By Laura MacInnis
GENEVA, Feb 20 (Reuters) - Slow Japanese and North American sales caused Swiss flavours and fragrances maker Givaudan to post a smaller-than-expected rise in 2006 profit on Tuesday, sending its shares down.
The company, which makes ingredients for soaps, confectionery, soft drinks and designer perfumes, posted net profit of 412 million Swiss francs ($333.3 million) in 2006, just 1.5 percent above its 2005 result.
Analysts polled by Reuters had expected a 4 percent increase to 423 million francs on average and Givaudan shares traded 2.1 percent lower at 1130 GMT, underperforming a 0.5 percent drop in the DJ Stoxx European chemicals index .
"The result looked a shade better than we expected but could disappoint the market given the headline operating profit figure looks light of expectations," said Kepler Equities analyst Jon Cox.
Costly raw materials and price pressures from customers pinched results in 2006 by 1 to 2 percent, and would likely exact a similar toll this year, Chief Executive Gilles Andrier told Reuters in an interview.
In 2007, he said Givaudan was "well positioned for another good result" but he declined to specify its outlook for sales or profits in what he called "a transition year" following the company's $2.25 billion purchase of rival Quest International from ICI Plc ICI.L.
"The primary focus of 2007 is going to be the acquisition with Quest," Andrier said. The purchase will be financed through 1.9 billion francs in debt, 750 million francs of mandatory convertible securities and cash.
"The outlook highlights a likely 'transition year' in 2007 and that probably sums it up. We want more details on Quest and until we get some our rating remains Under Review," analyst Cox said in a note.
In its annual report, Givaudan said Quest's strength in fine fragrances would make it the industry leader in the segment.
The acquisition, announced in November and set to add to earnings per share in 2008, would strengthen Givaudan's presence in developing markets in Latin America and China, where flavours sales outshone many mature markets last year, Andrier said.
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Givaudan's overall sales rose 3.5 percent in local currencies to 2.91 billion francs in 2006, matching forecasts. Fourth-quarter sales were 2.4 percent higher, compared to a 4.3 percent gain in the same period of 2005.
Fragrance sales in 2006 were the strongest in the company's history, Givaudan said, noting the new perfumes it created last year included Midnight Fancy By Britney Spears, Old Spice Signature and Enchanted By Celine Dion.
Within the flavours division, Givaudan said its savoury, dairy and confectionery segments showed solid growth in 2006 but beverage sales suffered, primarily in North America and Japan.
The company opened a new production facility in Shanghai which it said would help entrench its presence in China, where economic development has spurred new demands for fragrance and flavour products.
Givaudan, which competes with the U.S. firm International Flavors and Fragrances Inc. , trades at about 17 times forecast 2007 earnings, according to Reuters data. IFF trades on a multiple of 18.