Q1 2020 Earnings Call

After today's presentation, there will be an opportunity to ask questions to ask a question. You may press * then 1 on your touchtone phone to withdraw your question, please press six or then to please note this event is being recorded. I would now like to turn the conference over to mister Steve Roth, please go ahead sir.

Good morning.

I'm Steve Roth senior vice president and Chief Financial Officer of sentient Technologies Corporation. I would like to welcome all of you to send conference call to discuss the 20/20 first-quarter Financial results. I am joined this morning by Paul Manning since since chairman president and chief executive officer this morning. We released our 2025 first-quarter Financial results a copy of the release is now available on our website at during our call today. We will reference certain non-gaap Financial measures, which we believed investors with additional information to evaluate the company's performance and improve the comparability of results between reporting periods. These non-gaap Financial results should not be considered an 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 on the investor information section of our website at and in our press release we encourage investors to review these rack silly ations 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 off our actual results, May differ materially particularly in view of the uncertainties created by the covid-19 pandemic governmental attempts at remedial action and the timing of a return package of more normal economic activity. We urge you to read sentient filings, including our 10-K and 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. Thank you Steve. Good morning. And thanks for joining since since adjusted local currency Revenue increased by approximately 3% during the course with each group showing solid sales growth this growth was in line with our expectations and occurred in almost all of our business units across the company.

As outlined in our last call we expected our profit to be down in the first quarter as a result of the impacts from the inventory reduction efforts in 2019 product mix and, Medics higher raw, material costs and natural ingredients and the timing of our fixed costs takeout actions.

We continue to expect profit Improvement in both flavors and colors as the year progresses despite. Covid-19. We believe We are on track with our plan and outlook for the year.

Before I talk about the performance of our groups, I would like to take this time to talk about covid-19 and what we are seeing in the market.

That's the provider of ingredients to the food beverage and personal care markets are businesses are considered essential. All of our production facilities are open and operating on average Staffing and attendance at our facilities is at 95% We are actively monitoring and addressing the implications of covid-19 with our already robust GMP and sanitation practices.

Stringent sanitation practices ensure employees remain safe and our products continue to meet our quality expectations.

Our on-time delivery continues to be high at nearly 95% as our supply chain teams are continually monitoring raw material supply base increasing safety stock in certain areas and working to ensure raw materials are delivered to our facilities despite transportation and shipping challenges.

This has not been easy news articles are full of stories about food and personal care companies that are either closing facilities or scaling back their operations substantially due to covid-19 overall our business and employees are responding positively and effectively our facilities are open and we are fulfilling our mission to deliver our products to our customers and a safe and timely manner.

During the first quarter we continue to generate new sales wins at a high level in particular in flavors and Asia. We saw a decrease in new one starting in April as a result of customers working from home while new winds are an important component for growth. We have also moderated the sales attrition in each of the groups.

the impact of covid-19 varies depending on sales Channel geographic region and product line

For example orders increased in packaged food. However, orders were substantially down for restaurant and quick-service sales channels.

We see that Trend continuing in the second quarter and possibly be on until the economies of the world returned to a more normal rate of activity.

Overall our food and beverage and pharmaceutical product lines were up and almost all geographic regions while the makeup segment of our personal care business was down substantially in Asia and North America.

We are seeing lower demand for makeup as people are working from home and not traveling.

Within packaged Foods certain categories such as soups cereals and other prepared foods are up but ice cream confectionery and energy drinks are down and I expect this to continue in the second quarter and possibly Beyond.

Not turning specifically to the flavor group adjusted local currency revenue for the group was up approximately 4% for the quarter are focused on improving our sales win rate and retaining existing business across the group paying off our sales win rate during the first quarter was the highest we have seen in years, which should continue to have a positive impact throughout the year.

Furthermore our attrition rate continues to decline we saw sales growth and are finished flavors and extract product lines and an improving picture in our flavor ingredient product lines.

Our natural ingredients business at a very strong quarter of double digits.

As expected our profit for the quarter and the flavor group was below prior-year as noted in our last call we expected our profit to be down in the first quarter as a result of the impact significant inventory reduction in 2019 higher raw material costs, particularly an onion and as our cost takeout plans materialize.

the group

On a nice job to mitigate these head winds and based upon current trends. I would expect profit to continue to improve as the year progresses.

It's previously got it. I continue to expect low to mid-single digit Revenue growth for flavors.

Within our Color Group adjusted local currency Revenue was up approximately 3% food colors and pharmaceutical sales were up mid-single digits for the quarter. We continue to realize strong sales growth and natural colors, which was up approximately 7% as a result of new product launches and as existing product continued to convert to natural color Solutions.

Our personal care business is flat during the quarter. We saw growth in Europe and Latin America. However, our personal care business in Asia and North America was down substantially due to covid-19 and lower demand in general for makeup. I'm pleased to see the order patterns in our Asia business began to increase in March. However, it is unclear how covid-19 impact our order patterns for the makeup component of our personal care business in the second quarter and Beyond.

Once again, we are seeing a Slowdown in makeup as people are working from home.

In terms of operating profit, the color group was flat with prior-year which was better than I had predicted during our last call in February the group experienced double-digit growth in food and beverage colors and pharmaceuticals similar to Flavors. We are seeing a decrease in the overall attrition rate. However, profit and personal care was down substantially in part the impact of covid-19 and Asia and the overall weak demand and makeup.

Similar to the flavor group The Color Group has made some solid progress on their cost takeout actions. However, these actions need more time to realize their full potential.

I expect continued profit Improvement as the year progresses based upon. Our current trends expect the Color Group to deliver low-to-mid single-digit sales growth throughout the year.

Our asia-pacific group had a strong quarter Revenue increased eight and a half percent in local currency and profit increased almost 20% in local currency. The group had solid growth in all regions driven by strong new sales wins, which will continue to be a benefit for the year also similar to Flavors and colors. The overall attrition rate in asia-pacific declined off. I was pleased to see a return to sales growth in China and Japan in March and a favorable order book for the second quarter.

Based upon current trends, I expect the asia-pacific group to continue to deliver a mid-single-digit sales and profit growth throughout the year.

We remain focused on controlling costs throughout the company for over a year. Now. We have been reducing our cost structure both in our production plants and in sg&a. We have also focused on a disciplined approach to our expenditures. I'm pleased with our efforts and focus on our costs across the company and we are beginning to realize the benefits of these actions expect that this benefit will increase as the game progresses.

the

My best pictures of our three product lines fragrances tanks and fruit prep for yogurt are all progressing. Each of these divestitures are in varying stages and given the travel restrictions with covid-19. The timing of each closure is uncertain. We will continue to push ahead to execute these as quickly as circumstances allow.

We've had a good start to the year and I'm pleased the results of all three groups during the first quarter. We are still on track with the plans. We identified for the year. And while I am optimistic about our business office ultimate impact of covid-19 remains unknowable.

Governments are imposing varying degrees of restrictions. Sometimes changing them abruptly, which is creating uncertainty for businesses.

Our customers are responding to these changes in various ways certain customers are deferring Innovation and new product development. While others are trying to adapt to keep projects alive while we may increase in demand in certain product categories in the food and beverage and personal care markets. We are seeing a lower demand and other categories such as makeup ice cream confectionery and energy drinks dead.

The importance of a strong supply chain and on-time delivery will continue to be critical during this Market.

There are many transportation and shipping challenges which we must continue to overcome.

Given these risks and uncertainties. The true impact of covid-19 is hard to predict consumer demand is changing. There may be more of a greater focus on buying local and a heightened emphasis on healthy products.

I am confident that our products can support this changing demand.

We have a mission to support our customers and the global supply chain in our markets our employees believe in our mission and they are continuing to work to accomplish that mission every day.

Steve will now provide you with additional details on the first quarter results.

Thank you Paul. Yeah, my comments this morning. I will be explaining the differences between our gaap results and our adjusted results the adjusted results for 2020 and 2019 remove the impact of the divestiture related costs. And the operations to be divested the first quarter 2019 results. Do not include any divestiture related costs money included in this year's first quarter reported results are divestiture related costs of 11.8 million or approximately twenty-six cents per share, Ur, which are primarily non-cash charges related to the divestitures of our three product lines. In addition. This year's first quarter reported results include thirty six point six million of Revenue and 1.4 million of operating income related to the results of the operations to be divested off.

Last year's first quarter results include $39 million of Revenue and an immaterial amount of operating income from the operations to be divested.

Fact of the divestiture related costs and operations to be divested reduced diluted earnings per share by $0.23 in this year's first quarter.

Excluding divestiture related costs and the results of operations to be divested in 2020 and 2019 Consolidated adjusted Revenue grew 1.8% off 314.1 million in the first quarter of 2020 Consolidated adjusted operating income was $45 million in the first quarter of 2020 compared to forty nine point four million in the first quarter of 2019 adjusted diluted earnings per share was $0.72 in this year's first quarter compared to $0.78 in last year's first quarter.

Cash flow from operations was 36.9 million in this year's first quarter compared to twenty three point four million in the first quarter of 2019 an increase of approximately 58% Capital expenditures were nine point four million in the current quarter are free cash flow increased Approximately 80% in the quarter to 27.5 million.

Total debt was 609.4 Million as of March 31st, 2020 compared to 619.1 million as of December 31st 2019 on a sentient has adequate liquidity to meet operating and financial needs through our cash flow and available credit lines at the end of the first quarter we have over 250 million of dead on utilized capacity on are committed credit lines. In addition. We do not have any maturities and our private placement notes until 2022. We have stress-testing credit facility Covenant ratios, and we expect to be within our required Covenant limits for 2020 with a goal to continue to reduce our leverage ratio as the year progresses.

It's Paul mentioned our results for the first quarter. We're in line with our expectations and what we communicated during our last call in February during our last call we indicated that we would expect a positive revenue and profit growth from our flavor color and Asia segments in 2020, excluding the charges related to the divestitures and the operational results of the business office to be divested in addition. We communicated that on an adjusted basis are Consolidated operating income and earnings may be flat to lower in 2028 because of the level of non-cash performance-based equity that may be deducted in 2020 based on our results. We also expect a higher tax rate in 2020 compared to our 2019 rate, which was lower as a result of a number of planning opportunities.

Based on current trends. We are reconfirming. Our previous reported gaap EPS guidance to be in a range of a dollar eighty five to two dollars and fifteen cents per share package includes the results of operations of the divested businesses and divestiture related expenses of approximately fifty-five to sixty five cents in 2020. This guy that also includes approximately $0.10 of currency headwinds based on current exchange rates.

On an adjusted basis based on current trends. We are maintaining our previous estimate of $2.60 to $2.80 which excludes divestiture re cost the impact of the businesses. We are seeking to divest and foreign currency impacts.

The impact of covid-19 is difficult to predict at this time as Paul mentioned our company plays a critical role in supporting the global supply chain.

thank you for your time this morning will now open the call for

We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone to withdraw your question, please press down are then to at this time. We will pause momentarily to assemble our roster.

Our first question comes from Heidi veteran of Exxon, please go ahead.

A couple of questions so maybe starting with Cosmetics. You did highlight the number of headwinds, especially on the makeup side. Could you maybe elaborate on what you are factoring in in terms of Cosmetics Demand by region? When you think about your guidance, you just assume that, you know recent Trends, you know continue for the rest of the year and then second thoughts on the package food side anecdotally were hearing that the big cpgs are winning and people are now gravitating towards, you know, traditional products made by, you know, traditional bigger companies and you know bigger Brands you have traditionally you talked about being more exposed to the B and C customers. So what are you seeing in terms of customer Trends, And then lastly perhaps could you talk about bionutrients, please cuz we're hearing that probiotics demand is picking up and I wondered if that could benefit your business name.

Okay, sure thing Hi D. So number one cosmetics and and so just for everybody's clarification here. So we talk about personal care within that we have a lot of different product areas. So we talk about makeup. We talk about hair care and hair dyes we talked about skin care of but we also have products related to Oral Care. We have products related to Personal Care things like body washes and soaps et cetera. So it's a pretty broad-based portfolio took us but makeup is certainly the single biggest component of our of our personal care business. And so as you all are fairly aware woke up took a big there was a lot of headwinds towards in the makeup category in q1 that that continue here in Q2 most notably because people aren't they're not going out. They're not dead.

Going to work, they're not traveling. So that's the big head when they're as we

Think about how that impacts us for the year, you know, certainly it will vary by geography to to the point you made there. But I think there's elements of it recovering potentially as the year would go on. So for example in q1 asia-pacific was a big headwind for us-china was shut down for for a number of weeks off quarantines were issued lockdown orders were put in place. So the impact was felt most strongly for sentient in q1 in the asia-pacific region, but not as those lockdowns continued. We we started feeling more of that pressure in in Europe and North America less so and Latin America because we tend to be more over subscribed to say hair care and some other product categories.

So now we're in a phase where interestingly enough Asia's kind of recovering a little bit North America taken a big hit. We've got a lot of exposure to make up in North America. And similarly Europe also taking a big hit. So as we think about guidance and how this plays out for the year yet to some degree. There's an expectation that there will be somewhat of a return to I guess what we used to call normalcy, but I I could anticipate make up continuing to be a headwind for the rest of the year now. Could they be some upside for us in skin care Hair Care possibly, you know with salons being closed many of the ladies and and some of the men are are dying their hair is at home. And and so that certainly can can provide a little bit of a a Tailwind for us. So net-net. I would say that make up that let's just say that we we would factor that as birth.

Mostly flat to down in in many of our regions and probably an overall flat to down for the year for us. Now your question about packaged food month, versus where we've sort of built our business around B and C customers. Yeah, there's some truth to that but we we obviously have a lot of exposure to packaged food the big black in color. We we do have a fair amount in flavor. Although it tends to be more heavily weighted towards flavor ingredients. And so I think we've got a very broad customer base wage. I think the bigger trend is packaged Foods when that part of the market is up that is good for sensing when restaurants are down when people are eating out less.

If it's Quick Service, okay, that's going to be a little bit of a headwind for us but traditional sit-down restaurants that doesn't necessarily impact our business strongly. Most of our products are not going into that type of restaurant establishment. So I would say the overall packaged food market, you know, depending on the category I can be positive for us, but there's probably we we've got a lot of categories that are doing quite well, I mentioned some of those in the monologue soups prepared foods, for example wage. There's a lot of packaged foods that are are really suffering substantially right now ice cream big parts of our confectionery business energy drinks. These are all areas where there's big headwinds and and there's all easy explanations right in Europe. There's not travel. So a third of the ice cream Market in Europe is consumed traditionally by Travelers and people leaving their homes.

That part is effectively a substantial.

Edwin for us in Europe. So in in summary on this one, I I think that there's a lot of pluses there's a lot of minuses in the package food whether it's a big multinational or a B and C. But I think the nature of our sales whether it's color or flavor Asia Pacific, we've got a mixture of customers that I think largely can I not put us in a position where we're over waited. In other words a big cpgs are up but being CR down I I don't think that's going to have a a a strongly negative impact on us and and the opposite of that also be true. So I think we can kind of work through those those differences on the bionutrients front.

Yeah, I would agree that that there has been a substantial interest in probiotics. I think some of the earlier news headlines were suggesting that probiotics were were almost in a virus remedy. I was the opinion of some sources that I had seen in the news whether that's true or not. I'm not here to opine on that, but I can tell you that probiotics at an increase in demand and that does benefit our bionutrients business which is providing many of the protein sources that would feed probiotic style bacterial strains off. That's a net-positive.

Thank you. Okay. Sure. Hi.

Again, if you have a question, please press * then 1 the next question is from Ram. Gopal, please go ahead. Yes. Hi, good morning. Thanks to all the questions for us. Just wanted to follow up on the earlier comments about Paul. I know you mentioned, you know, they're a lot of positives a lot of minuses etcetera, but in an environment where we're seeing covid-19 office in a lot of companies essentially pulling their guidance and Cetera you've certainly kept yours intact the large extent and I was just curious in terms of just you know, what really gives you confidence you have that maybe a lot of the companies and I getting and I know the spaces are, you know, a little different but you on the lying environment, they're still pretty difficult for many.

Well, I think this number one we are what is viewed as an essential business. So food Pharmaceuticals and many of our personal care items are viewed as essential now some governments it took them a little bit longer to declare us that but that has been a very strong rallying cry for us as an organization. I think so that that would be number one our employees believe in that mission. We continue to articulate that mission and and that gives many of them the confidence and the desire to come back to work to support the mission. So anytime you have a problem. You have to kind of Define a mission for folks because otherwise people can be very concerned and they can be very fearful related to that bulb is we built over the years of very strong GMP and sanitation program. And so, you know, we are always very spiteful of any bacteria of birth.

This is in our facilities and so correct.

One of ours is okay. It's a new virus. But you know listen whether it's E, coli or salmonella or pseudomonas or any number of things we're scared of all of them. So we built the very robust infrastructure around these areas that is also given our employees tremendous confidence that they can come to work in a safe environment. We were well ahead on many of the sanitation practices that are becoming more common in facilities. So in short we took great initiative in terms of defining the mission building the sanitation protocols that were necessary not only in the well principally in our non production parts of our business.

But we you know, we we continue the layout the expectations, you know, very early on I said listen folks on time delivery coronavirus is not an excuse we will deliver and we will deliver at the world-class levels that we've been delivering at as an organization and we've got some great leaders around the company who don't sit around and wait for Direction. They knew what to do, they understood the mission and so they acted took a lot of initiative and we delivered and we continue to deliver and so yeah, there's shortages and shipping and there's shortage of material we got well ahead of the raw materials scare. We got well ahead a lot of these Transportation shortages as well and that that speaks to the initiative the individuals around the world and life company. And so we've been able to moderate and mitigate a lot of these impacts. Some companies have not been and I I don't know why or or what their particular challenges maybe all I can suck.

Is that we very aggressively took this on and you know for that reason that was a big part of our success in q1. We didn't stop operating all of our plants remained open China did closed for a few weeks government mandate India did close for about a week government mandate. But other than that every one of our facilities is remained open our staffing remains and has continued to be throughout on average about 95% across the world cross each of these segments. So those are some of the things that give me a great deal of confidence, but you know, there's pluses and minuses but overall as an essential business. I think we're going to continue to always have demand for our products off.

But we've also you know, we've been focused a lot on new wins in this organization keeping business that we we've we would like to keep and so a lot of that work happening, but I know 2019 was not a good year in this company, but really the the emphasis we had on sales execution and new wins was profoundly important for a lot of the income tax revenue you're seeing right now in q1 and it's going to be really really important for the revenue that we see for the rest of the year. So whether we have Tailwinds or headwinds from coronavirus, what we've got is a lot of great winds that are built in to our estimates, we've got a lot of assumptions around mitigating the impact of attrition and the business and so we we took quite good that we're going to continue to execute on the service levels. We're going to continue to benefit from those wins.

and I I think

That's what gives me you know, the confidence that I have in in the business and and the business moving forward.

Okay. No, that's great. And and I was wondering again release the code via the how is that if if it is at all affecting your process in terms of your Home Fires et cetera, and if you can give us an update on that front.

Yeah, so, you know, we've got the three pieces that were we're selling. We're in the process of selling. You know, I I think that sure I would love to suck normal times. I could probably sit here and give you a very definitive date on those but you know with with right now with the travel restrictions as they are it it's a little bit off. It's a little bit tricky, but I can tell you this so we are committed to these transactions. The folks were talking to on the buying side of this are very committed to these transactions birthday parties us and them are are very interested in getting it done as soon as we can and and hopefully in due course, I'll have some good news that we've been able to to execute on them. But I I think that you know, it gets a little bit tricky in the course of due diligence when there's some element that somebody needs to see on site and and they can't travel to that site or they suck.

There may be some other restrictions in place. So yeah, hopefully we can have another update for you here in about well certainly on the next call, but if something were to happen before then then of course we would make that a publicly-available event.

Okay. No, that's great. And Stephen, I'm sorry, if you mentioned it that might have missed it. But I was wondering if you had the gross margin on the adjusted basis of the gross margin on an adjusted basis for the quarter. Yep.

It's going to be 33.6%

Okay, let's go ahead. No. Sorry. I was just saying if they're ready. I think highlighted some one-time cost in there the two big things impacting that in the first quarter going to be the decline in the makeup segment that Paul talked about that's a high profit area for us. So just in terms of mix of business that has an impact on our gross margin, uh, and then within our natural ingredients business, you know for the year, we think will be good on pricing and costs but there's just a little bit of misalignment in the first quarter on raw material cost versus pricing. So those are two of the items that are impacting that

Yeah, there's some you know there there's obviously some incremental costs related to covid-19.

Okay. Okay, and I know on the sg&a side, I guess big highlight the message related costs if you just that move around too much money, right?

Yeah, we very much held the line on headcount throughout the organization that that's been going on for well over a year much to the Chagrin of many folks out there in the cup. But hey, we've got to continue to generate the revenue. We're doing that. I think we're going to continue to do that in Q2 and Q3 and Q4 wage and then as we get into twenty Twenty-One as well, so we have the footprint not only from an sg&a standpoint, but from a production standpoint to have a much larger Revenue business without having so in other words, we don't have to make significant investments in sg&a or production to continue to grow the revenue this business for for the foreseeable future. So I think that's an important consideration.

Right. No, that's that's that's certainly fair. And I think you know also in an environment where a lot of companies are looking to conserve cash and said are you clearly have that ability to continue to invest in the divorce with activity you've talked about in the past and as opposed to maybe holding tight right now, is that fear? Yeah. Yeah, and and speaking of cash right? We we placed. We had a thousand year last year from a cash flow standpoint. You saw a very nice uptick and not only cash flow from operations, but free cash flow in the first quarter off a lot of that driven by inventory reductions, uh, we we've taken out, you know, if you can impair the balance sheet last year to this year on inventory you would see it $88,000 reduction now some of that is related to FX and divestitures, that's about half, but the other half is is related to deliberate actions to reduce inventory in Arthur's.

Businesses and as we noted that was going to be a prophet headwind here in q1, you know, as I said to one of our accounts the other day I said, you know, I suppose we could have made forty million dollars wage and Tori in the course of Q4 and q1 and that would have had a a nice Tailwind for profit but that probably wouldn't make a whole heck of a lot of sense from a cash flow standpoint. So a little bit of dead, you know, you're you see that in flavors in particular right now and even in colors the combination of the lower volumes in Q4 from sales side of things but also lower production output deliberately, you know, there's a a very strong effort around the company to continue to reduce inventory for all the obvious reasons why that's a good idea and but but there is a a little bit of an accounting overhang as we like to call it that will Trail you for a few months after you do that. So that's that's certainly wage.

Bit of the head one that you see there in flavors in particular.

But that moderates right as that is that sort of is digested in the organization you would expect to then see profit growth and that's what we expect for flavors off. And and that's a going back to your question about what gives me confidence. That's another that gives me confidence.

Okay know that that's thanks for the call around that and then find me just on the tax rate. I know obviously there's a lot of moving Parts in the first quarter. But what should we look for jobs like tax rate going forward. So last year we were pretty low. You'll recall we were just below 15% more normal wage tax rate for us is going to be probably 20 to 22% We had some planning last year that that lowered the rate. We may have some additional planning this year off that may take it a little bit below the you know, the the twenty to twenty 2% but that would be our our more normal rate would be say 20 to 22%

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

Okay Metro sure thing.

The next question is from Leah first with Hightower, please go ahead.

Thank you. Good morning. Thanks for your leadership. Good. Hello. You talked about supporting changes in demand around Health Trends and local Trends. Could you elaborate the on that a little bit more please and also discuss if your natural products business fits into you know changing Trends or you know, just what Thursday Dynamic is there in the natural products, I'd

Sure. So if I if I understood you correctly you're trying to get a little more color around sort of health and how the changes in the market and consumer demand how that can help her. Our business. And and so yeah, I think that's a great question. Right because everybody is sort of wondering. Well, what what's going to happen after this covid-19, right? You hear this joke about the covid-19 how people are at home just gaining weight and eating unhealthy and not well, I don't know how true a lot of that is, but I can speak for myself when I'm at home. I eat more but that's just a natural size of one. So maybe not so meaningful but nevertheless there there has been an ongoing interest within the marketplace for health, you know more healthy products, whether that's just sugar less salt products derived more closely from nature, whether it's an extract or a natural flavor or natural color that has been a a very broad beige.

Trend in our food and beverage business in our Cosmetics business pretty much in in most of the businesses that we have saved obviously our inks business and so long, you know that trend is there that can be impacted strongly depending on how many of our customers come out of this out of this pandemic. Yep. So if many of them Focus On Core Business and scale back their new launches

Okay, we would have a benefit because they're buying more of existing products. But if they're not launching new head new products that becomes a little bit of a headwind for us off but I I think that you're going to continue to see a very strong emphasis on that. I I only cost on that some companies May scale back on that a little bit. That's the part of the equation right now that we're we are less confident of understanding. Um, but if we use China as a little bit of a benchmark here, you know, China is our order book for China Colours phone numbers Cosmetics has come back very strong in the last couple of weeks of March and certainly now into April many of our customers are open. It's quite restrictive and it's not like free access to go to any customer you want and in any city of China does vary by customer. It does vary by city, but we're we're you're seeing here is many many of our customers wage.

Back to the original Pipeline and resuming their focus on the products that they were working on which again were many of them related to the health and the betterment of the product portfolio that they have. So if China and and the Far East is any indication or at least a good data point for us, hopefully we could see that that type of trend emerging in the Americas Europe and the Middle East I'm optimistic that could happen. But you know, I'm also cost us that there may be some Brands out there that that want to just kind of circle the wagons and and perhaps focusing on their core products, which may not be promoting as much of that the health Trend in in in terms of your question around our natural products. Obviously, our natural colors did quite quite well against em up up 7% combination of new wins and and conversions of existing customers still a very strong interest in that category in that market dead.

I would anticipate that we would see those that growth again this year. If nothing else on the backs of the lot of the Goodwins we had in 2019 and early 2028. If there is a Slowdown in customers launching products with say natural colors.

Extracts are natural flavors or say a cosmetic with a more natural composition. Certainly that could be become a little bit of a of a of a headwind for 20 21 month. But I think again at a minimum the winds that we've had we we can ride that for a little bit. But yeah here again, I think I'm optimistic that the market will eventually return home and the consumer interest is not abated on these areas and I think that will will continue to incentivize our customers to continue to launch those types of products.

Thank you, and on a different note. It's not surprising that you had some transportation and shipping challenges that could you give us a little more color on that, please and how long

So yeah, a lot of those were early on as you saw lockdowns in China and you saw lockdowns in India, I think that certainly that impacts our ability to get some raw materials how we managed. That was I guess back in March when we started making some pretty good assumptions about what was going to happen here. We said, well, we need to go long on some of our key raw materials the ones that are very essential to our operation and and most closely driving the revenue. And so we did that in some cases months since we're duel or even we have three sources we're able to shift our supply chain. That was another important action. We took in addition to going along on some of those key raw materials, but I think the fact of the matter is we were well ahead of this and we bought things before there were Transportation shortages and challenges of a great scale.

If you waited until you know, April you were probably a little bit behind the eight-ball which is to say you you were going to have some some bigger challenges. So, you know now it's just a matter of how good your supply chain people are and we've got really good supply chain people who've been very very creative. I had no idea that there was still a train line from China to Switzerland for example, but there is dead. And so we found very very clever and very very novel Transportation options to to to continue to help our businesses move along and that's that's why you say or I say the on-time delivery factor is still really strong in this company. So people found a way because we said the expectation is still 95% no excuses walk away and people did so I say those are probably be three or four of the the ways. We have done that I would tell you that today. There's still some backlog and India birth.

I I think how that locked down was enforced or or or instituted was a bit different than some of the other countries that had more of a kind of a systematic that was more of a just broad-based. Everything is shut down. So there's still a lot of shipping delay out of India. China is is really done a nice job of catching up but there is still a backlog out of China. So by no means as anybody out of the woods, but the last point I'll make here lie is that you know, we're not so strongly dependent on anyone that material in this company. I think the the biggest impact of revenue from any raw materials maybe about four or five percent of our Revenue. So we've got a pretty Diversified Group, uh footprint when it comes to our supply chain and I think that's been a real important aspect of our success there as well.

Thank you. That was interesting.

Okay.

Sure thing.

The next question is a follow-up from Heidi veteran with please go ahead.

Three more questions, please. Could you talk about why natural ingredients was so strong was this price or volume or mix of both? And what's your outlook there? An asia-pacific? Oh, please it's not a segment. We really focus on too much but you know the growth was quite strong what drove this and you talked about, you know, a positive outlook outlook on life as well. What what will drive this thank you. Okay, so natural ingredients. So onion garlic capsicums parsley other vegetables off, so it was strong for a couple of reasons we have so we've got a very broad customer base that we we continue to expand wage. We generated a lot of new wins in that business. So I think that would be number one number two, you know in some cases. We we share a customer with same.

A foreign source of onion or garlic or capsicums and there might have been a little bit more at least in the US preference for a domestic supplier. Give again some of the shortages out of China and in other parts of of the world, so I think that was helpful, but I think really, you know, on top of that is we just had unbelievable service levels are on time delivery in that business. Heidi was like about 99% in the quarter, which is just unbelievable because they're really good and they're very focused on it and the customers recognized and they wanted to stick with a source. That was very very reliable. And I think you know now it's not the time perhaps some purchasing folks have concluded to think about saving a penny what you really need now is need reliability and assurance and we are really good at providing both of those factors. So I think those would be some of the things that really buoyed our first quarter results. I think you can disconnect

To see really good results in that business for the year. What you're also going to see is as these raw material cost inflation on onion you're going to see that continue to moderation as the year goes by as well. So that will be yet another factor in and and another source of confidence for me certainly that the flavor group will continue to change the whole picture there on the operating profit growth that that we've been looking for now on the asia-pacific side here again, I mean, we've got great leadership in the region. We've got a very strong strategy we made the Investments we talked about Singapore we've talked about how other investments in sales and technical areas have been somewhat of an STP and otherwise headwind for us for the last couple of years. But as I've commented on previous calls, they were very necessary to really enhance the capabilities and the birth

You know the desirability for customers to deal with us in asia-pacific.

So I think right now what you're seeing is some of the fruits of that labor and those Investments and those changes. I think what also helped us in asia-pacific is we are under subscribed and China. So whereas many other companies might have a substantial presence in China. We don't and I I guess that that was you know, we were down in China but it didn't impact as as greatly as say others because we just don't have as much business in China's say we do another regions. We had great new wins in throughout the region Thailand Australia New Zealand. And so I think those also helped and then of course, we we've had less of this attrition that I've referenced before so those five or six factors we're we're pretty important for asia-pacific and you know as we go into the rest of the year, I'm optimistic China and Japan are going to continue to be improving situations dead.

But you know, we we still have some issues in India with respect to what's open. And what's closed whether it's on a customer front or a transportation front. We also have you know, a big big head ones and other parts of Asia related to the shutdowns as it pertains the quick service. So we we've got we're more strongly subscribed to walk in Asia perhaps in any of our other regions. So that represents a bit of a headwind But there again, I think the the the tail one from our wins the Tailwind from the momentum that we have is going to be enough to to overcome that and allow us to have what I described as that mid-single digit Revenue growth for for the rest of the year.

This concludes our question-and-answer session. I would like to turn the conference back over to the company for any closing remarks.

Okay. Thanks. Are there any other questions?

No, there are no other questions in the queue.

Okay, so if you do have any other questions, we're always happy to talk give us a call and we can we can certainly continue any type of conversation you'd like dead and but Steve you wanted to say something else. No, I I would just say that concludes our call. Thank you everyone and it's Paul said if there any follow-ups, please please contact us off. Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Dead dead dead.

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