Givaudan Reports Sales Increase of 5.8% in Flavors

25 July 2013 --- Givaudan Group sales for the first six months of the year totalled CHF 2,225 million, an increase of 5.7% on a like-for-like basis and 4.7% in Swiss francs.

Fragrance Division sales were CHF 1,047 million, an increase of 5.5% on a like-for-like basis and 5.3% in Swiss francs.

Flavour Division sales were CHF 1,178 million, an increase of 5.8% on a like-for-like basis and 4.1% in Swiss francs.

The gross margin increased to 44.3% from 42.3%, driven by the residual price increases implemented during the last two years to offset increases in raw material costs, and the positive leverage effect from the strong volume gains. In addition, the Company is capitalising on its recently completed ERP project to create supply chain efficiencies. The transfer of products to the new Flavours manufacturing facility in Makó, Hungary continues in line with project timelines.

The EBITDA increased by 16.4% to CHF 509 million from CHF 437 million in the first six months of 2012. A strong gross profit and a continued focus on internal costs were the main enablers of the improvement. When measured in local currency terms, the EBITDA increased by 15.8%. The EBITDA margin increased to 22.9% in 2013 from 20.6% in 2012.

The operating income increased by 23.8% to CHF 377 million, from CHF 305 million for the same period in 2012. When measured in local currency terms, the operating income increased by 22.9%. The operating margin increased to 16.9% in 2013 from 14.3% in 2012.

Financing costs were CHF 39 million in the first half of 2013, versus CHF 45 million for the same period in 2012. The decrease was as a result of the re-financing activities. Other financial expense, net of income, was CHF 10 million in 2013, versus CHF 14 million in 2012, lower as a result of the relatively stable currency environment and the continued centralisation of Treasury activities.

The Group’s income taxes as a percentage of income before taxes were 18% in 2013 compared to 19% in June 2012.

The net income for the first six months of 2013 was CHF 271 million compared to CHF 200 million in 2012, an increase of 35.5%. This results in a net profit margin of 12.2%, versus 9.4% in 2012. Basic earnings per share were CHF 29.61 versus CHF 21.98 for the same period in 2012.

Givaudan delivered an operating cash flow of CHF 299 million for the first six months of 2013, compared to CHF 263 million in 2012, driven by a higher EBITDA. Although working capital increased for the first six months of 2013 when compared to the same period in 2012, working capital as a percentage of sales decreased.

Total investments in property, plant and equipment were CHF 35 million, down from CHF 63 million incurred in 2012. In 2012 the Company was making significant investments in the centralised Flavours facility in Hungary. Intangible asset additions were CHF 23 million in 2013, as the Company implemented the ERP project in new facilities and completed the implementation in smaller affiliates. Total net investments in tangible and intangible assets were 2.6% of sales, compared to 4.3% in 2012.

Operating cash flow after net investments was CHF 242 million, versus the CHF 172 million recorded in 2012. Free cash flow, defined as operating cash flow after investments and interest paid, was CHF 207 million in the first half of 2013, versus CHF 122 million for the comparable period in 2012. As a percentage of sales, free cash flow in the first six months of 2013 was 9.3%, compared to 5.7% in 2012.

Givaudan’s financial position remained strong at the end of June 2013. Net debt at June 2013 was CHF 1,276 million, up from CHF 1,153 million at December 2012. The main increase in the net debt was the payment of the CHF 331 million dividend in the first quarter of 2013. The leverage ratio was 26%, compared to 24% at the end of 2012.

Mid-term, the overall objective is to grow organically between 4.5% and 5.5% per annum, assuming a market growth of 2-3%, and to continue on the path of market share gains. By delivering on the Company's five pillar growth strategy – developing markets, Health and Wellness, market share gains with targeted customers and segments, research and sustainable sourcing – Givaudan expects to outgrow the underlying market and to continue to achieve its industry-leading EBITDA margin while improving its annual free cash flow to between 14% and 16% of sales by 2015.

Givaudan confirms its intention to return above 60% of the Company's free cash flow to shareholders while maintaining a medium term leverage ratio target below 25%. The leverage ratio is defined as net debt, divided by net debt plus equity. For this ratio calculation, the Company has decided to exclude from equity any impact arising from the changes of IAS 19 - Employee Benefits (revised) going forward.

Flavour Division sales were CHF 1,178 million during the first six months of 2013, an increase of 5.8% on a like-for-like basis and 4.1% in Swiss francs.

Sales growth in the first half was driven by the developing markets of Asia Pacific, Eastern Europe, Africa and Middle East and Latin America, coupled with gains in the mature markets of North America and Western Europe. All segments expanded with strong performances in Beverages, Dairy, Savoury and Sweet Goods. Health and Wellness sales continued to evolve strongly with double-digit gains as sweetness, salt and masking capabilities delivered improved taste solutions for our customers.

EBITDA increased by 10.2% to CHF 256 million, from CHF 232 million for the first six months of 2012. The EBITDA margin was 21.7% in 2013, up from 20.5% in 2012.

The operating income increased by 14.8% to CHF 184 million in 2013, from CHF 161 million for the same period in 2012. The operating margin increased to 15.6% in 2013 from 14.2% in 2012.

Sales in Asia Pacific rose 6.4% on a like-for-like basis. New wins and growth of existing products in the developing markets of China, India and Indonesia contributed strongly to the sales expansion. The mature markets of Japan and Australia had lower sales against high comparables. All segments had positive gains with Beverages, Dairy and Savoury each delivering strong growth as a result of existing business increases.

In Europe, Africa and Middle East, sales grew by 5.2% on a like-for-like basis, driven by the growth in the developing markets of Africa, Middle East and Russia. Increases achieved across all mature markets of Western Europe also contributed to the positive sales development in Europe, with the UK and Ireland leading the way. Overall performance was driven by sales growth of existing business and volume gains in the developing markets. All segments delivered good year-over-year growth with strength coming from Beverages, Savoury and Snacks.
In North America, sales increased 5.0% on a like-for-like basis, driven by growth in Beverages, Dairy, Snacks and Sweet Goods segments. New wins contributed strongly to the sales expansion over prior year.

Growth in the Latin America region was 7.9% on a like-for-like basis with strong increases coming from Argentina and Brazil. New wins and volume growth contributed to the growth in Beverages, Savoury, Dairy and Snacks segments.