01—Abstract
Summary
Summary of the 10-K filed February 28, 2024. Cited figures are marked; the original filing is the authoritative source.
International Flavors & Fragrances Inc. (IFF) reported 2023 net sales of $11.479 billiona, down $961 million, or 8% on a reported basis (6% currency neutral), from $12.440 billion in 2022.
The decline was driven by volume decreases across businesses and a net impact of about $572 millionb from changes in business portfolio mix, partly offset by price increases. The company recorded a goodwill impairment charge of $2.623 billion tied to its Nourish reporting unit, producing an operating loss of $2.110 billion and a net loss attributable to IFF shareholders of $2.567 billion, or $(10.05) per diluted share. Excluding the impairment, the company's underlying performance weakened, with segment adjusted operating EBITDA falling to $1.980 billion from $2.455 billion in 2022.
Cash flow from operations improved to $1.439 billionc from $397 million, mainly due to lower working capital, while the company paid $826 million in dividends. Total debt was $10.071 billion at year-end, and the company operated under amended credit agreements that relax the leverage covenant through December 31, 2025 and restrict share repurchases and dividends above $0.81 per share per quarter. The company also entered into an agreement to sell its Cosmetic Ingredients business, expected to close in the first quarter of 2024, and announced that J.
Erik Fyrwald would succeed Frank K. Clyburn Jr. as CEO effective February 6, 2024. Investors should weigh the earnings decline and impairment charges against leverage and the covenant relief period, along with ongoing antitrust investigations into the fragrance businesses by the European Commission, UK CMA, U.S. DOJ and Swiss Competition Commission, plus related class actions.
02—Key points
Key Highlights
- Net sales fell 8% reported (6% currency neutral) to $11.479 billion, with volume decreases and a roughly $572 million net impact from portfolio changes.
- A $2.623 billion goodwill impairment related to the Nourish reporting unit drove an operating loss of $2.110 billion and a net loss of $2.567 billion attributable to IFF shareholders ($10.05 per diluted share).
- Segment Adjusted Operating EBITDA declined to $1.980 billion from $2.455 billion; Nourish margin fell to 12.1% from 17.2%.
- Cash flow from operating activities rose to $1.439 billion from $397 million, driven mainly by lower working capital, and dividends paid were $826 million.
- Total debt was $10.071 billion at December 31, 2023; the net debt to credit adjusted EBITDA ratio was 4.51 to 1.0, and covenant relief runs through December 31, 2025 with a 5.25x maximum ratio at the first test date.
- Amended credit facilities prohibit share repurchases and cap cash dividends at $0.81 per share per quarter during the covenant relief period.
- The company agreed to sell its Cosmetic Ingredients business, expected to close in the first quarter of 2024, and J. Erik Fyrwald became CEO effective February 6, 2024.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2023, International Flavors & Fragrances lost $0.23.
- Revenue$11.48B100.0%
- Cost of revenue−$7.80B67.9%
- Gross profit$3.68B32.1%
- Operating costs−$5.79B50.4%
- Operating income−$2.11B18.4%
- Interest, other & tax−$477.0M4.2%
- Net income−$2.59B22.5%
04—Financials
Financial Highlights
Figures from 10-KFY2023filed February 28, 2024Financial Statements
FY2023 against FY2022
| Line item | FY2023FY2022 | Change |
|---|---|---|
| Revenue | $11.48B$12.44B | −7.7% |
| Cost of Revenue | $7.80B$8.29B | −5.9% |
| Gross Profit | $3.68B$4.15B | −11.3% |
| R&D Expenses | $636.00M$603.00M | +5.5% |
| SG&A Expenses | $1.79B$1.77B | +1.1% |
| Operating Income | -$2.11B-$1.33B | −59.1% |
| Interest Expense | $380.00M$336.00M | +13.1% |
| Net Income | -$2.59B-$1.86B | −38.8% |
| EPS (Basic) | $-10.14$-7.32 | −38.5% |
| EPS (Diluted) | $-10.14$-7.32 | −38.5% |
| Shares Outstanding (Basic) | 255.00M255.00M | 0.0% |
| Shares Outstanding (Diluted) | 255.00M255.00M | 0.0% |
05—Questions
Frequently Asked Questions
Why did IFF report a net loss in 2023?
The net loss of $2.563 billion (or $2.567 billion attributable to IFF shareholders) was primarily driven by a $2.623 billion goodwill impairment charge recorded for the Nourish reporting unit. The filing cites declines in the unit's projections, continued inflation and higher interest rates as the primary drivers.
How did IFF's sales and segment performance change in 2023?
Sales decreased to $11.479 billion from $12.440 billion. Nourish sales fell 11% to $6.060 billion, Health & Biosciences fell 11% to $2.081 billion, Pharma Solutions fell 3% to $945 million, and Scent rose 4% to $2.393 billion, supported by price increases and volume gains.
What is the company's debt and covenant situation?
Total debt was $10.071 billion at year-end 2023, and the company was in compliance with its covenants. Amendments extend covenant relief through December 31, 2025, with maximum leverage ratios stepping down from 5.25x to 3.75x, and restrict share repurchases and certain dividends and liens during the relief period.
What legal and regulatory matters could affect IFF?
The filing states that the European Commission, UK Competition and Markets Authority, U.S. Department of Justice and Swiss Competition Commission are investigating potential anticompetitive conduct in IFF's fragrance businesses, and that class actions have been filed in several jurisdictions. The company says it cannot predict the duration or outcome of these matters.
Are dividends at risk?
The company declared $3.24 per share in cash dividends for 2023 and said it expects to continue paying dividends. However, the Board may reduce, suspend or discontinue dividends at any time, and the credit agreements limit dividends to $0.81 per share per quarter during the covenant relief period.
06—Continue