Givaudan Results Lifted By Emerging Markets

17 Jul 2014 --- Flavor and fragrance specialist the Givaudan Group has reported a 13% increase in sales for the first half of 2014, driven by sales in emerging markets such as Asia and Latin America.

The Swiss firm, which supplies ingredients to Nestlé and Danone, among others, reported sales for the first six month totalled CHF 2,191 million, an increase of 4.5% on a like-for-like basis and a decline of 1.5% in Swiss francs. 

“Developing nations are by far the biggest growth drivers for us,” company spokesman Peter Wullschleger told FoodIngredientsFirst. “We still record 20% of our turnover in North America and up to 25% in mature European markets, so nearly half of our turnover comes from these mature markets – there is still some potential in these areas but it is limited. The growth of the developing markets is five times the growth of mature markets.”

Wullschleger also noted that the drivers for each are different. “In mature markets there are practically no foods or beverages that are not flavored, but in developing markets there is a lot of potential still there,” he said. 

“People are often surprised that emerging markets still demand innovative and sophisticated food and drink solutions.”

The company, which is the world’s largest supplier of flavors and fragrances by revenue, said sales for its Fragrance Division sales were CHF 1,034 million, an increase of 4.8% on a like-for-like basis and a decline of 1.2% in Swiss francs, while sales for its Flavour Division sales were CHF 1,157 million, an increase of 4.3% on a like-for-like basis and a decline of 1.8% in Swiss francs.

The gross margin increased to 46.6% from 44.3%, driven by the positive leverage effect from the strong volume gains, lower operational costs following the closure of the Flavours facility in Bromborough, UK and supply chain efficiencies. The transfer of products to the new Flavours manufacturing facility in Makó, Hungary from Kemptthal, Switzerland, continues in line with project timelines.

In the first six months of 2014, the EBITDA increased by 10.5% to CHF 562 million from CHF 509 million. An improved gross profit was the main driver behind the increased EBITDA. In the first six months of 2014 the Group recognised a one-off gain of CHF 38 million in the Flavour Division on the disposal of land at its Dübendorf location in Switzerland. When measured in local currency terms, the EBITDA increased by 17.5%. The EBITDA margin increased to 25.6% in 2014 from 22.9% in 2013.

The operating income increased by 11.8% to CHF 422 million, from CHF 377 million for the same period in 2013. When measured in local currency terms, the operating income increased by 20.7%. The operating margin increased to 19.2% in 2014 from 16.9% in 2013.

Financing costs were CHF 32 million in the first half of 2014, versus CHF 39 million for the same period in 2013. The decrease was as a result of the lower net debt in the Group. Other financial expense, net of income, was CHF 14 million in 2014 versus CHF 10 million in 2013. The main increase in financial expense was driven by continued currency volatility in emerging markets.

The Group’s income taxes as a percentage of income before taxes were 19% in 2014, compared to 18% in June 2013.
The net income for the first six months of 2014 was CHF 305 million compared to CHF 271 million in 2013, an increase of 12.6%. This results in a net profit margin of 13.9%, versus 12.2% in 2013. Basic earnings per share were CHF 33.13 versus CHF 29.61 for the same period in 2013.

Givaudan delivered an operating cash flow of CHF 218 million for the first six months of 2014, compared to CHF 299 million in 2013, as a higher EBITDA was more than offset by temporary working capital requirements. Working capital as a percentage of sales decreased in 2014 when compared to the same period in 2013.

Total investments in property, plant and equipment were CHF 46 million, compared to CHF 35 million incurred in 2013. Intangible asset additions were CHF 21 million in 2014, compared to CHF 23 million in 2013, as the company continued to invest in its IT platform and implement SAP in new facilities. In addition, the Group received cash of CHF 56 million as a result of the sale of land at its Dübendorf location in Switzerland. Total net investments in tangible and intangible assets were 0.5% of sales, compared to 2.6% in 2013.

Operating cash flow after net investments was CHF 207 million, versus the CHF 242 million recorded in 2013. Free cash flow, defined as operating cash flow after investments and interest paid, was CHF 178 million in the first half of 2014, versus CHF 207 million for the comparable period in 2013. As a percentage of sales, free cash flow in the first six months of 2014 was 8.1%, compared to 9.3% in 2013.

Givaudan’s financial position remained strong at the end of June 2014. Net debt at June 2014 was CHF 1,129 million, up from CHF 816 million at December 2013. The leverage ratio was 24%, compared to 18% at the end of 2013. The main reason for the increase in the leverage ratio was the payment of the CHF 433 million dividend in the first quarter of 2014.

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 targeting an annual free cash flow of between 14% and 16% of sales in 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%.

Flavour Division sales were CHF 1,157 million during the first six months of 2014, an increase of 4.3% on a like-for-like basis and a decline of 1.8% in Swiss francs.

Sales growth was driven by the developing markets of Asia Pacific, Africa, Middle East and Latin America, driven mainly by new wins and existing business growth. The mature markets of North America and Western Europe were flat as a result of unfavourable market conditions. Growth across all major segments was realized with strength in Snacks, Beverages, Dairy and Sweet Goods. The evolution of Health and Wellness sales 
continued with solid gains as sweetness, salt and masking capabilities delivered improved taste solutions for customers.

EBITDA increased by 21.2% to CHF 310 million in 2014, from CHF 256 million for the first six months of 2013. The EBITDA margin was 26.8% in 2014, up from 21.7% in 2013. In the first six months of 2014 the Group recognised a one-off gain of CHF 38 million in the Flavours division on the disposal of land at its Dübendorf facility in Switzerland.

The operating income increased by 26.9% to CHF 234 million in 2014, from CHF 184 million for the same period in 2013. The operating margin increased to 20.2% in 2014 from 15.6% in 2013.

Sales in Asia Pacific rose 7.0% on a like-for-like basis. New wins and growth of existing products in the developing markets of China, Indonesia, Philippines and Vietnam contributed to the sales expansion with double digit gains while the mature markets grew as a result of good growth from Australia and Singapore markets. All major segments had positive gains with Beverages, Dairy, Savoury and Snacks each delivering strong growth as a result of existing business increases.

In Europe, Africa and Middle East, sales grew by 2.5% on a like-for-like basis, driven mainly by the emerging markets of Africa, Middle East, Poland and Turkey. The mature markets of France, Germany, Ireland and UK were flat when compared to prior year. Beverages, Dairy and Snacks segments drove the overall increase.
Sales were flat on a like-for-like basis in North America with a strong performance in Sweet Goods, Dairy and Snacks offset by the Beverage and Savoury segments.

Growth in Latin America was 14.1% on a like-for-like basis with strong increases coming from Argentina, Brazil and Peru. New wins and volume expansion contributed to the growth in all segments with exceptional growth coming from Beverages, Dairy, and Snacks segments.

by Sonya Hook