01—Abstract
Summary
Summary of the 10-K filed February 28, 2022. Cited figures are marked; the original filing is the authoritative source.
International Flavors & Fragrances Inc. (IFF) reported 2021 net sales of $11.656 billiona, up $6.572 billion, or 129% on a reported basis, from $5.084 billion in 2020.
The increase was driven mainly by $6.084 billionb of incremental sales from the Nutrition & Biosciences (N&B) business, which merged into IFF effective February 1, 2021. Gross profit rose to $3.735 billion, but gross margin fell to 32.0% of sales from 41.0%, reflecting higher input costs and N&B's product mix. Reported operating profit was $585 million, net income attributable to IFF stockholders was $270 million, and diluted EPS was $1.10, compared with $3.21 in 2020.
Amortization of acquisition-related intangibles rose to $732 millionc, and the N&B inventory step-up cost $368 million. The balance sheet expanded substantially. Total assets reached $39.658 billion, including $16.414 billion of goodwill and $10.506 billion of other intangible assets.
Total debt was $11.400 billiond at year-end, against cash of $711 million. Management reported a net debt to Credit Adjusted EBITDA ratio of 4.11 to 1, below the covenant maximum, and stated that it was in compliance with all covenants. Operating cash flow was $1.437 billion, and dividends paid totaled $667 million.
The company described its capital allocation as focused on debt repayment to maintain its investment grade rating. The filing highlights integration risk from the N&B transaction, a planned divestiture of the Microbial Control business expected to close in the second quarter of 2022 for approximately $1.273 billion, and ongoing cost-reduction work to close about 30 manufacturing sites by the end of 2022. Management also cited COVID-19, supply chain disruption, and inflation in input costs as ongoing pressures on margins.
02—Key points
Key Highlights
- Net sales were $11.656 billion in 2021, up 129% on a reported basis, with $6.084 billion of incremental sales attributed to the N&B merger.
- Gross margin fell to 32.0% from 41.0% in 2020, due to higher input costs and the product mix of the N&B business.
- Net income attributable to IFF stockholders was $270 million, and diluted EPS was $1.10, versus $3.21 in 2020.
- Total debt was $11.400 billion at December 31, 2021, with a net debt to Credit Adjusted EBITDA ratio of 4.11 to 1, within covenant limits.
- Goodwill of $16.414 billion and other intangible assets of $10.506 billion make up a large share of total assets of $39.658 billion, raising impairment sensitivity.
- The Microbial Control business is being sold for approximately $1.273 billion, with closing expected in the second quarter of 2022.
- Cash dividends paid were $667 million, and the company declared $3.12 per share in 2021 dividends.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2021, International Flavors & Fragrances kept $0.02.
- Revenue$11.66B100.0%
- Cost of revenue−$7.92B68.0%
- Gross profit$3.73B32.0%
- Operating costs−$3.15B27.0%
- Operating income$585.0M5.0%
- Interest, other & tax−$315.0M2.7%
- Net income$270.0M2.3%
Where FY2021 revenue went
$11.66B- Cost of revenue: $7.92B, 68% of revenue
- SG&A: $1.75B, 15% of revenue
- Net income: $270.0M, 2.3% of revenue
- R&D: $629.0M, 5.4% of revenue
- Other operating costs: $772.0M, 6.6% of revenue
- Interest, other & tax: $315.0M, 2.7% of revenue
Kept 2.3% as net incomeNet income $270.0M · 2.3%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2021filed February 28, 2022Financial Statements
FY2021 against FY2020
| Line item | FY2021FY2020 | Change |
|---|---|---|
| Revenue | $11.66B$5.08B | +129.3% |
| Cost of Revenue | $7.92B$3.00B | +164.2% |
| Gross Profit | $3.73B$2.09B | +79.1% |
| R&D Expenses | $629.00M$357.00M | +76.2% |
| SG&A Expenses | $1.75B$949.00M | +84.3% |
| Operating Income | $585.00M$566.00M | +3.4% |
| Interest Expense | $289.00M$132.00M | +118.9% |
| Net Income | $270.00M$363.00M | −25.6% |
| EPS (Basic) | $1.11$3.25 | −65.8% |
| EPS (Diluted) | $1.10$3.21 | −65.7% |
| Shares Outstanding (Basic) | 243.00M112.00M | +117.0% |
| Shares Outstanding (Diluted) | 243.00M114.00M | +113.2% |
05—Questions
Frequently Asked Questions
How did the N&B merger change IFF's financial results in 2021?
N&B was consolidated effective February 1, 2021. The filing attributes $6.084 billion of incremental sales to N&B, and sales rose 129% on a reported basis to $11.656 billion. Amortization of acquisition-related intangibles rose to $732 million from $193 million, and interest expense increased to $289 million from $132 million, mainly due to debt assumed in the merger.
Why did profitability decline in 2021 despite higher sales?
Gross margin fell to 32.0% from 41.0% of sales, which the filing attributes to higher input costs and N&B's product portfolio mix. Operating margin dropped to 5.0% from 11.1%. Operating profit was $585 million, and income before taxes fell to $354 million from $441 million, and the N&B inventory step-up cost of $368 million and higher amortization also weighed on results.
How leveraged is IFF after the merger?
Total debt was $11.400 billion at December 31, 2021, against cash and cash equivalents of $711 million. The company reported a net debt to Credit Adjusted EBITDA ratio of 4.11 to 1, below the maximum permitted under its credit agreements, and said it was in compliance with all financial covenants. Management said its capital allocation strategy is primarily focused on debt repayment to maintain its investment grade rating.
What are the main risks the filing highlights for investors?
The filing cites inflation in raw material, transportation and energy costs, supply chain disruptions, and the COVID-19 pandemic. It also highlights the challenge of integrating N&B and realizing the anticipated synergies, the substantial indebtedness, competition, dependence on a limited number of large multinational customers (the 25 largest accounted for 29% of sales), and the carrying value of goodwill and intangibles.
What portfolio changes and cost actions are under way?
IFF agreed to sell its Microbial Control business, which is in Health & Biosciences, for approximately $1.273 billion, with closing expected in the second quarter of 2022. It also sold its fruit preparation business for proceeds of about $115 million in 2021. The Frutarom integration initiative now targets closing about 30 manufacturing sites by the end of 2022, with 21 sites closed in 2019–2020 and one in 2021.
06—Continue