* FY net profit 340 mln Sfr, sales 4.2 bln, meet forecasts
* Proposes dividend of 21.50 Sfr, vs 23.20 Sfr in poll
* Says expects strong raw material price increase in 2011
* Plans to return cash to shareholders
* Shares fall over 3 pct, worst performer in sector index
(Recasts, adds CEO interview, analyst comments, shares)
By Silke Koltrowitz
ZURICH, Feb 8 (Reuters) - Swiss fragrance and flavour maker Givaudan GIVN.VX is preparing price increases to offset a big hike in raw material costs that will mean lower profitability over the next few months.
“The increase in raw material prices has been very sharp over the last two months,” Chief Executive Gilles Andrier told Reuters in an interview on Tuesday after the group’s annual results.
“We expect high single-digit to low double-digit price increases in raw materials this year,” he said, adding this rise would be offset by increasing selling prices, which should be implemented within 3-6 months.
Andrier said profitability would be hit over the next 3-6 months and said it was hard to predict how this would develop for the full year.
The company that makes fragrances used in upmarket perfumes such as Dior and Prada proposed a lower-than-expected dividend payout for 2010, which disappointed investors.
Givaudan shares, which have already lost over 5 percent so far this year, were trading 3.6 percent lower at 1118 GMT, making the group the worst performer in a 0.7 percent lower STOXX Europe 600 Chemicals index .SX4P.
“In the first half, the company faces very strong growth comparables and headwind from raw material prices. Therefore we confirm our Hold rating,” Vontobel analyst Claudia Lenz said.
Givaudan, which also makes food flavourings, is proposing a dividend of 21.50 francs per share for 2010, below the average expectation of 23.20 francs in a Reuters poll.
One Zurich-based trader said this had likely pressured the group’s shares.
Givaudan’s full-year net profit rose to 340 million Swiss francs ($356.5 million) as the company reaped the benefit of the integration of its 2007 buy of Quest International and profitability also returned to pre-acquisition levels.
The company, whose rivals include Germany’s Symrise (SY1G.DE) and U.S. International Flavors & Fragrances (IFF.N), said it wanted to return above 60 percent of its free cash flow to shareholders through dividends or share buybacks as soon as it reaches a leverage ratio of 25 percent.
“We should reach 25 percent by the end of 2011,” Andrier said. “Givaudan has done share buybacks in the past but the board has not decided. It could also opt for dividends.”
Givaudan confirmed it aimed for annual organic growth of 4.5-5.5 percent over the next five years, thus outperforming market growth seen at 2-3 percent.
Rival Symrise will post full-year results on March 9 while IFF results are due on Feb. 10. [ID:nLDE70I1SP]
Additional reporting by Andrew Thompson. Editing by Jane Merriman