At this time, I would like to welcome everyone to the IFF Third Quarter 2019 Earnings Conference Call. All participants will participants will be announced Pilher 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 Third Quarter 2019 Conference Call. Yesterday evening, we distributed a press release announcing our financial results, A copy of the release can be found on our IR website at ir.iff.com. Please note that this call is being recorded live and will be available for replay.
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 full year 2019. 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 contained in our 10 K filed on February 26, 2019 and in our press release, all of which are on our website. 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 on our website. With me on the call today is our Chairman and CEO, Andreas Sivey and our Executive Vice President and CFO, Rich O'Leary. We will start with prepared remarks and then take any questions that you may have. With that, I would now like to introduce Andreas.
Thank you, Michael. On the call today I would like to provide comments on our third quarter financial results and give an update on our integration progress. Once finished, I will ask Rich to give a more in-depth financial review of our business performance and provide an update on our outlook for the balance of the year. Then we will take any In the third quarter, we delivered a sequential improvement in our combined currency neutral top line growth rate. Centimeters continue to perform well growing low single digits with growth in all regions and nearly all categories.
On a standalone basis, Frutarom sales increased 5%. Including the net contribution of acquisitions and divested businesses. Organically, sales were flat in the 3rd quarter, a sequential improvement for the 2nd quarter results with an improvement across many subcategories. In taste, our win rates remain at a high level However, performance continued to be impacted by volume erosion, primarily with multinational customers. It should be noted that on the 2 year basis, growth remains solid when we factor in the 7% growth we achieved in the year ago period.
We are pleased to also report a continued improvement in profitability as we grow a 60 basis point improvement and adjusted operating profit margin ex amortization as we delivered productivity savings in our core business and benefits from an acquisition related synergies. Our integration efforts of Frutarom are progressing well. Cost synergies continue to be a source of strength as we achieved approximately $30,000,000 for the 1st 9 months of 2019, and now expect to deliver approximately 50,000,000 for the year, significantly ahead of our 14,000,000 estimate that we announced last quarter. We are also substantially completed our review of the Russia and Ukraine allegations as well as a secondary review of Frutarom Operations and certain other jurisdictions, including those that we deem as high risk. These reviews supplement our prior global compliance initiatives that we were conducted subsequent to the closing of the Frutarom transaction.
While I will speak in more detail in a moment, I want to state that we have confirmed in this investigation that total affected sales represents less than 1% of IFFs and Frutarom's combined net sales for 2018. And that the impact of the reviews, including the cost associated with them, to date have not been and are not anticipated to be material to IFF's financial conditions or results of operations. In addition, no evidence has been uncovered suggesting that any of these compliance matters have any connections to the United States. Finally, as we look to the 4th quarter, we have started strong as all three segments grew mid single digits in October. With the continuation of this trend, we believe our full year 2019 sales and adjusted EPS, excluding amortization, will finish in line at the low end of our previously stated guidance range.
As I reflect on the year in entirety and acknowledge that many moving parts was good and bad that have occurred, I'm pleased to say that we are on pace to deliver solid top and bottom line results. On a combined company and currency neutral basis, a testament of our industry, our exceptional business and unbelievable employees that make it happen. And as we build a stronger, more competitive organization for the future, 2019 provides the foundation, grounded and resilience that gives us confidence and optimism for journey ahead. Now circling back our third quarter 2019 financial performance. We delivered broad based improvements in sales, profitability and cash flow.
Our sales totaled approximately $1,300,000,000, one of our highest in company history. And a combined basis, we saw a sequential acceleration currency neutral sales growth as we grew 2%, driven by acquisitions and our scent performance. In absolute value, additional Frutarom provided a very strong benefit to currency neutral adjusted operating profit, excluding amortization. Which increased 45% over the prior year period. This combined with margin improvement initiatives and acquisition synergies led to a 60 basis point expansion in adjusted operating profit margin, excluding amortization.
The net result was a benefit to cash flow generation where we achieved improvements in both operating and free to deliver against our plan. We are currently strengthening our go to market approach with the expansion of our Tastepoint model in key markets around the world as a blueprint for success. Our intent is to continue to serve the fast growing local and regional customers with a differentiated service model built on speed and agility to help them win in their marketplace. In terms of cross selling and integrated solutions, We have already achieved approximately $14,000,000 run rate sales and have identified greater than 800 projects in the pipeline representing approximately $110,000,000 of sales. And while we're on track to deliver our stated target of $100,000,000 by 2021, We expect that this number will customer base.
We continue to strive towards our ultimate operating model of scent, taste and nutrition and ingredients, which will define our organization moving forward. Talent and culture within the organization remains paramount as we execute our talent agenda to enhance our high performing corporate culture with extreme accountability, bias for action and effective collaboration. We'll also continue to deliver strong cost synergies, achieving $30,000,000 for the 1st 9 months Based on our progress to date and our expectation that savings benefits will continue to accelerate in the fourth quarter, we are now forecasting that we will achieve approximately $50,000,000 in cost synergies in the year 2019. In terms of cash flow, our operating cash flow was strong. Up $181,000,000 in the 1st 9 months of 2019 compared to the previous year period.
We also improved our net debt to EBITDA ratio from 3.6x in the 2nd quarter to 3.4x As a reminder, debt repayment continues to be our number one priority in our capital allocation as we progress towards our net debt the EBITDA target of below 3x by the end of 2020. As I just mentioned, We are further increasing acting to deliver greater than 60 percent higher synergies in 2019 against our initial target of 30,000,000 to 35,000,000 In the areas where we are focusing on our cost synergy efforts, we continue to see significant progress against our goals. We are meaningful outpacing our original procurement savings target, driven by purchasing power, make business buy and tails spent. We also have completed the closure of 5 plants and announced an additional 11 closures via our manufacturing network optimization program. Expanding our focus, we are driving operations, excellence initiatives to generate incremental savings.
Some examples include logistics, and packaging synergies, which will benefit all of our segments. Assessing what we are today, our team has done a very good work generating incremental savings. Looking at our $145,000,000 I believe we are on for our shareholders. As a follow-up to our compliance disclosure in the second quarter, I want to take a few moments to provide a more formal update. As a reminder, as disclosed last quarter during the integration of Frutarom, we were made aware of allegation that 2 Frutarom businesses operating principally in Russia and Ukraine made certain improper payments to a number of customers.
We are pleased to report that we have now substantially completed a robust review of the Russia and Ukraine allegations. We have substantiated allegations and have confirmed that key members of Frutarom's senior management at the time were aware of such payments. As a result, we have taken appropriate remedial actions including replacing senior management in relevant locations and believe that such and pop up customer payments have stopped. We've also conducted robust secondary review of Frutarom's operations in certain other jurisdictions, including those that had deemed highways These reviews supplement our existing global compliance initiatives that were implemented at Frutarom in connection with the closing of the Frutarom transaction. These secondary reviews were conducted with the assistance of outside legal and accounting firms, including Freshwheels, Prokos, Deringer, and Deloitte.
These reviews are substantially completed. Following the extensive review, we confirmed that the total affected sales represents less than 1% of IFFs at Frutarom's combined net sales for 2018. And that the impact of reviews, including the costs associated with them to date, have not been and are not anticipated to be material to our results of operations or financial condition. In addition, no evidence has been uncovered suggesting that any of these compliance matters at any connection to the United States. With that, I would like to turn it over to Rich to take you through our financial performance in more detail.
Thank you, Andreas. Combined currency neutral sales grew 2 percentage points over the prior year, driven by the contribution of acquisitions, as well as growth We are also pleased that adjusted operating profit margins, excluding amortization, improved 60 basis points year over year. Driven by increased emphasis on productivity savings and the benefit of acquisition related synergies. From a legacy IFF standpoint, we delivered very strong operating profit leverage with currency neutral adjusted operating profit up 6% as I have done in the last few quarters, I would also like to highlight the impact of emerging market pricing on our growth rates to better compare with our peers. 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 other hard currencies or are indexed to hard currencies when we have to invoice in local market currencies. When reporting our currency neutral sales growth, we exclude foreign exchange related price changes in emerging markets but this is different from our peers. Of underlying currency neutral growth, especially when there are large emerging market evaluations relative to the US dollar or euro. However, it's important to help all of you understand our performance relative to our competition.
During the 1st 9 months of 2019, the stronger USD environment plus significant emerging market devaluations year over year in several key markets, had approximately a 2% currency impact if we include emerging market pricing. You can see from the chart that 3 countries outlined represented less than 10% of Centene sales, but have significant devaluation. Turning to business unit performance for the 3rd quarter. Incent, currency neutral sales grew 3% with growth in all regions and nearly all categories. Performance was strongest in fun fragrances, growing mid single digits led by robust growth in EMEA and Greater Asia.
Consumer fragrances grew low single digits with increases in nearly all categories, led by home care, haircare, and fabric care. Fragrance ingredients was flat as price increases were offset by volume declines related to the supply chain destocking. Centurrencyneutral segment profit was flat the benefits of productivity initiatives and mix were offset by unfavorable price to input costs. We believe that the timing impact of raw materials between inventory and the P and L that we saw in Q2 reversed in the current quarter. We are starting to see signs of raw materials easing, but the costs remain elevated given the 20% increases we've experienced over the past 2 years.
In TACE, 3rd quarter currency neutral sales declined approximately 2% against a very strong growth of 7% in the year ago period. Growth was strongest in Greater Asia with high single digit growth Continuing to this growth or improvements in key market markets such as Indonesia, India and China. However, as expected, the volume erosion with multinational customers that we outlined last quarter continued into the 3rd quarter. Offsetting growth. From a category perspective, it should be noted that performance was strongest in beverage and savory led by new percent on a currency neutral basis, driven primarily by productivity initiatives and cost management.
This focus drove a 90 basis point margin improvement year over year. Before moving on to Frutarom, I want to share some additional context on taste. The fundamentals of this business remain quite strong. Our project pipeline and win rates are both up about 25% year over year. Dispose well for the future.
As I just mentioned, volume erosion worsened further in Q3. And is now more than five times our 3 year average. However, I'm pleased to say that we have already begun to see disinflection in the fourth quarter of 2019 as new wind contribution is high and volume erosion has begun to normalize. In the third quarter, Frutarom sales totaled $364,000,000. On a standalone basis, currency neutral sales increased 5% driven by the net contribution of acquisitions and divested businesses.
As organic sales remain quarter with continued pressures in the FNF ingredients, mostly, most notably citrus source. And no natural product solutions, particularly more material driven price declines in natural colors. We have seen growth stabilize in the 3rd quarter and are expecting an improvement in 4th quarter as we start to lap some of the transitory issues. I'll discuss this in more detail in a moment. In terms of segment profit, the Frutarom division delivered $28,000,000 and $68,000,000 of profit, excluding amortization.
3rd quarter margin profile continues to be strong at 18.7% if you exclude amortization. Margin continues to be strong driven by cost management, and acquisition related synergies. Turning to cash flow dynamics. Operating cash flow in the 1st 9 months of 2019 was up significantly from $202,000,000 last year to $383,000,000 this year. The performance was driven primarily by higher cash earnings, core working capital defined as inventory's accounts payable and accounts payable, improved year over year with primarily due to raw material cost increases and safety stocks within the Cent Division.
However, in the 3rd quarter, We saw a positive inflection and the levels are continuing to improve. In the 1st 9 months of 2019, CapEx as a percentage of sales was 4.2%, driven by new plant and capacity investments, mainly in Greater Asia, as well as creative centers and integration related investments. For the full year, we continue to believe that CapEx as a percentage of sales. Will be between 4.5% 5% of sales. Bringing this all together, we had a strong $123,000,000 increase in free cash flow, in the first 9 months of 2019.
Before turning to our outlook for the remainder of the year, allow me to bridge our expected full year 2019 organic growth to our long term growth aspiration of 5% to 7%. In 2019, we have been impacted by 2 specific challenges: 1 in our taste segment and the second in our Frutarom segment, Starting with our combined organic growth, As we communicated throughout the year, we have been impacted by higher than normal volume erosion on our core taste business, particularly with multinational customers. The impact of this on our consolidated growth is approximately half a point on a full year basis. At Frutarom, the combination of the transitory issues we outlined, including citrus source, natural colors trade and marketing, as well as the compliance investigation had approximately a 1.5 point adverse impact on our top line growth relative to expectation. If we adjust for these items, our normalized combined organic growth would be approximately 4%.
This would be in line with the long term organic growth guidance we communicated at our Investor Day in June this year. Then When you layer on approximately a percentage point of cross selling benefits, which we will see a significant ramp up in 2020, and a percentage point from additional M and A, similar to the 1 percentage point we achieved in 2019, you get to 6%, which is the midpoint of our long term combined company currency neutral sales, inclusive of M And A, has improved sequentially from Q2 to Q3. And while we're early in the 4th quarter, we do expect the improving sales trend to continue, up mid single digits in Q4. As noted by Andreas, the start to Q4 puts us on a trajectory to see this level. We are seeing a strong rebound in TES, as volume erosion is normally normalizing, and we are targeting positive growth at Frutarom as we begin to lap several of the isolated issues I mentioned a moment ago.
Taking into account, our year to date performance And if the strong start to Q4 sales trends continue, we expect to be at the low end of our previous guidance range for sales and adjusted EPS, excluding amortization. Delivering upon the low end of our previous guidance represents very good results in a challenging year. With currency neutral sales growth of approximately 3% and adjusted operating profit ex amortization, increasing mid single digits. Both on a combined basis. The operating leverage is even more pronounced in the second half, in excess of three times.
With that, I'd like to turn the call
we believe will provide tailwinds. From a sales perspective, taste volumes are starting to rebound, as Rich just mentioned, which we expect to increase mid single digits in quarter 4 as destocking ends. In Centimeters, we will capitalize on a $450,000,000 incremental access by our additional 3 global core lists. Assuming we only achieve our fair share, which can provide a couple of percentage points of growth over the next few years. In Frutarom, we expect to see improving trends as Q3 was better than Q2 and Q4 was expected to be better than Q3.
Then as we cycle transitory issues, which highlighted, Gross will return to our mid single digit trend. To complement this, cross selling benefits are expected to add approximately $100,000,000 by the end of 2021. From a profitability perspective, we expect to benefit from acquisition related cost synergies. 2019 have already had great success achieving $50,000,000 in savings for the full year and expect the incremental benefit we will be no less than additional $50,000,000 in 20.20 as we are internally targeting more. At the core, we will also deliver on the $100,000,000 productivity initiative we outlined at our end as today.
About 1 third will be achieved in 2019, 2 thirds coming in 2020 2021. And finally, we're starting to see signs of raw material deflation following the 20% increase we experienced over the past 2 years. Translating this into go forward financials, we continue to expect to deliver 5% to 7% currency neutral sales growth and a 10% plus in adjusted EPS excluding amortization including both cross selling benefits involved on acquisitions. In summary, the 3rd quarter was a quarter of good progress with positive momentum building. We delivered sequential improvement in gross and achieved adjusted operating profit margin expansion excluding amortization, we are synergies, productivity and cost management.
We are confident in our execution of our integration plan and in turn have delivered increased cost synergies in year 1. We have started quarter 4 strong and given the strength we are reconfirming our full year 2019 financial guidance. Looking beyond 2019, we have strong value creation opportunities we are many near term catalysts. Our parts forward is clear, deliver strong value creation for all of our stakeholders to growth acceleration margin expansion and a successful integration. With that, operator, we are now happy to take questions.
We'll go first to Marcus Rachan with Stifel. Please go ahead. Your line is open.
Yes, thanks, and good morning, everybody. Good morning.
Good morning, Mark.
I guess a few questions. So maybe to start the commentary about the strong start to the fourth quarter. I guess what gives confidence that you can sustain the improvement through the quarter, last quarter sequentially worsened through the quarter. So what gives confidence that this time is different? And I guess, 2, if you're talking about October being better, you've got the extra week at the end of the quarter.
So then by definition, wouldn't the number be materially better for the full fourth quarter. So I guess maybe can you reconcile some of that, for us? And then also confirm whether Frutarom is like for like in that. It's excluding the 3 days at the beginning of the quarter that weren't in the base.
Okay, Mark. Good morning, first of all. It's Andreas. Let me let me get started. So from the visibility point of view, we have already 5 weeks which I think is good.
We see what we have in the order book. And we have, in particular, on the taste side, very, very strong win rate. So these are the things which make us confident for the fourth quarter. And as you just mentioned, we have the 40, 53rd week as well. So all in all, we see good development starting into the 4th quarter.
And in particular, we are happy about taste. You know, that we had a couple of quarters, which were not going so well, certainly again, a very, very strong comparison last year. But that's just turning the corner quite rapidly and absolutely in the right direction, but which might add you that.
Yes, Mark, I think you're right. I mean, if you recall, the comment I made was that if the trend continues, through the end of the quarter, we're on target to exceed the mid single digit, which includes the 53rd week. So, and doing that would enable us to get to the low end of the guidance.
And on the Frutarom piece, so that excluded in the 4th quarter numbers?
It's the standard 445, you know, and it excludes the M and A also.
Got it. Okay. And then thinking about 2020, I realize it's early and you may not want to talk about it, but I guess just puts and takes to it. So you've got a bunch of headwinds in terms of things that you're lapping like the extra week incentive comp reset to hedge gains. FX, etcetera.
So it seemed like maybe it's a little harder to get to the longer term earnings algorithm for next year unless sales growth accelerates. So I guess, A, is that directionally a reasonable way to think about it? And then B, from a currency neutral sales growth, obviously, it's a longer way off, but directionally, how should we think about the commentary you just gave about the bridge from the 2 percent fiscal 2019 organic to this normalized growth of 6 next year, which would seem like you need a little bit to go right to get to?
Look, we, Mark, we have a lot of positives And I actually believe we will start in the next year with quite a bit of tailwind. Let me talk about it. The first one is certainly that we see that the taste volumes are rebounding very, very strongly. So that's one which really important because it has dragged us down in 2019. Then we have now the 3 more core lists with our scent business, which gives us access to $450,000,000 in incremental sales potential.
And we see that we have already won some businesses with these customer this year, which will then materialize next year. So that's another an important move forward. We are lapping some of the Frutarom transitory challenges like fit to a source, for example, and then the Russia case. So that's a good thing as well. And I think which talk always to it.
That we can see a good mid single digit growth for the assets, from mid mid of next year. So that's good. And what really makes me very optimist is, that we see the first nice cross selling wins. We have this as an extra budget line in We have a very, very strong pipeline of more than 800 projects already, which is really, really, really good. And on top of it, If you take a very close look to the cost synergies, we are very happy with what the organization has delivered this year and particularly on procurement savings because procurement is so important because, it doesn't distract the organization from anything.
And we're delivering our cost savings in general to see of $50,000,000, which is way above what we expected. And we go with that tailwind into 2020 as well. So the usual, core productivity programs, which are running, And then we see some tailwind on the raw mats as well. So that's I think these are a lot of very strong positives going forward. Certainly, our hedging and FX might be a bit of a headwind, but it all depends how the currencies develops, but Rich, you might comment on that.
Yes, look, I think, Mark, there are, as you said, I think when you look at absolute year over year, there's going to be some headwinds from currency We don't have the 53rd week. So that could be 50, 60 basis point headwind year over year. We do get the benefits from cross selling. You know, I think the fundamentals are strong and I think that's what we feel good about. As I said, as Andreas mentioned, and as I said on the last call, I think it's going to be more towards the middle of next year when we lap some of these transitory issues.
So I'm not ready to say we're going to get to the 6% next year, because I think we have clearly some transitory issues we have to work through, but the foundation is solid. And I do think the long term both our beliefs are that the long term growth potential is there and that view hasn't changed.
And we'll take our next question from John Roberts with UBS. Please go ahead.
Thank you. I'm looking at slide 15 and the 1.5% sales headwind from transitory issues in Frutarom. I think that's about $20,000,000 or that would have been about a 5% sales headwind to the Frutarom segment sales. So as a way to think about this is that underlying business trends at Frutarom excluding these headwinds is mid single digit currently? And do we that should accelerate to be above the corporate average still?
Are you still consider Frutarom to be one of the highest growth longer term segments in the company?
Yes, John, I think it's, look, you look at the underlying mix of businesses and the categories, that's the right way to think about it, that it's an above average grower. Once we cycle through that, those transitory issues, some of which will continue into next year. But yes, that's consistent with our view.
And we see a couple of these segments within the legacy Frutarom business, like inclusions where we have good double digit growth and we believe that this will continue going forward.
And we'll take our next question from Mike Sison with Wells Fargo. Please go ahead.
Nice quarter. In terms of the Frutarom effect on earnings, you noted it was 1.5% hit on sales, what was the hit on earnings or EPS, which one we want to look at it? And does that come back with higher leverage longer term as you got more cost savings and synergy to, to support that growth?
Yes, look, I mean, from an overall profitability standpoint, if you include the synergies, it's not ahead, right? I mean, from an, you know, exclusive of the borrowing costs and the cost of capital. But, from a growth standpoint, as we move forward, Some of these businesses that we're cycling through that we've talked about in the past, Citrusource, the trade in marketing, some of the compliance related stuff are lower margin is lower than average margin profiles compared to the overall food level. So as we cycle that, there's a, you know, actually a favorable pickup going forward. So I think, overall, it's not that much of a drag in terms of from a P and L standpoint.
Great. Thank you.
Our next question comes from Lauren Lieberman with Barclays. Please go ahead.
Thanks. Good morning. So I noticed in the in the Q, you talked about raw material headwinds persisting for the next two quarters. I think even partially offset by cost savings. So just does that imply that margins will be under pressure for the two quarters, 4Q and 1Q?
I think for me, Lauren, the way to think about it is that still at elevated levels. I mean, I think we're starting to see some signs of stabilization. As I look at sort of the net of input costs to raw material pricing or raw material costs, they were definitely a negative for the first half of the year. Q3 were based be breakeven and I expect it to be slightly favorable in Q4.
And what helps us as well is that Nicholas and this business unit have have done a good job to keep, let's say, take some structural costs out to be very competitive in this field, and that's helping me as well.
Okay, great. And then, Rich, it wasn't in the queue. What was the incentive comp tailwind for the quarter? Does that help also with modeling next year?
Between $5,000,000 $10,000,000.
Okay. All right. Great. And then if you can talk also just North America Tastepoint, I was just curious kind of your thoughts on why that business has slowed? Because I felt like that was sort of an advantageous model you put together.
And so any commentary you can offer there would be really helpful.
Absolutely. And that's a very, very good point. We have seen it in that very quarter, but it's already rebounding rebounding strongly. In the 4th quarter. I would say it's a transitory topic for the quarter, driven by vanilla in a sense that some of the customers went from natural vanilla to more the bond font and synthetic solutions, which is good from profitability point of view, but not so good from the sales point of view.
And we see now a good start into the quarter. So I would not interpret too much into it. The concept stays and the concept thrives. So we are we are doing very well.
We'll take our next question from Gunther Zechmann with Bernstein. Please go ahead.
Hey, good morning guys. Thanks for taking my questions. Just a few to run through, please. The overall synergies with Frutarom, you kept unchanged 1,000,000 revenues over 3 years, $145,000,000 cost synergies. You speak very confidently about achieving or overachieving those targets.
What makes you hold on to the numbers that you originally came with then or what would trigger you to actually raise this synergy target. That's number 1. The second one is on the mid single digit growth that you've seen in October. Just wanted to clarify that this is local currency sales growth rather than organic. And is it right that in Q4, you should have just about over a percentage point of consolidation gains on the revenue line as well.
And then within my one question, 1C very briefly CapEx 2020? What should we expect? Thanks.
Let me just make sure I get the 3 different items in the the question, Guenther. So first, let me start with October. It is, it's currency neutral organic growth. So it excludes the M and and that's the results through the 1st 5 weeks of Q4. In terms of CapEx next year, I would expect this to be around 4.5 percent, plus or minus.
We're still working through that, but it's the peak year in terms of 2019 2020 as we've talked about. We're finishing up a couple of the key investments in Asia and India and Indonesia. We've got probably the peak of the integration CapEx. And then from there, we'll move pretty quickly into 2021 going forward along the lines of the 3.5% that I've talked about previously. In terms of the synergy guidance, just keep in mind, where are we seeing the traction and where we've over delivered in 2019 is really on the procurement side.
I think that we're very, very confident in our ability to deliver that. Obviously that flat toes and I think we still have a lot of work to be done next year. Particularly around the footprint and the site integration work. So it's a little bit early for me to to raise the target from the 145. As I said in my comments, I think it puts us on a trajectory to do that, but I'm not ready to declare victory.
Thank you. We'll go next to Faiza Alwy with Deutsche Bank. Please go ahead.
Yes, hi. Good morning.
Good morning.
Good morning. So a couple of questions. I guess first, if I look at some of your competitors and how they're doing. It seems to me that they haven't seen the type of volume erosion that you have this year. And accepting that there seems to be a turn in October.
But I wanted to see if you had any thoughts on that is? And what can you do to align yourselves more with those that are winning?
I think from a big picture standpoint, we're on all the core list that we want to be on. And where it makes sense is to be on the core list from an economic standpoint. You know, certain of our customers are not performing as well. When you look at a 2 year trend, for the 1st 9 months of the year, you adjust for the peer based currency dynamic, you know, we're pretty we're very close to our largest competitor. So I think we don't believe that we are fundamentally losing share and that we're performing well in the market and once we pass the transitory issues.
So I think we're the best thing we're doing and we're focused on is executing on our plan. Andreas talked about the opportunity we have going forward on the scent side. In terms of nearly $450,000,000 in core list access. As we progress on that, that provides real upside to the scent business. I talked about some of the commentary around on the Taste business legacy Taste business.
About the order book and win rates being up significantly year over year. That bodes well for the future. So, I don't know if there's look, we have to execute and we battle every day and we compete every day. And that's what we're focused on.
Our next question comes from Adam Samuelson with Goldman Sachs. Please go ahead.
Yes. Good morning, everyone.
Good morning, Adam.
I was hoping you could provide just a little bit more color on the taste kind of growth outlook and the confidence you just have there about that kind of returning in 2020, just given the performance this year, just you really think it's concentrated with the multinational customers and just categories where you feel your win rates would suggest accelerations in the offing? Thanks.
No, Adam, absolutely. Look, Listen, we will see the turnaround already in the fourth quarter. What we have seen in the 1st 5 weeks and what is in the order book looks very, very strong. And usually the business goes a little bit in waves here and we're on the upswing right now. We see a good demand in many areas and particularly in very innovative areas.
We see it in the plant based proteins, for example, which is becoming a really important driver of the business. We see that we have more of these solutions available. So the portfolio we inherited through Frutarom, which is helping as well. Some of it will be counted in the in the cross selling and total solution space. So we are we are actually very optimistic that this is going in the right direction and the team is thriving.
What I just said, for, for Tastepoint is actually important as well because, certainly the last quarter was not great taste from what we are seeing. We see a good rebounding on this one with many of our core customers And we see in particular also a good winning on the beverage side, which is very helpful. So all in all, all the signs are very, very positive on that business. And I think the team is fairly optimistic, motivated for the next couple of quarters.
We'll take our next question from Jeff Zekauskas with JP Morgan.
Hey, Silinda. Good morning.
Hi. I have a question on your productivity initiatives outside of Frutarom. Can you talk about like where you stand so far? So I think what you've announced is that you've taken $40,000,000 charge and there are 190 positions to be eliminated. And, and maybe like the total cost will be 20,000,000 some to go.
So where are you in terms of, the program and what do you think the savings might be that you'll see from it? This year and next year?
Yes. So, I mean, it's, I would say we're on track to deliver the $100,000,000 that we've We've talked about. Remember, there's different components of it. A big part of it, is in the scent business on the COGS transformation line, that start, that part of it is in the early stages now. What you're seeing some of the charges for relate to, on the sense of the overhead realignment of the business.
Finance transformation as some of what we're going through now. I think we're going to basically deliver probably a little less than a third this year and then the remaining 2 thirds equally over 2020 2021.
What is really exciting on this area as well as that the reason why we spent actually a good amount of CapEx this year is to modernize much of our manufacturing footprint where a lot of more robotics and AI goes in, which will help us in the mid and long term to, we have very competitive manufacturing costs in place, and that's helping as well. And that's what what we've said because we have to finish up a couple of projects in Asia, which will have we are just building the most modern and biggest flavors and fragrance manufacturing plant in India. We're doing something in China and in Indonesia. And also with the optimization of the footprint, we bring in a lot of technology, which will help us
We'll take our next question from Heidi Vesterinen with Exane. Please go ahead.
Hi, good morning. So, you had a
new comment in the oh,
sorry, good afternoon. Yes. You had a new comment on the 10 Q, highlighting potential risk of a goodwill impairment. What was your rationale for adding that comment this quarter? And are you prepared to rule out impairments at this stage given the underperformance?
Heidi, look, as we go through the normal process at the end of the year. It's a required update in the disclosure. Look, at this point, I consider it unlikely that we'll have an impairment. And as I said earlier, we haven't changed our changed our view on the long term impacts and potential of this business. So I consider it earned quickly.
And then if I could ask another one, another question from the 10 Q. So you've also announced you've entered into a new factoring agreement. What explains the rationale for this? And does this in part explain your confidence over cash flows?
Yes, I think it's consistent with our plan. To me, I look at it as it helps us accelerate the de leveraging plan, the cost of capital to do the factoring on a short term borrowing rates versus our long term cost of capital rates it's an attractive trade off. And so we're being opportunistic about that aspect.
We'll take the next question from Jonathan Feeney with Consumer Edge. Please go ahead.
Good morning. Thanks very much.
I'm going to start with the details. When you talked about acceleration in Frutarom for the 1st few weeks of October, can you confirm that means it's growing organically, not just by acquisition, but growing organically where it was flat, I think, last quarter. Thank you. That's quick. Related to that.
It's how was M and A?
That's very
how would a roughly flat organic for last quarter have compared with your original plans when you laid out the $145,000,000 synergy target? And I guess related to that finally, if there were any kind of you've emphasized procurement as the main sources synergies and that makes
a lot of sense. But is there
any rationalization going on here in Frutarom that is affecting the growth rate where you're going in and getting rid of unprofitable or tailed business and that's maybe slowing the business down versus what the kind of organic growth rate that seemed to the deal?
No, John, I mean, I think there's a couple of different pieces there. I mean, I think when when you ask where the growth rates were in Q3 being flat versus our expectations, obviously it's below where we wanted to be and where we expected to be. It's driven by some of the transitory issues that I talked about previously in terms of The colors issue in NPS, the trade in marketing, the CitraSource businesses. So And if I look at the core case part of the business, as you call on the Q2 Paul. We talked about a very challenging June, in the taste business, particularly in Europe.
Some of that continued into Q3. But again, we've seen a good start to, to Q4 and higher than certainly higher where we saw in Q3. For all four regions in the taste of Frutarom as well as for the savory business. And that's why I think ultimately we have the confidence in the structural capability of that business. In terms of impacts related to integration, The reason why we're highlighting the procurement savings is that's really what's accelerating and what's changed the biggest driver or difference in terms of our expected synergies for at the start of the year of 30 to 35 and where we are now in 50.
We're making we are on target and we are making good progress against the site rationalization you saw on the, I think it was Andreas comment, when we talked about the number of closures we've announced so far, and completed in the second half of this year. That will accelerate into 2020, and that's a big part of the driver of the increase synergies year over year, between 2019 2020. I think from a you get to the point about businesses that are on a less attractive margin profile, profit ability profile, I think that's more of a mix effect that we'll see going forward.
Our next question is from Brett Hundley with Seaport Global. Please go ahead.
Hey, good morning guys. Rich, I just wanted to go back just want to go back to the Heidi's question related to your comment on the factoring agreement. Do you see that pulling anything forward from Q4? What's normally a pretty big working capital quarter for you. And then if I can just follow on with a separate question.
Just going back to raw materials, Are we seeing any new synthetic production coming online out there that might help to combat? Some of the issues that we've seen in recent years? And does that play into some of your confidence about the go forward there? Thank you.
Excuse me. First part on the working capital piece of it, it might have a small impact on what we typically see before, but it's not it's not a huge program. I mean, I still expect to get the improvement in in Q4 that we typically see, given the cyclicality and the way things operate in the fourth quarter. In terms of new capacity input costs, I think, certainly the first thing is that we've seen, I'll say a stabilization of the supply chain. And that's the starting point.
I mean, if you think about what I talked about, Q2, Q1 was there was still a lot of volatility out there. Inventory levels remain high in the scent business for us and our competition, but we are seeing signs that as I said, that is starting to stabilize. And I think the industry in as a whole is starting to to rebalance inventories and get away from safety stocks. I talked that we saw some improvement in Q3 terms of inventory levels coming down. I expect that to continue in Q4.
There's new capacity coming on from BASF in the fourth quarter. I think some of the capacity that was out of the market because of the fires is coming back on. And I think that helps provide a trajectory going forward for us to reduce inventory levels, and provide, as Andres said, we're starting to see some signs that we may have some some easing next year or going forward.
Our next question is from James Targett with Berenberg. Please go ahead.
Hi, good afternoon. Just one question for me on the compliance update. Could you just confirm, can you talk about starts to complete when you do expect it to be complete and what's outstanding? Thanks.
Yes, look, I mean, we're substantially clean and complete in terms of doing the investigation. As in anything like this, there's things that have to we have to finished putting, you know, resolving issues, whether it's people that are on garden leave that have to then go through. But it's the normal sort of follow-up and clean up that has as a result of something like that?
It's also cleaning up all these thousands of documents we have screened So, Deloitte and some of our legal partners here as well. I think in the first quarter, we should be fine with that.
And ladies and gentlemen, this will conclude today's Q And A session. I'd like to return the call to Andreas for final remarks.
Thank you very much for all the good questions and the attendance here. And we will follow-up with one on one sessions with many of you. Thank you. Take care.
And this does conclude today's program. You may now disconnect.