Q2 2022 International Flavors & Fragrances Inc Earnings Call

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At this time I would like to welcome everyone to the I S. S. Second quarter 2022 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 one on your telephone keypad, if you 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 questions. We request a limit of one 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 2022 conference call.

Yesterday afternoon, we distributed a press release announcing our financial results.

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 live and will be available for replay.

Please take a moment to review our forward looking statements.

During the call we are making forward looking statements about the company's performance, particularly with regard to the outlook for the second half and full year 2022.

These statements are based on how we see things today.

The mix of uncertainty.

For additional information concerning the factors that can cause actual results to differ materially from our forward looking statements. Please refer to our cautionary statement and risk factors contained in our 10-K and press release, both of which can be found on our website.

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

Reconciliation of these non-GAAP financial measures to their respective GAAP measures is set.

In our press release.

With me on the call today is our CEO , Frank Clyburn Executive Vice President and CFO Glen Rector, we will begin with prepared remarks, and then take any questions you have at the end.

With that I would now like to turn the call over to Frank.

Thank you, Mike and Hello, everyone.

And thank you for joining us today.

Before I dive into our first half results I wanted to take a moment to acknowledge the tremendous progress we have made over the last three months.

Amid a challenging operating environment, our global teams continue to display their steadfast commitment to our customers and passion for innovative discoveries as ISS.

<unk> delivered profitable growth.

Since joining <unk> I have consistently been impressed by the caliber of the work innovation and expertise our people deliver as well as the creative culture that underpins our success.

Once again, thank our teams around the world for their hard work.

We will begin today's call with an update on our strategy refresh process and value creation opportunities, we're focusing on for the near and long term as well as Iff's recent accomplishments as we execute on our operational priorities.

This includes delivering $70 million of cost savings in the first half of the year, taking swift and aggressive pricing actions to cover inflation exiting.

Exiting our microbial control business and ensuring that we get the right talent in the right roles.

I will then turn the call over to Glenn to provide a detailed look at our second quarter financial results and discuss our outlook for the rest of 2022.

We will then open the call for questions.

Beginning with slide six I'd like to provide an update on our efforts to refresh our long term strategic plan.

While we are pleased that ISS hold strong positions across many of our business segments. Today, we are committed to evaluating and fine tuning our strategy and execution to best position the business for long term profitable growth.

I am pleased to share that we are making meaningful progress and moving quickly to map out an exciting and ambitious path forward.

In Q2, we continue to advance our enterprise wide review of our business and portfolio to ensure we are well equipped to successfully navigate the current and future market conditions, while capturing long term value.

Our goal for this comprehensive evaluation is to further develop the refined operating plan to generate sustainable sales growth, while ensuring lasting competitive differentiation.

<unk> products superiority and provide a clear roadmap, where we can execute our priorities to create significant value to all of our stakeholders.

Already we have successfully completed the foundational phases of the plan, we have identified meaningful opportunities to capture additional profitable growth and attractive end markets geographies and cross platform synergies, while also identifying internal opportunities and near term X.

Sternal pressures that must be navigated to achieve this now.

Now we are working to finalize refreshed operating plants.

Will align our operating model talent and incentives as well as finalize our long term financial targets and capital allocation strategy that prioritizes sustainable long term growth.

In addition, we are strengthening our culture.

Women in bottoms collaboration and accountability to ensure strong execution of our commitments.

We will continue to move rapidly and with urgency over the coming months to finalize our reverse refresh strategy and look forward to sharing more on this with you at our capital markets day to be held Wednesday December seven in New York City.

Moving to slide seven I'd like to give a brief snapshot on where we are focusing as we advanced our strategic refresh there are five core areas of focus first we're prioritizing a more thoughtful and data driven approach to our resource allocation strategy.

Investment is essential to our future growth, but it is critical that our spending decisions optimize returns and reflect the unique roles that each of our businesses serve and our broader portfolio.

I will explain this in more details in a moment.

Similarly, we are also making strategic decisions to support our research and development efforts by focusing on the highest return projects and identifying ways. We can leverage our cross platform offerings, we will be even better positioned to accelerate topline growth and extend our industry leadership in key categories.

Maurice.

Shortly we will introduce an enhanced productivity program designed to help us improve profitability and unlock additional opportunities to finance our growth opportunities in our growth initiatives.

At the same time, we continue to evaluate our portfolio to ensure that our offerings wholesale lines to the markets in which we operate the evolving expectations of our customers and with our long term objectives. We successfully completed the divestiture of our microbial control business and we will continue.

To assess the portfolio as we explore additional noncore divestitures to reduce debt and improve our capital structure.

Lastly, we are reviewing our operating model to ensure that our structure talent and incentives and maximize our unmatched portfolio and go to market strategy with our customers.

Attracting and supporting the industry's best talent and aligning incentives is critical to drive continued collaboration and accountability across the organization.

I am focused on making sure we have the right talent to execute our strategic plan and I'm pleased that we recently announced that board, who will join us as our chief human resource and diversity and inclusion officer on August 29, 2022, with our deep experience connecting H.

Our culture employee engagement and business as well as a change management expertise. She has the right skill set for ISS and our people as we strengthen our execution driven culture. She brings an extensive track record of building world class talent and helping the.

Business execute and drive value for all stakeholders.

Our success with these initiatives will be supported by our ongoing work to modernize our foundation in data and technology capabilities as we strengthen our internal operations to help ensure best in class execution.

On slide eight I would like to share a bit more about the deliberate choices. We are making specifically how are more strategic and disciplined approach to resource allocation will create exciting opportunities for profitable growth.

Across the board, we are focused on driving margin improvements, but to do so effectively we are pursuing differential management strategy across key areas.

Last quarter I shared an ROIC see chart, which was our first glimpse into the lens that we're viewing the company through.

To move forward with this plan, we have developed a comprehensive playbook that segments of our business into three distinct archetypes with unique strategic imperatives. When you look at our portfolio, we will consider whether to invest to grow maximize to drive inefficiencies were optimized.

To rapidly improve performance.

Using this model, we remain intensely focused on achieving above market growth strengthening our competitive global position, increasing our return on invested capital and analyzing the most valuable use of our existing assets.

For example on a category like flavors, we see meaningful opportunities to drive above market revenue growth, primarily through reinvesting in innovation and commercial initiatives.

We are prioritizing above market revenue expansion in this category as opposed to margin improvement alone.

On large profitable and faster growing subcategories like beverages or dairy to drive strong value creation here. It is more about reinvesting margin upside to ensure we are bringing the best innovation to our customers to drive dollar profit growth.

On the other hand in a market like animal nutrition, we are focused on maintaining the consistent growth we've delivered with an emphasis on driving further productivity.

By identifying certain segments in which to reinvest while strategically reducing R&D expenses in others, we will focus on margin improvement and create opportunities to invest in the highest value offerings.

We are taking a stronger approach within our optimized businesses for example, our packing business unpopular clean label natural stabilizer to quickly drive near term earnings through pricing and cost initiatives, while maintaining our market competitiveness and reallocating upside.

To invest two growth categories like flavors.

I'll also say for those optimized businesses, where we do not have a strong improvement plan, we will accelerate divestitures and exit the category with work already well underway.

I am excited about this initiative and the progress we are seeing already make no mistake, we are running ISS quite differently and bringing enhanced rigor to our operations across every business and function.

Earlier this year, we spent time reviewing our key priorities, including pricing and portfolio optimization.

Moving to slide nine I would now like to focus on the multiyear productivity and reinvestment program I mentioned earlier, which I believe is key to achieving our long term growth expectations and our profitability goals.

Since joining ISS I have spent time analyzing our cost profile and believe as an organization, we have significant opportunity to optimize our cost structure I am fully committed to unlocking this value and have asked the team to accelerate our efforts to ensure we are well positioned to execute.

As we move into the second half of the year for EMEA for more details I would like to ask Glenn to comment.

Thank you Frank and good morning, and good afternoon to everyone accelerating our productivity and expense synergy efforts represents one of our top priorities and is increasingly important in a more challenging economic environment in order to maximize financial performance to this end, we want to provide additional transparency to our multiyear productivity.

The program.

And the expected results.

First of all let me describe the scope of our efforts overall, we have established for productivity efforts that cover approximately 85% of Iff's total cost structure focus primarily on operations and overhead expenses.

The Fourteens include supply chain, which includes our procurement and global logistics operations.

Opportunities include driving additional efficiencies in direct and indirect materials spending through enhanced procurement strategies and demand management, particularly for indirect spend and reduced logistics costs driven by improved global SRP processes.

The second theme is focused on end to end manufacturing operations and includes a broad base set of initiatives, including accelerating our digital manufacturing efforts driving yield improvements system wide best practices and energy savings programs.

The third initiative is our economic profit team that is focused on leveraging improved technology and disciplined processes to optimize product mix rationalized skus and enhance make versus buy decisions.

And our fourth theme is focused on building out our global shared service platform.

Concert with technology to drive increased centralization and process standardization to drive efficiencies across our administrative and business support functions.

In total the combined programs are targeting a preliminary net annualized P&L impact of $250 million to $300 million.

We expect to be achieved between 2023 and 2025.

Two important notes.

First the $250 million to $300 million impact is net of Reinvestments that are targeted to strengthen our innovation pipeline expand our commercial efforts across key products customers and regions.

Our technology and digital capabilities.

Strengthen our talent.

Secondly, the net savings will be slightly more skewed to 2024 and 2025.

We look forward to sharing more details with you at our Investor day in December with that I'll turn it back to Frank.

Thank you Glenn.

As I said, we will provide more specifics on this program at our Investor day in December but wanted to share an early indication with you as we committed to provide more details on this topic during our Q1 earnings call.

More importantly at our Investor Day, we will also provide you with a clear and more detailed roadmap for growth.

Proving our incremental revenue opportunities from our combination with the NMB.

We remain confident that we have significant opportunities ahead confirmed by our initial commercial wins and positive customer feedback as well as our competitors following our lead.

I know that realization of these benefits have been slower than expected due to external factors, including COVID-19 supply chain disruption customer bandwidth pricing initiatives and constrained capacity. However.

However, since joining I've launched a focused initiative to reinforce our emphasis and address existing gas.

Specifically, we are developing et cetera, prioritize opportunities each with clear financial impact owner and timeline to provide confidence in our ability to deliver.

This will be a significant focus for me going forward is uncommitted to delivering the value proposition of our combined portfolio and will be personally involved dedicating significant time and engagement with the business to drive performance.

I am pleased to say that we continue to see steady wins across our portfolio recently, we co collaborated with the leading alternative protein producer to improve commercial and technical collaboration essentially upstream and the incorporation of heritage Iff's flavors into her.

<unk> and <unk> protein base exceeding our customers expectation for plant based burgers.

This resulted in ISS being awarded as a core supplier one of three increasing our market share and ensuring a long term relationship.

In addition, we are seeing the value of integrated solutions between our nourish and <unk> divisions.

<unk> category is showing very good collaboration opportunities.

In large part to early technical support and a better together approach with customers and this when we were a step ahead of the competition due to early engagement with the dairy customer during culture development phase, ensuring the best flavor collaboration.

These are just two examples but strong proof points that we are moving in the right direction and delivering a better value proposition to our customers.

Now turning to slide 10, I'd like to provide an overview of our performance for the first half of the year. Our strong first half results are once again, a testament to the strength of our portfolio and the dedication of our talented global teams. We have continued to grow above and beyond in a complex mark.

Yes.

Despite the macroeconomic challenges of the last six months sales grew by a strong 18% or 12% on a currency neutral basis to $6 5 billion.

Comparable currency neutral adjusted operating EBIT grew 8% to $1 $4 billion I am proud to report that we increased our quarterly dividend by approximately 3% the 13th consecutive year of increased payout to our shareholders, which.

Underscores our belief in our business and ISS strong future cash flow generation.

We also continue to work on deleveraging objectives, where we remain committed to our deleveraging target of reducing net debt to EBITDA to less than three X 36 months post the transaction, which is February one 2024 at.

At the same time, we prudently and proactively amended the covenants on our existing credit agreements given the market volatility and uncertainty Glenn will discuss in more detail.

As I mentioned a bit earlier, we also completed the divestiture of our microbial control business on July one and continuing to evaluate additional divestiture opportunities for our noncore assets as we move ahead based on our category management approach I described earlier.

Now I would like to turn the call back over to Glenn to provide a closer look into our second quarter financials.

Thanks, again, Frank turning first to our consolidated second quarter results ISF generated more than $3 billion in sales, representing 11% year over year increase on a comparable currency neutral basis, primarily driven by double digit growth and nourish and pharma solutions.

In terms of our growth contribution pricing represent the majority with volumes up modestly.

Focus coming into 2022 was to fully recover inflation through pricing actions and for the full year. We are on track to recover approximately $1 billion and cost inflation. We are doing so in a very thoughtful and strategic manner over indexing on lower margin and capacity constrained businesses.

While foreign exchange rates have had an adverse impact on our sales and EBITDA in the second quarter I am pleased to report that adjusted operating EBITDA grew 3% year over year on a reported basis or 7% on a comparable currency neutral basis, driven by productivity gains and pricing actions we have.

In the quarter.

We also achieved solid year over year earnings per share growth of 3% excluding amortization.

Before moving on I wanted to share that during the second quarter of 2002.

We took an impairment charge of 120 million within certain entities in Russia into a number of factors, including reduced business focus as we have restricted our operation to essential consumer products that include food hygiene and medicine supply chain issues reduced product demand.

And exchange rate volatility.

As a result of the Russia, Ukraine conflict.

Was determined that such declines in operating performance were not expected to reverse in the near future.

And future expected growth is expected to be limited.

The operating conditions in Russia. This noncash impairment charge was allocated pro rata to intangible assets and property plant and equipment within the asset growth in the amounts of approximately $92 million and $28 million respectively.

Moving now to slide 12, I'll provide a brief overview of the underlying performance across our business segments.

As I mentioned sales growth across each of our business segments, including Nourish health <unk> Biosciences, and pharma solutions contribute to iff's year over year comparable currency neutral sales growth of 11%.

<unk> was once again, our largest growth driver with a significant broad based growth across our flavors ingredients and food design businesses.

SaaS had another strong quarter with currency neutral sales growth in the high single digits led by fine fragrance consumer fragrance ingredients.

Health <unk> Biosciences delivered mid single digit growth due to see consistent performance in health cultures, and food enzymes and animal nutrition.

As well as microbial control prior to the official divestiture completed in July .

Both home and personal care and grain processing were negative in the second quarter as each business had very strong double digit comparison in the prior year period.

Lastly, we are pleased by pharma solutions continued rebound.

<unk> achieved double digit growth driven by continued strength in our industrial and pharma businesses.

Turning to slide 13, I'd like to provide a review of our profitability for the quarter.

Second quarter, adjusted EBITDA totaled 700 million.

<unk>, our expectations and represented 7% and year over year comparable currency neutral growth driven by the pricing actions and productivity gains that I mentioned earlier.

Comparable adjusted EBITDA margin in the second quarter was 21, 3%.

And on an inflation adjusted basis would have been approximately 200 basis higher.

For approximately 28, 5%, if we normalize for the impact of pricing contribution to sales.

This compares to an EBITDA margin of 22% in Q.

Q2 2021.

As a result of our strategic pricing actions, we have fully recovered taupe, placing cost to date and we are optimistic that we will achieve full dollar cost recovery for the full fiscal year.

We continued navigating this uncertain market, we will continue to closely monitor our raw materials and logistics costs in the quarters ahead, and take appropriate action to offset additional inflationary pressures and maintain profitability.

On slide 14 is an overview of our second quarter performance by business segment.

Paresh, which delivered year over year comparable currency neutral sales growth of 15%.

An 18% growth in comparable currency neutral adjusted operating EBITDA saw strong demand, particularly in third designs and flavors.

The health and Biosciences high single digit increases in health and cultures, and food enzymes and mid single digit growth in animal nutrition, so 4% comparable currency neutral sales growth for the division.

While we implemented strategic pricing actions and saw notable productivity gains similar to nourish this quarter lower volumes and an unfavorable mix led to 2% year over year decrease in comparable currency neutral adjusted operating EBITDA.

In fine fragrances continue to lead the way with double digit growth.

Followed by high single digit growth in ingredients and low single digit growth in consumer fragrance co.

Collectively <unk> achieved year over year comparable currency neutral sales growth of 9%.

Our inflationary pressures outpaced our strategic pricing actions, which led to a 17% decrease in comparable currency neutral adjusted operating EBITDA.

Our teams are continuing to work with our customers to address the ongoing inflationary pressures and we fully anticipate to recover all deflationary cost overtime.

Lastly, pharma solutions was one of our strongest performers this quarter, achieving 10% and year over year comparable currency neutral sales growth and an exceptional 25% increase in comparable currency neutral adjusted operating EBITDA driven by double digit growth in industrial and high.

Single digit growth in pharma the division's profitability was further supported by pricing actions on productivity gains.

Turning to slide 15, I would like to discuss our cash flow and leverage position for the first half results.

And our first six months, our free cash flow position was impacted by higher inventory values.

This was the result of a combination of continued inflationary pressures and rebuilding inventories to support customer service levels.

236 million in the first half representing approximately three 6% of sales as we continue to make necessary investments in our business.

In addition, ISF delivered $402 million in dividends to our shareholders.

From a leverage perspective, we remain well positioned as we advance our strategic refresh.

Finished the second quarter with cash and cash equivalents of $569 million.

While gross debt for the quarter totaled $12, one 5 billion.

Note that we received a $1 3 billion gross proceeds from the sale of our microbial control business in July .

At the end of Q2, we maintained a four four times net debt adjusted EBITDA ratio.

In addition, just last week, we proactively amended our existing term loan credit agreement and revolving credit agreement in order to ensure we maintain adequate flexibility to navigate near term market uncertainties. The associated amendment fee was approximately 800000 the.

The amended agreement delay certain step downs from maximum permitted leverage ratio of four five to one stepping down to three five to one over time with the first step down now occurring at the end of the third quarter 2023.

Versus the end of the fourth quarter 2022 previously.

Trailing 12 months credit adjusted EBITDA.

Total $2.644 billion.

As Frank mentioned on August <unk>, our board of directors authorized a 3% or <unk> increase in the quarterly dividend to 81 per share of the Companys common stock. According dividends payable on October 5th 2022 to shareholders of record as of September 23.

Including this authorization, we increased our quarterly dividend payment for the 13th consecutive year.

Let's now turn to our consolidated outlook on slide 16 as.

As we look to the remainder of 2022, we remain on track to deliver our commitments and are Reconfirming, our full year guidance projected sales of $12 6 billion to $13 billion in currency neutral sales growth up 9% to 12%.

While we are Reconfirming our outlook. We also are increasingly cautious on the overall market environment outlook as we navigate continued foreign exchange fluctuations.

Ongoing inflation and potentially recessionary pressures, we expect to achieve our sales targets through pricing actions as we press ahead towards full dollar cost recovery.

We expect foreign exchange pressures to impact sales by approximately five percentage points compared to our previously forecasted four percentage points.

We are also reconfirming adjusted operating EBITDA to the two 5% to $2 6 billion.

Equates to currency neutral operating EBITDA growth of 4% to 8%.

Please note that we expect foreign exchange to impact that growth by approximately six percentage points versus five percentage points previously.

As always we remain laser focused on mitigating the many macroeconomic challenges with an emphasis on controlling what we can control during these uncertain times, notably focusing on pricing execution and productivity.

In terms of the third quarter, we expect sales growth to be strong driven by pricing actions with sales coming in modestly above $3 billion and impacted by incremental foreign exchange headwinds some seasonality of our business and the divesture of microbial control the sale of appropriate control will impact Q3 revenues.

By approximately $110 million.

For the third quarter, we expect adjusted EBITDA to be approximately 602.

$610 million.

Before passing the call back to Frank I want to revisit the four core business objectives, we outlined at the beginning of the year overall, we are executing well against our operational priorities. So far this year.

Relative to maintaining strong sales momentum, we achieved 12% year over year currency neutral sales growth for the first half of 'twenty two.

And our targeting currency neutral growth of 9% to 12% for the full year.

In terms of executing our broad based pricing actions, we fully recovered the total cost of inflation and we remain on track to achieve a full dollar cost recovery for the full year 'twenty two.

Partly we are closely monitoring inflationary trends in the broader market environment to ensure we are well equipped to stay ahead and where necessary.

We respond to future challenges.

On the productivity front, we continued to make tremendous progress towards our productivity savings goals for the full year in the first half of the year, we delivered over 78 million operational efficiencies and deal related synergies well above our expectations, we are well on track to exceed our $100 million full year savings.

Target.

Finally relative to accelerating non core divestitures, we successfully completed the sale of our microbial control business on July one.

And are continuing to assess our portfolio to identify additional portfolio optimization and divestiture opportunities in this uncertain market. These.

These divestitures will help us delever, our balance sheet and enable us to reinvest in our highest performing businesses with that I'll pass the call back over to Frank.

Thanks, Glenn before.

Before I wrap up today's call I want to say I am proud of the efforts of our global teams as we continue to execute amid challenging market conditions. We've achieved strong performance in the first half of 2020 to increase our dividend for the 13th consecutive year I am confident in our ability.

To achieve our full year financial targets as we continue executing against our operational priorities and control what we can control at.

At the same time, we are committed to advancing our strategic transformation efforts deploying innovation.

Finding our portfolio and strengthening our culture to deliver strong value creation for all of our stakeholders.

Moving through the second half of the year, we will be intensely and urgently focused on protecting and growing our business identifying new strategic value creation opportunities and communicating our refreshed operating model across the business and the market to position <unk> for long.

Term success I look forward to sharing more at our upcoming capital markets day in early December .

I'd like to open the call for any questions. Thank you.

And at this time, Mr. I would like to ask a question. Please press star one on your Touchtone phone you may recall your question at any time by pricing. The bounty once again that is star one and we will take our first question from Mark Astrachan with Stifel. Please go ahead. Your line is open.

Yes, thanks, and good morning, everyone.

Wanted to ask about the the productivity program and how youre thinking about.

One thing margin versus volume growth, especially given I think what you say guan of modest volume growth in this period sort of how do you think about that going forward.

How do we think about.

Net savings as it relates to long term.

Targets, including implied margin expansion I think the math would get you something north of 200 basis points implied margins, how do we think about that longer term. Thank you.

Hey, Mark this is Frank good morning, a couple of comments I'll start with first the productivity program that we've announced we see that as really important.

Not only near term mark, but really building a continuing productivity mindset, we want to build into the company.

We also want to be able to use that to be able to invest in our growth opportunities.

We're trying to achieve mark is really sustainable profitable growth and to start to really get leverage throughout the P&L, we think thats going to be really important for us from a profile perspective.

This is why we've also.

On the ROIC work Mark on our portfolio and we'll be able to share with you in December some of the specific targets from a financial perspective.

And we will take our next question from Heidi <unk> with BNP Paribas Exxon. Please go ahead. Your line is open.

Good morning, So if we look at your Q2 currency neutral growth I understand this is mainly price while we see that most of your peers had strong volumes. This quarter. Why do you think you werent able to grow volumes and perhaps you could comment on the exit rate in Q2 in terms of volumes and momentum into Q3, Please and then some.

Linked to that what was the reason for not upgrading or upgrading your full year guidance after such a strong each one in terms of EBITDA. Thank you.

Hi, Good afternoon, Hi, this is Glenn thanks for the questions relative to sort of volume comparative as I would sort of maybe answer it three ways. One is as you are well aware. The compares are difficult given the apples to orange is sometimes comparisons of the business but.

But I would say that if you really kind of strip our business down and look at sort of the first half results.

<unk> of our core business is actually a third and quite well. So flavors sense are both mid single digits in terms of volume growth core business units within <unk> health is up high single digit.

Cultural food enzymes animal nutrition mid single digits pharma is up low single digits. So the difference is as we've discussed throughout the year, but we're being very thoughtful regarding our balance between volumes and profitability. So we've been very strategic and thoughtful relative to margin enhancement actions and focusing on those businesses.

Is that have both capacity constraints and or are lower margin businesses.

So thats the difference were very specifically trying to focus on making sure we deliver good outcomes for our shareholders as well as our customers from performance and then lastly, I would note that this is very consistent with what we signaled we said very early in the year. We were planning basically the balance of the year to be relatively flattish to one point and this is very consistent with the strategy.

Now we are implementing in relative.

Relative to kind of guidance. The reality is the pace at which sort of inflationary pressures flow through raw materials into our cost of goods. It does vary by business. So theres a little bit of a lag here in terms of how thats hitting quarter to quarter that explain some of the.

Over performance in the quarter third quarter relative to kind of the full year outlook and consequently, because of that lag and this just generally a perspective on cautionary outlook given the macro environment, we're being sort of realistic in terms of how we guide and consequently, we are sticking to the same guide.

So hopefully hopefully that's helpful.

And we'll take our next question from Gunther Zachman with Bernstein. Please go ahead. Your line is open.

Good morning, Frank.

Can you talk about the volume contribution within duration.

But do you expect in Q3, and how much revenue synergies and integrated solutions included in that place.

And then secondly, what is your updated in place and the forecast for the year and any insight that you can share into 2023. Please.

Hi, good afternoon as Franco August started.

So first with regards to revenue synergies and as Glenn mentioned, we did see.

Really good performance expressly within flavors within <unk> and we're excited about the significant opportunity. We believe we have there.

We also highlighted on the call some examples gunther.

Really.

Encouraged by some of the wins that we're seeing where we're utilizing our <unk>.

Legacy.

<unk> expertise as well as.

Our legacy Oss expertise for vanilla flavor is an important win there we highlighted an important win with regards to plant based burgers. We are seeing good cross selling opportunity. So overall, we're starting to see revenue synergies on we're hearing good positive feedback from our customers with that said.

It is work to be done and I highlighted that on to <unk>.

<unk> remarks. This is something that's going to be a significant area of focus for myself personally as well as the executive team, we're going to be leaning into how do we bring our broader platform portfolio technology to our customers. So this is something we'll share a lot more about it.

In our December capital markets Day, Glen I don't know if you want to maybe touch on the inflation sure yeah. Good afternoon, Gunther relative to 2022.

Choppy, but in general no change to our outlook relative to the impact of inflation generally energy has been slightly better logistics has been slightly better raw materials have been slightly worse in buckets, but generally things are sort of stable I would also note that just the nature of the time it takes raw materials to go through inventory and show up in the.

P&L any additional impact for the balance of the year is likely to be muted to zero and really hit 2023, we are taking a very deep look at 'twenty three we've run through it as preliminary scenario, we're doing an update in the coming weeks here as we plan for 2023 and our perspective at this point is we do anticipate.

Another I'll say meaningful round of cost increase from inflation, that's going to be concentrated more in raw materials.

So theres a number of areas, including soy oils, obviously certain commodity groups.

Such as agricultural grains, and those sort of things, we're seeing pretty significant inflation.

Energy is choppy, but likely to also be some increase modestly in energy prices and logistics as well, we're likely to see some sort of modest increase as well so kind of overall, we are expecting probably 'twenty three not not to the same degree as 'twenty two but we are expecting additional inflationary pressures for next year.

Well go next to Mike Sison with Wells Fargo. Please go ahead. Your line is open.

Hey, guys nice quarter.

And outlook.

In terms of free cash flow performance for.

For Q2, any more color maybe by segment.

Sort of driving that can accomplish that and then I think.

We're hoping to do about $1 billion in positive free cash flow in 'twenty two.

Can you may make up some of this in the second half of the year.

Yes, so good question Mike.

The sole impact is there seasonality as you know typically in the first half of the year first quarter Theres, a build on our working capital, namely inventories secondarily, there as the year end.

Compensation that base of it is paid out et cetera.

We are running actually worse on cash flow than anticipated to the tune of about $200 million that is 100% attributable to higher inventory levels that is principally related to basically higher cost. So as you may recall when we entered the year, we had our kind of wave one inflation subsequently.

Very early in the year.

Identified eight another significant round of inflation coming through that is rolling into inventory. So as a byproduct of that we had guided to the full year that wed be relatively flat to prior year from a free cash flow standpoint of about 1 billion ish. We are targeting to be proud to have a $200 million less than at this point in time that.

Being said, we are implementing a series of very important initiatives largely against the legacy <unk> businesses.

In terms of putting in new <unk> processes and enhancements, we are hopeful that those will drive some efficiencies be.

Being able to bring some inventory levels, but I would say best guess at this point is probably 800 ish versus the original 1 billion.

And we'll go next to Adam Samuelson with Goldman Sachs. Please go ahead. Your line is open.

Yes, thanks, good morning, everyone.

So I guess I wanted to come back to the inflation and cost question.

I appreciate there is.

Business, but help us just balanced thinking about the price cost balance in the second half specifically.

And I think you entered the year, having been behind on price cost from 'twenty, one and hoping you'd be catching up to that into 'twenty into 'twenty. Three is there still do you still see or still have line of sight to recapturing kind of that price cost balance on a cumulative basis in 'twenty, three and I guess, along those lines can you talk.

The actions you are taking navy tried to shorten some of the price lags in some of the businesses probably see it a little bit more in the center segment this quarter, but.

What can you what can we do that maybe compressed that the length of those inventories and cost cycles. Thank you.

Okay, Hey, Adam Thanks, Thanks for the question.

I would say that a couple a couple of answers. One is just relative to this year I will say, we're slightly ahead I E price versus cost back to the how things roll through inventory slightly behind second half of the year. That's part of the reason for the know how one thinks about the balance of the year implied guidance versus kind of the first half of the year.

So that's a piece of it.

We normally 18 months will be the full lag from inflation to capture you can see that.

Manifesting itself differently by business centers. The one that's the furthest behind from a timing and given the nature of the relatively large customers and generally are.

<unk>.

Indices tag to the contracts from the standpoint.

And we would fully expect that to continue to be the case. The only question Mark here is how one thinks about 'twenty three so as I just mentioned my prior answer to Mike.

We probably are going to see another round of inflation come through so from that standpoint.

It may be 18 months from the first round, but we may have a continue set around inflation, we need to catch up which would suggest probably late 'twenty three or even 24, if thats the case.

But to your last part of your question, obviously, we've all been in a very unprecedented environment relative to pricing and that's required us to sort of rethink traditional contracts.

And the way we've been rethinking them is to some extent just having realistic discussions with our customers on this level of inflation and having to share the burden and then in addition, just rethinking contracts in terms of the frequency.

As opposed to annual and semiannual or other type of sort of open up opening more open agreements relative to the changes in the marketplace. So that's been a bigger factor relative to the contracts, we put in place and I suspect that we will prevail in the future as well as we think about 2003.

And we will take our next question from John Roberts with Credit Suisse. Please go ahead. Your line is open.

Thanks, Glenn I think you earlier quantified as three or four divestments for one and a half to $1 7 billion in expected proceeds.

Is that still the right ballpark target as you look at the portfolio and then.

To your comments on inflation and higher working capital as a way to think about how much is just oil prices working their way down the supply chain.

Taking time to get to versus structural.

European gas constraints in China, a rotating lockdowns in logistics stuff can you separate oil prices.

Commodity prices versus the structural issues you're facing.

Yeah. Good question, John so relative to our outlook for divestitures, we still think the one and a half to $1 seven gross proceeds with three to four transactions completed by the end of next year is in the right ballpark the market as you're well aware has slowed down so the level of M&A activity is substantially less.

With the volatility in credit markets that has made it more difficult, particularly for private equity investors. However, the size of our transactions you can just do the simple math arent that large they tend to be sort of a nice strategic fits for other businesses.

From an initial dialogue standpoint, the interest level seems very good. So we think things maybe a little slower from a process standpoint, but we're still fairly confident that we will at our target relative to sort of broader global supplies or how one thinks about inventory over the longer cycle about half of our growth.

Of our dollar growth of inventories is related to inflation. This year and about half is related to higher inventory levels as higher inventory levels. If you recall were to basically improve our customer service levels, because we had low inventories again in our legacy <unk> businesses I will say, though.

I'm increasingly confident that through the implementation of.

Improved as Sanofi processes across.

Number of our businesses that will allow us actually to reduce some of those higher inventories.

Third thing you mentioned is really the global supply chain clearly, we like everybody have an extended supply chain I E. There's more products sitting on the water for longer times.

There is more inventory buffer stock in our system et cetera to basically accommodate for the volatility of the market. We're actually thinking about what that means longer term in terms of working capital and I suspect by the end of this year, we'll be able to sort of come back and provide some visibility on that but I do think at the end of the day that will be a meaningful improvement.

The city not just for ourselves, but for everyone as the supply chain gets back to order.

We will take our next question from David Begleiter with Deutsche Bank. Please go ahead. Your line is open.

Thank you good morning.

Glenn where are you seeing initial signs of demand weakness either by geography or by business.

And second if we could go into if we do go into a deeper downturn, what levers can you pull to offset this offset that downturn. Thank you.

Yeah.

Hey, David as Frank Thanks for the question a couple of thoughts.

From a demand weakness perspective.

The geography that we are seeing.

Probably no surprise is really China, we have the Lockdowns and we do see an impact clearly in the second quarter and just to recall.

David China is our second largest market so that that's been <unk>.

The challenge for US and then if you think about our portfolio.

Folio on the positive side as Glenn mentioned, we did see good growth in health culture, and food enzymes flavor.

Finding consumer fragrance as well so that's a positive as you think about the resiliency of our portfolio. We feel overall cautiously optimistic one would anticipate.

As pressures continue to Mount a fine fragrances may be somewhat of a challenge.

As we think about the <unk>.

Additional levers and this is what we're really staring into but if you.

Listen some of our prepared remarks, clearly productivity is going to be continuously important for us and that's something that we are spending a lot of time on as a team and thinking about levers there.

Glen has already spoken about our pricing and are working with customers to really do everything we can to recoup the inflation that we're seeing and then the other lever we have is really staying close to our customers.

Our global key account teams, our customer insights teams really trying to be as.

Quick and agile as possible working with our customers to make sure. We have good connection with them to understand kind of what we're seeing in the marketplace. So those are all levers that we are focused on but it's also why we feel good on our recommitment of our guidance, both the topline and non a 12% growth.

The range and then also our EBITDA range of 4% to 8%. So that's why we feel comfortable and confident in reconfirming that guidance today.

And we will take our next question from again, Sean Punjabi with Baird. Please go ahead. Your line is open.

Thank you and good day everybody.

I just wanted to first off a follow up on the.

The last question as it relates to new product development.

You seen any signs of slowing as major customers sort of worry about consumer elasticity on a global basis, and then on slide 16, frankly.

Talked about preparing for more uncertain market conditions, including a recession, how do you think the portfolio is positioned.

Potentially go into some some level of a macroeconomic slowdown.

I'm just asking in the context of your leverage profile occurred.

Yes.

<unk>.

The resiliency as I mentioned, we feel overall cautiously optimistic on the on the portfolio clearly there is a model move.

Moving pieces right now, but if you think about food and beverage as you think about how you think about what we are seeing resiliency from our pharma business. So we feel overall that the portfolio going into possibly some challenging times is really well positioned overall and I've kind of highlighted that fine fragrances maybe.

An area that we start to see some pullback from a demand perspective.

As far as the innovation questioning our portfolio. There are some customers that are going to really focus on our core offerings that theyre going to maybe not think about new offerings. At this point in time. However, we still are seeing very strong signals of customers wanting to.

To innovate.

Co develop with them work with us and we're really excited about our pipeline and portfolio.

My belief is still going to be critically important for the future is something that we will spend time in December really share with you why we're excited about our pipeline and portfolio, but that's going to be really key for us. So yes, youll see some customers focus on the near term maybe non core offerings. However, as we look out we're still seeing.

Signals from customers, they're working with us on innovation is going to be really important to the future.

I can maybe just add to that relative to the leverage question against them as that.

As Frank indicated and as Youre well aware is this business.

<unk> is highly resilient through cycles. So you may be down a couple percent you may have some temporary transition quarter or two is as customers sort of feedstock inventories.

But in general that we don't see massive swings in terms of volume secondarily very importantly, we do believe that sort of pricing resiliency and being able to continue to sustain.

Passing inflation through which is helpful.

Third productivity as we've mentioned as sort of a major driver here to sort of offset some of the potential demand drop in the marketplace and then in general a slowdown probably helps other elements of working capital such as such as inventory is more stable as well.

Maybe the slower capex investments, so not only from a P&L standpoint, but from a cash flow very resilient to sort of manage through the cycle, particularly with with our success in pricing and the focus on productivity.

We will take our next question from Josh Spector with UBS. Please go ahead. Your line is open.

Yeah, Hi, Thanks for taking my question I, just wanted to follow up on <unk> and particularly in the quarter segment margins were much higher than our expectations I believe higher than your expectations can you talk about the visibility of raw materials flowing through your system. So I'm curious really what went better in the quarter and.

Why can't something like that occur in the next couple of quarters, what what's different versus what happened this quarter. Thanks.

Yeah, Hey, good question, Josh It really is related to the sort of the matching of the build in inventories relative to the flow through of sales and as mentioned, we sort of built inventories in at this point, we think is going to be fairly I E. The raw materials that come through raw materials are generally sort of static from a cost standpoint, so we do.

Spec them to sort of sort of run through the next quarter. So I wouldn't expect to have this I'll say artificial pick up from a timing standpoint.

And we'll take our next question from Chris Parkinson with Mizuho. Please go ahead. Your line is open.

Great. Thank you so much for taking my question. So we've hit on price cost productivity. When we look out obviously there is some uncertainty in the second half year, but when we look out into 'twenty three 'twenty four and Frank now that you've had some time to look at your four primary businesses can you talk about just any potential mixing rent expense, specifically in <unk> and anything else that could reach.

Help us.

To compartmentalize, a year longer term marching on opportunities across segments, just any quick thoughts. Thank you.

Yes, Chris just some and we'll spend some time in December around the portfolio. In particular this is why we have.

It really looked at our business through the <unk> lens that we've spoken about and you can see the three categories that we highlighted at Investor grow and then also maintaining our business and then some that we'd actually have to really improve or exit.

We're excited that we have significant opportunities within the invest to grow area and Ive highlighted flavors we've highlighted.

All of our food and culture enzyme businesses. So there is we think significant profitable opportunities for very good.

Good growth big categories. The categories are growing very strong end market. So we were excited about that Chris.

Chris and then also we will continue to take a very disciplined approach overall to areas, where we do not think we are the best owners and Glenn highlighted.

Our divestiture strategy will continue to do that as well so all in all we feel good about the portfolio and then like I said, we'll unpack a lot more of that when we get to December .

We'll go next to Jeffrey Zekauskas with Jpmorgan. Please go ahead. Your line is open.

Alright, thanks very much.

The margin compression.

Was weaker.

From the first to the second quarter that is weak weaker sequentially that seems to be the one business where.

You have not had the same profit resiliency.

Why is that.

And for Glenn.

Your deferred tax line in your funds flow was an outflow of $178 million and for the full year last year was an outflow of $2 36.

What's going on with your taxes. So that you have this cash outflow.

Geoffrey will answer the first question the second question.

Yes.

Yeah, Okay, sorry, Okay. So your first question was relative to the center and in part the performance around the reality is that two things. One there were some one time expenses in the second quarter relative to set and secondarily as we mentioned that.

Debt.

There's been two rounds of inflation, so as we talk to us a little bit more of a lag in that business from the standpoint. So if you think about the <unk> impact thats basically coming through and Theres a bit of delay relative to taxes theres lots of every year as you that Jeffrey Theres lots of ebbs and flows depending on.

What's happening across various parts of the globe in terms of our.

Tax positions and settlements. So it's everything is actually trending fine versus our expectations. At this point in time, there is nothing sort of abnormal from a year over year standpoint, but I appreciate the question.

Good morning America.

Yeah.

Okay got.

Go to next one.

Our final question from Matthew Deyoe with Bank of America. Please go ahead. Your line is open.

Hi, good morning, everyone.

If I were to look at the top line kind of just on a rough cut basis what percent of your sales or business has fallen to the invest category versus maximize versus optimized.

Okay. Thanks for that question and Thats something that at this time, we're not prepared to share the different cuts.

Percentage wise, what I would share is that we do have really good opportunities in the invest to grow category and as I mentioned will clearly unpack that a little bit more as we get into December in Investor day, and really share.

The excitement we have around the portfolio as well as the opportunities, but right now we're not prepared to share the specific percentages okay.

And there are no further questions at this time I will turn the call back over to Frank <unk> for any closing remarks.

So I would like to just thank everyone for joining the call and also thank all over Iff's colleagues once again around the world, we feel very proud of our first half.

<unk> business performance and the results and we know that the teams around the world continue to work with our customers to bring innovation and to help our customers to be successful in the marketplace and we look forward to.

Seeing that our third quarter call as well as once again, our capital markets day on December 7th and hope everyone has a good rest of the morning. Thank you.

Thank you and this does conclude today's program. Thank you for your participation you may disconnect at any time.

Okay.

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At this time I would like to welcome everyone to the I S. S. Second quarter 2022 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 one on your telephone keypad, if you would like to remove your name from the queue.

Please press the pound key.

All participants will be announced by their name and company in order to give all participants an opportunity to ask questions. We request a limit of one 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 2022 conference call.

Yesterday afternoon, we distributed a press release announcing our financial results.

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

Please note that this call is being recorded live and will be available for replay.

Please take a moment to review our forward looking statements.

Turning the call, we're making forward looking statements about the company's performance, particularly with regard to the outlook for the second half and full year 2022. These statements are based on how we see things today and contain elements of it.

Uncertainty.

For additional information concerning the factors that can cause actual results to differ materially from our forward looking statements. Please refer to our cautionary statement and risk factors contained in our 10-K and press release, both of which can be found on our website.

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 set forth in our press release.

With me on the call today is our CEO Frank Clyburn.

Vice President and CFO Glen Rector, we will begin with prepared remarks, and then take any questions you have at the end.

I would now like to turn the call over to Frank.

Thank you, Mike and Hello, everyone.

And thank you for joining us today.

Before I dive into our first half results I wanted to take a moment to acknowledge the tremendous progress we have made over the last three months.

Amid a challenging operating environment, our global teams continue to display their steadfast commitment to our customers and passion for innovative discoveries as iff's delivered profitable growth.

Since joining ISS I have consistently been impressed by the caliber of the work innovation and expertise our people deliver as well as the creative culture that underpins our success.

Once again, thank our teams around the world for their hard work.

We'll begin today's call with an update on our strategy refresh process.

Value creation opportunities, we're focusing on for the near and long term as well as ISS recent accomplishments as we execute on our operational priorities.

This includes delivering $70 million of cost savings in the first half of the year, taking swift and aggressive pricing actions to cover inflation exiting.

<unk>, our microbial control business and ensuring that we get the right talent in the right roles.

I will then turn the call over to Glenn to provide a detailed look at our second quarter financial results and discuss our outlook for the rest of 2022, we.

We will then open the call up for questions.

Beginning with slide six I'd like to provide an update on our efforts to refresh our long term strategic plan.

While we are pleased that ISS hold strong positions across many of our business segments. Today, we are committed to evaluating and fine tune in both our strategy and execution to best position the business for long term profitable growth.

Im pleased to share that we are making meaningful progress and moving quickly to map out an exciting and ambitious path forward.

In Q2, we continued to advance our enterprise wide review of our business and portfolio to ensure we are well equipped to successfully navigate current and future market conditions, while capturing long term value.

Our goal for this comprehensive evaluation is to further develop the refined operating plan to generate sustainable sales growth, while ensuring lasting competitive differentiation.

<unk> product superiority and provide a clear roadmap, where we can execute our priorities to create significant value to all of our stakeholders.

Already we have successfully completed the foundational phases of the plan, we have identified meaningful opportunities to capture additional profitable growth and attractive end markets geographies and cross platform synergies, while also identifying internal opportunities in near term.

External pressures that must be navigated to achieve this now.

Now we are working to finalize refreshed operating plants.

We'll align our operating model talent and incentives as well as finalize our long term financial targets and capital allocation strategy that prioritizes sustainable long term growth.

In addition, we are strengthening our culture, one that in bottoms collaboration and accountability to ensure strong execution of our commitments.

We will continue to move rapidly and with urgency over the coming months to finalize our reverse refresh strategy and look forward to sharing more on this with you at our capital markets day to be held Wednesday December seven in New York City.

Moving to slide seven I'd like to give a brief snapshot of where we are focusing as we advanced our strategic refresh there are five core areas of focus first we're prioritizing a more thoughtful and data driven approach to our resource allocation strategy.

Investment is essential to our future growth, but it is critical that our spending decisions optimize returns and reflect the unique roles with each of our businesses serve and our broader portfolio.

I will explain this in more details in a moment similar.

Similarly, we are also making strategic decisions to support our research and development efforts by focusing on the highest return projects and identifying ways. We can leverage our cross platform offerings, we will be even better positioned to accelerate topline growth and extend our industry leadership in key categories.

Please.

Shortly we will introduce an enhanced productivity program designed to help us improve profitability and unlock additional opportunities to finance our growth opportunities in our growth initiatives.

At the same time, we continue to evaluate our portfolio to ensure that our offerings wholesale lines to the markets in which we operate the evolving expectations of our customers and with our long term objectives. We successfully completed the divestiture of our microbial control business and we will continue.

To assess the portfolio as we explore additional non core divestitures to reduce debt and improve our capital structure.

Lastly, we are reviewing our operating model to ensure that our infrastructure talent and incentives and maximize our unmatched portfolio and go to market strategy with our customers.

Attracting and supporting the industry's best talent and aligning incentives is critical to drive continued collaboration and accountability across the organization.

I'm focused on making sure we have the right talent to execute our strategic plan and I'm pleased that we recently announced that board, who will join us as our chief human resource and diversity and inclusion officer on August 29, 2022, with our deep experience connecting HR.

Our culture employee engagement and business as well as a change management.

Expertise she has the right skill set for ISS and our people as we strengthen our execution driven culture. She brings an extensive track record of building world class talent and helping the business to execute and drive value for all stakeholders.

Our success with these initiatives will be supported by our ongoing work to modernize our foundational data and technology capabilities as we strengthen our internal operations to help ensure best in class execution.

On slide eight I would like to share a bit more about the deliberate choices. We are making specifically how are more strategic and disciplined approach to resource allocation will create exciting opportunities for profitable growth.

Across the board, we are focused on driving margin improvements, but to do so effectively we are pursuing differential management strategy across key areas.

Last quarter I shared in ROIC see chart, which was a first glimpse into the lens that we're viewing the company through.

To move forward with this plan, we have developed a comprehensive playbook that segments of our business into three distinct archetypes with unique strategic imperatives. When you look at our portfolio, we will consider whether to invest to grow maximize to drive inefficiencies or optimize.

To rapidly improve performance.

Using this model, we remain intensely focused on achieving above market growth strengthening our competitive global position, increasing our return on invested capital and analyzing the most valuable use of our existing assets.

For example on a category like flavors, we see meaningful opportunities to drive above market revenue growth, primarily through reinvesting in innovation and commercial initiatives.

We are prioritizing above market revenue expansion in this category as opposed to margin improvement alone as we're focusing on large profitable and faster growing subcategories like beverages or daily to drive strong value creation here. It is more about reinvesting margin upside.

To ensure we are bringing the best innovation to our customers to drive dollar profit growth.

On the other hand in a market like animal nutrition, we are focused on maintaining the consistent growth we've delivered with an emphasis on driving further productivity by identifying certain segments in which to reinvest while strategically reducing R&D expenses in others, we will focus on margin improve.

Mint and create opportunities to invest in the highest value offerings.

We're taking a stronger approach within our ophthalmology businesses for example, our packing business unpopular clean label natural stabilizer to quickly drive near term earnings through pricing and cost initiatives, while maintaining our market competitiveness and reallocating upside.

To invest two growth categories like flavors.

I'll also say for those optimized businesses, where we do not have a strong improvement plan, we will accelerate divestitures and exit the category with work already well underway.

I am excited about this initiative and the progress we are seeing already maybe more no mistake, we are running on ASF quite differently and bringing enhanced rigor to our operations across every business and function.

Earlier this year, we spend time, reviewing our key priorities, including pricing and portfolio optimization.

Moving to slide nine.

Now I'd like to focus on the multiyear productivity and reinvestment program I mentioned earlier, which I believe is key to achieving our long term growth expectations and our profitability goals.

Since joining ISF I have spent time analyzing our cost profile and believe as an organization, we have significant opportunity to optimize our cost structure I am fully committed to unlocking this value and have asked the team to accelerate our efforts to ensure we are well positioned to execute.

As we move into the second half of the year for EMEA for more details I would like to ask Glenn to comment.

Thank you Frank and good morning, and good afternoon to everyone accelerating our productivity and expense synergy efforts represents one of our top priorities and is increasingly important in a more challenging economic environment in order to maximize financial performance to.

To this end we wanted to provide additional transparency to our multi year productivity program.

And the expected results.

First of all let me describe the scope of our efforts overall, we have established for productivity efforts that cover approximately 85% of <unk> total cost structure focused primarily on operations and overhead expenses.

The 14th include supply chain, which includes our procurement and global logistics operations.

Opportunities include driving additional efficiencies indirectly indirect materials spending through enhanced procurement strategies and demand management, particularly for indirect spend and reduce logistics costs driven by improved global <unk> processes.

The second team is focused on end to end manufacturing operations and includes a broad based set of initiatives, including accelerating our digital manufacturing efforts driving yield improvements system wide best practices and energy savings programs.

The third initiative is our economic profit team is focused on leveraging improved technology and disciplined processes to optimize product mix rationalize skus and enhanced make versus buy decisions.

And our fourth theme is focused on building out our global shared service platform in concert with technology to drive increased centralization and process standardization to drive efficiencies across our administrative and business support functions.

In total the combined programs are targeting a preliminary net annualized P&L impact of $250 million to $300 million.

We expect to be achieved between 2023 and 2025.

Two important notes.

This $250 million to $300 million annual impact is net of Reinvestments that are targeted to strengthen our innovation pipeline pipeline expand our commercial efforts across key products customers and regions.

Keeping our technology and digital capabilities and strengthen our talent.

Secondly, the net savings will be slightly more skewed to 2024 and 2025.

Look forward to sharing more details with you at our Investor day in December with that I'll turn it back to Frank.

Thank you Glenn.

As I said, we will provide more specifics on this program at our Investor day in December but wanted to share an early indication with you as we committed to provide more details on this topic during our Q1 earnings call.

More importantly at our Investor Day, we will also provide you with a clear and more detailed roadmap for growth, including our incremental revenue opportunities from our combination with NMB.

We remain confident that we have significant opportunities ahead confirmed by our initial commercial wins and positive customer feedback as well as our competitors following our lead.

I know that realization of these benefits have been slower than expected due to external factors, including COVID-19 supply chain disruption customer bandwidth pricing initiatives and constrained capacity.

However, since joining I've launched a focused initiative to reinforce our emphasis and address existing gaps.

Specifically, we are developing et cetera, prioritize opportunities each with clear financial impact owner and timeline to provide confidence in our ability to deliver this will be a significant focus for me going forward is uncommitted to delivering the value proposition of our combined portfolio.

And we'll be personally involved dedicating significant time and engagement with the business to drive performance.

I am pleased to say that we continue to see steady wins across our portfolio recently, we collaborated with the leading alternative protein producer to improve commercial and technical collaboration essentially upstream and the incorporation of heritage Iff's flavors into.

Heritage NMB protein base exceeding our customers expectation for plant based burgers.

This resulted in ISS being awarded as a core supplier one of three increasing our market share and ensuring a long term relationship.

In addition, we are seeing the value of integrated solution between our nourish and <unk> divisions.

Dairy category is showing very good collaboration opportunities. Thanks in large part to early technical support and a better together approach with customers and this when we were a step ahead of the competition due to early engagement with the dairy customer during culture.

<unk> phase, ensuring the best flavor collaboration.

These are just two examples but strong proof points that we are moving in the right direction and delivering a better value proposition to our customers.

Now turning to slide 10, I'd like to provide an overview of our performance for the first half of the year. Our strong first half results are once again, a testament to the strength of our portfolio and the dedication of our talented global teams will continue to grow above and beyond in a complex <unk>.

Market.

Despite the macroeconomic challenges of the last six months sales grew by a strong 18% or 12% on a currency neutral basis to $6 5 billion.

Comparable currency neutral adjusted operating EBITDA grew 8% to $1 4 billion.

I am proud to report that we increased our quarterly dividend by approximately 3%.

13th consecutive year of increased payout to our shareholders, which underscores our belief in our business and ISS strong future cash flow generation.

We also continue to work on deleveraging objectives, where we remain committed to our deleverage target of reducing net debt to EBITDA to less than three X 36 months post the transaction, which is February one 2024 at.

At the same time, we prudently and proactively amended the covenants on our existing credit agreements given the market volatility and uncertainty Glenn will discuss in more detail.

As I mentioned a bit earlier, we also completed the divestiture of our microbial control business on July one and continuing to evaluate additional divestiture opportunities for our noncore assets as we move ahead based on our category management approach I described earlier.

Now I would like to turn the call back over to Glenn to provide a closer look into our second quarter financials.

Thanks, again, Frank turning first to our consolidated second quarter results <unk> generated more than $3 billion in sales, representing 11% year over year increase on a comparable currency neutral basis, primarily driven by double digit growth and nourish and pharma solutions in terms of our growth contribution.

Pricing represent the majority with volumes up modestly.

<unk> focus coming into 2022 was to fully recover inflation through pricing actions and for the full year. We are on track to recover approximately $1 billion and cost inflation, we're doing so in a very thoughtful and strategic manner over indexing on lower margin and capacity constrained businesses.

While foreign exchange rates have had an adverse impact on our sales and EBITDA in the second quarter I am pleased to report that adjusted operating EBITDA grew 3% year over year on a reported basis or 7% on a comparable currency neutral basis, driven by productivity gains and pricing actions we can.

Implemented in the quarter.

We also achieved solid year over year earnings per share growth of 3% excluding amortization.

Before moving on I wanted to share that during the second quarter of 2002, we.

We took an impairment charge of 120 million within certain entities in Russia into a number of factors, including reduced business focus as we have restricted our operation.

Two essential consumer products that include food hygiene, and medicine supply chain issues reduced product demand and exchange rate volatility.

As a result of the Russia, Ukraine conflict.

Was determined that such declines in operating performance were not expected to reverse in the near future.

And future expected growth is expected to be limited.

The operating conditions in Russia. This noncash impairment charge with allocated pro rata to intangible assets and property plant and equipment within the asset group and the amounts of approximately $92 million and $28 million respectively.

Moving now to slide 12, I'll provide a brief overview of the underlying performance across our business segments.

As I mentioned sales growth across each of our business segments, including nourish Alpine biosciences.

And pharma solutions contribute to ISS year over year comparable currency neutral sales growth of 11%.

<unk> was once again, our largest growth driver with a significant broad based growth across our flavor ingredients and food design businesses.

Seth had another strong quarter with currency neutral sales growth can be high single digits led by fine fragrance consumer fragrance ingredients.

Health and Biosciences delivered mid single digit growth and we see.

Consistent performance in health cultures, and food enzymes, and animal nutrition as well as microbial control prior to the official divestiture completed in July .

Home and personal care and grain processing for negative in the second quarter as each business had very strong double digit comparison in the prior year period.

Lastly, we are pleased by pharma solutions continued rebound having achieved double digit growth driven by continued strength in our industrial and pharma businesses.

Turning to slide 13, I'd like to provide a review of our profitability for the quarter.

Second quarter, adjusted EBITDA totaled 700 million exceeding our expectations and represented 7% and year over year comparable currency neutral growth driven by the pricing actions and productivity gains that I mentioned earlier.

Comparable adjusted EBITDA margins in the second quarter was 21, 3%.

And on an inflation adjusted basis would have been approximately 200 basis higher.

Approximately 23, 5%, if we normalize for the impact of pricing contribution to sales. This.

Compares to an EBITDA margin of 22% in Q2 for 2021.

As a result of our strategic pricing actions, we have fully recovered taupe, placing cost to date and we are optimistic that we will achieve full dollar cost recovery for the full fiscal year.

As we continued navigating this uncertain market, we will continue to closely monitor raw materials and logistics costs in the quarters ahead, and take appropriate action to offset additional inflationary pressures and maintain profitability.

On slide 14 is an overview of our second quarter performance by business segment.

Nourish, which delivered year over year comparable currency neutral sales growth of 15% and.

An 18% growth in comparable currency neutral adjusted operating EBITDA saw strong demand, particularly in food designed hence flavors.

In health <unk> Biosciences high single digit increases in health and cultures, and food enzymes and mid single digit growth in animal nutrition co, 4% comparable currency neutral sales growth for the division.

While we implemented strategic pricing actions and saw notable productivity gains similar to your earnings this quarter lower volumes and an unfavorable mix led to 2% year over year decrease in comparable currency neutral adjusted operating EBITDA.

In fine fragrances continued to lead the way with double digit growth.

Followed by a high single digit growth in ingredients and low single digit growth in consumer fragrances co.

Collectively <unk> achieved year over year comparable currency neutral sales growth of 9%.

So inflationary pressures outpaced our strategic pricing actions, which led to a 17% decrease in comparable currency neutral adjusted operating EBITDA.

Our teams are continuing to work with our customers to address these ongoing inflationary pressures and we fully anticipate to recover all inflationary cost overtime.

Lastly, pharma solutions was one of our strongest performers this quarter, achieving 10% and year over year comparable currency neutral sales growth and an exceptional 25% increase in comparable currency neutral adjusted operating EBITDA driven by double digit growth in industrial and high single.

<unk> digit growth in pharma the division's profitability was further supported by pricing actions.

Productivity gains.

Turning to slide 15, I would like to discuss our cash flow and leverage position for the first half results.

And our first six months, our free cash flow position was impacted by higher inventory values.

This was a result of a combination of continued inflationary pressures and rebuilding inventories to support customer service levels.

36 million in the first half representing.

Approximately three 6% of sales.

As we continue to make the necessary investments in our business in.

In addition, ISF delivered $402 million in dividends to our shareholders.

From a leverage perspective, we remain well positioned as we advance our strategic refresh.

<unk> finished the second quarter with cash and cash equivalents of $569 million.

Gross debt for the quarter totaled $12, one 5 billion.

Note that we received a $1 3 billion gross proceeds from the sale of our microbial control business in July .

At the end of Q2, we maintained a four four times net debt adjusted EBITDA ratio.

In addition, just last week, we proactively amended our existing term loan credit agreement and revolving credit agreement in order to ensure we maintain adequate flexibility to navigate near term market uncertainties. The associated amendment fee was approximately 800000 the.

The amended agreement delay certain step downs from maximum permitted leverage ratio of four 5% to one stepping down to three five to one over time with the first step down now occurring at the end of the third quarter 2023.

Versus the end of the fourth quarter 2022 previously.

Trailing 12 months credit adjusted EBITDA.

Total $2 billion $644 million.

As Frank mentioned on August 3rd our board of directors authorized a 3% <unk> increase in the quarterly dividend to <unk> 81 per share of the Companys common stock accordingly dividend payable on October five 2022 to shareholders of record as of September 23.

Including this authorization, we increased our quarterly dividend payment for the 13th consecutive year.

Let's now turn to our consolidated outlook on slide 16 as.

As we look to the remainder of 2022, we remain on track to deliver our commitments and are Reconfirming, our full year guidance projected sales of $12 6 billion to $13 billion in currency neutral sales growth of 9% to 12%.

While we are Reconfirming our outlook. We also are increasingly cautious on the overall market environment outlook as we navigate continued foreign exchange fluctuations.

Ongoing inflation and potentially recessionary pressures, we expect to achieve our sales targets through pricing actions as we press ahead towards full dollar cost recovery.

We expect foreign exchange pressures to impact sales by approximately five percentage points.

Third to our previously forecasted four percentage points.

We are also reconfirming adjusted operating EBITDA to the two five to $2 6 billion.

Which equates to currency neutral operating EBITDA growth of 4% to 8%.

Please note that we expect foreign exchange to impact that growth by approximately six percentage points versus five percentage points previously.

As always we remain laser focused on mitigating the many macroeconomic challenges with an emphasis on controlling what we can control during these uncertain times, notably focusing on pricing execution and productivity.

In terms of the third quarter, we expect sales growth to be strong driven by pricing actions with sales coming in modestly above $3 billion and impacted by incremental foreign exchange headwinds some seasonality of our business and the divesture of microbial control.

The sale of appropriate control will impact Q3 revenues by approximately $110 million.

Third quarter, we expect adjusted EBITDA to be approximately $600 million to $610 million.

Before passing the call back to Frank I want to revisit the four core business objectives, we outlined at the beginning of the year overall, we are executing well against our operational priorities. So far this year.

Relative to maintaining strong sales momentum, we achieved 12% year over year currency neutral sales growth for the first half of 'twenty two.

And our targeting currency neutral growth of 9% to 12% for the full year.

Terms of executing our broad based pricing actions, we fully recovered the total cost of inflation and we remain on track to achieve a full dollar cost recovery for the full year 2002 <unk>.

Importantly, we are closely monitoring inflationary trends in the broader market environment to ensure we are well equipped to stay ahead, and where necessary quickly respond to future challenges.

On the productivity front, we continued to make tremendous progress towards our productivity savings goals for the full year in the first half of the year, we delivered over 78 million operational efficiencies and deal related synergies well above our expectations, we are well on track to exceed our $100 million full year savings.

Target.

Finally relative to accelerating non core divestitures, we successfully completed the sale of our microbial control business on July one.

And are continuing to assess our portfolio to identify additional portfolio optimization and divestiture opportunities in this uncertain market. These.

These divestitures will help us delever, our balance sheet and enable us to reinvest in our highest performing businesses with that I'll pass the call back over to Frank.

Thanks, Glenn before.

Before I wrap up today's call I want to say I am proud of the efforts of our global teams as we continue to execute amid challenging market conditions. We've achieved strong performance in the first half of 2022 and increased our dividend for the 13th consecutive year I am confident in our ability.

To achieve our full year financial targets as we continue executing against our operational priorities and control what we can control at.

At the same time, we are committed to advancing our strategic transformation efforts.

<unk> innovation.

Refining our portfolio and strengthening our culture to deliver strong value creation for all of our stakeholders.

Moving through the second half of the year, we will be intensely and urgently focused on protecting and growing our business identifying new strategic value creation opportunities and communicating our refreshed operating model across the business and the market to position <unk> for long.

Long term success I look forward to sharing more at our upcoming capital markets day in early December .

Now like to open the call for any questions. Thank you.

And at this time I would like to ask a question. Please press star one on your Touchtone phone you may recall your question at any time by pricing.

Once again that is star one and we will take our first question from Mark Astrachan with Stifel. Please go ahead. Your line is open.

Yes, thanks, and good morning, everyone.

Wanted to ask about the the productivity program and how youre thinking about that.

Balancing.

Margin versus volume growth, especially given I think what you say guan of modest volume growth.

This period and sort of how do you think about that going forward and how.

How do we think about.

Net savings as it relates to long term.

<unk>, including implied margin expansion I think the math would get you something north of 200 basis points implied margins, how do we think about that longer term. Thank you.

Hey, Mark this is Frank good morning.

Comments I'll start with first.

Productivity program that we've announced we see that as really important.

Not only near term mark, but really building a continuing productivity mindset, we want to build into the company.

We also want to be able to use that to be able to invest in our growth opportunities. What we're trying to achieve mark is really sustainable profitable growth and to start to really get leverage throughout the P&L, we think thats going to be really important for.

From a profile perspective.

This is why we've also.

On the ROIC work Mark on our portfolio and we'll be able to share with you in December some of the specific targets from a financial perspective.

And we will take our next question from Heidi <unk> with BNP Paribas Exxon. Please go ahead. Your line is open.

Good morning, So if we look at your Q2 currency neutral growth I understand this is mainly price while we see that most of your peers had strong volumes. This quarter. Why do you think you werent able to grow volumes and perhaps you could comment on the exit rate in Q2 in terms of volumes and momentum into Q3, Please and then some.

Linked to that what was the reason for not upgrading or upgrading your full year guidance after such a strong each one in terms of EBITDA. Thank you.

Hi, Good afternoon, Hi, this is Glenn thanks for the questions relative to sort of volume comparative as I would sort of maybe answer it three ways. One is as you are well aware. The compares are difficult given the apples to orange is sometimes comparisons of the business but.

But I would say that if you really kind of strip our business down and look at sort of the first half results.

<unk> of our core businesses actually are doing quite well so flavors sensor both mid single digits in terms of volume growth core business units within <unk> health is up high single digit.

Culture is food enzymes animal nutrition in the mid single digits pharma is up low single digits. So the difference is as we've discussed throughout the year, but we're being very thoughtful regarding our balance between volumes and profitability. So we've been very strategic and thoughtful relative to margin enhancement actions and focusing on those businesses.

That have both capacity constraints and or are lower margin businesses.

So thats the difference were very specifically trying to focus on making sure we deliver good outcomes for our shareholders as well as our customers from performance and then lastly, I would note that this is very consistent with what we signaled we said very early in the year. We were planning basically the balance of the year to be relatively flattish to one point and this is very consistent with the strategy.

Now we're implementing it relative.

Relative to kind of guidance. The reality is the pace of which sort of inflationary pressures flow through raw materials into our cost of goods. It does vary by business. So theres a little bit of a lag here in terms of how thats hitting quarter to quarter that explains some of the the.

Over performance in the quarter third quarter relative to kind of the full year outlook and consequently, because of that lag and this just generally a perspective on cautionary outlook given the macro environment, we're being sort of realistic in terms of how we guide and consequently, we are sticking to the same.

So hopefully hopefully that's helpful.

And we will take our next question from Gunther Zachman with Bernstein. Please go ahead. Your line is open.

Good morning, Frank.

Mike can you talk about the volume contribution within duration, but.

But do you expect in Q3, and how much revenue synergies and integrated solutions to high included in that place.

And then secondly, what is your updated in place and forecast for the year and any insight that you can share into 2023. Please.

Hi, Good afternoon, it's Frank I'll get started.

So first with regards to revenue synergies and as Glenn mentioned, we did see.

Really good performance expressly within flavors within nourish and we're excited about the significant opportunity. We believe we have there.

We also highlighted on the call. Some examples gunther that we offer.

Really.

Encouraged by some of the wins that we're seeing where we're utilizing our <unk>.

Legacy.

And then b expertise as well as our.

Our legacy ISF expertise for vanilla flavor is an important win there we highlighted an important win with regards to plant based burgers, we are seeing good cross selling opportunities. So.

Overall, we're starting to see revenue synergies on we're hearing good positive feedback from our customers with that said Dunkin' is work to be done and I highlighted that on.

<unk> remarks, this is something thats going to be a significant area of focus for myself personally as well as the executive team, we're going to be leaning into how do we bring our broader platform portfolio technology to our customers. So this is something we'll share a lot more about it.

Our December capital markets Day, Glen I don't know if you want to maybe touch on the inflation sure yes. It could.

Good afternoon, Gunther relative to 2022.

Still choppy, but in general no change to our outlook relative to the impact of inflation generally energy has been slightly better logistics have been slightly better raw materials have been slightly worse in buckets, but generally things are sort of stable I would also note that just the nature of the time it takes raw materials to go through inventory and show up in.

The P&L any additional impact for the balance of the year is likely to be muted to zero and really hit 2023, we are taking a very deep look at 'twenty three we run through it as preliminary scenario, we're doing an update in the coming weeks here as we plan for 2023 and our perspective at this point is we do anticipate.

Another I'll say meaningful round of cost increase from inflation, that's going to be concentrated in our view more on raw materials.

So theres a number of areas, including soy oils, obviously certain commodity groups.

Such as agricultural grains, and those sort of things, we're seeing pretty significant inflation.

Energy is choppy, but likely to also be some increase modestly in energy prices and logistics as well, we're likely to see some sort of modest increase as well so kind of overall, we are expecting probably 'twenty three not not to the same degree as 'twenty two but we are expecting additional inflationary pressures for next year.

We'll go next to Mike <unk> with Wells Fargo. Please go ahead. Your line is open.

Hey, guys nice quarter and.

And outlook.

In terms of free cash flow performance for.

For Q2, any more color maybe by segment.

So it is driving that can accomplish that and then I think.

We're hoping to do about $1 billion in positive free cash flow in 'twenty two.

Can you may make up some of this in the second half of the year.

Yes, so good question Mike.

The sole impact is seasonality as you know so typically in the first half of the year first quarter Theres, a build on working capital, namely inventories secondarily, there as the year end.

Compensation that basically gets paid out et cetera.

We are running actually worse on cash flow than anticipated to the tune of about $200 million that is 100% attributable to higher inventory levels that is principally related to basically higher cost. So as you may recall when we entered the year, we had our kind of wave one inflation subsequently.

Very early in the year.

Identified another significant round of inflation coming through that is rolling into inventory. So as a byproduct of that we had guided to the full year that wed be relatively flat to prior year from a free cash flow standpoint of about 1 billion ish. We are targeting to be proud to have a $200 million less than that at this point in time that.

Being said, we are implementing a series of very important initiatives largely against the legacy <unk> businesses.

In terms of putting in new <unk> processes and enhancements. We are hopeful that those will drive some efficiencies be able to bring some inventory levels, but I would say best guess at this point is probably 800 ish versus the original billion.

And we will go next to Adam Samuelson with Goldman Sachs. Please go ahead. Your line is open.

Yes, thanks, good morning, everyone.

So I guess I wanted to come back to the institute the inflation in cost question.

Appreciate that.

Business, but help us just balance think about the price cost balance in the second half specifically.

And I think you entered the year, having been behind on price cost from 'twenty, one and hoping you'd be catching up to that into 'twenty into 'twenty. Three is there still do you.

Still see are still have line of sight to <unk>.

Recapturing kind of that price cost balance on a cumulative basis in 'twenty three.

Along those lines.

You talked about the actions you are taking navy tried to shorten some of the price lags in some of the businesses and probably see it a little bit more in the sensus segment this quarter, but.

What can you what can we do to maybe compressed that the length of those inventories and cost cycles. Thank you.

Hey, Adam Thanks, Thanks for the question.

I would say that a couple a couple of answers one is just relative to this year I'd say, we're slightly ahead I E price versus cost back to the how things roll through inventory slightly behind second half of the year. That's part of the reason for the.

How one thinks about the balance of the year implied guidance versus kind of the first half of the year.

So thats a piece of it.

We normally 18 months will be the full lag from inflation to capture you can see that it's sort of manifesting itself differently by business centers. The one thats the furthest behind from a timing given the nature of the relatively large customers and generally are.

In India.

Indices tag to the contracts from the standpoint.

And we would fully expect that to continue to be the case. The only question Mark here is how one thinks about 'twenty three so as I just mentioned.

Prior answer to Mike.

And we probably are going to see another round of inflation come through so from that standpoint.

Maybe 18 months from the first round, but we may have a continue set around inflation to catch up which would suggest probably late 'twenty three or even 24, if that's the case.

But to your last part of your question, obviously, we've all been in a very unprecedented environment relative to pricing and that's required us to sort of rethink traditional contracts.

And the way we've been rethinking amendments to some extent just having realistic discussions with our customers on base level of inflation and having to share. The burden and then in addition, just rethinking contracts in terms of the frequency so as opposed to annual and semiannual or other type of sort of open up opening more open agreements relative to the changes in the marketplace.

So that's been a bigger factor relative to the contracts, we put in place and I suspect that we will prevail in the future as well as we think about 'twenty three.

We will take our next question from John Roberts with Credit Suisse. Please go ahead. Your line is open.

Thanks, Glenn I think you earlier quantified as three or four divestments for one and a half to $1 7 billion in expected proceeds.

Is that still the right ballpark target as you look at the portfolio and then.

To your comments on inflation and higher working capital as a way to think about how much is just oil prices working their way down the supply chain.

Taking time to get to versus structural.

European gas constraints in China rotating lockdowns in logistics stuff can you separate oil prices.

<unk> prices versus the structural issues you're facing.

Yeah. Good question, John so relative to our outlook for divestitures, we still think the one and a half to $1 seven gross proceeds with three to four transactions.

I'm pleased by the end of next year is in the right ballpark the market as you're well aware has slowed down so the level of M&A activity is substantially less with the volatility in the credit markets that has made it more difficult, particularly for private equity investors. However, the size of our transactions. If you can just do the simple math.

Arent that large they tend to be sort of a nice strategic fits for other businesses.

From an initial dialogue standpoint, the interest level seems very good. So we think things maybe a little slower from a process standpoint, but we're still fairly confident that we will at our target relative to sort of broader global supply or how one thinks about inventory.

Inventory over the longer cycle about half of our growth of our dollar growth of inventories is related to inflation. This year and about half is related to higher inventory levels as higher inventory levels. If you recall were to basically improve our customer service levels, because we had low inventories again the legacy <unk>.

Mrs I will say, though.

I'm increasingly confident that through the implementation of.

Improved <unk> processes across a number of our businesses that will allow us to actually to reduce some of those higher inventories.

Third thing you mentioned is really the global supply chain clearly, we like everybody have an extended supply chain I hear is more products sitting on the water for longer times.

There is more inventory buffer stock in our system et cetera to basically accommodate for the volatility of the market. We're actually thinking about what that means longer term in terms of working capital and I suspect by the end of this year, we'll be able to sort of come back and provide some visibility on that but I do think at the end of the day that will be a meaningful improvement.

The team not just for ourselves, but for everyone as the supply chain gets back to order.

And we will take our next question from David Begleiter with Deutsche Bank. Please go ahead. Your line is open.

Thank you good morning.

Glenn where are you seeing initial signs of demand weakness either by geography or by business.

And second if we could go into if we do go into a deeper downturn, what levers can you pull to offset this offset that downturn. Thank you.

Yeah.

Hey, David This is Frank Thanks for the question a couple of thoughts.

From a demand weakness perspective.

The geography.

We are seeing.

Probably no surprise is really China, we have the Lockdowns and we did see an impact clearly in the second quarter and just to recall.

David China is our second largest market so thats been <unk>.

Somewhat of a challenge for US and then if you think about.

For our portfolio.

The positive side as Glenn mentioned, we did see good growth in whole culture and food enzymes flavor.

Funding consumer fragrance as well so that's a positive as you think about the resiliency of our portfolio. We feel overall cautiously optimistic one would anticipate.

As pressures continue to Mount on fragrances may be somewhat of a challenge.

We think about the additional levers and this is what we're really staring into but if you.

Listen to some of our prepared remarks, clearly productivity is going to be continuous will be important for us and that's something that we are spending a lot of time on as a team and thinking about levers there.

Glen has already spoken about our pricing and are working with customers to really do everything we can to recruit the inflation that we're seeing and then the other lever. We have is really staying close to our customers.

Our global key account teams our customer insights team is really trying to be as.

Quick and agile as possible working with our customers to make sure. We have good connection with them to understand kind of what we're seeing in the marketplace. So those are all levers that we are focused on but it's also why we feel good on our recommitment of our guidance, both the topline and non to 12% growth.

Our range and then also our EBITDA range of 480%. So that's why we feel comfortable and confident in reconfirming that guidance today.

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

Thank you and good day everybody.

I just wanted to first off a follow up on the.

The last question as it relates to new product development.

You seen any signs of slowing as major customers sort of worry about consumer elasticity on a global basis, and then on slide 16, frankly.

Talked about preparing for more uncertain market conditions, including a recession, how do you think the portfolio is positioned.

Potentially go into some some level of a macroeconomic slowdown.

I'm just asking in the context of your leverage profile occurred.

Yes.

The resiliency as I mentioned, we feel overall cautiously optimistic on the portfolio clearly there is a model moves.

Moving pieces right now, but if you think about food and beverage you think about how you think about what we are seeing resiliency from our pharma business. So we feel overall that the portfolio going into possibly some challenging times is really well positioned overall and I've kind of highlighted that fine fragrances maybe.

An area that we start to see some pullback from a demand perspective.

As far as the innovation questioning our portfolio. There are some customers that are going to really focus on.

Our core offerings that we're going to maybe not think about new offerings. At this point in time. However, we still are seeing very strong signals of customers wanting to innovate.

Co develop and work with us and we're really excited about our pipeline and portfolio.

My belief is they're still going to be critically important for the future. It's something that we will spend time in December really share with you why we're excited about our pipeline and portfolio, but that's going to be really key for us. So yes, youll see some customers focus on the near term maybe non core offerings. However, as we look out we're still <unk>.

Signals from customers, they're working with us on innovations can be really important to the future.

If I can maybe just add to that relative to the leverage question against them is that as Frank indicated and as Youre well aware is this business is highly resilient through cycles. So you may be down a couple percent you may have some temporary transition quarter or two as customers sort of feedstock inventories.

But in general that we don't see massive swings in terms of volume secondarily very importantly, we do believe that sort of pricing resiliency and being able to continue to sustain.

Passing inflation through which is helpful.

Third productivity as we've mentioned as sort of a major driver here to sort of offset some of the potential demand drop in the marketplace and then in general a slowdown probably helps other elements of working capital such as such as inventories more stable as well.

Maybe the slower capex investments, so not only from a P&L standpoint, but from a cash flow very resilient to sort of manage through the cycle, particularly with with our success in pricing and the focus on productivity.

So really we will take our next question from Josh Spector with UBS. Please go ahead. Your line is open.

Yeah, Hi, Thanks for taking my question I, just wanted to follow up on nourish and particularly in the quarter segment margins were much higher than our expectations I believe higher than your expectations can you talk about the visibility of raw materials flowing through your system. So I am curious really what went better in the quarter and.

Why can't something like that occur in the next couple of quarters.

Different versus what happened this quarter. Thanks.

Yeah, I think hey, good question, Josh It really is related to the sort of the matching of the build in inventories relative to the flow through of sales and as mentioned, we sort of built inventories in at this point, we think is going to be fairly I E. The raw materials that come through raw materials are generally sort of static from a cost standpoint, so we do expect them to.

Sort of run through the next quarter. So I wouldn't expect to have this I'll say artificial pick up from a timing standpoint.

And we'll take our next question from Chris Parkinson with Mizuho. Please go ahead. Your line is open.

Great. Thank you so much for taking my question. So we've hit on price cost I said on productivity when we look out.

There is some uncertainty in the second half of the year, but when we look out into 'twenty three 'twenty four and Frank now that you've had some time to look at your four primary businesses can you talk about just any potential mixing rent expense, specifically in <unk> and anything else that could really help us.

Try to compartmentalize your longer term margin opportunities across segments, just any quick thoughts. Thank you.

Yeah.

Yes, Chris just some and we'll spend some time in December around the portfolio. In particular this is why we have.

Really looked at our business through the royalty lands that we've spoken about and you can see the three categories that we highlighted at Investor grow and then also maintaining our business and then some that we'd actually have to really improve or exit.

We're excited that we have significant opportunities within the invest to grow area highlighted flavors. We've highlighted all of our food culture enzyme businesses. So there is we think significant profitable opportunities for very good.

Good growth big categories. The categories are growing very strong end market. So we were excited about that Chris.

Chris and then also we will continue to take a very disciplined approach overall to areas, where we do not think we are the best owners of Glenn highlighted.

Our divestiture strategy will continue to do that as well so all in all we feel good about the portfolio and then like I said it will impact a lot more of that when we get to December .

And we will go next to Jeffrey Zekauskas with J P. Morgan. Please go ahead. Your line is open.

Thanks very much.

The margin compression.

Was weaker.

From the first to the second quarter that is weak weaker sequentially that seems to be the one business where.

You have not had the same profit resiliency.

Why is that.

And so Glenn.

Your deferred tax line in your funds flow was an outflow of $178 million and for the full year last year was an outflow of $2 36.

What's going on with your taxes. So that you have this cash outflow.

Geoffrey will answer the first question the second question.

Yes.

You can go okay, sorry, okay. So your first question was relative to the center and and perform to wrap the reality is that two things. One there were some one time expenses in the second quarter relative to the Senate and secondarily as we mentioned.

That.

There's been two rounds of inflation, so as we talk to us a little bit more of a lag in that business from the standpoint. So if you think about the two rounds of impact thats basically coming through and Theres a bit of delay in relative to taxes Theres lots of every year as you said Jeffrey Theres lots of ebbs and flows depending on what's happening across various parts of the globe in terms of.

Our.

Tax positions and settlements. So it's everything is actually trending fine versus our expectations. At this point in time, there's nothing sort of abnormal from a year over year standpoint, but I appreciate the question.

Perfect.

Alright sounds good when you go to the next one.

My final question from Matthew Deyoe with Bank of America. Please go ahead. Your line is open.

Hi, good morning, everyone.

If I were to look at the top line kind of just on a rough cut basis.

What percent of your sales or business has fallen to the invest category versus maximize versus optimized.

Okay. Thanks for that question and that's something that at this time, we're not prepared to share the different cuts.

Percentage wise, what I would share is that we do have really good opportunities in the invest to grow category.

And as I mentioned, we will.

Clearly unpack that a little bit more as we get into December in Investor day, and I'm really sure of it.

Excitement, we have around the portfolio as well as the opportunities, but right now we're not prepared to share the specific percentages.

And there are no further questions at this time I will turn the call back over to Frank <unk> for any closing remarks.

So I would like to just thank everyone for joining the call and also thank all of our ISF colleagues once again around the world.

We feel very proud of our first half.

Business performance and the results and we know that the teams around the world continue to work with our customers to bring innovation and to help our customers to be successful in the marketplace and we look forward to.

Seeing you at our third quarter call as well as once again, our capital markets day on December 7th and hope everyone has a good rest of the morning. Thank you.

Thank you and this does conclude today's program. Thank you for your participation you may disconnect at anytime.