Release Date: July 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Givaudan SA (GVDBF, Financial) reported a strong performance in the first half of 2024 with sales reaching CHF3.7 billion, a growth of 12.5% on a like-for-like basis and 5.7% in Swiss francs.
- The company's EBITDA margin improved to 24.8% from 22.7% last year, driven by high volume growth and effective cost management.
- Net income increased by almost 31% to CHF588 million, showcasing strong profitability.
- The fragrance and beauty division saw a stellar 15.3% growth on a like-for-like basis, driven by strong demand in fine fragrances and consumer products.
- Givaudan SA (GVDBF) continues to benefit from its geographical balance, with high-growth markets representing 46% of total sales and growing at a rate of 20.5%.
Negative Points
- The taste and wellbeing division's EBITDA margin remains weaker compared to the fragrance and beauty division, despite volume growth and cost-saving measures.
- The company incurred costs of CHF23 million related to footprint optimization and a Competition Authority investigation in the fragrance industry.
- The effective tax rate increased to 16% in 2024 compared to 13% in June 2023, impacting net income.
- There is continued pressure on input costs, particularly in key natural ingredients, which may affect future profitability.
- The North American market in taste and wellbeing shows some softness in the out-of-home consumption segment, which could impact overall growth.
Q & A Highlights
Q: Hi, everyone, and thanks for taking the questions and Tom, big congratulations and wishing you the best. The first question is on the margins. I was wondering if you could just remind us of the usual half-on-half seasonality because I think H2 margins tend to be a bit weaker than H1? Should this same seasonality apply this year or not? Are there other factors around catch up on net pricing and self-help still coming through in the second half, which might change that H&H dynamic. And specifically in fragrance and beauty, I think you typically have less half-on-half margin seasonality. Should we then on the taste moving side, should we expect that to be the case this year? Or are there exceptional impacts driving that super strong 28% EBITDA margin in the first half? And then maybe a second one, perhaps you could talk a little bit about volumes. We've talked about how customers this year are really focused on driving volume growth. I was wondering whether you think any of the H1 strength might be linked to customers stocking or buying up ahead of promotional activity or whether you think this is really a recovery in terms of underlying volume demand? Thank you.
A: So maybe, Nicola, let me take the margin first, and then I hand back to Gilles on the volume. So you're absolutely right. I mean, in a normal, what we would call a normal year, we normally have a stronger margin in the first six months than we do on the full year for a very, very simple reason that of course, has less invoicing days in December. If you look historically, our margins have been about 100 bps lower on the full year compared to the half year. And as I said, I think we're more in a normal year environment, does nothing exceptional to come in the second half of the year. We had a small tailwind of around CHF20 million in the first six months of the year, which was really related to the improvement program that we put in place at the beginning of last year. Just as a reminder, we had CHF40 million in the second half of last year and CHF20 million in the first six months of this year. On the fragrance margin if you say, I mean, it's really an exceptional performance. I think there's really two factors to consider. I mean, the volume growth is really significant and that helps on the operational leverage. The second reason is as you know, in our business model, we have quite a churn in the portfolio and in particularly on the fine fragrance business where the churn is higher. And this allows us to what we call reset the margin much more quickly on the fragrance side than we would expect on other parts of the business. So that's really the reason why the margin is so strong, the operational leverage, and the churn of the portfolio. On the outlook for fragrance and beauty, and we certainly we've talked about it in the past, and I think we're very happy with where we are on the margin on fragrance and beauty, we have more work to do on the taste side. I think on the fragrance and beauty side, it's now more about investing in the growth opportunities and we will continue to do that as we've always done in the past. And with that, I'll hand it back to Gilles on the volumes.
Gilles Andrier: Yeah, Nicola, thank you for your question. Yeah, I guess on the volume growth, I think, you know, rather than trying to generalize what happened in the first half for the whole of Givaudan, I think what can be helpful is to split Givaudan in different parts, which behave in different ways, meaning if you take the fine fragrance part, as you know, it is roughly a 10% of Givaudan. This is not a business where clients stock up or it is driven. And this is all driven basically by growth. I think the double digit growth that we have seen for the last four years is reflected by what our clients sell, reflected by what consumers consume. And given the fact that there was no sort of destocking in fine fragrances last year, so you cannot argue that there is enough stocking or anything. So the dynamics are very different. And as you can see, the momentum we see on Givaudan with the double digit growth, still around 15%, again reflects a great performance driven by the market, but also driven by the fact that Givaudan has a very unique position where we are exposed to different areas of growth, whether on the prestige side, on the specialty side in the US or the LATAM, and especially SEMEA, which is growing a very, very strong double digit with a lot of local and regional clients. So again, it's a healthy growth, which cannot call on, it's very specific. Then you have, I would say, the whole space of what I would call the things which we sell as ingredients, you know, and that includes the fragrance ingredients plus Active Beauty plus, you know, the taste and wellbeing ingredients, which are sold as ingredients and in a way, which are a very much a business, which is not just-in-time business, which is really following a different business model than the compounds on fragrance and taste. And this part is also very much driven, especially by the supply chains of our clients. And I would not see them as again, was not impacted by any destocking last year and up stocking this year, whatever those types of models and that accounts for roughly, I would say, another 10% of Givaudan. So then you have the compounds business, both on taste and wellbeing and fragrances. And there I would say that again, we have to split between taste and wellbeing where you remember, we saw a lot of destocking. Volumes were negative last year for the division. So the growth that we see now gets us into a sort of over a three year split gets us into a normal pattern of volume growth. So I would say that it's not about the destocking, restocking, it's over time. You'll see that we are back to sort of a more normalized growth of volumes in taste and wellbeing. And then the final part, which is consumer products in fragrances, which had less destocking last year, actually it was almost breakeven. We see a very strong, let's say, market with our clients in HPC in personal care. And so the growth that we have in reflects a bit what our clients are seeing. So that's a bit what we can say. And the thing about the other element, promotion that you mentioned and so forth, which I called the reverse of shrinkflation, so two for one and those types of promotional, we benefit a lot from that because obviously as opposed to shrinkflation, where if you sell two for one -- sorry, if you reduce the quantities in the product that we got impacted last year. So it's the reverse of the shrinkflation, which is where we benefit. So that's also something that is very much beneficial for us. So to finalize the answer is not how much is restocking and so forth, yes, maybe there is a bit of restocking because our clients believe that they need obviously to grow in volumes, you know, so certainly that has an element, but is
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
