International Flavors & Fragrances, Inc.

This time I would like to welcome everyone to the IFF fourth quarter and full year 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 the time, please press star one on your touchtone 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 questions, we request a limit of one question per person. I would like to introduce Michael Duvall, Head of Investor Relations. You may begin.

Thank you. Good morning, good afternoon, and good evening, everyone. Welcome to IFS fourth quarter and full year 2020 conference call. Yesterday evening, we issued a press release announcing our financial results and outlook for 2021. 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. I ask that you please take a moment to review our forward-looking statements. During the call, we're making forward-looking statements about the company's performance, particular with regard to our outlook for the first quarter and full year of 2021. 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 statement, please refer to our cautionary statement and risk factors stated in yesterday's 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 financial measures to their respective GAAP measures is available on our website. With me on the call today is our Chairman and CEO, Andreas Fibig, and our Executive Vice President and CFO, Rusem Gillam. We'll begin with prepared remarks, and then we'll take any questions that you may have. With that, I would now like to turn the call over to Andreas.

Thank you, Mike, and thank you all who have joined us today. Let's close the chapter on legacy IFF and begin a new journey with NNB. We will begin by sharing a detailed look into our fourth quarter and the full year 2020 results, and then Rustem and I will highlight the go-forward outlook and opportunity for the new IFF. I'm really excited and proud to say that as of February 1st, we have officially completed our merger with Dupont NMB. Our teams have hit the ground running, establishing our new company as an innovation leader in the global value chain for consumer goods and commercial products. With the close of the NMB transaction, we also unveiled a new brand identity and purpose intended to unify our organization and best position our divisions for success. As a purpose-driven enterprise, we share a mission to build from strengths and transform our industry. We are now squarely focused on execution, building on recent performance to leverage the exciting capabilities and broader customer base of our new company. I'm confident that the direction that we are moving and the opportunity ahead of us will lead to accelerated growth and improved profitability as we generate strong value creation and total shareholder return. Beginning with slide six, I would like to recap what was truly a remarkable 2020. Amid an unprecedented pandemic that challenged our global organization, we delivered solid financial results while embarking on a transformational journey to create a new industry leader together with DuPont NMB. I'm pleased to report that we completed 2020 with positive momentum on a comparable basis, and we have seen this trend continue in January 2021 as a combined company. In 2020, our portfolio remained resilient to an evolving and incredibly challenging global environment due to the ongoing COVID-19 pandemic. IFF generated $5.1 billion in sales for the full year 2020, about a 1% increase on a currency-neutral basis from last year when excluding the 53rd week of 2019. This sales growth was primarily driven by strong performance in our Ascent divisions, which we believe is even better positioned to capture further market share in 2021. We achieved an adjusted operating margin, excluding amortization of 18.1%, driven by our synergy efforts with Fruit Jerome and pursuing additional productivity initiatives across the business. As we reflect on the integration of Fruteroom, we are pleased with what we have achieved as it relates to cost synergies from procurement, manufacturing, and administrative expenses. Acknowledging the revenue challenges at Fruteroom over the past two years, we have restructured the business, and going forward, it will be an integral part of our larger new segment, including taste, food, and beverage segments. Now we have the combined combination with NMB. We really emphasized free cash flow management throughout the year. This led to meaningful increases year over year as we continue to focus on managing our balance sheet through the pandemic. We finished the year with an adjusted earnings per share, excluding amortization of $5.70. With the completion of our combination with DuPont NMB, we have also achieved the important milestone of completing the integration planning phase related to the merger. We are now focused on execution going forward as we are committed to realizing the meaningful synergies presented by the transaction. To capture the synergy opportunity, we are encouraging collaboration across divisions and closely aligning with the markets and regions we serve to showcase the full breadth of IFF's new portfolio. I will provide further details regarding our integration initiatives a bit later. On slide seven, let's take a second look at the sales dynamic that we have seen across the business. Reflecting on 2020, we were off to a very strong start, growing 6% in Q1 2020, until the pandemic had a profound impact on society and ultimately our business. Given the disruption of the year, we want to offer a bit more perspective on the trends we have seen within our business as we recover from the peak of the regulatory restrictions of the pandemic in the second quarter of 2020. Our growth rates continue to improve in the fourth quarter, up 2% excluding the 53rd week versus the 1% year-on-year growth seen in the third quarter. A large part of this improvement came from fine fragrance, which returned to growth in the fourth quarter. As we have noted before, roughly 15% of our business was negatively impacted by COVID-19 and decreased by 16% in 2020, excluding the impact of the 53rd week. The vast majority of our portfolio, which includes food, beverage, hygiene, and disinfection type products, is defensive in nature or benefited from the pandemic. This was roughly 85% of our pre-pandemic sales, and these grew approximately 4% for the full year, excluding the impact of the 53rd week. Our performance was strong with multinational customers, especially those who benefited from the pandemic. However, our exposure to local and regional players adversely impacted sales. I think it's important to remember that while these small and regional customers were disproportionately impacted by COVID-19, They have historically been an important source of growth across our industry, and we expect them to be important contributors in a recovery. On the whole, we are proud of the results achieved and resilience of our business in 2020. Some of our end markets have seen prolonged and significant negative impacts that led to inevitable headwinds for certain segments. However, when you look at the whole of our portfolio, we see strong results with meaningful momentum that affirm our central role in the consumer product good value chain. That gives me great confidence as we begin to execute as a new IFF with the NMB business in 2021. As we begin 2021, I'm very pleased to say we, on a combined company basis, had a strong performance in January with approximately 3% currency nuclear growth against a strong year-ago comparison. Scent trends continue to be very strong, taste improved, and NMB continued to be pressured by COVID. It is good to see that the business has had steady improvement since the pandemic lows. I would now like to pass the call over to Rustam, who will provide a more detailed review of our financial performance in the fourth quarter.