GILLES ANDRIER, CEO, GIVAUDAN: Okay, good morning everybody. I'm glad to see you are numerous this morning. It appears that banks are not cutting on T&E as much everybody else. So it's good to have you numerous this morning, and showing your continuous interest into Givaudan, into our Company.
So it's an annual conference about 2008. It's also about the first quarter results that have been posted this morning. It's also about our long term strategy. So our agenda reflects that.
2008, well, I'm not going to paraphrase again what you read every day on the newspaper, what tremendous speed at which this financial crisis has turned into an economic crisis, and the speed at which over the last six to 12 months our environment for industry, but also for Givaudan, has changed in a tremendous way. Just as a reminder, a very sharp increase in raw materials driven by, yes, the oil, but also the commodities which are -- which went up, myself, I've never seen an increase in the 15-16 years I have been with this Company. So obviously that has impacted our gross profit margin.
We've seen a huge volatility in terms of currency exchange rates. The Swiss francs, the euro, which obviously had an impact on ourselves, and therefore on our EBITDA from an absolute value standpoint. The effect has been CHF60 million on our EBITDA in 2008.
And finally a declining consumer confidence and spending, which has translated into heavy destocking, starting in the [post] of the fourth quarter. So heavy destocking in the supply chain starting at the household, it goes using whatever you have in your pantries, cupboards and kitchens. At least for the consumer it makes him or her comfortable that he's trying to save something. But, moreover, it's destocking in the whole supply chain, and don't forget that obviously we're several steps ahead or up vis-a-vis the supply chain. We are manufacturing to home manufacturing companies, our clients to whom we supply, and also the retail, and then to the consumer, so several points of inventories. And when we talk about destocking, this destocking happens actually at every stage.
It's not an exact science, but that's what we have seen over the last few months. And going into Q1 where this destocking has had a very significant impact, especially at the beginning of this first quarter, and I will talk more about the first quarter.
So despite this adverse environment, we have grown 2.5% on a like-to-like basis, single currency last year, which I think is a good result considering what the industry has been growing, and also was in line with basically what we gave as expectations and guidance early in 2008. Our profitability was sustained at the same level, 0.3%, so below in terms of EBITDA which is also a good result considering the highest of industry. And doesn't make us necessarily happy, but at least we declined the least compared to most of our competitors.
So let me go quickly on our agenda to review the agenda this morning of what we intend to share with you. So I mentioned I will go through the first quarter's sales, giving some more qualitative comments about what's going on, at least in the first quarter, from a sales standpoint. Then Matthias will quickly review the 2008 most important points on our full year end results, and he will actually focus more on the non-operating elements of those results. And then I'm happy to have today two Givaudan leaders of our Company, so Colin O'Neill is the Head of Consumer Products Worldwide. Colin actually has been a long time with Givaudan, close to 20 years. Successful judged throughout his time at Givaudan, mainly in the Fragrance consumer products. And at the time of the Quest integration and the Quest merger with Givaudan he took the helm. Having taken the responsibility of the US, he took over Consumer Products on the worldwide basis.
Consumer Products represents as you know 60% of the Fragrance business. It's a business which has been growing above the market, and clearly beating competition over the last eight years in a very consistent way. So Colin will emphasize on the long term growth initiatives that were shared with you last August in Zurich, and especially putting light on the developing markets, but also on how Givaudan is best positioned today to achieve those growth objectives.
After Colin, we'll also have Louie D'Amico, our Head of the Flavor Division in Europe. Louie has also been close to 20 years with Givaudan, also a great track record. He will provide you with interesting insights on the great mix. Europe is very unique, Europe is not obviously just about Western Europe. Europe is the mix of Western Europe and the whole Central Eastern Europe. When we talk about developing markets, the questions I have is always about China. When you look at Central Eastern Europe, it's a big potential, and it actually has been growing very fast for Givaudan over the last few years.
So, Louie has taken the leadership of the Europe Flavors almost four years ago, and has been extremely successful growing this business in this region and outgrowing again competition. So Europe for Flavors represents roughly 40% of the division. So actually, if you add up, I just did the calculation yesterday, if you add up Louie and Colin's responsibilities, they manage half of Givaudan.
So then I will finish with some short term and long term outlook and then will be happy to answer your questions. So let me turn to the first quarter sales.
So, similar to what I mentioned in terms of environment in 2008. We continued to face numerous pressures during the first quarter of this year. An unprecedented difficult and volatile economic environment which obviously as I mentioned translated into strong destocking throughout the supply chain, again from consumers to our clients, our customers, combined with adverse currency effects for a Company, obviously, consolidated Swiss franc.
So all-in-all our sales in the first three months as you have seen this morning return CHF976 million, growing -- a decline basically of 2.6% in local currencies and 7.3% in Swiss franc. You see the effect of the translation on currencies, still in the first quarter. Excluding -- if you remember, we sold the Flavors activity in the US, last year, in early last year, in Saint Louis, so that has an effect, a sizable effect on our performance. So if I exclude the Saint Louis, the divested business, the Group has declined 2.1% in local currencies.
So, obviously I mention the destocking, I will come back to the relative performance of Flavors and Fragrances. But the destocking having been quite significant, it has actually been compensated by a number of important new wins, really, the result of what has been done, won, developed, achieved last year in both divisions. So compensated by those new wins, but also obviously by the price increase that we referred to at the time of the full year end results that were kicking in, most of them, start of January 2009.
So I would say that, looking at the business overall, I think that so far when we talk about resilience we are considered a defensive industry. We have always argued that obviously people have to eat, drink, wash every day. So looking at the relative performance of Flavors and Consumer Products which in all logic are the most resilient part of the business, and which actually stayed flat or even delivered slight growth, I would say that this resilience so far has been demonstrated. But also I would say that looking at the relative performance of mature markets versus developing markets, the rated performance across the different clients, branded clients, private labels, small clients. I would say the performance there is also, let's say, supported by what we talked about the natural hedges of Givaudan.
So looking at Fragrances we are declining by 5.4% in local currencies, has to do obviously with destocking, but essentially it's all about Fine Fragrances. And the Fragrance Ingredients part, don't forget fragrance ingredients go for the most part to our competitors. Competitors who themselves sell fine fragrances also, so it's a double effect. And on the Flavor division, this growth of 0.8% considering the amount of destocking is a relatively good result and again shows the resilience of this business.
Just some comments on the actual environment, the Flavor and Fragrance market situation. We mentioned destocking. Fine Fragrances in [essence] is a volatile business because it highly depends on the amount of new wins, it highly depends on consumer demand, it highly depends on the ups and downs of the supply chain which is not a steady flow. So obviously Fine Fragrances has been affected quite a lot in the first quarter of this year, and will continue to be most probably be effected in the whole course of 2009 for two logical reasons. Consumer confidence, it's a discretionary item, so it's not about down-trading in fine fragrance. You either buy it or you don't buy it because your preferred brand, you're at least loyal to it and you aspire to a luxury item. So this could be affected through consumer confidence, but also the travel activity.
20%-25% of the distribution channel of fine fragrances are through duty free. Look at the travel activity right now, obviously that has an indirect effect. There we can argue that there are still some discretionary pockets, discretionary items. Colin will mention that in Consumer Products. Still in air care for example, plug-ins, air fresheners are not so essential on the day-to-day basis. However, they represent not obviously the lion's share of consumer products, some cosmetics, but also some higher end Flavor products, confectionary that also are not absolutely indispensable.
So -- but the essential about consumers having still to satisfy basic needs remains true, and again shown in the course of this Q1, and should also be expected in the course of 2009, which essentially is the core business of Flavors and the core business of Consumer Products. Then we can argue, and we've seen that, and some of our clients if you listen to them commenting on their results, you can argue that people have to have some luxury items to at least make them feel good. So it's all the story about cosmetics, feeling good and beautiful to compensate for a difficult environment. Or cocooning at home instead of going out, eating snacks and things which make you both good and guilty maybe.
So, as we mentioned, Fragrances declined 5.4%. We have had a double-digit decline in Fine Fragrances both in Europe and North America. But on the -- so this is essentially due especially in the US to very weak retail sales, especially at the Christmas season. More or less 40% of the yearly sales in the US are done in the Christmas season, in the holiday season in the US. So that has obviously an effect on our Q1 sales because clients don't have to be restocked in the following quarter. On the good news, we have still a good inflow of new wins. I'm really happy about the combination of the ex-Quest and Givaudan team winning and winning better because of better creativity, but also more intimacy with clients. The good news is, in Latin America the business actually grew double-digit in Fine Fragrances, but obviously could not compensate the mature market.
On the Consumer Products side, mention the whole of Consumer Products actually stayed flat against the strong comparable of Q1 2008, but with a very contrasted picture. Destocking affecting the mature markets, but double-digit growth in the developing markets, both Latin America and Asia Pacific. And then, as we mentioned, the hair care category has suffered because it's more discretionary, buffered in the Q1.
And finally, the sale of Fragrance Ingredients, which have also declined double-digit in the first quarter. This destocking on Fragrance Ingredients actually was quite sharp in Q4 2008 and has had an effect also, a significant effect also in Q1 '09.
On Flavors, so we are close to a growth on a like-for-like basis of 1%. Looking at the different regions, you know that the way we look at Flavors, because it's a more local business, less globalized than on the Fragrances side, we have clearly a regional set up to manage this division. So sales in Asia Pacific were flat with, again, a very contrasted picture. Mature markets, Japan is a sizable part of Asia Pacific for Flavors. Remind that because that's the bit of a very unique position for Givaudan compared to some of our competitors, where their share in Japan is much, much, much lower. So we benefit from this also from a profitability standpoint. The Japanese sales in Flavors are slightly more profitable but, at the same time, it's a mature market.
So the picture is contrasted. Mature markets, Japan, Korea, Australia, decline, whilst developing markets showed a very good growth again in India, in Indonesia, in the Philippines, which had the highest growth rates.
Looking at Europe, again a bit the same picture as for Asia Pacific. Western Europe has a decline also, especially with big clients, in Western Europe. But, on the opposite side, we have had the rest, especially Africa and Middle East, which has shown a double-digit growth. Flavors has been affected, obviously, by what happened in Russia where basically the economy has also affected our sales over there.
Sales in North America has also shown a low, single-digit decline. It is essentially driven by heavy destocking with global clients. But, on the good news, savory and dairy sales actually grew, Food Service especially, which actually shows a bit of the way consumers behave in a downturn economy, not going any more to the restaurant, but going into a quick service restaurant. And they've all apparently forgotten how to cook at home, so they go back and have this type of behavior. And then confectionery and beverage declined slightly also in North America.
On the positive side, Latin America grew very significantly, double-digit. So for Flavors, all-in-all, mature markets are obviously declining, impacted by destocking, impacted by major clients. But more than compensated by a strong growth, double-digit growth, with developing markets.
As a reminder, just to remind a bit the profitability drivers, if we can list them, that we are going to see in 2009. Obviously the actual EBITDA in absolute value is a function of our sales, that's pretty obvious. But looking at the raw material costs, if you compare the average raw material price increase compared to 2008, we should see a zero to 2% growth.
Yes, raw mats are coming down, but there we are talking average to average. If I place an index at 100, January 2008, it peaked at 112 in December 2008. So that's why the average '08 to '07 was more than 8%. And then we are coming down, expected to come down in 2009, but we are starting at the peak level of 110 or 112 in December. So average to average, zero to 2% growth.
And the other point is, obviously, a P&L impact which we run with three to four months of inventories. At the end of December '08 those inventories were valued at the highest level, so we have to go through this inventory in the course of the first half of 2009.
Other element, the pension fund costs have to be -- will be an additional CHF23 million in 2009. And, on the more positive side, we benefit from a price increase as of January 1, 2009, which will help on the gross profit margin. We have the further integration savings of CHF30 million compared to 2008, and we are really on plan there to achieve that.
And, finally, we obviously have, like in the past like we have always done, continued efficiency improvement initiatives to reflect our sales and our weaker sales, especially in the first quarter. So that goes on and that goes on, on top of our integration effort.
Let me now hand over to Matthias, who will quickly review the key facts about our 2008 financial results.
MATTHIAS WAEHREN, CFO, GIVAUDAN: Thank you, Gilles, and also good morning from me and welcome to Vernier. I realize, of course, that you all have seen and know our 2008 results, so I really do not want to take you through the details of those. I will go, very briefly, through the key points and then, Peter has pointed out to me that he has received a few questions about our non-operating results. And I would like to address some of the points there, hoping that I will answer, maybe, some of the questions we have also had.
Let me start, quickly as I said, with a summary. In a very challenging environment, as Gilles has already pointed out, Givaudan delivered a really good sales growth …