Givaudan Reports Decline in Sales

The Flavour Division recorded sales of CHF 1,097 million, an increase of 0.2% in local currencies and a decrease of 3.2% in Swiss francs. Excluding the impact of the divested St Louis business, sales in the first half year 2009 increased by 0.8% in local currencies versus the same period in 2008.

04 Aug 2009 In the first half year 2009, the business of Givaudan has proven resilient in a difficult economic environment.

Sales for the first six months of the year totalled CHF 1,996 million, a decrease of 0.9% in local currencies and 4.7% in Swiss francs. Excluding the impact of the divested business in the Flavours division, sales to June 2009 decreased by 0.6% in local currencies versus the same period in 2008. During the second quarter sales posted a slight growth of 0.9% in local currencies compared to a decline of 2.1% in the first quarter of this year.

The operating income margin on a comparable basis increased by 1.1 percentage points, mainly as a result of the lower amortisation of intangible assets, whilst the EBITDA margin on a comparable basis declined by 1.3 percentage points, driven by continued pressure on the gross margin.

Net income was CHF 95 million. Earnings per share were 12.62. Adjusted for the various elements of the Quest acquisition, earnings per share were CHF 24.15.

In a continuing weak economy, it remains difficult to reliably forecast the market growth. However, with the exception of Fine Fragrances and, to a lesser extent, other discretionary product segments, the majority of Consumer Products and Flavours are expected to remain resilient. For the full year 2009, Givaudan is confident to outgrow the underlying market, based on briefs pipeline and new wins.

The Fragrance Division recorded sales of CHF 899 million, a decrease of 2.3% in local currencies and 6.6% in Swiss francs. During the second quarter sales recovered and posted a slight growth of 0.9% in local currencies compared to the decline of 5.4% in the first quarter of this year.

Sales of Consumer Products showed a sales increase in local currencies during the first half of 2009, despite destocking throughout the supply chain. Fine Fragrances and Fragrance Ingredients sales declined, as these two units were particularly affected by the reduction of inventories. Fine Fragrance sales were additionally impacted by a contraction in the market at retail level, however sales in the second quarter improved compared to the first three months.

The Flavour Division recorded sales of CHF 1,097 million, an increase of 0.2% in local currencies and a decrease of 3.2% in Swiss francs. Excluding the impact of the divested St Louis business, sales in the first half year 2009 increased by 0.8% in local currencies versus the same period in 2008.

Sales in Asia Pacific increased at a single-digit rate supported by the double-digit growth of the developing markets. Growth in the mature markets showed encouraging signs of recovery towards the end of the reporting period.

Sales across Europe for both mature and developing markets declined at a mid single-digit rate. In North America they declined at a low single-digit rate. All segments in both regions have been impacted by lower consumption and destocking.

Sales in Latin America increased at a double-digit rate. Brazil, Argentina and Mexico continued to post strong growth.

The gross profit margin declined to 44.9% from 46.5% as a result of strong increases in raw material, energy and transportation costs during the second semester of 2008. Although basic commodity and energy prices declined from the peak, the impact of this on Givaudan’s input costs will only be reflected once these reductions work through the supply chain.

EBITDA (Earnings before Interest, Tax, Depreciation and Amortisation)

EBITDA declined to CHF 388 million from CHF 444 million. On a comparable basis EBITDA was CHF 424 million, below the CHF 472 million reported last year. The lower gross profit was partially offset by integration savings and cost containment measures, limiting the decrease of the EBITDA margin on a comparable basis from 22.5% to 21.2%.

The operating income increased to CHF 245 million from CHF 238 million last year. The operating margin on a comparable basis increased to 14.1% from 13.0% reported last year, mainly as a result of the lower amortisation of intangible assets, as well as integration savings and other cost containment measures, partially offset by continued pressure on the gross profit margin. The operating income on a comparable basis was CHF 282 million, above the CHF 273 million reported last year.

Net income was to CHF 95 million, resulting in a margin of 4.8%. Adjusted for the various elements of the Quest acquisition earnings per share were CHF 24.15.

Operating cash flow amounted to CHF 422 million compared to CHF 93 million in 2008, as a result of efficient working capital management. Capital expenditure was contained at CHF 43 million, or 2.2% of sales, compared to CHF 89 million (4.3% of sales) last year.

In June, Givaudan successfully completed its CHF 420 million rights issue, with 99.7% of rights being exercised.

As a result of a strong focus on cash generation, lower capital expenditures and the proceeds of the rights issue, net debt at the end of June 2009 was CHF 2,450 million, down from CHF 3,182 million at December 2008. Excluding the Mandatory Convertible Securities, net debt at the end of June 2009 was CHF 1,703 million, down from CHF 2,438 million at December 2008. In July 2009, Givaudan has used the full proceeds of the rights issue to reduce the syndicated loan facility arranged as part of the Quest acquisition. At 30 June 2009, the leverage ratio was 33%, compared to 46% at the end of 2008.