Fragrance and Flavors Houses Target Offshore Investments

11 September 2000 00:00  [Source: ICB Americas]

By Patricia Van Arnum

Much of the recent capital investment by the leading US and European-based flavors and fragrances companies has been in offshore markets, specifically Latin American and Asia. Facing mature and relatively flat growth in established markets in the US and Europe, those offshore markets are increasingly strategic.

Recently, International Flavors & Fragrances completed a new flavors production facility in TaubetÄ, Brazil, near Sïo Paulo, which more than doubled the company's flavors capacity in Latin America. The project, which started in 1994, cost $27 million to complete.

The TaubatÄ plant replaces IFF's former flavors facility in Rio de Janeiro, which recently ceased operations. The new facility consolidates IFF's Brazilian flavors operations.

The new facility occupies a 30,000-square-meter site and is capable of producing roughly 7,600 tons per month.

Outside of the US and Europe, Latin America is IFF's largest market, accounting for 16.1 percent of its 1999 sales. In 1999, IFF posted sales of $232.9 million in Latin America. Overall, North America and EAME (Europe, Africa and the Middle East) are IFF's largest markets, accounting for roughly 70 percent of its sales. In 1999, IFF had sales of $452.6 million in North American and $565.2 million in EAME. Asia-Pacific accounted for $188.8 million.

IFF's sales in Latin America rebounded in the first half after a difficult year in 1999. After 8 percent growth in Latin America in 1998, IFF saw its sales in that region fall 3 percent last year. Particularly hard hit were Latin American flavor sales, which declined 11 percent because of currency and economic conditions in the region, most notably Brazil, IFF's largest flavors market in South America.

IFF's sales to Latin America improved during the first half, with sales up almost 14 percent year-over-year. The company posted sales of $113.8 million for the first six months in Latin America, compared to sales of only $99.7 million in the first half of 1999. On a local currency basis, sales in Latin America rose 8 percent in the first half. The sales improvement was due to improved economic and pricing conditions in Latin America.

Analysts point to offshore markets, particularly in fragrances, as important to IFF's second quarter results. "The aggregate modest 6 percent growth performance of the fragrance unit obscures volume growth rate above 20 percent in China, Indonesia, the Philippines and Mexico," says Jeffrey Zekauskas, an analyst with JP Morgan.

"The fragrance business expanded at a strong 14 percent in South America, 7 percent in Asia, 4 percent in Europe and 3 percent in North America. The flavor unit was the weaker performer, contracting at a 1 percent rate measured in local currencies. Flavor volume contracted 11 percent in North America, 7 percent in Western Europe and 1 percent in Latin America, but expanded 9 percent in Asia."

South America represents roughly 6 percent of the global flavors and fragrances markets. Asia-Pacific accounts for roughly 26 percent of global flavors sales and 23 percent of the fragrance market.

Among the F&F houses investing in Asia is Haarmann & Reimer, which is spending $15 million to relocate a production facility to a 50,000-square-meter site in the Pudong Industrial Zone in eastern Shanghai. Haarmann & Reimer will begin construction of the new facility early next year. The company cites an inability to expand its old location in Shanghai as the reason for the relocation.

Last year, Haarmann & Reimer completed construction of two new production facilities in offshore markets. The first was a new plant in Bogota, Colombia, to supply flavors and fragrances to Latin America. The second was a new plant in Thane, India.

Last month, Givaudan opened a new plant in Jigani (Bangalore, India). The plant features fragrance and flavors compounding facilities and application and quality control laboratories. It doubles Givaudan's production capabilities in India.

Givaudan has also been active in the North American market, with a $55 million investment for a new fragrance compounding center in Mount Olive, N.J. It also brought on line a flavors marketing research center in Cincinnati, Ohio, and completed the construction of a pilot plant for encapsulated fragrances at its research center in Duebendorf, Switzerland.

Dragoco is completing a new production site in Shanghai. In 1999, Dragoco invested DM 8.9 million ($4 million) in Asia, DM 3.8 million in South America and DM 12.8 million in North America.

But Dragoco's largest investment was in Holzminden, Germany, where earlier this year, it completed a DM 52.6 million fragrance production plant.

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