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International Flavors & Fragrances Inc (NYSE:IFF)
Q3 2019 Earnings Call
Nov 5, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

At this time, I would like to welcome everyone to the IFF Third Quarter 2019 Earnings Conference Call.

[Operator Instructions] I would now like to introduce Michael DeVeau, Head of Investor Relations, you may begin.

Michael DeVeau -- Investor Relations

Thank you. Good morning, good afternoon and good evening everyone.

Welcome to IFF's 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 are making forward-looking statements about the company's performance, particularly with regard to our outlook for the fourth quarter and 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 could 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 Fibig 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.

Andreas Fibig -- Chairman and Chief Executive Officer

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 questions that you may have. Let me start by saying that positive momentum is building at IFF. And the third quarter, we delivered a sequential improvement in our combined currency neutral top line growth rate.

Scent continued to perform well, growing low single-digits with growth in all regions and nearly all categories. On a stand-alone basis Frutarom sales increased 5% including the net contribution of acquisitions and divested businesses. Organically, sales were flat in the third quarter, a sequential improvement for the second quarter results with an improvement across many sub-categories. In Taste, our win rates remain at a high level. However, performance, continue to be impacted by volume erosion primarily with multinational customers. It should be noted that on the two-year basis growth remained solid when we factor the 7% growth we achieved in the year ago period. We are pleased to also report a continued improvement and profitability as we grow a 60 basis point improvement in adjusted operating profit margin ex-amortization as we deliver productivity savings in our core business and benefits from 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 million for the first nine months of 2019 and now expect to deliver approximately $50 million for the year. Significantly ahead of our $40 million estimate that we announced last quarter. We all -- we 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 these investigations that total affected sales prevents less than 1% of IFF and Frutarom's combined net sales for 2018.

And at 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 had any connections to the United States. Finally, as we look to the fourth quarter, we have started strong as all three segments grew mid-single digits in October, is a 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 and the entirety and acknowledge that many moving parts, both 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 a foundation grounded and resilience that gives us confidence and optimism for journey ahead. Most circling back to our third quarter 2019 financial performance, we delivered broad-based improvement in sales, profitability and cash flow.

Our sales totaled approximately $1.3 billion, one of our highest in company history and a combined basis, we saw a sequential acceleration in currency-neutral sales growth as we grew 2% driven by acquisitions and our scent performance. An absolute value, the additional Frutarom provided a very strong benefit to currency neutral adjusted operating profit excluding amortization which increased 45% over the period -- prior-year period.

This combined with margin improvement initiatives and acquisition synergies that to a 60 basis point expansion and 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 cash flow. All integration efforts are [Indecipherable] 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 million run rate sales and have identified greater than 800 projects in the pipeline, representing approximately $110 million of sales. And while we are on track to deliver our stated target of $100 million by 2021, we expect that this number will only increase over time as we capitalize on our innovation pipeline, broad category exposure and vast customer base.

We continue to strive toward 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, hence high performing corporate culture is extreme accountability, bias for action and effective collaboration. We also continue to deliver strong cost synergies, achieving $30 million for the first nine 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 million in cost synergies in the year 2019. In terms of cash flow, our operating cash flow was strong, up $181 million in the first nine months of 2019 compared to the previous-year period. We also improved our net debt to EBITDA ratio from 3.6x in the second quarter to 3.4x.

As a reminder, debt repayment continues to be our number one priority in our capital allocation as we progress toward our net debt to EBITDA target of below 3 times by the end of 2020. As I just mentioned, we are further increasing our year one cost synergy target to approximately $50 million; with this, we are now expecting to deliver greater than 60% higher synergies in 2019, against our initial target of $30 million to $35 million In the areas where we are focusing on our cost synergy efforts, we continue to see significant progress against our goals.

We have meaningful outpacing our original procurement savings target driven by purchasing power make versus buy and tail spend. We also have completed the closure of five plans 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 million goal, I believe we are on track to overdeliver upon this target, further supporting the business and driving value 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 allegations that two 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, substantiated litigations and have confirmed that key members of Frutarom, Senior Management at the time where aware of such payments.

As a result we have taken a focus, remedial actions, including replacing senior management in relevant locations and believe that such improper customer payments have stopped. We've also conducted a robust secondary review of Frutarom's operations in certain other jurisdictions including those that it deems high risk. 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 ended accounting firms including Freshfields, Bruckhaus Geringer and Deloitte. These reviews are substantially completed.

Following the extensive review we confirm that the total affected sales represents less than 1% of IFF's and Frutarom's combined net sales for 2018. And that the impact of the 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.

Richard O'Leary -- Executive Vice President and Chief Financial Officer

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 in the scent division and a stabilization at Frutarom; from a profitability perspective, we are also pleased that adjusted operating profit margins, excluding amortization improved 60 basis points year-over-year, driven by an 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% on 1% top line growth. As I -- as I have done 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 US dollars or other hard currencies or indexed 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. We believe our reporting standard provides investors with a truer assessment of underlying currency-neutral growth, especially when there are large emerging market devaluations 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 first nine 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 three countries outlined, represent less than 10% of scent and taste sales, but had significant devaluations.

Turning to business unit performance for the third quarter. In scent, currency-neutral sales grew 3% with growth in all regions and nearly all categories. Performance was strongest in fund fragrances growing mid single-digits, led by robust growth in EAME and Greater Asia. Consumer Fragrances grew low single-digits with increases in nearly all categories led by Home Care, Hair Care, and Fabric Care.

Fragrance Ingredients was flat, as price increases were offset by volume declines related to supply chain destocking. Scent currency neutral segment profit was flat as 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&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 two years. In taste, third 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, contributing to this growth were improvements in key markets such as Indonesia, India and China. However, as expected, the volume erosion with multinational customers that we outlined last quarter continued into the third quarter, offsetting growth. From a category perspective, it should be noted that performance was strongest in Beverage and Savory led by new win performance. Despite a challenging top-line taste segment profit grew 4% on a currency neutral basis, driven primarily by productivity initiatives and cost management.

This focus grew over 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. This bodes well for the future. As I just mentioned volume erosion worsened further in Q3 and it is now more in the 5 times our three-year average.

However, I'm pleased to say that we have already begun to see this inflection in the fourth quarter of 2019, as new win contribution is high and volume erosion has begun to normalize. In the third quarter Frutarom sales totalled $364 million. On a stand-alone basis, currency-neutral sales increased 5% driven by the net contribution of acquisitions and divested businesses, as organic sales remained constant. Performance was driven by growth in Taste and Savory, though offset by some of the same dynamics that we shared in the second quarter with continued pressures in F&F ingredients mostly -- most notably CitraSource and note natural products [Indecipherable] particularly raw material driven price declined in Natural Colors.

We are seeing growth stabilize in the third quarter and are expecting an improvement in the fourth 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 million and $68 million of profit, excluding amortization. Third 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 first nine months of 2019 was up significantly from $202 million last year to $383 million this year. The performance was driven primarily by higher cash earnings, core working capital defined as inventories, accounts payable and accounts payable improved year-over-year with progress in all three metrics. Inventory still remain at elevated levels, primarily due to raw material cost increases and safety stocks within the scent division.

However, in the third quarter, we saw a positive inflection and the levels are continuing to improve. In the first nine 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% and 5% of sales. Bringing this altogether, we had a strong $123 million increase in free cash flow in the first nine 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 2018, we have been impacted by two specific challenges, one in our taste segment and the second in our Frutarom segment. Starting with our combined organic growth, we expect to finish 2019 at approximately 2% organically. 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 CitraSource, Natural Colors, trade and marketing as well as the compliance investigation had approximately 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&A, similar to the one percentage point we achieved in 2019, you get to 6%, which is the mid point of our long-term range of 5% to 7%.

Looking at the cadence of our growth in 2019, combined company currency-neutral sales inclusive of M&A has improved sequentially from Q2 to Q3. And while we are early in the fourth 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 taste as volume erosion is 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 3 times.

With that I'd like to turn the call back over to Andreas.

Andreas Fibig -- Chairman and Chief Executive Officer

Thank you, Rich. As we look ahead, there are several potential near-term catalysts that 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 four, as destocking ends. In scent, we will capitalize on $450 million incremental access by additional three global [Indecipherable], assuming we only achieve our fair share that 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 return to our mid single-digit trend. To compliment this, cross-selling benefits are expected to add approximately 100 million by the end of 2021.

From profitability perspective, we expect to benefit from acquisition-related cost synergies; 2019 have all we had great success achieving $50 million savings for the full year and expect the incremental benefit we will be no less an additional $50 million in 2020, as we are internally targeting more. At the core, we will also deliver on 100 million productivity initiatives we outlined at our Investor Day, about one-third will be achieved in 2019, two-thirds coming in 2020 and 2021, and finally, we're starting to see signs of raw material deflation following 20% increase we experienced over the past two years.

Translating this into go-forward financials, we continue to expect to deliver 5% to 7% currency-neutral sales growth and 10% plus in adjusted EPS, excluding amortization, including both cross-selling benefits and bolt-on acquisitions. In summary, the third quarter was a quarter of good progress, there was positive momentum building, we delivered a sequential improvement in growth and achieved adjusted operating profit margin expansion excluding amortization via 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 one. We have started quarter four strong and given this trend we are reconfirming our full year 2019 financial guidance. Looking beyond 2019, we have strong value creation opportunities, we have many near-term catalysts. The path forward is clear, deliver strong value creation for all of our stakeholders through growth acceleration, margin expansion and a successful integration.

With that operator, we are now happy to take questions.

Questions and Answers:

Operator

[Operator Instructions] We'll go first to Mark Astrachan with Stifel. Please go ahead, your line is open.

Mark Stiefel Astrachan -- Stifel -- Analyst

Yeah. Thanks and good morning everybody. 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? This time is different than I guess, two, if you -- 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 is excluding the three days at the beginning of the quarter that weren't in the base?

Andreas Fibig -- Chairman and Chief Executive Officer

Okay. Mark, good morning, first of all. It's Andreas. Let me get started. So from the visibility point of view, we have already five weeks, which I think is good. We see what we have in the order book and we have been particularly on the taste side, very, very strong win rates. So these are the things which make us confident for the fourth quarter, and as you just mentioned, we have the 53rd week as well.

So all in all, we see good development starting into the fourth 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 is turning the corner quite rapidly and absolutely in the right direction, but Rich might add to that.

Richard O'Leary -- Executive Vice President and Chief Financial Officer

Yeah, Mark, I think you're right, I mean if you call, the comment I made was 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 the low end of the guidance.

Mark Stiefel Astrachan -- Stifel -- Analyst

And on the Frutarom piece. So that excluded in the fourth quarter numbers?

Richard O'Leary -- Executive Vice President and Chief Financial Officer

It's the standard for four or five and excludes the M&A also.

Mark Stiefel Astrachan -- Stifel -- Analyst

Got it. Okay and then thinking about 2020, I realize it's early and you may don't want to talk about it, but I guess just a couple of puts and takes to it. So you've got a bunch of a headwinds in terms of things that you are lapping like the extra week, incentive comp reset hedge gains, FX, etc. So it seems like maybe it's a little hard 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% in fiscal '19 organic to this normalized growth of six next year which would seem like you need a little bit to go right to get to?

Andreas Fibig -- Chairman and Chief Executive Officer

Look we -- Mark, we have a lot of positives and I actually believe we will start into 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 is really important because it has directors down in 2019. Then we have now, these three more core lists with our scent business, which gives us access to $450 million in incremental sales potential and we see that we have already won some businesses with these customers this year which will they materialize next year. So that's another important move forward. We are lapping some of the Frutarom transitory challenges like CitraSource for example. And then the Russia case, So that's a good thing as well. And I think Rich talk always to it that we can see a good mid single-digit growth for the assets from mid of next year. So that's good.

And what really makes me very optimistic 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 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, particularly on procurement savings, because procurement is so important, because it doesn't destruct the organization from anything and we're delivering all cost savings in general this year of $50 million which is way above what we had expected and we go with that tailwind into

2020 as well. Then the usual core productivity programs which are running and then we see some tailwind on the raw met as well, so that's I think these are a lot of very strong positives going forward.

Certainly hedging and FX might be a bit of a headwind, but it all depends on the currencies develops, but Rich, you might comment on that.

Richard O'Leary -- Executive Vice President and Chief Financial Officer

Yeah, 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 to 60 basis point headwind year-over-year. We do get the benefits from cross-selling. I think the fundamentals are strong and I think that's what -- that we feel good about, as I said as Andreas mentioned and how he said on the last call, I think it's going to be more toward 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 [Indecipherable] 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, our beliefs are that the long-term growth potential is there and that view hasn't changed.

Operator

And we'll take our next question from John Roberts with UBS. Please go ahead.

Unidentified Participant

Thank you. I'm looking at Slide 15 in the 1.5% sales headwind from transitory issues in Frutarom. I think that's about $20 million or that would have been about 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 that should accelerate to be above the corporate average still, or you still consider Frutarom to be one of the highest growth longer term segments in the company?

Richard O'Leary -- Executive Vice President and Chief Financial Officer

Yeah, John, I think, 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.

Andreas Fibig -- Chairman and Chief Executive Officer

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.

Unidentified Participant

Thank you.

Operator

And we'll take our next question from Mike Sison with Wells Fargo. Please go ahead.

Unidentified Participant

Hey guys, 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 [Indecipherable] look at it, that come back with higher leverage, longer term, you got more cost savings and synergies to support that growth?

Richard O'Leary -- Executive Vice President and Chief Financial Officer

Yeah, look, I mean, from an overall profitability standpoint if you include the synergies, it's not a hit. All right, I mean from an exclusive of the borrowing cost 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 CitraSource the trade and marketing, some of the compliance related stuff. Our lower margin is lower than average margin profiles compared to the overall Frutarom level. So as we cycle that there is a -- actually a favorable pickup going forward. So I think overall it's not that much of a drag in terms of from a P&L standpoint.

Unidentified Participant

Great, thank you.

Operator

Our next question comes from Lauren Lieberman with Barclays. Please go ahead.

Lauren Lieberman -- Barclays -- Analyst

Thanks, good morning.

Andreas Fibig -- Chairman and Chief Executive Officer

Good morning.

Lauren Lieberman -- Barclays -- Analyst

I noticed in the Q, you talked about raw material headwinds persisting for the next two quarters. I think even partially offset by cost savings, does that imply that margins will be under pressure for the next two quarters, 4Q and 1Q?

Richard O'Leary -- Executive Vice President and Chief Financial Officer

I think for me Lauren the way to think that there are 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 cost to pricing raw material costs, they were definitely a negative for the first half of the year Q3, were basically breakeven and I expect it to be slightly favorable in Q4.

Andreas Fibig -- Chairman and Chief Executive Officer

And what helps us as well is Nicolaus and his business unit have done a good job to keep, let's say, take some structural cost out to be very competitive in this field and that's helping as well.

Lauren Lieberman -- Barclays -- Analyst

Okay, great. And then it wasn't in the queue, what was the incentive comp tailwind for the quarter, Just that it will help us with modeling next year?

Richard O'Leary -- Executive Vice President and Chief Financial Officer

Between $5 and $10 million.

Lauren Lieberman -- Barclays -- Analyst

Okay, all right, great. And then if you could 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.

Andreas Fibig -- Chairman and Chief Executive Officer

Yeah, absolutely. And that's a very very, very good point. We have seen it in that very quarter, but it's already rebounding strongly in the fourth quarter, I would say it's a transitory topic for the quarter driven by vanilla in the sense that some of the customers went from natural vanilla to more of the one and the synthetic solutions, which is good from profitability point of view, but not so good from the sales point of 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 doing very well.

Operator

We'll take our next question from Gunther Zechmann [Phonetic] with Bernstein. Please go ahead.

Unidentified Participant

Hey, good morning guys. Thanks for taking my questions. Just a few to run through please, the overall synergies with Frutarom you kept unchanged $100 million revenues over three years, $145 million cost synergies you speak very confidently about achieving or over-achieving those targets; what makes you hold on to the numbers that you originally came with then or what would trigger you to actually raise the synergy target? That's number one.

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 a drive 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 -- very briefly just capex 2020, what should we expect? Thanks.

Richard O'Leary -- Executive Vice President and Chief Financial Officer

Let me just make sure I get. The three different items in the -- on the question good there. So first, let me start with October, it's currency-neutral organic growth. So it excludes the M&A and that's the results through the first five weeks of Q4, in terms of capex next year, I would expect this to be around 4.5% plus or minus. We're still working through that, but it's peak year in terms of '19 and '20 as we've talked about, we are finishing up a couple of the key investments in Asia and Indonesia. We've got the -- probably the peak of the integration capex and then from there we will move down pretty quickly into 2021 going forward Along the lines of the 3% and 3.5% that I've talked about previously.

In terms of the synergy guidance just keep in mind where 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 plateaus 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 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.

Operator

Thank you. We'll go next to [Indecipherable] with Deutsche Bank. Please go ahead.

Unidentified Participant

Yes, hi, good morning.

Andreas Fibig -- Chairman and Chief Executive Officer

Good morning.

Unidentified Participant

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 why that is and what can you do to align yourselves more with those that are winning?

Richard O'Leary -- Executive Vice President and Chief Financial Officer

[Indecipherable] I think from a big picture standpoint, we're on all of the core list that we want to be on and where it makes sense to be on the core list from an economic standpoint. Certain of our customers are not performing as well when you look at two-year trend for the first nine months of the year you adjust for the peer-based currency dynamic. 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 issue. So I think we are -- 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 million 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 -- 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 is, look, we have to execute and we battle every day and we compete every day and that's what we're focused on.

Operator

Your next question comes from Adam Samuelson with Goldman Sachs. Please go ahead.

Adam Samuelson -- Goldman Sachs -- Analyst

Yes, good morning everyone.

Richard O'Leary -- Executive Vice President and Chief Financial Officer

Good Morning Adam.

Adam Samuelson -- Goldman Sachs -- Analyst

I was hoping you could provide just a little bit more color on the taste kind of growth outlook and the confidence you have there, about that kind of returning in 2020 just given the performance this year. You really think it's concentrated with the multinational customers and categories where you feel your win rates would suggest an acceleration in the offing? Thanks.

Andreas Fibig -- Chairman and Chief Executive Officer

I am absolutely, look, listen, we will see the turnaround already in the fourth quarter. What we have seen the first five 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 are not on the upswing right now. We see a good demand in many areas in particular and 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 through the portfolio we inherited through Frutarom, which is helping as well as, some of it will be counted in the cross-selling and total solution space. So we are actually very optimistic that this is going in the right direction and the team is thriving.

And what I just said for Tastepoint is actually important as well, because certainly the last quarter was not great for Tastepoint, but we are seeing a good rebounding on this one with many of our core customers and we see in particular also good winning on the beverage side, which is very helpful.

So all the signs are very, very positive on that business. And I think the team is fairly optimistic, motivated for the next next couple of quarters.

Operator

We'll take our next question from Jeff Zekauskas with JPMorgan.

Silke Kueck -- JP Morgan -- Analyst

Good morning. It's Silke Kueck for Jeff. How are you?

Andreas Fibig -- Chairman and Chief Executive Officer

Good morning.

Silke Kueck -- JP Morgan -- Analyst

Hi, I have a question on your productivity initiatives outside of Frutarom. Can you talk about like where you stand so far, I think what you've announced is is that you've take like a $40 million charge in there [Indecipherable] positions to be eliminated. And it may be like a total cost will be 20 million of this to go. So, where are you in terms of the program and what do you think the savings might be that you will see from it this year and next year?

Andreas Fibig -- Chairman and Chief Executive Officer

Yes. So I mean it's, I would say we're on track to deliver 100 million that we've talked about. Remember, there's different components of it, a big part of it is in the scent business on the [Indecipherable] transformation line that project -- that part of it is in the early stages now, what you're seeing some of the charges for related to on the scent side, the overhead realignment of the business, finance transformation is some of it 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 two-thirds equally over 2020 and 2021.

What is really exciting on this area as well as that the reason why we spent good amount of capex this year is to modernize much of our manufacturing footprint, where a lot of more what [Indecipherable] which will help us in the mid and long-term to have a very competitive manufacturing cost in place and that's helping as well and that's what what Rich said because we have to finish up a couple of projects in Asia, which we have -- we are just building the most modern and biggest Flavors and Fragrance manufacturing plant in India.

We are 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 to come to a very, very competitive manufacturing cost.

Operator

We'll take our next question from Heidi Vesterinen with Exane. Please go ahead.

Unidentified Participant

Hi, good morning. So you had a new comment -- sorry. Good afternoon. Yes, you had a new comment in 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 rollout out impairments at this stage given the under-performance?

Richard O'Leary -- Executive Vice President and Chief Financial Officer

Hi, look as we go through the normal process at the end of the year. It's a required update in the disclosure and look at this point, I consider it unlikely that we'll have an impairment. And as I said earlier, we haven't changed our view on the long-term impacts and potential of this business. So I consider it unlikely.

Unidentified Participant

And then if I could ask another one, another question from the 10-Q, so you 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?

Richard O'Leary -- Executive Vice President and Chief Financial Officer

Yeah, I think it's consistent with our plan, to me I look at it as it helps us to accelerate the deleveraging 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.

Operator

We'll take the next question from Jonathan Feeney with Consumer Edge. Please go ahead.

Unidentified Participant

Good morning. Thanks very much.

Let me start with the detail, and you talked about acceleration in Frutarom for the first 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.

Unidentified Speaker

That's correct. Related to that -- it's M&A, that's very [Indecipherable].

Unidentified Participant

How would a roughly flat organic for last quarter compared with your original plans when you laid out the $145 million synergy target and I guess related to that. Finally, if there 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 tail business and that's may be slowing the business down versus what the kind of organic growth rate into the -- for the deal?

Richard O'Leary -- Executive Vice President and Chief Financial Officer

I mean, I think there's a couple of different pieces there. I mean I think when you ask where the growth rates were in Q3 being flat versus our expectations obviously it is below where we wanted it 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 [Indecipherable], the trade and marketing, the CitraSource businesses. So, if I look at the core Taste part of the business, as you recall on the Q2 call, 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 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, a difference in terms of our expected synergies for the start of the year of 32 to 35 and where we are now in 50. We are on target and we are making good progress against

the site rationalization you saw on, -- I think it was Andreas comments and 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 increased synergies year-over-year between '19 and '20.

I think you get to the point about this is that [Indecipherable] less attractive margin profile, profitability profile. I think that's more of a mix effect that we'll see going forward.

Operator

Our next question from Brett Hundley with Seaport Global. Please go ahead.

Unidentified Participant

Hey, good morning guys. Rich, I just wanted to go back [Indecipherable] 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.

Richard O'Leary -- Executive Vice President and Chief Financial Officer

Excuse me, first part on the working capital piece of it, it might have a small impact on what we typically, but it is not -- it's not a huge program. I mean I still expect to get the improvement 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, there were still a lot of volatility out there. Inventory levels remain high on the scent business for us and our competition. But we are seeing signs that as I said that it is starting to stabilize and I think the industry as a whole is starting to rebalance inventories and get away from safety stocks and talk that we saw some improvement in Q3 in terms of inventory levels coming down.

I expect that to continue in Q4. There is 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 the trajectory going forward for us to reduce inventory levels and provide as Andreas said we're starting to see some signs that we may have some easing next year or going forward.

Operator

Our next question is from James Target with Berenberg. Please go ahead.

Unidentified Participant

Hi, good afternoon. Just one question from me, on the compliance update. Could you just -- just confirm, you talked about being substantially complete when you expected to be complete and what's outstanding? Thanks.

Richard O'Leary -- Executive Vice President and Chief Financial Officer

Yeah, look, I mean, we're substantially claim complete in terms of doing the investigation as in anything like this, there are things that have to do -- we have to finish putting resolving issues, whether it's people that are on [Indecipherable] go through, but it's the normal sort of follow-up and clean up that has as a result of something like that.

Andreas Fibig -- Chairman and Chief Executive Officer

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.

Operator

And ladies and gentlemen, this will conclude today's Q&A session. I'd like to return the call to Andreas for final remarks.

Andreas Fibig -- Chairman and Chief Executive Officer

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.

Operator

[Operator Closing Remarks]

Duration: 56 minutes

Call participants:

Michael DeVeau -- Investor Relations

Andreas Fibig -- Chairman and Chief Executive Officer

Richard O'Leary -- Executive Vice President and Chief Financial Officer

Unidentified Speaker

Mark Stiefel Astrachan -- Stifel -- Analyst

Unidentified Participant

Lauren Lieberman -- Barclays -- Analyst

Adam Samuelson -- Goldman Sachs -- Analyst

Silke Kueck -- JP Morgan -- Analyst

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