International Flavors & Fragrances, Inc.

Good day. At this time, I would like to welcome everyone to the IFF first quarter 2020 earnings conference call. All participants will be in a listen only mode until the formal question and answer portion of the call. To ask a question at that time, please press star 1 on your touch tone phone. If you would like to remove your name from the queue, please press the pound key. Participants will be announced by their name and company. In order to give all participants an opportunity to ask their questions, We request a limit of one question per person. 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 IFF's first quarter 2020 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 second quarter and full year 2020. 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 March 3, 2020, and in our press release. Today's presentation will include non-GAAP financial measures, which exclude those items that we believe affect comparability. A reconciliation of these non-GAAP measures to their respective GAAP measures is set forth in our press release that we issued yesterday. With me on the call is our Chairman and CEO, Andreas Fibig, and our Executive Vice President and CFO, Rusum Jilla. We will begin with prepared remarks and then take any questions that you may have. With that, I would now like to introduce Andreas.

Thank you, Mike. Good morning and good afternoon, everyone. At IFF, with global operations in 44 countries and sales into approximately 200 countries, we have seen firsthand how the coronavirus pandemic has touched our world. This is truly a remarkable moment in history. It presents all of us with new challenges, but also reveals the best of humanity at the same time. On behalf of everyone at IFF, I want to express my sincere sympathy for all those affected by the pandemic. I also want to thank everyone in the global healthcare community who exemplifies the best of all of us responding to this crisis with courage and grace everyone on the front lines who continue to keep our society moving towards has our thanks to all the essential workers in the consumer goods supply chain of which iff is proud to play an important role we thank you for responding so quickly and moving swiftly to deliver for consumers around the world it is very clear that we are still in the early stages of adjusting to the challenges the pandemic poses to our world. As we will review in more detail later, the IFF business is strongly positioned to be resilient through economic cycles given our substantial portfolio delivering needed solutions to vital consumers and markets. The steps we have taken in recent years, including diversifying of our customer base and expansion into more categories have only served to further strengthen our ability to be a vital partner to our customers and affirm our ability to be resilient through the cycles. Like many, we are seeing uneven impacts on our business due to the pandemic and the resulting economic challenges. While some end markets are seeing increases in demand, others are seeing notable declines. We are fortunate that only about 15% of our revenue, not including fragrance ingredients, that is subject to the downward pressure right now. However, the unpredictable nature of the pandemic and the early stage of the economic impact creates enough uncertainty for us that we have made the decision to withdraw our full-year financial guidance. Rustem will cover this in more detail later, but while we navigate through this challenge, we are committed to to providing as much forward outlook as we can so you understand the trends driving earnings. On today's call, I will provide an executive overview of our operational and financial performance for the first quarter 2020, before offering a more in-depth review of IFF's management of the ongoing and evolving COVID-19 situation. Following this discussion, I will ask Rustem to provide a more detailed financial review of the business, including additional insight into our liquidity and capital structure, which is very strong given the uncertainty of the pandemic going forward. As you may also have seen, today we announced important progress related to our pending combination with DuPont Nutrition and Bioscience, including a new guiding purpose and vision for the future combined company, as well as our operating model and executive management team post-close. Following Russell's remarks, I will provide an overview of these important integration updates. Upon the completion of our prepared commentary, we will take any questions that you may have. Our strong performance for the first quarter 2020 affirms the strengths of our organization and the essential position in serving vital end markets through economic cycles. We achieved a strong start to the year with mid-single-digit sales and double-digit adjusted EPS, X amortization growth, both of which are currency neutral basis. Importantly, we continue to achieve financial benefits related to our integration of the Futurum business, both revenue and cost synergies. As I mentioned before, we have also made significant progress with integration planning to support our combination with the Dupont NMB business, and I must acknowledge our teams that have worked hard to build the foundation for this combination by continuing to contribute to IFF's day-to-day operations. Our teams have worked tirelessly to deliver for our customers and have gone above and beyond to support our communities around the world during this time. Our strong quarter is a testament to their unwavering dedication, the underlying strength of our business, and our role as an essential partner in the global food and consumer product supply chains. While we have certainly faced many challenges through these unprecedented situations, our operations and global network remain strong, and we have taken appropriate steps to ensure our business is well positioned to successfully manage through the pandemic. Looking at our financial performance in the first quarter, I am pleased to say we delivered strong improvements across key financial metrics. In the first quarter, IFF achieved sales of $1.3 billion, which represents a 6% growth on a currency-neutral basis, driven by our performance in both our taste and scent businesses. We also achieved strong adjusted earnings per share of $1.62, excluding amortization, reflecting a 13% year-over-year increase on a currency-neutral basis, led by currency-neutral adjusted operating profit of 9%, to $271 million. In addition, we expanded our operating margin, excluding amortization by 60 basis points to 20.1%, driven by volume growth and productivity. In summary, IFF entered 2020 with solid momentum and continued to deliver currency-neutral sales growth in the high single digits through the end of February. From March onwards, we started to see the global impact of COVID-19 on our business, and we expect this to impact our results in the second quarter as we have seen uneven impact across end markets. Wilson will touch on this in more detail later. I would like to spend a few moments outlining the key characteristics and drivers of our business, which leave IFF very well positioned to navigate today's new reality. More than ever, it is clear that IFF plays a vital role in the global CVG supply chain, especially for the world's most important manufacturers in food and beverage, as well as essential home, personal care, and sanitation supplies. IFF's broad-based exposure across regions, categories, and customer positions us to remain resilient to the ongoing challenges brought about by the pandemic. As a result of regulatory actions and corresponding economic challenges, we're seeing certain reduction in demand in our fine fragrance, cosmetic active, and food service offerings, where end markets are seeing significant impact. This represents approximately 15% of our revenue. At the same time, we're seeing tremendous pickup in areas where the solutions that IFF pours are absolutely critical to the production of essential products. Our categories exposed to packaged food and beverage and hygiene and disinfection saw continued strong growth during the quarter. That is about 85% of our revenue. Fortunately, our operations remain strong as we continue to deliver the creative solutions that our customers and end consumers demand during these unprecedented times. Our goal from the outset of this crisis has been twofold. First, We are deeply determined to ensure the well-being of our people. Second, we are committed to preserving continuity across the network so that we can continue meeting the needs of our customers. Our global, regional, and local crisis teams are working around the clock to do what is the best for our people and our business. A co-working group, including representatives from our executive team and across functional support groups and business teams, meets daily to ensure alignment from top to bottom across our teams. This team is putting in place plans and protocols to be sure we are anticipating what is to come and keep all of our stakeholders engaged through this extended period of disruption. We have been proactively reviewing our resiliency plan to address the COVID-19 developments, and we are coordinating our response with federal and local health and government entities around the world. We have updated internal protocols as the situation has evolved, taking significant measures to protect our people, including implementing enhanced disinfection and sanitation measures at our operational facilities and taking precautions to minimize contact among employees as part of social distancing by grouping our professionals into smaller pods and separating their work shifts. For those able to work from home, with instituting a remote working policy across many of our locations as well. Given IFF's vital role in the consumer product supply chain, we continue to secure essential designations that provide our company with permission to manufacture our products around the world as governments extend workplace restrictions. A good example of our team working through these unexpected challenges has been India. Recently, our GNI facility, where we have been secured essential business designations, was still forced to shut for several days due to regulatory restrictions. Thanks to the diligence of our team and a strong working relationship with regulators, we were able to move ahead of time in response to the shutdown to meet all customer demands through the shutdown while keeping employees safe. In terms of our operations, we are seeing some challenges with logistics, and our lead times have increased, but the team is doing an excellent job navigating the transportation restrictions. We realize we are certainly not alone in this challenge. For these reasons, we have also seen some limitations in raw material distribution and have activated our contingency plans to limit the disruption that any material shortages might have for our customers. While we have seen disruptions to our supply chain, it has been mostly limited to the regions where the most significant government restrictions are in place, including Italy, Spain, and India. On the new project and innovation front, most of our creative centers remain open and are engaging remotely as needed, and I'm happy to say that our project pipeline remains solid across our entire portfolio. As I mentioned from the outset, while our business has displayed impressive resilience Through the evolving situation, we continue to proactively take steps that will ensure that IFF is operating from a position of financial strength. Specifically, we're adapting an especially disciplined approach to cost management. This means we're tightening any non-essential spend and reviewing new opportunities for efficiencies that can preserve our margin profile. We also are looking at CapEx investments. and considering near-term priorities while pushing out longer-term investments as appropriate. And we are considering additional ways to optimize our networking capital by closely reviewing existing inventories and pursuing collections. Lastly, we have a strong cash position with $1 billion of untapped credit revolver available, giving us confidence in ensuring our strong position even in the event of a prolonged economic downturn. Even in the midst of increased demand and the challenging operating environment, our teams have mobilized to support frontline healthcare workers and first responders across the global IFF network. IFFers across the globe have found very creative ways to leverage the company's unique capabilities and innovative spirit and lead a number of exciting community-focused initiatives, including from New Jersey to the Netherlands, IFF has modified our production facilities to allow for the manufacture and distribution of hand sanitizers. To date, IFF has donated more than 65 metric tons of hand sanitizers globally to first responders and other organizations in need. Our North America scent creative team quickly developed a new scent, Hope 2020, that has been used by IFF and other partners in the production of hand sanitizers. Our scent team has also partnered with Harvard Medical School and Mass General Hospital to create an early detection smell test for asymptomatic carriers, the first developed globally. In India, our facilities donated food and other necessary sanitation items to local orphanages, hospitals, and police stations. These actions speak to how our employees continue to embody our commitment to care for the resources of our world, and nothing could be more important than caring for our communities. I could not be more proud of the spirit of caring that IFF has demonstrated throughout the global pandemic. With that, I would like to turn it over to Rustem, who will discuss our first quarter financial performance in greater detail.