Ingredion Incorporated — Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2020. The filing also reports unaudited fourth-quarter results. Amounts are in U.S. dollars; financial statement amounts are generally in millions except per-share data.
Business context
Ingredion produces starches, sweeteners, specialty ingredients, plant-based proteins and related products from corn and other plant-based materials. It operates across North America, South America, Asia-Pacific and EMEA. No customer represented 10% or more of annual sales. Specialty ingredients were approximately 32% of 2020 net sales, versus 30% in 2019.
Financial performance and changes
| Metric | FY 2020 | FY 2019 | Change |
|---|---|---|---|
| Net sales | $5,987 | $6,209 | Down 4% |
| Gross profit / gross margin | $1,272 / 21% | $1,312 / 21% | Gross profit down 3%; margin flat |
| Operating income | $582 | $664 | Down 12% |
| Net income attributable to Ingredion | $348 | $413 | Down 16% |
| Diluted EPS | $5.15 | $6.13 | Down 16% |
| Cash from operations | $829 | $680 | Up $149 |
| Capital expenditures and mechanical stores | $340 | $328 | Up $12 |
Management attributed the annual sales and earnings declines mainly to COVID-19-related volume reductions, especially in the Americas, and higher restructuring and impairment charges. The Brazilian tax benefit partly offset the declines. Operating expenses rose 3%, and operating expenses as a share of gross profit increased to 49% from 46%.
Fourth quarter: Net sales were $1,593 versus $1,549 in Q4 2019; gross profit was $352 versus $323; net income attributable to Ingredion was $115 versus $109; and diluted EPS was $1.70 versus $1.61. The filing lists significant quarterly special items, so reported results should not be treated as an unadjusted run rate.
Segments: North America sales declined 4% and operating income declined 7%; South America sales declined 4% while operating income rose 17%; Asia-Pacific sales declined 1% and operating income declined 8%; EMEA sales were essentially flat and operating income rose 3%. Foreign exchange was a substantial drag on South America sales.
Liquidity, debt and capital
At year-end, cash and cash equivalents were $665, working capital was $1,189, total debt was $2,186, and total equity was $2,972. Net debt was $1,521; net debt to adjusted EBITDA was 1.7x, unchanged from 2019, and net debt to capitalization was 31.6%, down from 34.7%. The weighted average interest rate on total debt was approximately 3.4%.
Operating cash flow increased to $829, primarily reflecting working-capital changes. Investing cash use was $571, including capital spending and acquisitions; financing cash flow was positive $143, reflecting borrowings and debt repayments. Cash and short-term investments totaled $665, of which approximately $427 was held outside the U.S. The company reported $1.2 billion of unused foreign operating lines and no borrowings under its $1 billion revolving credit facility at year-end. The $380 term loan was due April 12, 2021, and the revolving credit agreement was due to expire October 10, 2021; the filing states the company expected liquidity to be sufficient for at least the next 12 months.
Ingredion issued $1 billion of senior notes in 2020, including $600 million of 2.9% notes due 2030 and $400 million of 3.9% notes due 2050. It paid $178 million in dividends, including payments to non-controlling interests, and declared dividends of $2.54 per common share for the year. No shares were repurchased in 2020.
Outlook, management commentary and notable items
- Management anticipated continued COVID-19 effects on sales volume across segments in the first quarter of 2021, linked to consumer activity and away-from-home food and beverage consumption. It reported no material supply-chain interruptions in 2020.
- Planned 2021 capital investment commitments were $330–$350 million. The Cost Smart program’s revised target was $170 million of total savings by year-end 2021.
- Ingredion acquired 75% of PureCircle in July 2020 for $208 million net of acquired cash, consolidating its stevia business. It acquired the remaining 80% of Verdient Foods in November 2020 for approximately $26 million.
- 2020 included $93 million of restructuring and impairment charges: $48 million of restructuring and $45 million of impairments, including a $35 million TIC Gums tradename impairment and a $10 million Verdient investment impairment. A 10-day storm-related shutdown at Cedar Rapids resulted in $3 million of charges.
- Brazilian court decisions led to a $36 million pre-tax benefit recorded in 2020. The company expected to use $57 million of indirect-tax credits against Brazilian federal tax payments beginning in 2021; a further $9 million benefit depended on a pending court ruling.
- In February 2021, Ingredion agreed to contribute South American assets to a 49%-owned joint venture with Grupo Arcor, subject to approvals and closing conditions. The filing estimated a non-cash impairment of $350–$370 million for the first quarter of 2021, including approximately $310 million from accumulated currency translation adjustments.
- An environmental matter involving the Indianapolis facility remained under discussion with the U.S. Department of Justice; negotiations were ongoing and no litigation had been initiated. The company also described ordinary-course claims and inquiries, which it did not expect to be material based on currently known matters.
Risks and controls
Key risks include ongoing pandemic effects and demand shifts; corn, energy and other input-cost volatility and the ability to pass costs through; competition and changing consumer preferences; foreign currency and political risks, particularly in South America; manufacturing disruptions; acquisition integration and impairment risk; environmental and regulatory requirements; and cybersecurity and labor risks.
Management identified a material weakness in IT general controls concerning user access to certain financial-reporting systems and concluded internal control over financial reporting and disclosure controls were ineffective as of December 31, 2020. No financial statement misstatement was identified. KPMG gave an adverse opinion on internal control effectiveness but an unqualified opinion on the consolidated financial statements. Management expected remediation during fiscal 2021.
Investor verification points
- Track whether COVID-related volume effects persisted beyond Q1 2021 and how sales and operating income developed by segment.
- Verify the closing, ownership and financial consequences of the Grupo Arcor joint venture and the final amount and timing of the estimated $350–$370 million impairment.
- Monitor refinancing or repayment of the April 2021 term loan and renewal or replacement of the revolving credit agreement due in October 2021.
- Assess whether the company achieved the $170 million Cost Smart savings target and planned 2021 capital spending.
- Confirm remediation and auditor reassessment of the IT access-control material weakness.
- Follow the outstanding Brazilian tax-credit proceedings and the resolution of the Indianapolis environmental matter.