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Givaudan Reports 2011 Financials

Givaudan reported its 2011 financials, with group sales totaling CHF3,915 million, an increase of 5.2% in local currencies but a decline of 7.6% in Swiss francs when compared to the company’s 2010 numbers. Sales for the fragrance division were CHF1,833 million, an increase of 4.7% in local currencies and a decline of 7.8% in Swiss francs, and sales for the flavor division were CHF2,082 million, an increase of 5.7% in local currencies and a decline of 7.5% in Swiss francs compared to 2010.

Givaudan CEO Gilles Andrier commented, “Our 2011 results are a convincing demonstration of the continued value we bring to our customers. The business achieved a strong sales momentum in a tough environment and a significant profit improvement in the second half of the year. We are well on track for 2012 and to deliver on our mid-term targets.”

The company’s gross profit margin decreased to 42.6% from 46.1% as a result of the sharp and broad-based increase in raw material costs. Givaudan successfully implemented price increases in collaboration with its customers. These price increases started to become effective in the course of the second quarter of the year.

During 2012, the company will continue to work in close collaboration with its customers to make the necessary adaptation of its prices to reflect the sharp increase in input costs. As the company will complete the full roll out of SAP, it will continue to leverage on this investment through initiatives such as shared services, as well as ensuring that its supply chain is efficient and requires reduced working capital levels.

Mid-term, the company’s overall objective is to grow organically between 4.5–5.5% per annum, assuming a market growth of 2–3%, and to continue on the path of market share gains over the next five years. 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 once the targeted leverage ratio, defined as net debt, divided by net debt plus equity, of 25% has been reached.

For its fragrance division, Givaudan recorded sales of CHF1,833 million, an increase of 4.7% in local currencies and a decline of 7.8% in Swiss francs. After a good sales performance in the first half year, sales continued to show strong growth in the second half, helped by price increases. The growth was driven by a strong performance in consumer products, particularly in the developing markets of Latin America and Asia Pacific. Total sales for fragrance compounds (the fine fragrances and consumer products divisions combined) increased 5.3% in local currencies and declined by 7.7% in Swiss francs to CHF1,587 million from CHF1,719 million. Fragrance ingredients sales increased by 0.7% in local currencies.

In 2011, further investments were approved to expand the infrastructure in the developing markets. For example, in Moscow the creative and commercial teams moved into new and expanded offices, while in India Givaudan added additional floor space to expand the creative and development center in order to meet the demands of this high growth market. The year also saw the further expansion of the production capabilities in the fragrance ingredients manufacturing site in Pedro Escobedo, Mexico. In Singapore, a state-of-the art creative, commercial center and a high volume production center was approved during the year, which should be operational in 2013.

Fine fragrances sales grew by 0.2% against the very strong comparables of the previous year. The year started with sales in the first half below 2010 levels. However, growth increased in the second half of the year driven by a strong pipeline of new wins across all major customer categories and distribution channels. Looking at the performance on a regional basis, Latin America delivered the strongest growth, as a result of new wins and volume gains with most customer accounts. In Europe, Africa and the Middle East sales decreased as the new wins were unable to offset business erosion, partially attributed to the restocking impact of 2010.

Sales for the company’s consumer products business unit increased by 6.9% in local currencies against last year's high comparables. This increase was across all customer groups as well as all regions. Sales in developing markets grew faster than sales in mature markets. Asia Pacific reported strong growth led by international customers, especially in the fabric care segment, with China, Indonesia and Vietnam recording the strongest increases. All customer groups contributed to the growth in Latin America, with an excellent performance in Mexico. In Europe, Africa and the Middle East, sales increased across all customer segments, particularly in the developing markets. In North America, sales growth was driven by local and regional customers, with a double-digit increase in both fabric care and home care. On a segment basis, sales in the fabric care and oral care achieved double-digit growth. Home care sales also rose, especially in Asia Pacific, while personal care sales were flat despite the good performance in the hair care and deodorant categories.

Sales in fragrance ingredients increased 0.7% in local currencies. Price increases in all product categories compensated for the decline in volume, compared to the previous year. Sales of specialties showed a modest growth while the remaining product categories recorded slight declines in sales. The performance was mainly dampened towards the end of year, partially driven by destocking. The fragrance ingredients unit on the Naarden site in the Netherlands ceased production at the end of December 2011. Further investments in reaction and distillation capacities have been made in the ingredients manufacturing plant at Pedro Escobedo in Mexico, and they are expected to be fully operational early in 2012.

More information on this financial report is available here.

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