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March 20, 2012

CAGE: Ingredients firm IFF to push through price increases

Global food ingredients manufacturer International Flavors and Fragrances has said it expects to have to again look to push through price increases to its customers in 2012.

By Dean Best

Global food ingredients manufacturer International Flavors and Fragrances has said it expects to have to again look to push through price increases to its customers in 2012.

The US-based company, which makes flavours used in sweet, savoury and dairy products, said it expects a “modest” rise in commodity costs in 2012 following a year of inflation in raw material prices last year.

“We do expect raw material cost inflation to be in the low single digits in 2012 and therefore we will continue to have pricing discussions, pricing increases with our customers,” CEO Doug Tough told the Consumer Analyst Group of Europe conference in London yesterday (19 March).

Tough said raw material costs increases could halt IFF’s margin growth in the second quarter of 2012.

“It our expectation that we should reach a gross margin inflection point if raw materials remain at their current levels as we approach the second half of 2011 some time in Q2,” he said.

IFF has a long-term target of achieving a 4-6% increase in sales, when measured in local currencies, each year. Tough said IFF’s sales growth will be “at the low end” of that target in 2012 as it looks to “exit some under-performing businesses, specifically in flavours”.

In 2011, IFF’s sales increased 4% but the growth rate was twice that in emerging markets.

In 2005, emerging markets accounted for 36% of IFF’s sales. By last year, that had risen to 46% and Tough forecast that emerging markets will account for over 50% of its sales by 2015.

“By the year 2015, we expect the emerging markets to represent a greater percentage of our sales than the developed markets,” Tough said.

The company is continuing to expand in emerging markets and last year began building two production facilities in Asia last year – a flavours site in China and a plant in Singapore that will produce flavours and fragrances.

“Both sites are essential to aligning our infrastructure so it supports our projected capacity requirements in Greater Asia,” he said.

In November, IFF also opened a flavours and fragrances R&D site in Dubai.

Tough said a “paradigm shift” towards emerging markets was in train and cited research from PriceWaterhouseCoopers that he said forecast that six out of the top ten largest economies in the world in 2050 would be centred in the emerging markets countries, versus only two in 2007.

PriceWaterhouseCoopers forecast the top six economies would be China, India, Brazil, Russia, Mexico and Indonesia.

Tough said IFF had invested in those markets in recent years and insisted the company would continue to build its presence in developing countries.

“We are constantly evaluating further investments in other fast-growing regions of the world, including central and Eastern Europe, the Middle East and Africa,” he said.

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