UN Unilever NV

Givaudan SA (GIVN.VX) the world's largest fragrance and flavorings company, Friday said it will raise prices to offset a rise in the cost of raw materials that it expects to continue throughout 2011.

The Swiss company said costs for synthetic and natural products like orange oils had spiralled by up to 100% last year and it will respond by raising prices in the second quarter of 2011.

Givaudan, which said it would introduce the price hikes as it revealed a 5.1% drop in sales in the three months to end March, said it expects their full impact to show in the second half of the year.

"We are facing tremendous pressure from raw material price increases and are taking action to protect our margins," said Givaudan spokesman Peter Wullschleger.

Wullschleger said it is impossible to say how much the figure would be because each of the products is individually-made for each customer, which include food, beverage, household and personal care product manufacturers.

Food giants like Nestle SA (NESN.VX), Unilever PLC (UL), and Danone SA (BN.FR) are among Givaudan's customers, while the company also makes perfumes under licence for Prada and Paco Rabanne.

Givaudan has already negotiated many of the price increases with its customers, and orders have so far been unaffected, Wullschleger said. A calculation by Dow Jones Newswires suggests an average across-the-board increase of 4% to 5%.

Climate change affecting harvests, political unrest, and competing demand are driving the prices of many ingredients higher, Givaudan said.

Market speculators and reduced capacity in the refining industry after many companies shut down their plants during the downturn is also having an effect, the company said.

"We do not buy at market prices, but if you look at the complete portfolio of materials, they are all going up," said Wullschleger.

The upwards trend began in December, and is forecast to continue, he added.

The price of turpentines, which Givaudan supplies to the perfume industry, is expected to go up by 25% to 50% this year, while patchouli, a natural product, is estimated to rise by 50% to 100%.

"The price increases are not a good thing, but are something we can handle," said Wullschleger, adding there will be a time-lag between their adoption and the impact on its gross margins.

He said he expected a full recovery in gross margins by 2012. In 2010 Givaudan had a gross margin of 46.1%, up from 45% in 2009.

Its net profit margin was 8% in 2010, up from 5% in 2009, the company said in February.

Analysts expect Givaudan's profit margin to come under pressure as a result of surging prices of the 4,000 natural and 6,000 synthetic raw materials it uses.

"I think there will still be some pressure on margins in the first half of the year, and the overall profit margin for the whole year to be flat," said Bank Vontobel analyst Claudia Lenz in Zurich.

Givaudan Friday said group sales fell to CHF1.01 billion ($1.11 billion) from CHF1.07 billion a year earlier, as the company suffered from the impact of the strong franc.

In local currencies, sales increased by 3.1%, Givaudan said.

Fragrance sales fell 5.7% to CHF467.4 million from CHF495.7 million, while flavor sales fell 4.5% to CHF544.9 million from CHF570.7 million.

Givaudan said it had suffered from comparisons with the strong first three months of 2010, when many of its customers restocked after running supplies down during the economic downturn.

The company kept its 4.5% to 5.5% organic sales growth target, assuming market growth of 2% to 3%.

At 1135 GMT, Givaudan shares traded up CHF5.5, or 0.6%, at CHF929.5 while the benchmark SMI Swiss Index traded up 0.4%. The company's shares have lost 7.9% in value since the start of 2011.

-By John Revill, Dow Jones Newswires; +41 43 443 8042 ; john.revill@dowjones.com

Unilever NV (NYSE:UN)
Historical Stock Chart
Von Jun 2024 bis Jul 2024

Unilever NV (NYSE:UN)
Historical Stock Chart
Von Jul 2023 bis Jul 2024