Givaudan to move savoury flavour production to Hungary

By Lorraine Heller

- Last updated on GMT

Related tags Free cash flow

Givaudan plans to streamline its savoury flavour manufacturing production in Europe, with a new plant in Hungary designed to take over most of its current production from the UK and Switzerland.

The proposed investment plan would also increase capacity by 50 per cent, which the firm says will help support future growth, particularly in developing markets where it hopes to increase its presence.

Givaudan’s new European savoury manufacturing plant, located in Mako in Hungary, comes at a cost of CHF 170m (€131m) and is expected to be fully operational by 2013.

Impact to customers?

The proposed investment, which is still subject to consultation with employee representatives, will take over all savoury flavour production from Givaudan’s Bromborough plant in the UK, as well as part of its production from Kemptthal in Switzerland.

The firm said that only the dry powder-blending manufacturing will move from Kemptthal to Mako, while process flavours, spray-dry manufacturing and commercial/marketing and product development/creation will remain in Kemptthal.

“It is expected that normal business operations at Kemptthal and Bromborough will continue until 2012, during which time no changes to the customer supply chain or service are foreseen,”​ said Givaudan.

The ultimate goal, said a spokesperson, is to obtain an improved supply chain, which would help the firm “anticipate market demands with regard to quality, while staying cost competitive and profitable”.

Five-year strategy

In a statement to investors, Givaudan said the proposed plant is part of an updated five-year strategy for growth. The facility will be located close to the “fast-growing markets of Eastern Europe”,​ which the firm has identified as a growth opportunity.

Developing markets currently account for 41 per cent of Givaudan’s sales, and the company expects this to increase to 50 per cent by 2015.

Givaudan expects that the savoury manufacturing strategy together with other efficiency programmes will result in a restructuring cost of approximately CHF 75m (€58m), including an estimated cash component of CHF 55m (€42m).

The expected payback for the savoury manufacturing investment is seven years and for the efficiency projects around three years, said the firm.

Overall, Givaudan expects its growth strategy to deliver free cash flow to between 14-16 per cent of sales by 2015.

“The overall objective is to grow organically between 4.5 per cent and 5.5 per cent per annum, based on an assumed market growth of 2 per cent to 3 per cent, and to continue on our path of market share gain over the next five years,”​ said CEO Gilles Andrier.

Plans for Hungarian plant

Givaudan said it plans to spread the investment in its Hungarian savoury plant over three years.

The new site will have 50 per cent extra capacity over and above the existing capacity at Bromborough and Kemptthal. “Planning is still in early stages, but specific details of what the new site will focus on remains competitively sensitive,” ​said a spokesperson.

However, Givaudan did say that the site will produce culinary flavour blends, snack seasonings and spray-dry flavours, and will also boost the company’s capability to produce Kosher, Halal and allergen-free products.

“The planned investment in Hungary will allow us to prepare for future customer and regulatory demands, backed by an improved supply chain, to cope with the strong potential of the savoury segment in Europe,”​ said Mauricio Graber, president of the firm’s Flavour Division.

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