Flavor and Fragrance Giant Givaudan's Net Income Shrinks 8.4%
- Chaileedo Press
- Jul 29, 2022
- 3 min read
Abstract: Swiss flavor and fragrance giant Givaudan recently announced its results from January to June 2022, saying that the group will adopt a strategy of price increase starting in the second half of the year.
CHAILEEDO learned that, in the first half of 2022, Givaudan's net income decreased by 8.4% and sales grew by 8.3%. The group said that given the operating environment has been hit by adverse factors including higher input costs and supply chain disruptions, Givaudan plans to raise prices later this year. It is reported that Givaudan is the fragrance supplier of many first-tier brands such as Miu Miu, Prada and Dior.
Givaudan's financial data for the first half of 2022 showed a relatively stable overall sales performance in the first half, with total sales of $3.8 billion, up 6.2% year-on-year, thanks to growth in perfume sales from a recovery in tourism and a rebound in the food market as more people dine out.
However, Givaudan's first-half net profit fell to $453.5 million, with the operating margin dropping to 17.3 percent from 18.2 percent a year earlier. At the same time, the company's share price has fallen 30 percent this year.
For the reason for the decline, Givaudan said that due to changes in the geopolitical environment led to the rise in raw materials, energy and transportation costs led to a significant increase in costs. Therefore, Givaudan's profitability is being squeezed. The cost of imported raw materials has become an unlimited hole due to the epidemic, increasingly strict customs and uncertain lead times.
"Price increases are expected to accelerate in the second half of the year." Tom Hallam, Kivaton's finance director, confirmed that input costs are expected to increase by about 9% this year. On top of that, he added, "In terms of the inbound supply chain, we're seeing delivery times from Asia double."
Indeed, the stability of the Chinese market is of vital importance to major international groups. Back in 2020, Givaudan settled its largest plant in the world in Changzhou City, Jiangsu Province, China with a project capacity of 38,000 tons of flavors and fragrances per year. The plant produces a wide range of products such as daily flavors, dental flavors and microencapsulated flavors. BASF, Dow, Clariant, DSM and other raw material manufacturers were also investing in China to build raw material plants.
As early as April this year, Givaudan revealed its intention to adjust prices. Not only Givaudan, another head raw material supplier international flavor and fragrance company IFF also issued an announcement in March that will be a wide range of product price increases for all its departments. Estee Lauder Group, L'Oréal Group's high-end skincare brand HR, LVMH's high-end brand Guerlain, and Coty's perfume brand also made price increases in July. It is worth mentioning that Guerlain had announced a price increase in April this year, which was delayed until July due to the Shanghai epidemic.
From a beauty collection store owner provided COTY price adjustment letter, involving brands including GUCCI, Calvin Klein, Chloé, Hugo Boss, Burberry, etc. In early July, in the GUCCI flagship store on the Chinese e-commerce platform Tmall, it was found that the price of Gucci Bloom eau de/30ml increased from the $100.8 to $106.7. The customer service of the Burberry flagship store also informed that the price increase is indeed true. In general, the price increase of the international brands is maintained in the single digits. Skincare products increased by about 5% or less and perfume products by about 10% or less. In the face of raw materials, logistics and inflationary cost pressures, international brands increasing product pricing to maintain revenue is one of its common means.
It is worth noting that for the beauty giants, luxury beauty brands, especially fragrance brands are the key to their recovery this year. Estee Lauder's skincare and fragrance divisions, which had the highest growth rates in fiscal 2021, were both driven by high-end brands with the fragrance division growing more than 100% in the second quarter of this year. According to Unilever's financial data for the first half of 2022, the Beauty & Personal Care division posted revenue of $1.8 billion with underlying growth of 7.5% and double-digit growth in both the Luxury Beauty and Healthcare divisions. Coty also cited strong demand for fragrances in the U.S. and China in its earnings report with the luxury beauty division posting 159.9% sales growth in the second quarter.
From this point of view, Givaudan, as a supplier of raw materials for high-end perfume brands, may be able to turn the situation around after adopting a price increase strategy despite the decline in profits in this earnings report.
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