Specialist
Former divisional leader at Givaudan SA
Agenda
- Competitive landscape focusing on strategic differences
- Second growth wave of naturals driven by functional ingredients developments
- Givaudan's (VTX: GIVN) strategic options in response to International Flavors & Fragrances (NYSE: IFF) and DuPont (NYSE: DD) Biosciences merger
- Input cost and pricing outlook
Questions
1.
Do you think Givaudan’s 4-5% sales growth target up to 2025 is realistic, given it averaged an around 4.9% like-for-like CAGR in 2007-19? What challenges and opportunities could affect this target?
2.
Sell-side expectations predict a jump in growth in 2024-25 up to 5.5-6.7%. What do you think is driving this jump? Could the functionals gain traction and generate outsized growth a couple of years down the line?
3.
Growth in developing countries is expected to come in a couple of years. Is this largely due to technological improvements and bioconversions allowing for cheaper naturals, or GDP reaching levels where incremental spend on flavoured products suddenly becomes much more prevalent?
4.
Expectations seem to be for 4-5% flavours growth vs 5-7.5% fragrances growth. This seems to be the opposite to historical growth dynamics. Has there been a shift here?
5.
How do you assess players’ development pipelines? I understand that pricing growth is largely driven by product releases – this is tied to CPG companies innovating new products and then getting design-ins with new ingredients across flavours and fragrances. Are any major players getting a different share of product releases vs historically? Are innovations happening as they always have and are the majors involved as they always have been?
6.
What’s your take on the pace of innovation as markets fully reopen? Do you expect an outsized pace driven by developments such as plant-based foods? Would these products still be negligible within the total consumption base?
7.
How do you think flavours growth will trend as we come to the end of naturals penetration and then get functionals growth, or as we get a second wave of naturals growth which is even larger than the first? In a previous Interview [see Firmenich – Competitive Positioning in Flavours & Fragrances – 26 February 2021], we said that flavours growth was likely to decline by 1pp as naturals growth has come to an end and functionals growth could start to take over, which is a smaller, broader opportunity. In a separate Interview [see Symrise – APAC Flavours & Fragrances Growth Runway – 7 May 2021], the expert said that functionals development is driving technologies such as bioconversion, which is decreasing in cost as it improves. This could subsequently drive a second wave of naturals penetration, which may not previously have happened in emerging countries because the cost of naturals was too high to substitute for synthetics. Therefore, the expert said that growth would increase in developed and developing regions.
8.
Are there reasons besides cost that mean developing regions would not have as high naturals penetration as developed regions? The argument that bioconversions could make the cost delta smaller between synthetics and naturals – and thus push naturals penetration in developing regions where cost previously made this impossible – seemed compelling. However, you seem to think this won’t necessarily happen across all categories, and suggested that naturals can’t be pushed in confectionery.
9.
How much of a margin driver could lower costs from bioconverted naturals be in developed regions that already have traditional naturals? We said bioconversions could drive some growth in developing countries, but not as much as GDP growth.
10.
Could you compare Givaudan’s naturals conversion abilities to those of its competitors?
11.
What are your thoughts on the regulatory risk of bioconversions not being labelled as “natural”? Could this have a meaningful impact on flavours businesses?
12.
How large could the bioconversion opportunity be within fragrances and beauty products more broadly?
13.
How could the transition to bioconversion affect the volatility of margins? You doubted that margins will improve meaningfully when the industry makes this transition, but naturals such as vanilla are particularly volatile and subject to supply and demand dynamics such as harvests. Could bioconversion lead to greater margin stability?
14.
Do you think Givaudan, IFF, Firmenich and Symrise will be able to play whether or not they’re selling a bioconverted natural or a traditional natural? Could they play the supply on the basis of where the biggest margin opportunities are MoM or QoQ?
15.
While IFF completed its merger with DuPont's Nutrition & Biosciences business in February 2021, local players are also being rolled up by PE, including in developing regions. How much of a threat could this second type of consolidation be to players such as Givaudan, and how could Givaudan respond to this? Do you expect those acquisitions to play out separately for the next couple of years, and could a sale to Givaudan be an exit strategy for some of the PE players further down the line?
16.
Could Givaudan make any large acquisitions in response to the IFF-DuPont Nutrition & Biosciences merger? You suggested the company is uninterested in buying market share.
17.
Do you think CHR Hansen could be an interesting target for Givaudan?
18.
One of CHR’s biggest growth options is the Jennewein acquisition and the play in HMOs [human milk oligosaccharides] for baby formula. Would Givaudan be able to create any synergies for CHR in this play or the distribution?
