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IFF Investigating Payments Made by Frutarom Subsidiaries

Frutarom businesses in Russia and Ukraine may have made "improper" payments to customers, IFF said in SEC filings.

International Flavors & Fragrances Inc. posted sales gains in the second quarter, largely due to the company’s acquisition of natural ingredients business Frutarom — but now, the business is also in the middle of investigating payments Frutarom businesses in Russia and Ukraine made that may have been “improper.”

In a compliance note in the company’s quarterly filing with the U.S. Securities and Exchange Commission, IFF said that it had been made aware of allegations that two Frutarom businesses in Russia and Ukraine had made “improper payments to representatives of a number of customers.” IFF said that while an investigation is not yet complete, “preliminary results indicate that improper payments were made and that key members of Frutarom’s senior management at the time were aware of such payments.”

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The company said that it has no evidence the payments are linked to the U.S., and that it believes the improper payments are no longer being made. IFF estimated affected sales represent less than 1 percent of the combined company’s business and that overall, the events would not impact IFF’s financial condition.

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Since the company bought Frutarom in a $7 billion deal in October, the newly acquired business has been a significant contributor to sales. Buying Frutarom upped IFF’s exposure to the natural ingredients segment, and gave the company increased access to smaller-sized indie customers.

IFF posted $1.3 billion in net sales for the quarter, a 40 percent jump from the prior-year period. Sales at Frutarom were $381.7 million in the period, remaining “constant,” IFF said.

IFF’s fragrance business unit improved sales by 4 percent, growing across regions and categories during the quarter. Fragrance ingredients and consumer fragrances performed strongly, followed by fine fragrances, which grew in the low-single digits.

The flavors business declined slightly in the quarter, due to volume erosion in Latin America and North America.

For the full year, IFF said it expects to post between $5.15 billion and $5.25 billion in sales.