International Flavors & Fragrances, Inc.

At this time, I would like to welcome everyone to the IFF first quarter 2022 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 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 first quarter 2022 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 were making forward-looking statements about the company's performance, particularly with regard to our outlook for the second quarter and full year 2022. 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 forward-looking statements, please refer to our cautionary statement and risk factors contained in our 10-K filed on February 28, 2022, and in our press release, all of which are on our website. 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 set forth in our press release that we issued yesterday. Please note that we'll be using comparable results for the first quarter defined as three months of legacy IFF results, January through March, and three months of legacy NMB results in both the 2021 and 2022 periods. These results also exclude the impact of divestitures and acquisitions. With me on the call today is our CEO, Frank Claiborne, and our Executive Vice President and CFO, Glenn Richter. We will begin with prepared remarks and then take any questions that you may have. With that, I would now like to introduce Frank.

Thank you, Mike, and hello, everyone. Thank you for joining us today. I am pleased to be speaking with you all and excited to share perspectives from my first 90 days as CEO of IFF. During today's call, I will discuss my initial thoughts since joining IFF and highlight our key operating priorities and commitments as a company for the full year 2022. As I have spent the last 90 days meeting with IFF colleagues and key customers around the world, asking questions, listening, and evaluating our business, it has become even more clear to me that IFF has built a very strong foundation with incredible opportunities ahead. Our business has both a robust, diversified portfolio and driven team needed to continue leading our industry while delivering sustainable, profitable growth. Simply put, I am thrilled to lead and work along such a passionate team of more than 24,000 employees with a shared commitment to strengthening customer partnerships and driving differentiated innovations. Together, we will focus every day on the operational rigor and executional excellence required to deliver even greater value for our customers and shareholders. Before moving forward, I first must acknowledge the humanitarian tragedy facing the Ukrainian people since Russia's invasion began. As we have previously stated, IFF unequivocally stands with the people of Ukraine. Our top priority remains the safety of our team members and their families in Ukraine. And like many other global companies, we're working closely with local governments to offer assistance where possible. Aligned with our core values, several weeks ago, we limited production and supply of ingredients in and to Russia to only those that meet the essential needs of people, including food, hygiene, and medicine. Our plan at this time is to continue to supply to the best of our ability in accordance with sanctions, logistics availability, and other key factors. Now I would like to begin by sharing some initial learnings and insights from my first 90 days with IFF. I will then turn the call over to Glenn, who will provide a detailed look at our first quarter 2022 financial results before providing commentary on our current outlook for the full year 2022. After that, we will open the call for Q&A. Starting on slide six, I'd like to reflect on what I've seen and heard from our global colleagues, customers, investors, suppliers, and members of our board. As I noted in my introduction, IFF is incredibly well-positioned from a portfolio perspective with an exceptional depth and breadth of product offerings and an unrivaled R&D platform that uniquely positions IFF to win with our customers. Our business is poised to benefit from sustained, long-term tailwinds for profitable growth as we have demonstrated leadership in the most in-demand consumer categories. We are the largest player in our industry with unmatched global scale, a strong innovation pipeline, and a highly diverse and balanced business mix across categories, regions, and customers to create significant value. Collectively, these are attractive characteristics and a strong foundation to build upon moving forward. Equally important, however, are the clear opportunities to improve our operating practices and ensure that we are achieving our financial commitments. This is one of my top priorities going forward as I believe that consistent and consecutive delivery Of course, within our control, it is critical to build trust and credibility as IFF's CEO. Specifically, we are working to cultivate a culture across our entire platform that motivates our teams and ensures accountability across the business. We are continuing to enhance our operational execution with a renewed focus on instilling greater rigor and excellence, aligning our compensation metrics to keep to KPIs that are measurable and strongly correlate to value creation. Please know that we are committed to investing in capacity, digital, R&D, and commercial to capture incremental growth and productivity opportunities to ensure we deliver long-term, sustainable, profitable growth. With all our initiatives, we are closely focused on consistently delivering on our short and long-term financial commitments and creating enhanced value for all stakeholders. Moving to slide seven, I'd like to provide a bit more detail on the process underpinning our efforts to accelerate value creation across IFF. Our success starts with enhancing our corporate culture to ensure that IFFers worldwide are aligned with our vision of strategic excellence. It starts with establishing a renewed focus on winning while outlining the benefits for our team around the world. To guide our efforts, we are developing a deeper understanding of the sources and drivers of value across the business to help prioritize our investment of energy and resources moving forward. By understanding the facts, our extended leadership team will have the ability to make better business decisions, including investment allocations, which we expect will lead to greater financial returns. With that understanding, we will have better visibility into our strategic roadmap essentially setting our profitable growth agenda for both the near and long term as we dedicate strategic investments on the highest value opportunities. Underpinning everything we do will be a commitment to operational rigor and a culture of executional excellence across our platform. Our results in the first quarter are beginning to reflect this commitment to operating discipline. which will remain a top priority for our leadership team going forward. We plan on going into more depth on our strategy and financial outlook moving forward in an investor event that we are planning on having in the second half of 2022. More details to come on that in due course. Turning now to slide eight, I would like to start with a foundational look at our portfolio. Since my joining IFF in early February, our executive management team have begun a full diagnostic of our strategies and business model to ensure we were operating to the best of our ability. As part of this process, we have thoroughly examined our business relative to the drivers of our current and future levels of profitability. To ensure we capture the full cost of doing business, costs to account for invested capital such as capex, inventory, and fixed assets. Through this return on invested capital lanes, we have incorporated all costs to create a more robust fact base across our entire business portfolio to make better resource decisions. Based on the preliminary assessment, here's a snapshot of our sub-businesses. As you can see, we have a significant amount of high-return businesses, but also, like most businesses, we identified opportunities where we can improve our performance. In high-performing areas of the portfolio, we will reinvest with conviction to achieve strong, profitable growth. We will also explore all avenues to more efficiently manage resources in our medium-return business with a goal of maximizing our performance. And in areas of our portfolio where returns are not meeting our expectations or are below best-in-class benchmarks, we intend to either optimize our capital decisions to improve returns or evaluate appropriate opportunities to deprioritize or exit the business. As we move forward, we are fully committed to maximizing our portfolio to deliver the most attractive returns and value creation opportunities. In fact, for 2022, we have adjusted our long-term incentive plan, replacing our net debt ratio with return on invested capital as a performance metrics to increase focus on capital efficiency. Now, before I dive into our first quarter results, I want to reemphasize that I am committed to the four key operating priorities we outlined earlier this year. Building upon the strong sales momentum we established in 2021, we are first aiming to maintain volume growth consistent with overall industry growth rates. To achieve this, we are making significant investments to increase capacity, improving supply chain bottlenecks, and driving greater revenue synergy opportunities. On revenue synergy specifically, it is all about expanded revenue growth opportunities, and we feel good about the longer-term prospects and the power of the portfolio. To highlight an example, we recently were awarded access in Vanilla, a large opportunity with a global customer, by leveraging Heritage NB's global workforce. ice cream and heritage ifs vanilla sustainability program iff offered a combination of technical expertise and sustainability that competitors do not have the result was not only strong potential revenue and flavors but also incremental value creation for total iff including protein emulsifiers and lbg I'm pleased to see in my early days the traction we're making and excited to dig in with the business to unlock more growth opportunities ahead. Turning to slide 10, I'd like to provide an overview of our solid performance for the first quarter. Despite the macroeconomic challenges of today's environment, we achieved good sales profit and growth across our business. In the first quarter, IFF delivered $3.2 billion in sales, representing 31% growth or 13% growth on a comparable currency neutral basis. While inflation and global supply chain restrictions continue to impact our profitability margin, we achieved 9% growth in our comparable currency neutral EBITDA. We also achieved strong adjusted earnings per share excluding amortization of $1.69 for the first quarter. As I mentioned, we are evaluating and implementing specific initiatives to ensure we continue to navigate the future headwinds during the remainder of 2022 and beyond. As a result of increased working capital requirements, higher CapEx and seasonality, our free cash flow results were negatively impacted in the first quarter. Looking ahead, I can assure you this will be a significant focus area for the remainder of the year, and we expect strong improvements in the back half of the year. In terms of deleveraging the balance sheet, we remain on plan, as our net debt to credit adjusted EBITDA ratio was 4.2 times. We also delivered meaningful synergies and productivity gains of more than $30 million in the quarter, including operational efficiencies and deal-related synergies. As mentioned, we continue to prioritize portfolio optimization and are making strong progress on the divestiture of the microbial control business. It should be noted that the anticipated closing of our microbial control business is now expected to happen on July 1st versus June 1st. previously to provide more time to complete the separation work streams and minimize disruptions and risk to the microbial control business upon close. With that, I'd like to turn the call over to Glenn to provide a closer look into our first quarter financials.