Good morning and welcome to the Sensient Technologies Corporation 2022 First Quarter Earnings Conference Call. All participants will be in a listen-only mode. After today’s presentation there will be an opportunity to ask questions. Please note, this event is being recorded. And at this time I’d like to turn the conference over to Mr. Steve Rolfs. Please go ahead, sir.

Good morning. Welcome to Sensient's first quarter earnings call. I'm Steve Rolfs, Senior Vice President and Chief Financial Officer of Sensient Technologies Corporation. I am joined this morning by Paul Manning, Sensient's Chairman, President, and Chief Executive Officer. Earlier this morning, we released our 2022 first quarter financial results. A copy of the release and our investor presentation is available on our website at sensient.com. During our call today, we will be explaining the differences between our GAAP results and our adjusted results. We did not make any adjustments to our GAAP results for 2022. The adjusted results for 2021 remove the impact of the divestiture-related costs, the results of the operations divested, and the impact of the costs and income related to our operational improvement plan. We believe the removal of these items provides investors with additional information to evaluate the company's performance and improves the comparability of results between reporting periods. This also reflects how management reviews and evaluates the company's operations and performance. These non-GAAP financial results should not be considered in isolation from or as a substitute for financial information calculated in accordance with GAAP. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is available in our press release. We encourage investors to review these reconciliations in connection with the comments we make this morning. I would also like to remind everyone that comments made this morning, including responses to your questions, may include forward-looking statements. Our actual results may differ materially from those that may be expressed or implied due to a wide range of factors, including those set forth in our SEC filings. We urge you to read Sensient's previous SEC filings, including our 10-K and our forthcoming 10-Q for a description of additional factors that could potentially impact our financial results. Please bear these factors in mind when you analyze our comments today. Now we'll hear from Paul Manning.

Thanks, Steve. Good morning and good afternoon. I'm pleased to report 8% consolidated adjusted local currency revenue growth and 16% adjusted local currency EBITDA growth. During the first quarter of this year, each of our groups continued their strong performance from 2021. The Flavors and Extracts Group achieved 5% adjusted local currency revenue growth and 15% adjusted local currency profit growth. Our Color Group had an outstanding quarter, reporting 12% adjusted local currency revenue growth and 18% adjusted local currency operating profit growth. Asia Pacific Group achieved 14% adjusted local currency revenue growth and 31% adjusted local currency operating profit growth. We had an outstanding first quarter and we are off to a great start to the year. Our continued focus on sales execution, customer service, and product delivery are driving the growth in each of our groups. Each group is generating a high level of new sales wins. It continues to build on an already strong sales pipeline, our exceptional customer service, broad product portfolio, and our robust technologies that position us as a reliable supplier for our customers, and have also positioned us for future success. As discussed during our last couple of calls, we continue to experience an increase in input costs including raw materials, transportation, energy, and labor, along with logistical delays. We're addressing the higher input costs with pricing and we're addressing the logistical delays with a higher inventory position. While we expect these supply chain and inflationary challenges to persist throughout 2022, we will continue to provide robust customer service and on-time product delivery, and we will conduct additional pricing actions as required. Turning to the lockdowns in China and the war in Ukraine, the current situation in each of these regions has not had a significant impact on our revenue in the first quarter. And we do not expect these situations to impact our guidance. Any impact on Sensient as a result of the events in China and Ukraine will most likely be on raw material availability, shipping, and logistics. We continue to work through these supply chain issues and we believe we can manage each of these situations. Now turning to our group results. The Flavors and Extract Group had another strong quarter, delivering 5% adjusted local currency revenue growth and 15% adjusted local currency operating profit growth. The operating profit margin in the first quarter rose to 15.1%. Higher adjusted local currency revenue was primarily the result of favorable pricing and volume growth in Flavors, Extracts, and Flavor Ingredients as well as favorable pricing and natural ingredients. Overall, the Flavors and Extract Group achieved a mid-single digit price increase in the first quarter. During our last call, I mentioned that the natural ingredients business would face a modest volume headwind in the first half of 2022, primarily as a result of strong 2021 demand and a more limited supply of onion. I anticipate this situation to begin to improve in the second quarter and into the back half of the year. Excluding natural ingredients, the Flavors and Extract Group experienced double-digit sales growth across all of its product lines. This is a direct result of the group's focus on more value-added products and customer service. The Flavors and Extract Group's operating profit margin increased 140 basis points in the quarter. The growth in the group's operating profit margin is a result of a focus on more value-added product solutions, a lower overall cost structure as a result of the group's past restructuring and the divestiture activities, and recent pricing actions. The Flavors and Extract Group is off to a good start to the year, and I expect the group to deliver mid to high single-digit revenue growth in 2022, with an operating profit margin improvement of 50 to 100 basis points for the year. The group is well positioned for the foreseeable future. Over the long term, I expect the Flavors and Extract Group to deliver mid-single digit revenue growth and operating profit margin improvement of 50 to 100 basis points annually. The Color Group had an outstanding first quarter. The group delivered 12% adjusted local currency revenue growth and 18% adjusted local currency operating profit growth. The operating profit margin in the first quarter rose to 20.7%. The group saw double-digit growth in both food and pharmaceutical colors and personal care. A portion of the group's revenue increase was driven by a mid-single digit pricing increase. The food and pharmaceutical business has a high level of new wins as a result of the group's innovative natural color portfolio and its focus on customer service. The food and pharmaceutical business is off to a great start in 2022, and I expect this to continue for the year. The personal care business continues to rebound nicely from the impacts of COVID-19. The business delivered double-digit local currency revenue growth and double-digit local currency operating profit growth in the first quarter. The business continues to focus on customer service and building appropriate safety stock to support its rebound and growth. Furthermore, the focus on product line diversification into skin, body care, and other categories is a key component of the business's growth in 2022 and will be for the foreseeable future. Long-term, I expect the Color Group to deliver mid-single digit revenue growth and an operating profit margin at or above 20%. The group has had a great start to 2022 and is on track to deliver mid to high single-digit revenue growth and an operating profit margin at or above 20% for the year. Asia Pacific had another outstanding quarter, delivering 14% adjusted local currency revenue growth and 31% adjusted local currency operating profit growth. The operating profit margin in the first quarter rose to 22.5%. The group experienced solid demand in almost all regions. In addition, the group implemented a low-single digit price increase in the first quarter. The investments we have made in the group's technical leadership team are key factors to our growth and success. The group continues to have a high sales win rate and is on track to deliver mid to high single-digit revenue growth in 2022. Over the long term, I expect the group to deliver mid-single digit revenue growth. We've had a great start to 2022, and we are operating at or above the previous guidance we outlined for the year. As Steve will discuss, we are raising our guidance. We’re very excited about our new sales wins, and I'm confident that our focus on customer service and new product development will provide us a foundation for continued growth in the years to come. I remain very optimistic about the year and the future of our business. Steve will now provide you with additional details on the first quarter results.

Thank you, Paul. Sensient's first quarter GAAP diluted earnings per share was $0.88. As I mentioned in our opening remarks, we do not have any adjustments to our GAAP results for the first quarter of 2022. Last year’s first quarter GAAP results included divestiture and operational improvement plan costs, which decreased last year's first quarter results by approximately $0.07 per share. In addition, our GAAP earnings per share in the first quarter of 2021 included approximately $25.6 million of revenue, and approximately $0.05 per share of earnings related to the divested product lines. Excluding these items in our 2021 results, our consolidated adjusted revenue in the first quarter of 2022 grew by 8.4% in local currency to $355.5 million. Our adjusted local currency EBITDA was up 16.3% for the quarter, and our adjusted local currency EPS was up 16.9% for the quarter. Foreign currency exchange rates decreased adjusted earnings per share by approximately $0.02 in the first quarter. Our cash flow from operations was down in the first quarter, primarily due to strategic investments in our inventory position and higher incentive compensation payments. As Paul mentioned, we continue to make strategic investments in our inventory to support our demand and to ensure we have appropriate safety stock positions as logistics and supply challenges continue. Capital expenditures were $12.7 million for the first quarter. We expect our capital expenditures to be near $90 million this year. Our debt to adjusted EBITDA is 2.1. Our balance sheet is well positioned to support our capital expenditure spend, attractive M&A, and our long-standing dividend. Turning to our 2022 guidance, we are raising our reported GAAP EPS to now increase at a high teen growth rate compared to our 2021 reported GAAP EPS of $2.81. Our previous guidance called for a mid-term growth rate. At this time, we do not anticipate any material divestiture-related costs or operational improvement plan costs in 2022. We are also raising our revenue guidance to be up mid to high single digits in local currency compared to our 2021 adjusted revenue. Our previous revenue guidance called for a mid-single digit growth rate in local currency. In addition, we are also raising our 2022 adjusted EBITDA and EPS guidance to both grow at a high single to double-digit growth rate in local currency. Our previous guidance called for adjusted EBITDA and EPS to grow at a high single-digit local currency growth rate. Based on current exchange rates, we now expect currency to be a headwind of approximately $0.12 per share. Thank you for your time this morning. We will now open the call for questions.

Our first question today will come from Ghansham Panjabi of RW Baird. Please go ahead.

Thank you. Good morning, everyone. Could you begin by explaining the factors contributing to the increase in core sales growth for the year? How much of this growth comes from additional pricing compared to your original expectations? It appears that comparing volumes will be quite challenging from the second quarter onwards. Also, could you share your specific insights on volume by segment as the year progresses?

Sure. So if you look at Q1, I'll go through each of the groups. So starting with Asia Pacific, just saw, we're up 14% on revenue, kind of low single digit on pricing, nearly about 3%, which then implies a double-digit increase in volume. So really strong volume growth there, driven a lot by new wins and targeted customers. Again, our sweet spot of these sort of B and C style customers applies very strongly there in Asia Pacific. Looking over at colors, as you've heard, they were up 12% revenue, their pricing was about a mid-single-digit type increase, nearly about 5% was pricing, which then suggests 7% was volume. There, again, really strong new wins across a broad variety of customers, really good growth across really each of the geographic regions and the product lines. So good outcome there. And then Flavors. So I know there's a number of new investors on the call today, too. So let me just take a little bit of a journey here. So as you know, Flavors consist of Flavors, Extracts, our flavor ingredients, which are HPPs, and yeast extracts. And then, of course, our Sensient natural ingredients, which is onion and garlic. So if you take Flavors, extracts, and Flavor ingredients, that's about two-thirds of the Flavor Group. That part of the business was up about 13, almost mid-single digits with very nice operating leverages there, well into the double-digit profit growth. That two-thirds, we got kind of the mid-single-digit pricing increase pretty much what we expected about 5%, which then implies that part of the business got about a 7% or 8% volume contribution. So very nice volume build there, again, a lot of new wins, targeted customers, etc. Now you look at that other part of the Flavor, the one-third of the Flavor Group, the two-thirds flavors ingredients and extracts, the ones that are the SNI business. This is where volume was down, and the volume was down because we sold quite a bit in 2021. And it was really a product availability situation here in Q1. So this is the flag this is the headwind, I flagged in the earlier call, the Q4 call, suggesting that this would be a bit of a headwind for the first part of the year. But the crop comes in April, it's being pulled as we're speaking right now. But it's pulled from a lot of different regions. So it's pulled over the next several months. So far, so good. And we feel very good about SNI for the year that one-third of the Flavor group, we feel very good that they'll achieve what they need to achieve from a volume standpoint, and from a revenue standpoint, as well as pricing. So overall, as expected, a little bit of a headwind there. Again, this is really kind of a market-driven thing. There have been, as you heard, and know very well, droughts and other situations in the west coast in particular, that have impacted the crops for this last cycle, but the cycle moving forward, we expect that to be a much improved situation. So we feel good about things for the rest of the year.

Great, thanks for that, Paul. Maybe picking up on that on the I don't think we've ever discussed earnings on a conference call on our end, but maybe take us through how much that impacted you, specifically the first quarter. And then just given the supply shortages, you cited whether. What does that imply for the cost basket, specific to our needs, but also just broadly for Sensient as the year unfolds as well?

At the highest level, we are raising our guidance for the year because we see broad-based growth across all groups driven by new wins. These new wins are surpassing pricing as a factor in our revenue growth, which is an important insight. SNI presents a temporary headwind, but we are confident about driving volume in the second half of the year, starting towards the end of the second quarter. Overall, for Q1, our revenue increased by 8%. Without the impact of SNI, our growth would have been around 10% or 11%, with about 5% from pricing and 6% from volume. I want to emphasize the strong wins we are generating and the volume growth stemming from our technology, customer service, and delivery. We do not tolerate excuses in our organization; we strive for perfection regardless of COVID or economic conditions and expect a high level of service daily across all our businesses. This commitment drives much of our commercial success.

Okay, perfect. Thanks so much. Thanks for fitting me in.

Our next question today comes from Heidi Vesterinen from BNP Paribas. Please go ahead.

Good morning.

Hello, Heidi, how are you?

Thank you. So I think you said in your prepared remarks that you're expecting percentage margin to improve this year? What gives you that confidence? It's a very confident statement in an inflationary environment. So that's my first question. Thanks.

When we look at Asia, the main driver of margin improvement is the product mix. As I mentioned, we didn't achieve much of that revenue through pricing. The ongoing focus on Flavors and natural colors, along with our preferred customer types, is proving beneficial. In the Color sector, we see similar trends with natural colors, and there's also a positive recovery in the cosmetics market. Although makeup hasn't fully returned to pre-pandemic levels, markets like hair care and body care continue to grow strongly. This gives us confidence in the personal care segment, which is a profitable area for us. Furthermore, on the flavor side, our margin improvement stems from solid volume in the Flavors and Extracts business, which we've prioritized for many years. The restructuring we undertook, despite being challenging, is still yielding benefits as we optimize our capital footprint and enjoy an uplift in operating profit margins. Although it feels like it happened long ago, the restructuring has significantly impacted the Flavor Group's ability to enhance margins. We consider product mix, the results of our restructuring and cost-saving efforts, and pricing aligned with inflation as key factors. When you combine these elements with our good service levels and successful outcomes overall, I feel confident about the year ahead. Looking at sales for April, they appear strong across all groups, and I see the same trend continuing into May and June. My confidence is grounded in what I'm currently observing in Q2, which highlights these factors for me.

Thanks for that. Second question. Can you see any signs of price elasticity in any market? And if we were to see like trading down, for example, how would that impact Sensient?

Well, yes, that's a great question. And that's what's on everybody's mind right now. I mean, certainly, there's evidence in some markets of folks trading down, Europe, for example, has tended to be a much larger private label market compared to say, the U.S. market. Ironically enough, it would appear that private label sales in some product segments in the U.S. are actually down despite this inflation. So right now, it's kind of hard to predict how that pricing elasticity is going to play out here in Q2 and beyond. But I would tell you this, Sensient as a company, we deal in all types of customers from the biggest multinationals to some of the smallest startups, we're dealing across every one of the product categories, from beverage to pet food, to savory snacks, we're very, very well represented, and we have a very substantial sales force. We insist on a very active sales force covering these customers. So I feel really good about our coverage. So that when somebody wants to go from a very expensive drink to a not as expensive drink, well, the not as expensive drink still has color, and it still has flavor in it. So that's the nice thing about this business. Sensient is a very recession-resistant business, the nature of our products are products that people continue to buy, whether there's a recession or not. Yes, they may trade down, but ultimately, we're still represented even in those products they would trade down to. We have a very good presence in private labels throughout Europe and the U.S. And so I think we're fairly well insulated for whatever this market may throw our way over the next year or two.

Thank you. And then lastly, I wonder if you're seeing any regulatory tailwind helping your business. I think last time we had talked about titanium dioxide as an example. Has that been a big growth driver for you?

Well, regulatory in general, I like to always see that as a tailwind. Consumers want what they view as better products, and better products require more technology. And so that's where we feel like we feel a real need in the market in many of these segments. Specifically, about titanium dioxide, I think there's a lot of activity. As you know, the European Union has come up very strongly against titanium dioxide that the food agencies have. And so there is a very strong need to swap that out. And the nice thing is we don't manufacture titanium dioxide. But we do manufacture the replacements for titanium dioxide. So it's a very exciting opportunity. We've got a lot of work and a big pipeline associated with that. So yes, it's very early for some customers, given the recent regulatory change, but for other customers, they've been working on this for some time. So that's a very good example of the type of innovation work that we do. It's very market-driven. It's very customer-driven. It's very much when you say R&D, it's kind of little R, really big D. and titanium dioxide replaces a good example of that type of dynamic. So yes, I think that'll be a nice tailwind for us for Europe. And then as it migrates over the Atlantic for the U.S., and then eventually into the Asia Pacific region as well.

Thank you.

Okay. Thanks, Heidi.

Our next question will come from Mitra Ramgopal of Sidoti. Please go ahead.

Yes, hi. Good morning, everyone. And thanks for taking my questions. Paul, I'm just curious on the first on the column makeup, I know you mentioned it's not back to where we were pre-pandemic, but do expect to ever get back there, given that it seems like remote work has become sort of a permanent thing for a lot of companies now.

I do. I think it will, you still have to look good on the camera, Mitra, and so I think there's always going to be a need for that. I think the demographic has changed a lot more young females using makeup, males using makeup. So there's a lot of dynamics that have been added to this market over the years. So, I think makeup has been used for probably the last 2000 years of human history. I really don't anticipate it closing shop here on account of COVID. Sure, there are still some headwinds. And as much as not everybody's out and about yet. But it continued relief in some of the lockdowns and things like that. It's only helping situations and so we have very strong demand. Much of that customers recovering in some cases recovering their inventory positions from during the pandemic. But yes, I think there’s a lot of good signs, telltale signs, the pipeline has picked up. But that's a market where I think many of our customers are very much emphasizing, okay, we got to go to customers with innovative products, we need to show them interesting things, different things. And so that is very much the nature of what we're seeing in our pipeline here. So I think you're going to see a little bit of a renaissance perhaps in some of the color makeup, but remember this too, personal care, it kind of goes, moves in cycles. A couple of years ago, makeup was the biggest thing. And now we're kind of in a lower cycle. And skincare is the biggest thing. But ultimately, consumers make choices about where they're going to spend their money. And that evolves and that shifts. And so having a very diversified business well-represented business is what ultimately will insulate us. And as you know, we had a larger subscription than the makeup segment going into the pandemic. But over the last couple of years, we've actually been quite successful, diversifying into some of these other segments. And I think that's going to be an important part of our success moving forward. But the short answer is, absolutely makeup is coming back. When precisely and to what degree, that's a little bit harder to predict. But I would tell you that the pipeline looks very good, and the customer activities is quite good. And there's a tremendous interest on the customer end in really building out some great products moving forward.

Thanks. That's really good color. Switching over now on price increases, you clearly have had some success here, in terms of being able to implement increases across all businesses. I just curious if part of the negotiations were more or less just trying to offset the higher input costs you're seeing, or maybe perhaps fees out even more than that.

Well, we're not looking to put our customers at a disadvantage, we know they have to compete in the market. But we also know that our products don't necessarily change the economics for our customers substantially. So our goal is, obviously, there's many input costs to address into cover. Our goal is to certainly cover those and to maintain our gross margin in the process. And so I think philosophically, that's what we've done. And I think we've been as successful as we've needed to be in the process. Again, we're not looking to put our customers at a disadvantage. And we certainly don't want to lose business. So you have to be very sensible and judicious. Pricing is not as easy as it may seem, it can be quite complex, it can be very time-consuming. And you got to work with your customers.

Thanks. And then I know you've highlighted the Flavor solutions business contributing this quarter. I just curious, almost a year into that acquisition, if it's kind of met your expectations or even exceeded it. And also, I think you mentioned on prior calls, maybe in 2022, probably, aside from just focusing on acquisitions, maybe an update on supply agreements, in terms of maybe some exclusivity being a possibility?

So, FSI is, I would tell you that it would be exceeding my expectations. It was — we bought it last year for about $10 million in revenue. But they had some very unique technologies. And they had some very unique customer access that we did not have. So those were two compelling reasons that we saw when we acquired that business. And so I would tell you, it's exceeded it. Very good cultural fit. They've got very hardworking, very dedicated people in that business. So we're very happy to have them as part of our business. And so I think that's all going very well. Moving forward. Sure, there's always a possibility of M&A and there's certainly a fair amount of activity now. But as you just referenced, sometimes you don't need to buy a company when you can set up the appropriate relationship, whether it's a contractual obligation or a contractual arrangement to purchase their materials. That could be a nice alternative to buying something if your goal is to secure your supply chain. So there's a lot of different scenarios. And again, we don't necessarily always have to buy something to get what we're trying to get. Maybe we licensed the technology. Again, maybe we contract on the supply chain side, and that gets you what you want. Maybe it's not as sexy as M&A. But you know what it doesn't have? It's some of the headaches associated with M&A too. So it's a good outcome in a number of different scenarios.

Okay, thanks. And then finally one for Steve, always a tough one in terms of the tax rate. A little higher than I was looking for this first quarter. I'm just curious, we should think about that with the remainder of the year?

Sure. So you're right, it was up about 100 basis points in the quarter, and in most quarters this year I expect it to be up a little bit over last year. So for the full year, we're probably looking at maybe 200 basis points above prior year would be my guidance. And, unfortunately, it'll be a little up and down each quarter. But by the time the year is done, we're looking at about a 200 basis point increase.

Okay, that's great. Thanks again for taking the questions.

Okay. Thanks Mitra.

Our next question will come from Leigh Ferst with Hightower Advisors. Please go ahead.

Thank you. I have got a few questions. First on personal care. I'd like to get a little more high-level color, pun intended, it sounds like skincare is coming back? Or is it more of an issue than makeup and also lip color? I know from an anecdotal perspective that mask wearing is a problem with the last two categories. So could you just give us a high-level sort of further comment on that?

Sure. So Leigh, the — our personal care business that you — we have skincare, makeup, hair care, body care is really kind of our four key segments. To your point around skin and makeup, skin has been a very strongly growing part of the market right now for a lot of different reasons. Whether it's whitening effects, or anti-aging, or anti-polluting factors, a lot of interest in skincare, and that has been robust throughout the pandemic. As you turn to makeup, as I mentioned before, we're not quite fully recovered from COVID. Makeup is still a very good part of the market. To your comment about masks. It's very interesting you say that. Because eye makeup has actually done pretty well, because you can't hide your eye, I guess you could put a mask over your whole face. But I don't think many people have done that. So, eye makeup is still an important piece. And we had a lot of interesting innovations that we launched during that time and emphasized that part of our portfolio. So yes, when you wear a mask, though, it's kind of, it's not so great. So that's why we're glad that people don't have to wear masks as often anymore, because I think that's only going to contribute. But yes, I think that would be the only other comments that I would make on that one.

Thank you. Can you provide more details on pricing? With inflation being high, there's an opportunity for discussion. Is there more or less resistance in specific categories or among certain customer groups?

Well, nobody likes getting a price increase.

Of course.

The first thing person, they're all trying to do their job. And our salespeople are trying to do their job. So, again, it takes skill, it takes judgment, and you got to work with your customers, whether they're beverage or snack or savory or whatever they may be selling. And so different impacts different raw materials are obviously affecting different markets. So maybe some have stronger logistical costs, because for example, beverage products tend to be heavier. So they're paying more for logistics. So they may have more of an impact there than say, a snack food, which would have some of the same constraints there. But then again, a snack food has a lot of grains, and so they may have more raw material inflation that you're working through. So I think that most of the raw material inflation, logistics, utilities, etc., that you read about in the Wall Street Journal, those are essentially the things that we have to contend with. I don't think we have anything exotic or unusual or beyond the norm there. And so again, it's a matter of working with your customers, you got to keep it so that they can continue to be competitive. But you obviously have to address some of these input costs that you're facing as a business.

Okay, can you talk a little bit about the M&A environment in terms of rates and the dollar and just what you're seeing when you're looking around, I know a lot of deals are opportunistic, and not strictly driven by the economy. But could you just talk about the M&A environment right now?

Well, I think you can see the number of companies that have been bought and sold over the years and I think it's a fairly robust environment. Even during COVID, deals were happening. How that will change in the coming year? Well, I guess I mean, I can guess just as much as anybody else can guess. But I don't think I'll do that. I would tell you though, that we're always looking at companies. Some of them, we may approach. Others, it's part of an auction process. And so there's a lot of interesting technology to be had. There's a lot of potential supply chain security to be gained through an acquisition. But as I mentioned to Mitra, sometimes you don't need to do an acquisition to get those things that you want from that situation. And so we'll continue to evaluate, where we will continue to be very sensible. I don't want to say conservative, I just want to say sensible, we need to earn a return, we have a cost of capital. And we have expectations from investors. And we have needs that accompany technology and otherwise, so you put all those together. And if you can have something for a price that makes sense for both sides, then hey, it can work. So I don't necessarily see more or less now than I did even a year ago. We're always looking, we're always in the market.

Thank you so much.

Sure, thanks.

Our next question today will come from David Green of Boldhaven. Please go ahead.

Hi Paul. Hi Steven.

David, good morning. I was waiting for you here.

At this sort of wait to laugh, my kid. Couple of questions, guys. What's giving you the confidence to upgrade so early in the year? I guess, especially given the uncertain macro backdrop? Is there just anything that's giving you a high level of visibility for specific reason? Is the pipeline a lot stronger than it may have been historically? That's my first question.

Okay. So probably three factors give me confidence. Number one, the actual numbers that I'm already seeing for April, May, June, and they're good. Number two, I would look at our sales pipeline, what's in our pipeline, is it bigger than it was last year, and make an evaluation on what would close in the next year. And the third thing I look at is what's my trailing 12 months of new wins, we've been generating a lot of new wins. And that gives you a pretty good indication of what your next 12-months may look like. During our trailing 12 months, our new wins have been very, very robust and continue to grow very robust in the month of April, in the month of March. So that tells me and it gives me a great deal of confidence, those three factors, that I feel good, raising our guidance for '22. And I think it's a very achievable outcome for this company.

Great. Second question was just with regard to price increases. What percentage of the portfolio has this now been done across? And I guess, leading on from that as like when should we think about getting the full impact through from those price increases?

Well, you know, in a lot of cases, pricing is ongoing. I think you're seeing our revenue, I quoted the price and volume impact for each one of the groups. So you can see that that's happening. You can also see that we're generating operating leverage in each of our businesses with that revenue, came profit growth, above and beyond the revenue growth. So that's a good factor. But pricing is a moving thing right now. And so we are working with all of our customers. And you know what, maybe it's just this one raw material, or maybe it's just this one shipping line, or maybe it's just one country facing this utility inflation. So I would tell you that it's just going to, we're going to continue to monitor the situation and take action as we need to. So there's no silver bullet, there's no easy answer to that one again, every day you kind of pick up the newspaper, or maybe you pick up your phone and look at the newspaper. And there's information about something. And you talk to your purchasing folks, and they're like, there's something going on every day. So a very dynamic situation. But I think we've managed through it very skillfully, our salespeople have done a hell of a job. Our general managers and other sales leaders have done a great job managing this process. So we've got a good program in place. So I'm very confident that we will do what we need to do and work with our customers in a very judicious manner as the year continues.

Right. Accompany more if I may. When we look at the cost base of your peers, they all talk about or they all seem to be talking about more of a sort of high single digit, double-digit increase in cost basis across the Board. And when you're sort of articulating the trends that you're seeing, it feels like it's sort of you guys are closer to a sort of mid-single digit. Do you think there's any specific reason why you're seeing less cost inflation than your peers aside from managing it better? Maybe that's a component on it?

Well, you're right, our costs are more of a mid-single digit, on the basis of our cost of goods sold. So you've seen a take kind of mid-single digit pricing, that mid-single digit on the basis of revenue. And that's, again, to cover mid-single digits on the basis of costs. So you don't have to get more than mid-single digits pricing to cover that and to maintain your gross margin. I think we talked about that before. It's, I think you fall in that there. So why are we different? I don't know? I'll let you get what you want to from that one. But I'm not going to answer that one.

Okay, fine. A couple more, just the last two, I promise. I'm just thinking about the margin achieved for Q1 and sort of had to think about the cadence for the rest of the year. Color obviously should still benefit with makeup coming back. So would expect margins, I would have thought to improve in that division as we go throughout the year. I was just thinking how that cadence might look for Flavors and Extracts and APAC?

Yes, so Flavors, we expect that 50 to 100 basis point improvement in that OP margin for the year. So you heard what we did, we were over 100 in Q1. So you know, those aren't necessarily linear. And it doesn't necessarily always follow a neat, tidy pattern. So I like to kind of stick with where that'll be for the year. And I'd say 50 to 100 basis points is an achievable improvement in OP margin. On the Color side, as I noted in my prepared comments, we look to be north of 20% OP margin for the year. Again, how one individual quarter may play out, I really don't want to predict that one. Because there can be some moving parts there. But last year, we were just we were kind of 19.2 on the OP margin. So that implies something better than that 50 to 100 basis point improvement there in Color, probably more like 80 to get to that 20% OP margin. And then Asia Pacific? We expect a similar improvement 50 to 100 for the year. And they're obviously to a quite good start. They were about 20 last year Q1, they were 22.5. So we feel good about that one as well.

Great, thank you, and I promise the last question on the balance sheet. Doing a great job in terms of cash flow generation. And as you mentioned, you're not down to sort of a 2.1 times net debt EBITDA level? How would you sort of think about what the optimal balance sheet structure looks like here? And how, aside from some M&A which is obviously a priority, and reinvesting into the business, post data, how are you thinking about potential shareholder returns, scope for buybacks in particular?

Yes, well, I think the best way to give shareholders return is to grow EBITDA. And then once you have that cash to use, you want to invest in the business. So step one on this train to me is CapEx. $90 million is what we're planning this year, I'd love to spend $90 million next year, because I got a lot of ROI projects that are the purest, finest return I can ever offer to shareholders. So that would be point 1. Point 2, we've got a long-standing commitment to the dividend. So we will continue to do that. And then, I like that the debt to EBITDA anywhere between two and three feels very manageable. We could even go higher than that. But I can’t like the two to three that feels pretty good. So if I don't have an interesting company to buy, yes, I can pay down a little bit more debt. But then again, maybe it's a better return to shareholders to purchase back our own stock. So that's kind of the way I'm seeing that right now. So if we had an acquisition on the horizon, which we might, we might not, that would tell you that what, we're not going to do buybacks. But if you don't see an acquisition, then you could probably expect that there will be some buyback activity.

Perfect. Many thanks.

Okay. Thank you, David.

Ladies and gentlemen, showing no further questions in the queue. This will conclude our question-and-answer session. And at this time, I'd like to turn the conference back over to Management for any closing remarks.

Okay, thank you everyone. That will conclude our call. Thank you for your attending today and will now end the call. Thank you.

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