Good day, ladies and gentlemen. I would like to welcome everyone to the IFF Third Quarter 2020 Earnings Conference Call. I will now introduce Michael DeVeau, Head of Investor Relations. You may begin.

Thank you. Good morning, good afternoon, and good evening, everyone. Welcome to IFF's Third 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. I ask that you 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 fourth 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 stated in our 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 as well. With me on the call today is our Chairman and CEO, Andreas Fibig; and our Executive Vice President and CFO, Rustom 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, good afternoon, everyone. Before I dive into our third quarter performance, I would like to, once again, take a moment to thank all of our frontline workers and dedicated colleagues around the world who have worked tirelessly throughout the course of this year to continue fueling our global supply chain and meeting our customers' needs. Every business is built to weather a pandemic. But over the last few months, we have continued to show that our business is well equipped to navigate the most unpredictable of storms. I can't thank each and every one of our passionate employees enough for their continued hard work, dedication, and focus throughout this difficult year. On today's call, I will start, as usual, by reviewing IFF's recent third quarter performance and summarizing the trends that we are experiencing across the business before providing a more in-depth review of our year-to-date performance. Rustom will then provide a more detailed look at our third quarter financials. I will then provide an outlook on the road ahead for our business and an update on our merger with DuPont N&B and the integration planning efforts that are well underway. Despite the COVID-related headwinds, we saw a strong sequential improvement across all key financial metrics in Q3. We achieved 1% currency-neutral sales growth in the third quarter, a 500 basis points improvement relative to our second quarter 2020 results. Outside of Fine Fragrance and Food Service, IFF's portfolio remains resilient with a growth of 3% in the quarter on a currency-neutral basis and 4% year-to-date. Nearly every category, including Fine Fragrance and Food Service, is growing, led by a third consecutive quarter of double-digit currency-neutral growth in Consumer Fragrance. We continue to experience challenges in Fine Fragrance and Food Service, which saw improvement relative to Q2 sales, declining 14% this quarter on a currency-neutral basis. These segments continue to be the most affected among our portfolio by pandemic-driven trends in retail and away-from-home channels. On our second-quarter earnings call, we presented this monthly chart to provide increased transparency during the uncertain period. At the time, July finished with about 2% growth. In the subsequent months of August and September, we saw a modest deceleration in sales performance versus July, largely due to weakness in Fine Fragrance and Food Service. Now let's turn to Slide 7, where I would like to review our year-to-date performance 2020 basis. Our Flavors category, excluding Food Service, is resilient, growing low single digits. Outside of Food Service, all categories are growing. Inclusions led the segment with impressive double-digit growth, followed by mid single-digit growth in Natural Product Solutions and Savory Solutions, again, all excluding Food Service. From a regional perspective, growth was led by a double-digit improvement in North America and Greater Asia, where new win performance is strong. In EAME, results were challenged, which is an area where we are focused on improving as we move forward. I want to take a moment to formally welcome our new Taste division leader, Kathy Fortmann. On October 1, Kathy officially took over leadership of our Taste division. She is an outstanding executive with experience across our industry and joined IFF early in 2020 as part of our succession planning for IFF as well as post our combination with N&B. In her short time with IFF, Kathy has already brought tremendous expertise and insights to our team, leading IFF's integration of Taste with N&B food and beverage platform. With a proven track record of delivering growth and innovation at global food and beverage ingredients organizations, I'm confident Kathy will do an exceptional job leading our Taste business now and the Taste, Food, and Beverage division following transaction close. I also want to thank Matthias Haeni who has retired from IFF after 30 years in our industry. He had a long and successful career, and during his tenure with IFF, he has advanced our position as a leader within the taste industry. I wish him the very best for his next chapter. Overall, IFF's Scent division continues to perform very well. I'm proud to share that we have achieved double-digit sales growth in Consumer Fragrance, with double-digit growth in Fabric Care, Home Care, Air Care, and Personal Wash. Our new core list customers, where we recently gained access, core to our 2021 strategy, are growing more than 50% this year and in the third quarter provided a double-digit contribution to Consumer Fragrance growth. Particularly, I want to note that our entire Consumer Fragrance team has worked diligently through the pandemic to differentiate our offerings, win new business, and achieve strong market share gains. In our Fragrance Ingredients business, demand is strong. Yet the pandemic created a raw material headwind in Q2 as we prioritized the use of our Fragrance Ingredients to support our Fragrance Compounds business, foregoing external sales. As restrictions have eased, the business improved sequentially, but on a year-to-year basis remains down slightly. The areas most impacted by COVID-19 have been Food Service and Fine Fragrances. On a year-to-date basis, Food Service and Fine Fragrances are down almost 20% as COVID-related actions impacted consumer behavior and retail channels, which have been temporarily closed, and travel retail is down. As I stated earlier, we are encouraged that Fine Fragrance and Food Service improved in Q3 relative to Q2 sales on a currency-neutral basis. Yet we remain cautious about trends given the increase in COVID-19 infections more recently. Excluding Fine Fragrance, Scent has achieved a strong currency-neutral growth rate of plus 8% year-to-date, while Taste has improved 2% on a currency-neutral basis, excluding Food Service. With that, I would like to pass it over to Rustom to provide more details on the third quarter.

Thank you, Andreas. Slide 8 provides a high-level overview of Q3's financial performance. On a currency-neutral basis, IFF generated $1.3 billion in sales, a 1% increase from 2019's third quarter. Scent was up 4% and Taste down 1%, and I'll provide additional divisional color in a few minutes. As Andreas noted, Q3 sales recovered from Q2's low point, and over three-quarters of our $69 million sequential improvement came from Scent, and total IFF sales improved in all four regions. In the third quarter, our adjusted operating profit, excluding amortization, increased 1% to $241 million on a currency-neutral basis from 2019's Q3. Our gross profit and gross margin were both higher than the third quarter of 2019 despite higher COVID-19-related manufacturing expenses and logistics costs. Continued operational expense controls and lower travel and entertainment essentially offset additional personnel-related COVID-19 costs and other inflationary increases. On a currency-neutral basis, interest, other income and expenses, taxes, and non-controlling interests together amounted to an additional $1 million headwind versus last Q3. And adjusted earnings per share, excluding amortization, was $1.40, up 1%. Note that FX movements adversely impacted our reported numbers. On a reported basis, Q3 sales were flat and adjusted operating profit, excluding amortization, was down 4%. Balance sheet revaluation FX losses had a large negative impact in other income and expenses as a result of both weaker emerging market currencies against the dollar and a stronger euro. Currency volatility has impacted other income and expenses all year, with Q1 and Q3 negative and Q2 positive. We believe our reporting standard provides investors with a truer assessment of underlying currency-neutral growth, especially when there are large emerging market currency devaluations relative to the U.S. dollar or euro. However, it's important to help all of you understand our performance relative to competition. So on Slide 9, I want to take a moment to show what our currency-neutral growth in the third quarter would be using the same calculation methodology as our peers. For a variety of reasons, many of our sales transactions in the emerging markets occur either in U.S. dollars or other hard currencies or are indexed to hard currencies when we have to invoice in local currencies. So when reporting our currency-neutral sales growth, we exclude those foreign exchange-related price changes in emerging markets, but this is different from our peers. During the third quarter of 2020, continued currency devaluations year-over-year in several key emerging markets would have added approximately 2 percentage points to growth if we include those foreign exchange-related price changes in our emerging market pricing. Factoring in this comparability adjustment, we estimate that our third quarter currency-neutral sales growth would have been 3% versus the 1% we have shared. And using this methodology, Scent with its strong LatAm businesses would have reported 8% plus Q3 growth, while Taste would have been flat. Moving on to Slide 10. It is worth taking a closer look at the underlying business and market dynamics influencing our overall profitability in the quarter. In the third quarter of 2020, our sequential improvement in sales was accompanied by a strong rebound in profitability relative to our Q2 performance. Our currency-neutral adjusted operating profit, excluding amortization, grew 1% in Q3, clearly not what we want, but substantially better than the year-on-year decrease of 19% we reported in the second quarter. As expected, price to raw material costs was a gross margin headwind, as was unfavorable mix due to our Fine Fragrance business. Also affecting profitability for the third quarter were incremental COVID-19 costs, which essentially doubled from Q2. The incremental manufacturing and logistics expenses related to COVID-19 that we had incurred in Q2 flowed into the profit and loss statement in Q3 as inventories were used. We also paid a bonus to our essential workers around the world as they continued their exceptional service to our customers during this unprecedented time. In the end, we were able to offset these negatives through a combination of productivity initiatives in Scent and Frutarom cost synergies in Taste and tight cost management throughout IFF. We have been very careful with hiring, with headcount down over the course of the year, have been tighter in general within expenses and, of course, have had lower travel and entertainment costs like most businesses. Overall, adjusted operating expenses were up less than 1% despite absorbing the usual inflationary increases and COVID-19-related costs. As we forge ahead, especially in this uncertain environment, we will continue to drive growth but also review our cost structure to find additional opportunities to support overall profitability levels. Now turning to Slide 11, where we take a closer look at the performance of the Scent division in the quarter. Scent sales totaling $503 million were up 4% overall as Consumer Fragrance continues to outperform. Specifically, our Fabric, Home, Hair Care, and Personal Wash product categories all experienced robust growth and are also benefiting from the pandemic-related increase in global consumer staples purchases. As Andreas noted earlier, it's not all COVID-19 related. We are seeing strong growth from our new core list customers that we recently gained access to. While Fine Fragrance sales remain challenged, Q3's 14% decrease is a significant improvement from last quarter, where sales were down 40%. Importantly, our Fragrance Ingredients business, which was impacted by COVID-19-related supply constraints in Q2, returned to growth, led by double-digit gains in Cosmetic Actives. These metrics are encouraging and reflect the recovery this summer in global retail markets and consumers' ability to reach them. In addition, the Scent division saw meaningful profit improvement this quarter, as segment profit grew 20% to $101 million. This was driven by higher sales volumes, strong benefits from management productivity initiatives and cost discipline, and tight operational expense controls. Moving on to Slide 12, where we focus on the performance of our Taste division. While we saw sequential improvements in Food Service compared with a 36% decline in the second quarter of 2020, this remained under pressure in the third quarter, declining 13% on a currency-neutral basis versus the prior year, as the pandemic limited food consumption away from home. To put this in context, Food Service took Taste's overall sales growth down by roughly 2 percentage points. That said, the rest of the Taste portfolio, excluding Food Service, delivered positive currency-neutral growth across all global markets. One particular bright spot was North America, where IFF realized double-digit growth in Taste across nearly all categories. We continue to see weaker growth in the other regions due to COVID-19 and related regulatory restrictions such as EAME, Latin America, and Greater Asia. Natural Product Solutions, our food ingredients business, and our North American Flavors businesses were the strongest performing in the quarter, while Savory and Inclusion were both more impacted by Food Service, and were negative in the quarter. Frutarom declined 2% compared to the prior year as their strong presence in Food Service and customer base of mostly smaller local and regional customers continued to be more adversely impacted by COVID-19. For Taste overall, the segment achieved a 13.3% profit margin, with $102 million in segment profit on $765 million in sales. Benefits from acquisition-related synergies and tight operational expense controls were more than offset by lower sales volume, unfavorable price-to-raw material costs, and higher COVID-19-related costs. Turning to Slide 13, I'd like to provide an overview of IFF's strong and growing cash flow position. The chart on the left illustrates the reconciliation from reported net income to free cash flow and includes all key drivers. Operating cash flow and free cash flow were up 8% and 30% this quarter, respectively, led by core working capital improvements and stepped-up reviews of capital expenditure. Our thoughtful and disciplined approach to investments amid the pandemic has resulted in CapEx of approximately 3.3% of sales versus 4.2% the prior year. While continuing to support our customers and suppliers, our teams have also been very focused on optimizing working capital, and our cash conversion cycle has improved 8 days year-over-year. We clearly need to generate cash, given our leverage and the impending merger with N&B. So it's good to see the improvements in days payables outstanding and days sales outstanding. Where inventory is concerned, we did see a small improvement in inventory days with more originally projected for Q4. But now with COVID-19 picking up again, we will increase our safety stocks. Note that we are not expecting to repeat last Q4's strong cash flow performance this year, primarily because of the benefit last year from extra sales and collections in the 53rd week. Further, despite continued stress in all industries across the globe, we believe that this quarter's strong balance sheet is a testament to our continued capital allocation focus and discipline. Moving to Slide 14. As we look to the remainder of 2020 and into 2021, we will remain laser-focused on maintaining discipline across our balance sheet to ensure that IFF is well positioned as we navigate a prolonged challenging market environment. The situation remains highly uncertain, given the steady increase in global COVID-19 infections and the potential for additional regulatory restrictions in various regions. We're incredibly fortunate that the majority, roughly 85% of IFF's portfolio, has remained resilient and essential around the world for food, beverage, hygiene, and disinfection products. Unfortunately, the persistence or even worsening of the pandemic will likely translate into continued weakness for Fine Fragrance and Food Service in Q4. I will also remind you that we face a very strong Q4 comparison to last year, which had a 53rd week of sales and profit contributions. As we noted at the time, this represented about 400 basis points of growth in the fourth quarter last year and is a large, roughly $50 million headwind this quarter and will occur all in the last week of December 2020, impacting our monthly performance comparative significantly. This extra week last year also clearly came with a substantial operating profit contribution. And while it is hard to be precise, we estimate that this will represent a $15 million to $20 million headwind for us in Q4. We began the fourth quarter with low single digits growth in October on a currency-neutral basis, in line with Q3's results. Based on this first month and given the uncertainty, it's unlikely that we will see higher growth for the full fourth quarter than the 1% we achieved in Q3. That is before taking into account the headwinds from the 53rd week. In this uncertain and difficult environment, we are more than ever controlling what we can control such as operational expenses and also capital expenditure. And of course, we remain focused on driving strong cash flow and reducing leverage.

And with that, I'll hand it back to Rustom to discuss the near-term road ahead for IFF. Thank you, Rustom. Before providing an update on our pre-integration work with N&B, I want to spend a moment on the progress we have made on our Frutarom integration. On Slide 15, I'm pleased to share that we have made strong strides with our Frutarom integration work. As of the third quarter 2020, we have complete integration of our business teams and believe that by the first quarter 2021 we will substantially complete our manufacturing optimization plan, essentially at 90% of the consolidation complete. As a result of the outbreak of COVID-19 and the related complexity, we are delayed about 6 to 8 weeks from our original projection, but remain on track to be largely complete in the first quarter of 2021 around the time of our transaction close with N&B. As a reminder, as part of the Frutarom integration initiative, we expect to close approximately 35 manufacturing sites. For the end of 2020, we are on track to close between 20 to 24 sites around the world and expect to be completely finished by the end of 2021. With the integration of Frutarom, we have learned a lot. This experience has been important for IFF, and we will leverage these experiences and apply lessons learned as we take the next steps with DuPont N&B. First, we have put ourselves in a better position to deliver value through cost synergies. We know how to build teams to quickly and efficiently identify and capture these opportunities in ways that create real shareholder value. Second, revenue synergies need to align with the product development life cycle. We need to recognize in our planning that this can mean that these synergies take more time to achieve, but the key takeaway is to start early to ensure delivery. As of today, we have a strong pipeline of Frutarom-related cross-selling projects, over 2,000 with a pipeline potential of approximately $235 million, and we believe we are on track to meet or exceed our target for 2021. Third, we need to recognize the potential for sales dis-synergies and plan accordingly to properly mitigate and anticipate when it can't be avoided. Fourth, we must build teams and organizational functions that protect base business growth. This was a major consideration in how we designed the organizational structure at our future combined company. Growth through synergies and innovation has to be incremental to core business growth. And fifth, we need to move with speed and be decisive. There's always an urge to be cautious through integration as two cultures learn to work together. We have to break down these barriers with focused, accountable leadership towards clear shared goals prioritizing profitable growth. I will also add that moving towards a transformational merger and working through the challenges posed by a global pandemic has forced all of us at IFF to work in new ways. We have learned quite a bit in these last several months, and in many ways, it has forced us to take a fresh look at our business in a way that I think will prove beneficial as we continue in our transformation journey. Turning to Slide 16. I'm pleased to share an update on our integration planning process for our previously announced merger with DuPont N&B. As you can see, we have reached all targets for the second half of 2020 and are on track with our targeted close date of February 1, 2021. The three notable milestones we achieved in the third quarter 2020 include a successful shareholder award, the completion of the permanent financing, and the announcement of the executive team minus 1 leadership team. I'm pleased to have received strong support from IFF shareholders who have recognized this unique opportunity to create significant long-term value. With more than 99% of the votes cast in favor, IFF shareholders have overwhelmingly approved the issuance of shares pursuant to the merger agreement, through which IFF and N&B will combine to create a global leader in high-value ingredients and solutions for global food, beverage, home and personal care, and health and wellness markets. We also completed a successful pricing of the $6.25 billion bond offering in September. This financing, together with the previously procured term loan facility, will provide N&B with the funding needed to make the special cash payment of USD 7.3 billion to DuPont in connection with the completion of our merger with N&B. I'm happy to report that there was tremendous interest in the bond offering. The interest rates were favorable, and the offering was significantly oversubscribed. I'm also pleased to announce that at the end of last week, we received antitrust approval in Mexico, which was one of the two remaining jurisdictions where we needed approval. As we move towards closing, we have only a few integration milestones left to reach and are confident in our abilities to execute on our post-closing timeline. We anticipate receiving antitrust approval for Europe in December and will be filing our amended S-4 with updated pro formas in the coming months. I continue to be very excited about the combination between IFF and N&B. I believe we have a significant amount of opportunities to create strong shareholder value in the future. We actively review our portfolios on a constant basis, especially in light of the future combination with N&B, to look to maximize our returns by driving growth in accretive categories and deprioritizing our low-value businesses by reducing allocations of expense and capital, whether fixed or exit completely with divestitures. Moving on to Slide 17. In summary, I continue to value the continued resilience of our portfolio during an exceptionally challenging time for all industries and communities across the globe. Despite this unpredictable environment, we have delivered sustained growth across some of our largest segments and returned to growth in others in the third quarter. Our 1% currency-neutral growth for the quarter marks an important sequential improvement from Q2. And excluding Fine Fragrance and Food Service, we are pleased to have delivered 4% year-to-year currency-neutral growth with improvement across nearly all categories. We also made great progress in our N&B pre-integration planning and remain on track to close the transaction in the first quarter of 2021. As global conditions remain volatile and unpredictable, we will continue to focus on controlling the controllable, driving strong cash flow, maintaining strong operational capital discipline, and leveraging the strength of our portfolio to grow and succeed. I'm proud and grateful to all of our employees across the globe who have gone above and beyond to ensure continuity and resiliency of our business, all while delivering for our 30,000 customers across the globe and executing on the integration process for Frutarom and N&B. While we recognize we always have opportunities to improve, particularly within our Taste division, I'm confident that as we move ahead, we will improve our performance as we did in our Scent division over the past few years, both in terms of sales through new customers, core lists, and margins through operational performance programs. I believe that we have the strategy and the team in place to position our organization for long-term success both now and upon uniting with N&B.

We'll go next to Mark Astrachan with Stifel.

I wanted to ask about adjusted EBIT and EBITDA performance versus your peers. So the European peers, at least by my math, have seen profit growth in the first half and anticipated for the full year. Based on what you just walked through, Rustom, I get down mid-single digits or so for your business on each in 2020. So I guess the question is why has IFF underperformed? And perhaps, could you walk through the specifics of pressures on gross margin and SG&A? And when do you anticipate those trends to normalize versus peers? And just related to that, a quick one for you, Rustom, probably. Could you just provide the Frutarom synergies in the third quarter as that was no longer provided in the Q?

Certainly. Regarding competitors' performance, I cannot comment directly on that. However, I can share details about our performance for context. Year-to-date, our adjusted operating profit, excluding amortization, has decreased by 4%, with currency-neutral sales growth of 1%. This is certainly not ideal, and some contributing factors include a negative sales type this quarter and an unfavorable sales mix, particularly in Fine Fragrance, which saw a marked decline in Q2 and a smaller one in Q3. Additionally, we faced rising costs for raw materials, primarily in Fragrance Ingredients, which have been under pricing pressure due to expected declines in those materials. There were also COVID-19-related costs, amounting to nearly $20 million over the year. Incentive compensation has created year-over-year challenges, as we anticipated it would after the previous year’s situation. However, there have been some positive trends, particularly in Q3 where volume improved, and synergies have consistently contributed positively throughout the year. We maintained cost discipline early on amid uncertainties about COVID-19, leading us to slow hiring and manage expenses without cutting costs from IFF. But as infections increase and future countermeasures remain unclear, we plan to take further cost-reduction measures in the upcoming months. Regarding Frutarom, despite COVID-19 impacts, we are on track to achieve the $50 million in cost synergies previously outlined. While we modified our 10-Q to avoid disclosing exact amounts each quarter, we did achieve over $10 million in synergies in Q3, bringing our total for the year to around $42 to $43 million, on the path to meet our $50 million target. As a reminder, our goals are set for $100 million by year 2 and $145 million by year 3. Have I addressed everything you inquired about?

His line may be muted. Rustom, sorry. So maybe we'll go to the next question. Mark, if you have another question, feel free to jump back in the queue.

Heidi Vesterinen with Exane BNP.

So a question on Taste. I understand the pandemic-related challenge in out-of-home, but it does appear that you've had additional challenges. This year, you have negative organic and margin hit by input costs. Your peers are not talking about this. Last year, I think it was destocking by multinational customers. Your peers were not seeing this. Can you talk about what explains this underperformance? And you finished your presentation talking about there being a strategy in place to change this. So could you maybe tell us about your action point?

Sure, Heidi. I can take it. I think, first, please remember that we need to adjust the reporting differences, specifically FX-related pricing. But I think Rustom talked about that. Certainly, we have an impact on the Food Service, which is happening in the home market for the competition as well. But despite that, we are not entirely happy, and there's more work to be done. We see if you zero down, particularly, some weakness in Europe, where we have to dig in and figure out how we go forward. We see actually a very strong performance in North America. And we have to model what we have done over the last, let's say, two or three years in North America, in other regions as well. So there's a program underway. And I might remind you, a couple of years ago, we had similar questions on our Scent business. We are taking it very seriously. I think we have turned around the Scent business quite significantly. And I would say in that area, we are outperforming our competition now, particularly on the Consumer Fragrance side. So that's what we see. And we will take the action to make sure that we fix what we have to fix here.

And just as a follow-up, you also talked about challenges with small and mid-sized customers. I think you had talked about it last quarter as well. Is this a short-term issue or are these business opportunities that have simply disappeared like a customer and you're exiting the market? What is happening there, please?

Yes. Sure. Absolutely. And that's a quite important question because it's strategic in a sense. We still believe that you need a good exposure to the smaller and midsized customers over the long term to grow your business. Certainly, the small customers had more impact from the COVID crisis than some of the big ones. We believe that most of them will come back to growth. And let me give you two examples. We see right now still quite a bit of an impact on the small customers in India, for example, where we are market leaders with our Taste business, so that has an impact on our business. On the contrary, we see actually very good results of our Tastepoint business here in the U.S., and we are starting to accelerate again with small customers. I think what we are seeing now is since the, let's say, supply lines are again very robust and delivering, I think it gets better here as well. So you see, it depends on the region, it depends on the country, but we believe in the long-term that this is a customer base we would like to keep because we believe we will get some good growth out of it. I hope that helps, Heidi.

We'll go next to Lauren Lieberman with Barclays.

I wanted to catch up on two things. One was just thinking about some of the puts and takes to fourth quarter. I know Rustom you were specific on the 53rd-week dynamics. But just how we should be thinking about the increased COVID costs, if there's any other one-off lapse that we should be aware for Q4? And then the second thing was just looking back at the July S-4, the management projections that are shared there for the N&B transaction. It just struck us as interesting that you're pegging growth for IFF at 5% and for N&B at 4%. And for sure, IFF was delivering at that level before Frutarom, but not since. And N&B, I don't think has hit that number, I'm not sure, ever. So I just wanted to hear a little bit about the buildup of that projection. How much of that already assumes what you think you can do in terms of integrated solutions, but I am curious what those kind of baseline projections for the business is?

Sure. I take the first piece of it on the sales for the fourth quarter, then Rustom can comment on the cost, and then I come back on the S-4. Look, Lauren, in all honesty, it's tough on the fourth quarter. As Rustom said, we had a good start into the fourth quarter basically on all measures, particularly also on the Scent business, very, very strong start into it. But we are cautious for a couple of reasons. First of all, we see now in Europe, again, many of these, let's say, lockdowns, even if they call it soft lockdowns. So we will see what that brings for us in terms of Food Service, but also Fine Fragrance business as well, which started well in October, but we will see what's happening here. But what we know is that we are running against a very strong fourth quarter last year, first of all, good growth but then also driven by the 53rd week. So still, good start into the quarter, also a good order book, but we remain cautious because of the 53rd week and about the new lockdowns we have seen in Europe. That's the reason why we are taking a bit more of a conservative stance. But Rustom, please comment on the cost and then the operating profit side.

Yes, absolutely, Andreas. The situation is quite uncertain. Andreas highlighted the cost side, and we are fortunate that most of our portfolio is resilient and essential, including food, beverage, hygiene, and disinfection. However, we are currently anticipating a worsening of the pandemic, which will likely lead to ongoing challenges in Q4, particularly in areas affected by COVID-19 such as Fine Fragrance and Food Service. We are not entirely sure how this will unfold, but we think Food Service may perform slightly worse than in Q3. Regarding COVID costs, we saw significant expenses in Q3, nearing $13 million, largely due to one-off costs and special payments. In Q4, we expect COVID-related costs to be lower, around $5 million. Additionally, last year we discussed the impact of the 53rd week, which contributed approximately 400 basis points to revenue, translating to about $50 million in sales headwinds this Q4. That extra week also had a notable positive effect on operating profit, and we estimate it may represent a $15 million to $20 million headwind in Q4. Other factors include indirect taxes in Brazil related to litigation, which amounted to about $8 million last year. Furthermore, half of the $40 million AIP headwind we projected for last year's entirety is expected to occur in the fourth quarter. Despite these challenges, we also anticipate some positives; last year’s Q4 saw lower gross profit margins due to inventory issues, and we expect to improve that by at least $10 million this year. We will also see similar positive contributions from synergies and productivity benefits compared to last year's Q4.

Okay, Rustom. Thank you for that. So in summary, I would say, good start, but we are very cautious about the situation we are having. And I think the puts and takes on the cost side Rustom explained quite well. Coming back to the S-4 question. And I think what plays an important role here is, first of all, the area where we want to focus on. What we have done a quite extensive, let's say, review of our new portfolio. And there are certainly a couple of areas, which have really good growth perspective. And I'm not giving you our guidance or budget for next year. But I would like to give you some background on how we think about next year in terms of the different categories. So look, the Consumer Fragrance business has performed very well in the last couple of quarters, and we don't see any change in the fourth quarter, and we don't see too much change for the next year. And that's a quite significant business between $1.1 billion to $1.2 billion, because we believe that the demand for hygiene products will stay high next year and Personal Wash as well. And as Rustom commented in his comments on the earnings, the three new callers are really producing nice growth now and have enough critical mass to give us some additional growth. So that will be a good focus area. Fine Fragrance will come back eventually as soon as COVID normalizes over the course of next year, and that gives us just technically already a nice growth going forward into 2021. And then we see actually a good performance on the Active Cosmetic business and the Ingredients business as well. Since we have solved for the, let's say, raw material issues out of India, I think that's working well. So that should give us good growth going forward. On the Taste side, as I said, we have to focus on the most important categories where we can get growth. One of the fastest-growing areas was the beverage area for us, in particular, hard seltzer in the U.S. We believe that it's a good growth driver for us going forward. We see some of the Natural Product Solutions driving forward, which could be the INFAT business, the food protection business, and that helps us to grow nicely. And Food Service, over the course of next year, the quick-service restaurants should normalize as soon as we see some more regular business in the post-COVID period. So we believe that could give us good growth drivers going forward. On the N&B side, even though it's not our business now, what I see from the outside and the pre-integration, you have a couple of businesses like the biorefinery business or microbial control business, which have challenges which should normalize after the COVID crisis as well. And then you see certainly businesses like the probiotics business or the cultures or enzyme business, which are going quite nicely. So we believe that could drive our growth going forward in 2021. You mentioned integrated solutions. That's certainly a growth driver as well. But I would expect this more in year two after the integration because it needs a bit of time for our customers not just, let's say, to buy the concept, but to launch these products in the marketplace as well. And then it will drive quite nice revenue synergies and certainly profit synergies as well going forward. I hope it helps to unpack how we see the different portfolio pieces. Maybe just a remark on the regions. As I said before, we have nice growth in North America and a great momentum on both sides of our business, which is fantastic. I think Latin America is better than you might think. And hopefully, it will go better next year as well. We have a bit of a topic on Europe, which is certainly driven by COVID because Fine Fragrance has a big footprint in Europe, as you well know. A lot comes out of France and the Food Service business as well. So we will focus here to fix as much as we can. And hopefully, with the, let's say, introduction of the vaccine and the post-COVID period, that can give us more growth going forward.

Next to Faiza Alwy with Deutsche Bank.

Andreas, I have two questions related to your comments on N&B. First, you mentioned some lessons learned from the Frutarom integration. I would appreciate it if you could elaborate on those lessons and how you plan to apply them to N&B. Second, you hinted at possible divestitures in your portfolio. Can you clarify if I'm interpreting that correctly, and if so, provide any details regarding the timing or scale of those divestitures?

Thank you, Faiza, for your question. Let me address your last point first. We have thoroughly reviewed our portfolio, and there are areas where we want to accelerate growth because we believe it's important. There are also segments that may not align well with our portfolio on the IFF side. While it's too early to discuss specific items, we are actively examining this, and we haven't made a decision on N&B either, but we are assessing the portfolio. Your insights are quite accurate. Regarding lessons learned, there are a few key points. Firstly, when merging organizations, you need time. It's essential to start with a unified team and do as much preparatory work before integration day as possible. For instance, we have already announced nearly 150 to 170 leaders in the new organization while still a couple of months away from closure, which is a significant step that will enable us to move much quicker than we did with Frutarom. Secondly, we have conducted extensive work on integrated solutions and cross-selling opportunities. One realization was that although we had many ideas in food, it took longer to execute them. We will achieve our top-line synergies with food, but it required more time than anticipated due to the process of getting our customers to actually launch the new products. We started our planning earlier, conducted more thorough testing of our concepts, and allocated more time to realize them, which has been crucial. Additionally, we have gained valuable insights in terms of optimizing our operations, which has been progressing well. We feel even better prepared now for the merge with N&B in this regard. There are many takeaways, and although I could elaborate further, these are the most significant points. It was very beneficial for us to have the experience from Frutarom's integration as we approach N&B. The lessons learned have significantly improved our preparation, and currently, we are much better positioned than we were during our past integration. That's what I've consistently heard from my integration team. I hope this information is helpful.

Gunther Zechmann with Bernstein.

Can I ask two questions? Firstly, regarding the intra-quarter trends in Q3, thank you for providing that slide with the monthly sales growth. Reflecting on what you mentioned during the Q2 earnings call, I believe you indicated that the July order book was up in the mid- to high single digits. Could you explain the difference between what you observed in the order book at that time and what actually materialized that resulted in the lower growth? That’s my first question. Secondly, Rustom, did I understand correctly that raw material costs were still a headwind, but that you included some COVID-related costs in the raw material expenses? If you could clarify that and specify how much it would be if those costs were excluded?

Sure thing. Gunther, I take the first one. What we've seen in the COVID crisis is that many customers have changed a bit their behavior in terms of orders. We see at the beginning of the quarter probably more orders than usual because everybody tries to get their stuff they need. And that's true, by the way, for the fourth quarter as well, which is very high, but we are cautious because we don't know how that will, let's say, go on over the quarter. That's the reason. So we have seen, let's say, a deterioration also in the third quarter over the course of the quarter that the order book went down. And you see sales went up a bit in October, again, but who knows what will happen in December. Sorry for that. Also, the comparison is certainly a tough one. So as I said, a bit of different order behavior of our customers also depending on the region. We see now some movements in Europe, probably because of the lockdown situation. You sit in London, and we see some movements now for the Brexit, which will now happen probably finally. You see some movements back and forth as well. So that's the reason for that. But on the raw materials, please, Rustom, you comment.

Yes, thank you, Andreas. In the third quarter, we experienced a negative impact. One contributing factor was the high-cost inventory of Fragrance Ingredients that we are still utilizing. Additionally, the impact of COVID-19 on our raw materials usage accounted for several million dollars, but we anticipate this will be significantly lower in the fourth quarter due to the timing of our orders and usage of inventory. Looking ahead to the fourth quarter, Gunther, we expect that the net effect of pricing and raw material costs will remain negative, but only slightly so, as we expect some positive input costs overall. I hope this answers your question.

Ghansham Panjabi with Baird.

This is Tom Digenan on for Ghansham. So starting with Taste, could you provide some additional details on margins in the quarter and why they were down more on a year-over-year basis versus Q2, particularly in the context of the sequential improvement in Food Service and what appeared to be solid results otherwise?

Let me address that. The impact of COVID is evident. We faced approximately $5 million in extra costs during the quarter, primarily affecting Taste more than Scent. Scent experienced some recovery in Fine Fragrance, showing a decrease of about 17% at the end and 14% for the quarter, which is significantly better than the 40% decline we saw in Q2. This improvement came alongside increased productivity and cost management. Taste also managed its operational expenses well, but when considering the Food Service and other businesses, we encountered challenges in gross margin this quarter.

That's really helpful. And then just as a quick follow-up. You called out a positive trend in October. Could you provide some more granularity on this from an end market and geographic perspective? And whether there's anything that's changed in November as lockdowns have been gradually reinstated?

In October, it was largely in the low single digits and consistent with Q3. We are not observing any significant changes from that angle. With the new lockdowns in Europe starting at the end of October and into November, we anticipate that this will have some impact on our Food Service sector, in particular. Andreas?

No. I think that's exactly right. We have seen stronger sales in Fine Fragrances, which was a positive development in October. We'll see how this trend continues throughout the quarter, especially since it's an important season leading up to the holidays. We've also seen double-digit growth in Consumer Fragrances, which is encouraging, but there hasn't been much change compared to the previous quarter. As I mentioned, we are monitoring our progress on a week-by-week basis. Regarding Gunther's question about the order book, it's strong, but we will need to see if it declines as the quarter progresses, which is why we are being cautious. In terms of regions, I believe Rustom is correct; Europe is currently our main focus. North America is performing well, and Latin America is doing better than anticipated. Asia is stable, with India showing signs of recovery, which is positive. However, Europe remains a key area of focus, particularly due to the new lockdowns occurring across the continent.

We'll go next to John Roberts with UBS.

I just have one question. One of the N&B revenue synergy examples cited earlier was plant-based meat. Could we get an update on what's going on in that marketplace, since it seems like there have been a lot of developments recently?

Yes. Thank you, John, for the question. It's certainly one of our focus areas because I believe we are exceptionally well-positioned in that area going forward because we have all the ingredients to satisfy the market here. What we see is that basically, many companies are now moving into that area. The category was suffering at the beginning a bit from quick-service restaurants being down. That is coming back now in some of the geographies, which is good. But you see more and more that these products are going into supermarkets like Whole Foods and others alike. So what I want to say here is they had a bit of a hard time at the beginning of the pandemics with the quick-service restaurants, but they are coming back. We see that more companies are moving into that area, and we see that the whole category is growing, and that's our expectations for the years to come as well. I hope it helps, John.

We'll go next to Matthew DeYoe with Bank of America.

A question on the way you report and walked through all these slides. Like why not use the same currency-neutral sales results as all your peers? It just seems like we're wasting time walking through all these quarter-to-quarter and candidly it's odd that you plan to flag on kind of fundamentals with this?

I couldn't agree more. I give it to Rustom.

We are indeed examining this situation closely. We believe our perspective is more accurate, as I mentioned earlier. However, it is frustrating that when we compare ourselves to our competitors, the way we present our numbers may not be beneficial, especially in an environment where emerging currencies are depreciating. Just to highlight one point, if we assess our Scent performance on an apples-to-apples basis, we are actually seeing around 8% growth. That’s all I wanted to add.

Yes. It's a discussion with our Audit Committee, but we're working on it. Let's put it that way.

So I wanted to come back to something, Andreas, you said in the prepared remarks around lessons from Frutarom. And you made the point on sales dis-synergies. I was hoping if you could kind of maybe provide a little more tangible examples of where within the Frutarom experience that has been a headwind? Are you just talking like resource or other businesses there that we should be mindful that they've been a little bit more pressured?

Yes, sure. Absolutely. Look, there were some dis-synergies we have seen. Maybe we have talked about the citrus business we had out of Florida, where we supplied one of our competitors. They lost their big customers, but they also built their own, let's say, capabilities here, and we lost quite a significant part of the citrus business. That's actually probably one of the premier examples for sales dis-synergy. We don't expect too many sales dis-synergies from N&B. But we have built it in. We said that if we look at the sales synergies, it always has to be a net number as it is on the cost side as well. So we are very aware of that. We make sure that we really capture it in the right way. I hope that example helps.

We are out of time for Q&A. I'll turn it back to Andreas for any closing remarks.

Yes. Thank you for all of your questions. Thank you for that. It was a good discussion, and we're looking forward to the one-on-ones. Thank you, and stay healthy, please. Bye-bye.

Bye-bye everyone.

And this does conclude today's program. We appreciate your participation, and you may now disconnect.