01—Abstract
Summary
Summary of the 10-K filed February 22, 2021. Cited figures are marked; the original filing is the authoritative source.
International Flavors & Fragrances Inc. (IFF) reported 2020 net sales of $5.08 billiona, down about 1% from $5.14 billion in 2019, with flat currency-neutral sales.
Scent sales rose 2% on a reported basis, led by Consumer Fragrances, while Taste sales fell 3%, driven by volume reductions in most Taste categories, especially retail food service, as COVID-19 restrictions weighed. Operating profit declined to $566.5 millionb (11.1% of sales) from $665.3 million, and diluted EPS fell to $3.21 from $4.00. Adjusted operating profit was $729.7 million (14.4% of sales) versus $793.1 million in 2019.
Net income attributable to IFF stockholders was $363.2 millionc, and operating cash flow was $714.1 million. The most significant event in the filing is the February 1, 2021 closing of the N&B Transaction with DuPont's Nutrition & Biosciences business, in which IFF issued 141,740,461 shares representing approximately 55.4% of its fully diluted common stock and DuPont received a $7.3 billion special cash payment. The filing states that the transaction increases indebtedness by $7.5 billion and adds approximately $20.5 billion of goodwill and other intangible assets.
Following the closing, IFF will report four segments: Nourish, Scent, Health & Biosciences and Pharma Solutions. As of December 31, 2020, total debt was $4.4 billiond, and the company reported a Net Debt/adjusted EBITDA ratio of 3.43 to 1 under its credit agreements. Investors should also note the filing's risk disclosures, including integration and synergy risk, the goodwill cushions for the Savory (about 5% excess fair value) and Natural Product Solutions (about 1%) reporting units, and pending litigation tied to Frutarom's improper payments, including a securities class action and an Israeli criminal investigation.
02—Key points
Key Highlights
- 2020 net sales of $5,084.2 million, down 1% reported and flat currency neutral; Scent sales up 2% and Taste sales down 3% on a reported basis.
- Operating profit fell to $566.5 million (11.1% of sales) from $665.3 million; adjusted operating profit was $729.7 million (14.4% of sales) versus $793.1 million (15.4%).
- Diluted EPS was $3.21 versus $4.00 in 2019; net income attributable to IFF stockholders was $363.2 million.
- N&B Transaction closed February 1, 2021: IFF issued 141,740,461 shares (about 55.4% of fully diluted common stock) and DuPont received a $7.3 billion special cash payment.
- Post-closing leverage rises: the filing cites $7.5 billion of added indebtedness, and the company expects four reporting segments (Nourish, Scent, Health & Biosciences, Pharma Solutions).
- Goodwill of $5.59 billion at year-end 2020; Savory and Natural Product Solutions reporting units had excess fair value over carrying value of approximately 5% and 1%, respectively.
- Operating cash flow was $714.1 million; dividends paid totaled $322.6 million, and the 2020 cash dividend declared per share was $3.04.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2020, International Flavors & Fragrances kept $0.07.
- Revenue$5.08B100.0%
- Cost of revenue−$3.00B59.0%
- Gross profit$2.09B41.0%
- Operating costs−$1.52B29.9%
- Operating income$566.0M11.1%
- Interest, other & tax−$203.0M4.0%
- Net income$363.0M7.1%
Where FY2020 revenue went
$5.08B- Cost of revenue: $3.00B, 59% of revenue
- SG&A: $949.0M, 19% of revenue
- Net income: $363.0M, 7.1% of revenue
- R&D: $357.0M, 7.0% of revenue
- Other operating costs: $214.0M, 4.2% of revenue
- Interest, other & tax: $203.0M, 4.0% of revenue
Kept 7.1% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2020filed February 22, 2021Financial Statements
FY2020 against FY2019
| Line item | FY2020FY2019 | Change |
|---|---|---|
| Revenue | $5.08B$5.14B | −1.1% |
| Cost of Revenue | $3.00B$3.03B | −1.0% |
| Gross Profit | $2.09B$2.11B | −1.3% |
| R&D Expenses | $357.00M$346.00M | +3.2% |
| SG&A Expenses | $949.00M$876.00M | +8.3% |
| Operating Income | $566.00M$665.00M | −14.9% |
| Interest Expense | $132.00M$138.00M | −4.3% |
| Net Income | $363.00M$456.00M | −20.4% |
| EPS (Basic) | $3.25$4.05 | −19.8% |
| EPS (Diluted) | $3.21$4.00 | −19.7% |
| Shares Outstanding (Basic) | 112.00M112.00M | 0.0% |
| Shares Outstanding (Diluted) | 114.00M113.00M | +0.9% |
05—Questions
Frequently Asked Questions
How did the N&B Transaction change IFF's size and capital structure?
The N&B Transaction closed on February 1, 2021. IFF issued 141,740,461 shares, which the filing states represent approximately 55.4% of its common stock on a fully diluted basis. DuPont received a one-time $7.3 billion special cash payment, funded by N&B's debt financings, and IFF's indebtedness increased by $7.5 billion. The filing also states that the transaction adds approximately $20.5 billion of goodwill and other intangible assets.
Why did profitability decline in 2020?
The filing attributes the decline in gross margin (41.0% versus 41.1%) principally to unfavorable price versus input costs and mix and to sales volume reductions on existing business, due principally to COVID-19. Operating profit fell $98.8 million, and S&A expenses rose to 18.7% of sales from 17.0%, reflecting higher employee-related expenses and incentive compensation.
What were the main segment trends in 2020?
Scent sales increased 2% on a reported basis and 3% currency neutral, led by Consumer Fragrances, while Fine Fragrances declined through the first nine months. Taste sales decreased 3% reported and 2% currency neutral, with volume declines in most categories, especially those tied to retail food service. Taste segment profit fell to $436.4 million (14.0% margin) from $482.4 million, while Scent segment profit rose to $357.3 million (18.1% margin).
What legal and regulatory matters could affect IFF?
The filing describes a putative U.S. securities class action (Marc Jansen) and Israeli securities class action motions related to Frutarom's improper payments to customer representatives in Russia and Ukraine. It also discloses a June 2020 investigation by the Israel Police's National Fraud Investigation Unit and the Israeli Securities Authority into Frutarom and former executives, and a claim against former Frutarom CEO Ori Yehudai over a US $20 million bonus. The filing says the outcome of these matters is subject to uncertainty.
What is IFF's liquidity and debt position at year-end 2020?
At December 31, 2020, total debt was $4.4 billion and cash and cash equivalents were $649.5 million, giving net debt of $3.76 billion. The Net Debt/adjusted EBITDA ratio under the credit agreements was 3.43 to 1, below the covenant maximum. The revolving credit facility had approximately $627 million of borrowing capacity, and the company stated it was in compliance with all covenants.
06—Continue