Givaudan fragrance division suffers

- Last updated on GMT

Perhaps the world already smells good enough, writes Jordan
Mateev, as Givaudan, the world's biggest maker of fragrances
and flavours reported another period of declining fragrance sales.
The Swiss company, whose mission is to "make the world smell
better", says its results are above the average level of market
growth, blaming the decline on over-capacity in the industry.

Givaudan's fragrance sales fell by two per cent in the first half of 2004 to CHF 554 m, though the operating profit in the fragrance division grew for the first the time since 2000, rising two percent to CHF 92m as a result of cost savings, including substantial cuts to the workforce.

This is quite an achievement after three consecutive years of decline, but the company's fragrance - and flavour - business is still much less profitable than it was.

The company has not seen a sales growth in fragrances since 2000. The negative sales trend started in 2001 when it declined by one per cent. The following year the sales were flat and last year fragrance sales were again down by one percent.

The company's operating profit now is about 11 per cent lower than it was in 2000, worth around 16 per cent of the sales, far from the operating profit of 22.6 per cent in the flavour division.

The decline may continue year-on-year, but Givaudan's reasons for it change annually. In 2001 the company blamed the recession in the US and Asia, and the slowing economy in Europe. In 2002, a globally weak economy, poor consumer confidence and increasing ingredient prices were cited as three key factors. Last year's results were hit by economic and political instability, the SARS crisis in Asia, declining consumer confidence, the weakening of the US Dollar and substantial price increases of several natural raw materials. This year, the downturn was attributed to a highly competitive market, exchange rates, price pressure and rising raw material costs.

As a result of this, fragrances now only make up 40 per cent of the company's sales as opposed to 48 per cent four years ago.

"The European fine fragrance market remained flat compared to last year and in North America, retail figures indicate that consumer demand has not recovered as much as expected,"​ said the comany's half year report.

The company does not disclose the exact sales figures for the different fragrance sectors, but it seems that while the consumer products are doing relatively well, the big losers are fine fragrances and fragrance ingredients.

With expansion opportunities apparently limited, the company will continue to focus on cost reductions to even up the balance sheet. Operating profit improvement in the first half of 2004 shows that this strategy can work.

Givaudan announced last year that it would cut more than five per cent of its workforce and expects this will lead to cost savings of CHF 67 m next year and CHF 47 m in 2004. To the same end, the company will also transfer some of its activities from France and the Netherlands to Switzerland.

Related topics: Business & Financial, Fragrance

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