Good day, ladies and gentlemen. At this time, I would like to welcome everyone to the IFS Third Quarter 2020 Earnings Conference Call. All participants will be in participants will be announced by their name and company. I would now to introduce Michael DeVoe, Head of Investor Relations. You may begin.
Thank you. Good morning. Good afternoon and good evening, 1. Welcome to IFF's third quarter 2020 conference call. Yesterday evening, we distributed press release announcing our financial results.
A copy of the release can be found on our IR website at ir.if.com. Please note that this call is being recorded live and will be available for replay. I ask that you please take a moment to review our forward looking statements. During the call, we will be making forward looking statements about the company's performance, particularly with regard to our outlook for the fourth quarter and full year 2020. These statements are based on how we see things today and contain elements of uncertainty.
For additional information concerning the factors that can cause actual results to differ materially from our forward looking statements, please refer to our cautionary statement and risk factors stated in our yesterday's press release. Today's presentation will include non GAAP financial measures, which exclude those items that we believe affect comparability. A reconciliation of these non GAAP financial measures to their respective GAAP measures is available on our website as well. With me on the call today is our Chairman and CEO, Andreas Fibig and our Executive Vice President and CFO, Bruce Punjillo. We'll begin with prepared remarks and then take any questions that you may have.
With that, I would now like to introduce Andreas.
Thank you, Mike. Good morning, good afternoon, everyone. Before I dive into our third quarter performance, I would like to once again take a moment to thank all of our frontline workers and dedicated colleagues around the world who have worked tirelessly throughout the course of this year to continue fueling our global supply chain and meeting our customers needs. Well equipped to navigate the employees enough of their continued hard work, dedication and focus on this difficult year. On today's call, I will start as usually by reviewing IPF's recent third quarter performance and summarizing the trends that we are experiencing across the business.
Before providing a more in-depth review I will then provide an outlook on the road ahead for our business and provide an update on our merger with Q4 NMB and the integration planning efforts that are well underway. Despite the COVID related headwinds, we saw a strong sequential improvement across all key financial metrics in Q3. We achieved 1% currency neutral sales growth in the 3rd quarter, a 500 bps improvement relative to our second quarter 2020 results. Outside of Fine Fragrance at Foodservice, IFF's portfolio remains resilient with growth of 3% in the quarter on a currency neutral basis and 4% year to date, nearly every category, including fine fragrance and food services growing. Led by a 3rd consecutive quarter of double digit currency neutral growth in consumer to experience challenges in fine fragrance and food service.
We saw improved relatively in Q2 sales, declined 14% this quarter on a currency neutral basis. These segments continue to be the most affected among our portfolio by pandemic driven trends in retail, and away from home channels. On our 2nd quarter earnings call, we presented this monthly chart to provide increased transparency during the uncertain period. At the time, July finished with about 2% growth. In the subsequent months of August September, we saw a modest deceleration and sales performance versus July, actually largely due to weakness in fine fragrance and food service.
Now let's turn to Slide 7. I would like to review our year to date performance 2020 basis. Our Flavors category excluding food service is resilient, growing low single digits, outside of food service, all categories are growing. Inclusions led the segment with impressive double digit growth, followed by mid single digit growth in natural product solutions and savory solutions. Again, all excluding food service.
From a regional perspective, growth was led by a double digit improvement in North America and Greater Asia. When new wind performance is strong in EMEA, results were challenged, which is in an area where we are focused on improving as we move forward. I want to take Cassie officially took over leadership of our Taste division. She's an outstanding executive with experience across our industry and joined Iber early in 2020. As part of our succession planning for IFF as well as post our combination with NNB.
In our short term with IFF, KCS, already brought tremendous expertise and inside sour team, leading IFF integration of PACE with an MB food and beverage platform. With a proven track record of delivering growth and innovation at Global Food And Beverage Ingredients organizations, I'm confident Kessi will do an exceptional job leading our Taste business now and the Taste Food And Beverage division following transaction close. I also want to thank Matthias Haney, who has retired from IFF after 30 years in our industry. We had a long and successful career and during his tenure with IFSiot, he has advanced our position as a leader within the Taste industry. I wish him the very best for his next chapter.
Overall, IFF Cent Division continues to perform very well. I'm proud to share that we have achieved double digit sales growth consumer fragrance with double digit growth in fabric care, home care, hair care, and personal wash. Our new cordless customers will be recently gained access. Quarter our 2021 strategy are growing more than 50% this year. In the third quarter provided a double digit contribution to consumer fragrance growth.
Suma fragrance team have worked diligently through the pandemic to differentiate our offense with new business and achieve strong market share gains. In our fragrance ingredients business, demand is strong yet the pandemic created raw material headwind in Q2 as we prioritize the use of our fragrance ingredients to support our fragrance compounds business for going external sales. As restriction have eased, the business improved sequentially, but on a year to year basis, remains down slightly. The areas most impacted by COVID 19 have been food service and fine fragrances. On a year to date basis, food service and finance fragrances are down almost 20% as COVID related actions impacted consumer behavior as well as retail channels have been temporarily closed and travel retail is down.
As I stated earlier, we are encouraged to define fragrance in foodservice improved in Q3 relative to Q2 sales on a currency neutral basis, yet we remain cautious about trends given the increase in COVID-nineteen infections more recently. Excluding fine fragments, Sand has achieved strong currency neutral growth rate of +8 percent year to date, while taste has improved 2% on a currency neutral basis, excluding food service. With that, I would like to pass it over to Ruston to provide more details on the third quarter.
Thank you, Andreas. Slide 8 provides a high level overview of Q3's financial performance. On a currency neutral basis, IFF generated EUR 1,300,000,000 in sales, a 1% increase from 2019 third quarter. Scent was up 4% and tastes down 1% and I'll provide additional divisional color in a few minutes. As Andreas noted, Q3 sales recovered from Q2's low point and over 3 4ths of our $69,000,000 sequential improvement came from Cent.
And total IFF sales improved in all four regions. In the third quarter, our adjusted operating profit excluding amortization increased 1% to EUR 241,000,000 on a currency neutral basis from 20 nineteen's Q3. Our gross profit and gross margin were both higher than the third quarter of 2019 despite higher COVID-nineteen related manufacturing expenses and logistics costs. Continued OpEx controls and lower TNE essentially offset additional personnel related COVID-nineteen costs and other inflationary increases. On a currency neutral basis, interest, other income and expenses, taxes and non controlling interest together amounted to an additional $1,000,000 headwind versus last Q3.
And adjusted EPS excluding amortization was $1.40, up 1%. Note that FX movements adversely impacted our reported numbers. On a reported basis, Q3 sales were flat and adjusted operating profit during amortization was down 4%. Balance sheet revaluation FX losses had a large negative impact on other income and expenses, as a result, both of weaker emerging market currencies against the dollar and a stronger euro. Currency volatility has impacted OIE all year, with Q1 and Q3 negative and Q2 positive.
Of underlying currency neutral growth, especially when there are large emerging market currency devaluations relative to the U. S. Dollar or euro. However, it's important to have all of you understand our performance relative to competition. So on Slide 9, I want to take a moment to show what our currency neutral growth in the third quarter would be using the same calculation methodology of our peers.
For a variety of reasons, many of our sales transactions in the emerging markets occurred either in US dollars or other hard currencies or index to hard currencies when we have to invoice in local currencies. When reporting our currency neutral sales growth, we exclude those foreign exchange related price changes in emerging markets. But this is different from our peers. During the third quarter of 2020, continued currency devaluations year over year in several key emerging markets would have added approximately 2 percentage points to growth if we include those foreign exchange related price changes in our emerging market pricing. Factoring in this comparability adjustment, we estimate that our 3rd quarter currency neutral sales growth would have been 3% versus the 1% we have shared.
And using this methodology sent with its strong LatAm businesses would have 8% plus Q3 growth while tastes would have been flat. Moving on to Slide 10. It is worth taking a closer look at the underlying business and market dynamics influencing our overall profitability in the quarter. In the third quarter of 2020, our sequential improvement in sales was accompanied by a strong rebound in profitability relative to our Q2 performance. Our currency neutral adjusted operating profit excluding amortization grew 1% in Q3, clearly not what we want.
But substantially better than the year was a gross margin headwind as was unfavorable mix due to our fine fragrance business. Also affecting profitability for the third quarter, were incremental COVID-nineteen costs, which essentially doubled from Q2. The incremental manufacturing and logistics expenses related to COVID-nineteen that we had incurred in Q2 flowed into the P and L in Q3 as inventories were used. And we also pay the bonus to our essential workers around the world as they continue their exceptional service to our customers during this unprecedented time. In the end, we were able to offset these negatives through a combination of productivity initiatives in scent and Fruta Ramacoast synergies in taste and tight cost management throughout ISS.
We have been very careful with hiring with headcount down over the course of the year, have been tighter in general within expenses and of course have had lower T and E costs like most businesses. Overall adjusted operating expenses were up less than 1 percent despite absorbing the usual inflationary increases and COVID 19 related costs. As we forge ahead, especially in this uncertain environment, we will continue to drive growth, but also review our cost structure to find additional opportunities to support overall profitability levels. Now turning to Slide 11, where we take a closer look at the performance of the FENT division in the quarter. Scent sales totaling $503,000,000 were up 4% overall as consumer fragrance continues to outperform.
Specifically our fabric, home, haircare, and personal wash product categories all experienced robust growth and are also benefiting from the pandemic As Andreas noted earlier, it's not all COVID 19 related. We are seeing strong growth from our new core list customers that we recently gained access to. While fine fragrance sales remain challenged, Q3's 14% decrease is a significant improvement from last quarter, where sales were down 40%. Importantly, our fragrance ingredients business, which was impacted by COVID19, related supply constraints in Q2 return to growth, led by double digit gains in cosmetic actives. These metrics are encouraging and reflect the recovery this summer in global retail markets and consumer's ability to reach them.
In addition, the Cent Division saw meaningful profit improvement this quarter as segment profit grew 20 percent to SEK101,000,000, This was driven by higher sales volumes, strong benefits from management productivity initiatives and cost discipline, and tight OpEx controls. Moving on to Slide 12. Where we focus on the performance of percent decline in percent on a currency neutral basis versus the prior year as the pandemic limited food consumption away from home. To put this in context, foodservice took tastes overall sales growth down by roughly 2 percentage points. That said, the rest of the taste portfolio, excluding food service, delivered positive currency neutral growth across all global markets.
One particular bright spot was North America, where IFF realized double digit growth in taste across nearly all categories. We continue to see weaker growth in the other regions due to COVID 19 and related regulatory restrictions such as such as EMA, Latin America and Greater Asia. Natural product solutions, our food ingredients business and our North American flavors businesses were the strongest performing in quarter, while savory and inclusion, both more impacted by food service were negative in the quarter. Futarom declined 2% compared to the prior year as their strong presence in food service and a base of mostly smaller local and regional customers continued to be more adversely impacted by COVID-nineteen. The taste overall, the segment achieved a 13.3 percent profit margin with $102,000,000 in segment profit on $765,000,000 in sales.
Benefits from acquisition related synergies and tight OpEx controls were more than offset by lower sales volume, favorable price to raw materials costs and higher COVID 19 related costs. Turning to Slide 13. I'd like to provide The chart on the left illustrates the reconciliation from reported net income to free cash flow and includes all key drivers. Operating cash flow and free cash flow were up 8% 30% this quarter, respectively, led by core working capital improvements stepped up reviews of capital expenditure. Our thoughtful and disciplined approach to investments amid the pandemic has resulted in CapEx of approximately 3.3 percent of sales versus 4.2% in the prior year.
While continuing to support our customers and our cash conversion cycle has improved 8 days year over year. We clearly need to generate cash given our leverage and the impending merger within MB, So it's good to see the improvements in days payables outstanding and days sales outstanding. Where inventory is concerned, we did see a small improvement in inventory days. With more originally projected for Q4, but now with COVID-nineteen picking up again, we will increase our safety staff. Note that we are not expecting to repeat last Q4's strong cash flow performance this year, primarily because of the benefit last year from extra sales Further, despite continued stress in all industries across the globe, we believe that this quarter's strong balance sheet is a testament to our continued capital allocation focus and discipline.
Moving to Slide 14. As we look to the remainder of 2020 and into 2021, We will remain laser focused on maintaining discipline across a prolonged challenging market environment. The situation remains highly uncertain given the steady increase in double COVID-nineteen infections and the potential for additional regulatory restrictions in various regions. We're incredibly fortunate that the majority, roughly 85% of IFF's portfolio has remained resilient and essential around the world for food, beverage, hygiene and disinfection products. Unfortunately, the persistence or even worsening of the pandemic will likely translate into continued weakness for fine fragrance and food service in Q4.
I will also remind you that we face a very strong Q4 comparison to last year, which had a 53rd week of sales As we noted at the time, this represented about 400 basis points of growth in the fourth quarter last year, and is a large roughly $50,000,000 headwind this quarter and will occur all in the last week of December 2020 impacting our monthly performance comparative significantly. This extra week last year also clearly came with a substantial operating profit contribution And while it is hard to be precise, we estimate that this will represent a $15,000,000 We began the 4th quarter with low single digits growth in October on a currency neutral basis in line with Q3's results. Based on this 1st month and given the uncertainty, it's unlikely that we will see higher growth for the full 4th quarter than the 1% we achieved in Q3. That is before taking into account the headwinds from the 53rd week. In this uncertain and difficult environment, we are more than ever controlling what we can control such as OpEx and also capital expenditure.
And of course, we remain focused on driving strong cash flow and reducing leverage. And with that, I'll hand it back to Andreas to discuss the near term road ahead for IFS.
Thank you, Rustam. Before providing an update on our pre integration work with NMB, I want to spend a moment As of the third quarter 2020, we have complete integration of our business teams and believe that by the first quarter 2021, we will will substantially complete our manufacturing optimization plan, essentially at 90% of the consolidated consolidation complete. As a result of but remain on track to be largely complete in the first quarter of 2021 around the time of our transaction closed with NMB. As a reminder, as part of, the fruit Rome integration initiative, we expect to close approximately 35 manufacturing sites. So the end of 2020, we're on track to close between 20 to 20 four sites around the world and expect to be completely finished by the end of 2021.
With integration of food, we are we have learned a lot. This experience has been important for IFF and we will leverage these experiences and apply less learned as we take next step with DuPont NMB. 1st, we have 2 more ability to deliver values through cost synergies, We know how to build teams to quickly and efficiently identify and capture these opportunities in ways that create real shareholder value 2nd, Revenue synergies need to align with the product development lifecycle. We need to recognize that our planning that this can mean that these synergies take more time to achieve with the key takeaways being start early to ensure delivery. As of today, we have strong pipeline of Frutarom related cross selling projects, over 2000 with a pipeline potential of approximately $235,000,000.
And we believe we are on track to meet our exceed our target for 2021. 3rd, we need to recognize the potential for sales. This synergy is planned accordingly to properly mitigate and anticipate, but it can't be avoided. 4th, we must build teams and organizational functions that protect base business growth. This was a major consideration how we designed the organization structure at our future combined company.
Growth through synergies and innovation have to be incremental to core business growth. And since we need to move with speed and be decisive, there's always an urge to be cautious through integration as 2 cultures learn to work together. Have to break down these barriers with focused accountable leadership towards clear shared goals, prioritizing profitable growth. I will also add that moving towards a transformational merger and working through the challenges of a global pandemic has forced all of us at IVF to work in new ways. We've learned quite a bit in these last several months.
And in many ways, it has forced us to take a fresh look at our business in a way that I think will prove beneficial as we continue in our transformation journey. Turning to Slide 16, I'm pleased to share an update on our integration planning process for previously announced merger with DuPont NMB. As you can see, we have reached all targets for the second half of twenty twenty and are on track with our targeted close date of February 1, 2021. The 3 notable milestones we achieved in the third quarter of 2020, due to successful shareholder vote, the completion of the permanent financing and the announcement of the executive team minus 1 leadership teams. I'm pleased to have received the strong support of IFF's shareholders have recognized this unique opportunity to create significant long term value.
With more than 99% of the world's cost in favor, IVAP shareholders are overwhelmingly approved the issuance of shares pursuant to the merger agreement. Which IFF and NMP will combine to create a global leader in high value ingredients and solutions for global food beverage, home and personal care and health and wellness markets. We also completed successful pricing of a 6,250,000,000 bond offering in September. This financing, together with the previously, procured term loan facility, will provide NMB with the funding needed to make the special cash payment of US7.3 billion dollars to DuPont in connection with the completion of our merger with NNB. I'm happy to report that there was tremendous interest in the bond offering.
Interest rates were favorable and the offering was significantly oversubscribed. I'm also happy to announce that at the end of last week, we received antitrust approval in Mexico, which was one of the 2 remaining jurisdictions where we needed 4 approval. As we move towards close, we have only a few integration milestones left to reach and are confident in our abilities to issued in our post closing timeline. We anticipate receiving antitrust approval for Europe in December and will be filing our amended S4 was updated proformas in the coming months. I continue to be very excited about the combination between IFF and NMB.
I believe we have a significant amount of opportunities to create strong shareholder value in the future. We actively review our portfolios on a constant basis especially in light of the future combination with NMP to look to maximize our returns by driving growth and accretive categories and de prioritizing our low value businesses by reducing allocations of expense and capital fix or exit completely with divestitures. Moving on to Slide 17. In summary, I continue to value the continued resilience of all portfolio during an exceptionally challenging time for all industries and communities across the globe. Despite this unpredictable environment, we have delivered same growth across some of our largest segments and return to growth in others quarter marks an important sequential improvement from Q2.
And excluding fine fragrance and food service, we are pleased to have delivered 4% year to year currency neutral growth was proven across nearly all categories. We also made great progress in our NMB pre integration planning and remain on track to close the transaction in the first quarter of 2021. As global conditions remain volatile and unpredictable, We will continue to focus on controlling and controllable to drive strong cash flow, maintain strong operational capital discipline and leverage the strengths of our portfolio to depth and succeed. I'm proud and grateful to all of our employees across the globe have gone above and beyond to ensure the continuity and resiliency of our business, all while delivering for our 30,000 customers across the globe and executing on the integration process for Fulroom and NNB. While we recognize, we always have opportunities to improve, in particular, almost in our Taste division.
I'm confident that as we move ahead, we will improve our performance as we did in our Centivision over the past few years, both in terms of sales through new customer, call lists and margins for operational performance programs. I believe that we have the strategy and the team in place to position our for long term success for Snow and upon uniting with NNB. With that, I would now like to open the call for questions.
We'll go next to Margaret Strat with Stifel.
Thanks, and good morning, everybody. Wanted to ask about adjusted EBIT and EBITDA performance versus your peers. So The European peers, at least by my math, have seen profit growth in the first half and anticipated for the full year based on what you just walk through Rustom, I get down mid single digit or so for your business on each in 2020. So I guess the question is why has IFF underperformed? And perhaps could you walk through the specifics of pressures on gross margin and SG and A And when do you anticipate those trends to normalize versus peers?
And just related to that, a quick one for you, Rustom probably. Could you just provide the Frutarom synergies in the 3rd quarter as that was no longer provided in the queue? Thanks.
Will do. Hi, and good morning, Mark. And yes, a long question. So let me make sure I cover all of it. I mean, look, first of all, on the competitor's performance, I mean, I can't really comment on our competitor's performance, but let me take you through ours and and give you some context.
So our year to date, obviously not Q3, our year to date adjusted operating profit excluding amortization is down 4% and that's on currency neutral sales growth of +1 percent. So that's clearly not good. But here are the drivers. So we had the negative drivers. We had a negative sales mix, I mean, fine fragrance, and you've seen the impact in in Q2 in particular and minus 40 percent and then Q3 as well, much lesser, but you've seen it in there.
There's unfavorable price raw material costs. Now that's mainly fragrance ingredients, and that's mainly price reductions in advance of raw material declines. There's COVID-nineteen related incremental costs. I mean, we've put the we've shown you the bridge on the slides the quarter. But if you look at the year, I mean, we're talking about almost just a little under 1,000,000 in costs that we've actually incurred.
On COVID. And incentive comp, I mean, incentive comp as well year on year, if you remember, we expect the year on year headwind very finished because we think that had happened last year. And that has played through and to a little extent in the quarter and certainly in the full year as well. And of course, you've got the basic. And then on the other side, some of the positives in the year to date, it's been a negative on volume.
And that's because of Q2. But in Q3, volume was actually a positive at synergies. I mean, synergies have been a positive all year long in what we've seen. And then of course, there's productivity and cost discipline, right? So I'll come to Frutarom in a second.
Earlier in the year, we were unsure as to severity and the duration of COVID-nineteen. So we choked back, we choked back hiring and we acted to control expenses, but we decided gains taking cost out of ISS. And now with infections rising and no line of sight as the countermeasures, I mean, vaccine comments notwithstanding, we are planning on acting to reduce costs over the coming months. And then Frutarom. You asked about Frutarom.
And look, despite COVID-nineteen, we're still on track deliver on the procurement amounts every quarter. What I can tell you, we had 10 plus 1,000,000 of synergies in Q3. So when you combine that with the first half savings $32,000,000, that puts us at $42,000,000, $43,000,000 something like that and clearly on track to achieve our full year $50,000,000 goal. And Mark, just to remind you, our target was $100,000,000 by year 2 and $145,000,000 by year 3. Did I cover everything in there that you asked?
This line may be muted, Rustom, sorry. So maybe we'll go to next question. Mark, if you have another question, feel free to jump back in the queue.
To Heidi Vesterinen with Exane BNP.
Good morning. So a question on case I understand the pandemic related challenge in out of home, but it does appear that you've had additional challenges. This year, you have negative organic and margins hit by input costs. Your peers are not talking about this. Last year, I think it was destocking by multinational customer.
Your peers were not seeing this. Can you talk about what explains this underperformance? And you finished your presentation talking about there being a strategy in place to change this. So Could you maybe tell us about your action points? Thank you.
Sure, Heidi. I can take it I think first, please remember that we need to adjust the reporting differences, specifically FX related pricing. I think Wilson talked about that. Certainly, we have an impact on the food service, which is happening in the whole market for the competition as well. But despite that, we are not entirely happy and there's more work to be done.
We see if you 0 down in particular some weakness in, in Europe, where we have to dig in and figure out how we go forward. We see actually a very strong performance in North America. And we have to model what we have, have done over the last, let's say, 2 or 3 years in North America in other regions as well. So there's a program underway. And I might remind you, a couple of years ago, We had a similar questions on our scent business.
We are taking it very seriously. And I think we have turned around the scent this quite, quite significantly. And I would say in that area, we are outperforming our competition now in particular on the consumer fragrance side. So that's what we see and we will take the action to make sure that we fix what we have to fix here.
And thank you. And just as a follow-up, you also talked about challenges with small and midsized customers. I think you had talked about it last quarter as well. Is this a short term issue or are these business opportunities that have simply disappeared like a and you're exiting the market. What is happening there, please?
Thank you.
Yes, sure. Absolutely. And that's a quite important question because it's strategic in a sense. We still believe that, you need a good exposure to the smaller and midsized customers over long term to grow, to grow your business. Certainly, the small customers had more impact of the COVID crisis than some of the big ones.
We believe that most of them will come back to growth. And let me give you two examples. We see right now still quite a bit of an impact on the small customers in India, for example, where we are market leader with our taste business so that there's an an impact on our business. On the contrary, we see actually very good results of our Tastepoint business here in the U. S.
And we are starting to accelerate again with small customers. And I think what we are seeing is now since the, let's say, supply lines are again very robust and delivering. I think it gets better here as well. So you see, it depends on the region. It depends on the country.
But we believe in the long term that this is a customer base. We would like to keep it because we believe we will get some good growth out of it. Ulted outside.
We'll go next to Lauren Lieberman with Barclays. Great. Thanks. I wanted to
catch up on 2 things. One was just thinking about some of the puts and takes to fourth quarter? I know, rest of you were specific on the 53rd week dynamics, but just how we should be thinking about the increased COVID costs, if there's any other one off lapse that we should be aware of for 4Q. And then the second thing was just, looking back at the July, as for the management projections that are shared there for the NNB transaction. It just struck us as interesting that you're pegging, growth for IFF at 5% and for NMB at 4% and for sure, IFF was delivering at that level before Frutarom, but not since.
And N and B, I don't think has hit that number, I'm not sure ever. So I just wanted to hear a little bit about the buildup of that that projection, how much of that already assumes what you think you can do in terms of integrated solutions. But I am curious that those kind of baseline projections for the businesses. Thanks.
Sure.
I take the first piece of it on the sale for the fourth quarter, then Russell can comment on the cost. And then I come back on the S4. Look, Lauren, in all honesty, it's tough on the fourth quarter. As Rystom said, we had a good start into the fourth quarter. Basically on all measures, in particular also on the scent business, very, very strong start into it.
But we are cautious for a couple of reasons. First of all, we see now in Europe, again, many of these, let's say lockdowns even if they call it soft lockdowns. So we will see what that brings for us in terms of food service. But fine fragrance business as well, which started well in October, but we will see what's happening here. But what we know is that we are running against a very strong 4th quarter last year.
1st of all, good growth, but then also driven by the the 30, 50 3rd week. So still, a good start into the quarter, also a good order book, but we remain cautious because of the 53rd week and also about the new lockdowns we have seen in Europe. That's the reason why we're taking a bit more of a conservative stance. But Wilson, please, comment on the cost and then the operating profit side.
Yes, absolutely Andreas. And hi, Lauren. Yes, look, I mean, the situation is pretty uncertain. I mean, Andreas made that point on the cost end of things, right? And you know, we're fortunate.
The majority of our portfolio is resilient and essential, you know, the food, beverage, hygiene, disinfection, all the rest of that But we are looking right now as far as we can tell that a worsening of the pandemic and that will likely translate into into continued weakness in Q4 in our COVID-nineteen impacted areas, fine fragrance and food service, right? So we are kind of not 100% sure how that plays out, but food service already as we think about it. We think that it's going to be probably slightly worse than Q3 was. On COVID costs, by the way, Lauren, I mean, we had Q3 was big. I mean, we had close to around $13,000,000 of COVID costs and that's because we had about several million for the one off costs for the special payments that were made.
In Q4, based on the run rate and how things flow through for my inventories and all the rest of it, we'll expect COVID costs, but much smaller number, probably closer to around the 5,000,000 type range. So, yeah, you're right, and you do remember that last year as well, we talked 53rd week and it being 400 basis points in revenue and all the rest of that. That's a roughly $50,000,000 sales headwind when you come around to this Q4. And, the extra week also comes with a came with a substantial operating profit contribution. And, while it's hard to be precise, okay, we estimate that this represents roughly $15,000,000 to $20,000,000 headwind in Q4.
So if you think about that, I mean, that's a big one. And then, and then the and then if you look at the other numbers in there and and what we may have. We also have in Q4, in Q4 last year, we had a Brazilian a resilient tax, indirect, what is the indirect taxes last year that we got and that was and that had been subject to litigation. We disclosed that in our 10 K. That was roughly about $8,000,000.
So if you look at that, I mean, those items between them and finally was the AIP, okay, we mentioned that the AIP was nothing for the whole year, we've talked about AIP being a $40,000,000 headwind last year for the whole year, projections in 2020. And about half of that amount will come in the quarter, the delta year on year. There wasn't too much in Q3, but also going in the other directions, you don't think it's all simply negative. Right? We have some positives.
In last year in Q4, you may remember that we had inventory impacted much lower gross profit margins. And so this year, we fully expect to be at least 1,000,000 better on that account. And then we have the synergies as Mark asked about the synergies to start with. And so we'll have a similar positive amount compared to last year's Q4 in synergy and productivity benefits. So I think that I'll
Okay, awesome. Thank you. Thank you for that. So in summary, I would say good start, but we are very cautious about the situation we are having. And I think the puts and takes on the cost side, Rustom explained quite well.
Coming back to the S4 question, and I think what plays an important role here is, 1st of all, the area we want to focus on. What we have done is quite extensive, let's say, review of our new portfolio. And there are certainly a couple of areas which have really good growth, growth perspectives. And I'm not giving you our our guidance or budget for next year. But I would like to give you some background on how we think about next year in terms of the different categories.
So look, the consumer fragrance business has performed very well in the last couple, a couple of quarters and we don't see any change in the fourth quarter and we don't see too much change for the next year. And that's a quite significant business between 1,100,000,000 to 1,200,000,000 because we believe that the demand for hygiene products will stay high next year and personal wash as well. And as Ryston commented in his comments on the earnings, the 3 new callers are really producing now really nice growth and have enough critical mass to give us some additional growth. So that will be a good focus area. Find fragrance, will come back eventually as soon as COVID is normalizing over the course of next year.
And that gives us just technically already a nice, nice growth going forward into the into the 2021. And then we see a clear, a good performance on the active cosmetic business and the ingredients business as well since we have sold for the, let's say raw material issues out of India. I think that's working well. So that should give us good growth going forward. On the taste side, as I said, we have to focus on the most important categories where we can get growth One of the fastest growing areas was the beverage area for us, in particular, hot sales in the U.
S. We believe that it's a good growth driver for us going forward. We see some of the natural product solutions, driving forward, which is, could be the In Fed business, the food protection business. And that helps us to grow nicely. And food service, over the course of next year, the quick service restaurants, should normalize as soon as we see some more regular business after in the post COVID to COVID period.
So we believe that could give us good growth drivers going forward. On the NMB side, even it's not our business business now, but what I see from from the outside and then the pre integration, you have a couple of business like the biorefinery business or microbial control which has these challenges, which should normalize after the COVID crisis as well. And then you see certainly businesses like the probiotics business or the cultures or enzyme business, which are going, quite nicely. So we believe that could drive our growth going forward. In 2021.
You mentioned integrated solutions. That's certainly a growth driver as well, but I would expect this more in year 2 after the integration because it needs a bit of time that our customers not just, let's say, buying the concept, but launching these products in the marketplace as well. And then, it will dry quite nice revenue synergies and certainly profit synergies as well going forward. I hope it helps to unpack, how we see the different portfolio pieces, maybe just a remark on the regions. As I said before, we have nice growth in North America, and the great momentum on both sides of our business, which is fantastic.
I think Latin America is is better than you might think and hopefully it will go better next year as well. We have a bit of a top on Europe, which is certainly driven by COVID because fine fragrance has a big footprint in Europe as you well know, lots comes out, it comes out of France and the food service business as well. So we will focus here to fix as much as we can. And then hopefully with the, let's say introduction of the vaccine and the post COVID period, that can give us more growth going forward. So I talked a lot, but I hope that gave you a bit of a perspective how we see the world for now.
Next to Faiza Almay with Deutsche Bank.
Good morning.
Andreas, I have, I guess, two questions for you related to some comments you made regarding NNB. I guess the first thing is you mentioned that you've learned from there were some lessons that you learned from the Frutarom integration. And I would love for you to dig a little bit more, into that and how you think this one might go differently. So what are those lessons and how you intend to apply those to N And D? And then secondly, you made some comments around the portfolio.
Sounds to me like you're suggesting that there might be some divestitures. So just want to see if there's anything more, if I'm reading that right and there's anything more you can say regarding the timing or the size of that?
Yes. Thank you, Faiza, for the question. Let me start with your last part. As I said, we have rigorously looked at our portfolio and there are pieces where we really want to accelerate our goals going forward because we believe it's the right thing thing to do in their pieces, which might not fit too much any longer into our portfolio on the, on the IFF side. And it's probably too early to talk about concrete pieces but we are looking actively into it and we can't make a decision on NNB what we are looking into the portfolio here as well.
I think your readjust is quite spot on. On the lessons learned, I would say, there are a couple of lessons. The first one is that, you need some time if you bring these organizations together, you have to start with an aligned team and do as much work before day 1 as you can. Let me give you an example. Look, We have now announced basically up to the top 150, 170 liters in the new organizations already.
And we are still 2, 2.5 months ahead of closure. And hopefully, we will go down one layer further. We didn't do it because it was a shorter time frame with Frutarom. I think that's an credible important step because we can hit the rubber or we can hit the road much, much faster than the suit alone. The second thing is we have done an extensive work on the, integrated solutions and the cross selling opportunities.
And one of the learnings was, we were, even in fruits, never short of ideas, but it took longer to realize it. And as I said, we will achieve our top line synergies with fruit, but it took longer than we were thinking. And that was mainly driven not just selling these ideas to our customers, but until the customer was launching the actual products, and it just takes a bit of more time. And here, we were, let's say, we started earlier. We tested more robustly our ideas, and we have planned for more time to realize it.
I think that's an important one as well. And then I think we have learned a lot in terms of let say, optimizing our footprint. And that was going okay and well on the on the food side. I think we are even better prepared now for the, for the merge with NMD on this side as well. So a ton of learnings, I could, talk even further, but this might be the most most important ones.
And it was very helpful. I think for us, to take on something like NMB without having had a Frutarom before as an integration exercise. Would have been a very, very tough one. But I think, the key learnings have helped quite quite a bit to be very, very well prepared. And I would say right now, we are light years ahead of what we had with our last integration.
That's what I always hear when I talk to my my head of integration. I hope that helps.
Hi, Andreas. Hi, Rustom. Hi, Mike. Thanks for taking my questions. Can I ask 2 please?
Firstly, on the intra quarter trends in Q3, thanks for providing that slide with the monthly sales growth. When I think back what you said with Q2 earnings call, I think I remember you said that, July order book was up in the mid to high single digits. So can you just talk about the difference between what you saw then in the order book and what actually came through, to lead to the lower growth. That's the first question. And the second one on the raw material side, Rustom, did I understand you correctly that raw material, price of raw material was still a headwind, but you included the COVID cost into or some of it at least in the raw material costs.
If you could clarify that and how much that would be, if that's right, how much that would be if you strip that out? Thank you.
I take the first one. What we've seen in the COVID crisis is that many customers have changed a bit their behavior in terms of orders we see it at the beginning of the quarter probably more orders than usual because everybody tries to get their stuff they need. And that's true, by the way, for the fourth quarter as well, which is very high, but we are cautious because we don't know how that will, let's say, go to good on over the quarter. That's the reason. So we have we've seen, let's say, a deterioration also in the third quarter over the course of the quarter that the order book went down and you see sales went up a bit in, in October again, but who knows what will happen in September?
So in December, sorry for that. And also the comparison is certainly a tough one. So as I said, a bit of a different order behavior of our customers. Also depending on the region, We see now some movements in Europe, which is probably because of the lockdown situation and you use it in London and we see some movements now for the Brexit, which will now happen probably. Finally, and you see some movements back and forth as well.
So that's the reason for that. But on the raw materials, please, with some new comment.
Yes. Thanks, Andreas. Hi, Gunther. Yes, in Q3, it was a negative, right? I mean, and one of it was fragrance ingredient.
I talked about where we continue to use high cost inventory, right? And COVID, the COVID part of within our raw materials of usage coming through was a few $1,000,000 as well. Which will be much less going into Q4, simply the lag of when we ordered and the inventory and when it gets used, right? In Q4. I mean, Gunther, we expect it to be still the net of pricing in raw material costs to be a negative, but a very slight negative.
As we actually expect in general some positive input costs and then rest in there. So hopefully that gives you the answer for that.
Thank you Ghansham Panjabi with Baird.
Good morning. This is Tom Dingman on for Ghansham. How are you today?
Very well. Thank you. Good morning.
Hi. So, starting with TACE,
can you provide some additional details on margins in the quarter and why they were down more on a year over year basis versus 2Q? Particularly in context of the sequential improvement in food service and what appeared to be solid results otherwise?
You go.
Think about the COVID costs coming through, we saw that the roughly $5,000,000 of extra cost that we incurred in the quarter flowed through and it was much more in taste than it was in scent when we had I mean, there was also an incense benefit you are comparing scent and taste implicitly and scent benefited from a fine fragrance coming back. I mean, like a minus 17% at the end and the minus 14% in the quarter, those numbers considerably better than the minus 40 that we had in Q2. So you saw the benefit plus a lot of productivity and cost discipline coming through the numbers. Taste was good in terms of the it cost control of its OpEx cost control as well. But just the combination of the food service and the different businesses, I mean, on the on gross margin, we had a tough quarter.
Thanks. That's really helpful. And then just as a quick follow-up, you called out a positive trends in October. Could you provide some more granularity on this from an end market and geographic perspective and whether there's anything that's changed in November as lockdowns have been gradually reinstated?
October, I mean, Andreas, you want me to take that?
Yes, sure. You take it. Yes, Tom.
I mean, October, I mean, the sales, I mean, it's basically I mean, basically in the low single digits, I mean, it was pretty much in line with Q3. We're not really seeing anything bigger from that perspective. The as the lockdowns come into Europe, which have been coming basically at the end of October into November, right? We do expect that's going to have a bit of an impact on our food service in particular. Andreas?
No, I think that's exactly right. What we have seen a stronger sales on fine fragrances, which was positive in October, which is actually, it's we will see how it pans out over the rest of the quarter. You know, it's an important season for us because it's ahead of the holiday season. So that's that's important. That's what we have seen.
And we've seen still a double digit growth on consumer fragrances, which is great as well. Not too much of a change as was some said of the previous quarter. And as I said, we are really looking here from week to week, how we are moving forward. And Gunther's question was the same as how is the order book? The order book is strong, but we will see whether it deteriorates over the course of the quarter.
And that's the reason why we are cautious. In terms of regions, I think Rustom is wide. Europe is our focal area right now. I think it's good for North America. North America is good.
Latin America is probably better than you would expect. Asia is okay, because now we see that India is coming back which is great. But Europe is still a focus area and that's certainly driven by the, by the new lockdowns we see all over all over Europe.
We'll go next to John Roberts with UBS.
Thank you. I just have one question. One of the N and B revenue synergies example cited earlier was plant based meat we get an update on what's going on in that marketplace since it seems like there have been a lot of developments recently?
Yes. Thank you, John, for the question. It's certainly one of our focus areas because I believe we are exceptionally strong positioned in that area going forward because we have all the ingredients, to satisfy the market here. What we see is that basically many companies are now moving into that area. The the category was suffering at the beginning a bit from, on, quick service restaurants being down.
That is coming back now in some of the geographies, which is good, but you see more and more that these these products are going into supermarkets like Whole Foods and others alike. So, what I want to say here is They had a bit of a hard time at the beginning of the pandemic, so the quick service restaurants, they are coming back. We see more companies moving into that area. And we see that the whole category is growing and that's our expectations for the years to come as well. I hope it helps, John.
We'll go next to Matthew Deo with Bank of America.
Question on the way you report and walk through all these slides. Why not use the same currency neutral sales results as all your peers?
It just seems like we're wasting time walking through all these quarter to quarter and candidly, it's odd that you plan to flag on kind of fundamentals with this.
I couldn't agree more. I give it to Rosten.
Look, it's something we're looking at, honestly. I mean, we do believe that our way looking at it is, is more right as I said earlier. And, but at the end of the day, I mean, it is frustrating that, when you compare it to our peers, it makes the report the numbers that we put out. We're doing ourselves a disservice in an environment where the emerging currency where the emerging currencies are weakening. As I said in there, I'll just say one quick thing and point.
So if you just look at our sense performance and if you look at our sense performance reported on apples to apples basis, right? I mean, we're talking about 8% type growth. So, anyway, I'll leave it at that.
Yes. It's a discussion with our audit committee, but, we're working on it. Let's put it that way.
Adam Samuelson with Goldman Sachs.
Hi, so I wanted to come back to something, Andreas, as you said in the prepared remarks, around lessons from Frutarom. And you made the point on sales dis synergies. And I was hoping if you could kind of maybe provide a little tangible examples of where within the Fridron experience that has been a headwind. Is that are you just talking about Trisource or other businesses there that we should be mindful that there have been a little bit more pressure.
Yes, sure. Absolutely. Look, there were some dis synergies we have seen. Maybe we have talked about the citrus business. We had out out of Florida where we have supplied 1 of our competitors.
They lost their big customers, but they also have build their own, let's say, capabilities here and we lost quite significant part of the citrus business. That's actually probably one of the premier examples. For sales dissynergy. We don't expect too many sales dissynergies from NNB, but we are to build we have built it in and we said that if you look at the sales synergies, it always has to be in that number. As it is on the cost side, cost side as well.
So we are very aware of that. And we make sure that, that we really capture it in in the right, in the right way. I hope that example helps.
We are out of time for Q And A. I'll turn it back to Andreas for any closing remarks.
Yes, thank you for all of your questions. Thank you for that. It was a good discussion and we're looking forward for the 11s. Thank you and stay healthy please. Bye bye.
And this does conclude today's program. We appreciate your participation and you may now disconnect.