IFF Reports Full Year 2015 Results
International Flavors & Fragrances Inc. (NYSE:IFF) (Euronext Paris:IFF) reported financial results and strategic achievements for the fourth quarter and full year ended January 1, 2016.
“2015 was a successful year for IFF as we embarked on a new chapter in our 126 year journey of discovery and pioneering firsts,” said Chairman and CEO Andreas Fibig. “I am pleased with the progress we’ve made in terms of our financial performance and strategic execution. From a strategic perspective, since the initiation of our Vision 2020 strategy we believe we have taken the right steps in our ambition to build greater differentiation, accelerate profitable growth and increase shareholder value. In the Middle East & Africa, one of our targeted areas of focus in the emerging markets, we saw a 14% increase for 2015 with strong growth across flavors and fragrances on a currency neutral basis. In Latin America, Flavors grew 16% on a currency neutral basis, driven in part by key customers and our proprietary delivery system. We also fortified our market share in North America – achieving the number two position in Flavors – with the successful acquisition of Ottens Flavors.
“Delivery systems across both flavors and fragrances continued to drive solid results. In Fragrances, encapsulation-related sales grew mid-teens, led by Fabric Care and Home Care, while in Flavors, sweetness & savory modulation portfolio sales grew strong double-digits, led by Savory, Dairy and Beverage. We also commercialized four captive fragrance ingredients in 2015 – doubling IFF’s historical annual output. These accomplishments are a testament to our continued commitment to advance our innovation and R&D capabilities.
“To support our goal to become our “customers’ partner of choice” we launched a new branding initiative by unveiling our new purpose statement, visual identity and refreshed tone of voice to ensure all our current and future customers understand our vision, imagination and innovative focus. We were also recognized by several customers to be among their top performing business partners and received several innovation awards for IFF | Lucas Meyer Cosmetics. We also made significant progress working towards creating a sustainable future. In 2015, we reached a series of sustainability achievements, including surpassing our initial 2020 water reduction goal of 25%, being recognized on the CDP Climate “A” List, receiving “For Life” social responsibility certification for Turkish Rose, Patchouli, Basil and Vetiver, and being first in our industry to join the Together for Sustainability sustainable sourcing initiative.
“In terms of strengthening and expanding our portfolio, M&A, partnerships and collaborations have become a more pronounced element of our strategy. Over the course of the year, we successfully completed the acquisition of Ottens Flavors and Lucas Meyer Cosmetics. We also established collaborations with Duke University for flavor modulation, the University of Liverpool for delivery systems in fragrances, and announced a partnership with Vapor Communications to pioneer the future of digital scent.
“Financially, we delivered solid growth across all our key financial metrics with sales improving 5%, adjusted operating profit growing 8%, and adjusted EPS increasing 11%, all on a currency neutral basis. In the fourth quarter, we experienced softness in our year-over-year organic top-line growth, which included an additional week of sales in 2014. In addition, our performance was also impacted by increased economic pressures in key emerging markets, a more pronounced portfolio rationalization by one of our largest Fragrance Ingredients customers, and efforts by some of our larger customers to manage their inventories. Despite these fourth quarter challenges, we delivered positive currency neutral sales growth, including M&A, and solid improvements in profitability and EPS.
“As we look ahead to 2016, we are preparing ourselves for even more challenging conditions given a higher level of economic uncertainty and the more cautious volume outlook of consumer packaged goods companies. We remain confident in our ability to navigate through these uncertain times as we strive to deliver between 3.5% and 4.5% sales growth, between 5% and 7% adjusted operating profit growth and between 6.5% and 8.5% adjusted EPS growth, all on a currency neutral basis. Inclusive in our guidance is approximately 1.5% contribution related to our two acquisitions.”
Full Year 2015 Strategic Highlights: Currency Neutral Performance
Win Where We Compete : achieve market leadership position in key markets, categories & customers
- Middle East and Africa sales +14%
- China Fragrance compounds sales were up high-single-digits
- Home Care grew high-single-digits
- Flavors Latin America sales +16%
- Became the #2 Flavors company in North America with the acquisition of Ottens Flavors
Innovating Firsts : strengthen position and drive differentiation in priority R&D platforms
- Commercialized four captive fragrance ingredients
- Encapsulation-related sales grew mid-teens vs. year-ago led by Fabric Care & Home Care
- Developed new capsule to expand encapsulation technology into personal care categories
- Sweetness and savory modulation portfolio sales grew strong double-digits
- Commercialized two natural taste modulators to build consumer-preferred products
- Flavors proprietary delivery system sales posted strong growth across all regions and all categories
Become Our Customers’ Partner of Choice : attain commercial excellence
- Completed branding initiative showcasing IFF’s vision, imagination and innovation
- IFF recognized by several customers; named top-performing business partner by a customer and received several innovation awards for IFF | Lucas Meyer Cosmetics
- Surpassed initial 2020 water reduction goal of 25%; reset goal to 50% by 2020
- Recognized on the CDP Climate “A” List – received a perfect score of 100 in disclosure
- “For Life” social responsibility certification received by IFF | LMR for Turkish Rose, Patchouli, Basil, and Vetiver
- First in industry to join Together for Sustainability sustainable sourcing initiative
- Committed to 100% renewable energy by joining RE 100
Strengthen and Expand the Portfolio : pursue value creation through collaborations & acquisitions
- Strengthened Flavors North America with the acquisition of Ottens Flavors: Sales grew double-digits with strongest growth coming from regional customers
- Expanded into Cosmetic Actives with the acquisition of Lucas Meyer Cosmetics which achieved solid sales growth on a standalone basis
- Established collaborations with Duke University for flavor modulation and the University of Liverpool for delivery systems in fragrances
- Announced collaboration with Vapor Communications to pioneer the future of digital scent
Fragrances Business Unit
- Currency neutral sales improved 4%, including approximately 1 percentage point related to the acquisition of Lucas Meyer Cosmetics. Overall growth was led by a high-single-digit increase in EAME, a mid-single-digit improvement in Latin America and low-single-digit growth in Greater Asia.
- Fine Fragrances increased 1% as EAME grew 6% due to strong new wins.
- Consumer Fragrances improved 5% led by double-digit growth in Fabric Care, high-single-digit growth in Home Care and a mid-single-digit increase in Hair Care. On a geographic basis, all regions delivered growth led by double-digit growth in Latin America and high-single-digit growth in EAME, both on a currency neutral basis.
- Fragrance Ingredients grew 2% against a very strong 18% growth rate reported in the year-ago period. Performance was primarily driven by the contribution of sales related to Lucas Meyer Cosmetics.
- Fragrances currency neutral segment profit improved approximately 6% driven by sales growth, gross margin expansion, the benefits from cost and productivity initiatives and lower incentive compensation expense. Segment profit margin on a currency neutral basis increased 40 basis points to 20.4%.
- On a reported basis, sales decreased 3%, or $51.2 million, to $1.6 billion. Fragrances segment profit decreased 4%, or $13.7 million, to $321.8 million.
Flavors Business Unit
- Currency neutral sales grew 6%, including approximately 3 percentage points related to the acquisition of Ottens Flavors. All categories and regions delivered broad-based growth, with the strongest results in Beverage and Latin America.
- EAME improved 4% as all categories reported growth, led by a mid-single-digit increase in Savory and mid-single-digit growth in Beverage. Within the EAME region, the Middle East and Africa grew fastest, improving 14%, driven by strong new wins.
- North America improved 11%, reflecting the contribution of additional sales related to the acquisition of Ottens Flavors, double-digit growth in Dairy and mid-single-digit growth in Sweet.
- Latin America increased 16% as all categories reported growth; Beverage, Savory and Dairy all reported double-digit growth.
- Greater Asia grew 2% led by new win performance in Savory, Dairy and Beverage.
- Flavors currency neutral segment profit improved approximately 4% as sales growth and productivity initiatives more than offset higher raw material costs. Segment profit margin on a currency neutral basis decreased 60 basis points to 22.1% in the prior year quarter.
- On a reported basis, sales decreased 1%, or $14.1 million, to $1.44 billion. Flavors segment profit decreased 4% to $318.5 million from $331.3 million.
Fragrances Business Unit
- Currency neutral sales increased 1% driven primarily by a 4 percentage point contribution from the acquisition of Lucas Meyer Cosmetics and mid-single-digit growth in EAME.
- Fine Fragrances posted its strongest growth of 2015, increasing 3% versus the year-ago period. Both EAME and Latin America delivered 5% growth, principally driven by very strong new win performance.
- Consumer Fragrances declined 2% against the strong 8% growth reported in the prior year period. Both EAME and Greater Asia posted modest gains while North America was challenged by the timing of order patterns.
- Fragrance Ingredients grew 9% driven by the contribution of sales relating to IFF | Lucas Meyer Cosmetics. On a standalone basis, IFF | Lucas Meyer Cosmetics continued to grow double-digits.
- Fragrances currency neutral segment profit increased approximately 1%, as benefits from cost and productivity initiatives, the contribution of acquisitions and lower incentive compensation expense drove results.
- On a reported basis, sales decreased 5% to $381.4 million in the fourth quarter compared with $399.8 million in the prior year quarter. Fragrances segment profit decreased 9%, or $6.8 million, to $69.3 million.
Flavors Business Unit
- Currency neutral sales grew 1%, driven primarily by a 4 percentage point contribution related to the acquisition of Ottens Flavors as well as solid growth in Dairy.
- EAME decreased 4% as low-single-digit growth in Dairy was offset by Beverage softness. Within EAME, Africa and the Middle East improved 15%.
- North America grew 8% reflecting additional sales related to the acquisition of Ottens Flavors as well as low-single-digit growth in Dairy and Sweet.
- Latin America increased 8% led by double-digit growth in Beverage, Savory and Dairy.
- Greater Asia decreased 3% as growth in Indonesia, India, Singapore and South Korea was offset by softness in China.
- Flavors currency neutral segment profit decreased approximately 9% as productivity initiatives, the benefit of acquisitions, and lower incentive compensation were more than offset by lower sales, as well as higher manufacturing expenses and amortization relating to acquisitions.
- On a reported basis, sales decreased 6% going to $334.3 million from $356.3 million in the prior year quarter. Flavors segment profit decreased 15% to $61.9 million from $72.6 million.
Q4 2015 Profit Improvement Initiative
During the fourth quarter, the Company established a series of initiatives that are expected to streamline our management structure, simplify decision-making and accountability, better leverage and align our capabilities across the organization and improve the efficiency of our global manufacturing and operations network. As a result, the Company recorded a pre-tax charge of approximately $8 million to cover severance and related costs associated with expected terminations, a portion of which are subject to consultation processes. The Company expects to realize pre-tax savings of $7-9 million once fully implemented in the second half of 2017, half of which is expected to be realized in 2016.
Separately, the Company recorded a charge of approximately $7 million associated with the acceleration from 2016 to 2015 of contingent consideration payments from the Aromor acquisition that were triggered by certain of the affected positions noted above.
FY 2016 Guidance: Growth vs. Prior Year
A copy of the Company’s Annual Report on Form 10-K will be available on its website at www.iff.com or at sec.gov by March 1, 2016.
A live webcast to discuss the Company’s fourth quarter and full year 2015 financial results will be held on February 11, 2016, at 10:00 a.m. EST. Investors may access the webcast and accompanying slide presentation on the Company's IR website at ir.iff.com. For those unable to listen to the live webcast, a recorded version will be made available on the Company's website approximately one hour after the event and will remain available on IFF’s website for one year.
Cautionary Statement Under The Private Securities Litigation Reform Act of 1995
This press release includes “forward-looking statements” under the Federal Private Securities Litigation Reform Act of 1995, including statements regarding our outlook for fiscal year 2016 and beyond, expected returns from our recent acquisitions and partnerships, our ability to accelerate growth and maximize shareholder value and expected impact and savings from our profitability improvement plan. These forward-looking statements are qualified in their entirety by cautionary statements and risk factor disclosures contained in the Company’s Securities and Exchange Commission filings, including the Company’s Annual Report on Form 10-K filed with the Commission on March 2, 2015. The Company wishes to caution readers that certain important factors may have affected and could in the future affect the Company’s actual results and could cause the Company’s actual results for subsequent periods to differ materially from those expressed in any forward-looking statements made by or on behalf of the Company. With respect to the Company’s expectations regarding these statements, such factors include, but are not limited to: (1) the Company’s ability to implement its Vision 2020 strategy; (2) the Company’s ability to successfully identify and complete acquisitions in line with its Vision 2020 strategy, and to realize the anticipated benefits of those acquisitions; (3) the Company’s ability to effectively complete in its market, and to successfully develop new and competitive products that appeal to its customers and consumers; (4) changes in consumer preferences and demand for the Company’s products or a decline in consumer confidence and spending; (5) the Company’s ability to benefit from its investments and expansion in emerging markets; (6) the impact of currency fluctuations or devaluations in the principal foreign markets in which it operates, including the devaluation of the Euro; (7) the economic and political risks associated with the Company’s international operations, including current challenging economic conditions in China and Latin America; (8) the impact of any failure of the Company’s key information technology systems or a breach of information security; (9) the Company’s ability to attract and retain talented employees; (10) the Company’s compliance with environmental protection laws; (11) the Company’s ability to realize expected cost savings and efficiencies from its profitability improvement initiative and other optimization activities; (12) volatility and increases in the price of raw materials, energy and transportation; (13) fluctuations in the quality and availability of raw materials; (14) the impact of a disruption in the Company’s supply chain or its relationship with its suppliers; (15) any adverse impact on the availability, effectiveness and cost of the Company’s hedging and risk management strategies; (16) the Company’s ability to successfully manage it working capital and inventory balances; (17) the effect of legal and regulatory proceedings, as well as restrictions imposed on the Company, its operations or its representatives by U.S. and foreign governments; (18) adverse changes in federal, state, local and international tax legislation or policies and adverse results of tax audits, assessments, or disputes; and (19) changes in market conditions or governmental regulations relating to our pension and postretirement obligations. New risks emerge from time to time and it is not possible for management to predict all such risk factors or to assess the impact of such risks on the Company’s business. Accordingly, the Company undertakes no obligation to publicly revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
International Flavors & Fragrances Inc. (NYSE:IFF) (Euronext Paris: IFF) is a leading innovator of sensorial experiences that move the world. At the heart of our company, we are fueled by a sense of discovery, constantly asking “what if?”. That passion for exploration drives us to co-create unique products that consumers taste, smell, or feel in fine fragrances and beauty, detergents and household goods, as well as beloved foods and beverages. Our 6,800 team members globally take advantage of leading consumer insights, research and development, creative expertise, and customer intimacy to develop differentiated offerings for consumer products. Learn more at www.iff.com , Twitter , Facebook , Instagram , and LinkedIn .
International Flavors & Fragrances Inc.
521 West 57th Street
New York, NY 10019
International Flavors & Fragrances Inc.
Michael DeVeau, 212-708-7164
VP, Global Corporate Communications & Investor Relations
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