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What are the latest trends in ingredients? We present feedback from seven companies We recently had the pleasure of hosting Croda, DSM, Givaudan, IFF, Kerry, Novozymes and Symrise at our 22nd Exane BNP Paribas CEO conference. In this note we summarise some of the key questions / themes raised by investors. We also update our estimates to reflect key learnings and recent moves in FX (USD weakness). COVID-19: The short and long-term view What is the latest on Q2? How are the FandFs performing in light of IFF''s profit warning? How will the industry evolve post-COVID? Innovation: Does it still matter? What is the latest on innovation, with customer launches appearing to have stalled? Emerging markets: What is the outlook? Will the emerging markets remain a long-term growth driver, considering the likely implications of COVID-19? Competition: How will IFF + DuPont NandB impact the sector? How does the merger impact your competitive positioning? Will we see more MandA? ESG: Does sustainability still matter? What do you contribute to making the world more sustainable? We prefer Kerry (+) and Symrise (+), and cut IFF (-) to Underperform Kerry and Symrise are our top picks: we see Taste and Nutrition emerging much stronger post crisis, as THE go-to partner in food and beverage. Symrise should outgrow its peers (Q2 and FY) given its differentiation. We cut IFF to Underperform, on the expectation that growth will remain challenged (and underperform peers) this year.
GIVN DSM KYGA NZYMB CRDA IFF SY1
Givaudan’s Q1 sales statement broadly confirmed our view on the company as the reported figures are a notch above our expectations and meet consensus. The pattern of the reported figures reflect some first effects of the pandemic. Q1 sales were up +6.1% to CHF1,619m and organic growth was +5.4% at the group level. Emerging markets (+8.9%) contributed the most as mature markets were up by +4.3% (to CHF946m).
Givaudan
... and higher negative ‘one-offs’ weighted on profitability. Flavour’s top-line came in below our expectations due to modest growth in North America and EAME. After a strong start in H1, the division’s profitability fell in H2. At group level, the ongoing negative effects for GBS and acquisition-related costs had their full effect in 2019. The numbers were also short of consensus.
Givaudan’s operating growth was additionally pushed by acquisitions, especially in Flavour. We assume there were some positive effects from higher sales prices for the established business, whereas new wins are expected to be calculated with higher input costs. Although it remains unclear whether higher sales prices really compensated for higher raw material prices, we expect a continuation of the positive H1 trend. The top-line came in slightly stronger than expected, whereas consensus was met.
Givaudan reported mixed H1 figures. The top-line was driven by sustainable organic growth in each division and was additionally pushed by acquisitions, especially in Flavour. The gross profit margin already shows the negative impact from higher raw material prices and a less favourable product mix. The H1 figures confirmed our cautious view on the company, whereas consensus’ profitability expectations were not met. The reasons for this development were not explained well.
Givaudan’s Q1 sale were driven mainly by the acquisition of Naturex, pushing Flavour and mature markets. Organic sales also made a strong contribution to the top-line, which should lead to further positive profitability momentum.
Givaudan reported good top-line growth, but profitability suffered from the broad impact from higher raw material prices and the costs for Givaudan Business Solutions GBS), which still generated a loss on a net basis. However, the top-line beat our expectations, but profitability came in below. Consensus was barely met on the profitability level.
... from acquisitions. Givaudan reported equal contributions from the organic business and from acquisitions to the top line in Q3. The reported set of figures was slightly above our expectations and outpaced the consensus. Unfortunately, the report gave only some small hints on profitability.
Givaudan held an analysts meeting with the full management and gave some deeper insights into the economics and strategy of the South-East Asian region.
BASF’s outage of the citral plant at the end of October 2017 (declaration of Force Majeure) still impacts the value chain and burdens Fragrance’s profitability as these businesses have to buy stock for any(?) price in order to secure sourcing. The impact from which has been stronger than expected and profitability in H1 came in lower than expected. Consensus was broadly met.
Givaudan’s Q1 sales figures were slightly stronger than expected but, lacking additional information, we remain cautious regarding the profitability development as H2 17 had seen some pressure.
Givaudan’s FY figures were pretty much in-line with our expectations, but profitability suffered from the higher share of the CHF170 costs for the Givaudan Business Solutions programme, which had been guided lower. Business looks in a good shape. Higher raw material costs might not be passed through the way they have to in order to protect margins.
Givaudan’s sales 9M sales figures were up +7% to CHF3,757m, driven by organic growth (+4%) and acquisitions (+4%). Mature markets rose +11% to CHF2,143m and high growth markets by +2% to CHF1,614m. Management confirmed mid-term guidance for the 2015-20 period, expecting a 4-5% average organic growth rate and an average 12-17% free cash flow as a percentage of sales. A more explicit guidance for 2017 was again not given.
Givaudan reported +6% (organic: +2%) higher sales (to CHF2,483m) but the gross profit margin declined 80bp to 45.6% in H1 due to the newly-acquired businesses. EBITDA was down 6% to CHF597m as, in the previous year’s period, the company booked a CHF55m gain from changes in plan assets. Net income attributable to shareholders came in at CHF384m (CHF368m). Operating CF (CHF269m after CHF237m) primarily improved due to lower NWC outflow (CHF-210m after CHF-242m) despite higher inventories. Investing CF (CHF-229m after CHF-48m) was driven by significant higher capex and acquisition-related costs (Activ International) of CHF-111m. Financing CF moved from CHF-407m to CHF-146m due to higher net cross debt proceeds (CHF385m after CHF88m), which was more than eaten up by the higher dividend payment of CHF-515m (CHF-495m). Management confirmed its mid-term guidance for the 2015-20 period, expecting a 4-5% average organic growth rate and an average 12-17% free cash flow as a percentage of sales. An explicit guidance for 2017 was again not given.
Givaudan reported +8% (organic: +4%) higher sales (to CHF1,422m), which was helped by favourable FX developments. Mature markets grew +13% (organic: +5%) to CHF708m and emerging markets were more moderate (+2% (organic: +2%) to CHF534m).
Givaudan reported +6% higher FY sales (organic: +4%) to CHF4,663m, but the gross profit margin weakened from 46.2% to 45.6%. EBITDA came in +5% higher at €1,126m and the margin was 24.1% (24.3%). Net income attributable to shareholders increased +3% to CHF64m. Operating CF declined 12% to CHF805m, primarily due to lower adjustments for non-cash items (CHF261m after CHF390m). Investing CF moved from CHF-225m to CHF-503m primarily pushed by acquisitions (Spicetec Flavors and Seasonings). Financing CF was CHF-437m (CHF-578m) benefiting from higher net cross debt issuance despite higher dividend payments. Management proposes, as expected, a CHF2 higher dividend (CHF56 after CHF54) per share at the next AGM on 23 March 2017. Management confirmed the next mid-term guidance for the 2015-20 period of a 4-5% average organic growth rate and an average 12-17% free cash flow as a percentage of sales. A more explicit guidance for 2017 was not given.
Reported figures were positively impacted by favourable FX rates as the performance in developed markets was operationally good, but not strong. Group sales rose +7% (+5% lfl) to CHF3,518m after nine months. Fragrance reported the strongest performance (+9% to CHF1,699m; +8% lfl) followed by Flavour (+5% to CHF1,819m; +3% lfl), which was partly helped by an acquisition.
In H1, group sales rose +7% to CHF2,334m, accompanied by a slight improvement in the gross profit margin (46.8% after 46.5%). EBITDA increased +13% to CHF638m and net profit attributable to shareholders was up +8% to CHF368m.
Givaudan reported some good sales figures for Q1 16. Group sales rose +6% to CHF1,152m, on a LFL basis the increase was slightly higher. Emerging markets were up +5% to CHF524m and +10% LFL.
FY group sales were relatively unchanged (organic: +3%) at CHF4,396m but gross profit margin was a notch stronger (+20bp to 46.2%). EBIT was up +4% to CHF794m and net profit attributable to shareholders rose +13% to CHF635m helped by a lower tax burden due to lower deferred taxes. Operating CF increased +14% to CHF915m supported by a lower NWC outflow (CHF-80m after CHF-1126m). NWC saw lower inventories and other current assets. Despite lower capex, investing CF increased from CHF-209m to CHF-225m, factoring in higher acquisition costs. Having paid higher dividends, financing CF came in at CHF-578m after CHF-697m, helped by lower net gross debt repayments (CHF-60m after CHF-168m). Management will propose a CHF4 higher dividend (CHF54 after CHF50) per share at the next AGM on 17 March 2016. Management confirmed the next mid-term guidance for the 2015-2020 period, expecting a 4-5% average organic growth rate and an average 12-17% free cash flow as % of sales. An explicit 2016 was not given.
9M group sales slightly weakened (-1% to CHF3,296m), but was +2% up organically. For FY 2015, management expects to deliver an industry-leading EBITDA margin and FCF of 14-16% of sales.
Givaudan reduced its mid-term targets and focused its five-pillar strategy onto a three-pillar roadmap having announced the updated financial ambitions and roadmap for the next five years.
The H1 figures show good managerial skills in dealing with the negative effects from the de-linking of the reporting currency. Group sales came in fairly unchanged at CHF2,184m and the gross profit margin suffered only slightly (46.5% after 46.6%) despite lower operational costs. EBITDA was a touch up (CHF566m after CHF562m) and EBIT improved +11% to CHF339m. Operating CF jumped +56% to CHF341m fuelled by a swing in other non-cash items and clearly lower NWC outflow (CHF-178m after CHF-247m). Investing CF moved from CHF-40m to CHF-77m due to the lack of net divestment proceeds and some higher acquisition costs. Financing CF was a bit up, mainly driven by the higher dividend payment (CHF-461m after CHF-433m). Management failed to give clear 2015 guidance, but re-iterated its mid-term guidance.
