01—Abstract
Summary
Summary of the 10-K filed March 1, 2016. Cited figures are marked; the original filing is the authoritative source.
International Flavors & Fragrances Inc. (IFF) reported 2015 net sales of $3.02 billiona, down 2% on a reported basis but up 5% on a currency neutral basis, with acquisitions contributing approximately 2% to growth.
Net income was $419.2 millionb, or $5.16 per diluted share, compared with $414.5 million, or $5.06 per diluted share, in 2014. Operating profit was $588.3 million (19.5% of sales), and adjusted operating profit was $612.1 million (20.2% of sales). Management stated that exchange rate variations represented a 7% decrease in year-over-year sales and that foreign currency changes reduced operating profit by approximately 6%.
The company acquired Ottens Flavors in May 2015 for $198.9 millionc and Lucas Meyer Cosmetics in July 2015 for approximately $312.0 million, expanding into cosmetic active ingredients. Under its Vision 2020 strategy, IFF is targeting $500 million to $1 billion of incremental sales growth through acquisitions by 2020. Cash flow from operations fell to $433.6 million from $518.4 million, driven by higher pension contributions and working capital needs.
Management expects mid single-digit currency neutral operating profit growth in 2016 and capital spending of about 5%d of sales. Key risks cited include customer consolidation and core list pressures, with the 25 largest customers accounting for 52% of sales and the largest customer for 12%, plus a China odor compliance matter that temporarily idled a flavors facility, and a pending ZoomEssence trade secret litigation.
02—Key points
Key Highlights
- Net sales of $3,023.2 million in 2015, down 2% reported and up 5% currency neutral; emerging markets represented 51% of sales.
- Diluted net income per share of $5.16 in 2015, up from $5.06 in 2014; net income of $419.2 million versus $414.5 million.
- Operating margin of 19.5% (adjusted 20.2%) versus 19.2% (adjusted 19.5%) in 2014, with gross margin up 60 basis points to 44.7%.
- Acquisitions of Ottens Flavors ($198.9 million) and Lucas Meyer Cosmetics (approximately $312.0 million) in 2015 added flavors capacity in North America and cosmetic active ingredients.
- Cash flow from operations declined to $433.6 million from $518.4 million, principally due to higher pension contributions and increased core working capital.
- Cash dividends declared per share rose to $2.06 in 2015 from $1.72 in 2014, and $237 million remained available under the share repurchase program.
- Customer concentration: the 25 largest customers accounted for 52% of 2015 sales and the largest customer for 12%.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2015, International Flavors & Fragrances kept $0.14.
- Revenue$3.02B100.0%
- Cost of revenue−$1.67B55.3%
- Gross profit$1.35B44.7%
- Operating costs−$763.3M25.2%
- Operating income$588.3M19.5%
- Interest, other & tax−$169.1M5.6%
- Net income$419.2M13.9%
Where FY2015 revenue went
$3.02B- Cost of revenue: $1.67B, 55% of revenue
- SG&A: $494.5M, 16% of revenue
- Net income: $419.2M, 14% of revenue
- R&D: $246.1M, 8.1% of revenue
- Other operating costs: $22.6M, 0.7% of revenue
- Interest, other & tax: $169.1M, 5.6% of revenue
Kept 14% as net incomeOther operating costs $22.6M · 0.7%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2015filed March 1, 2016Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $3.02B$3.09B | −2.1% |
| Cost of Revenue | $1.67B$1.73B | −3.2% |
| Gross Profit | $1.35B$1.36B | −0.8% |
| R&D Expenses | $246.10M$253.64M | −3.0% |
| SG&A Expenses | $494.52M$507.56M | −2.6% |
| Operating Income | $588.35M$592.32M | −0.7% |
| Interest Expense | $46.06M$46.07M | 0.0% |
| Net Income | $419.25M$414.54M | +1.1% |
| EPS (Basic) | $5.19$5.09 | +2.0% |
| EPS (Diluted) | $5.16$5.06 | +2.0% |
| Shares Outstanding (Basic) | 80.45M80.94M | −0.6% |
| Shares Outstanding (Diluted) | 80.89M81.49M | −0.7% |
05—Questions
Frequently Asked Questions
How did IFF perform in 2015 on a currency-adjusted basis?
Reported sales fell 2% to $3.02 billion, but currency neutral sales grew 5%, with acquisitions contributing approximately 2%. Exchange rate variations reduced year-over-year sales by 7%. Flavors grew 6% currency neutral and Fragrances grew 4%.
What acquisitions did IFF complete in 2015 and why?
IFF acquired Ottens Flavors in May 2015 for $198.9 million to strengthen its flavors position in North America and serve small and mid-sized customers. It acquired Lucas Meyer Cosmetics in July 2015 for approximately $312.0 million to expand into cosmetic active ingredients.
What is IFF's outlook for 2016?
Management expects challenging market conditions to continue in 2016 and expects currency neutral operating profit growth of mid single-digits, including acquisitions. Capital spending is expected to be approximately 5% of sales, reflecting a planned new flavors facility in China and the continuing Indonesia project.
What regulatory or legal matters could affect IFF?
In 2015, Chinese authorities cited IFF for odor emissions at several plants, temporarily idling its China flavors facility, and the company invested about $6.5 million in odor-abatement equipment. A trade secret lawsuit by ZoomEssence is ongoing, with a trial anticipated in early 2017; management does not believe it is a material loss contingency. The company also reversed a $10.5 million Spanish capital tax provision after a favorable Spanish Supreme Court ruling on February 24, 2016.
What returns are IFF providing to shareholders?
The company declared $2.06 per share in dividends in 2015, up from $1.72 in 2014, and paid $158.9 million in dividends. Its stated intention is to return 50%-60% of adjusted net income through dividends and share repurchases. Repurchases of $122.2 million were made in 2015, and $236.7 million remained available under the program at year-end.
06—Continue