted in Givaudan's gross margin dropping in pro forma terms from 47.7 per cent to 46.2 per cent compared to the first half of 2002.
Total fragrance sales grew by 5.5 per cent in local currencies, while the company announced that Fine Fragrances and Fragrance Consumer Products together achieved double digit growth and the speciality Fragrance Ingredients also showed a good performance.
The toiletries segment was reported as the main driver of the strong increase in sales of fragrance compounds in this first half year, based on several new wins with key brands.
However, Givaudan noted that in line with its strategy to move to higher value-adding specialities, the Fragrance Ingredients business continues to decline as commodity ingredients sales start to weigh less in its portfolio.
All regions showed healthy growth in local currencies. Latin America had a much stronger first half compared to 2002, while Europe and North America continued their growth path, despite strong comparables of last year. Asia had a more difficult start, but is again gaining momentum with good overall growth in the first half.
Major capital investments during the first half of 2003 included further expansion of production and marketing capabilities in China and Singapore, together with an investment in a new multi-purpose plant for aroma chemical specialities in Vernier (Geneva, Switzerland),which the company informs is planned to start production during the third quarter of 2003.
Meanwhile, the company reports that flavour sales were generally good, growing by 17.2 per cent in local currencies and 4.4 per cent in Swiss francs, but the results include the FIS savoury flavours acquisition from Nestle in May 2002. Givaudan said in a statement that by 2004 it is aiming to bring flavour margins to comparable pre-acquisition levels.
All regions and segments were up on last year, except for dairy and North America. According to the Swiss company, the North American market was affected by 'the slow beverage business and the base effect of last year's strong second quarter'.
Turning to Europe, Germany and the UK recorded double digit growth while Benelux, Iberia and central regions posted high single digit rates.
In Eastern Europe sales expanded, with Russia leading the way with double digit growth. A key driver, claims the company, was increased volumes from new business, particularly in the beverage and citrus business.
Savoury business growth benefitted significantly from the FIS's product portfolio.
Reflecting the lower operating margin and higher net financial costs, net profit in pro forma terms decreased from SF 160 million (€103.3m) to SF 130 million against the first half of last year, resulting in earnings per share of SF 16.09 versus SF 18.41 in the first half of 2002.
Looking to the future, Givaudan confirmed its ongoing aim to become the number one in fragrances and flavours - a slot currently held by US company International Flavours and Fragrances.