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Costs take bite out of flavour maker Givaudan's profit

Stock MarketsJan 28, 2022 03:55AM ET
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© Reuters. FILE PHOTO: A vegan rice tartar on toasted bread is seen at flavour maker Givaudan's innovation centre in Kemptthal, Switzerland October 29, 2020. REUTERS/Arnd Wiegmann/File Photo

By Silke Koltrowitz

ZURICH (Reuters) -Swiss fragrance and flavour maker Givaudan on Friday said it would pass higher costs on to customers this year after rising supply chain costs dented its profit more than expected during 2021.

Demand for fragrances used in soap and toothpaste slowed last year from the very high levels seen at the height of the pandemic in 2020, but sales of perfumes, cosmetics and food and drink consumed outside people's homes recovered.

The Geneva-based group expects a 9% increase in raw material costs this year and intends to pass the increases to customers via price hikes.

It is also facing supply chain issues, including higher distribution and manufacturing costs as surging COVID-19 cases keep essential workers at home.

"We're not missing sales, but it comes with a cost," Chief Financial Officer Tom Hallam told Reuters in an interview.

"We produce what we want to produce, but we have to bring in extra people to do it. We're paying overtime, we're bringing in temporary people," he added.

Oreo cookie maker Mondelez (NASDAQ:MDLZ) said on Thursday it expected a larger impact from supply chain snags in its key North American segment in the current quarter.

Givaudan posted a 10.5% higher net profit of 821 million Swiss francs ($883.18 million) for 2021 and a 3% higher dividend of 66 francs per share, both falling short of forecasts in a Refinitiv poll.

Shares, down 15% so far this year, were trading 5.2% lower at 0807 GMT.

Vontobel analyst Jean-Philippe Bertschy said the comparable EBITDA margin of 22.5% was below expectations, especially in fragrance & beauty areas as higher supply chain costs hit.

"We are not particularly concerned ... Givaudan successfully passed on 100% of the cost increases to customers in 2018 and 2019, albeit with a certain time lag," Bertschy said.

Like-for-like sales, which strip out currency changes and acquisitions, increased 7.1% to 6.684 billion francs, in line with forecasts. Sales growth slowed to 5.3% in the final quarter of 2021, Givaudan said.

It confirmed its 2025 targets of 4-5% organic sales growth and free cash flow of at least 12% of sales.

($1 = 0.9296 Swiss francs)

Costs take bite out of flavour maker Givaudan's profit

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