Thank you. Good morning, good afternoon, and good evening, everyone. Welcome to IFF's first quarter 2021 conference call. Yesterday evening, we issued a press release announcing our financial results for the first quarter as well as our outlook for the full 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.

Thank you, Mike, and thank you to everyone for joining us today. I will begin today's call by providing an overview of our first quarter results including a review of our performance by region and segment. I would also like to share with you an update regarding our efforts to integrate the DuPont N&B business, which continues to progress well, following the completion of our transaction in February. Rustom will then provide a more detailed financial review of the business highlighting segment level business dynamics and performance and cover cash flow and leverage as well. IFF is off to a strong start in 2021, and I'm confident that the momentum we have built will continue for the remainder of the year and beyond. Now beginning with slide 6, I would like to review our performance and notable developments in the first quarter. We achieved 3% combined sales growth or 1% on a currency neutral basis compared to the first quarter of 2020. Also, because of our change to a fiscal calendar, rather than a traditional 445 calendar, we have had two days less in the first quarter. If we were to normalize for that, our combined currency neutral growth in the first quarter would also have been approximately 3%. And on a two-year average basis, factoring in our strong 7% year ago comparison, growth would be strong at approximately 5%.

Thank you, Andreas. First, let me go a bit deeper into our consolidated financial results. In the first quarter, IFF generated $2.5 billion in sales, a 3% combined year-over-year increase including foreign exchange benefits, or up 1% on a currency neutral basis, primarily led by strong performances in our scent and pharma solutions division. As you may recall from 2021 onwards, we are applying prior year average FX rates to our currency or non-US dollar revenues to derive currency neutral growth rates. This is the more common practice and makes us more comparable to our competitors.

Thank you, Rustom, and thanks again to all for joining us today. I would like to wrap up today's call by first giving an enormous thank you to our thousands of employees around the world who have worked tirelessly over the last quarter to successfully execute our business initiatives, deliver for our customers, and achieve solid top and bottom line business results. All while making exceptional strides integrating the N&B business into the IFF family. It has truly been a busy quarter, and we all have much to be proud of, especially as this all was accomplished during a global pandemic. Looking beyond our solid Q1 financial results, I want to reemphasize the important first step that we took in tightening our business and optimizing our portfolio strategy by agreeing to diversify our food preparation business. By diversifying this non-core business, IFF will be a more efficient organization with a greater capacity to focus on growth and innovation across our key businesses, ultimately generating greater value for our shareholders. As we enter Q2 together, we're confident that we have the right team and the right structures in place to ensure that our newly combined company will meet all financial operational goals. As I mentioned, we are targeting strong year-over-year financial improvements with accelerated test scores over the coming quarters backed by our commitment to delivering industry-leading innovative products and services to our customers around the world. And as Rustom stated, we are pleased that we have started Q2 strong and are optimistic that our full second-quarter sales growth should be in the highest single-digit range. I'm tremendously proud of all we have accomplished and I firmly believe that the best is yet to come by taking each and every learning from the N&B integration process to create a stronger, more agile and diversified company that defines the future of our industry and showcases what it means to be a leading ingredients and solutions partner. With that, I would like to open the call for questions. Thank you.

Nice start to the year. In slide 8, I thought that was really helpful. You do show some businesses at that 4% to 5% sales growth range. If you think about having owned the business for about three months now, can you maybe talk about what needs to happen to the other businesses below that 4% to 5% and your confidence since you've owned the business now that you can get each of these product lines sort of in that range over the next couple of years?

Yes. Thank you, Mike, for the question. Yes, first of all, I think that we really expect that the growth will accelerate over the course of the year. And that's driven, as Rustom said as well, by a good start into the second quarter. The first quarter was our toughest comparison, which is the reason why we raised our sales expectations for the year. I think that's important. Now coming to the different parts of the business, if you look at the scent business unit, there's a real good recovery in fine fragrances, which is fantastic in the first quarter and also starting in the second quarter, which is good. We still see significant growth in cosmetic actives. So that's super important for us as well, and the consumer fragrances remain at an elevated level. If you go to the health and bioscience business, you see a couple of elements. You see that the health and the conscious and food enzyme business should grow in the mid-single digits. You will see a recovery of the microbial control business, which was very much hurt by the situation last year. So that's important as well. And then on the Nourish side, we have a very solid performance in taste, particularly in the legacy flavors doing very well. But on the new parts, protein solutions, particularly alternative proteins, are doing very well. You will see a turnaround in the food service as well as countries and economies are opening up. And that's probably a general remark. We have seen good growth, as you've seen in the presentation in most of the regions, but in Europe, we expect Europe to turn around as soon as these economies start opening up after the pandemic as well. So I hope, Mike, that gives you a bit more insight here.

Yes, thanks. And good morning, everyone.

Morning.

I guess, broader question. It's something that we hear probably most frequently from folks out there asking about your company: what gives confidence that IFF can sustain the share gains implied by the 4% to 5% currency neutral long-term targets that you have? Growth has been below peers in recent years, even adjusting for FX changes. Additionally, first quarter growth was below peers who also had tough comparisons, not as tough as yours, but still tougher comparisons. What gives confidence that you can see an acceleration applied by the guidance over the balance of the year as well as long term? And I want to just kind of squeeze in a related question, which is how do we measure or how do you measure maybe your peer performance? What does the group do you use to measure your peer performance versus peers, and traditionally, it's been summarized now, who should we all be paying attention to? Thank you.

Let me start with the last question first. You have basically named all the companies which are relevant for us; perhaps you should put Kerry in the mix as well, in particular for food service and some of the ingredients. And then you have a very nice peer group together. So what we want to do in the midterm is actually what we are doing: we have done a complete strategic assessment of all the categories where we believe we have growth and margin potential. We certainly will emphasize resources behind these categories. Some of these categories are, for example, health, like the probiotics business, where we've put good resources behind to make sure that we can outgrow the competition. If you look at the start of the year, it's 3% growth, if you adjust for the days, and there was a very strong comparison with 7% last year. We are actually quite happy with the start, and we have seen some of the portfolio pieces performing very well. For instance, the flavors business is coming in well, as you see in everything related to plant-based and protein solutions. We see a turnaround as well; I mentioned before the microbial control which is coming back. The food service business is coming back. These are all good signals that we have a solid track to accelerate our growth, and that's the reason why we raised our expectations for the rest of the year.

Yes, thanks. Good morning everyone.

Morning.

I was hoping to ask about some of the color on raw materials and cost trends. Obviously, a very dynamic raw material environment—the note the increases in trade are noted. Just trying to make sure I understand the magnitude of how much that has increased relative to your initial look at the year provided a few months ago? How much incremental price are you calling for or expecting, and reformulation, and how we think we end the year on that kind of price-cost balance?

Right. Adam, it’s Rustom. Let me take that question. So we started 2021 expecting our inflation to be low single digits with some modest increases, mostly offset by cost declines. But since then we've seen some large increases in raw materials. We've talked about soybeans among a whole bunch of them, as well as higher freight costs due to sharply increased rates, plus higher air freight volume in specific areas where we have strong demand coupled with a couple of inventory and supply chain challenges. To answer your last part of the question, we do not expect raw material and logistics inflation combined to remain in the mid-single digits this year, which obviously requires us to go back to our customers.

Hey, guys, this is Lucas on for John. Thanks for the lining on the website for the four segments, the extra details were quite helpful. So on the fifth one on R&D, could you provide some breakdowns of the new R&D budget? Do you spend roughly the same percent of sales for each segment? How much of the R&D is centralized versus how much is in control of the four segments? Thanks.

Lucas, thank you for the question. The combined company budget for R&D is approximately $620 million, about 5.5% of our annual sales. We are certainly a leader in terms of R&D within the industry. What we have done is we went through all the different categories and technologies and looked at where we can put the best R&D dollars behind. We are vitalizing our investment toward the highest return opportunities. That means we spend a fair amount on health and bioscience, which is very important. The biotech area is one of the main investment areas, for example, probiotics, enzymes, and cultures, just to name one. We have a centralized R&D approach, and we have probably at least half of it centralized, with the rest directed towards application and application labs. The big piece of our investment goes into the biotech area, which I think is super important for our customers and certainly for the development of some of our technologies going forward. I hope that helps.

Yes. Hi. Good morning. So I wanted to ask about—the time when a lot of CPG companies are looking to reduce their COGs. I know for legacy flavors and fragrances business these only comprise about 2% to 5% of COGs. So often we've seen customers leaning in on these ingredients to differentiate their products while cutting some more expensive items or perhaps more expensive active ingredients. How should we think about this in the context of the combined business? Can it be used to lower other more expensive ingredients? It would be great to get some more color from you on this, and if there are any early examples of how IFF is being impacted so far by your customers' need to lower costs, and if there are any areas of the business that stand to benefit versus those that stand to get hurt. Thanks.

Faiza, good question. It ties very well with the R&D question previously. We are not just offering flavors and fragrances; we have a much broader set of technologies and innovative solutions. We can play with this, which can serve as differentiators in the marketplace but also help to reduce costs. For example, on the legacy IFF side, we can partner with our customers. We formulate to reduce costs; for example, we can use our modulation technology to cut costs for sweeteners in their products. With our new platforms, we have now a leading biotech platform, allowing us endless opportunities to use fermentation technology to reduce input costs and create some of the ingredients via biotech pathways. Bringing everything together gives us a very synergistic approach to help our customers not just to find super innovative solutions to win their own clients and customers but also to reduce costs. I think we are in a very good position here.

Hi, yes. So I made some comments about India exposure and the legacy N&B business in its 1Q earnings call. Just wondering if you could walk through what your exposure is to India and what you're seeing there. The commentary made it seem like there was some elevated exposure relative to their current portfolio, but we received several questions into the quarter.

Yes, Matt, thank you for the question on India. We have about 1% to 5% of our business in India. The Q1 was up double digits, illustrating a very good performance. It's interesting that you're asking because of the desperate situation in terms of the pandemic right now. I talk on a regular basis with our country manager and we haven't seen any slowdown in the business, which is kind of interesting, but we are cautious with India. So far we haven't observed negative impacts on the business, but we remain cautious; the business constitutes about 5% of our total business.

Thank you. Good morning, everybody. Andreas, as vaccines get deployed and mobility improves in regions such as the U.S. and China, are you seeing a related increase in new product development at the customer level as they sort of position for perhaps a broader recovery? Separately, to clarify, in the early question regarding raw material cost inflation, what are the positive offsets related to the updated EBITDA guidance, given your cost inflation has been raised from the low to mid-single digits? Thanks so much.

Yes. Let me get started and then I will hand it over to Rustom for the raw material part. We see more demand coming in from all our customers, which is really encouraging. New product development is happening not only with our big customers but also with some of the smaller customers coming back, which I think is a great sign. We observe this across many of our categories—even in fine fragrance, which has shown very strong development in the first quarter and an excellent start into the second quarter as well. So the short answer is yes, we do see an uptick. Rustom, regarding the raw material?

Yes. Absolutely. We do expect negative pressure on our gross margin this year. That is due to the necessity to go back to our customers. Students have additional pricing discussions and all the rest of it. So we do not expect to recover the full extent of the raw material increases observed this fiscal year. However, we do have positives coming from FX, higher sales volumes, and lower RSA as a percentage of sales. On an operating margin perspective, that mitigates the negative impact considerably. Ultimately, regarding EBITDA, coupled with our focus on cost reduction, we are confident that we can achieve our full-year adjusted operating EBITDA goal on a combined basis, in terms of dollars.

That's an important point that Rustom just mentioned, because with the integration, we have good flexibility on the RSA side to buffer these developments.

Hi, good morning Andreas, Rustom, and Mike. Can I just ask on your organic sales growth outlook? In the slide, a page 17, you indicate 6%, I believe that reported sales growth. Can you first of all split out how much of that is like-for-like, please? Returning to Rustom and the discussion around raw materials, how much of that will be pricing? Because I believe when you last gave guidance it was still at 3% organic sales growth guidance, most if not all of that was based on volumes. Thank you.

Let me start, and then Rustom can comment on raw materials. The organic sales growth will be 4%, currency neutral—that's what we are planning. Rustom?

Okay, so I mean, that was—I was going to say the same thing effectively. FX is helping us as well in the 6% number, as we see for the whole year. So on the other part of your question regarding recovery, we do expect a recovery path but not fully quantified or specified yet, but we will not recover the whole increase in material costs. Does that clarify?

Thanks very much. I was wondering what's the magnitude of the divestitures that you contemplate? Is it $500 million in sales, or $700 million in sales, or a billion? What's the scale? And secondly, in looking at your global sales review, it seems that the issue was Western and Central Europe, which contracted 5%. What is it about your business in Europe that's so different than your businesses in the other regions, such that you have a negative growth rate, and how does that region look for the remainder of the year?

Yes, let me. Jeff, thank you for the questions. The magnitude of the divestitures for the non-core businesses might be around 5% of sales growth. That's what we are targeting right now. In terms of Europe, I think it's important to note that we see the COVID-19 impact on Europe, which is the biggest challenge we face currently. The composition of the business has a significant food service segment; for example, up until the end of last year, fine fragrance was heavily impacted, as a lot of it comes from Europe. We expect a good turnaround as economies in Europe hopefully begin to open up, along with increasing vaccination rates. We have seen early signs of this improvement already in April, which is encouraging for us. I hope that helps address the question.

Yes. Hi, good morning. Andreas, you've talked about food service, business, and fine fragrances—businesses that cannot afford to take a hit during the pandemic. As the economy opens up and people start going out, how quickly can they get back to pre-pandemic levels? And one question for Rustom: you mentioned some of your top raw materials. Can you sort of rank them in a top five or six to help us understand the raw material exposure of the combined company? Thank you.

Let me get started first. I would say on the fine fragrance side, we expect a faster recovery than we had anticipated. Initially, we expected that it would take until 2022 to return to pre-pandemic levels, but now, given what we’re observing, I am more optimistic. The food service business might take a little longer, particularly in Europe, potentially returning to pre-pandemic levels next year. But that largely depends on what happens in the second and third quarters. As we stated previously, I'm more optimistic than at the end of last year regarding fine fragrances. For food service, we will need to monitor the situation closely. Rustom?

Yes, I would say that soy and locust bean kernels stand out as two of the largest in there, while vegetable oil is much smaller along with several others. Turpentine is noted too, but at a much smaller scale. Regarding the last point, propylene glycol had some force majeure-related impacts and will work itself out.

Thanks very much. Hello, everyone. I'm just wondering if you could give an idea now that you've secured your first invoice for core selling and solution selling—a profile of the customer or who you're getting better traction with, perhaps in terms of size, geography, and products. Any information would be interesting there. Also, a housekeeping question: I noticed since Q4, the D&A guide has gone up a little bit, and it looks like the tax rate guidance is quite a bit higher than implied in Q1. Could we have a comment about that? That would be appreciated. Thank you very much.

Sure, absolutely. I'll take the first one, and Rustom will take the second one. We are witnessing cross-selling success with our first significant win involving a key customer. It was a cross-sell between our scent business and our health and bioscience business. Essentially, we received a project on the enzyme side thanks to our good access through our scent business, targeting a larger European global customer. Product-wise, it's in the detergent area, which is promising because we see a robust pipeline. Now we are also seeing traction in the food side coming in for our Nourish division, going very well. I believe we can hit the $20 million goal we've set for this year quite nicely in 2021. Rustom, could you elaborate on the second part?

Thanks, Andreas. Yes, there is no real change. In fact, we never specified the P&L ex-amount because we thought that it would be more useful, as people have pointed out to us, for modeling purposes, to focus on EPS, EBITDA, and related aspects. To clarify, the adjusted P&L numbers from last year were 17.5%, and the P&L ex- 18.5%. This year's guidance is around 21.5%, essentially a rough 100 basis points increase. The difference is mainly due to N&B coming with a higher tax profile, which we had communicated and expected.

Thanks, Rustom. If we look past the nice progress on working capital, do you think that the normal progression of working capital has changed meaningfully, excluding any discrete benefits you continue to get from merger integration?

No. Look, for the rest of the year, I wouldn't expect working capital to improve as it did previously. We had a very strong first quarter with roughly an eight-day improvement in working capital days driven by HIF&F inventory, legacy IFF inventory, and legacy N&B payables performance. Moving forward, we will actually be building inventory at legacy N&B to satisfy demand, alleviating strain on our supply chain, and additionally, raw material cost increases will also inflate dollars on hand. DSO will remain reasonably stable throughout the year. We haven’t specifically forecast core working capital, but I expect it to increase slightly by year's end. All of that is factored into achieving the $1 billion in free cash flow target for the year, alongside working capital and CapEx considerations.

Hi, guys, just two from my side. So far, we've talked about segments where you expect sales to return to growth. On the other side of the coin, which segments should we consider to normalize as we move through the coming quarters, especially regarding consumer fragrance and immunity-exposed sales, which some categories have seen remarkable performance? Meanwhile, some of your peers have noted a significant level of stocking in various categories during the first quarter. I would appreciate your views on this.

Sure, Lisa. Absolutely. If I look at the different categories, the good news is that nearly all categories are expected to see some growth moving forward, which is a great position for us. I agree with you regarding consumer fragrance: we experienced double-digit growth last year, and we might see a bit of normalization, although we still expect positive growth, likely in the single digits, for this critical category. Another category with strong comparables is probiotics; as you might have seen, legacy N&B experienced double-digit growth last year, leading to normalization but still growth expected in the mid-single-digit range for upcoming quarters. Thus, I would highlight these two categories, but overall, the remaining segments are looking quite strong ahead.

Hello. Good afternoon. I wanted to revisit pricing and inquire whether anything about the new N&B business makes passing through past price increases more manageable or challenging compared to legacy IFF—thinking specifically about how long it may take to implement pricing for input cost increases. Additionally, regarding the health and bioscience division, you mentioned growth and negative trends in cultures and food enzymes. Is that solely attributable to tough comparisons, or are there underlying demand issues at play?

Yes. Let me address your last question first. It primarily involves tougher comparisons. Last year's performance in the first quarter and into the second quarter was exceptionally strong—triple-digit growth. Therefore, it’s hard to duplicate that success this year. In Q1, our health and bioscience division did experience a double-digit growth, but as comparisons normalize, we anticipate solid growth ahead because the underlying demand remains robust. Regarding pricing, it is relatively easier to enhance pricing in the new N&B business compared to some legacy F&F operations; thus, the pass-through time isn’t as long.

Great, thanks. Good morning. I realize you've covered a lot, but I'm curious about the free cash flow guidance, which sits at $1 billion for this year. That number seems low to me, especially considering that IFF management's case for N&B originally called for something closer to $1.3 billion for 2021. I recognize this is a 12-month number, and we're only looking at 11, but that wouldn't explain the entire difference. What's driving this lower free cash flow guidance for the year?

Yes, Lauren, hi. The 12 months versus 11 factor does play a role in that number. We expect slightly higher CapEx than we originally expected as we invest in business, integration, and capacity, along with normal run maintenance costs and other factors. We are also building slightly more inventory than anticipated within the legacy N&B side of the business, adding to our cash flow management. The other fundamental element is that we continue to maintain a strong EBITDA, and the business will flow through positively.

Thank you for your participation. Certainly, it was a busy and positive quarter for us. It was the first two months as a combined company, and you've seen several moving parts in the external environment. However, I believe IFF managed well through this period, and I would like to reiterate my gratitude to all employees for their hard work this past quarter. We're looking forward to a positive sales development and expectations for the rest of the year. Wishing you all a productive end of your day, and I look forward to talking to you soon.

This concludes today's conference. Thank you for your participation, and you may disconnect at any time.