Swiss food ingredients group Givaudan has booked an increase in first-half profits.
In the six months to the end of June, net profit increased 67.5% to CHF201m (US$207.9m). Operating profit amounted to CHF295m, a 27.7% increase on the prior-year period.
Price increases, cost control measures and the absence of last year's one-off costs boosted profits, Givaudan said.
Sales grew 6.9% to CHF2.13bn. The firm's flavours and fragrances divisions saw sales also increase in the period, by 5.6% and 8.3%, respectively.
Kepler analyst Markus Mayer said Givaudan's revenue and EBITDA growth was "slightly below expectations", but that its profit increase was "in line with expectations".
"The earnings miss will restart the discussion if Givaudan will be able to increase its payout ratio this year which was among the key reasons why [investors] hold Givaudan in their portfolio," Mayer noted.
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HALF YEAR RESULTS 2012
Good business momentum with strongly improved net profit
Sales CHF 2.1 billion, up 6.9% in local currencies, in line with mid-term guidance
Full project pipeline and strong win rate across all regions and segments
Developing markets account now for 43% of sales and grew 14% in local currencies
Comparable EBITDA increased by 12% to CHF 428 million
Comparable EBITDA margin improved to 20.1%
Net income CHF 201 million, up 68% year on year
Strongly improved free cash flow to 5.7% of sales
Geneva, 3 August 2012 – Givaudan group sales for the first six months of the year totalled CHF 2,126 million, an increase of 6.9% in local currencies and 6.0% in Swiss francs. Fragrance Division sales were CHF 994 million, an increase of 8.3% in local currencies and 7.2% in Swiss francs. Flavour Division sales were CHF 1,132 million, an increase of 5.6% in local currencies and 5.0% in Swiss francs.
Gross Margin
The gross margin decreased to 42.1% from 43.0%. The company continued to use some raw materials which were purchased at the peak of the market in 2011. In addition and as previously announced, the company incurred additional pension costs, as well as incremental costs associated with the start-up of the Flavours manufacturing facility in Makó, Hungary.
Earnings before Interest, Tax, Depreciation and Amortisation (EBITDA)
The comparable EBITDA increased by 12.0% to CHF 428 million, from CHF 382 million in the first six months of 2011. The improvement in the EBITDA was hampered by higher pension costs and the start-up of the facility in Makó, Hungary. When measured in local currency terms, the EBITDA on a comparable basis increased by 12.3%. The EBITDA margin increased to 20.1% in 2012, the comparable EBITDA margin in 2011 was 19.1%.
Operating Income
The comparable operating income increased by 27.7% to CHF 295 million, from CHF 231 million for the same period in 2011. When measured in local currency terms, the operating income on a comparable basis increased by 27.3%. The operating margin on a comparable basis increased to 13.9% in 2012, the comparable operating margin in 2011 was 11.5%.
Financial Performance
Financing costs were CHF 35 million in the first half of 2012, down from CHF 39 million for the same period in 2011. Other financial expense, net of income was CHF 14 million in 2012, versus CHF 22 million in 2011, as the relatively stable currency environment reduced hedging costs.
The Group's income taxes as a percentage of income before taxes were 18% in 2012, versus 22% in 2011.
Net Income
The net income for the first six months of 2012 was CHF 201 million, versus CHF 120 million in 2011. This results in a net profit margin of 9.5%, versus 6.0% in 2011. Basic earnings per share were CHF 22.09 versus CHF 13.19 for the same period in 2011.
Cash Flow
Givaudan delivered an operating cash flow of CHF 263 million for the first six months of 2012, compared to CHF 50 million in 2011, mainly driven by a higher EBITDA and a decrease in inventories. As a percentage of sales, working capital increased slightly, mainly as a result of accounts receivable driven by strong sales growth.
Total investments in property, plant and equipment were CHF 63 million, down from CHF 68 million incurred in 2011, the main investment continued in the centralised flavours facility in Hungary. Intangible asset additions were CHF 37 million in 2012, a significant portion of this investment being in the company's ERP project, based on SAP. The company has recently completed the implementation of this project on a global basis.
Operating cash flow after investments was CHF 172 million, versus the CHF (51) million recorded in 2011. Free cash flow, defined as operating cash flow after investments and interest paid, was CHF 122 million in the first half of 2012, versus CHF (95) million for the comparable period in 2011. As a percentage of sales, free cash flow in the first six months of 2012 was 5.7%.
Financial Position
Givaudan's financial position remained solid at the end of June 2012. Net debt at June 2012 was CHF 1,553 million, up from CHF 1,453 million at December 2011. The main increase in the net debt was due to the CHF 200 million payment of the dividend in the first quarter of 2012. The leverage ratio was 31%, compared to 29% at the end of 2011.
Mid-term Guidance
Mid-term, the overall objective is to grow organically between 4.5% and 5.5% per annum, a market growth of 2-3%, and to continue on the path of market share gains over the next five years. By delivering on the company's five pillar growth strategy – developing markets, Health and Wellness, market share gains with targeted customers and segments, research and sustainable sourcing – Givaudan expects to outgrow the underlying market and to continue to achieve its industry-leading EBITDA margin while improving its annual free cash flow to between 14% and 16% of sales by 2015.
Givaudan confirms its intention to return above 60% of the company's free cash flow to shareholders once the targeted leverage ratio, defined as net debt, divided by net debt plus equity, of 25% has been reached. For this ratio calculation, the Company has decided to exclude from equity any impact arising from the proposed changes of IAS 19 - Employee Benefits (revised) going forward.
Original source: Givaudan
