IFF expects higher than predicted cost increases

By Katie Bird

- Last updated on GMT

Related tags Middle east

International Flavors and Fragrances (IFF) has said that rises in input costs have been more exaggerated than were first predicted, leading the company to enter into ‘aggressive’ pricing strategy negotiations.

At an investor meeting held yesterday, the global supplier of flavors and fragrances said that the end of 2010 saw accelerated levels on input increases ‘over and above original expectations’.

As a result of these developments the company has had to enter into further negotiations with customers regarding prices, CFO Kevin Berryman explained during the presentation.

Price increases would be in the region of low single digits to strong double digits depending on the characteristics of the ingredient in question, he said.

However, Berryman remained confident that increased costs would not jeopardize the company’s growth margins.

Efforts to mitigate increasing costs via pricing actions, and ongoing efficiency programmes will help to reduce pressure on margin growth during the first quarter of 2011, he said.

However, the CFO noted that many of the negotiations with customers on price increases would not take effect until later in the year, and predicted that the second quarter in 2011 would be the hardest hit.

For the year as a whole, Berryman said rising input costs would not endanger the company’s long term goal of an operating profit margin of 18 percent.

Emerging markets

During the meeting, the company also highlighted the growing importance of the emerging markets to its success.

In 2010, for the first time in IFF’s history, Greater Asia was the second largest region - following Europe and the Middle East – bringing in 26 percent of the company’s sales.

For IFF, the emerging markets make up 44 percent of company sales, which is well above the level of the majority of IFF’s multinational customers, said CEO Doug Tough.

This places the company in a strong position to accompany the growth of the leading multinationals in these regions, many of which have stated objectives of achieving one billion new consumers, he said.

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