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Givaudan profits tumble on Quest acquisition costs

By Simon Pitman , 03-Aug-2007

Fragrance and flavours player Givaudan reports healthy first half sales across its divisions but its bottom line is hit by costs related to the recent acquisition of Quest International.

The company reported a 36 per cent increase in its turnover, but added costs and higher taxes led to a drop in net profits of 68 per cent.

 

 

 

Sales for the period increased from CHF1.41bn (€893m) to CHF2bn, driven mainly by significant gains in the company's fragrance division attributed to the acquisition of its UK-based competitor Quest.

 

 

 

The business deal has particularly strengthened Givaudan's position as a leading player in the global fragrance market, which means it i now rivals US group IFF and Swiss supplier Firmenich.

 

 

 

However, whereas the Quest acquisition helped to boost sales, the costs associated with the deal also had a significant impact on the bottom line.

 

 

 

Profitability came under the spotlight as net profits fell from CHF266m to CHF86m, which also impacted basic earning per share, falling from CHF 37.37, to CHF12.15.

 

 

 

The company had already warned that its profitability would be affected by the €1.65bn acquisition of Quest from chemicals giant ICI back in March of this year, but market analysts said that the reported figures did raise concerns.

 

 

 

Breaking the figures down, sales for its fragrance division, which is predominantly focused on the personal care industry, rose 7.5 per cent to reach CHF909m on a pro forma basis, a rise of 6.8 per cent in local currencies.

 

 

 

This result was attributed to strong growth from its consumer products business in all regions, backed up by strong advances in fine fragrances and double digit growth for specialty ingredients.

 

 

 

Sales in the flavours division increased 2.2 per cent to CHF 1.1 billion on a pro forma basis, a rise of 2.4 per cent in local currencies. The company said that this performance was impacted by the discontinuation of commodity ingredients, which hit sales by CHF27m.

 

 

 

On a regional basis flavours sales grew in strong double digit figures, whereas sales growth led the way in Europe where double digit growth figures was reported on the back of strong performances in Eastern Europe and the Middle East.

 

 

 

Looking ahead to the rest of the year, the company said that it was confident that it would stay ahead of underlying market growth figures and that profitablility would improve.

 

 

 

It also said that it would be applying its profitability improvement strategy to its newly combined business portfolio, which should see savings of CHF200m and ultimately put it in a position to exceed underllying market growth at pre-aquisition rates by early 2010.

 

 

 

In line with its expansion plans, the company announced earlier this year the opening of a new perfume creation centre in East Hannover, US - billed as the most technologically advanced facility of its kind.

 

 

 

The company says the investment in the facility, put at €62m, aims to meet strong underlying growth in all strategic product categories, as well as efforts to meet the changing requirements of fragrance players.

 

 

 

Construction of the project began in April and is due for completion in June 2008.

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