22:52 uur 13-02-2019

IFF Reports Fourth Quarter & Full Year 2018 Results

Completes historic year with record-setting sales – increasing 17% – and transformational acquisition

NEW YORK–(BUSINESS WIRE)– International Flavors & Fragrances Inc. (NYSE:IFF) (Euronext Paris: IFF) (TASE: IFF) reported financial results for the fourth quarter and full year ended December 31, 2018.

Management Commentary

“2018 was a pivotal year in the long and successful history of IFF,” said Andreas Fibig, IFF Chairman and CEO. “As an organization, we delivered on all our key financial metrics and completed our acquisition of Frutarom – the largest in our industry to date – all while successfully navigating a challenging and dynamic market environment.

“We achieved strong advancements in both top and bottom line results in 2018. Highlights include our record-setting sales of approximately $4.0 billion – including sales related to Frutarom, as well as mid-single digit growth in both Taste and Scent – and strong adjusted EPS ex amortization of $6.28.

“We also made progress strategically to establish ourselves as a global leader in taste, scent and nutrition through the Frutarom acquisition. This combination helps us create a truly differentiated portfolio with an increased focus on naturals and health and wellness. It also provides us opportunities to expand into attractive and faster-growing categories and broadens our complementary and growing customer base.

“Sustainability also continued to be a prevalent part of our everyday as we surpassed three of our four 2020 environmental targets and launched our new environmental goals with ambitious science-based targets. Our efforts continued to be recognized as we joined Barron’s 100 most sustainable U.S. companies list, qualified for FTSE4Good Developed Market Index for the first time, and we were named to Euronext Vigeo’s World 120 Index – an index that ranks us amongst the top companies within the Euronext universe.

“As we enter 2019 – recognizing that the operating environment remains dynamic and raw material inflation continues – we are optimistic in our ability to achieve $5.2 billion to $5.3 billion in sales, $4.90 to $5.10 in adjusted EPS and $6.30 to $6.50 in adjusted EPS ex amortization. Our priorities as an organization are clear – execute our strategy, integrate successfully, drive differentiation and embed sustainability – all as we deliver strong financial results and build a stronger company for our customers, employees and shareholders.”

Full Year 2018 Consolidated Financial Results

  • Reported net sales for the full year totaled $4.0 billion, an increase of 17% from
    $3.4 billion in 2017 driven by mid-single digit growth in both Taste and Scent and the contribution of sales related to Frutarom. For the year, pricing contributed approximately 2 percentage points to growth for both Taste and Scent.
  • Reported earnings per share (EPS) for the full year was $3.79 per diluted share versus $3.72 per diluted share reported in 2017. Excluding those items that affect comparability, adjusted EPS ex amortization was $6.28 per diluted share in 2018 versus $6.23 in the year-ago period as adjusted operating profit growth and a lower year-over-year adjusted effective tax rate more than offset higher interest expense and shares outstanding, both due to the Frutarom acquisition.

Taste Business Unit

  • On a reported basis, sales increased 6%, or $105.2 million, to $1.7 billion. Currency neutral sales grew 5% driven by growth in all regions and across all categories. Improvements were driven by high-single digit growth in North America, with strong double-digit growth at Tastepoint℠. EAME, led by double-digit growth in Africa and the Middle East, and Latin America, driven by strong double-digit growth in Argentina, both achieved mid-single digit growth.
  • Taste segment profit increased 10% on a reported basis and 6% on a currency neutral basis, driven primarily by volume growth and the benefits from productivity initiatives.

Scent Business Unit

  • On a reported basis, sales increased 6%, or $114.1 million, to $1.9 billion. Currency neutral sales improved 4%, with the strongest improvement in Fragrance Ingredients, which grew high-single digits, led by price increases and strong double-digit growth in Cosmetic Active Ingredients. Consumer Fragrances grew mid-single digits, including price increases, as performance was driven by double-digit growth in Hair Care and mid-single digit growth in Fabric Care, Home Care and Toiletries.
  • Scent segment profit increased 3% on a reported basis and declined 2% on a currency neutral basis as the benefits from cost and productivity initiatives were more than offset by unfavorable price to input costs, reflecting unprecedented raw material inflation – including the previously announced citral supply issue and additional supply chain disruptions that occurred throughout the year – as well as higher manufacturing costs.

Taste Business Unit

  • On a reported basis, sales remained constant at $401.6 million in 2018. Currency neutral sales improved 2%, with growth in three of four regions. Performance was led by mid-single digit growth in North America and Greater Asia, the latter, which saw double-digit growth in India and high-single digit increases in Indonesia and China.
  • Taste segment profit decreased 5% on a reported basis and 7% on a currency neutral basis, as volume growth and the benefits from productivity initiatives were more than offset by higher Research, Selling and Administrative expenses.

Scent Business Unit

  • On a reported basis, sales increased 1%, or $5.2 million, to $457.9 million. Currency neutral sales improved 3% as Fragrance Ingredients improved mid-single digits and Consumer Fragrances grew low-single digits to more than offset a slight decline in Fine Fragrances due to a strong double-digit year-ago comparison.
  • Scent segment profit decreased 4% on a reported and currency neutral basis as the benefits from productivity initiatives and cost management were more than offset by unfavorable price to input costs and higher manufacturing expenses.

Frutarom Business Unit

  • On October 4, 2018, the Frutarom acquisition was completed. The results for Frutarom have been included from the closing date, and as a result do not represent a full quarter.
  • On a reported basis, sales were $359.6 million. On a standalone basis, Frutarom sales improved 3% on a like-for-like basis driven by strong growth in Natural Product Solutions and F&F Ingredients. The Core business – excluding Trade & Marketing – grew 4% on a like-for-like basis versus prior year.
  • Segment profit contributed $27 million in the fourth quarter; $66 million excluding amortization.

Outlook

On a combined basis, full year 2018 sales were approximately $5.1 billion, including $4 billion achieved in 2018, plus an estimated $1.1 billion related to Frutarom’s first nine months of 2018, less an estimated $45 million of planned divestitures. Combined adjusted EPS ex amortization (approximately $190 to $195 million of amortization of intangible assets) was approximately $5.95, including $6.28 achieved in 2018, plus an estimated $2.06 related to Frutarom’s first nine months of 2018, less an estimated $2.26 related to acquisition financing and less an estimated $0.13 related to effective tax rate, minority interest, changes in operating income/expense and planned divestitures.

Combined sales growth for 2019 is expected to be approximately 5% to 7% and combined adjusted EPS ex amortization is expected to be 8% to 11% – both on a currency neutral basis. When comparing 2019 guidance to 2018 combined results, currency is expected to negatively impact sales in 2019 by an estimated $150 million or 3 percentage points, and adjusted EPS ex amortization by $0.12 or 2 percentage points.

A copy of the Company’s Annual Report on Form 10-K will be available on its website at www.iff.com or at www.sec.gov by February 26, 2019.

Audio Webcast

A live webcast to discuss the Company’s fourth quarter and full year 2018 financial results will be held on February 14, 2019, at 10:00 a.m. ET. The webcast and accompanying slide presentation may be accessed 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 guidance for full year 2019 and long-term guidance for 2019-2021, the expected impact of the acquisition of Frutarom, including expected expansion of our portfolio and our customer base, and our ability to deliver strong financial results. 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 February 27, 2018 and subsequent filings with the SEC, including the Company’s Quarterly Reports on Form 10-Q. 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) risks related to the integration of the Frutarom business, including whether we will realize the benefits anticipated from the acquisition in the expected time frame; (2) unanticipated costs, liabilities, charges or expenses resulting from the Frutarom acquisition, (3) the increase in the Company’s leverage resulting from the additional debt incurred to pay a portion of the consideration for Frutarom and its impact on the Company’s liquidity and ability to return capital to its shareholders, (4) the Company’s ability to successfully market to its expanded and decentralized Taste and Frutarom customer base, (5) the Company’s ability to effectively compete in its market and develop and introduce new products that meet customers’ needs, (6) the Company’s ability to successfully develop innovative and cost-effective products that allow customers to achieve their own profitability expectations, (7) the impact of the disruption in the Company’s manufacturing operations, (8) the impact of a disruption in the Company’s supply chain, including the inability to obtain ingredients and raw materials from third parties, (9) volatility and increases in the price of raw materials, energy and transportation, (10) the Company’s ability to comply with, and the costs associated with compliance with, regulatory requirements and industry standards, including regarding product safety, quality, efficacy and environmental impact, (11) the impact of any failure or interruption of the Company’s key information technology systems or a breach of information security, (12) the Company’s ability to react in a timely and cost-effective manner to changes in consumer preferences and demands, (13) the Company’s ability to establish and manage collaborations, joint ventures or partnership that lead to development or commercialization of products, (14) the Company’s ability to benefit from its investments and expansion in emerging markets; (15) the impact of currency fluctuations or devaluations in the principal foreign markets in which it operates; (16) economic, regulatory and political risks associated with the Company’s international operations, (17) the impact of global economic uncertainty on demand for consumer products, (18) the inability to retain key personnel; (19) the Company’s ability to comply with, and the costs associated with compliance with, U.S. and foreign environmental protection laws, (20) the Company’s ability to realize the benefits of its cost and productivity initiatives, (21) the Company’s ability to successfully manage its working capital and inventory balances, (22) the impact of the failure to comply with U.S. or foreign anti-corruption and anti-bribery laws and regulations, including the U.S. Foreign Corrupt Practices Act, (23) the Company’s ability to protect its intellectual property rights, (24) the impact of the outcome of legal claims, regulatory investigations and litigation, (25) changes in market conditions or governmental regulations relating to our pension and postretirement obligations, (26) the impact of future impairment of our tangible or intangible long-lived assets, (27) the impact of changes in federal, state, local and international tax legislation or policies, including the Tax Cuts and Jobs Act, with respect to transfer pricing and state aid, and adverse results of tax audits, assessments, or disputes, (28) the effect of potential government regulation on certain product development initiatives, and restrictions or costs that may be imposed on the Company or its operations as a result, and (29) the impact of the United Kingdom’s expected departure from the European Union in 2019. 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.

Use of Non-GAAP Financial Measures

We provide in this press release non-GAAP financial measures, including: (i) currency neutral sales, which eliminates the effects that result from translating its international sales in U.S. dollars; (ii) adjusted operating profit and adjusted EPS, which exclude restructuring costs and other significant items of a non-recurring and/or non-operational nature such as legal charges/credits, gains on sale of assets, tax assessment, operational improvement initiatives, integration related costs, FDA mandated product recall costs, acquisition related costs, CTA realization, Frutarom acquisition related costs, U.S. Tax reform (often referred to as “Items Impacting Comparability); (iii) adjusted EPS ex amortization, which excludes Items Impacting Comparability and the amortization of acquisition related intangible assets; and (iv) long term guidance on currency neutral adjusted EPS ex amortization, which eliminates the effects that result from translating its international sales in U.S. dollars on adjusted EPS ex amortization.

These non-GAAP measures are intended to provide additional information regarding our underlying operating results and comparable year-over-year performance. Such information is supplemental to information presented in accordance with GAAP and is not intended to represent a presentation in accordance with GAAP. In discussing our historical and expected future results and financial condition, we believe it is meaningful for investors to be made aware of and to be assisted in a better understanding of, on a period-to-period comparable basis, financial amounts both including and excluding these identified items, as well as the impact of exchange rate fluctuations. With respect to the redemption value adjustment to EPS, the Company excluded this adjustment as (i) the amount is not believed to be a measure of earnings and is excluded from the net income attributable to IFF; and (ii) the Company believes that investors may benefit from an understanding of the Company’s results without giving effect to this adjustment. These non-GAAP measures should not be considered in isolation or as substitutes for analysis of the Company’s results under GAAP and may not be comparable to other companies’ calculation of such metrics.

When we provide our expectations for adjusted EPS and adjusted EPS ex amortization for our full year 2019 guidance and our expectations for currency neutral sales and currency neutral adjusted EPS ex amortization for our long-term combined guidance for 2019-2021, the closest corresponding GAAP measure and a reconciliation of the differences between the non-GAAP expectation and the corresponding GAAP measure is not available without unreasonable effort due to length of the forecasted period and potential variability, complexity and low visibility as to items such as future contingencies and other costs that would be excluded from the GAAP measure, and the tax impact of such items, in the relevant future period. The variability of the excluded items may have a significant, and potentially unpredictable, impact on our future GAAP results.

Commencing in the fourth quarter of fiscal year 2018, we are including Adjusted (Non-GAAP) EPS ex. Amortization as a key non-GAAP financial measure of our business. Full amortization expense of intangible assets acquired in connection with acquisitions will be excluded from Adjusted (Non-GAAP) EPS ex. Amortization calculation. The exclusion of amortization expense allows comparison of operating results that are consistent over time for newly and long-held businesses and with both acquisitive and non-acquisitive peer companies. We believe this calculation will provide a more accurate presentation in this and in future periods in the event of additional acquisitions. Further, this allows the investors to evaluate and understand operating trends excluding the impact on operating income and earnings per diluted share. In addition, the Frutarom acquisition related costs have been separated from costs related to prior acquisitions. The Frutarom acquisition costs represent a significant balance and we believe this amount should be shown separately to provide an accurate presentation of the acquisition related costs. Our GAAP results and GAAP metrics do not change, and this change has no effect on day to day business operations, or how we manage our business.

We calculated “combined” numbers by combining (i) our results (including Frutarom from October 4, 2018 through December 31, 2018) with (ii) the results of Frutarom prior to its acquisition by us on October 4, 2018, and adjusting for divestitures of Frutarom businesses since October 4, 2018, but do not include any other adjustments that would have been made had we owned Frutarom for such periods prior to October 4, 2018.

Meet IFF

International Flavors & Fragrances Inc. (NYSE:IFF) (Euronext Paris: IFF) (TASE: IFF) is a leading innovator of scent, taste, and nutrition, with over 110 manufacturing facilities, 100 R&D centers, and 33,000 customers globally. 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 experience in more than 150,000 unique products sold annually. Our 13,000 team members globally take advantage of leading consumer insights, naturals exploration, 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.

Contacts

Michael DeVeau
Head of Investor Relations and Communications & Divisional CFO, Scent
212.708.7164
Michael.DeVeau@iff.com

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