Givaudan's lower sales linked to emerging markets slowdown

By Chris BARKER

- Last updated on GMT

Givaudan's lower sales linked to emerging markets slowdown

Related tags: Investment

Fragrance and flavor manufacturer Givaudan has reported an unexpected fall in sales, a problem which has been linked to the currency crisis and general slowdown in growth in emerging markets.

In the months from July to September 2013, the perfume giant suffered a 1.1% fall in sales compared to a 2.3% growth in the first quarter.

A number of other prominent beauty and personal care companies are also beginning to feel the effects of the crisis, with emerging-market focused companies like Unilever particularly feeling the pinch.

In its nine-month financial statement, the company reaffirmed its commitment to continued organic growth and returning high levels of its free cash flow to shareholders.

Givaudan stated: By delivering on the Company’s five pillar growth strategy…Givaudan expects to outgrow the underlying market and to continue to achieve its industry-leading EBITDA margin while improving its annual free cash flow to between 14% and 16% of sales by 2015.”

Decreased growth spells trouble for cosmetics companies

For the past ten years, the engine of the global economy has largely been powered by the growth of emerging markets, particularly the emergence of China as a significant international force.

However, for the first time in a decade, this seems to be suffering from drag. Earlier this year, the IMF cut growth forecasts for China and India to 7.8 and 5.6% respectively, far below their vertigo-inducing levels of the mid-2000s.    

Major cosmetics companies are also beginning to feel the effects of the slowdown.

According to an article on The Motley Fool; Unilever, Proctor & Gamble and Colgate-Palmolive have all suffered from decreasing share prices due to sluggish growth in emerging markets. Unilever was the hardest hit with a 10.3% decline thanks to its high emerging market exposure.

Sluggish sales growth caused by weaker currencies

Givaudan suffered sluggish overall increases in sales, falling short of its target yearly growth and also comparing poorly to the whopping 8.8% growth reported in their 2013 nine month sales report.

In an interview with Reuters, a company spokesperson linked the decline in sales to a weaker US dollar and the fall of some emerging market currencies.

The fragrance division posted particularly disappointing results, shrinking by a total of 1.3% compared to 0.9% for the flavour division.

Developing markets now make up almost half of Givaudan’s sales and are the focus of the firm’s growth strategy going forward, with the company aiming to increase total sales in this category by 50% by 2015.

Related topics: Business & Financial, Financial focus

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