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The F&F bellwether, Givaudan, had a strong start into 2022. Unfortunately, the company gave no indication about profitability. We value this as a lack of transparency despite the fact that this is normal practice. In the current situation, management might consider a temporary change in its communication policy. Givaudan reported the expected strong start with a moderate beat to consensus (+0.7%). We see only limited upside to a revision potential, but we fear profitability might be at some ri
Companies: Givaudan SA (0QPS:LON)Givaudan SA (GIVN:SWX)
AlphaValue
The Flavours & Fragrance bellwether, Givaudan, heralded the beginning of a more difficult period. Higher raw material prices (Givaudan guided for +9%) and customers’ reluctance to accept higher sales prices will make it difficult to protect margins in 2022. We do not believe the margins will dive below the 20% sealing, but the 22% plus ones are lost for the moment. FY 2021 figures missed our (AlphaValue: -5.5%) as well as consensus (-6.3%) expectation at the EBITDA level.
After selling some products for bakeries, our headline might indicate the topping might come from organic development, which continued to report a strong performance. The topping came from small FX tailwinds in Q3. Unfortunately, management stuck to its guns and gave no glimpse of 2022 nor production costs. Some additional information would have been quite helpful, while many topics have been popping up in recent weeks. All in all, the Q3 sales look in line with our strong expectations.
Looking at Givaudan’s figures, one might get the impression the pandemic is gone. The company reported a strong set of figures, against a quite weak basis, but management has guided for some raw material price increases for FY. The growth dynamic is expected to slow down in H2 and profitability should be burdened by higher raw material costs. Despite the beat in our estimates, this scenario is already accounted for in our figures. Consensus was beaten on the profitability level.
Givaudan’s trading statement gave a mixed picture as its businesses reported a strong organic growth primarily driven by emerging markets and well supported by mature markets. But the party was muted when the development was reported in CHF. The appreciation of the Swiss franc will be an issue in 2021, especially in H1. The strong organic momentum exceeded our slightly moderate expectations and was above consensus.
Givaudan did not meet our strong expectations, primarily due to the weaker than expected performance of the former Flavour business. Now renamed Taste & Wellbeing, this did not see any kind of a upswing in its higher impacted businesses (a split introduced by the company, which we could not track) in H2 20. Mature markets did quite well, including some acquisitions, as emerging markets suffered from FX headwinds. Consensus was broadly met.
Companies: Givaudan SA
Givaudan did well in these times, but the appreciation of the Swiss franc fully rubbed out the operating performance, which had been partly helped by positive portfolio effects in Q3. It looks as if the change in habits drove up the organic performance in Latin America and North America. The reported figures fit into our positive picture, but consensus was not met.
At the recent strategic update, Givaudan flagged the continuation of its resilient average organic growth and FCF. This looks odd at first sight, but could be seen as a strong commitment in changing times, which includes the emergence of new markets (e.g. encapsulation) demanding fast adoption.
Thanks to the strong start into 2020, Givaudan’s H1 figures do not look too bad, but Q2 saw some weaker dynamics in both divisions. Flavours could not fully benefit from the new cooking at home trend. Reported figures were a notch better than expected as Fragrances’ margin improved contrary to our estimates, pushed by recent acquisitions. Consensus was beaten at this line.
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).
... 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.
Research Tree provides access to ongoing research coverage, media content and regulatory news on Givaudan SA. We currently have 11 research reports from 5 professional analysts.
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20th March 2024 @HybridanLLP Status of this Note and Disclaimer This document has been issued to you by Hybridan LLP for information purposes only and should not be construed in any circumstances as an offer to sell or solicitation of any offer to buy any security or other financial instrument, nor shall it, or the fact of its distribution, form the basis of, or be relied upon in connection with, any contract relating to such action. This document has no regard for the specific investment object
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