Givaudan

If Success Had a Smell, This Is What It Would Smell Like.

This week, too, we have to ask ourselves which companies we want to invest our hard-earned money in. I'm sure that by now everyone who has been following my blog for a while understands what matters to me when it comes to investing. Sensible companies that are among the leaders in their industry - generally companies we could hardly live without anymore. I'm also happy when they're lesser-known corporations that mostly operate in the background. What's important to me is simply that I understand the business model and feel comfortable with the respective stocks in my portfolio.

That's where Givaudan comes into play. Givau... who? That's roughly how I reacted when I first heard about the company. It was completely unknown to me, and yet I come into contact with the company so often - without even knowing it. So a perfect candidate for my blog.

The Origins and Business Model of Givaudan SA

The history of perfume has its origins in ancient Egypt, where around 3000 BC the dead were embalmed with fragrant oils. The question of how to capture the sweet scents of nature and use them yourself has always occupied people. Back then, fruits, flower blossoms, and roots served as sources of fragrance. In the Middle Ages, seafarers brought new raw materials such as spices, flowers, or fragrant woods home from their voyages to India, Madagascar, or America. Finally, in the 14th century, the production of a perfume was documented for the first time in the small French town of Grasse. Little by little, the craft and technical conditions improved, and the first highly concentrated distillates could be brought to market. Back then, huge amounts of raw materials were still needed to make just a small amount of perfume. To be precise, it took just under 8,000 rose or jasmine blossoms to make a mere gram of essential oil. No wonder only the richest could afford perfume.

In 1867, Xavier Givaudan was born in Caluire (France). He studied pharmacy and, in 1895, together with his younger brother Léon, founded the family business Givaudan in the middle of Zurich. While Xavier concentrated on manufacturing pharmaceutical products, Léon researched essential oils and other synthetic fragrances in a small laboratory. He was aware that the prevailing perfume manufacturing process was extremely costly, time-consuming, and simply not efficient. Synthetic substances, whose production didn't require huge amounts of resources, were therefore the solution. However, these were frowned upon by many perfume makers and dismissed as an abuse of the art of perfumery. Léon was nevertheless convinced of synthetics and managed to produce more cheaply and in larger quantities than usual. Business was booming, and the company was able to grow quickly. Profits were plowed straight into new research. In 1898, a local bakery complained that because of Givaudan's production facility, its bread tasted of violets and it was therefore losing sales. For that reason, the brothers moved to Vernier near Geneva and built their first real factory there.

For the first time, synthetic perfumes were able to catch on and be made accessible to the general public. This triggered a wave of international growth for Givaudan. The first factories in Lyon (France) and New Jersey (USA) followed. From 1924 to 1948, the production of synthetic flavors rose from 2 million pounds to 20 million pounds per year. To always have qualified staff, the company opened its own perfumery school in Grasse in 1946. After their training, graduates had to be able to identify 2,800 synthetic and 140 natural scents. Today, it's estimated that every 3rd perfume in the world was created by a Givaudan graduate. In 1963, Givaudan was taken over by the Swiss pharmaceutical group Roche. The following year, it additionally acquired the French perfume company Roure, which was known for developing the first "designer perfume". In the early 1990s, further acquisitions followed before the entire fragrance and flavor division was merged into Givaudan-Roure in 1991. These years were also shaped by many innovative technologies that drove further growth. In order to concentrate fully on its pharmaceutical business again, Roche listed Givaudan SA as an independent company on the Zurich stock exchange in the summer of 2000. Since then, business has developed excellently, and today it is the world's largest manufacturer of flavors and fragrances. In doing so, it works closely with many cosmetics and food companies - including Procter & Gamble, Unilever, L'Oréal, and Colgate-Palmolive.

What Does Givaudan's Future Look Like?

The company has an extremely promising future ahead of it. That makes sense when you consider that the food, hygiene, cosmetics, and consumer goods industries are growing too. More consumers for Givaudan's customers, who by the way often have a non-disclosure agreement in place, therefore also means more orders for the Swiss flavor producer. For the individual companies, it simply isn't lucrative to put so much money into building their own fragrance and flavor research and manufacturing department. They'd rather go straight to the experts - the whole thing reminds me a bit of the packaging group Aptargroup.

Givaudan's customers are mainly active in the following consumer markets. The company currently generates 55% of its sales in the flavor segment. Of this, 38% goes to culinary products such as soups, ready meals, e.g. snacks, 32% to beverages such as soft drinks and fruit drinks, 17% to confectionery, and 13% to dairy products. It earns the remaining 45% of its sales in the fragrance segment. Here, 68% goes to everyday products such as hair and skin care, toothpaste, and household and air care, 19% to fine fragrance, and 13% to fragrance ingredients and other cosmetic ingredients.

To impress across the board and consolidate its market leadership, the group has committed itself to the following 3 core principles. 1) Customer focus: Service comes first. The goal is to serve all its customers in a first-class manner and supply them with outstanding quality. 2) Sense of urgency: The company always wants to challenge itself and create a performance-oriented corporate culture that also embraces openness and creativity. 3) Ambitious innovation: Only through constant research, further development, and innovation can you win people over in the long run. And this isn't limited to researching new molecules and ingredients - it's meant to encompass the entire group with all its business segments.

Givaudan is active in all regions of the world. In total, it has 181 locations today, with 73 production sites. Altogether, just under 15,000 people work for the flavor giant. So it's no wonder that it can call a quarter of the market its own.

And How Is the Dividend Developing?

Since 2000, i.e. since the IPO, the company has paid an annual dividend to its shareholders. In addition, it is raised year after year - so it's well on its way to becoming a Dividend Aristocrat. The dividend growth rate over the last 10 years is a decent 12.5 percent. The current dividend yield of 1.8 percent isn't particularly high, but that's also thanks to the phenomenal rise in the share price. Only the payout ratio, at 82 percent, isn't exactly low.

Conclusion:
The Givaudan profile showed once again that there are countless great companies you can invest in with a clear conscience. A corporation like this doesn't have to be in the spotlight all the time to perform well. Surely only investors who are convinced of Givaudan's long-term success invest here. By the way, when investing, you shouldn't forget the Swiss withholding tax.