Flavours and fragrances group Givaudan has insisted it is confident it can push price increases through to its food manufacturing customers, despite a hike in raw materials costs hitting profits over the past year.
Speaking at the Consumer Analyst Group of Europe conference yesterday (20 March), Givaudan CFO Matthias Währen said raw materials costs, alongside higher pension expenses and charges from a consolidation of its manufacturing base, cost the company CHF200m in 2011.
Givaudan’s EBITDA last year decreased to CHF790m from CHF963m on the back of currency exchange and higher input costs.
However, Währen insisted the world’s largest flavours and fragrances firm expected to mitigate these costs in 2012 by increasing prices and cutting costs.
“Flavours and fragrances really drive consumer decisions when buying a product,” Währen said. “Really our customers acknowledge and recognise the key contribution we make to their products.”
Indeed, according to Währen 45% of food purchase decision making of based on flavours and fragrances.
However, the cost of adding flavours and fragrances represents a relatively small component of the total cost of producing the end product, he said.
Givaudan therefore anticipates generating CHF100m in increased revenue through price increases during 2012.
Nevertheless, management remained cautious on the outlook for the coming fiscal year.
“We estimate that raw material prices, in a best case scenario, will remain flat. We will most probably see an increase of 2-3%, but this is not as sharp an increase as last year,” Währen predicted.
“Economic uncertainties remain but our business is resilient and we have had a good start to the year,” he added.
Over the next five years Givaudan will look to drive growth by expanding in emerging markets, raising revenue from these geographies from the current level of 42% to 50% by 2015.
“It is clear that taste and smell is global but that taste preferences are local. You have to be local,” Währen insisted.
Key growth areas in developing markets include China, Indonesia and India where the company is focused on the beverage, savoury noodles and snack categories; Africa and the Middles East, where Givaudan provides beverage and snack solutions; and Latin America, where the group is strong in the drink and dairy categories.
The company will also focus on developing its strategic relationships with customers and investing heavily in “industry leading” R&D levels focusing on growth areas, such as health and wellness solutions, Währen concluded.