Q2 2021 International Flavors & Fragrances Inc Earnings Call

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At this time I would like to welcome everyone to the eye of the second quarter 2021 earnings Conference call.

All participants will be in a listen only mode until the formal question and answer portion of the call to ask a question at that time. Please press star 1 on your telephone keypad, if he would like to remove your name from the queue. Please press the pound key.

Participants 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 1 question per person I would now like to introduce Michael Deveau head of Investor Relations you may begin.

Thank you good morning, good afternoon, and good evening, everyone. Welcome to Iff's second quarter 2021 conference call yesterday, we issued a press release announcing our second quarter financial results and outlook for 2021.

A copy of the release can be found on our IR website at IR Dot Iff's Dot com.

Please note that this call is being recorded line it will be available for replay.

I ask that you. Please take a moment to review our forward looking statements.

During the call we are making forward looking statements about the company's performance and business.

These statements are based on how we see things today and contain elements of uncertainty.

For additional information concerning the factors that could cause actual results to differ materially from our forward looking statements. Please refer to our cautionary statement and risk factors stated in yesterday's press release.

Today's presentation will include non-GAAP financial measures, which exclude those items that we believe affect comparability.

A reconciliation of these non-GAAP financial measures to their respective GAAP measures is available on our website.

Please note that would be using combined historical results for the second quarter defined as 3 months of legacy Iaff results and 3 months of legacy <unk> results and for the first half 2021 defined as 6 months of legacy Iff's January to June and 5 months of legacy NMB February could you.

In both the 2020 and 21 periods to allow comparability in light of the merger completion on February 1.2021.

With me on the call today is our chairman and CEO Andreas Good day, and our executive Vice President and CFO Bruce from July.

We will begin with prepared remarks, and then take any questions that you may have.

I would now like to call it turn the call over to Andreas.

Thank you, Mike and thank you everyone for joining us today I.

I will begin today's call by providing an overview of our performance during the first half of 2021.

Followed by an update on regarding our ongoing efforts to fully integrate the NMB business. Following the completion of the transaction in the first quarter of the year roster.

<unk> will then provide a detailed review of our second quarter financials, highlighting segment level of business performance and the market dynamics, we saw in the quarter.

Before we jump into the question and answer session. Russo will also conclude with an overview of our expectations for the remainder of 2021.

Now beginning with slide 6 I would like to review our business highlights for the first half of the year.

I am pleased to report that <unk> has delivered a strong performance in the second quarter, which is the robust acceleration bizarre combined Q1 growth and so the first half.

Half of the year.

As I've said before execution is everything and has delivered strong financial results, while advancing our ongoing integration of airports. Following the completion of the NMB merger in February.

The first half of 2021, that's achieved $5.6 billion in sales, representing 8% growth of 5% on a currency neutral base for.

For comparable purposes and to reflect the portfolio differences, but we know our peers I want also to highlight that both businesses performed well with legacy Iff's, achieving a very strong high single digit growth rate with nearly 100 basis points of EBITDA margin expansion and legacy NMB growing in mid single digits.

At the same time, we continue to operate in a challenging global environment with significant headwinds in material cost and supply chain logistics.

In the first half combined EBITDA growth was a solid 6% and a combined EBITDA margin of 22, 5%.

Importantly, our strong free cash flow of 533 million enabled <unk> to maintain significant financial flexibility, including our airports to Delever. We remain on track to achieve our deleveraging targets under 3 times by year, 3 post transaction close and we improved our net debt to credit.

Adjusted EBITDA leverage from 4.3 times in the first quarter to 4.2 times in the second quarter.

Generally we are also well on track with integrated integrating the <unk> business and continued to realize synergies in line with our expectation for the transaction.

As we sharpen the IP portfolio, we continue to progress on the divestiture of our food preparation business, which we expect to be completed late in the third quarter or early fourth quarter.

As I mentioned last quarter. The divestiture of this non core business will create a more efficient iff's with an enhanced ability to grow and innovate across the key business segments.

<unk> to ongoing active portfolio management, and we will continue to seek ways to increase value equation.

Stepping back to reflect on the first half of the year.

I am very pleased with what we have been able to accomplish we delivered strong sales growth, which is an acceleration versus historical performance for both legacy <unk>.

And legacy N M b in the midst of a transformational integration as well as the global pandemic.

This is a validation of our strategy motivates our team to continue defying industry expectations as we continue to see the benefits of our expanded product offering and capabilities.

The long term growth prospects of our business are strong and we are making investments in capacity.

And plant technologies, as well as increasing inventory levels and incurring higher logistic costs to maintain our growth momentum in the interim specifically and the NMB business as we maximize our growth opportunities going forward.

As we look to the third quarter and second half of 2021, our objectives are clear build on this momentum while executing on our integration plans, allowing <unk> to fully leverage our new capabilities and chief achieve our long term expectations.

Turning to slide 7 I would like to briefly discuss the regional sales dynamics that influence our results for the first half.

Despite persistent global challenges and various economic recoveries. We are pleased to reported growth in each of our 4 key operating regions.

In North America, we achieved growth in all of our business segments led by a single digit growth in Newark and AMB.

Similar to the first quarter, our Asian markets continue to perform well achieving a 5% increase in sales led by double digit growth in India and a mid single digit performance in China.

While we had anticipated that growth would have been impacted in India due to COVID-19 in the second quarter. The business force resilient and finished higher than we expected with strong double digit growth in Q2.

From a segment perspective in Asia strong increases across our nurse scent in pharma solutions businesses. All contributed to this sustained growth in this key region.

Latin America, our strongest performing region, we achieved 12% sales force.

Driven by double digit performance in nearly all of Iff's business segments, and underpinned by favorable currency movements and the impact, Brazil, Mexico and solid corn all achieved growth in the first half.

We are particularly pleased to reported our EMEA region has impressively rebounded in the second quarter up to high single digits, we achieved a 2% increase in sales in the first half as COVID-19 related restrictions eased or.

Our <unk> business performed particularly well in Q2, but was achieving double digit growth.

Barry any newly emerging COVID-19 challenges, we expect this growth to continue through the remainder of the year.

As global vaccination rates increase in western and Central Europe continue to recover.

Yes.

Sure.

Now turning to slide 8.

I will provide a more detailed look at our sales performance across key business segments. So the first half of 2021, particularly those that significantly contributed to our overall, 8% sales growth of 5% growth on a currency neutral basis that I mentioned earlier.

We are pleased to report solid growth across all of our 4 core divisions Newish has some bioscience center pharma solutions nor.

<unk> achieved currency neutral growth of 6% driven by a strong performance in flavors ingredients and food design.

Similar to the first quarter scent remains our largest sales driver on a year to date basis, achieving 8% net currency neutral growth led by a strong performance in fine fragrance and consumer fragrance.

Our health <unk> Biosciences business has returned to solid growth in the second quarter. Following a challenging first quarter, where sales were affected by COVID-19, precious and microbial control and grain processing line.

And microbial control continues to be challenged for the first half we saw growth in grain processing, which showed a recovery in the second quarter as well as home and personal care coaches and food enzymes and animal nutrition.

Finally, our pharma solutions business also delivered growth for the first half of 2021 against a strong year ago comparison.

On slide 9 I would like to discuss the underlying dynamics influencing each of all 4 segments in the first half.

As I mentioned, we saw broad based growth in all categories led by robust performance in flavors.

Despite strong volume and continued cost discipline higher raw material costs continued to affect margin when compared to the first half of 2020, however on a year over year basis EBITDA grew about 7%.

<unk> Bioscience businesses delivered growth in the first half led by strong performance in home and personal care and grain processing.

This growth offset Covid, COVID-19 related precious and microbial control and a strong year ago comparable in health.

Higher logistic costs related to capacity and strong demand impacted our margin. Nonetheless, we are encouraged by this performance and expect continued improvement as we move into Q3.

Our leading growth in profit profitability drive a scent achieved an operating EBITDA margin increased a 170 basis points and absolute EBITDA grew nearly 20%.

This was driven by a strong rebound that fine fragrances as retail channels continued to recover continued strength in consumer fragrances and double digit growth in cosmetic actives.

<unk> also delivered strong profitability led by higher volumes favorable mix and higher productivity, which we expect to continue through the remainder of the year.

Lastly in pharma solutions the segments, 1% growth was driven primarily by improvements in industrials. So our margin was significantly challenged due to higher energy costs lower manufacturing utilization and result in a weather related raw material shortages.

Now on slides 10, and 11 I would like to discuss our continued synergy progress in connection with our merger with NMB.

From a revenue synergy perspective, we remain on track to meet our $20 million revenue synergy target this year.

With continued demand and positive feedback from our customers. We are also confident in our ability to meet our 2024 run rate revenue synergy target of approximately $400 million.

I would like to spend a moment highlighting how we realize this significant opportunity and share additional context on some of our recent wins in only 6 months since Keith.

Keeping the merger we are already seeing strong.

Affirmation in the opportunity before us.

<unk> segment is a perfect example of how our expanded portfolio and combined capabilities with NMB delivers creative solutions for our customers and creates new opportunities for our business.

Recently, our health <unk> Biosciences Division saw an opportunity to collaborate with our scent division a global scent since customer expressed a need for enzyme technology in iff's capabilities across divisions allowed us to deliver an integrated solution and ultimately create a superior dishwashing detergent.

Together with Iff's, leading fragrance capabilities, our enzyme technology and <unk> fit for purpose delivery and performance, which creates a differentiated product for our customers. This opportunity of events. It represents more than $5 million in annual sales potential.

At the same time, we are actively working with other customers across our network to develop solutions that require capabilities across all 4 divisions.

The food and beverage category, we continue to see demand for plant based meat alternatives that showcases the best of our expanded portfolio.

Low sugar low fat yogurt, we're introducing new flavor technologies with improved texture and speed to market, which are key advantages for our customers.

Lastly, our health category, we are developing an integrated solution for fiber gummy that leverages, our unmatched scientific and technical expertise combined with our best in class flavor offering.

These are just a few examples of the cross selling opportunities that we are seeing customers increasingly demand and differentiator for our business over the long term.

We made significant strides in the second quarter from an integration perspective ramping up our cost synergies from a few million dollars in the first quarter to a total of approximately $15 million on a first half basis.

This was largely a result of the comprehensive savings program, we have implemented in the second quarter, which allowed us to leverage our increased scale to reduce our indirect spend benefit from various office consolidations and renegotiations and rightsize our organization.

Additionally, because of our operating operational strength and commitment to the integration process early on.

All were able to accelerate exiting our various transition service agreements with Dupont.

I am very encouraged by the continued progress on this fund and we are on track to deliver at least $45 million cost synergies for the full year and ultimately our 3 year run rate cost synergy target of $300 million and now I will hand, it over to rustin.

Thank you Andreas.

I will begin with an overview of our consolidated second quarter results on slide 12 in Q2, ISS generated approximately $3.1 billion in sales, representing a 13% year over year increase or 9% on a combined currency neutral basis, primarily driven by double digit growth.

And our nourish Incent divisions, and a strong health and Biosciences performance.

So our gross margin, especially by higher input costs raw materials, and logistics inflation and higher airfreight volume. This was partly offset by disciplined cost management practices administrative expense reductions and cost synergies.

This enabled us to deliver adjusted operating EBITDA growth of 7%.

We also achieved strong adjusted earnings per share excluding amortization of $1.50 for the second quarter.

On slide 13, I want to provide a perspective on sales performance in Q2 versus pre Covid. There's no doubt that 2020 was an extraordinary year due to COVID-19. So it makes more sense to also evaluate our performance relative to 2019 levels.

And as you can see all 4 divisions in the second quarter delivered strong sales growth as compared to the space of period total company sales were up 8% on a 2 year basis with double digit growth and nourish and pharma solutions.

Single digit increase in scent and mid single digit growth in HMD.

With the exception of a handful of our subcategories have grown relative to their pre COVID-19 levels.

Most notably we are pleased to report that those categories. Most impacted by COVID-19 are ahead of their respective Q2, 2019 levels, including cosmetic actives, which is up double digits fine fragrance, which is up high single digits and grain processing, which was up low single digits.

Foodservice and microbial control, while we had strong growth in the second quarter of 2021 remained below Q2.2019 levels, but we expect we will continue to improve as we move forward.

This performance underscores the strength and diversity of our portfolio as well as our position as an essential partner to our customers.

Now on the next few slides I will dive deeper into the second quarter financials of each of our 4 divisions.

Beginning with nourish on slide 14.

Sales for the division increased by 15% year over year or 11% on a currency neutral basis, driven by robust double digit growth in flavors with frutarom contributing to growth and a strong ingredients performance, particularly from our protein solutions Cellulosic Lucas been gum and food protection categories.

<unk> also saw a strong rebound in food design, including a very strong 24% growth in foodservice as.

Pandemic related restrictions continue to ease and consumer behavior and away from home channels continued to normalize.

As I mentioned in the previous slide higher raw material costs put relatively modest pressure on the margins of most of our individual segments. Although we are pleased to have delivered adjusted operating EBITDA growth of 7%.

Pricing continued to accelerate in Q2 and contributed over a percentage growth in the second quarter.

As we will discuss later, we expect this will increase significantly in the third and fourth quarter as more of our pricing actions take hold.

Turning to slide 15.

Health <unk> Biosciences division saw year over year growth of 9% or 5% on a currency neutral basis led by double digit growth in home and personal care.

As Andreas mentioned earlier, we are particularly encouraged by health and Biosciences returned to growth this quarter led by our microbial control and grain processing categories strong recoveries.

From the industrial and supply chain challenges related to COVID-19.

Performance in our health category was challenged based on a particularly strong double digit probiotics year over year comparison.

This did not offset the rest of the segments growth and we remain confident in the health categories trajectory moving forward.

Health and Biosciences also delivered adjusted operating EBITDA growth of 5%.

While you will see that the division's margin was down this quarter. This was due to higher logistics costs in order to balance robust customer demand and available capacity we.

We have increased capacity investments in this business to support long term growth and invested in R&D and plant technology to increase output later this year.

We are incurring significantly higher airfreight cost to maintain our growth momentum in the interim and this is impacting our EBITDA margin.

Now turning to slide 16 to discuss the results of our Sensus Division, which continues to be a standout growth contributor this quarter.

Scent Division generated 560 million in total sales representing year over year growth of 16% or 13% on a currency neutral basis.

<unk> also achieved adjusted operating EBITDA growth of 34% with margin expansion of 300 basis points, driven by robust volume mix and productivity, which did offset some inflationary pressures.

While consumer fragrances was down slightly this quarter against a very strong double digit year ago comparison, a significant rebound in fine fragrances, which grew by approximately 85% led by new wins and improved volumes more than offset consumer fragrances more modest performance due to last year's double digit growth.

I ingredients category also contributed the division's strong performance growing double digits led by strong performance in cosmetic actives and fragrance ingredients. Overall, we are extremely pleased with <unk> continued strong performance.

Lastly, turning to slide 17 to discuss pharma solutions.

Currency neutral sales were flat against a strong year ago comparison with industrial pharma had the most significant performance driver for this division led by global specialty solutions.

<unk> performance was challenged against a very strong year ago comparison on a 2 year basis growth was solid at about $3.5 per cent.

Adjusted operating EBITDA was pressured this quarter with the margin declined due to higher energy costs and lower manufacturing utilization due to a couple of plant shutdowns as a result of weather related raw material shortages, specifically, we had raw material availability issues related to the Midwest storm in the U S earlier this year, which.

People are not able to run production and absorb our fixed costs going forward. The supply chain is improving which we expect will lead to stronger margins in pharma solutions for the balance of the year.

Now turning to slide 18.

Like to review, our cash flow position leverage dynamics for the first half of 2021, which remain a top priority as we continue to navigate a recovering global market.

As you will see in the first half ISF generated $533 million in free cash flow with free cash flow from operations totaling $698 million driven by an improvement in core working capital Capex for the first half total of $165 million approximately 3 percentage of sales as we continue to invest.

And growth accretive areas that we believe will ultimately prove rewarding over the long term as well as in integration related activities.

In the first half we also delivered 274 million in dividends to our shareholders.

As we look ahead, we are confident that our cash generation will remain robust and have announced that we are raising our quarterly dividend, marking the 12th consecutive year of dividend increases.

From a leverage perspective, our cash and cash equivalents finished at 935 million with gross debt holding steady at 12 billion. Our trailing 12 month Crazy adjusted EBIT totaled $2, 6.1 billion and our net debt to credit adjusted EBIT was $4.2 eggs.

We are slightly better than we expect to be at this point in time, and we are still expecting to de lever to below 3 times net debt to EBITDA in the first 3 years post the transaction close.

Yeah.

Now moving to slide 19, I'd like to provide an update on our financial outlook for the full year 2021.

ISS has built a solid foundation in the first half of the year and delivered particularly strong second quarter performance and we expect strong growth will continue through the rest of the year for.

For the full year 2021, we are once again, increasing our forecast for total revenues with an expectation to achieve 2021 total revenues of approximately $11.4 billion, which equates to about 7% growth.

This is up from our previous 11, 2.5 billion or 6% growth as we have confidence in our sales momentum continuing into Q3 and through the rest of the year.

Breaking down the contributors of growth, we expect currency neutral sales to be about 5% and ethics benefits to be approximately 2%.

While pandemic related uncertainties persist we are encouraged by the strong performance in important recoveries, we are seeing across the business.

We believe position us well to capture capture continued strong sales growth in Q3 and Q4.

Yeah.

At the same time, we now see full year 2021, adjusted EBITDA margin at about 22 and half per cent versus approximately 23% previously.

Part of this reduction is related to our margin performance in Q2 for all the reasons I explained earlier, we also continue to see an inflationary pressures across the supply chain from a raw material perspective, we have seen raw material costs continue to increase over the course of the year.

In the first half we were successful in raising our prices to recover a portion of the cost increases and continue to expect close to full cost recovery in the second half.

It should be noted that we're also seeing more broad based non raw material inflation, such as higher energy costs that we're managing through.

Our expectations for F rates has also increased significantly as rates are higher, but mostly higher volumes to balance robust customer demand and available capacity.

We are absorbing higher logistics costs to grow the business in the short term and expect this is only temporary until the capacity expansion projects are complete.

The combination of unfavorable price to raw material costs and higher logistics costs negatively impacting operating margin in 2021 by more than 100 basis points. However.

However, through higher sales and strong cost discipline and focus on unlocking additional cost synergies. We believe we will end up only about 50 basis points lower than our previous expectations with higher revenues and a roughly similar dollar EBITDA level.

For modeling purposes. Please note the depreciation and amortization interest expense capex as a percentage of sales adjusted effective tax rate, excluding amortization and weighted average diluted share counts all remain the same as what we share in Q1.

Overall, we are confident that we are well placed to continue capturing additional growth over the next 2 quarters and beyond.

Maintaining our focus on execution continued financial discipline, and leveraging our significantly bolstered resources and expertise as a stronger more diversified company.

Now I'd like to turn the call back to Andreas <unk>, who will provide some closing remarks before we open the line for a question answer session.

Thank you Rusty and thanks again to all of joining us today before I wrap up today's call I would like to first recognize our thousands of employees around the world will continue to display their unwavering commitment to serve our customers unify our teams together with the NMB and deliver Paul.

Cumulative.

Despite the uncertain environment that we have continued to navigate iff's first half and Q2 results showcased the strength of our combined portfolio and our ability to execute our ambitious business objectives and I am incredibly proud to lead such a talented and passionate group of buyers that price.

We have much to be proud of this quarter as we move ahead I am confident that we have built the financial and operational structure as needed for our combined company to reach even greater heights as <unk> mentioned, we are targeting a strong full year performance indicative of a post pandemic aspirations and I know we're exceptionally position.

To achieve this.

And we are seeing the strong top line momentum continue in the early days of the third quarter together, we will further further our mission to be an innovative force for good and redefine what it means to be a leader in the global value chain for consumer goods and commercial products with it I would like to open the call for questions.

Thank you.

Yeah.

Okay.

Okay.

So please press Star then 1 on your Touchtone phone you may withdraw your question at any time by pressing the pound key once again that is star and want it and we will take our first question from Mark as well with Stifel. Please go ahead. Your line is.

Yeah, Thanks, and good morning, everyone.

Good morning, Good morning, I guess the question is more around sales guidance I guess why not raise more considering the strong second quarter result, obviously comparisons remain favorable over the back half of the year, you Ruth talked about incremental pricing so.

Maybe if you could just talk about that generally and then.

Related to that was there any borrowing into Q from the back half of the year or is that something that we should listen for watch for kind of thing and how do you think about that.

And then on pricing how do you think about the increasing pricing, which seems to be much more around the <unk> portfolio.

And thinking about the elasticity there relative to the legacy business. Thank you.

Hey, Mark Hey, Mark This is Andreas let me, let me get started on it and then with some is talking about the pricing. So first of all your.

Your second question Theres no borrowing.

From from the third quarter for the second quarter I think that that's important.

Number 2 is what is driving us and the strong performance in the second quarter and also the start into into the third quarter. Because July we are just saying its already so it's a strong win rates. It's a very robust demand. We are seeing in some areas. It is also our superior technology and particularly on <unk>.

Of the enzyme business and they're really good R&D pipeline here as well. So the question now is why we are not going higher look.

It's a good environment for us right now and as for everybody else. So we have now.

Covid Delta Varian, and we said look let's be careful here won't be what we do or not.

Getting ahead of our skis here and make sure that we have a very realistic target on the sales side and most of them. If you could talk a bit about volume and pricing that would be probably helpful. Sure sure and hi, Hi, Mark.

Look I'll focus on the second half as uninsured, Inc. That we achieve the pricing needed to recover raw material and logistics costs. Okay. We do recognize we had very strong growth in Q2 predominantly volume driven but also I mean, there is uncertainty out there, but delta COVID-19.

Good.

So we've calibrated our guidance, we think appropriate day to manage performance risk and the need for pricing.

The composition is a bit different of a first half and second half growth I mean in in the second half we are expecting that on average pricing will contribute close to 2 and a half points of growth with volumes at a similar level.

So this is all without FX of course.

Got it thank you.

Yeah.

Well take our next question from Mike <unk> with Wells Fargo. Please go ahead.

Hey, guys nice quarter.

And Jay I was just curious you sounded pretty positive on the sales synergy momentum that day.

Debt that the teams are putting together any thoughts on <unk>.

Changes in the contribution potential in 'twenty, 2 and and maybe even the second half of this year.

Mike.

We are very very confident that we that we achieve what we have.

Set forth for this year second year, we will see how the run rate turns out I'm very impressed actually what the teams are doing well I'll give you a couple of examples I did know since we're going a little bit lighter on the pandemic I I did a good trip in the U S and in Europe actually twice and I saw what the power is combining.

Let's say an ingredient sale was a flavor flavor sales so.

I'm really optimistic that we are.

Moving in the right direction, but it's probably too early to have to raise the forecast already for next year that might be in the next call. We can take a very detailed look the most important thing from me is is whole natural the teams are already combining ingredients and flavors for example, and what kind of opportunities.

We have in areas like the homecare with superior edition washing detergent for example, and in the health area as well, which were not so much on all 4 formed when we started this whole endeavor and that's that's really good so I'm optimistic, but it's probably too early to try to raise it right now.

Okay Mike.

Great. Thank you.

Well take our next question from the size that all Lee with Deutsche Bank. Please go ahead.

Yes, hi, thank you.

So I wanted to ask a little bit more about health and Biosciences. I know you had previously talked about capacity constraints in that business due to elevated demand.

So maybe I was expecting in a higher growth in that segment.

Because of this but I wonder if you're capacity constrained sort of limited the growth potential.

<unk> quarter, and if you think growth should accelerate in the back half.

If theres any other color you can provide sort of within the various sub.

Sub segments within health and Biosciences to help us Uh huh.

Help us think about the business going forward.

Absolutely fine.

That's a very core part of our portfolio and we see.

For almost all the enzyme categories, we'd see really robust demand and in some areas really our superiority in technology as well. So answering your question, we had probably more demand than we could satisfy and our priority right now in this business.

Is actually to Debottleneck some of our manufacturing.

Parts investing in more let's say manufacturing lines and making sure that in the next let's say 12 to 15 months, we have really are able to deliver the strong demand here. So indeed, we had more demand than we could deliver and we are working.

No really $24.7 to make sure that we have the appropriate capacity I don't know rose from whether you want to add anything I'm sure. Thanks, Andreas Hi, Faiza I mean look strong demand at enzymes is let the tight capacity in the short in the short term, but to be clear capacity is not a medium or long term constraint rights and Andreas covered everything else.

I thought.

Okay, sorry, just to be clear then get Olympics.

And we'll take our next question from.

Yeah.

Oh, sorry, operator, <unk>, if you want to jump back on the line that'd be great you called out.

Okay.

Operating your line again.

You can go to the next question.

Nobody applies all right.

Yes, I think we lost or operating income.

I'm here I'm here, sorry, guys I thought I thought you guys were moving on to the next person, but I just wanted to clarify.

That's the capacity constraints aren't going to be net debt in the back half it tomorrow for a longer term solution from more thinking ahead to 2022 is that the right way to think about it.

Yes, some of it in the fourth quarter, but most of the bulk of it in 'twenty 'twenty 2 yep absolutely perfect. Thank you.

So net to John Roberts with UBS. Please go ahead your line is open.

Thank you.

Mentioned active portfolio management do you anticipate any more significant divestments to accelerate debt reduction.

[laughter] I would say at the moment, we're working hard to look what we do with all of our portfolio is probably too early to say something more in detail.

Yeah, but that's probably on I don't know if you want to say anything.

Hi, John.

Alright.

Secondly, there is continued to be some turnover among the senior management team how concerned should we be about debt.

Look we were always concerned if we have turned over on the management team. So far I think we keep it in a way that we make sure that we are really firing on all cylinders until we find the right right people because it's a it's a big task. We have for you right now on 1 hand delivering on that.

Our numbers integrating the businesses and then we are still in the pandemic, which makes it easier but in general I think we have been very well under control and as you can see.

Most of these.

Units are performing actually very very very well and we expect the same next year for the third quarter as well.

And we will take our next question from Gunther <unk> with Bernstein.

Okay.

Yes.

Hi, good morning.

Couple of questions. Please firstly on raw materials continue to guide for 5 percentage for this year is that sort of time of day, yeah. When you start supply negotiations for next year as well how should we think about that more like a 2 year stack of high percentage each or what do you see in those negotiations. Please and then secondly on.

Nor Asia strong growth that it's quite a remarkable not just the growth in itself, but also versus free if at all and Sim Ryan that you outperformed and I. Appreciate that's been 1 extra working day in that but that still outperforms. So can you talk about the sustainability of growth versus peers going forward.

And what's what's driven the outperformance.

In the quarter, how much of that is just food services portfolio mix and how much is win rates. Please.

So I'll address your line.

And then I'll leave you stock the other.

Let me get started so yeah.

We are very optimistic on the newest wide now also in comparison to 2 somewhat some of our peers and theres a lot of good wins coming in very strong winds and particularly on the flavors side.

And it's it's really good book, we see the pipeline is pretty.

It's pretty filled we see as well that are now having the ingredients helps us to open up new customers from flavors, because you do always with the Cpg's Firstly ingredient sales and then the flavors sales and the dynamic right. Now is if we see an ingredient sales we try to cross sell already the flavors, which is which is working.

Actually quite quite nicely so.

Win rates are really good and strong.

Demand is very very very robust won't be C as well as well and we started being very short term.

Chris Newish, as well actually super strong into the into the third quarter and rose from if you could talk about the raw mats that will be a really good yes, hi, Andreas Heidelberg is actually are actually looking at closer to about 5.5% now we've seen a continued infill.

Inflation in logistics so.

And and and and and raw materials. So yes. We have started the give me us getting close to starting negotiations and working on all of that but good day at this point in time, we are not seeing any deceleration in inflation in fact, if anything we're seeing it continuing in excess abating in general.

It actually has a it actually has a.

There's debt, there's another impact to this as well because even when we recover 100%.

Of the cost increases I mean that does push down our operating margin and you can actually go and take the just do the math to anyone interested you can go back and pick a number like 225 million of cost and $225 million of price recovery to our 2020 results and keep everything else unchanged.

And that alone takes about 50 basis points of operating margin. So that's just pure math.

There's different factors in here.

And we will take our next question from Adam Samuelson with Goldman Sachs. Please go ahead.

Yes, Thank you and good morning, everyone.

Good morning, Adam.

Good morning, So I was hoping maybe.

<unk> off the last question, but maybe thinking.

A little bit longer term.

How do we think about.

The cost pressures and inflation this year.

Getting up you're going after pricing aggressively to recover that.

Do we think about that impacting some of the.

Are the trajectory impacting the medium term targets around revenue growth around.

EBITDA margins by 2023, how does it have any impact in terms of the timing of synergy capture over the next 12 to 24 months because I know procurement was a was a big part.

A big bucket in terms of the targeted cost synergies and I'm just trying to think about how do you experienced this year and some of the market dynamics at play impacted forward trajectory.

Yeah.

Yes, that's a good question, Adam and I have to say that that was a big focus for our team right now to look because we didn't get the procurement savings in the second quarter, we wanted and probably not in the search so we shifted actually a.

Pretty agile.

Way, how we how we deliver the synergies. So it was more cost solid in particular in terms of head count and other areas areas as well and we are now planning for next year getting more of the of the synergies from procurement and then certainly in 2023, because some point in time. It will ease. So we are I think we did.

You did a good job to just a let's say shift will be get it I get it from on the revenue growth before I hand, it over to Russ some on EBITDA.

It is certainly positive because you will see also carryover effect into next year on the sales line. If you have raised rates surprised us, which is which is good and good to see force, but I guess everybody in that marketplace is doing the right now but rest of them. If you can talk about the cost pressures in general how you see it in the EBITA margin will do.

Hi, Adam.

And like I said, I mean, the impact of the even even with fluid recovery. It's it depresses our operating margin. If you look at some of the other factors. We're getting we're getting this year, it's not so bad debt capacity expansion projects as we talked about with the size of their come on line.

2022, so the negative air freight impact that we're seeing will go away. When you think by the time income into 2023.

Yeah. So you recognize the 26 of 26% numbers a little further away from where it is right now compared to when we are there, but you know as we started it's a 3 year number we're committed to it.

And what we're looking at this so far this year, we've got stronger sales and.

As you can see slightly lower margin than we expected.

It's actually a good point arose from is making because.

A big portion of it is driven by air freight and as soon as we have enough capacity available, we will reduce CFO quite quite significantly which is super helpful. On the cost side as well.

And we'll take our next question from Jeff Zekauskas with J P. Morgan. Please go ahead. Your line is open.

Thanks very much.

Why were sent margins up year over year, and nourish margins down what was it that Santana a better pricing dynamic or is there some other factor.

How large is the preparations business.

So the so that we can take let me take yeah, let me take the <unk> part of that so most of the cost increases that the raw material cost increases that we've seen coming through and that's still coming through are impacting nourish.

I mean, if you think about you know.

$220 million ish sort of cost hit that we're having right now are part of which is a freight rates. Okay, not the freight volume that Andreas and I talked about but freight rates.

Probably close to 80% is impacting nourish and it's a few specific areas. It's a it's a soy meal soy protein. That's the biggest 1 that we see that there is it'll be killed Lotus speed current little that's very close behind and then there's also like a vegetable oils propylene glycol and stuff like that having the scent biz.

This the the impact turpentine cedarwood, its there and its coming in but it's coming in more in the in the back half of the year as opposed to the to the first half of the year and it was smaller compared to nourish nourishes, where we had the biggest impact so that's what you're really seeing driving the business there.

And the preparation business, how big was that.

That's a that's a small business I didn't know if leave with the sales I wanted us to disclose that but we are talking it's a very small sub sub 100 million how's that.

Great. Thank you so much.

Okay.

Well take our next question from that Lauren Lieberman with Barclays. Please go ahead. Your line is open.

Great. Thanks. Good morning, I guess first thing was just with the comments that you expect legacy ISS to be up double digits of net for the balance of the year, which is really impressive set of expectations I think it would imply that the NMB side of the house with BC decelerating pretty considerably.

I mean, it sounds like that might be due to the capacity constraints, but I was just curious if you could comment on that sorry.

Christian you want to take it yeah, Hi, Lauren actually it's it's the the comment is that the in Q2 heavy page ISF currency neutral growth was low double digits.

In Q2 and in these current debt.

With Adrian in these currency neutral growth was mid single digits right.

I mean, I think that's a that's a.

So.

So I mean, I thought perhaps that is it andreas.

Yeah, No actually look what we see is a we have recovered will recover in the second half in pharma.

Because we are recovering some of it through all the cold snap we had in the Midwest. So that will come back, but probably not to the degree we have the demand and on the.

It helps them Bioscience piece is certainly driven by by our manufacturing capacity, which is which is limited.

But also with higher higher comps, we will see for the last day last 2 quarters. So we will see how it all goes we are very careful here on this side, but it will be more positive than what we have seen in the in the first quarter. So certainly we saw already an acceleration in the second quarter and it will go into in the right direction. So we are absorbing it.

Quite carefully but I can tell you also in the third quarter. The legacy <unk> businesses have had a pretty strong a strong start.

And then certainly parts of it is in the newest business as well and reflected in the numbers in particular, the ingredients business, we should not underestimate that.

By the way having you on I hope you have seen the really strong performance of fine fragrances, which are really going into right direction, helping with the mix on the send side quite significantly.

Absolutely and I also know that ISS has had a number of the new big new launches in the industry are our iff's prescient millwork sales have definitely seen that.

I had 1 more question, though on the debt.

The capacity.

Additions and you still got a little bit about so far.

Sure.

I was curious the degree as you've now gotten further in with the NMB business.

It feels like perhaps that's been a bit underinvested and whether it was in the 12 to 15 months prior to the deal close or even before that.

Because they need to be investing in cat in capex that call out of higher than expected logistics separate from rate right, but just again because of these capacity air freight and so on suggests that there is something there. So just curious about that is it are you get to the point where.

This could be a multi year period of investment in capacity not just 1 year, you've got the cash flow but.

But just but just curious about that thanks.

No. It's a good point Laurence.

I would say there are 2 things, which come come together 1 is the very robust demand and a lot of wins, we had some particularly on the enzyme a piece and that came a bit of a surprise.

2 to the to the units so that's where we need some some investments here to deliver on it.

I would not say it was under invested but it was probably also some of the pandemic non.

On the real time horizon, we could have had some of the expansion already probably 6 months earlier than we would be in a better position, but it is as it is and we have fallen now adapted our capex spend going going forward that we can deal with these.

Let's say shorter.

Shortages quite quite nicely over the next I would say 15.15 15 months. The positive for me is is it that the demand is very robust and the other positive is that we see some superiority of our products.

In that market, which is really good and then there is something which we haven't talked too much because it might be more midterm, but the R&D pipeline in particular, where it comes from an N V is super strong and it will help us with all wins growing going forward I don't know if you have anything to add.

Uh huh.

Yeah, I guess Andreas I mean, just this thing and it is a little bit of a multi year I mean, we're probably going to spend.

About another 450 million in total, but it's it's it's it's actually good we can use them. All we've got good strong business I mean, it's a.

I view this as a positive and we have the cash flow and that's.

So we're going to use it.

And well take our next question from Ghansham Panjabi with Baird. Please go ahead. Your line is open.

Okay. Thanks, Thanks for taking my question.

Andreas just kind of thinking about your portfolio at this point you know obviously mobility is starting to directionally improve globally, and you're seeing the impact on foodservice and fine fragrances and some other businesses on the same token youre, saying CPG companies talk about moderation, but volumes, whether it's food or just consumer products more broadly so how do you see those dynamic.

Sort of netting out from <unk> as we progress over the next couple of quarters do you see categories that are starting to moderate and if so would that affect the.

The sales growth that you're anticipating at this point thanks.

Yeah, absolutely good very good question on the I would say if I go to the different categories.

We see still a strong demand for fine fragrances and this is not just driven by the robust demand right now, but also by our win rate.

We are winning more than off your share in debt.

Very very helpful consumer fragrance.

Here I would say in general for the market you see a moderation and that's what you hear in the market from the big CPG as well, but again.

We are in the in the in the good position, we're lucky position that we own all the callers. We wanted it wanted to be and then we talked over the last couple of quarters about the 3 calls we made a year and half ago and they are really contributing so that's helpful for us but in general we see some some moderations. Another 1 is active cosmetics, we seek oh.

A big Big and strong growth going going forward on our health and bioscience.

I would say, a very strong and home and personal care, but more driven by our wins and our technology then by the by the whole market. So that's what I would say and then grain processing and microbial control are coming back.

Out of our.

I'd say a modest performance in lost last year and animal nutrition. This is pretty pretty good good as well on the neuroscience.

I'd say, we havent seen any slowing down of demand and that might be also driven because we are now in a unique position that we can offer from the ingredient to the flavor to the total solution that we ended different position than many of our competitors and that helps us actually to come to position us in the right way.

Answering your question as we see some markets, we see in the market moderation, but not too much for us because of the position where we end weighted right now so that would be my my overall comment.

Yes.

And we will take our next question from Mark Connelly with Stephens Inc. Please go ahead. Your line is open.

Thank you Andreas when you think about Covid reopening what are the big opportunities. If we continue to move along and what are the risks if we I'll start Tabasco.

With whom dining gets it.

To get a sense of where you are ex health and wellness because as you just pointed out we're in a very different position than you were when we went into COVID-19.

Yes, Yes, I would say is if we're starting to.

To close down again.

The Delta variant is free.

Really proving.

Dangerous force I would say the foodservice is the only business I could think of right now which could be impacted maybe fine fragrance, but what we have seen as much more online usage, but these are the 2 categories.

C C and impact or negative impact on the other hand, if they're closed on comes I would say that consumer fragrances in particular in terms of the health and hygiene products are going up and as you said on the health side as well because people are trying to 40 watt fortify their food trying to be healthy.

Getting more probiotics in and so I would say we have at least as many opportunities as we have risk towards another does not close down. So that's how I would describe it for now.

And we'll take our next.

Yeah.

Citi. Please go ahead.

Yes, hi, good morning.

And just quickly Hey, Andrea system.

You had good growth in scent, particularly the 85% growth in fine fragrance.

Are you back to pre pandemic levels in fine fragrance and was there any inventory building in fine fragrances channel that we should think about.

Yeah look we are.

Yeah, even outperforming all of 2019 number.

And this quarter will show, whether there's an inventory building or not because now they're starting to order for the Christmas business.

And so far it's actually it's a strong start and into the third quarter. So I would say not so much inventory building and then there's an extra effect on our side for fine fragrances that we are winning we do a lot of business and a lot of good fragrances as well, which are very nicely marketed so that's how I would describe it I dunno loose from anything to add from your.

Your line.

Thank you covered it.

Yeah.

And we'll take our next question from Matthew <unk> with Bank of America. Please go ahead. Your line is open.

Hi, Thanks, so questions for you on the margin and margin outlook I guess first what happened to pharma costs can you dig a little debt day.

In a little bit more on that it seems like you're blaming Gary but that was mid February and so you know.

How do you how do you improve from there going forward at what rate do we climb out of this hole and then if I look at the 100 basis points of margin hit you mentioned [noise] risked them can you break that down a little bit between what.

What would be raw material energy inflation type stuff that the whole industry would expand experiencing and maybe what percentage of that 100 basis points is unique to iff's, given air freighting capacity issues outages et cetera.

So lets me Hi, let me let me do the first 1 I mean, yes. The it came from the February outages, but the problem, there's still been problems with the suppliers and then therefore, some material type situations right with methane flow rate and it shut down 2 of our plants are temporarily during the period, which meant that it's a pity because we could have sold every single thing we produce stuff.

<unk> and <unk> and then we also had underutilization. So that's what that's what came through there.

If I was to roughly look at the at the break in general at the percentage was in general between raw material and freight about.

Call It 85 per cent or sort of the total comes from raw material increases the increases and about 15% from France, and that's it but but interestingly freight so much smaller portion right. If if you break up that 5 and a half that we talked about the material cost impact is probably about 5% inflation, we're seeing I'm rounding all these numbers and the freight the freight.

Rate increases probably about 8% and may even be slightly higher but the way that screen I mean containers that 3 to 4 times see free it is as a <unk>.

As high as they've been and also Theres 1 more complication, even when we have contracted rates. We have there you know, we and many others experiencing lots of delays going on and stuff. So we even sometimes book, we couldnt get the stuff on the contracted rates too much later and have to be spot rates.

And we also force sometimes we look at different modes of transport from a reliability perspective, so lots going on there.

Yeah.

And there appears to be 1 that last question well take our final question from Lisa <unk> with Morgan Stanley. Please go ahead.

Good afternoon, guys 2 questions from me and a follow up so if I can just trying to take care of business I mean, even if it's very strong margins to share too much expenditures related to favorable product mix towards fine fragrances in action.

We expect this to trend in the second half given raw materials were kicking in a little bit more meaningfully but at the same time you did mention you were still going to see relatively good demand for fine fragrance. That's my first question.

Second 1.

In the presentation, you mentioned that in the second half you may see a fairly similar contribution from price thing about 2 and a half defense and <unk> central volume and I'm, just trying to understand why you're being so cautious on the volume side or maybe I just misunderstood. This thank you very much.

Tristan can you take it sure.

Sure I mean on debt.

Lisa on the on the volume side I mean, it's it's look I mean, I focus from the second half as uninsured that we get pricing right to recover raw material cost, we're trying to recover close to 100% debt that is really important to being able to deliver the EBIT.

And the numbers there and we did have strong very strong growth in Q2 predominantly volume driven and so you know what we've what we've our guidance or at least the second half as sort of you know where we're trying to guide to manage in a performance risk and the need for pricing again. So that's so that's really what you're seeing over there.

And on the first part of your question.

I mean, yeah for scent for the scent business. The margin expansion was really driven by the mix for sure I mean for sure I mean, when you have fine fragrances growing up 85 per cent that's tremendous right.

So it was mix, but there's also volume growth and generally I mean, you'll see cosmetic actives as a as a super as well.

And then productivity and that's then that offset inflationary pressures and costs, which youre seeing there as well and in the second half we will see more costs coming the way with the scent business not not on the scale of the.

Narration, what they've seen anything to add bandwidth.

No I think you kept it very very well I just want to make a general remark on mix. Obviously, we try for all businesses now to push basically all the parts of the portfolio, which have the higher profitability in the higher growth gross areas, which over time should really help us which makes them and I think what you see with scent.

It's a it's something which is a very positive driver for us for our profitability going going forward.

Okay. Thank you very much.

Sure.

No no further questions I will turn the call back over to Andreas for any closing remarks.

Yeah. Thank you yeah, we are incredibly proud to on the on the second quarter because again as we said first of all we delivered strong growth even in comparison to 2019, which is real good good parent meter yeah.

Secondly, we are integrating well with the with the NMB business and we do it in a time of the pandemic and I think again I would like to you to use the time to congratulate all of our teams around the globe for what they have accomplished and I think it's not an easy task and everybody did really its best and that's where that stands for thank you.

For that and talked to most of you later, thank you guys Bye bye.

Goodbye.

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

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At this time I would like to welcome everyone to the ISO in the second quarter 2021 earnings Conference call all.

All participants will be in a listen only mode until the formal question and answer portion of the call. So that's a good question at that time. Please press star 1 on your telephone keypad. If you like to remove your name from the queue. Please press the pound key participants will be announced by their name and company in order to give all participants an opportunity to ask that.

Question when you request a limit of 1 question per person I would now like to introduce Michael Deveau head of Investor Relations you may begin.

Thank you good morning, good afternoon, and good evening, everyone. Welcome to Iff's second quarter 2021 conference call yesterday, we issued a press release announcing our second quarter financial results and outlook for 2021.

A copy of the release can be found on our IR website at IR Dot Iff's Dot com.

Please note that this call's being recorded line it will be available for replay.

I ask that you. Please take a moment to review our forward looking statements.

During the call we are making forward looking statements about the company's performance and business.

These statements are based on how we see things today and contain elements of uncertainty.

For additional information concerning the factors that could cause actual results to differ materially from our forward looking statements. Please refer to our cautionary statement and risk factors stated in yesterday's press release.

Today's presentation will include non-GAAP financial measures, which exclude those items that we believe affect comparability.

A reconciliation of these non-GAAP financial measures to their respective GAAP measures is available on our website.

Please note that we'll be using combined historical results for the second quarter defined as 3 months of legacy Iaff results and 3 months of legacy <unk> results and for the first half 2021 defined as 6 months of legacy ISS January to June and 5 months of legacy NMB February could you.

In both the 2020 and 21 periods to allow comparability in light of the merger completion on February 1.2021.

With me on the call today is our chairman and CEO Andreas Good day, and our executive Vice President and CFO reached from Gela.

We will begin with prepared remarks, and then take any questions that you may have.

I would now like to call it turn the call over to Andreas.

Thank you, Mike and thank you everyone for joining us today.

We'll begin today's call by providing an overview of our performance during the first half of 2021.

I hope by an update on regarding our ongoing efforts to fully integrate the NMB business. Following the completion of the transaction in the first quarter of the year.

Yeah.

<unk> will then provide a detailed review of our second quarter financials, highlighting segment level of business performance and the market dynamics, we saw in the quarter.

Before we jump into the question and answer session. Wilson will also conclude with an overview of our expectations for the remainder of 2021.

Now beginning with slide 6 I would like to review our business highlights for the first half of the year.

I am pleased to report that <unk> has delivered a strong performance in the second quarter, which is the robust acceleration bizarre combined Q1 growth and so the first.

Half of the year.

As I've said before execution is everything and has delivered strong financial results, while advancing our ongoing integration of airports. Following the completion of the NMB merger in February.

The first half of 2021, <unk> achieved $5.6 billion in sales, representing 8% growth of 5% on a currency neutral base for.

For comparable purposes and to reflect the portfolio differences between our peers I want also to highlight that both businesses performed well with legacy Iff's, achieving a very strong high single digit growth rate with nearly 100 basis points of EBITDA margin expansion and legacy NLP growing in mid single digits.

At the same time, we continue to operate in a challenging global environment with significant headwinds and material cost and supply chain logistics.

In the first half combined EBITDA growth was a solid 6% and a combined EBITDA margin of 22, 5%.

Importantly, our strong free cash flow of 533 million enabled <unk> to maintain significant financial flexibility, including all airports to delever.

We remain on track to achieve our deleveraging targets.

3 times by year, 3 post transaction close and we improved our net debt to credit.

Adjusted EBITDA leverage from 4.3 times in the first quarter to 4.2 times in the second quarter.

Finally, we are also well on track with integrated integrating the <unk> business and continued to realize synergies in line with our expectation for the transaction.

As we sharpen the iva portfolio, we continue to progress on the divestiture of our food preparation business, which we expect to be completed late in the third quarter or early fourth quarter as.

As I mentioned last quarter, the divestiture of this non core businesses will create a more efficient <unk>.

With an enhanced ability to grow and innovate across the key business segments.

<unk> to ongoing active portfolio management, and we will continue to seek ways to increase value equation.

Stepping back to reflect on the first half of the year I am very pleased with what we have been able to accomplish we delivered strong sales growth, which is an acceleration versus historical performance from both legacy.

And legacy F N b in the midst of a transformational integration as well as the global pandemic.

This is a validation of our strategy motivates our team to continue defying industry expectations as we continue to see the benefits of our expanded product offering and capabilities.

Long term growth prospects of our business are strong and we are making investments in capacity R&D and planned technologies as well as increasing inventory levels and incurring higher logistic costs to maintain our growth momentum in the interim specifically and the NMB business as we maximize our growth opportunities.

Going forward.

As we look to the third quarter and second half of 2021, our objectives are clear build on this momentum while executing on our integration plans, allowing <unk> to fully leverage our new capabilities and chief achieve our long term expectations.

Turning to slide 7 I would like to briefly discuss the regional sales dynamics that influence our results for the first half.

Despite persistent global challenges and various economic recoveries. We are pleased to reported growth in each of our 4 key operating regions.

In North America, we achieved growth in all of our business segments led by a single digit growth in scent Newark, and H M B.

Similar to the first quarter, our Asian markets continue to perform well achieving a 5% increase in sales led by a double digit growth in India and a mid single digit performance in China.

While we had anticipated that growth would have been impacted in India due to COVID-19 in the second quarter. The business was resilient and finished higher than we expected with strong double digit growth in Q2.

From a segment perspective in Asia strong increases across our north scent in pharma solutions businesses. All contributed to this sustained growth in this key region.

Latin America, our strongest performing region, we achieved 12% sales force.

Driven by double digit performance in nearly all of Iff's business segments, and underpinned by favorable currency movements.

And the impact, Brazil, Mexico, and solid corn, all achieved growth in the first half.

We are particularly pleased to reported our EMEA region has impressively rebounded in the second quarter up to high single digits, we achieve a 2% increase in sales in the first half as COVID-19 related restrictions eased or.

Our <unk> business performed particularly well in Q2, but was achieving double digit growth.

Baring any newly emerging COVID-19 challenges, we expect this growth to continue through the remainder of the year.

As global vaccination rates increase in western and Central Europe continue to recover.

Yes.

Sure.

Now turning to slide 8.

I will provide a more detailed look at our sales performance across key business segments through the first half of 2021, particularly those that significantly contributed to our overall, 8% sales growth, while 5% growth on a currency neutral basis that I mentioned earlier.

We are pleased to report solid growth across all of our 4 core divisions Newish has some bioscience scent in pharma solutions.

She achieved currency neutral growth of 6% driven by a strong performance in flavors ingredients and food design.

Similar to the first quarter scent remains our largest sales driver on a year to date basis, achieving 8% net currency neutral growth led by a strong performance in fine fragrance and consumer fragrance.

Our health <unk> Biosciences business has returned to solid growth in the second quarter. Following a challenging first quarter, where sales were affected by COVID-19 pressures and microbial control and grain processing.

While microbial control continues to be challenged for the first half we saw growth in grain processing, which showed a recovery in the second quarter as well as home and personal care coaches and food enzymes and animal nutrition.

Finally, our pharma solutions business also delivered growth through the first half of 2021 against a strong year ago comparison.

On slide 9 I would like to discuss the underlying dynamics influencing each of all 4 segments in the first half.

As I mentioned, we saw broad based growth in all categories led by robust performance in flavors. Despite.

Despite strong volume and continued cost discipline higher raw material cost continued to affect margin when compared to the first half of 2020, however on a year over year basis EBITDA grew about 7%.

OLS and bioscience businesses delivered growth in the first half led by strong performance in home and personal care and grain processing.

This growth offsets Covid, COVID-19 related pressures and microbial control and a strong year ago comparable in house.

Higher logistic costs related to capacity and strong demand impacted our margin. Nonetheless, we are encouraged by this performance and expect continued improvement as we move into Q3.

Our leading growth in profit profitability drive a scent achieved an operating EBITDA margin increased 170 basis points and absolute EBITDA grew nearly 20%.

This was driven by a strong rebound in fine fragrances as retail channels continued to recover continued strength in consumer fragrances and double digit growth in cosmetic actives.

<unk> also delivered strong profitability led by higher volumes favorable mix and higher productivity, which we expect to continue through the remainder of the year.

Lastly in pharma solutions the segments, 1% growth was driven primarily by improvements in industrials. So our margin was significantly challenged due to higher energy costs lower manufacturing utilization and result in a weather related raw material shortages.

Now on slide 10, and 11 I would like to discuss our continued synergy progress in connection with our merger with NMB.

From a revenue synergy perspective, we remain on track to meet our $20 million revenue synergy target this year.

With continued demand and positive feedback from our customers. We are also confident in our ability to meet our 2024 run rate revenue synergy target of approximately $400 million.

I would like to spend a moment highlighting how we realize this significant opportunity and share additional context on some of our recent wins in only 6 months since.

Treating the merger we are already seeing strong.

Affirmation in the opportunity before us.

<unk> segment is a perfect example of how our expanded portfolio and combined capabilities with NMB delivers creative solutions for our customers and creates new opportunities for our business.

Recently, our health <unk> Biosciences Division saw an opportunity to collaborate with our scent division a global scent since customer expressed the need for enzyme technology in iff's capabilities across divisions allowed us to deliver an integrated solution and ultimately create a superior dishwashing detergent.

Together with Iff's, leading fragrance capabilities, our enzyme technology and <unk> fit for purpose delivery and performance, which creates a differentiated product for our customers. This opportunity of events. It represents more than $5 million in annual sales potential.

At the same time, we are actively working with other customers across our network to develop solutions that require capabilities across all 4 divisions.

The food and beverage category, we continue to see demand for plant based meat alternatives that showcases the best of our expanded portfolio.

For low sugar low fat yogurt, we're introducing new flavor technologies with improved texture and speed to market, which are key advantages for our customers Lastly, and ill health category. We are developing an integrated solution for fiber gummy that leverages, our unmatched scientific and technical expertise combined with our best in class.

<unk> flavor offering.

These are just a few examples of the cross selling opportunities that we're seeing customers increasingly demand and differentiator for our business over the long term.

We made significant strides in the second quarter from an integration perspective ramping up our cost synergies from a few million dollars in the first quarter to a total of approximately $15 million on a first half basis.

This was largely a result of the comprehensive savings program, we have implemented in the second quarter, which allowed us to leverage our increased scale to reduce our indirect spend benefit from various office consolidations and renegotiations and rightsize our organization.

<unk> because of our operational strength and commitment to the integration process early on we were all able to accelerate exiting our various transition service agreements with Dupont.

I am very encouraged by the continued progress on this fund and we are on track to deliver at least $45 million cost synergies for the full year and ultimately our 3 year run rate cost synergy target of $300 million and now I will hand, it over to rustin.

Thank you Andreas.

I will begin with an overview of our consolidated second quarter results on slide 12 in Q2, ISS generated approximately $3.1 billion in sales.

Representing a 13% year over year increase or 9% on a combined currency neutral basis, primarily driven by double digit growth in our nourishing scent divisions, and a strong health and Biosciences performance.

So our gross margin, especially by higher input costs raw materials, and logistics inflation and higher airfreight volumes. This was partly offset by disciplined cost management practices administrative expense reductions and cost synergies.

This enabled us to deliver adjusted operating EBITDA growth of 7%.

We also achieved strong adjusted earnings per share excluding amortization of $1.50 for the second quarter.

On slide 13, I want to provide a perspective on sales performance in Q2 versus pre COVID-19.

No doubt that 2020 was an extraordinary due to COVID-19. So it makes more sense to also evaluate our performance relative to 2019 levels.

And as you can see all 4 divisions in the second quarter delivered strong sales growth as compared to the space of period total company sales were up 8% on a 2 year basis with double digit growth and nourish and pharma solutions.

High single digit increase in scent and mid single digit growth in H B.

With the exception of a handful of all of our subcategories have grown relative to their pre COVID-19 levels.

Most notably we are pleased to report that those categories. Most impacted by COVID-19 are ahead of their respective Q2, 2019 levels, including cosmetic actives, which is up double digits fine fragrance, which is up high single digits and grain processing, which was up low single digits.

Foodservice and microbial control, while we had strong growth in the second quarter of 2021 remained below Q2.2019 levels, but we expect will continue to improve as we move forward.

This performance underscores the strength and diversity of our portfolio as well as our position as an essential partner to our customers.

Now on the next few slides I will dive deeper into the second quarter financials of each of our 4 divisions.

Beginning with <unk> on slide 14.

Sales for the division increased by 15% year over year or 11% on a currency neutral basis, driven by robust double digit growth in flavors with frutarom contributing to growth and a strong ingredients performance, particularly from our protein solutions Cellulosic Lucas been gum and food protection categories.

<unk> also saw a strong rebound in food design, including a very strong 24% growth in foodservice.

Pandemic related restrictions continue to ease and consumer behavior and away from home channels continued to normalize.

As I mentioned in the previous slide higher raw material costs, but relatively modest pressure on the margins of most of the individual segments. Although we are pleased to have delivered adjusted operating EBITDA growth of 7%.

<unk> continued to accelerate in Q2 and contributed over a percentage growth in the second quarter. As we will discuss later, we expect this will increase significantly in the third and fourth quarter as more of our pricing actions take hold.

Turning to slide 15, our health.

Health and Biosciences division saw year over year growth of 9% or 5% on a currency neutral basis led by double digit growth in home and personal care.

As Andreas mentioned earlier, we are particularly encouraged by health and Biosciences returned to growth this quarter led by our microbial control and grain processing categories strong recoveries from.

The industrial and supply chain challenges related to COVID-19.

<unk> and our health category was challenged based on a particularly strong double digit probiotics year over year comparison, although this did not offset the rest of the segments growth and we remain confident in the health categories trajectory moving forward.

Health and Biosciences also delivered adjusted operating EBITDA growth of 5%.

While you will see that the division's margin was down this quarter. This was due to higher logistics costs in order to balance robust customer demand and available capacity.

We have increased capacity investments in this business to support long term growth and invested in R&D and plant technology to increase output later this year.

Our incurring significantly higher airfreight cost to maintain our growth momentum in the interim and this is impacting our EBITDA margin.

Now turning to slide 16 to discuss the results of our Sensus Division, which continues to be a standout growth contributor this quarter.

Our scent division generated $560 million in total sales representing year over year growth of 16% or 13% on a currency neutral basis.

<unk> also achieved adjusted operating EBITDA growth of 34% with margin expansion of 300 basis points, driven by robust volume mix and productivity, which did offset some inflationary pressures.

While consumer fragrances was down slightly this quarter against a very strong double digit year ago comparison, a significant rebound in fine fragrances, which grew by approximately 85% led by new wins and improved volumes more than offset consumer fragrances more modest performance due to last year's double digit growth.

I ingredients category also contributed the division's strong performance growing double digits led by strong performance in cosmetic actives and fragrance ingredients. Overall, we are extremely pleased with <unk> continued strong performance.

Lastly, turning to slide 17 to discuss pharma solutions currency neutral.

Neutral sales were flat against the strong year ago comparison with industrial pharma. The most significant performance driver for this division led by global specialty solutions from US performance was challenged against a very strong year ago comparison on a 2 year basis growth was solid at about 3.5% adjust.

Operating EBITDA was pressured this quarter with the margin declined due to higher energy costs and lower manufacturing utilization due to a couple of plant shutdowns as a result of weather related raw material shortages, specifically, we had raw material availability issues related to the Midwest storms in the U S earlier this year.

Which meant we were not able to run production and absorb our fixed costs going forward. The supply chain is improving which we expect will lead to stronger margins in pharma solutions for the balance of the year.

Now turning to slide 18, I'd like to review, our cash flow position leverage dynamics for the first half of 2021, which remain a top priority as we continue to navigate a recovering global market.

As you will see in the first half ISF generated $533 million in free cash flow with free cash flow from operations totaling $698 million driven by an improvement in core working capital Capex for the first half total of $165 million approximately 3 percentage of sales as we continue to invest.

And growth accretive areas that we believe will ultimately prove rewarding over the long term as well as in integration related activities.

In the first half we also delivered 274 million in dividends to our shareholders.

As we look ahead, we are confident that our cash generation will remain robust and have announced that we are raising our quarterly dividend, marking the 12th consecutive year of dividend increases.

From a leverage perspective, our cash and cash equivalents finished at 935 million with gross debt holding steady at $12 billion.

Our trailing 12 month Crazy adjusted EBIT totaled $2, 6.1 billion and our net debt to adjusted EBITDA was 4.2 X.

We are slightly better than we expect to be at this point in time, and we are still expecting to de lever to below 3 times net debt to EBITDA in the first 3 years post the transaction close.

Yeah.

Now moving to slide 19, I'd like to provide an update on our financial outlook for the full year 2021.

ISS has built a solid foundation in the first half of the year and delivered particularly strong second quarter performance and we expect strong growth will continue through the rest of the year for.

For the full year 2021, we are once again, increasing our forecast for total revenues.

And expectation to achieve 2021 total revenues of approximately $11.4 billion, which equates to about 7% growth.

This is up from our previous 11, 2.5 billion or 6% growth as we have confidence in our sales momentum continuing into Q3 and through the rest of the year breaking.

Breaking down the contributors of growth, we expect currency neutral sales to be about 5% and FX benefits to be approximately 2%.

While pandemic related uncertainties persist we are encouraged by the strong performance in important recoveries, we are seeing across the business.

Which we believe position us well to capture capture continued strong sales growth in Q3 and Q4.

At the same time, we now see full year 2021, adjusted EBITDA margin at about 22.5% versus approximately 23% previously.

Part of this reduction is related to our margin performance in Q2 for all the reasons I explained earlier, we also continue to see inflation inflationary pressures across the supply chain from a raw material perspective, we have seen raw material costs continue to increase over the course of the year.

In the first half we are successful in raising our prices to recover a portion of the cost increases and continue to expect close to full cost recovery in the second half it.

It should be noted that we're also seeing more broad based non raw material inflation, such as higher energy costs that we're managing through.

Our expectations for F rates has also increased significantly as rates are higher but most of the higher volumes to balanced robust customer demand and available capacity.

We are absorbing higher logistics costs to grow the business in the short and expect this is only temporary until our capacity expansion projects are complete.

The combination of unfavorable price to raw material costs and higher logistics costs negatively impacting operating margin in 2021 by more than 100 basis points. However.

However, through higher sales and strong cost discipline and focus on unlocking additional cost synergies. We believe we will end up only about 50 basis points lower than our previous expectations with higher revenues and a roughly similar dollar EBITDA level.

For modeling purposes. Please note the depreciation and amortization interest expense capex as a percentage of sales adjusted effective tax rate, excluding amortization and weighted average diluted share counts all remain the same as what we share in Q1.

Overall, we are confident that we are well placed to continue capturing additional growth over the next 2 quarters and beyond.

Maintaining our focus on execution continued financial discipline, and leveraging our significantly bolstered resources and expertise as a stronger more diversified company.

Now I'd like to turn the call back to Andreas <unk>, who will provide some closing remarks before we open the line for a question answer session.

Thank you Rusty and thanks again to all of joining us today before I wrap up today's call I would like to first recognize all are solid enough employees around the world will continue to display their unwavering commitment to serve our customers unify our teams together with the NMB and deliver Paul.

Communities.

Despite the uncertain environment that we have continued to navigate iff's first half and Q2 results showcased the strength of our combined portfolio and our ability to execute our ambitious business objectives and I am incredibly proud to lead such a talented and passionate group of buyers that price.

We have much to be proud of this quarter as we move ahead I am confident that we have built the financial and operational structure as needed for our combined company to reach even greater heights as roast him and I have mentioned, we are targeting a strong full year performance indicative of a post pandemic aspirations and I know we're exceptionally position.

To achieve this.

And we are seeing the strong top line momentum continue in the early days of the third quarter together, we will further further our mission to be an innovative force for good and redefine what it means to be a leader in the global value chain for consumer goods and commercial products with that I would like to open the call for questions.

Thank you.

Okay.

Yes.

So please press Star then 1 on your Touchtone phone you may withdraw your question at any time by pressing the pound key.

Once again that is star and 1 and we'll take our first question from Mark <unk>.

With Stifel. Please go ahead your line is.

Yeah, Thanks, and good morning, everyone.

Good morning.

Good morning, I guess the question is more around sales guidance I guess why not raise more considering the strong second quarter result, obviously comparisons remain favorable over the back half of the year, you Ruth talked about incremental pricing so.

Maybe if you could just talk about that generally and then.

Related to that was there any borrowing into Q from the back half of the year, that's something that we should listen for watch for kind of thing and how do you think about that.

And then on pricing how do you think about the increasing pricing, which seems to be much more around the <unk> portfolio.

And thinking about the elasticity there relative to the legacy business. Thank you.

Hey, Mark Hey, Mark This is Andreas let me, let me get started on it and then with some of this is talking about the pricing so first of all.

Second question Theres no borrowing from.

From the third quarter for the second quarter I think that's important.

Number 2 is what is driving us and the strong performance in the second quarter and also the start into.

Through the third quarter because July we had relative to say it's already so it's a strong win rates. It's a very robust demand. We are seeing in some areas. It is also our superior technology and particularly in parts of the enzyme business in endo really good R&D pipeline here as well. So the question now is while we are not going higher.

Look.

It's a <unk> environment for US right now and as for everybody else. So we have all of the Covid Delta Varian and we said look let's be careful here won't be what we do or not.

Go ahead of our skis here and make sure that we have a very realistic target on the sales side and most of them. If you could talk a bit about volume and pricing that will be probably a helpful sure sure and Haim Hi, Mark.

Our focus on the second half as uninsured, Inc. That we achieve the pricing needed to recover raw material and logistics costs. Okay. We do recognize we had very strong growth in Q2 predominantly volume driven but also I mean, there is uncertainty out there with debt at how COVID-19.

As you heard.

So we've calibrated our guidance, we think appropriately to manage performance risk and the need for pricing.

And the composition is a bit different so far first half and second half growth I mean in the second half we're expecting debt on average pricing will contribute close to 2.5 points of growth with volumes at a similar level.

So this is all without FX of course.

Got it thank you.

And we'll take our next question from Mike <unk> with Wells Fargo. Please go ahead.

Hey, guys nice quarter.

And Jay I was just curious you sounded pretty positive on the sales synergy momentum that debt.

Net debt that the teams are putting together any thoughts on any changes in the contribution potential in 'twenty, 2 and and maybe even the second half of this year.

Mike.

We are very very confident that we that we achieved what we have set forth for this year second year, we will see how the run rate turns out I'm very impressed actually what the teams are doing well I'll give you a couple of examples I did know since we're going a little bit lighter on the pandemic I I did a good trip in the U S.

And in Europe, actually twice and I saw what the power is combining let's say an ingredient sale was a flavor flavor sales. So I'm really optimistic that we are.

Moving in the right the right direction, but it's probably too early to have to raise the forecast already for next year that might be in the next call. We can take a very detailed look the most important thing from me is is whole natural the teams are already combining ingredients and flavors for example, and what kind of opportunities we have.

In areas like the homecare with superior edition washing detergent for example, and in the health area as well, which were not so much on all 4 funds. When we started this whole endeavor and that's really good so I'm optimistic, but it's probably too early to raise with right now.

Hey, Mike.

Alright, thank you.

Well take our next question from the size that <unk> with Deutsche Bank. Please go ahead.

Yes, hi, thank you.

So I wanted to ask a little bit more about health and biosciences.

You had previously talked about capacity constraints in that business due to elevated demand.

So maybe I was expecting higher growth in that segment.

Because of this but I wonder if you're capacity constrained sort of limited the growth potential.

This particular quarter and if you think growth should accelerate in the back half.

Or if there's any other color you can provide sort of within the various.

Segment sales in health and Biosciences do help us help.

Help us think about the business going forward.

Absolutely flies.

It's a very core part of our portfolio and we see.

For almost all of the enzyme categories, we'd see really robust demand and in some areas really our superiority in technology as well. So answering your question, we had probably more demand than we could satisfy and oil price you are right now in this business.

He is actually to Debottleneck some of all manufacturing.

Parts <unk>.

<unk> and more let's say manufacturing lines and making sure that in the next let's say 12 to 15 months, we have really are able to deliver the strong demand here. So indeed, we had more demand than we could deliver and we are working now really 24.

And to make sure that we have the appropriate capacity I don't know rooster and whether you want to add anything sure. Thanks, Andreas Hi, Faiza I mean look strong demand at enzymes is let the tight capacity in the short in the short term, but to be clear capacity is not a medium or long term constraint rates and Andreas covered everything else I thought.

Okay, sorry, just to be clear then.

And we'll take our next question from.

Yeah.

Oh, sorry, operator sites, if you want to jump back on the line that'd be great you called out.

Okay.

Operating income you can.

Moving to the next question.

No we are pleased though right.

Okay.

Yes, I think we lost our operator.

I'm, sorry, I thought I thought you guys were moving on to the next person, but I just wanted to clarify.

Does the capacity constraints aren't going to be net debt in the back half it's more of those longer term solution. So more thinking ahead to 2022 is that the right way to think about it.

Yes, some of it in the fourth quarter, but most of the bulk of it in 'twenty 'twenty 2 yep absolutely perfect. Thank you.

Yeah.

So net to John Roberts with UBS. Please go ahead your line is open.

Thank you.

Mentioned active portfolio management do you anticipate any more significant divestments to accelerate debt reduction.

[laughter] I would say.

At the moment, we are working hard to look what we do with all of our portfolio is probably too early to say something more in detail.

Yeah, but that's probably all I don't know if you wanted to say anything no I wouldn't add anything hi, John.

Right.

Secondly, there is continued to be some turnover among the senior management team how concerned should we be about that.

Look we are we're always concerned if we have turned over on the management team. So far I think we keep it in a way that we make sure that we are really firing on all cylinders until we find the right people because it's a it's a big task. We have for you right now on 1 hand delivering on all.

The numbers integrating the businesses and then we are still in the pandemic, which makes it easier but in general I think we have been very well under control and as you can see.

Most of these.

Units are performing actually very very very well and we expect the same next year for the third quarter as well.

And we will take our next question from Gunther <unk> with Bernstein. Please go ahead.

Yes.

Yes.

Hi, Good morning couple of questions. Please firstly on raw materials continue to guide for 5 percentage for this year is that sort of time of day, yeah. When you start supply negotiations for next year as well how should we think about that more like a 2 year stack off 5% each or what do you see in does Nick.

Depreciation is please and then secondly on <unk> and the strong growth that.

Quite a remarkable not just the growth in itself, but also versus share if at all and <unk>.

And I appreciate that's been 1 extra working day in that but that still outperforms. So can you talk about the sustainability of growth versus peers going forward and what's what's driven the outperformance in the quarter. How much of that is just food services portfolio mix and how much is win rates. Please.

Address that.

And I'll leave you stock the other.

Let me get started so yeah.

We are very optimistic on the nourish wide now also in comparison to 2 somewhat some of our peers and there's a lot of good wins coming in very strong winds and particularly on the flavors side.

And it's it's really good book, we see the pipeline is pretty.

It's pretty filled we see as well that now having the ingredients helps us to open up new customers for flavors, because you do always with the Cpg's Firstly ingredient sales and then the flavors sales and the dynamic right. Now is if we see an ingredient sales we try to cross sell already the flavors, which is which is working.

Actually quite quite nicely so.

Win rates are really good and strong.

Demand is very very very robust, what we see as well as well and we started being very short term.

Chris Norge, as well actually super strong into the into the third quarter and most of them. If you could talk about the raw mats that will be a really good yes, hi, Andreas Heine <unk>.

He's actually are actually looking at closer to about 5.5% now we've seen a continued.

Inflation in logistics and.

And in and in raw materials. So yes, we have started the give me us getting close to starting negotiations and working on all of that but good to at this point in time.

Not seeing any deceleration in inflation in fact, if anything we're seeing it continuing and exacerbating in general.

It actually has a it actually has a.

There's debt, there's another impact to this as well because even when we recover 100%.

Of the cost increases I mean that does push down our operating margin that you can actually go and take the just do the math to anyone interested you can go back and pick a number like 225 million of cost and $225 million of price recovery to our 2020 results and keep everything else unchanged and that alone takes about 50 basis points of operating margin.

So that's just pure math.

There's different factors in here.

And we will take our next question from Adam Samuelson with Goldman Sachs. Please go ahead.

Yes, Thank you and good morning, everyone.

Good morning, Adam.

Good morning, So I was hoping maybe.

Kind of ties off the last question, but maybe thinking.

A little bit longer term.

How do we think about.

The cost pressures and inflation this year.

Youre getting youre going after pricing aggressively to recover that.

How do we think about that impacting some of the.

The trajectory impacting the medium term targets around revenue growth around <unk>.

EBITDA margins by 2023, how does it have any impact in terms of the timing of synergy capture over the next 12 to 24 months because I know procurement was a it was a big part.

A big bucket in terms of the targeted cost synergies and I'm just trying to think about how the experience this year and some of the market dynamics at play impacted forward trajectory.

Yes, that's a good question Adam.

And I have to say that that was a big focus for our team right now to look because we didn't get the procurement savings in the second quarter, we wanted and probably not in the search so we shifted actually are.

Pretty agile.

Way, how we how we deliver the synergies. So it was more cost solid in particular in terms of head count and other areas areas as well and we're now planning for next year getting more of the of the synergies from procurement and then certainly in 2023, because some point in time. It will ease. So we are I think we did.

You did a good job to just Oh, let's say shift where we get it I get it from on the revenue growth before I hand, it over to Rustin.

EBITDA.

It is certainly positive because you will see also a carryover effect into next year on the sales line. If you have raised rates surprised us, which is which is good and good to see force, but I guess everybody in that marketplace is doing it right now but rest of them. If you can talk about the cost pressures in general how you see it in the EBITDA margin will do.

Hi, Adam.

Like I said I mean, the impact of the even even with full recovery. It depresses our operating margin. If you look at some of the other factors we are getting a we're getting this year, it's not so bad debt capacity expansion projects as we talked about with the size of their come on line.

2022, so the negative air freight impact that we're seeing will go away. When you think by the time you come into 2023.

Yeah. So you recognize the 26.

26% numbers.

Further away from where it is right now compared to when we are there, but you know as we started it's a 3 year number we're committed to it and and what we're looking at this so far this year, we've got stronger sales and.

And as you can see slightly lower margin than we expected.

It's actually a good point the rest of us making because.

A big portion of it is driven by air freight and as soon as we have enough capacity available, we will reduce CFO quite quite significantly which is super helpful. On the cost side as well.

And we'll take our next question from Jeff Zekauskas with J P. Morgan. Please go ahead. Your line is open.

Thanks very much.

Why were sent margins up year over year, and nourish margins down was it that Santana at a better pricing dynamic or is there some other factor.

How large is the preparations business.

So the so that we can take let me take yeah, let me take the <unk> part of that so most of the cost increases that the raw material cost increases that we've seen coming through and that's still coming through I impacting nourish.

I mean, if you think about.

$220 million ish sort of cost hit that we're having right now are part of which is a freight rates. Okay, not the freight volume that Andreas and I talked about but freight rates.

Probably close to 80% is impacting nourish and it's a few specific areas. It's a it's a soy meal soy protein. That's the biggest 1 that we see that there is <unk> current ROE that's very close behind and then there's also like a vegetable oils propylene glycol stuff like that having the scent biz.

The impact turpentine cedarwood, its there and its coming in but it's coming in more in the in the back half of the year as opposed to the to the first half of the year and it was smaller compared to nourish nourishes, where we had the biggest impact so that's what you're really seeing driving the business there.

And the food preparation business, how big this time.

That's a that's a small business I don't know if leave it to say that wanted us to disclose that but we have been talking it's a very small sub sub 100 million how's that.

Great. Thank you so much.

Okay.

Well take our next question from that Lauren Lieberman with Barclays. Please go ahead. Your line is open.

Great. Thanks, good morning.

I guess first thing was just with the comments that you expect legacy iff's to be up double digits in net for.

The balance of the year, which is really impressive set of expectations I think it would imply that the NMB side of the house with BC decelerating pretty considerably.

I mean, it sounds like that might be due to the capacity constraints, but I was just curious if you could comment on that sorry.

Bruce you want to take it yeah, Hi, Lauren actually it's it's the comment is that the in Q2 heavy taste ISF currency neutral growth was low double digits and in Q2 and in these current debt.

Hesitation in these currency neutral growth was mid single digits right.

I think that's a that's a.

So.

So I mean, I thought perhaps that is it andreas.

Yeah, No actually look what we see is a.

We have recovered really recover in the second half in pharma.

Of course, we are recovering some of it through all the cold snap we had in the Midwest so that debt.

We will come back, but probably not to the degree we have the demand and on the.

It helps them Bioscience piece, it's certainly driven by by our manufacturing capacity, which is which is limited.

It also was higher higher comps, we will see for the last day last 2 quarters. So we will see how it all goes we are very careful on this side, but it will be more positive than what we have seen in the in the first quarter. So certainly we saw already an acceleration in the second quarter and it will go into in the right direction. So we are absorbing it.

<unk> carefully what I can tell you also in the third quarter.

The legacy <unk> businesses have had a pretty strong a strong start.

And then certainly parts of it is in the newest business as well reflected in the numbers in particular, the ingredients business, we should not underestimate that.

But by the way having you on I hope you have seen the really strong performance of fine fragrances, which are really going into right direction, helping with the mix on the send side quite significantly.

Absolutely and I also know that ISS has had a number of the new big new launches in the industry are iff's prescient millwork sales have definitely seen that.

I had 1 more question, though on the debt.

The capacity.

Additions and you still got a little bit about so far.

Sure.

I was curious for degree <unk>.

Now gotten further in with the NMB business.

Is it feels like perhaps that's been a bit underinvested and whether it was in the 12 to 15 months prior to deal close or even before that.

Because they need to be investing in cat in capex that call out of higher than expected logistics separate from rate right, but just again because of these capacity airfreight and so on suggests that there is something there. So just curious about that is it are you get to the point where yes.

This could be a multi year period of investment in capacity not just 1 year you have got the cash flow but.

But just but just curious about that thanks.

No. It's a good point Laurence.

I would say there are 2 things, which come come together 1 is the very robust demand and a lot of wins, we had in particular on the enzyme a piece and that came a bit of a surprise.

2 to the to the units so that's where we need some some investments here to deliver on it.

I would not say it was under invested but it was probably also be sort of a pandemic or not on a real time horizon. We could have had some of the expansion already probably 6 months earlier than we would be in a better position, but it is as it is and we have fallen now adapted our capex spend going going.

Forward that we can deal with these.

Let's say.

Shortages quite quite nicely over the next I would say 15.15 to 15 months, but positive for me is is it that the demand is very robust and the other positive is that we see some superiority of our products.

In that market, which is really good and then there is something which we haven't talked too much because it might be more midterm, but the R&D pipeline in particular, what it comes momentum is super strong and it will help us with all wins going going forward I don't know if you have anything to add.

Uh huh.

Yeah, I guess Andreas I mean, just this thing and it is a little bit of a multi year I mean, we're probably going to spend about.

About another $450 million in total, but it's it's it's actually good we can use them. All we've got good strong business I mean, it's a.

I view this as a positive and we have the cash flow and so.

So we're going to use it.

We will take our next question from Ghansham Panjabi with Baird. Please go ahead. Your line is open.

Okay. Thanks, Thanks for taking my question.

Andreas just kind of thinking about your portfolio at this point, obviously mobility is starting to directionally improve globally, and you're seeing the impact on foodservice and.

Fine fragrances and some other businesses on the same token youre, saying CPG companies talk about moderation that volumes, whether it's food or just consumer products more broadly so.

How do you see those dynamics sort of netting out from <unk> as we progress over the next couple of quarters do you see categories that are starting to moderate.

And if so would that affect the.

The sales growth that you are anticipating at this point thanks.

Yeah, absolutely good very good question on the I would say, it's a good to the different categories.

We see still a strong demand for fine fragrances and this is not just driven by the robust demand right now, but also by our win rate.

We are winning more than our peers share in debt.

Very very helpful consumer fragrance.

Here I would say in general for the market you see a moderation and that's what you hear in the market from the big CPG as well, but again.

We are in the in the good position, we're lucky position that we own all the callers we wanted to be and then we talked over the last couple of quarters about the 3 call is we made a year and a half ago and they are really contributing so that's helpful for us but in general we see some some moderations. Another 1 is active cosmetics, we seek oh.

A big big and strong growth going going forward.

<unk> bioscience.

I would say, a very strong and home and personal care, but more driven by our wins and our technology then by the by the whole market. So that's what I would say and then grain processing and microbial control are coming back.

Out of our debt.

Modest performance in lost last year and animal nutrition. This is pretty pretty good good as well on the neuroscience.

I would say, we haven't seen any slowing down of demand and that might be also driven because we are now in a unique position that we can offer from the ingredient to the flavor to the total solution that we ended different position than many of our competitors and that helps us actually to.

To position us in the right way so answering your question as we see some markets, we see in the market moderation, but not too much for us because of the position where we end weighted right now so that would be my my overall comment.

Yes.

And we will take our next question from Mark Connelly with Stephens Inc. Please go ahead. Your line is open.

Thank you Andreas when you think about Covid reopening what are the big opportunities. If we continue to move along and what are the risks if we I'll start Tabasco.

With whom dining gets hit I'm, just trying to get a sense of where you are ex health and wellness.

I just pointed out you are in a very different position than you were when we went into COVID-19.

Yes, Yes, I would say is if we are starting to.

To close down again.

The Delta very and this is really.

Improving.

The dangerous thoughts I would say the food service is the only business I could think of right now which could be impacted maybe fine fragrance, but what we have seen as much more online usage, but these are the 2 categories.

C C N impact or negative impact on the other hand, if they're closed on comes I would say that consumer fragrances in particular in terms of the health and hygiene products are going up and as you said on the health side as well because people are trying to 40 watt fortify their food trying to be healthy.

Any more probiotics in.

And so I would say we have at least as many opportunities as we have risk towards another does not close on so that's how I would.

Describe it for now.

And we'll take our next.

Yes.

Citi. Please go ahead.

Yes, hi, good morning.

And just quickly Hey, Andrea system.

You had good growth in scent, particularly the 85% growth in fine fragrance.

Are you back to pre pandemic levels in fine fragrance and was there any inventory building in the fine fragrances channel that we should think about.

Yeah look we are.

Even outperforming all of 2019 number.

And this quarter will show, whether there is an inventory building or not because now they're starting to order for the for the Christmas business.

And so far it's actually it's a strong start and into the third quarter. So I would say not so much inventory building and then there's an extra effect on our side for fine fragrances that we are winning we do a lot of business and a lot of good fragrances as well, which are very nicely marketed so that's how I would describe it I don't know loose from anything to add from your.

Right.

Thank you that debt covenant.

Yeah.

And we'll take our next question from Matthew <unk> with Bank of America. Please go ahead. Your line is open.

Hi, Thanks, so questions for you on the margin and margin outlook I.

I guess first what happened to pharma costs can you dig a little debt dig in a little bit more on that it seems like you're blaming Gary but that was mid February and so.

How do you how do you improve from there going forward at what rate do we climb out of this hole and then if I look at the 100 basis points of margin hit you mentioned risk can you break that down a little bit between what would be raw material energy inflation type stuff that the whole industry would experience experiencing and maybe what.

Percentage of that 100 basis points is unique to iff's, given air freighting capacity issues outages et cetera.

So lets me Hi, let me let me do the first 1 I mean, yes. It came from the February outages, but the problem, there's still been problems with the suppliers and then therefore, some material type situations right with methane flow rate and it shut down 2 of our plants temporarily during the period, which meant that it's a pity because we could have sold every single thing we produce stuff.

And and then we also had under utilization. So that's what that's what came through there.

If I was to roughly look at the at the break in general at the percentage was in general between raw material and freight about.

Call. It 85% are sort of the total comes from raw material increases the increases and about 15% from France, and that's it but but interestingly fit so much smaller portion right. If you break up that 5 and a half that we talked about the material cost impact is probably about 5% inflation, we're seeing I'm rounding all these numbers and the freight the freight.

Rate increases probably about 8% and may even be slightly higher with the way that's going I mean containers that 3 to 4 times see free it is as a <unk>.

As high as they have been and also Theres 1 more complication, even when we have contracted rates. We have there you know, we and many others experience there's lots of delays going on and stuff. So we even sometimes book we couldn't get the stuff on the contracted rates until much later and have to be spot rates.

And we're also force sometimes we look at different modes of transport from a reliability perspective, so lots going on there.

And there appears to be 1 that last question, we'll take our final question from Lisa <unk> with Morgan Stanley. Please go ahead.

Good afternoon, guys 2 questions from me and then follow up so if I can just doesn't care business I mean, even if it's very strong margins to share too much expenses was related to favorable product mix towards fine fragrance collection and how we expect this to trend in the second half given raw materials were kicking in a little bit more meaningfully but.

At the same time, you did mention you will still going to see relatively good demand from harm fragrance. That's my first question.

Second 1 early in the presentation, you mentioned that in the second half you may see a fairly similar contribution from price thing about 2 and a half defense and train Hall sensor volume and I'm, just trying to understand why you're being so cautious on the volume side or maybe I just misunderstood. This thank you very much.

Bruce can you take it sure.

Sure I mean on debt.

Lisa on the on the volume side I mean, it's look I mean, I focus from the second half as uninsured that we get pricing right to recover raw material cost, we're trying to recover close to 100% debt that is really important to being able to deliver the EBIT.

And the numbers there and we did have strong very strong growth in Q2 predominantly volume driven and so you know what we've what we've our guidance Lisa in the second half as sort of you know where we're trying to guide to manage in a performance risk and the need for pricing again. So that's so that's really what youre seeing over there.

And on the first part of your question.

I mean, yeah for scent for the scent business. The margin expansion was really driven by the mix for sure I mean for sure I mean, when you have fine fragrances growing up 85 per cent that's tremendous rate.

So it was mix, but there's also volume growth in general I mean, you've seen cosmetic actives as a super as well and and then productivity and that's then that offset inflationary pressures and costs, which youre seeing there as well and in the second half we will see more costs coming the way of the scent business not not on the scale of the.

In addition to what we've seen with anything to add the Andreas.

No I think you captured it very very well I just want to make a general remark on mix. Obviously, we try for all businesses now to push basically all the parts of the portfolio, which have the higher profitability in the higher growth growth areas, which over time should really help us which makes them and I think what you see with scent.

It's a it's something which is a very positive driver for a 4 hour profitability going going forward.

Okay. Thank you very much.

Sure.

No no further questions I will turn the call back over to Andreas for any closing remarks.

Yeah. Thank you yeah, we are incredibly proud on the second quarter, because again as we said first of all we delivered strong growth even in comparison to 2019, which is real good good parent meter.

Secondly, we are integrating well with the with the NMB business and we do it in a time of the pandemic and I think again I would like to you to use the time to congratulate all of our teams around the globe for what they have accomplished and I think that it's not an easy task and everybody did poorly it's best and that's where that stands for thank you.

For that and talked to most of you later, thank you guys Bye bye.

Right.

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