International Flavors & Fragrances, Inc.

Your program is about to begin. If you should need any audio assistance during your call today, please press star zero. At this time, I would like to welcome everyone to the IFS second 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 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 second quarter 2022 conference call. Yesterday afternoon, 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're making forward-looking statements about the company's performance, particularly with regard to the outlook for the second half 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 our forward-looking statements, please refer to our cautionary statement and risk factors contained in our 10-K and press release, both of which can be found 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. With me on the call today is our CEO, Frank Clyburn, and our Executive Vice President and CFO, Glenn Richter. We will begin with prepared remarks and then take any questions you have at the end. With that, I would now like to turn the call over to Frank.

Thank you, Mike, and hello, everyone. And thank you for joining us today. Before I dive into our first half results, I want to take a moment to acknowledge the tremendous progress we have made over the last three months. Under the challenging operating environment, our global teams continue to display their steadfast commitment to our customers and passion for innovative discoveries as IFF delivered profitable growth. Since joining IFF, I have consistently been impressed by the caliber of the work, innovation, and expertise our people deliver, as well as the creative culture that underpins our success. I once again thank our teams around the world for their hard work. I will begin today's call with an update on our strategy refresh process and value creation opportunities we are focusing on for the near and long term. as well as IFF's recent accomplishments as we execute on our operational priorities. This includes delivering $70 million of cost savings in the first half of the year, taking swift and aggressive pricing action to cover inflation, exiting our microbial control business, and ensuring that we have the right talent in the right roles. I will then turn the call over to Glenn to provide a detailed look at our second quarter financial results and discuss our outlook for the rest of 2022. We will then open the call up for questions. Beginning with slide six, I'd like to provide an update on our efforts to refresh our long-term strategic plan. While we are pleased that ISF holds strong positions across many of our business segments today, we are committed to evaluating and fine-tuning both our strategy and execution to best position the business for long-term profitable growth. I am pleased to share that we are making meaningful progress and moving quickly to map out an exciting and ambitious path forward. In Q2, we continue to advance our enterprise-wide review of our business and portfolio to ensure we are well equipped to successfully navigate current and future market conditions while capturing long-term value. Our goal for this comprehensive evaluation is to further develop the refined operating plan. to generate sustainable sales growth by ensuring lasting competitive differentiation through innovation, product superiority, and provide a clear roadmap where we can execute our priorities to create significant value to all of our stakeholders. Already, we have successfully completed the foundational phases of the plan. We have identified meaningful opportunities to capture additional profitable growth and attractive end markets, geographies, and cross-platform synergies, while also identifying internal opportunities and near-term external pressures that must be navigated to achieve this. Now we are working to finalize refreshed operating plans that we will align our operating model, talent and incentives, as well as finalize our long-term financial targets and capital allocation strategy that prioritizes sustainable long-term growth. In addition, we are strengthening our culture, one that embodies collaboration and accountability to ensure strong execution of our commitments. We will continue to move rapidly and with urgency over the coming months to finalize our refresh strategy and look forward to sharing more on this with you at our Capital Markets Day to be held Wednesday, December 7th in New York City. Moving to slide seven, I'd like to give a brief snapshot on where we are focusing as we advance our strategic refresh. There are five core areas of focus. First, we are prioritizing a more thoughtful and data-driven approach to our resource allocation strategy. Investment is essential to our future growth, but it is critical that our spending decisions optimize returns and reflect the unique roles that each of our businesses serve in our growth portfolio. I will explain this in more detail in a moment. Similarly, we are also making strategic decisions to support our research and development efforts. By focusing on the highest return projects and identifying ways we can leverage our cross-platform offerings, we will be even better positioned to accelerate top-line growth and extend our industry leadership in key categories. Shortly, we will introduce an enhanced productivity program designed to help us improve profitability and unlock additional opportunities to finance our growth initiatives. At the same time, we continue to evaluate our portfolio to ensure that our offerings closely align to the markets in which we operate, the evolving expectations of our customers, and with our long-term objectives. We successfully completed the divestiture of our microbial control business, and we will continue to assess the portfolio as we explore additional non-core divestitures to reduce debt and improve our capital structure. Lastly, we are reviewing our operating model to ensure that our structure, talent, and incentives maximize our unmatched portfolio and go-to-market strategy with our customers. Attracting and supporting the industry's best talent and aligning incentives is critical to drive continued collaboration and accountability across the organization. I am focused on making sure we have the right talent to execute our strategic plan, and I'm pleased that we recently announced Deb Borg, who will join us as our Chief Human Resource and Diversity and Inclusion Officer on August the 29th, 2022. With her deep experience connecting HR, culture, employee engagement, and business, as well as her change management expertise, she is the right skill set for IFF and our people as we strengthen our execution-driven culture. She brings an extensive track record of building world-class talent and helping the business execute and drive value for all stakeholders. Our success with these initiatives will be supported by our ongoing work to modernize our foundational data and technology capabilities as we strengthen our internal operations to help ensure best-in-class execution. On slide eight, I would like to share a bit more about the deliberate choices we are making, specifically how a more strategic and disciplined approach to resource allocation will create exciting opportunities for profitable growth. Across the board, we are focused on driving margin improvements, but to do so effectively, we are pursuing differential management strategy across key areas. Last quarter, I shared an ROIC chart, which was a first glimpse into the lens that we are viewing the company through. To move forward with this plan, we have developed a comprehensive playbook that segments our business into three distinct archetypes with unique strategic imperatives. When we look at our portfolio, we would consider whether to invest to grow, maximize to drive efficiencies, or optimize to rapidly improve performance. Using this model, we remain intensely focused on achieving above-market growth, strengthening our competitive global position, increasing our return on invested capital, and analyzing the most valuable use of our existing assets. For example, in a category like flavors, we see meaningful opportunities to drive above-market revenue growth, primarily through reinvesting in innovation and commercial initiatives. We are prioritizing above-market revenue expansion in this category as opposed to margin improvement alone as we're focusing on large, profitable and faster growing subcategories like beverages or dairy to drive strong value creation. Here it is more about reinvesting margin upside to ensure we are bringing the best innovation to our customers to drive dollar profit growth. On the other hand, in a market like animal nutrition, we're focused on maintaining the consistent growth we've delivered with an emphasis on driving further productivity. By identifying certain segments in which to reinvest, while strategically reducing R&D expenses and others, we will focus on margin improvement and create opportunities to invest in the highest value offerings. We're taking a stronger approach within our optimized businesses. For example, our pectin business, a popular bean label, natural stabilizer, to quickly drive near-term earnings through pricing and cost initiatives while maintaining our market competitiveness and reallocating upside to invest to growth categories like flavors. I will also say for those optimized businesses where we do not have a strong improvement plan, we will accelerate divestitures and exit the category with work already well underway. I am excited about this initiative and the progress we are seeing already. Make no mistake, we are running IFF quite differently and bringing enhanced rigor to our operations across every business and function. Earlier this year, we spent time reviewing our key priorities, including pricing and portfolio optimization. Moving to slide nine, I would now like to focus on the multi-year productivity and reinvestment program I mentioned earlier, which I believe is key to achieving our long-term growth expectations and our profitability goals. Since joining IFF, I have spent time analyzing our cost profile and believe as an organization we have significant opportunity to optimize our cost structure. I am fully committed to unlocking this value and have asked the team to accelerate our efforts to ensure we are well positioned to execute as we move into the second half of the year. For more details, I would like to ask Glenn to comment.