Q1 2020 Earnings Call
Today at this time I would like to welcome everyone to the <unk> first quarter 2020 earnings conference call. All participants will be any listen only mode until the formal question and answer portion of the call.
Yes. Good question at that time, Please press star one when you were touchtone phone.
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Disciplines will be announced by their name and company in order to give all participants an opportunity to ask their questions. We request a limit of one question per person.
I would now like to introduce Michael developed.
Of Investor Relations you may begin.
Thank you good morning, good afternoon, and good evening, everyone. Welcome to I've asked first quarter 2020 conference call yesterday evening, we distributed a press release announcing our financial results.
A copy of the release can be found in our IR website at <unk> Dot Dot dot com.
Please note that this call is being recorded light and will be available for replay.
Please take a moment to review our forward looking statements.
During the call we were making forward looking statements about the company's performance, particularly in regard to our outlook for the second quarter and full year 20 Twond. These statements are based on how we see things today contain elements uncertainty.
For additional information concerning factors that can cause actual results could differ materially from our forward looking statements. Please refer to our cautionary statement and risk factors contained in our 10-K filed on March 3rd 2020, and in our press release.
Today's presentation include non-GAAP financial measures, which exclude those items that we believe affects comparability.
A reconciliation of these non-GAAP measures to their respective GAAP measures is set forth in our press release, we issued yesterday.
With me on the call is our chairman and CEO Andres Good day, and our executive Vice President CFO Rustom Jilla.
We will begin prepared remarks, and then take any questions that you may have with that I would now like to introduce on dress.
Thank you Mike Good morning, and good afternoon, everyone.
And I said, which global operations and 44 countries and say it's into approximately 200 countries. We have seen firsthand all the Corona borrowers pandemic has touched all world.
This is truly a remarkable moment in history. It presents all Abbas with new challenges, but also reveals the best humanity at the same time wont be almost everyone at I. itself I want to express my sincere sympathy, although it was affected by the pandemic.
I also want to think everyone. The global health care can meet you were exemplifies the best of all of US responding to this choirs is less coverage and grace.
Everyone on the phone lines to continue to keep our society moving towards <unk>. Thanks.
To all these central workers and the consumer goods supply chain, which I hope that this problem to play an important role you, saying Q4, responding so quickly moving swiftly to deliver for consumers around the world.
It is very clear, but we're still in the early stages. So adjusting to the challenges the pandemic poses to all world.
Yes, we will review in more detail later, yeah that business is strongly positioned to be a resilient to straight could not make cycles given all the substantial port for your delivering needed solutions to why to consumers and markets.
The steps we've taken in recent years, including diversifying our customer base and expansion into more categories have only served to prove the strengths to strengthen our ability to be a vital part that's walk customers and the problem or ability to be resilient through the cycles.
Like many were seeing uneven impacts on our business due to the pandemic and the resulting economic challenges what cement markets. So seeing increases in demand others are seeing notable declines.
We are fortunate.
But only about 15% double revenue not include a including fragrance ingredients that is subject to the downward pressure right. Now however, the unpredictable nature all depend Dan Mckenzie already stage of economic impact creates enough uncertainty pause that we made the decision to withdrawal all pool your funding.
So guidance.
First of all covered this in more detail later, but while we never gates with these challenge we're committed to providing as much <unk> outlook as we can so you understand the trends driving earnings.
On today's call I look for why Didnt executive overview football operational and financial performance for the first quarter Twentytwenty before offering a more in depth Reviewable I, perhaps management all the ongoing at evolving cool with 19 situation.
Following this discussion.
Lots wisdom to why the more detailed financial review of the business, including additional insight into our liquidity and capital structure, which is very strong given the uncertainty of the pandemic going forward.
As you May also have seen today, we announced important progress well, it's all pending combination was to Paul nutrition and biocides, including in your guidance.
I think purpose and vision for the future combined company as well as operating model and they get executive management team post close boring, but since we Mark Weber provide an overview of these important integration updates.
Upon the completion of all prepared commentary will take any questions that you may have.
Oh strong performance for the first quarter Twentytwenty affirms the strength of organization and the essentially position in solving why tool and markets to economic cycles, we achieved a strong start to the year with mid single digit sales and double digit adjusted <unk> ex amortization grows.
Most of which are currency neutral basis.
Fortunately, we continue to chief financial benefits related to integration of the food drum business.
It was revenue and cost synergies.
As I mentioned before we have also made significant progress was integration planning to support all combination where did you pull and it'd be business and I must acknowledge our teams.
I have worked hard to build the foundation for this combination will continue to contribute wife ABS day to day operations.
Oh the teams have worked tirelessly to deliver Paul what customers, that's gone above and beyond to support our communities around the world. During this time.
Just one quarter is a testament to the on beverage dedication the underlying strengths of all business and oral once and then Central Park, then the global food and consumer product supply chains.
Well, we've certainly face many challenges through these unprecedented situation operations and global network remains strong we have taken appropriate steps to ensure all business is well positioned to successfully manage super pandemic.
Looking to all financial performance in the first quarter I'm pleased to say, we delivered strong improvements across key financial metrics.
First quarter I thought the chief sales of 1.3 billion U.S. dollar, which we bet represents a 60% gross on currency neutral basis, driven by outperformance in both salt taste and sent businesses.
We also achieved strong adjusted earnings per share $1.62, excluding amortization, reflecting a 70% year over year increase on a currency neutral basis. That's because we grew adjusted operating profit, 9% to 271 million U.S. dollars.
In addition, we extended the operating margin excluding amortization by 60 to 60 basis points to 20.1% driven by volume goes and productivity.
In summary, I've <unk> and the 2020 was solid momentum continued to deliver currency neutral serdes grows in the high single digits through the end of February.
However on March onwards, we started we started to see the global impact of course with 19 on all business and we expect this to empirical results in the second quarter. That's we have seen uneven impact across end markets Western will touch on this in more detail later.
I would like to spend a few moments outlining the key characteristics and drivers of all business, which leaves.
Very well positioned to navigate today's new reality.
More than ever it's clear that I have to base a vital role in the global CBG supply chain, especially for the world's most important manufacturers in food and beverage as well as essential home personal care and sanitation supplies.
I think it's broad based exposure across regions categories and customer positions us to remain resilient. So your ongoing challenges border bald by the pandemic.
That's a result of regulatory actions, it's corresponding economic challenges is seeing some reduction in demand and all fine fragrance cosmetic actives and food service offerings. When markets are seeing significant impact. This represents approximately 15% of all revenue at the same time, we see.
Tremendous pick up in areas, where the solutions that I back towards absolutely critical the production of essential products.
All categories exposed to packaged food and beverage and hygiene and disinfection saw continued strong growth during the quarter that just about 85% off our revenue.
Fortunately all operations remained strong as we continue to deliver the creative solutions that our customers and once you must be monitoring these unprecedented times.
Our goal from the outset almost twice as has been twofold first we're deeply determined to ensure the well being up all people second we're committed to preserve and continued across the network. So that we can continue meeting the needs of all customers.
While global regional and local crisis teams are working around the clock to do what is the best for people and our business at coal working group, including Representatives from our executive team and all cross functional support groups and business teams meats daily to ensure alignment from top to bottom across our teams. This team is.
Putting in place plans and protocols so be sure we're anticipating what is to come and keep all of all stakeholders engaged so this extended period of disruption.
We've been poor actively reviewing all resiliency plan to address a qubic 19 developments and we have coordinating all response was federal and local health and government entities around the world.
We have updated internal protocols as the situation has evolved taking significant measures to protect all people, including implementing and hence disinfection and sanitation mesh us at all great operational facilities, and taking precautions to minimize contact among employees.
Part of social distancing grouping, all professionals and just smaller parts and separating that worked shifts.
It was able to work from home, but instituting a remote working policy across many of our locations as well.
Given the I've asked vital role in the consumer product supply chain. We continue to secure essentially designation is that for White. All company was commission to manufacture all call darts are onto oldest elements like 10 extend workplace restrictions.
A good example of our team working through these and expect the challenges has been India.
Recently or Jean <unk>, she and I facility, where we have been secured essential business designation, what's still wants to shop for several days due to regulatory restrictions sanctions diligent diligence on how it team and a strong working relationship with regulators. We were able to move ahead of time in response to the shutdown to me.
All customer demand sewell shutdown, while keeping employees safe.
In terms of all operations, we're seeing some challenges because logistics and all lead times have increased but the team is doing an excellent job navigating the transportation restrictions.
I realize we are certainly not alone in this challenge.
Well. These reasons, we have also seeing some limitation raw material distribution and that's activated all contingency plans to limit the disruption that any material shortages might have followed customers.
Well, we have seen disruptions to our supply chain. It has been mostly limited to the regions, where the most significant government restrictions on pace, including Italy, Spain and India.
Well, the new project and innovation front most of all creates a sentence remain open and engaging remotely as needed and I'm happy to say that all project pipeline remains solid across our entire portfolio.
As I mentioned from the outside what all business has displayed impressive resilience with evolving situation. We continue to report definitely take steps that will ensure that <unk> is operating from a position not financial strengths.
Specifically, we adapting and especially disciplined approach to cost management. This means where typing any non essential spend and reviewing new opportunities for efficiencies. That's kinda reserve on margin profile. You also looking at Capex and considering near term priorities, while pushing hard launch I'm in bed.
Vince as appropriate.
And we're considering additional ways to optimize our net working capital by grocery viewing existing inventories and pursuing collections.
Lastly, I have a strong cash position was 1 billion, yes, daus on that credit revolver available.
Giving us confidence and ensuring a strong position even in the event of a prolonged economic downturn.
Even in the midst of increased demand and the challenging operating environment or teams to mobilize to support frontline healthcare workers and first responders across the global network.
Efforts across the globe I phone very creative ways to leverage the company's unique capabilities and innovative spirit and lead the number of exciting community focused initiatives, including.
New Jersey to the Netherlands, I've asked has modified all production facilities to allow pulled them any effect giant distributionnow and sanitizers today I've asked this donated more than 65 metric tons and send it ties us globally to first responders and other organs organizations and neat.
North America Center granted team creaky developed a new sent.
Hope Twentytwenty, that's being used by after than other partners and the production of hand Sanitizers.
I'll send team is also part numbers Harvard Medical School and mess General Hospital, two Quaid early detection smell test as symptom Medicare is the first developed globally.
In India.
<unk> facilities donated food and other necessarily sanitation items to local orphanages hospitals and police stations.
These actions speak to haul I'm pleased to continue to embody our commitment to care for the resources of all Walt and nothing could be more important been carrying fall communities.
I couldn't be more proud of the spirit of carrying that I've has demonstrated so ought to global pandemic, which that I would like to turn it over to Rustom will discuss our first quarter financial performance in greater detail.
Thank you under that.
Now like 12, taking a more they look that up walkley financial performance.
On a currency neutral basis, I hope that the that brought beats is growth of 6% versus 29 themes first quarter.
Adjusted operating profit margin improved in both <unk> and.
The procurement synergies volume leverage on productivity initiatives and disciplined research seals administers well obviously cost.
And this has good use our operating expenses as a percentage of sales.
Yeah, well pleased to see that we also saw solid profit growth in roughly 60 points of currency neutral margin expansion on an adjusted operating profit.
Basis.
<unk> 19, bumped up you know the new one.
More in terms of sales mix rather than in Georgia daughters.
On the the final weeks of the quarter.
He did have a modest negative impact on adjusted operating profit in the quarter.
Business doing to extract manufacturing cost the snow Wade expenses and higher raw material cost, but most of these went into inventory and we're not even expenses.
Our currency neutral earnings per share excluding amortization grew at school good person.
With robust operating profit growth boosted by Lula, you're on your interest expenses and lower effective tax rate.
Ethics adversely impacted our reported numbers building sales and adjusted operating profits down a couple of to said.
You had a much larger than they did it impact on other income, especially expenses in much as a result, its currencies collapsing globally against the dollar.
So on reported basis, this blue down year on year adjusted EPS growth.
Now looking at US since division on Slide 13.
First quarter currency neutral since his grew 7% growth in all regions, a nearly all that degrees.
Sales performance was strongest in consumer baked goods, where the double digit increase that by robust growth that brick home and <unk>.
And why we did experience it wasn't the Golden 19.
Especially probably increase in height, even this index inside degrees. We also benefited from school new wins, including with customers will be a recent <unk> access to that pulled us.
We also saw high single digit broken fragrance ingredient that robust wasn't.
At the same time line frequency of rising as it has disrupted the [laughter].
[laughter] did moffat and a pronounced GAAP and those who travel due to go with the consideration late in the quarter.
I'd say goods is not that.
Well.
Great and until the last couple of weeks at the quarter, even against you even against last you one double digit comp.
And then we saw significant contraction as I've customer the deficit that's likely to change the new store closure uncovered.
This does conclude <unk> Zhou with <unk>.
I'd be leveraged on this.
For the and how does that make money you posted a 20.4% segment profit margin and segment profit grew 200 and I believe at.
19% on a currency neutral basis, driven by volume growth under operating expenses.
Moving to taste on slide 14 <unk>.
We saw currency neutral sales growth I said did the first quarter, having achieved increases in all regions. We saw mid to high single digit broken that Dan greet the ace ER either.
Look I agree perspective, again, so that means growth unsavory cities and they've stronger consumer our largest market and also the time.
Laborers, who low single digit led by Green <unk>, Afes and Latin America, and this was driven by strong commercial performance.
In particular, the attractive categories of beverage.
So who Jerome is now mostly cope with the beach business did you did commit to continue providing that says how sales would do.
Hi, Good said remained on a standalone basis.
So we have made it through to them as a standalone currency neutral sales would have grown by roughly 4% versus the prior year.
Well the entire tapes business, we've had a 16.8% margin that segment profit growing 6% to 137 million led by volume benefits and who Jerome integration related synergies.
You may have those it's the segment profit margin if he is lower than you're used to see.
This is because foods, Rob is now included and days approximately 44 million amortization.
Yes.
Now I would like to provide an update is uh huh, so through the first quarter.
The Johnson page 18 is designed to show the reconciliation <unk> fourth it doesn't come to Casco inclusive of all the drivers.
Operating cash flow was seven.
First quarter down from 47 to them Twinkie 19, suppose quarter, primarily due to higher coal working capital levels.
We didn't call working capital you had solid improvements.
That's all sit by higher Cogs are suitable as a result of strong sales in Q1, twentytwenty as well as the other twinkie 19 got into Sir.
We expect a portion of this was an all of those as it moves through the year.
At this I guess could look like are you what could be 20 was consistent with 2019 suppose sport.
We continue to invest in the business, that's really for blend for best increases at food the Robbins Bridge.
Our capital expenditures as a percentage of sales and of course work or Btwenty, let's keep like 6% and this was worse as last year's Ballplayer I'd said.
I was such an outlook for the balance at the moment.
The net impact of free cash flow nine does upgrading that slowed us that that.
It was a negative 31 million.
As a reminder.
He is a seasonably Louis score for your enough <unk>.
In terms of pet food.
And many under notes and the do dozens amounted to 94 million was 107 million in prior years first quarter and this was all due to the in many I do know.
As address noted the cool that's taking steps to preserve let's call that answer position up this night.
Even the kind environment and the possibility that the global economy could face a protracted downturn, we are constantly refining scenario Paddington Sylvia.
This starts with controlling what we've got good core targeting deductions and operational and definitely expenses.
Yeah being very cautious we hired then you just squeaker reimbursement position and then who's got a new hires.
Do you ever do you see and or nonessential spending <unk>.
Including the likes of travel it then concise et cetera.
Well, we think does bring some looking after a good.
We have exclusive rights in disruption as the this contributes to blocked out action.
I do I don't I'm constantly this once it goes but just the good snowed, Robert even though the service sleep. So given the visibility movement, that's sitting around London generally have been so the good supply disruption.
Yep, we also being somewhat smaller under <unk> either.
That is more complete if this is warranted.
And this could be except the experience is that in eastern receivables, particularly from foodservice and fine fragrance customers.
Of course, we're looking to offset these working capital this is Ben.
Core inventory that constantly balancing the needs in small business continues <unk> <unk> with the need to not well were order.
<unk>.
Could it should extend up boots, yeah, working with suppliers to do so.
And we of course, Susan collections from customers, though with use I'd be glad to bid those where those credit Suisse.
Capital expenditures cognizant reductions across the business specifically, we are prioritizing the highest bidding projects, where the Lady luck with another investment.
Absolutely necessary at this time.
And of course.
Gold at 19 is making it much harder to launch <unk> projects with significant travel is the class.
But moving forward, we also have to be spot to ensure that we invested a taxable.
Ecosystem.
Turning to slide 17.
As we consider our current clapton structure and manage our balance sheet moving forward.
Nine that upcoming debt maturities said.
Which includes a good balance of short and long term 10 years.
The at school and ample liquidity well within that the covenants as not that the EBITDA at the end of Q1 Twentytwenty was 3.3 times.
Cash position at the end of Q1 school at 433 million with Indian daughters, an untapped credit to log availability should be either.
Looking ahead following the close of Dupont and then be transaction.
We're committed to maintaining a disciplined we agreed.
As stated in December we Glenn to quickly de lever after the tools of the transactions get below three times net.
We didnt fathering 24 months.
Now turning to outsource.
Conceptualize, what I expected sales dynamic in Q2.
I wanted to highlight the many moving parts, we have seen when expecting this quarter.
Well with 19 presents book opportunities and challenges as before.
Starting on the left side of the snow.
We expect to see continued robust growth did not see ifs business, excluding food service as well as enough consumer fragrance business the demand than consumption is the products that these businesses that's supporting remain high.
Well position without global footprint to capitalize on this.
In the middle Bucks, those fragrance ingredients, where demand is strong.
However that leasing challenges in the supply chain I didn't particularly look though.
This means that we have well go external sales to ensure that deeper clicked off fragrance compounds business.
Last category. He was bad demand has been adversely impacted by cool with 19.
Good service with the boss DS waters across the globe husband, its changes in consumer behaviors, how did that that away from home consumption.
Fine fragrance and cosmetic actives bad the retail channels have been pretty close and travel retail selling.
Books physical with 90.
As well as these categories be more discretionary in nature.
No more than either I think that's broad based exposure across the region that degrees and customers positions us to remain resilient through the ongoing challenges.
We are fortunate that means that the majority of our revenues comes from categories exposed to package food beverage and from hygiene and disinfection.
But just thought business I experiencing higher sales volumes and this cards and wide.
Having said this but not totally immune.
Surprisingly it Bruce currency neutral sales were challenged but strong consumer fragrances, and Sabres offset primarily by weakness in fine fragrance and foodservice.
For the second quarter, why they're not giving specific guidance.
It is worth noting that with the pressure in fine fragrances.
Operating margin mix will be a headwind as well as that couldn't additional global 19 related costs.
We continue to evaluate what evolving global market dynamics will need for our business performance and projections moving forward.
As the second quarter progresses, and we gain greater visibility as Andreas knows it will provide updates as appropriate.
Why the ability to pivot quickly and modify ideally operation has enabled us to responsibly operating that business.
Constantly evolving global responses school with 19 have created uncertainty is fine.
And for other companies in our partners as well.
Given the extent of the current uncertainty globally and the potential of uneven impact on our businesses, we have decided to withdraw after school twentytwenty.
We will continue to manage our business by taking action Sudan, Red strong cash flow and to maintain ample liquidity.
With that let me turn the call back over to address.
Thank you roast and.
I'm also very pleased that today, we're introducing the next step in all planned integration process was and then b.
You know were extremely excited to combine our two customer focus and consumer that organizations with leading positions in high value categories. Together, all product portfolio will be among the industry most real Boston diverse well, that's a coveted R&D program with an industry, leading pipeline and most important b.
We will be poised to redefine our industry by delivering essential solutions to all customers.
We remain on target to close the transaction in the first quarter 2021, Entre then I stuff and then be would remain independent entities and will operate separately.
Since announcing our merger on December 2019, or teams have been hard at work, bringing this combination to life.
Formed integration management office create the U.S. regulatory process filed for regulatory clearance in Europe, and China and filed though initially <unk> registration statement. The potential. This combination continue strict side our teams and we're working diligently to make sure. We can hit the ground and food sprint on day one.
Some of our important highlights over the past four months include.
Completed strategic assessment of the future combined company portfolio.
Join cross functional integration program in place and operational.
Great Ideation framework to identify assess and park rice synergy opportunities.
Today, we took another significant step forward with a known sole purpose vision and operating model and execute execute executive committee for the future combined company.
Before we are announcing who will be what we intend to do and who will lead though incredible team wants to be combine forces with the N.B. business in the first quarter 2021.
Oh purposes, the why that drives everything we do combined companies brokers at flying science and creativity for better World.
Focus on our intend to push off traditionally industry boundaries and commit to be in force for better more sustainable future.
We will shape the future of auto industry with best in class solutions at the intersection of science and creativity.
Passionate organization is made up team members, who sees a jump as so much more our collective purpose inspires us every day to strive for better.
So just that we had talented scientific wages, but that's we're passionate about using those timelines to general resolves all customers and for the world.
We need both the Regal scientific expertise and be imagination of new possibilities to create the best results.
Fusion will close that will lead us to realizing the potential of this combination.
Everything we do is for the purpose of improving your world lengthening lifespans, replacing or sustaining resources and hadn't seen since are we to experiences solving those problems and more and together we can do even more grid.
Creative Science scientific art, when science and creativity, and just say the possibilities are better.
Here innovation isn't isn't that department, it's all a business.
Instead to go a curiosity relentless drive.
Purposeful impact innovation is simple all way up operating and always doubled the R&D resources unmatched in the industry, if you're keeping track all people can wait to get starting calibrating on something you.
We are shaping the future of the industry for the better.
Our vision is always strategy for future success, you articulated so aspirations and guides the development of future strategies and initiatives. It just to tilt Oh, which we endeavors can be evaluated all vision is to be the partner for essential solutions.
From day, one we will bring unmatched innovation and leading edge inside to anticipate what will be essential to tomorrow's consumers.
Helping all customers meet consumers need is at the heart of our business.
We are more than a vendor or supply, yes, we supplied ingredients components illusions you require but we also united in understanding and meeting the challenges today and tomorrow.
Essential solutions means that we will work to make boys whole relationship and won't be provide valuable to our customers business. It pushes us to supply the technology and know how that no one else cat.
Customizable sized across the globe from start up to multinational and the agility and the expertise to deliver what you need unmatched innovation and leading edge inside that means we are already anticipating what will be essentially to tomorrow's consumers asked me come together as one organization, we can help or.
Customers meet consumers' needs pasta.
Oh, and you operation Immortal will leverage the capabilities and offerings. So most organizations to create sustainable framework that best position our teams customers shareholders for success on day, one and well into the future.
The complimentary structure focus organization into four divisions.
Taste food and beverage.
Then.
Outside of bio signs and polymer solutions.
We can't <unk> examine how each division goes to market, including customer overlap R&D focus and service level requirements.
Among other several factors to make sure we created global divisions did we have built for success.
Just as important as all four operating divisions will be our global centralized functions. Each of these will work and collaboration across all divisions.
I want to call out in particular that we will be establishing a new integrated solution center of excellence to focus on incubating new business opportunities in total product solutions.
We also creating a central for commercial excellence to support all business at commercial teams, who development of best practices customer insights analysis resource deployment and the optimization of pricing strategy since solutions.
As to why extremely important as it will be instrumental calibrating the business too cheap or revenue synergy goals.
We also announced the executive committee for the combined company, including highly qualified and diverse leaders with deep knowledge and expertise if you're interested in the teams background piece checkout.
On strong huh.
Nation together dot com.
I want to go through all of these distinguished need US here, what I will note that this wasn't particularly challenging process most organization that have tremendously talented individuals.
We are fortunate that [noise].
As a significantly large organization, we will be able to create many challenging exciting new opportunities to further the koreas of all employees.
I'm also very encouraged by the World Class Board of directors, we're beginning to assemble.
As shared at the deal announcement to Paul Executive Chairman and CEO at between will join the board of the combined company as a coupon Disney pulling the clause, although transaction and what surface lead to lead independent director starting in June 120 21.
I'm also pleased to say that Mathias Heinzel president up interested buyers sense. After Paul will be joining the board of directors of why if the following the close of the transaction.
Under his leadership, but she is a strategic be transformed in it'd be business.
I've been customer focused innovation operational effectiveness and multiple business integrations.
As an independent director has extensive.
Well, we'll management experience in deep knowledge of the industry will support the future company as it unlocks the value of the merger.
In addition.
I really Davidson will also be appointed to join the board authority as well the future combined company following the close of the transaction.
Just a davidson is a SCPA was more than 30 years of leadership experience across multiple industries, yes, health and varied variety of leadership roles at Tyco International Ltd, and Dell incorporated and financial leadership roles that he's been caught our company <unk> Davidson.
The lead independent director Legg Mason and strokes on the border Te connectivity.
Well this team sports boarding management I know all combined company chart, you pass forward hallway industry and had the Paul will impact on the wall to wall and does.
Stepping back I would say that I'm deeply impressed even more so given cool with 19 by the dedication of full course, but we'll see I. If FNB teams have brought to this airport.
New early on that these companies would be a strong cultural match and Hawaii site conviction behind the potential. This combination was only grown as our teams beginning more more to collaborate.
Sure look ahead, we are focused on executing the Knicks key milestones and we'll do so whereas in the same spend and diligence we have achieved thus far.
In summary.
We're pleased with our strong financial performance to despite an unprecedented first quarter Twentytwenty. We delivered on all all of all key metrics and saw broad base grows in both divisions. This mid single digit stands and double digit adjusted as X. I want to station grows on a consolidated basis we.
Continue to make important progress and the integration of food wrong business and have taken substantial steps forward and bringing on our combination was to Paul and it'd be to life.
I'm also incredibly portal each and every one of my colleagues at <unk> <unk>.
For what they have achieved during these challenging times, not just small business, but fall partners, our customers and all communities.
By global conditions remain volatile in the near term our order book for Q2 looks solid Sps successfully navigating through these unprecedented times.
To emerge as a stronger company.
I would now like to open the call for questions.
At this time, if you would like to asking question. Please press star one on your Touchtone telephone again that is star one to asking a question to remove yourself from the Q you May press the pound <unk> once again to ask a question that is star one when youre touch tone telephone.
One moment won't be Q for questions.
Well take a question from Mark Astrachan of Stifel. Your line is open.
Thanks, and good morning, everybody Hey, good morning, Mark.
Speaking of promotions by the way Congrats senior Vice President <unk>, Oh, well deserved there.
Uh huh.
So I.
I guess I wanted to talk a bit about I just general sales are ordering patterns, you basically talking a bit about whatever you can on emerging versus developing markets anything.
Notable there as well is between multi national and local and regional customers.
Especially related to the Frutarom isn't it.
And what are you hearing from customers regarding timing in new product launches and how does any change impact I, even just category dynamics. Thanks.
Okay, Mark I I will take it the emerging markets in the first Florida were particularly strong Latin America quite a lot of what 10% in greater Asia bites by plus nine <unk>, what we see in terms all the different categories in particular, the consumer fragrance in Latin America in a high teens as well as.
Flavors, I signal and Saboru solutions.
Hi teams as well so we didn't really good good results told me strongest from the multinationals that specifically in the H.B.C. field.
In Asia was all about consumer fragrances as well so mid mid teens really good all it tastes and high single to single digits no surprise to cope with mine Nineteena I would I would say and here in Asia very much across most multinationals as as well as regional and local <unk> syndrome. As we said is.
Probably around about 4% goals with some benefits all small I'm M&A, but still a good very very good good performance I won't say a concrete wise it depends where to cope with 19 wafer starts we have seen the first impact in age on public that in China, but it moved two year old into the U.S. and Latin America, So that that's.
Probably what what you can see in the into first quarter and jumps off the ER. The pipeline our pipeline remains strong also into the into the second quarter, but having said all of that it is really different from customer to customer I can say also flaws. Our all create just left so basically almost all open.
They're working on on on a new new launches a they're working on Oh, let's say or.
Better, let's say improvements off some of the products. So all in all like I would say a very strong picture. So let me impact on fine fragrance, because ER and you heard just from a small customer base as well, which is not a positive a positive but all the essential products out really well.
Are you going actually very very strong rustom, you might or comment on that.
Yes, no I'd actually agree there's not there's not much to add their andreas.
Coveted.
Good.
Thank you.
And once again that is star one if you would like to ask a question well move next to Mike Sison Wells Fargo. Your line is open.
Hey, guys glad to sound you guys are found in a nice start for the year.
You know Andreas.
You made some progress on the transaction getting your operating my leadership team in place and yeah. How much can you do before you closed the deal to get the integration synergy and accelerated then Dan and and maybe just talk about how you think about the fifth the transaction different out given the current and <unk>.
[laughter], let me start calling for the second part of your question first so.
Combination was a with their dewpoint it'd be a business is 40 on on track and if you look at the product portfolio.
No among the industry in particular are all in the school with 19 situation one of the most robust ones and very diverse we had all of the categories number one and done but to win in the market. We have a great R&D a pipeline, which combined spend up on grown about 550 50 million all more than the night.
<unk> 9000 patents granted so I believe very very very robust and and as you have seen D. N b. It results in the first quarter as well. It shows it's an essential business probiotics are going gang busters and many of the other portfolio areas areas as as as well coming back to all into the.
Integration piece. So as you know were formed and ER and I am all all eyes on integration management Office office, we get anti trust in the U.S., we filed in Europe and in China.
The combined integration planning team can do a lot which is <unk> even in these challenging times and I'm very very pleased to all the work to him together all over zoom <unk> Oh causes very very interesting.
So we didn't make sure that that'd be a ready for day day, one or the next up on the schedule as the shareholder vote in September and then the financing and then the gross hopefully on the first quarter 20 or 21, so I have to say that just corporate nine seen us as further solidifies our position strategic goal.
Logic is very strong very resilient business very great great market, a market position and I belief in the when a very very good spot right now.
Well move next to John Roberts of you've yes. Your line is open.
Thank you for the 15% of sales that are impacted by covert 19 have you had two sequential weeks of stable sales you have no, but they still declining at the end of April and where are those product lines sales in China versus just started the year.
I was 20 <unk>, let me take that.
No. We have the we have still had Ah Ah sales decline, even as we go through and ER.
And look at that area, it's fine fragrance and foodservice is it didn't really see.
But let me just step back for a second I mean, if a much onwards and as the goal with 19 pandemic spread globally, we had lost downs changes in customer order patterns.
We are fortunate that most of our revenue comes from the package food and beverage categories.
As well as hygiene and disinfection right. Those are so we have continued strength there I mean, the the bought that you already floating to it that but they've been on EMEA, though is the categories. Most exposed to retail in Boston Cenovuss stores closed and traveling dropped sharply and that hasn't changed set up now so that's a fine fragrance and cosmetic actives as well.
Right and also the US the end of that meet them home channels.
So where.
Were seeing that impact and were choosing just to be ready to be tied to standards. It in the fixable, just left where as we possibly can be I'd always you know sort of trying to be cognizant of off the safety of my employees and well being as we go forward.
China had to be guiding to identify feel question I fragrances, a very small it but the portfolio.
I mean based on getting good demand I mean less than 2% of children fine and although it was quite strong in Q1 I mean, you know we you know that see in China is opening up as well now foodservice in China was particularly challenged in Q1 and that obviously coated.
And I think that answers your questions John.
Thank you.
Our next question comes from Faiza Alwy of Deutsche Bank.
Yes, hi, Thank you and so I also just wanted to hone in on you know trends, but you've seen since the corridor in April and May and in particular I was wondering if that's possible for you too you know maybe this I forget the benefit from potential stockpiling by says I'm going to <unk>.
Hang demand.
And then particularly focused on you know consumer fragrances, where you had double digit growth and I know you mentioned that emerging markets were particularly strong buyer I don't think that was much stockpiling, but I was just wondering if you could offer more perspective, there and how you're thinking what time do you have seen since the end up the corridor and how you're thinking.
By the sustainability of growth there as they go through they are.
Thanks sure absolutely five let me get started and then than I had over two to address them, it's hard to disaggregate the underlying demand because of stockpiling, but what we talk with many of our customers and we believe on the consumer fragrances sites up need the activity and washing closes and detergent that's all.
Often as its very it's very much demand, it's not so much stockpiling here I think we see this we see all so all the hygiene products a ruling used just not just the people quoted in the entry. That's that's what we see and also on the on the on the food side. When you talked to some of all customers yogurt, so going back back there.
No tomorrow, which is probably not a big surprise to all of us because working from home instead of going to the company category or you go to the friendship and boy yogurt and that's that's that's your lunch. So we see some categories very much it's consumption. It's it's moving what I can give you all the details what does fall.
Right No. We didn't important is on the consumer insights side you know we do all of our studies, we knew all the consumer behaves white no like what is sustainable so that we really can orient ourselves in terms of our R&D into new product development towards things, which which might it might go come we believed that.
Everything in terms of Sanitizing will stay we believe also that many of the helps products in particular, a 45 to this vitamins or probiotics will stay but there's more and more to come so that that's a work we're doing right now so in many areas. The consumption is real by the way one last one potato chips also going back and buses.
But with some please call me.
Thanks, Andrea Thank you money Faiza Ah so the I look at the raw materials part of your questions and yeah. We've had some rod some limitations in raw material sourcing and adjusting.
We activated contingency plans or many of the to limit the disruption due to our customers right Andy disruptions with them at Ti Vo shortages because of and a restriction maybe your thoughts as I address it earlier that need to these being in India with three of them out there.
I mean, the bottom if your question didn't then you also talked about this I addressed the inability right sustainability Zuma fragment fragrance. We do believe this will continue to be robot.
Can you maybe mondrian I in hygiene and disinfection, if anyone has been the sorely needs. It just hopping was brought up.
And then or but.
Let me address one one last thing do I mean, that's a thin profitability and it doesn't go the specifics and then it becomes a fine right then profitability without that was movie adversely impacting Q2.
Yeah, I don't I can get into spend going into specifics, but based on not just what I'm not just fine fragrance customers. The same publicly the categories declining double digit.
Oh, so I'd expect the same private competitors and being that it is one of our highest margin categories went above consolidated Aberdeen.
And with these declines you know margins will be down.
You know that and then you add in.
Then you add in additional well with cost than we've had in Q2 full quarters with and that's a just another factor.
Yeah. So it all depends right now when when the economy is opening up into stores open and some of these products can you can be sold against a again to draw look all consumers I think thats whats will be all waiting in the big experiment is not so much China, because it's very small for this category as says Rustom said.
All but what will happen, though in Europe, you see Germany's is basically open we will see next week or francaise opening a again, and then Spain and Italy, and then we take it from there. So it's it's a very volatile environment, but well be a very well prepared for it.
I hope would help size up.
Yes. Thank you.
[noise] well move next to P.J. Juvekar of Citi. Your line is open.
Yes, hi, good morning.
Good morning VJ.
Andrew Yes quick question for you you know we've talked about this restocking quite a bit here in the foundries and so on and so forth.
When do you think orders go back to normal levels.
And then as the economy's open up is there some de stocking in the pantries.
And who lived it did that you know that's the inventory at the end they sort of the <unk>, how sort of level, but what are the inventory levels at your pipeline and in the supply chain. Thank you. Okay. Yeah. It's a it's a very very important point actually and we are looking at this I would say in some of the countries a website.
Seen already a normalization because people all back to work and people see that they can buy everything you might.
Remember at the beginning toilet paper was also very precious RP go around the world in many of the supermarkets, but that's baked back to normal. So actually we have seen already quite a normalization not because corporate is gone, but people see and feel that they can buy whatever ever they need that was not the big disrupt.
And in their supply chain. So we believe that you'd be inventory has a has change it's different than in pharmaceuticals. For example, where people just keeping their diabetes products.
But of course, we are four months in central one months to make sure that that that the debt coverage, but I think in many cases, we already back to normal on the plans. It's it's a bit off in different situation. Because we are managing the supply chain actually almost by the weak because India, all all of which is.
Big country for raw materials in our industry has some challenges with where the locked on as well. So we really had to make sure that we get enough inventory at all times around the world to the to secure a supply fall off all our customers. So you probably we'll see some elevated inventory levels for <unk>.
Sometime but again.
Situation is volatile I expect it does actually for the first quarter as well, but we were setting so much isn't it's okay actually went down.
So that's our plan all basically what what we assume for now but it might change because it's it's very dependent on the.
On the on the demand as well, but with some maybe you could you comment.
Again, I mean, you call. It is I mean, <unk> BJ I mean, the this is really hard to predict right going into government regulations cuts. The you know consumer psychology, and also the possible thier off a any wave twos anything like that.
And you never know, it's hard to predict but even off the bid a night.
I mean.
Viewers actual consumers make mundane highest stockpiles of the common practice.
Who knows.
Our next question is from Adam Samuelson of Goldman Sachs.
Hi, Thank you good morning, everyone.
[noise] I was hoping they get a little bit more color on the performance in the first core in the case segment, specifically around the margins and just trying to think about margins that were essentially flat year on year and kinda just thinking about gets pretty healthy topline growth. So how many deconstruct that into.
Terms of mix in terms of incremental Frutarom synergies.
In terms of covered related costs.
And then just thinking about the balance of the year.
Kinda has the expectation for interim synergies changed specifically kind of can you do all that they said it facilities closures you were looking for.
This year given the pandemic.
Hi, Adam.
Anything that action, you actually where well triangulating on exactly what that says.
So in the first of all of you are on track without cost to the need to talking through Q1 food drum I mean.
Yeah, we've more than 25% of 60 million from your savings coming in Q1 and in terms of geography, it's about three quarters, they tend to resistance and roughly okay.
Then synergy showed through and if you saw since the fall and those than through leverage but seems to me homing. It did benefit some synergies as well. They also had me I mean, you. We went straight there. We also had mid teens growth in theory solutions, which is a new imagine business.
The last Citrusource sales and then we have some added costs right manufacturing of human.
Yeah, and you know cost heat up in the balance sheet and everything but he also had some bad debt as we increased our bad debt provisions on actual bad debt provisions as we did so they've all offset thing here.
No actually all.
Part of your question about the.
Ongoing up plans that we have I mean, yeah, there will be a there wouldn't be something it needs a little bit of disruption to achieving to think that manufacturing.
Synergies that we expected from Frutarom right and that's quite simply because we can that be but I'm traveling out maybe a site even it working from home quite effectively but as addresses mentioned too we do prioritize the safety of up people and people that just thoughts on I'm traveling out the sites they will be some delays in realizing the.
The synergies from a from Frutarom coming through in the same thing on procurement done the procurement then by the way because with the huge disruption that Weve you know there in.
In the enrollment unions in sourcing and on the rest of that Hasnt shown up you not BNL, but that's because our teams have been sort of putting in a putting in really odd yods, making sure that we handled heavy handed all this without disrupting our customers right, but something games and that's something is had one of those things that have given his wishing to some others on the synergies Andre.
Absent anything you want that there as well.
Actually just one one thing on the closure of the factories, we might have in some cases, you lay off maybe to choose to three months. That's what we're planning right. Now so we will be done it's what we solved all in the mid end up sort of caught a mid and they'll fourth quarter. So that's a funding right now.
I hope Adam that helps.
It does thank you.
[noise] pick a question from Lauren Lieberman of Barclays. Your line is open.
Great. Thanks.
Good catches clarify that I think in the queue.
Mystery around integration has.
[laughter] knocking down the to work.
Yes, you're in Kenny couldn't even extend and not just that's called Twain why did they didn't get 22. So I guess why can't kind of clarify Wow versus [noise]. What you had just thought about that almost three months Atlanta energy [noise].
I guess my father answer I'm, just curious to know kind of what drove.
Outside in the quarter, you know if it's sustainable it from what we can see it looks like savory would that be part of that and just give that all go out.
Next thing.
[noise] everything through her arms that are coming through media, but better than expected does that also another I tried on that thanks.
Okay. Let me start with a second second piece first Oh, we have seen all a couple of elements all the legacy food business was performed very well and we believe it's sustainable so everything which is connected to Hells <unk>, we believe will be sustainable because that's an incredible driver for these cells ingredients.
That's number one the second one is on food protection on because people really want to increase jokes shelf life and make sure that this works out well so that it's going extremely well double digit, but we believe it will be also sustainable and then unsavory, we will see Oh the safety solutions.
Yes, as made Oh actually extremely progress in terms of bringing it together with the the legacy flavors and we've seen good developments, whether this is certainly not sustainable in a double digit gross wage or it just more dependent on how quickly the oh the economy's open open up.
And how much is in the food service area, because that's up he has more than they got negative impact impact here as well on the other and are you doing this is part of this famous buttress business people in Austria, and Germany, where eating.
[laughter] like there's no to them all because all the restaurants were closed and that helps us with let's say that's as well. So sometimes it's it. These are interesting interesting dynamics, but I I hope that helps us and that's an explanation and then a under food integration resistors raises was not being done with the integration work before merging with.
It was due Paul it is basically a some one or two on our manufacturing plants. We just hold back because we believe was and then be nobody has a different way forward well. We can use these capacities all and can can use them for some of the NB products. So.
We do know everything, which we which we have said we're doing despite the things where we believe was yet and then be combination we have a better way forward. When we have an M.B. on board as well so that that's it that's the on the only thing in it and that's actually on to book and all that but that said, we can talk more in detail.
I hope that helps.
We are now passed on top of the hour I will now conclude the call I now want to handed back to Andre asked for closing remarks.
Yes. Thank you very much for for the time, all I hope everybody is healthy and stays healthy and we certainly have time to speak over the next one or two days. Thank you very much take care bye bye.
This does conclude today's conference you may now disconnect your lines and everyone have a good day.
Yes.
[noise].
[noise] Oh.