01—Abstract
Summary
Summary of the 10-K filed February 27, 2023. Cited figures are marked; the original filing is the authoritative source.
International Flavors & Fragrances Inc. (IFF) reported 2022 net sales of $12.440 billiona, up 7% on a reported basis from $11.656 billion in 2021, with price increases across businesses partly offset by the change in business portfolio mix and volume decreases.
The company posted a net loss attributable to IFF shareholders of $1.871 billionb (diluted loss per share of $7.32), compared with net income of $270 million in 2021. The loss was driven primarily by a $2.250 billion goodwill impairment in the Health & Biosciences reporting unit and a $120 million impairment of long-lived assets in Russia. Gross margin improved to 33.4% from 32.0%, and Segment Adjusted Operating EBITDA totaled $2.455 billion, compared with $2.425 billion in 2021.
Cash flow from operations fell to $397 millionc from $1.437 billion, driven mainly by higher working capital, largely inventories and accounts payable. Total debt was $10.970 billion at December 31, 2022, and cash and cash equivalents were approximately $535 million, including $52 million in assets held for sale. The company paid dividends of $810 million, and its net debt to credit adjusted EBITDA covenant ratio was 4.14 to 1.0.
S&P Global Ratings downgraded the company's local currency long-term rating from BBB to BBB- on October 13, 2022. Management is pursuing a strategic transformation announced in December 2022, including a 2023 restructuring program expected to cost approximately $70 milliond with run-rate savings of approximately $100 million, and portfolio divestitures.
The Savory Solutions Group sale is expected to close in the second quarter of 2023, and the Flavor Specialty Ingredients sale was announced in the first quarter of 2023. Both businesses are classified as held for sale.
02—Key points
Key Highlights
- Net sales rose 7% on a reported basis to $12.440 billion, including approximately $568 million of incremental sales from N&B for January 2022.
- Net loss attributable to IFF shareholders was $1.871 billion, or $7.32 per diluted share, versus net income of $270 million in 2021, primarily due to a $2.250 billion goodwill impairment in Health & Biosciences.
- Gross margin increased to 33.4% from 32.0%, driven by favorable net pricing across various businesses.
- Segment Adjusted Operating EBITDA was $2.455 billion versus $2.425 billion in 2021; the Health & Biosciences unit had excess fair value over carrying value of approximately 3% at the November 30, 2022 test.
- Operating cash flow fell to $397 million from $1.437 billion, mainly due to higher working capital in inventories and accounts payable.
- Total debt was $10.970 billion at year-end 2022, with a net debt to credit adjusted EBITDA ratio of 4.14 to 1.0; S&P downgraded the local currency long-term rating to BBB- in October 2022.
- Dividends paid totaled $810 million, and the company is pursuing a strategic transformation with a 2023 restructuring program targeting about $100 million in run-rate savings.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2022, International Flavors & Fragrances lost $0.15.
- Revenue$12.44B100.0%
- Cost of revenue−$8.29B66.6%
- Gross profit$4.15B33.4%
- Operating costs−$5.48B44.0%
- Operating income−$1.33B10.7%
- Interest, other & tax−$538.0M4.3%
- Net income−$1.86B15.0%
04—Financials
Financial Highlights
Figures from 10-KFY2022filed February 27, 2023Financial Statements
FY2022 against FY2021
| Line item | FY2022FY2021 | Change |
|---|---|---|
| Revenue | $12.44B$11.66B | +6.7% |
| Cost of Revenue | $8.29B$7.92B | +4.6% |
| Gross Profit | $4.15B$3.73B | +11.1% |
| R&D Expenses | $603.00M$629.00M | −4.1% |
| SG&A Expenses | $1.77B$1.75B | +1.1% |
| Operating Income | -$1.33B$585.00M | −326.7% |
| Interest Expense | $336.00M$289.00M | +16.3% |
| Net Income | -$1.86B$270.00M | −790.4% |
| EPS (Basic) | $-7.32$1.11 | −759.5% |
| EPS (Diluted) | $-7.32$1.10 | −765.5% |
| Shares Outstanding (Basic) | 255.00M243.00M | +4.9% |
| Shares Outstanding (Diluted) | 255.00M243.00M | +4.9% |
05—Questions
Frequently Asked Questions
Why did IFF report a net loss in 2022 after a profit in 2021?
The filing attributes the swing mainly to a $2.250 billion goodwill impairment charge related to the Health & Biosciences reporting unit, recorded after triggering events in the third quarter of 2022, and a $120 million impairment of long-lived assets tied to uncertainties in Russia and Ukraine. The effective tax rate was (14.7)% because the goodwill impairment was not tax-deductible.
How much debt does IFF carry and how is its credit position described?
Total debt was $10.970 billion at December 31, 2022, and the company stated it was in compliance with all financial covenants, with a net debt to credit adjusted EBITDA ratio of 4.14 to 1.0. S&P Global Ratings downgraded the local currency long-term rating from BBB to BBB- on October 13, 2022, and the company noted that a further downgrade could increase borrowing costs. The company has no rating downgrade triggers that would accelerate senior unsecured debt maturities.
What is IFF doing to address its profitability and cash flow pressures?
In December 2022 the company announced a strategic and financial vision including a renewed growth focus, cost and productivity initiatives, portfolio optimization, and a 2023 restructuring program mainly for headcount reduction. The program is expected to cost approximately $70 million in one-time costs and achieve run-rate savings of approximately $100 million, with about $75 million targeted for 2023. Portfolio actions include the completed divestiture of Microbial Control on July 1, 2022 and the pending sale of Savory Solutions, expected to close in the second quarter of 2023.
What risks does the filing highlight for investors?
Key risks include inflation in input costs, supply chain disruptions tied to the Russia-Ukraine conflict and climate events, the challenge of integrating the N&B business, substantial indebtedness and credit rating pressure, and the potential for further goodwill impairments, particularly in Health & Biosciences where the fair value cushion was about 3%. The filing also notes exposure to foreign currency and emerging market risks, with approximately 71% of 2022 net sales to customers outside the U.S.
06—Continue