Quest acquisition enables Givaudan strategy shift

In its annual financial results released today, the flavour and fragrances company reported a total sales increase of 42.2 per cent in local currencies, to CHF 4,132m (€888m).

However, this includes the massive growth in sales added by the Quest acquisition.

On a pro forma basis, assuming the acquisition took place in January 2006, sales only increased by 4 per cent in local currencies.

EBITDA in pro forma comparable terms equalled CHF 911m (€565), resulting in a margin improvement to 20.9 per cent from 19.7 per cent.

The sweift integration of Quest translated into CHF 50m (€31m) savings.

Meanwhile, sales were brought down somewhat by the company's move to reduce production of commodity ingredients, particularly chemicals, in its strategy to increase its capacity for research and development.

"The developments over the last 12 months have been exceptional and decisive," said Chairman Jurg Witmer and CEO Gilles Andrier.

"Building on our new and expanded capabilities, 2008 should be another successful and defining year for us."

Fragrances Fine fragrances sales in local currencies came in lower than 2006.

North American sales experienced particular difficulties due to a very significant inventory reduction because of the loss of a single key client.

Givaudan's strategy to move higher value-adding fragrance molecules resulted in another year of double-digit growth in speciality ingredients.

Some of the large-volume products added through the acquisition will be discontinued in 2008, particularly in Mexico, where the company's facility will undergo a major transformation.

The division recorded overall pro forma sales growth of 3.9 per cent in local currencies and 4.2 per cent in Swiss francs, amounting to CHF 2,027 (€1,260).

On a pro forma basis, the EBITDA margin improved to 20.7 per cent from 18.6 per cent.

This growth was due to the increase in sales, the strong operating performance and the early achievement of the integration savings.

Givaudan expanded its network of external partnerships and entered a joint venture agreement with ChemCom SA in March to create a new company called TecnoScent.

A new North American consumer products creative centre is currently under construction in East Hanover, USA, and the company has expanded European consumer products creation facilities in Argenteuil, France.

However, these wins did not fully compensate for the large erosion of existing business in all regions.

Givaudan, headquartered in Vernier, Switzerland, claims to hold a 25 per cent market share in an industry that is overall valued at CHF 17bn (€10.6bn).

Its flavours division makes up 54 per cent of its activities, while fragrances accounts for the remaining 46 per cent.

Flavours The streamlining of commodity flavour ingredients and the company's strategy to focus on more specialised, high value-adding products impacted negatively on sales.

Pro forma sales growth reached 1.8 per cent in local currencies including the streamlining effect, and 4.2 per cent excluding it.

The flavour division will continue to cut back its product portfolio in 2008, with an expected impact of CHF 72m (€45m) on sales.

Peter Wullschleger, corporate spokesperson, told FoodNavigator.com that this is part of a plan to increase R&D capacity.

Thus the company is making room in its portfolio for higher value products in place of low-value commodities.

The snack, beverage and dairy segments benefited from a strengthened product portfolio and increased new business participation with key accounts.

Demand for health and wellness products also increased throughout the year, and Givaudan was able to capitalise on this growing consumer demand with several wins containing new ingredients specifically targets for end products marketed with health and wellness attributes.

Furthermore, the flavour division's new logistic centre in Dubendorf, Switzerland, was inaugurated in November after a two year development and construction phase.

The developing markets in some Asia Pacific countries continued to achieve double-digit sales performance for flavours, with confectionery and beverage performing particularly well.

Sales performance was strong in Europe, Africa and the Middle East, with noticeable growth in beverages and snacks.

Meanwhile, North American sales increased at a low single-digit rate, with wins in the snack, beverage and dairy segments partially offset by a decline in consumer demand for flavoured milk products.