At this time, I would like to welcome everyone to the IFF Fourth Quarter and Full Year 2019 Earnings Conference Call. All participants participants will be announced by their name and company I would now like to introduce Michael DeVoe, Head of Investor Relations. You may begin.
Thank you. Good morning. Good afternoon and good evening, everyone. Welcome to IFS 4th quarter and full year 2019 conference call. Yesterday evening, we distributed a press release announcing our financial results.
A copy of the release can be found Please note that this call is being recorded live and will be available for replay on our website. 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 the outlook for the first quarter full year 2020. These statements are based on actual results to differ materially from our forward looking statements, please refer to our cautionary statement and risk factors contained in our 10 K filed on February 26, 2019, and in our 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 set forth in our press release that we issued yesterday and is posted on our website. With me on the call today is our Chairman and CEO, Andreas Fibig, and our Executive Vice President and CFO, Rustom Gillum. We will 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, and a very special welcome to Rustom, our recently appointed CFO. Who joined us about 3 weeks ago. We could not be more excited to welcome him to the IFF team as he brings a strong track record over 30 years of operational and financial leadership across several international markets with significant experience in managing global finance teams, developing strategy driving efficiency initiatives and completing acquisitions. So welcome Rustham. I would like to take the opportunity to thank Richard Leary for his service as our CFO and looking forward to his contributions as the our integration lead for the DuPont Nutrition And Bioscience combination.
He has deep institutional knowledge insights and perspectives both financially and strategically and will be enormously valuable as he takes on his new role as our integration Officer. On today's call, as usual, I will give an executive overview of our performance for the fourth quarter and full year 2019, including an update on the progress we are making with the integration of Frutarom. Following the discussion, I will ask Rostum to provide a financial review of the business and take you through our financial expectations for 2020. We will also recap IFF's transformational journey and the exciting opportunities we see with our combination with DuPont's nutritional bioscience business. Which we announced in the fourth quarter 2019.
Upon the completion of our prepared remarks, we will take any questions that you may have. Let's come to 2019. 2019 was a transformational year in IFF's history. Can be categorized as a year of great progress despite some challenges. Over the course of the year, there were many positive accomplishments, including the development of our new strategy, strong progress against our integration synergy targets, unlocking incremental access to new businesses via Qualys and announcing our combination with NMB unparalleled in our industry as it will broaden our product offerings and create a global leader in innovative integrated solutions.
I've also to acknowledge that there were several challenges, unlike continued raw material cost increases, impactful end market dynamics like destocking, isolated sales pressure, including delayed launches and dis synergies as well as the Russia and Ukraine compliance issue which I'm pleased to say that it has now been fully completed and closed. In that context, we surpassed $5,000,000,000 in sales for the first time an expanded adjusted operating profit margin, excluding amortization, a testament to our team's focus, dedication and commitment to delivering strong results and executing our long term strategy. We ended 2019 with meaningful growth in the 4th quarter, seeing 7% currency neutral revenue growth including the 4 percentage points related to the 53rd week. We also achieved currency neutral adjusted EPS growth 23%, excluding amortization led by volume growth, integration synergies, productivity initiatives, the Brazil tax recovery as well as more favorable tax rate and higher other income. In the fourth quarter, the team was able to continue to exceed expectations on Frutarom cost synergies, capturing approximately 20,000,000 cost synergies, driven by procurement harmonization and manufacturing optimization.
This very sustained focus across the organization ultimately positioned IFF to accelerate our vision So the announced combination was DuPont NMB Business at the end of the year. The exciting combination will allow us to develop integrated solutions with greater global scale to meet what our customers demand, high quality products, innovative solutions, and strategic partnerships to deliver growth. Well, let's take a step back and look at the full year 2019. I'm pleased to say we delivered solid top and bottom line results in a very challenging environment. We realized sales of 5,100,000,000 expanded adjusting operating profit margin, excluding amortization by 30 bps to 19.2%.
We also delivered strong adjusted earnings per share excluding amortization of US6.17 dollars principally led by adjusted operating profit growth, realized synergies and improved productivity. Ultimately, we had many strategic accomplishments that built momentum throughout the year and drove significant value creation. Our investment innovation includes the opening of IFF Centers of Excellence And Innovation hubs in New Jersey And Texas. Specifically, our new sense of lands for food service and seasonings in Carrollton, Texas, the opening of our home and fabric innovation center at Bella Works in Homel, New Jersey, and the openings of our global service center in Budapest and Italy Du Perfumeir in Grass France reflects our commitment to environmentally responsible real estate development. In addition, we also modernized our largest Send creative centers in New York at Paris and continued our investment in Greater Asia including 2 new plants in India and China, which will complete will be completed in 2020.
In June, we took another bold step forward in leading our industry on sustainability when we articulated IFF's new purpose. To redefine and transform how we live and care for the resources of the We accelerated our global industry leadership in sustainability, opening the industry's largest solar array of our facilities in New Jersey and signing on to the United Nations pledge to help limit global temperature rise. Most recently, Iberf was named once again to CDP's A list for climate change and water security, placing our company among a prestigious group of global environmental leaders with AA Distinction. And just a week ago, we were named to Barron's 100 more sustainable companies list for the 3rd consecutive year. So throughout the year, we continue to complete the important work of bringing our colleagues at Frutarom more fully into the IFS family.
We have addressed the most significant outselling challenges related to bringing these businesses together and are now in a position to accelerate growth by capturing new opportunities and delivering the solutions our customers need. But perhaps most importantly, we have continued to achieve significant cost synergies throughout the integration process. Well ahead of our year 1 cost synergy target, including approximately 50,000,000 cost synergies in 2019. This is mainly driven by procurement excellence, but we also have made progress on our operational footprint. We have closed ten sites in 2019.
And I really believe we are on track to deliver more than $145,000,000 in synergies. Further supporting the business and driving value to our shareholders. We expect to substantially complete the Frutar integration by the end 2020. The efficient operational execution was complemented by solid year 1 run rate revenue synergies, of approximately $15,000,000. We've identified a strong pipeline of cross selling opportunities of more than a 1000 projects.
Representing approximately $150,000,000 of sales and plan to build on this momentum in 2020. We have accelerated the expansion of our Tastepoint model to serve the fast growing local and regional customer segment through increased speed and agility enabling them to win in the marketplace. We will fully consolidate Frutarom into our legacy IFF business. As we refine our structure and reporting, we're aligning our talent organization and responsibility based on our new structure. With this in mind, starting in Q1 of 2020, we will report financial results as taste and scent, incorporating most of Frutarom within our Taste segment.
Lastly, we continue to generate strong cash flows as operating cash flow was up $261,000,000 year over year in 2019. We continue to deleverage our balance sheet improving our net debt to EBITDA ratio from 3.6x to 3.2x putting us on track to deliver on our commitment to be below three times by the end of 2020. With that, I would like to turn it over to Rostom to take
citing time as we move past the integration of Frutarom to the combination with DuPont's NNB business and the many opportunities and challenges this will bring. For my past, I expect to focus on 1st, improving execution and accountability second, enhancing effective collaboration across the business that's legacy IFF, Frutarom and soon NNB 3rd, strengthening our cost discipline and finally, delivering solid ROI. Now on to the numbers. Reported sales increased by 29% in 2019, with 3 additional quarters of Frutarom being the major driver. Excluding Frutarom, currency neutral sales grew 3% with 20 nineteen's 53rd week, contributing 1%.
I'll provide more color on sales by segment as we go through those slides. Our full year adjusted operating profit margin excluding amortization rose by 30 basis points. Driven by productivity initiatives, acquisition related synergies and a Brazilian tax recovery. It's also worth noting that in our fourth quarter, our currency neutral EPS ex amortization grew a robust 23% driven mostly by acquisition related synergies, volume growth, lower incentive compensation, a Brazilian tax recovery and a lower effective tax rate. Which more than offset a headwind from higher raw material costs and mix.
I would like to highlight As a reminder, for a variety of reasons, many of our sales transactions in the emerging markets occur either in U. S. Dollars or other hard currencies or our index to hard currencies when we have to invoice in local market currencies. So when reporting our currency neutral sales exclude foreign exchange related price changes in emerging markets, but this is different from our peers. We believe that our reporting standard provides investors with the true assessments of underlying currency neutral growth especially when there are large and our performance relative to competition.
For the fourth quarter of 2019, the stronger U. S. Dollar environment plus emerging market devaluations year over year in several key markets had approximately a 1% currency impact on growth, if we include emerging market pricing. For the full year, this impact represented approximately a 2% currency impact on growth. Breaking it down a little further.
Let's move on to Cent on Slide 11. In the 4th quarter, currency neutral sales increased year over year by 6 percent to EUR 478.3000000. 4th quarter performance was strongest in consumer fragrance, increasing in the high single digits from the prior year, driven by growth in home fabric and hair care. Fine fragrance grew in the mid single digits year over year, led by double digit growth in both Greater Asia and in Latin America. At the same time, fragrance ingredients declined in the low single digits from last year as price increases were offset by volume declines mainly as a result of industry destocking.
For the full year, currency neutral sales increased by 4% of 2018 to $1,900,000,000 with growth across all regions and in all categories, especially those that are a strategic focus. Both fine fragrance with record new win contribution and consumer fragrance grew in the mid single digits from 2018. Our performance in fine fragrance was driven by double digit growth in EMEA and Greater Asia While as in fourth quarter, consumer fragrance was led by strong improvements in home and fabric care. For the year, Fragrance ingredients improved by low double by low single digits, driven by price increases. For the full year, currency neutral segment profit grew 6% and margin expanded 30 basis points to 17.3%.
Drivers included raw materials driven price increases as well as benefits from productivity initiatives that ran the gamut from manufacturing procurement and make versus buy to innovation. Moving on to taste on Slide 12. In the 4th quarter, currency neutral sales increased year over year by 8% to SEK429.9000000. This performance was led by double digit growth Sales to multinationals, which had been under pressure in the last few quarters, grew mid single digit, indicating an inflection point in Q4. We also saw much stronger growth from regional and local customers, From a category perspective, we were strongest in beverage and savory, helped greatly by strong new wind performance.
For the full year, currency neutral sales increased by approximately 2 percent to $1,700,000,000, driven by high single digit growth in Greater Asia and low single digit growth in EMA. As discussed during the year, we had some challenges in North America and Latin America related to volume declines with multinational customers. And as in fourth quarter, full year 2019 growth was strongest in beverage and savory. For the full year, Taste posted an industry leading 22.1 percent segment profit margin with $383,000,000 in segment profit, which was supported by productivity increases, integration related synergies and lower incentive compensation expense. Now let's move on to Frutarom's performance on Slide 13.
In the fourth quarter, Frutarom, currency neutral sales increased year over year by 6%, including the net contribution of acquisitions and divested businesses, which is a sequential improvement in underlying performance. Organic currency neutral growth for the quarter was 2%. Essentially led by our Taste And Savory businesses. As discussed in past calls, Frutarom experienced compliance and portfolio related transitory headwinds. Excluding these, organic currency neutral growth would have been 6%.
For the full year, sales were 1,500,000,000 for the segment, up 3% on a currency neutral basis from the prior year, including the net contribution of acquisitions and divested businesses. In 2019, organic sales growth was flat And if you exclude the transitory issues, organic currency neutral sales growth was 3%, driven by solid growth in taste and savory solutions. The fastest growing categories at Frutarom include double digit increases in food protection, inclusions and algae For the first for the full year, Frusarom segment profit was $127,000,000 or $286,000,000, excluding amortization and we finished the year with a strong quarterly segment profit increase of 24% led by acquisition related synergies. The full year operating margin, excluding amortization, was 19.2% supported by delivering on our acquisition related synergies and by disciplined cost management. Slide 14 provides some additional color on cash flow, As you will see, operating cash flow for the full year was up significantly from ZAR438,000,000 in 2018, to 699,000,000 this year, a 261,000,000 or 60% increase.
This was driven primarily by higher cash earnings from Frutarom with Frutarom included for the entire year. Core working capital defined as inventories, accounts receivables and accounts payables improved year over year with progress in all three metrics. Inventories still remain at elevated levels, primarily due to raw material cost increases and safety stocks within the scent division. However, In the fourth quarter, we saw continued positive trends. For 2019, CapEx as a percentage of sales was approximately 4.6%, which is a significant investment in mainly in Greater Asia as well as creative centers.
And we invested in high return integration related synergy projects such as manufacturing optimization. Bringing all this together, we had a strong 195,000,000 increasing free cash flow for 2019, representing a 73% increase year over year. Moving on to Slide 15. We expect full year 2020 sales of between 5.15 and 5,350,000,000, with adjusted EPS excluding amortization between 1.6.20 and $6.45. At this point in time, we expect a modest impact on sales from the recent coronavirus outbreak but we are unable to quantify this as there are just too many variables and uncertainties.
In addition, we have already incurred some relatively modest costs related to the outbreak as we acted to mitigate the impact on our supply chain. Right now. It's too early to quantify the impact on our results, but we did wipe both our sales and adjusted EPS ex amortization guidance ranges, to make some allowance for this as well as for continued volatile operating environment. The next slide provides some additional color about what we expect to drive our core And given the several moving parts, we felt it was important to give you an overview of the drivers. As you see from this slide, Sales growth for 2020 is expected to be approximately 1% to 5% on a currency neutral basis.
This includes a headwind of about 0.5 percentage point impacts from portfolio adjustments, namely the carryover impacts from compliance in Citrusource, an estimated 1 percentage point impact related to the 53rd week in the prior year period. Excluding these impacts, Our core currency neutral sales growth is expected to be approximately 2.5% to 6.5%, which includes approximately 2 to 5.5% from the organic business, 0.5% to 1% from cross selling and little to no impact from M and A. Now let's move excluding amortization growth for 2020 is expected to be approximately 3.5% to 7.5% on a currency neutral basis. This includes a headwind of approximately 5 percentage points related to an incentive compensation reset. Which is due to our performance versus our internal budget in 2019, an anticipated 0.5% impact due to the portfolio adjustment and an estimated 1 percentage point impact related to the 53rd week in the prior year.
Excluding those impacts, core currency neutral adjusted EPS, ex amortization, is expected to grow in a range of 4% to 8%. We also expect to have a 6% positive contribution of integration synergies, which were added to our core growth puts us in the double digit growth range. Moving on to Slide 18. I'm pleased to tell you that we remain on track to deliver on our commitment of delivering down to below 3.3x net debt to EBITDA by the end of 2020. While maintaining an investment grade rating.
We're already down to approximately 3.2 times, down from 3.6 times a year ago. And we will continue to focus on improving working capital, tightly managing our CapEx, while making the necessary investments and, of course, growing our cash earnings. To further support achieving this goal, management incentives are aligned to repayment of debt. With that, let me turn the call back to Andreas.
Thank you, Ruston, very well done. I now want to spend a few moments in highlighting the evolution of IFF from a traditional leader in the flavor and fragrance space to now sit uniquely positioned to redefine our industry at a time when consumers' demands are forcing changes across our customers. With Frutarom, we took the first big step. We can now reach 1 of the broader set of our CPG customers of all sizes in the world and added critical depth to our position as a top provider of flavors, savory solutions and natural taste solutions. As I mentioned, we are seeing some excellent cross selling opportunities further supported by our Tastepoint model.
With NMB, we take the next leap forward in delivering integrated solutions that allow us to partner with our customers to solve their most pressing problems. It is a truly powerful combination. IFS leadership in Natural Solutions and NFB's leadership in clean label including cultures, enzyme and soy proteins will be a vital component in creating solutions that meet customer needs for better for you products. Our complementary product portfolio will be among the most balanced in the industry. Together, we will have number 1 or number 2 positions the high value, most in demand ingredients categories across our shared end markets of food and beverage, health and wellness, and home and personal care.
Ultimately, what we are doing is strengthening IFS position to serve our customers. We are witnessing powerful trends that are forcing all of us to think differently. And we have received very positive customer feedback about that combination. We will be a very powerful leader with even better R and D and application development capabilities and even deeper and more robust product development pipeline in addition to a portfolio that will be among the most balanced in the industry. Importantly, our shared cultures led by science and creativity will drive our strengths to unlock the potential of this combination.
And again, it's really about how we can deliver highly compelling value propositions to all of our customer types. For many of our global multinational customers, we will bring deep experience with high growth segments, faster speed to market, and very deep consumer insights. For local and regional organizations, we will provide global reach to support regional and or global expansion paired with a strong local presence and a culture of collaboration. For new brands, we will be their end to end partner from idea to production providing the reliability of scale and the power of global reach. The opportunity before us is clear and compelling and we are taking the wide steps to ensure that we are positioning position to bring these 2 businesses together as efficiently as possible.
As we announced along with Rustom's appointment back in December, Richard Leary has been named as a lead, the NMP integration efforts for IFF. Similarly, Angela NEF, NMB's SVP of Global Tech And Innovation will oversee the NMB integration lead. Each brings unparalleled knowledge of their respective businesses and a diverse operating perspective to this team. We believe that their combination of experience and leadership best positions us to bring this combination to life. As I have had the opportunity to meet with leaders from across NNB business, Each of these conversations has reaffirmed that IFF and NMB are perfect partners.
While we look forward to hitting the ground running, The deal closes targeted for the first quarter of 2021, providing significant runway for planning and integration related execution. As you can see, we've already been diligently working on planning to execute our roadmap to integrate these businesses. On Slide 22, we are showing that while our NAB integration planning has started and is working in parallel with our ongoing Frutarom integration work, We do expect the business integration work of Frutarom to be completed in the third quarter of 2020 with 90% of the manufacturing consolidation complete. As planned. This ensures that we are ready to begin the DuPont NMB integration.
We will tap the combined integration muscle of both IFF and in NMB, along with robust external subject matter experts. So in summary, we delivered solid top and bottom line results and took clear and significant strategic steps on our journey to lead our industry as an invaluable partner for our customers. In 2019, we surpassed $5,000,000,000 in sales for the first time and expanded adjusted operating profit margin tuning amortization by 30 bps. I'm pleased that we ended the year with a significant acceleration in gross, seeing a 7% currency neutral revenue increase and a robust 23% increase in currency neutral adjusted EPS. Excluding amortization.
Reflecting on the year, we have lots to be proud of. Our key accomplishments include significant integration related synergies, strong progress in cross selling, great strides in sustainability and completion of the Russia and Ukraine compliance issue. At the end of the year, in fourth quarter, we also saw fundamental improvement in our taste segment, a key inflection point as we had into 2020. But I also want to acknowledge that not everything went in our favor in 2019. We experienced significant raw material costs increases across both segments and sales came in lower than expected across all segments for the various reasons we explained earlier.
As we look ahead in 2020, leveraging the key learnings from 2019, our priorities are very clear. Drive growth and profitability in our business substantially complete the Frutarom integration and lay the groundwork to begin successfully combining with NMB. With continued focus on execution, we will be well positioned to become a global leader and innovative integrated solutions and be able to deliver value creation for all of our stakeholders. And while we are early in 2020, we are pleased to say that started the year strong with growth in all segments. With that, I would like to open it up for questions.
We'll take our first question today from Mark Estreshawn with Stifel. Your line is open.
Thanks and good morning everybody.
Hey, good morning, Mark. How are you?
Great. Thanks. So two questions for me. First on the sales forecast range. So it's a bit wider than we're accustomed to seeing, it's a bit wider, I think, too relative to some of your peers, I guess I'm curious why you're giving a wider range.
I hear the China commentary, but was under the impression it wasn't particularly large as a percentage of business. So is there something from a macro standpoint? Is there something from a customer standpoint that, you're hearing or worried about? And then the second question is Frutarom. So I get organic growth for 4Q of down about 4% if you back out the acquisition contribution and the pieces of the business, from the closing in the prior year that you didn't own for the full quarter.
So that gets a full year number down about 1%. So I guess the question there is you've owned the asset now for a little over a year. What's a reasonable run rate of growth? You've talked about percent of that target longer term, but it just seems like it's not the case anymore. So maybe you're still thinking 6, but if you could kind of walk through how you're thinking about it, if that's the case or what are the moving parts today?
That'd be helpful.
No, Mark. Thank you. First of all, on the guidance range, that was certainly a discussion we had internally, what do we do in an environment where we are in, which is a pretty, let's say, a volatile it's on one hand, certainly the corona situation, and I come to that in a second. And then also tariffs, which are not easy, easy to plan, but Corona was probably the tipping point for us because it's very hard to quantify, but we know that it will have an impact. With our manufacturing plants actually closed up to last Monday, Tuesday where we opened it.
We have a relatively soft demand. We will see whether we will make it up. We have seen that, we have also modest cost increases already and particularly on transportation. We have to make sure that we manage our inventory well in this situation because you have, let's say, disruptions in the supply chain. And one of our bigger customers also said that, travel retail is actually pretty, pretty down because people are not traveling too much any longer.
Just to give you one very personal example, my family came back from Europe yesterday. My wife told me and Frank were that the the border control, there was nobody else. And the airplane looked on the airplane was a smaller one than before, and it was just half booked. So just as to validate what we are saying and reading. So we said it's probably a prudent thing to, to widen the guidance range because we just don't know We hope at least that we will make it up.
And as I said, our manufacturing plants are open again and we're starting to manufacture and it seems to be all good. But, that's how we see it. And I hand it over to Rustom to talk a bit about the guidance. Sure. Thanks.
Thank you. Hi, Mark. Very little to add there except specifically we didn't quantify on the coronavirus because it's too early. It's just too early to tell and understand it. And, but what we did do was widen the ranges and we can come back at some point subsequent in the year
as we, as we know more.
Let me take now your second question on fruit. We believe when we cycle through, as we said, probably over the course of last year, through some of the one time effects, we see that this business has good potential of mid single digit growth in, in average. And I come to some of the exceptions here. What we have to cycle through is our compliance issues. We issue we had in Russia, Thanks, Scott.
It's solved on the legal front. Now we have to make sure that on the business side, it's running well. The second thing is the citrus source where one of our peer companies lost their big customer and they are our biggest customer in that business. And then we had the impact on raw material prices on natural colors. So we believe that we in the second quarter, we will cycle through these effects.
And we will grow this business around about mid single digits. We have actually if you look at the different categories, some of these businesses are doing extremely well and have even double digit growth like inclusions where gelato is part of it. And the food protection business. So we are driving this and we see also that these businesses are helping us with our cross selling activities, which is basically reflected in the guidance, by the way. And most of it, it's a food to own business.
Okay.
Thank you. We'll take our next question from Mike Sison with Wells Fargo. Your line is open.
Hey, guys. Just wanted to get a little bit of color in terms of what's driving the growth of 2.5percentto6.5percent. I know you have a nice little color columns there. But in terms of the organic business, can you maybe walk through, I think you've won some business in taste or maybe a sense can't remember. And what gives you confidence that you can actually grow organically in 2020?
Yes. Okay, absolutely. I know and I take a look, this was some, you add here. First of all, As we said before, we have basically access to 3 more very important callers on the Send side. What we see is that the team is executing with the customer very, very closely now on new projects.
We will see already some grid wins in 2020, but the bulk of it will probably probably come in 2021. But we see that this is working out very well. And that was myself at the big, Congress ACI, the American Cleaning Institute, and, a talk myself to many customers and particularly the ones where we where we have won the new call list. And that's very positive because they're happy with the innovation provided by IFF and the projects are already starting to ramp up. That's number 1.
Number 2, And that wasn't, it was a super important for us last year. We saw the inflection point now with the taste business. We had basically 3, almost four quarters, not so great, great growth. It was, 4th quarter in 2018 and then up to the third quarter in 2019. And we saw that many of our bigger CPG customers had very slow volumes, not that we were losing businesses, but just the volume was very, very low of our business with these customers.
And we had, on the other hand, a very good win rate over the course of the year. And that started to materialize now in the 4th fourth quarter. And we see already a good start into the first quarter as well, which was good generally numbers. So it looks like that we are coming back on the taste business to our usually average growth rates. And you know when I go back here on my spreadsheet, the last 3 years.
The average CAGR was 3.9 last 5 years, 3.7 and that's certainly the number the business can, can achieve. Then on top of it, we look at the food home business. I just gave the answer to Mark. It's a bit backloaded in general because of the cycling through of the topics I just mentioned. But what comes on top of it we see actually a good activity now on the cross selling.
It started slower than we expected. But right now, we have run about the 1000 projects, which have significant value for us, where we see that we can combine our product that we can cross sell products into, into combined customers. And that's something which is really, really good and gives us confidence that the growth is will be good in our core business, over the course of 2020. So that's how we see it. I don't know, Roastem, whether you want to add anything.
Just one thing probably in pricing and incentive pricing in fragrance otherwise, I think you covered it all.
Okay, great.
We'll take our next question from John Roberts with UBS. Your line is open.
Thank you and welcome, Ruston. That was a good presentation for somebody only on the job a couple of weeks.
Thank you.
Now that the year one guarantees have expired for the key Frutarom employees, are you seeing any increase in turnover?
Yes. John, that's a very, very good question. Let me address it into two parts. The first thing if I look at total employee population of legacy fruit, we have actually lower attrition rates, voluntary attrition rates than we had before, which is actually pretty good knocking on wood. It stays like that.
And on the key employees, we didn't lose key employees. We didn't want to lose. And that's a good, good, let's say, message for us as well. Some of them are driving important businesses for us for example, the leader of the Inclusions business, which is really driving it, the savory solution business, they're all a leader from the legacy fruit with unit.
Okay. And do you have any update on the timing of a filing for the DuPont deal? And just remind us what are the key long lead time critical items on the path to closing on first quarter 2021?
It would be. John, this is Mike. There's no change from what we communicated back in December as you progress through this year. Obviously, there's the separation component that the DuPont team is working on from that standpoint. And then as we progress concurrently, we're working to look at doing the appropriate filings with the SEC, specifically the Form 4.
That will probably come, let's call it mid year. And then after that, we'll move into the voting discussion.
And closing has not changed. We believe that first quarter year is very, very realistic and we don't expect any antitrust issues here with the 2 businesses.
We'll take our next question from P. J. Juvekar with Citigroup. Your line is open.
Yes. Hi. Good morning. My question is on CAAST. You know, North America was challenged due to volume erosion from large multinational companies.
I thought that destocking in packaged foods was mostly done by end of third quarter. So is there incremental destocking or is this, issue with underlying demand with these multinational companies? Thank you.
I think, P. J. Good question. We are done with destocking, for, let's say third quarter last year, fourth quarter was already done. And I think that has reflected very nicely in the rebound of our business in the Taste division.
So we are very happy with that.
And my second question is, one of your priorities was getting IFS Technology into Flutarom and the cross selling you had talked about. Can you give us an update on that and if that's happening through this point? Thank you.
Yes, absolutely. It's happening through to Tastepoint and we're doing it for some of the bigger, bigger customers as well. What we see here is, in particular, on the, food protection sites, very good sales. So food protection is basically antioxidants to increase the shelf life. That's something where cross selling works very, very well.
We see it in the first examples on natural colors and on the inclusion business, which is the legacy Torah Tora 1. We see it in the number of projects. As I mentioned, we have round about 1000 different projects running. With the value of more than $100,000,000, not all of them will hit certainly this year, but it shows the strength If I would look back maybe a year, year and a half, I would have hoped it comes faster, but I have to say now since we are having a really dedicated good team on it and exploring it more, it comes much better than we have expected. So a little slower than I would have wished for.
But higher in terms of the opportunities than we have seen before. I hope it helps PJ.
Thank you. We'll take our next question from faiza Alwy with Deutsche Bank. Your line is open.
Yes. Hi, thanks. Morning. And so I had two questions. One is just on gross margin.
It looks like you took a step back this quarter and I was expecting an improvement. So maybe if you could share with us what some of the puts and takes were there, and how we should think about raw materials and gross margin in 2020? And then my second question is just if you could give us a sense of how we should think about cash flow and CapEx in 2020.
Sure. So, hi, it's Rustom. So let me take this. So, in
the 4th quarter, our gross margin was negatively by higher raw material costs and unfavorable mix, right?
So from what I've learned in my 1st couple of weeks, raw material costs can fluctuate monthly
quarterly due to inventories and in taste in Q4, that's really where we saw it. They were primarily impacted by the timing of raw material cost on the balance sheet, the P and L. And that's not much different from what happened in the second quarter. We have sent raw materials, came in much more favorable And then if you want to think about specific commodities in Taste citrus primarily Vanilla and incented continues to be turpentine and China tariffs, right? Capital, you wanted to get the cash flow, yes, roughly about 4.5% next year as well, 4.5% of sales, sorry.
4.5% of sales, on capital. And then the final part of your question or at least the intermediate part of your question was about raw materials how that would flow through into next year, right? And, looking 2020, we believe that raw material costs will stabilize. Specifically in the scent division where we had the largest raw material increases, our current purchases are stabilizing. And look, it's important to note they still remain at elevated levels.
And that we will, as we always have worked with our customers and actions, including price increases to cover that exposure. And I think Those are your questions, right?
I think that's perfectly fine, awesome, fantastic in 3rd week. No, just one word on the CapEx, to give it a contextualize a bit. As we said before, last year was our highest CapEx spending for all the reasons I set in during the call because we did a lot of investments We have to finish up this year. And, from the next year onwards, CapEx plan is much lower and it goes more to a maintenance level of 3% to 3.5%. Because we are finishing up India and China this this year, the creative centers, centers are done.
And then we have just the maintenance investments, which is actually a good sign for us. It will have a positive impact on the cash flow.
We'll take our next question today from Adam Samuelson with Goldman Sachs. Your line is open.
So just thinking about the 2020 plan a little bit and maybe first just to clarify on the coronavirus just impact. And I know the guidance doesn't officially kind of contemplate an impact, but it also kind of you've put a wider range to give some some room there. Could you just contextualize for us the just the China sales exposure and also just fine fragrance. And as far as you can tell, how much you think that actually goes through global kind of duty duty free and travel channels is probably the two areas most at risk. And similarly on the production side, how much of your raw material production do you source from China?
Sure, I get started. Hey, Adam, good morning. So we do run about 6% of our combined sales in, in China. That's China for China, so to say. On the travel retail, I can't tell you now because it has usually a time lag.
It comes from our customers. But if you look at our one of our big beauty and cosmetic customers, They just made an announcement and that made us think as well what the impact might be. And then the third piece is that we have we are sourcing some of our fragrance ingredients out out of out of China. And we certainly have other suppliers in China as well. Here, we feel much better because since the factories is and that specific factory is open since last Tuesday, we are probably on safe grounds that we can supply our ingredients to the rest of the company.
But that was a bit of a worry for us as well, whether we connect board out of China. So 6% China for China, travel retail, we don't know. We're just listening to our customers because they are closer to the frontier. And then on production out of out of China, we believe we are good on the
Okay.
And then just maybe following up on the prior question on the gross margin performance in the fourth quarter. And clearly, it came in below your plan. And I just want to be clear, I mean, if it was raw material costs and inventory, just I presume you would have had more visibility to it. Was there a sharp kind of divergence in sales mix? And the decline in fragrance ingredients I would have thought would have been a tailwind to the margin performance.
Just want to make clarify a little bit just the surprise relative to your own plan. Recycling back a couple of months, it seems like a bigger variance, I would have thought.
So yes, I mean, look, mix, sales mix definitely. I mean, sales mix was in there. And nothing structural, really, as we look at our and we're probably going to see gross margins recover as we go into the early part of this year in 2020.
Yes, absolutely. And it's more timing than anything else on that one. And the good thing is that the raw material prices are now softening again, which is, which is helpful for this year. We certainly have taken last year in a couple of moments inventory positions just to make sure that we can supply our customers, but that seems to stabilize.
We'll take our next question today from Lauren Lieberman with Bar Please. Your line is open.
Great, thanks. Good morning.
Good morning, Lauren.
Hey, I just want to follow-up again just a bit on Frutarom. So a few things here. One is that with Frutarom being folded into into this inflection you're expecting in 2020. Because when I look at fruit in the fourth quarter, even if I concede and say the four points that the things that you're calling transitory are in fact transitory. Organic was still down 2% even excluding those things in the fourth quarter.
So I'm just struggling with why mid single digits is comfortable and how and if we'll kind of get visibility into that with it, again, being folded into taste as we get into 2020?
So Lauren, it's Rustom. Let me have a crack first at how we're at the second part of how we track it and how we manage it. Yes, we are going to report these two segments, but what we are going to do over the course of the year in 2020 is we're going to, as much as possible, track the Frutarom element separately too. Now remember, as we continue to integrate, there will be some sales that come from Frutarom that now show up that naturally migrate over into the legacy taste part of the business, right? So it won't be perfect, but we're going to do our absolute best for ourselves as much as anything else to track and control that.
Then
Yes, I think the second question, and just as kind of point from just a reminder perspective, I think Lauren was asking, looking at the organic growth from a Frutarom perspective, exit 53rd week, exit 3 days, I think the run rate number or the right number is probably flat in the quarter.
And
so how does that transfer as we go forward to confidence level?
I would say, confidence level is pretty high right now. That when we cycle through these one times and Lauren mentioned it, And maybe when we're next week at CAGNY, we have a bit more time to talk about it. When we go through the Russia topic, from the commercial point legally, we are through when citrus sources is basically cycling through and we see a recovery of the natural color, colors raw materials, then we will see actually good mid single digit growth going forward. And we will provide some visibility on this one as well. Where it is tough And I'm building you on Rostum's comment on to create visibilities on the cross sales.
And do you see processes all is 0.5 percentage to 1 percentage point, grows for this year. And most of it actually it comes out of the Frutarom portfolio and that's tough to track. But I think you can model it that most part of it comes out of the Frutarom portfolio and that should be, should be helpful for you when you model the legacy fruit business. We are bringing you together with taste. There's actually 2 reasons.
1 is a very practical business reason. It is helping with our cross selling activities. And bringing the technologies and the people very well well together. That's number 1. And the second one is in gearing up for the NMB integration it simplifies our structure because we will have them in the first quarter next year, another change, and we thought it's a prudent thing to do exactly that.
I hope it helps, Lauren.
Thank you. We'll go next to Jeff Zekauskas with JP Morgan. Your line is open.
Hi, good morning. Good morning. Hi. In your remarks, you said that you knocked out $20,000,000 in costs in Frutarom. But the year over year increase in operating income is about $5,000,000.
And even if you compare it to the first quarter of 2019, maybe your $3,000,000 up. So why isn't Frutarom earning I don't know, $45,000,000, if you've lowered your cost structure by that much, why are the numbers so low?
So part of this would be currency. The currency impact go through with the numbers. And part of the, I guess, of the cost synergies that we have also have been associated with extra costs that we put in as we take out the synergies to, right? Sometimes the double operation of factories and the migration over as we consolidate.
But that's a fair point because we had for some of these, we had the double running costs because when you closed down a factory and basically the ceiling and you have to ramp up already and to get it into the into the new one. I think that's important. And that will go away because we've closed down 10 factories last year. We will do another dozen probably until October of of this year. So, these double running costs at least for the 10 way, of course, it's gone.
I think that's good. And then we had a couple of smaller divestitures versus previous year as well. And that's impacting it.
So should your Frutarom operating income grow at least $50,000,000 next year as you realize incremental synergy costs? Or that's not the right number? I mean, even if the business doesn't grow at all?
Sorry, I was going to cut in there. That number is the right number, but it's going to be spread across the three the 3 businesses, the business units, well, 2 as we go into next year.
Yes. Because and let me explain why many of the savings are coming from procurement. And we see procurement synergies also in the scent business because we just get some of the raw materials to better price transportation. We have significant savings, for example, or packaging material. And that's the reason why you see it in the different businesses as but in general, the number is right.
Yes.
And we have no further questions at this time. I'll turn the call back Andreas Vivint for any final or closing remarks.
Yes, thank you very much for the discussion and the good questions. I hope I will see many of you doing CAGNY next week. That's number 1. And then we have certainly, as usual, a lot of one on one's plan. Have a good day and see you soon.
This does conclude today's program. Thank you for your participation.