International Flavors and Fragrances, Inc.

founded: 1909

Contact Information:

headquarters: 521 w. 57th street
new york, ny 10019 phone: (212)765-5500 fax: (212)708-7132 url: http://www.iff.com

OVERVIEW

International Flavors and Fragrances (IFF) is a leading creator and manufacturer of flavor and fragrance products that are used by other manufacturers in a wide array of consumer products. IFF fragrances are sold mainly to makers of perfumes, cosmetics, toiletries, hair care products, deodorants, soaps, detergents, and air car products. Flavorings are sold mainly to producers of prepared foods, beverages, dairy foods, pharmaceuticals, and confectionery products.

COMPANY FINANCES

International Flavors and Fragrances, Inc.'s 2001 sales were $1.84 billion, a 26 percent increase over 2000 sales, which were $1.46 billion. Flavors accounted for $835.7 billion, up 40 percent from $597.7 billion in 2000. Fragrances made up $1.01 billion in sales, a 17 percent increase over $865.1 million in 2000. The weak European exchange rates in 2000 accounted for much of the increase in sales, which would have represented a 2 percent increase if exchange rates had been comparable (2000 sales would have been $1.88 billion). More than 70 percent of IFF sales are generated outside the United States.

In the first quarter of 2002, IFF shares were selling at $34.91 per share. The 52-week high price was $35.95 and the 52-week low was $20.75. The annual dividend for 2001 was $0.60. IFF's operating margin in 2001 was 10.18 percent and its gross margin was 42.32 percent. Its profit margin was 6.29 percent for the year.

In 2000, IFF acquired one-time competitor Bush Boake Allen (BBA) for $970 million.

ANALYSTS' OPINIONS

The consumer and personal care industries were soft performers in 2000 and 2001, due in part to a weakened economy in the United States and globally, and also due to increasing competition in the industry.

Industry conditions, as well as IFF's increased debt following the debt-financed merger with BBA, caused Standard and Poor's (S&P) to downgrade the company from an A rating to a BBB+. Although S&P predicted stable sales in IFF's markets, it noted that the challenging sales environment would not only require companies like IFF to continue to offer new products and stay on top of consumer demands but also the finished products produced by its customers would be required to compete in price. S&P stated that while consumers will always buy staple products during even the toughest economic conditions, shoppers often opt for cheaper brands and private label goods and that such a preference could adversely affect IFF's customers if they could not compete with low-cost goods.

HISTORY

International Flavors and Fragrances, Inc. traces its beginnings back to N.V. Polak and Schwarz's Essence-fabrieken, a Dutch company formed in 1889. In 1909 the company opened a site in the United States. In 1958 Polak and Schwarz merged with van Ameringen-Haebler, Inc., creating an instant global player in the flavors and fragrances industry.

STRATEGY

In 2000 IFF acquired Bush Boake Allen, Inc.(BBA), an international chemical company with $499 million in annual sales. The acquisition made IFF the largest flavors and fragrances company in the world, with annual sales just under $2 billion, and strengthened its global position, particularly in India, its product line, its customer base, and its management pool.

Only a month before the acquisition, IFF implemented a global reorganization plan in its Business Development and Operations divisions rather than separate the flavors and fragrances divisions. Business Development took on the driving of top-line growth, including strategy, consumer research, product development, global sales and marketing, and technical application. The Operations arm of IFF became responsible for the global supply chain, increasing productivity, manufacturing, customer service, quality control, logistics, and distribution. Under the restructuring, IFF estimated a $70-million cost savings, half of which would be realized in 2001 and the other half in 2002.

INFLUENCES

Increasing competition is a major influence on IFF's performance. The company estimates it has approximately 50 competitors in U.S. and global markets. Although many factors play a role in the company's standing, the creative skills and technological advances of each company are key. IFF's acquisition of BBA was primarily to strengthen its pool of technology, global locations, and technical and creative talent.

FAST FACTS: About International Flavors and Fragrances, Inc.

Ownership: International Flavors and Fragrances, Inc. is a publicly owned company traded on the New York Stock Exchange.

Ticker Symbol: IFF

Officers: Richard A. Goldstein, Chmn. and CEO, 60, 2001 salary $943,750, 2001 bonus $374,693; Carol A. Lobbosco, EVP Global Business Development, 62, 2001 salary $537,500, 2001 bonus $540,000; Julian W. Boyden, EVP Integration, 57, 2001 salary $493,750, 2001 bonus $160,125; D. Wayne Howard, EVP Global Operations, 46, 2001 salary $393,750, 2001 bonus $128,100; Stephen A. Block, SVP, Gen. Counsel, and Sec., 57, 2001 salary $382,500, 2001 bonus $124,898

Employees: 5,929

Chief Competitors: International Flavors and Fragrances' top competitors include ICI, McCormick, and Sensient.

Another constant influence on IFF is government regulation. The company's products are subject to regulation by the Food and Drug Administration, the Agriculture Department, the Bureau of Alcohol, Tobacco and Firearms, the Environmental Protection Agency, the Occupational Safety and Health Administration, the Drug Enforcement Administration and state authorities. IFF's foreign subsidiaries and operations are subject to similar agency regulation. In 2001, IFF spent more than $18 million in operating expenses and capital projects to comply with government regulations, particularly regulations addressing discharge of materials into the environment.

CURRENT TRENDS

Social trends have the greatest impact on demand for IFF products. Such factors as personal income, employment of women, teenage population, leisure time, health awareness, and urbanization affect consumer tastes and tendency to purchase luxury items, hair care products, personal products, and personal fragrances.

The company's flavor markets are deeply impacted by similar influences and trends, which can affect demand for convenience foods, low-fat and lowcholesterol foods, soft drinks, and exotic or improved flavoring for foods.

CHRONOLOGY: Key Dates for International Flavors and Fragrances, Inc.

1909:

Polak and Schwarz, a thriving European aroma chemical business, opens a site in the United States

1917:

A.L. van Ameringen comes from the Netherlands to the United States to work for Polak and Schwarz; Van Ameringen soon leaves the company to start his own essential oils import business in downtown Manhattan

1920:

A.L. van Ameringen expands his business and begins manufacturing aromatic chemicals and flavors in a New Jersey plant

1929:

Van Ameringen partners with Dr. William T. Haebler to acquire an aromatic chemical plant in New Jersey; the new company, van AmeringenHaebler, Inc., thrives despite the economic depression in the United States

1952:

Van Ameringen-Haebler establishes Aroma Chemical Plant and Aroma Chemical Research in Union Beach, New Jersey

1956:

Haebler dies and van Ameringen resigns from the company as president but continues to serve as chairman of the board

1958:

Polak and Schwarz and van Ameringen-Haebler merge; the new company is named International Flavors and Fragrances and is immediately a major supplier in the worldwide flavor and fragrance industry

1961:

International Flavors and Fragrances (IFF) is incorporated and offers common stock to the public in October; the company's sales for the year are $36.4 million

1963:

IFF introduces gas chromatography, a retention index system that becomes the industry standard

1964:

IFF is listed on the NYSE; sales for the year are $52.2 million

1967:

IFF opens a research and development center in Union Beach, New Jersey; the following year, the company opens the Monell Chemical Senses Center to research taste and smell

1981:

Olfactory Research Fund becomes the Sense of Smell Institute

1982:

IFF partners with Yale University's Psychophysiology Department to study the concept of aroma science—the effect of fragrance on human emotion

1985:

IFF invents Living Flower technology, which captures a flower's aroma while it's at its peak. The technology creates major changes in perfume production technology industry-wide

1987:

IFF develops techniques for identifying fragrance combinations that affect specific human emotions; they call the process Mood-Mapping

1994:

The two-year renovation of IFF's New York world headquarters is completed; IFF wins "Food and Beverage marketing Innovation of the Year" award for its Living Flavor technology

2000:

Richard A. Goldstein becomes chairman and CEO of IFF, following Eugene P. Grisanti; IFF introduces iPlots, a sensory and analytical tool that identifies sensory thresholds and intensity; sales are $1.9 billion

2001:

IFF adds a hydroponic greenhouse in Union Beach, New Jersey, and forms a strategic alliance with AG Scent Communication Group; the two jointly develop flavor and fragrance technology and devices

IFF's perfumers and flavorists work in 38 laboratories in 27 countries. The company also maintains a research center in Union Beach, New Jersey. It spent $135 some million in 2001 on research and development activities to stay on top of trends and consumer tastes.

PRODUCTS

IFF products are used by its customers to manufacture a wide variety of flavorings and fragrances. Fragrance products are used in soaps, detergents, cosmetic creams, lotions and powders, lipsticks, after-shave lotions, hair preparations, candles, air fresheners, cleaners, and perfumes and colognes. In 2001 fragrance products made up 55 percent of IFF sales. Flavor products are used in the food and beverage industries in soft drinks, candies, baked goods, desserts, prepared foods, dietary foods, dairy products, drink powders, pharmaceuticals, snack foods, and alcoholic beverages. In 2001 flavor products made up 45 percent of IFF sales.

IFF products are mainly compounds of ingredients. The combination in any one compound can be a major factor in consumer preference for one product over another. Most IFF products are produced exclusively for individual customers.

GLOBAL PRESENCE

IFF operates manufacturing and research sites throughout the world: in the United States, the Netherlands, the United Kingdom, Spain, Switzerland, Brazil, Germany, Mexico, India, China, Japan, and Australia.

The company's sales are largely generated outside the United States. Sales in the United States were $597.1 million in 2001. European sales accounted for $576.0 million in 2001. That same year, sales were $127.4 million, $256.5 million, and $286.2 million in Central Asia and the Middle East, Latin America, and the Asia Pacific, respectively. The area that grew the most between 2000 and 2001 was the Central Asia region, where sales jumped by 59 percent between 2000 and 2001.

EMPLOYMENT

IFF offers careers that promise "a great place to work: innovation, creativity, passion and excellence." The company frequently seeks scientists as well as sales and administrative personnel.

At year's end 2001, the company had 5,972 employees, 1,770 of which were employed in the United States. The company reported in its annual report for 2001 that it had never had a work stoppage or strike and that it considered its employee relations satisfactory.

SOURCES OF INFORMATION

Bibliography

floreno, anthony. "iff acquires bush boake allen in $970 mm cash-for-stock deal." chemical market reporter, 2 october 2000.

harris, lori. "credit quality for u.s. consumer products sector continues to decline."standard and poor's, 19 october 2001.

harris, lori. "more pain in store for speculative-grade firms in u.s. household products/personal care sector." standard & poor's, 28 february 2002.

"international flavors & fragrances, inc.: capsule." hoover's, 1 april 2002.

"significant developments: international flavors and fragrances." market guide, 28 january 2002.

For an annual report:

on the internet at: http://www.iff.com

investigate companies by their standard industrial classification codes, also known as sic codes. international flavors and fragrances, inc.'s primary sics are:

2068 other food manufacturing

2087 flavoring extracts and flavoring syrups not elsewhereclassified

2099 food preparations not elsewhere classified

2833 medicinal chemicals and botanical products

2834 pharmaceutical preparations

2844 blending and compounding perfume bases, perfumesmanufacturing, colognes manufacturing

2899 chemical preparations not elsewhere classified

also investigate companies by their north american industry classification system codes, also known as naics codes. international flavors and fragrances, inc.'s primary naics codes are:

311930 flavoring syrup and concentrate manufacturing

311942 spice and extract manufacturing

311999 all other miscellaneous food manufacturing

325410 pharmaceutical and medicine manufacturing

325411 medicinal and botanical manufacturing

325412 pharmaceutical preparation manufacturing

325620 blending and compounding perfume bases, perfumesmanufacturing, colognes manufacturing