The Swiss firm saw overall sales fall to CHF 668.7 million (€431.4 million) for the first three months of 2005, down from CHF701.6 million for the same period last year.
At CHF 395.6 million, the flavours division contributed nearly 60 per cent to overall group sales, a similar contribution to the year earlier period.
Figures at the division were knocked by price declines for natural ingredients, such as citrus and vanilla: prices for this expensive natural flavour have soared in recent years, but prices are now falling, and the firm is obliged to pass the reduction onto customers.
Givaudan also felt the impact of the firm's move to shrug off non-core ingredients from its FIS portfolio, the food ingredients unit bought from Nestle in 2003. The company has dropped several product lines, including coffee extracts and some culinary aromas.
But, Givaudan's difficulty pushing up sales was mainly felt across highly developed markets in western Europe and the US, hiding what the firm described as a "strong performance in Central and Eastern Europe thanks to our investments in these markets".
The firm has posted strong growth in this region for a couple of years now and the latest pronouncement serves to reinforce evidence that the area holds strong potential for flavours firms as the region's food sector becomes more advanced.
Indeed, Eastern Europe, along with Africa and the Middle East, holds the best market potential for flavour producers, according to a recent market report from the UK's IAL Consultants.
The report says strong growth can be expected in many parts of Eastern Europe. Soft drinks based on fruit juices, for example, are a relatively new innovation while functional foods and drinks continue to draw interest.
Strong demand for canned foods - which tend to contain more flavours - is likely to continue in some less developed regions of Eastern Europe that have yet to see a strong infrastructure for fresh food supplies.
Flavour production areas are also broadening out from the traditional base of US, Japan and western Europe to include developing parts of the world, as product range and demand on those markets increases, according to a recent report by market analysts Freedonia.
Givaudan's recognition of Eastern Europe's potential now also puts the area alongside the firm's other strong growth regions - China and South Asia - which are likely to increase in importance for the company as competition gets tougher in more developed markets.
In 2003, the US and western Europe had a 23 and 21 per cent share of the market respectively, compared to Asia Pacific with about 30 per cent.
Even so, Givaudan continues to lead the flavours industry with an estimated 13.5 per cent slice of the market in 2003, followed by US International Flavours & Fragrances that has an 11.7 per cent share. Firmenich, equity-owned Symrise and ICI-owned flavours company Quest International are slated to have about 9.8, 9 and 6.1 per cent of the market respectively.
And, eyeing the booming market for health-positioned ingredients to leverage sales and profitability, the Givaudan also announced today the roll out of 'TasteSolutions for Health & Wellness progamme' that provides food and beverage manufacturers with "essential ingredients, such as maskers, modifiers, and enhancers, along with the experience and knowledge to utilise this portfolio".
Despite a "challenging first quarter", Givaudan's spokesperson Peter Wullschleger said the firm "remains confident to deliver another good result in 2005."