International Flavors & Fragrances, Inc.

At this time, I would like to welcome everyone to the IFF fourth quarter and full year 2021 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 the star one on your telephone keypad. 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 fourth quarter and full year 2021 conference call. Yesterday, we issued a press release announcing our fourth quarter and full year 2021 financial results and outlook for 2022. 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 were making forward-looking statements about the company's performance and outlook based on the current state of the business. These statements contain elements of uncertainty, which we have laid out on slide two under the cautionary statement. 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 stated 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 financial measures to their respective GAAP measures is available on our website. Please note that we will be using combined historical results for the fourth quarter to find this three months of legacy IFF results and three months of NMD results and for the full year to find this 12 months of legacy IFF January to December and 11 months of NMD February to December in the both 2020 and 2021 periods to allow comparability in light of the merger completion on February 1st, 2021. With me on the call today is our Chairman and CEO, Andreas Fibig, and our Executive Vice President and CFO, Glenn Richter. We will begin today's call with our prepared remarks and then take any questions you have at the end. I would now like to turn the call over to Andreas.

Thank you, Mike, and hello, everyone. Thank you for joining us today. Before we dive into our results for the fourth quarter and full year 2021, I think it's important to acknowledge that this has been a transformational year for IFF. We continue to make tremendous progress amid the complex global operating environment. With a world-class team and an unmatched portfolio, IFF has become a global leader in high-value ingredients and solutions for the global food, beverage, home and personal care, and health and wellness markets. IFF is a significantly larger, stronger, and more diversified organization than when we began our transformation several years ago. The enhanced scale gained through our combination with NMB makes us an even more powerful innovator and trusted partner to our customers. On a personal level, I must also reflect on what has been a tremendous and highly satisfying journey leading IFF. Together, we have taken a number of strategic actions that have transformed IFF into the category-defining leader it is today. And I'm also incredibly optimistic about IFF's future. The company's leadership team going forward has the right expertise to lead IFF's next chapter of growth and excellence in execution. I and the entire IFF team are pleased that Frank Clyburn will join IFF as our Chief Executive Officer effective February 14th. Frank brings extensive experience leading complex global businesses and overseeing large-scale integrations. He is a proven operator and will enhance the team's focus on execution to benefit our customers, teams, and shareholders. It has been a privilege to lead such a talented global team, and I know that with the recent appointment of both Frank and Glenn, IFF will be in good hands. We also recently announced the appointment of Barry Bruno to IFF's Board of Directors as an independent director. Barry is a welcome addition to our board as he has significant experience leading innovative consumer brands that will benefit all of IFF's stakeholders as the company executes its strategic and operating priorities. Barry joins a board, eight of which are new to the IFF board, within the past year when Frank begins next week. That consists of proven executives with deep experience leading global organizations overseeing transformative merger integrations and executing business strategies across a diverse set of industries. On today's call, I will begin with providing an overview of IFF's full year 2021 performance and discussing the progress we have made so far on our integration. I will then turn the call over to Glenn, who will provide a detailed look at our fourth quarter financial results. Before we conclude today's call with a question and answer session, Glenn will also speak to our outlook for 2022. I'd like to begin on slide six by reflecting on our strong performance for the full year 2021. IFS financial results in 2021 reflect the strength and durability of our expanded portfolio and the exceptional dedication of our teams. Within the challenges of today's global operating environment, we delivered strong sales scores across our business divisions, including meaningful recoveries in the segments most affected by the pandemic. For the full year 2021, IFF delivered $11.7 billion in sales, representing 10% growth or 8% on a currency-neutral basis, consistent of very strong volume growth and modest pricing contributions. Like so many companies now, persistent inflation and global supply chain challenges pressured our profitability margin. Yet, we achieved 3% growth in our combined adjusted operating EBITDA. Glenn will cover these topics in greater depth, but I want to note here that we are taking significant actions to best position the business amid the evolving macroeconomic environment, including significant pricing actions. IFA continues to operate with a very strong financial foundation, having delivered $1.04 billion in free cash flow, or approximately 9% of our sales, driven by robust cash generation. Given our strong financial position, we continue to make significant progress towards meeting our deleveraging target, having already reduced net debt to credit-adjusted EBITDA to 4.1 times. We also delivered meaningful synergies in connection with our integration initiatives. Importantly, we have outperformed our cost synergy targets for year one, post-close of the NMB merger, and our ongoing focus on execution positions as well to further drive synergy realization and productivity improvements. In 2021, we also made significant strides to optimize our portfolio, including the successful divestiture of our food preparations business and the announced sale of our microbial control business, which we expect will be completed in the second quarter of 2022. Once our microbial control sale is complete, the combination of all of these two transactions will generate approximately $1.4 billion in gross proceeds. Growing IFF to more rapidly deliver the balance sheet. As we continue to progress with our integration objectives, Frank and team will explore additional opportunities to optimize our portfolio, driving greater focus on the core parts of the business and enhancing shareholder values through rapid deleveraging. For IFF, 2021 was filled with exciting achievements and meaningful change that continue to propel us forward and solidify the importance of our business within the global supply chain. Our business is delivering strong growth as an indispensable partner to our customers. And while we are operating in a challenging environment, our leadership team is taking the right action to position our business for the future. We are delivering on our commitment to boldly reinvent, deliver consistent execution, and transform our ability to reach and partner with more customers around the world. 2021 was a foundational year and one that I have no doubt that the company will build on as it accelerates into the future. Now turning to slide seven, I would like to walk through the regional sales dynamics underpinning our results for the full year 2021. I'm pleased to share that we saw strong growth in all four of our key operating regions. In North America, we achieved 8% growth across nearly all segments, led by high single-digit growth in health and bioscience. In Asia, sales increased by 9%, led by continued double-digit growth in India and China. Nourish, Send, and Pharma Solutions all performed particularly well in Asia, with strong growth and momentum throughout 2021. IFAS achieved 11% growth in Latin America region with double-digit growth across nearly all countries. Our Norwich division delivered strong double-digit growth with health and bioscience and tent businesses growing in the high single digits. Our IME region also delivered strong sales results with 9% sales growth driven by the double-digit growth in fine fragrance business. was also bolstered by strengths in our nourish business which saw significant growth led by food service. Moving now to slide eight, I would like to discuss our sales performance across IFF business segments that contributed to our overall strong growth for the year. For the full year, Nourish achieved currency noodle sales growth of 9% with broad-based strengths in our flavors, ingredients, and food design businesses. Health and Bioscience delivered 6% currency-neutral growth in 2021, primarily driven by strong performance and home and personal care, animal nutrition, and culture and food enzymes. Senn also delivered strong 8% currency-neutral growth, led by fine fragrance, consumer fragrance, and ingredients. Pharma Solutions achieved 2% currency-neutral growth, driven by demand in our industrial business. while we continue to see headwinds related to ongoing limited material availability and logistical constraints. Now on to slide 9, I would like to focus on the underlying dynamics driving segment performance. For Nourish, consistent strong performance included double digit growth in ingredients. While our margins were impacted by higher costs of raw materials, EBITDA increased 8% from strong volume growth, pricing actions, and a continued focus on cost management. In health and bioscience, strong growth in home and personal care, grain processing and cultures, and food enzymes were key drivers. Higher costs for raw materials and logistics remained a challenge, with an adjusted operating EBITDA margin of 26.8% in this segment. Our scent division benefited by a particularly strong rebound from last year in fine fragrances, in addition to continued solid performance in consumer fragrances and double-digit growth in cosmetic actors. Adjusted operating EBITDA grew 11% as margin expanded 30 bps, led by volume growth, favorable mix, and higher productivity. And finally, in pharma solutions, we saw significant customer demand and double-digit growth in the segment's industrial business. Global supply chain issues, however, remained an overhang for 2021 margin performance. Moving now to slide 10, I'm very pleased to share that our full-year sales result exceeded pre-COVID levels, which is particularly encouraging for the year ahead. As previously outlined, sales growth was consistent across our business segments, reflecting the strengths and resilience of our expanded portfolio and IFS position as an essential partner for customers in critical industries around the world. It is clear that IFF continues to deliver enhanced value to our customers as a result of our merger with NMB and the work we are doing to strategically integrate our businesses and focus on execution. Simply put, we are a stronger business today and our customers recognize the unique value we bring as a trusted innovation partner. Let's move to slide 11. I would like to reiterate our strong progress to deliver synergies and connection with the NMV combination. In 2021, we exceeded our year one target of $45 million to deliver approximately $60 million in cost savings. This includes approximately $20 million in savings in the fourth quarter. Revenue synergies also were a modest contribution to top-line performance with a projected pipeline continuing to develop. Execution and operating discipline remain the top priority for our leadership team, and I'm pleased to see results that reflect this commitment. With that, I'd like to turn the call over to Glenn.