Givaudan profits hit by currency translation and raw material costs

By Simon Pitman

- Last updated on GMT

Related tags United states dollar Currency

Swiss flavours and fragrance giant Givaudan announced a healthy increase in local currency sales but currency translation and raw material costs hit the bottom line.

The company said that group sales for the first six months of the year were up 4.3 per cent in local currencies to CHF2bn (€1.81bn), a figure that was significantly impacted by a record-high Swiss Franc.

After currency transtlations from international operations were taken into account the revenues actually fell by 8.8 per cent compared to the corresponding period last year.

In turn, a combination of rising costs and the unfavourable currency translation meant that profits fell by around 40 per cent, down from CHF200m in the first six months of 2010, to CHF120m for the first half of 2011.

EBITA takes a tumble on currency translation

Likewise, on a comparable basis, the EBITDA declined from CHF529m last year, to reach CHF368m, a figure that was mainly impacted by the currency translation, and in particular the unfavourable exchange rate against the US dollar.

In the fragrance division, sales grew at a slower rate of 3.9 per cent to reach CHF927m for the six month period, compared to growth of 4.7 per cent in flavours, to reach a total of CHF1.08bn.

The company said that growth in the fragrance division was driven by a strong performance in the consumer products business, particularly in the developing market of Latin America and Asia Pacific, as well as in fragrance ingredients.

Fragrance division hit by commodity prices

Although the rise in commodity prices had a significant impact on the fragrance division, the company said that it was compensating for this by raising its prices to consumers.

Total sales of fragrance compounds, which is fine fragrances and consumer products combined, increased by 3.5 per cent to CHF799m in local currencies, a figure that reflected a slight decrease in fine fragrances due to strong comparables to the previous year.

Discussing the strategy the company has adopted to counteract the currency translation and rising costs, Gilles Andrier, Givaudan CEO said:

“Givaudan has successfully implemented price increases in collaboration with its customers. These price increases started to become effective in the course of the second quarter. Givaudan's business momentum continues to be strong with a full project pipeline and a further increased win rate. We therefore are confident to achieve our ambitious mid-term targets.”

The company says its mid-term guidance is still to ensure organic growth of 4.5 to 5.5 per cent and market growth of 2 to 3 per cent. It also expects to outgrow the underlying market and to continue to push for an industry leading EBITDA margin.