Givaudan sales rise in H1, but profits impacted by foreign currency losses

23 Jul 2018 --- Leading flavor & fragrances supplier Givaudan has reported that sales for the first six months of the year were CHF2.67 billion (US$2.70 billion), an increase of 5.6% on a like-for-like basis and 7.7 percent in Swiss francs. But the company saw its first-half profit slip 3.4 percent as foreign currency losses in countries including Argentina dented its results.

Givaudan continued the year with good business momentum and with the project pipeline and win rates being sustained at a high level. This good growth was achieved across all product segments and geographies, with our key strategic focus areas of Naturals, Health and Well-being, Active Beauty, Integrated solutions and local and regional customers delivering strong growth, complemented by the recent acquisitions. The company continues to implement price increases in collaboration with its customers to compensate for the increases in input costs.

Gross profit increased by 4.4 percent from CHF1,132 million in 2017 to CHF1,182 million in 2018. Despite continued productivity gains and cost discipline, the gross margin declined to 44.2 percent in 2018 compared to 45.6 percent in 2017, as a result of a lower gross margin in the Fragrance Division.

Financing costs were CHF23 million in the first half of 2018, versus CHF21 million for the same period in 2017, with lower interest rates partially compensating for the increase in net debt in the Group. Other financial expense, net of income, was CHF35 million in 2018 versus CHF17 million in 2017, largely as a result of increased foreign currency losses in markets where currencies could not be hedged, most notably in Argentina.

The interim period income tax expense as a percentage of income before taxes was 14 percent in 2018, compared with 15 percent for the same period in 2017.

The net income for the first six months of 2018 was CHF371 million compared to CHF384 million in 2017, a decrease of 3.4 percent, resulting in a net profit margin of 13.9% versus 15.5% in 2017. Basic earnings per share were CHF40.26 versus CHF41.70 for the same period in 2017.

Givaudan delivered an operating cash flow of CHF269 million for the first six months of 2018, the same level as in 2017.

Working capital was relatively stable at 28.7 percent of sales compared to 27.4 percent in 2017, temporarily impacted by increased inventory levels.

Total net investments in property, plant and equipment were CHF122 million, compared to CHF96 million incurred in 2017, largely driven by the Group’s continued investments to support growth in high growth markets and in the Zurich Innovation Centre (ZIC) in Switzerland. Intangible asset additions were CHF21 million in 2018, compared to CHF27 million in 2017, as the company continues to invest in its IT platform capabilities, including those to support the introduction of the Givaudan Business Solutions organization. Total net investments in tangible and intangible assets were 5.3 percent of sales, compared to 5.0 percent in 2017.

Operating cash flow after net investments was CHF126 million, versus the CHF146 million recorded in 2017. Free cash flow, defined as operating cash flow after investments and interest paid, was CHF113 million in the first half of 2018, versus CHF132 million for the comparable period in 2017. As a percentage of sales, free cash flow in the first six months of 2018 was 4.2 percent, compared to 5.3 percent in 2017.

As announced in March 2018 and in June 2018, Givaudan has acquired 40.5 percent of the shares of Naturex, a French public listed company, for €135 per share and a total consideration of €523 million and has launched a mandatory cash tender offer for all remaining outstanding shares of Naturex at €135 per share. Givaudan has secured all necessary regulatory approvals and the Board of Directors and Management of Naturex are fully supportive of the transaction.

Givaudan’s Flavour Division sales were CHF1,451 million, an increase of 4.9% on a like-for-like basis and 7.8 percent in Swiss francs. Including Vika, acquired in September 2017, and Centroflora Nutra, acquired in May 2018, the growth was 7.4 percent in local currency.

From a segment perspective, Beverages, Dairy, Sweet Goods and Snacks were the main contributors to the division’s growth, with all segments showing positive gains. In our key strategic focus areas under the 2020 strategy, sales increased at double-digit levels in Health & well-being and in high single-digit in Naturals.

All regions delivered robust growth with a high level of new wins in the key segments.

EBITDA for this division increased to CHF351 million in 2018 from CHF321 million for the first six months of 2017, with continued productivity gains and cost discipline contributing to the increase. The EBITDA margin was 24.2 percent in 2018, up from 23.9 percent in 2017.

The Operating Income increased to CHF286 million in 2018 from CHF258 million for the same period in 2017. The Operating Margin increased to 19.7 percent in 2018 from 19.2 percent in 2017.