Givaudan(GVDNY) - 2020 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In the first half of 2020, Givaudan achieved sales of CHF 3.2 billion, representing a growth of 4% on a like-for-like basis and 4.1% in Swiss francs [9] - EBITDA reached CHF 734 million, with an underlying EBITDA margin of 23.7%, compared to 22.3% in 2019 [11][41] - Free cash flow was CHF 178 million, or 5.5% of sales, compared to 4.8% in 2019 [11][52] Business Line Data and Key Metrics Changes - The Fragrance division grew 4.5% on a like-for-like basis, while the Flavours division grew 3.6% [12] - Fine Fragrances decreased by 16.4% on a like-for-like basis, significantly impacted by COVID-19, while consumer products grew 11.8% [25] - The Flavours division showed resilience with a 3.6% growth on a like-for-like basis, despite challenges in food service [28] Market Data and Key Metrics Changes - High-growth markets delivered a 9% growth, with Latin America showing strong performance at 15.5% [14][20] - Mature markets grew 0.5%, led by Central Europe and Korea, but faced declines in Western Europe due to lockdown measures [16] - The only flat market was India, heavily affected by COVID-19 [15] Company Strategy and Development Direction - Givaudan's strategy focuses on high-growth markets, health and wellness, naturals, and local and regional customers, with acquisitions playing a key role [34][58] - The company aims to continue integrating recent acquisitions and has confirmed integration costs of CHF 50 million for 2020 [61] - The new strategic roadmap for 2021 to 2025 will be unveiled on August 27, focusing on responsible growth and shared success [62] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving 2020 goals despite the ongoing pandemic, highlighting the resilience of the business [7][59] - Visibility for the remainder of the year is limited due to the pandemic, but the company is focused on maintaining operations and supporting employees [60] - The company anticipates that Foodservice will recover, albeit at an uncertain pace, while Fine Fragrance may take longer to return to pre-pandemic levels [80] Other Important Information - Givaudan established a community fund to support local initiatives during the pandemic, committing at least CHF 1 million [24] - The company has made 16 acquisitions since 2014, totaling over CHF 3.6 billion, contributing significantly to sales [32] Q&A Session Summary Question: Trend throughout the quarter and visibility on Fine Fragrance and Foodservice - Management noted a consistent decline in Fine Fragrance and Foodservice during April, May, and June, with some recovery in June for Fine Fragrance in the U.S. due to retail store reopenings [71] Question: Performance drivers and productivity gains - Management highlighted productivity gains, synergies from acquisitions, and operational leverage as key drivers of improved EBITDA [72] Question: Future of Fine Fragrance and Foodservice - Management indicated that Fine Fragrance may take time to recover due to travel retail impacts, while Foodservice is expected to bounce back as restaurants reopen [78][80] Question: Working capital expectations and cost synergies - Management expects working capital to unwind in the second half of the year, with a target of around 25% of sales by year-end [85] Question: M&A strategy and interest in natural colors - Management remains opportunistic in M&A, with potential interest in expanding into natural colors as part of their growth strategy [87] Question: Unique aspects of the Ungerer acquisition - The Ungerer acquisition complements Givaudan's portfolio with essential oils and ingredients for Fragrance and Flavours, enhancing their offerings [90][92] Question: Implications of EBITDA margin and future growth - Management indicated that while some cost savings are temporary, they expect to maintain a normal EBITDA margin in the second half of the year [94] Question: Foreign exchange exposure and Active Beauty performance - Management confirmed strong visibility on transaction exposure and highlighted the success of the Active Beauty business due to its specialized, high-value portfolio [100][99]