Business Breakdowns
· Jeremie Fastnacht
[00:00:00] S1: You now have a bit of change. You have a new management team following the retirement of Gilles Andrier, iconic CEO for two decades. And you also had Tom Hallam, the CFO for many years, who left a few years ago. They both did a great job. Investing for growth for the long term. Not doing M&A for the sake of doing M&A and getting bigger. Very transparent, long-term view. So there is a new CFO that came 2 years ago, but he has 15 years of experience in finance at Givaudan. Beginning of March, you have a new CEO. He has experience at Unilever, P&G, 2 decades at Danone with several management positions, but that's the main risk. My father taught me something when I was young. It's something from his mechanics course. The teacher used to say, you should never touch an engine that's running smoothly and perfectly. That's a problem for a lot of quality companies. There is new management, they don't understand it's a wonderful business already – and you have to invest to not be complacent – but don't change everything to change something. The ex-CEO, Gilles Andrier, he stays as chairman and, still owns lots of shares. So we hope that everything stays the same. Otherwise, a few years ago – in 2023 I think – there was an antitrust investigation against several players from the fragrance industry. Givaudan said they were collaborating and they've made no provision, so let's see if something comes out. You have some Chinese price competition, really on the more commoditized fragrance ingredients and parts. But it's only 6 or 7% of group sales I think, and very different, as we've seen earlier, from the rest of business – deeply tailored compounding with huge barriers to entry and competitive advantages. Of course maybe, more short term, I hope the effects of the Middle East war—the total region is maybe around 7 or 8% of group sales, but was a good growth driver over the last few years in fine fragrances. In general fine fragrances is more volatile than the other very stable end markets, and it's now 11% of group sales. Maybe finally, if you are more paranoid, a more remote risk would be AI chips implanted in your brain which could simulate taste and scent. You never know. But personally, I will never trade the experience of my favorite ice cream or drink with Givaudan flavors, for a chip in my brain.
· Matt Reustle, Jeremie Fastnacht
[00:00:00] S0: I think you shared a good lesson in that last answer, but we always close out these conversations with the lessons you can take away. This is a unique business, but what would you say at a high level is a broad takeaway that you might be able to take from whatever classification or framework you would put around this business and potentially apply elsewhere? [00:00:00] S1: If you look at why this business is very attractive, the reason is the business model of selling something very critical to the clients which represent a tiny portion of their clients' cost. So you have nice margin, recurring business, they don't want to change. You have visibility. And I think if you look this way, it helps you find a lot of good companies in other industries. If you look at this industry, you realize that there are lots of companies that have been growing and thriving for decades – sometimes over a century. If you look at an industry where you see that kind of business, profitable, stable, very lasting. They have gone through many wars, through many crises, and they are still there. You can find other companies in other industry. For example, if you look at, for example, food, you have Mars and Ferrero that are very big companies, and they are able to stay private and, and still be very important. You have Chanel or Rolex in luxuries. It helps you find other maybe attractive listed opportunities.
· Jeremie Fastnacht, Matt Reustle
[00:00:00] S1: If you look at why this business is very attractive, the reason is the business model of selling something very critical to the clients which represent a tiny portion of their clients' cost. So you have nice margin, recurring business, they don't want to change. You have visibility. And I think if you look this way, it helps you find a lot of good companies in other industries. If you look at this industry, you realize that there are lots of companies that have been growing and thriving for decades – sometimes over a century. If you look at an industry where you see that kind of business, profitable, stable, very lasting. They have gone through many wars, through many crises, and they are still there. You can find other companies in other industry. For example, if you look at, for example, food, you have Mars and Ferrero that are very big companies, and they are able to stay private and, and still be very important. You have Chanel or Rolex in luxuries. It helps you find other maybe attractive listed opportunities. [00:00:00] S0: I love that. It's a lesson we love and we've seen in a few different industries that look very different than this, but with the same general concept. Jeremie, this has been a pleasure. You taught me a lot about a market I knew very little about, so thank you for sharing the knowledge with us. [00:00:00] S1: Thank you very much.