Q4 2023 International Flavors & Fragrances Inc Earnings Call

February 21, 2024

Okay.

Operator: At this time, I would like to welcome everyone to the IFF fourth quarter and full year 2023 earnings conference call. All participants will be in a listen-only mode until the formal question-and-answer portion of the call.

Speaker Change: At this time I would like to welcome everyone to the I F F fourth quarter and full year 2023 earnings conference call.

Speaker Change: All participants will be in a listen only mode until the formal question and answer portion of the call.

Operator: To ask a question at that time, please press star 1 on your telephone keypad. If you would like to remove your name from the queue, please press star 2. Participants will be announced by their name and company. In order to give all participants an opportunity to ask their questions, we request a limit of 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.

Speaker Change: Did you ask a question at that time, Please press star one on your telephone keypad.

Speaker Change: If you would like to remove your name from the queue. Please press star two.

Speaker Change: Participants will be announced by their name and company.

Speaker Change: In order to give all participants an opportunity to ask their questions. We request a limit of one question per person.

Speaker Change: I would now like to introduce Michael Deveau head of Investor Relations you may begin.

Michael Deveau: Thank you good morning, good afternoon, and good evening, everyone welcome to <unk> fourth quarter and full year 2023 conference call.

Michael Deveau: Welcome to IFF's fourth quarter and full year 2023 conference call. Yesterday afternoon, we issued a press release announcing our financial results. A copy of the results can be found on our IR website at ir.iff.com. Please note that this call is being recorded live and will be available for reply.

Michael Deveau: Yesterday afternoon, we issued a press release announcing our financial results a copy of the results can be found on our IR website at IR Dot <unk> Dot com.

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

Michael Deveau: Please take a moment to review our forward-looking statement. During the call, we were making forward-looking statements about the company's performance and business outlook. These statements are based on how we think things are today and contain elements of uncertainty. For additional information concerning the factors that can cause actual results to differ materially, 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 that exclude those items that we believe affect comparability.

Please take a moment to review our forward looking statements during the call we were making forward looking statements about the company's performance and business outlook. These statements are based on how we see things today and contain elements of uncertainty for.

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

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

Michael Deveau: A reconciliation of these non-GAAP financial measures to their respective GAAP measures is set forth in our press release that we issued yesterday. With me on the call today is our CEO, Eric Feerwald, and our Executive Vice President and Chief Financial and Business Transformation Officer, Glenn Richter. We will begin with prepared remarks and then take any questions that you have at this time. With that, I would now like to turn the call over to Eric. Thank you, Mike, and hello everyone. I'm excited to join you all today.

Michael Deveau: A reconciliation of these non-GAAP financial measures to their respective GAAP measures is set forth in our press release that we issued yesterday.

Michael Deveau: With me on the call today is our CEO, Eric fear, Walt and our executive Vice President and Chief financial and business transformation Officer, Glenn Rector, we will begin with prepared remarks, and then take any questions that you have at the end.

Michael Deveau: I would now like to turn the call over to Eric.

Eric Fear: Thank you, Mike and Hello, everyone I'm excited to join you all today.

Eric Feerwald: I would like to begin by sharing some initial perspectives since joining IFC. I will then turn the call over to Glenn, who will provide a look at the fourth quarter and full year 2023 financial results before providing commentary on our current outlook for the full year 2024. After that, we'll open the call for Q&A.

Eric Fear: I would like to begin by sharing some initial perspective since joining ISS.

Glenn Rector: He will then turn the call over to Glenn who will provide a look at the fourth quarter and full year 2023 financial results before providing commentary on our current outlook for the full year 2024.

Speaker Change: After that we'll open the call for Q&A.

Eric Feerwald: I officially joined IFF on February 6th, and I have been impressed by the world-class teams globally and the strong innovation across our business. I spent the last few weeks visiting our operations and teams and some of our U.S. and overseas businesses. I spent that time listening to our teams, meeting many of our customers, and assessing the current status of our business. IFF has a proud history as a global leader in high-value ingredients and solutions and a great platform from which to build and expand our partnerships with customers across the value chain to help them create leading consumer products.

Speaker Change: Now I officially joined <unk> on February 6th and I have been impressed by the World class teams globally and the strong innovation across our company.

Speaker Change: I spent the last few weeks visiting our operations and teams and some of our U S and overseas businesses.

Speaker Change: I spent that time listening to our teams.

Speaker Change: Meeting many of our customers and assessing the current status of our businesses.

Speaker Change: ISS has a proud history as a global leader in high value ingredients and solutions and a great platform from which to build and expand our partnerships with customers across the value chain to help them create leading consumer products.

Eric Feerwald: I believe in our purpose to help create a better world through science and creativity applied to sustainably meet customer and consumer needs. The opportunity we have ahead of us is very great, and that is why I joined IFF.

Speaker Change: I believe in our purpose to help create a better world through science and creativity applied to sustainably meet customer and consumer needs.

Speaker Change: The opportunity. We have ahead of US is very big and that is why I joined <unk>.

Eric Feerwald: We have solid businesses, and we'll take the actions needed to unleash our full potential to start to deliver profitable market share gains by bringing great innovation to win with our customers. A perfect example of this is in our scent business, where we have been outperforming competition, something we must do also across our other businesses.

Speaker Change: We have solid businesses and we will take the actions needed to unleash our full potential to start to deliver profitable market share gains by bringing great innovation to win with our customers.

Speaker Change: A perfect example of this is in our scent business, where we have been outperforming competition.

Speaker Change: Something we must do also.

Speaker Change: Across our other businesses.

Eric Feerwald: IFF also has other high-quality businesses, such as flavors and health and bioscience, where we will leverage our innovation to deliver higher growth rates with very attractive profitability. And in some of our challenge businesses, such as Functional Ingredients. With focus and attention, we can significantly improve performance in both instances. We will do so by putting the business first, eliminating unnecessary processes and overhead, driving empowerment and strong leadership.

Speaker Change: <unk> also has other high quality businesses, such as flavors and health and Biosciences.

Speaker Change: We will leverage our innovation to deliver higher growth rates with very attractive profitability.

Speaker Change: And in some of our challenged businesses such as functional ingredients with focus and attention we can significantly improve performance.

Speaker Change: In both instances.

We will do so by putting the business first eliminating unnecessary processes and overhead.

Speaker Change: Driving empowerment and strong leadership and.

Eric Feerwald: And by doing so, IFF will be a more innovative and customer-centric organization that is effective and efficient. We also must be better executors, focus the IFF team away from distractions to continuously grow market share across all our businesses, put more of our investments into our high-return businesses and transformative R&D initiatives and our IT infrastructure, and achieve our capital structure targets by reducing outstanding debt. And when we do this, over time, I see strong upside and value creation for all IFF stakeholders. Moving to the next slide, I'll walk through the achievements and factors that marked IFF's progress through the fourth quarter and full year 2023.

Speaker Change: And by doing so <unk> will be a more innovative and customer centric organization that will be effective and efficient way.

Speaker Change: We also must be better executed.

Speaker Change: Focus the <unk> team away from distractions to continuously grow market share across all our businesses.

Speaker Change: More of our investments into our high return businesses and transformed if R&D initiatives and our it infrastructure.

Speaker Change: And achieve our capital structure targets by reducing outstanding debt.

Speaker Change: And when we do this over time.

Speaker Change: Strong upside and value creation for all Iff's stakeholders.

Speaker Change: Moving to the next slide.

Speaker Change: I'll walk through the achievements and factors that marked iff's progress through the fourth quarter and full year 2023.

Speaker Change: Now throughout the past year.

Speaker Change: Efforts have continued to take important steps to strengthen our financial and operational Foundation.

Speaker Change: And position this company to deliver value for the near mid and long term.

Speaker Change: Performance in the fourth quarter demonstrates progress.

Speaker Change: While reported sales were down comparable currency neutral sales increased 1% and comparable currency neutral EBITDA grew 17%.

Speaker Change: With an adjusted margin expansion of 260 basis points.

Eric Feerwald: We've also seen notable improvements in volume trends across the majority of our business segments in the second half of the year, enabling us to perform within previously stated guidance ranges for full year 2023 sales and adjusted operating EBITDA. Now, with this progress and the improving performance through the second half of 2023, we exited the year on solid footing. And we are optimistic about our ability to build on this momentum and are targeting getting back to year-on-year growth for the full year 2024 while strengthening for 2025 and beyond. And, as I said earlier, we are committed to reducing our level of debt. We have therefore announced an update to our dividend policy to reduce the quarterly dividend by approximately 50% to 40 cents per share.

Speaker Change: We've also seen notable improvements in volume trends across the majority of our business segments in the second half of the year, enabling us to perform within previously stated guidance ranges for full year 2023 sales and adjusted operating EBITDA.

Speaker Change: Now with this progress and the improving performance through the second half of 2023.

Speaker Change: We exited the year on solid footing.

Speaker Change: And we are optimistic about our ability to build on this momentum and are targeting getting back to year on year growth for the full year 2024, while strengthening for 2025 and beyond.

Speaker Change: Now as I said earlier, we are committed to reducing our level of debt we.

Speaker Change: Therefore announced an update to our dividend policy.

Speaker Change: Reduce the quarterly dividend by approximately 50% to <unk> 40 per share.

Glenn Richter: This is not a decision the board and management have taken lightly, as we know that dividends are important to shareholders. However, it will enable us to reduce debt faster, strengthening our capital structure, which will create additional long-term value. This will also give the company greater financial flexibility, which will, when required, give us the ability to make more high-return growth investments. I'll now turn it over to Glenn.

Speaker Change: This is not a decision the board and management have taken lightly as we know the dividend is important to shareholders.

Speaker Change: However, it will enable us to reduce debt faster.

Speaker Change: Strengthening our capital structure, which will create additional long term value.

This will also give the company greater financial flexibility, which will when required give us the ability to make more.

Speaker Change: Return growth investments.

Speaker Change: I will now turn it over to Glenn Glenn.

Speaker Change: Glen.

Glenn Richter: Moving to slide seven, as Eric mentioned, the board and management have taken this opportunity to accelerate the improvement of our capital structure as we work towards our deleveraging target of three times net debt-to-credit adjusted EBITDA. Consequently, we have reduced our quarterly dividend to $0.40 per share.

Glenn Rector: Thank you, Eric and Hello, everyone moving to slide seven as Eric mentioned, the board and management have taken this opportunity to accelerate the improvement of our capital structure as we work towards our deleveraging target of three times net debt to credit adjusted EBITDA.

Glenn Rector: Consequently, we have reduced our quarterly dividend to <unk> 40 per share. We believe this dividend change provides a dividend yield that is consistent with industry peers and is aligned with iff's long term cash flow generation and target payouts the.

Glenn Richter: We believe this dividend change provides a dividend yield that is consistent with industry peers and is aligned with IFF's long-term cash flow generation and target payout. The dividend remains an important part of our capital allocation framework, and we expect this new base to grow alongside our profits over time. IFF remains committed to providing competitive returns to our shareholders and firmly believes that these actions set us up for more durable value creation in the long term. Now, on slide 8, as Eric mentioned, our performance for the fourth quarter reflects the operational and strategic initiatives that our team has implemented over the last several months to deliver strong results amid an uncertain operating environment. Despite some continued challenges in the market, volume trends continue to improve sequentially, with increases in nearly all businesses resulting in growth for total IFF. IFFs generated $2.7 billion in sales, representing a 1% increase in comparable currency-neutral sales.

Glenn Rector: The dividend remains an important part of our capital allocation framework and we expect this new base to grow alongside our profit overtime.

Glenn Rector: <unk> remains committed to providing competitive returns to our shareholders and firmly believe these actions set us up for more durable value creation in the long term.

Glenn Rector: Now on slide eight as Eric mentioned, our performance for the fourth quarter reflects the operational and strategic initiatives that our team has implemented over the last several months to deliver strong results amidst an uncertain operating environment.

Glenn Rector: Despite some continued challenges in the market volume trends continue to improve sequentially with increases in nearly all businesses, resulting in growth for total <unk>.

Glenn Rector: <unk> generated $2 7 billion in sales, representing a 1% increase in comparable currency neutral sales. This improvement reflected strong growth in our set business with continued volume pressure in Europe and pharma.

Glenn Richter: This improvement reflected strong growth in our scent business, with continued volume pressure in Nourish and Pharma, both impacted by destocking. Volumes continue to improve sequentially from down mid-single digits in Q3 to down low-single digits in Q4, and if excluding the impact of functional ingredients, volumes for the fourth quarter would have increased by low-single digits. Adjusted Operating EBITDA totaled $461 million in the fourth quarter, a 17% increase on a comparable currency-neutral basis.

Glenn Rector: Both impacted by Destocking.

Glenn Rector: Volumes continue to improve sequentially from down mid single digits in Q3 to down low single digits in Q4, and if excluding the impact of functional ingredients volumes for the fourth quarter would have increased low single digits.

Glenn Rector: Adjusted operating EBITDA totaled $461 million in the fourth quarter, a 17% increase on a comparable currency neutral basis.

Glenn Richter: We also realized a year-over-year increase of approximately 260 basis points to our Comparable Currency Neutral Adjusted Operating EBITDA margin. This growth in EBITDA was supported by both internal steps IFF has taken, including continued gains and efficiencies from our productivity initiatives and favorable net price. Before moving on, I wanted to share that we recorded a non-cash goodwill impairment charge of $2.6 billion for the fourth quarter related to our nourish business. Primary drivers of the goodwill impairment are related to lower business projections due to volume declines mainly in functional ingredients, continued cost inflation, and unfavorable foreign exchange rate fluctuations.

Glenn Rector: We also realized a year over year increase of approximately 260 basis points to our comparable currency neutral adjusted operating EBITDA margin.

Glenn Rector: This growth in EBITDA was supported by both internal steps ISF is taken including continued gains and efficiencies from our productivity initiatives and favorable net pricing.

Glenn Rector: Before moving on I wanted to share that we recorded a noncash goodwill impairment charge of $2 6 billion for the fourth quarter related to our nurse business. The primary drivers of the goodwill impairment related to lower business projections due to volume declines mainly in functional ingredients continued cost inflation.

Glenn Rector: <unk> and unfavorable foreign exchange rate fluctuations.

Glenn Rector: Now moving to slide nine taking a closer look at our profitability performance for the fourth quarter, we delivered $461 million, which equates to a robust comparable currency neutral adjusted operating EBITDA growth of 17% I'm.

Glenn Richter: Now, moving to slide nine, taking a closer look at our profitability performance for the fourth quarter, we delivered $461 million, which equates to a robust comparable currency-neutral adjusted operating EBITDA growth of 17%. I'm happy to report that in Q4, IFF realized strong productivity gains and, in conjunction with favorable net price to inflation, helped us overcome ongoing volume pressures to deliver against our objectives. Importantly, IFF has remained focused on executing upon its productivity program to improve operational effectiveness and efficiency.

Im happy to report that in Q4, <unk> realized strong productivity gains and in conjunction with favorable net price to inflation helped us overcome ongoing volume pressures to deliver against our objectives.

Glenn Rector: Importantly, Iff's has remained focused on executing upon our productivity program to improve our operational effectiveness and efficiency.

Glenn Rector: 2023, we continue to launch additional steps as part of these programs, while also making strategic investments in key growth areas.

Glenn Rector: Now on slide 10, I'll provide a closer look at our performance by business segment during the quarter.

Glenn Rector: Nourish sales declined 3% on a comparable currency neutral basis as strong growth in flavors was offset by continued softness in functional ingredients, while functional ingredients remains the main driver of weakness from <unk> in the quarter. It is worth noting that we again saw meaningful sequential improvement.

Glenn Richter: In 2023, we continue to launch additional steps as part of these programs while also making strategic investments in key growth areas. Now, on slide 10, I'll provide a closer look at our performance by business segment during the quarter. In Nourish, sales declined 3% on a comparable currency-neutral basis as strong growth in flavors was offset by continued softness in functional ingredients.

Glenn Rector: In terms of profitability the positive impact from our ongoing pricing actions and productivity initiatives drove improvements and led to a 3% increase in comparable currency neutral adjusted operating EBITDA.

Glenn Rector: Health <unk> Biosciences continue so robust top and bottomline growth price increases volume growth and productivity gains led to growth across most HIV business segments led by double digit growth in health.

Glenn Richter: While functional ingredients remained the main driver of weakness for Nourish in the quarter, it is worth noting that we again saw meaningful sequential improvements. In terms of profitability, the positive impact from our ongoing pricing actions and productivity initiatives drove improvements and led to a 3% increase in comparable currency-neutral adjusted operating EBITDA. Health and biosciences continue to show robust top and bottom line growth. Price increases, volume growth, and productivity gains led to growth across most H&B business segments, led by double-digit growth in healthcare. Overall, H&B delivered a comparable currency-neutral sales increase of 5% year-over-year and a 35% year-over-year increase in comparable currency-neutral adjusted operating EBITDA.

Glenn Rector: Overall, <unk> delivered a comparable currency neutral sales increase of 5% year over year, and a 35% year over year increase in comparable currency neutral adjusted operating EBITDA.

Glenn Rector: Our SaaS segment continued to deliver a very strong performance in Q4, including 11% growth in comparable currency neutral sales driven by double digit growth in consumer fragrance as well as mid single digit growth in fine fragrance like health and Biosciences set also saw significant growth.

Glenn Rector: And adjusted operating EBITDA, increasing 34% on a comparable currency neutral basis, driven by favorable net pricing volume and productivity gains.

Glenn Rector: <unk> pharma solutions experienced significant pricing and productivity gains. These improvements were offset by lower volume driven primarily by continued destocking trends as well as strong year ago comparison.

Glenn Richter: Our scents segment continued to deliver a very strong performance in Q4, including 11% growth in comparable currency-neutral sales, driven by double-digit growth in consumer fragrance, as well as mid-single-digit growth in fine fragrance. Like health and biosciences, Scent also saw significant growth in adjusted operating EBITDA, increasing 34% on a comparable currency-neutral basis, driven by favorable net pricing, volume, and productivity gains. While Pharma Solutions experienced significant pricing and productivity gains, these improvements were offset by lower volume, driven primarily by continued de-stocking trends, as well as strong year-ago comparisons. This led to comparable currency-neutral sales declining 10% and comparable currency-neutral adjusted operating EBITDA declining 13% in the quarter.

Glenn Rector: This led to comparable currency neutral sales declining, 10% and comparable currency neutral adjusted operating EBITDA declined 13% in the quarter.

Glenn Rector: Turning to slide 11, I'll discuss our progress improving our cash flow and leverage positions.

Glenn Rector: In the fourth quarter cash flow from operations totaled 144 billion a.

Glenn Rector: Difficult increase from the previous year, reflecting the strong improvement in inventory levels.

Glenn Rector: Opex for the year was $503 million or approximately four 4% of sales.

Glenn Rector: Our progress on working capital improvement led by an intent focus on right sizing our inventories helped to enhance our free cash flow position, which saw a sequential increase of over $500 million totaling.

Glenn Rector: Totaling $936 million for the full year and ahead of expectations included in our free cash flow is about $430 million of costs, primarily related to integration and transaction related items.

Glenn Rector: We also delivered $826 million in dividends to our shareholders in 2023.

Glenn Richter: Turning to slide 11, I'll discuss our progress improving our cash flow and leverage positions. In the fourth quarter, cash flow from operations totaled $1.44 billion, a significant increase from the previous year, reflecting the strong improvement in inventory levels. CapEx for the year was $503 million, or approximately 4.4% of sales. Our progress on working capital improvement, led by an intense focus on right-sizing our inventories, helped enhance our free cash flow position, which saw a sequential increase of over $500 million, totaling $936 million for the full year and ahead of expectations. Included in our free cash flow is about $430 million of costs primarily related to integration and transaction-related items. We also delivered $826 million in dividends to our shareholders in 2023. In Q4, our cash and cash equivalents totaled $729 million, including $26 million in assets held for sale.

Glenn Rector: Our cash and cash equivalents totaled $729 million, including $26 million in assets held for sale in Q4. Additionally.

Glenn Rector: Additionally, we realized 200 million sequential reduction in gross debt, which totaled approximately $10 1 billion for the quarter with a net debt to credit adjusted EBITDA of four five times, our trailing 12 month credit adjusted EBITDA totaled approximately $2 one bill.

Glenn Rector: <unk>.

Glenn Rector: With the announced sale of our Lucas Meyer cosmetics business, which we still expect to close in the first quarter of 2024, the right sizing of our quarterly dividend and additional portfolio actions. We are planning to make we are taking decisive actions to strengthen our balance sheet and achieve our leverage targets.

Glenn Rector: On slide 12, I'd like to now turn to our outlook for 'twenty four due to a combination of improvements across our business and in the broader market towards the tail end of 'twenty. Three we are cautiously optimistic about the year ahead.

Glenn Rector: For the full year 2024, we expect sales in the range of 10 eight to 11 $1 billion. This.

Glenn Rector: This reflects our prudent approach to volume expectations and the impact of modest negative pricing in 'twenty, four which is largely isolated to more price competitive categories, such as functional ingredients and fragrance ingredients, given lower input cost and competitive dynamics, we expect overall pricing to decline.

Glenn Richter: Additionally, we realized a $200 million sequential reduction in gross debt, which totaled approximately $10.1 billion for the quarter, with a net debt-to-credit adjusted EBITDA of 4.5 times. Our trailing 12-month credit adjusted EBITDA totaled approximately $2.1 billion. With the announced sale of our Lucas Meyer Cosmetics business, which we still expect to close in the first quarter of 2024, the right sizing of our quarterly dividend, and additional portfolio actions we are planning to make, we are taking decisive action to strengthen our balance sheet and achieve our leveraged target. On slide 12, I'd now like to turn to our outlook for 24. Due to a combination of improvements across our business and in the broader market toward the tail end of 23, we are cautiously optimistic about the year ahead.

Glenn Rector: Approximately two 5% and 24 following a 10% increase in 'twenty, two and a 6% increase in 'twenty three strategically we believe this will position us to be more cost competitive in the market and allow us to regain market share in select businesses.

Glenn Rector: In terms of volume the visibility to the degree and pace of the recovery means a bit fluid and has been explicitly incorporated in our zero to 3% range. The most significant variable impacting this range will be the pace of recovery and functional ingredients. However, this is a marked improvement from <unk>.

Glenn Rector: 23, where we finished down mid single digits and 22, we were down low single digits as we believe our industry will return to more normalized growth rates on.

Glenn Rector: On the bottom line, we expect to deliver full year 2004, adjusted operating EBITDA between one nine and $2 1 billion. Our guidance assumes not just improve the volumes from 'twenty three but also solid profitability and margin expansion across our segments. We are hyper focused on continuing to execute.

Glenn Richter: For the full year 2024, we expect sales in the range of $10.8 to $11.1 billion. This reflects our prudent approach to volume expectations and the impact of modest negative pricing in 24, which is largely isolated to more price-competitive categories, such as functional ingredients and fragrance ingredients, given lower input costs and competitive dynamics. We expect overall pricing to decline approximately 2.5% in 24, following a 10% increase in 22 and a 6% increase in 23.

Glenn Rector: Our productivity initiatives to help mitigate expected inflation, primarily labor costs and incentive compensation reset while continuing to reinvest in the higher return businesses.

Glenn Rector: It's also worth noting we have some benefit of onetime items such as the negative impact in 'twenty three from the inventory reduction program and the previously announced write down of inventory related to Lucas being colonel or L. BK that will not repeat in 'twenty four.

Glenn Rector: In particular, there was an approximately $130 million impact from negative absorption in 'twenty three related to our inventory reduction program and some volume declines which is down from an estimated $165 million, we provided in the third quarter.

Glenn Richter: Strategically, we believe this will position us to be more cost-competitive in the market and allow us to regain market share in select markets. In terms of volume, the visibility to the degree and pace of the recovery remains a bit fluid and has been explicitly incorporated in our 0-3% range. The most significant variable impacting this range will be the pace of recovery in functional ingredients. However, this is a marked improvement from 23 where we finished down mid-single digits and 22 where we were down low single digits, as we believe our industry will return to more normalized growth rates. On the bottom line, we expect to deliver full-year, 24-hour, justice-operating EVADOT revenue between $1.9 and $2.1 billion. Our guidance assumes not just improved volumes from 23, but also solid profitability and a margin expansion across our segment.

Glenn Rector: A portion of this will be offset by higher annual incentive compensation expense as we reset our payout to target levels in 2024.

Glenn Rector: There's still work to do efforts to bolster our financial profile and portfolio of providing effective and while it's hard to predict the timing and details of the market recovery and its impact on our results, we see opportunity for improvement in 'twenty four with all divisions targeting better volumes with improvements in profitability.

Glenn Rector: And margin expansion across all four divisions.

Glenn Rector: For the first quarter, we expect sales to be approximately two seven to $2 8 billion with an adjusted EBITDA of approximately $475 million to $500 million throughout.

Glenn Rector: Throughout 2024, we will be relentlessly focused on our efforts to optimize our portfolio improved financial performance and reach our deleveraging targets I'm confident that the actions taken in 'twenty, three and our outlook for improving performance in 'twenty four will position <unk> to capture significant value creation.

Glenn Richter: We are hyper-focused on continuing to execute our productivity initiatives to help mitigate expected inflation, primary labor costs, and incentive compensation resets while continuing to reinvest in the higher-return business. It's also worth noting we have some benefit from one-time items, such as the negative impact in 2023 from the Inventory Reduction Program and the previously announced write-down of inventory related to locust bean kernels, or LBK, that will not repeat in In particular, there was an approximately $130 million impact from negative absorption in 2023 related to our Inventory Reduction Program and some volume declines, which is down from an estimated $165 million we provided in the third quarter. A portion of this will be offset by higher annual incentive compensation expense as we reset our payout to target levels in 2024.

Glenn Rector: <unk>.

Glenn Rector: With that I'll turn the call back over to Eric for closing remarks.

Eric Fear: Thank you Glenn.

Eric Fear: I'm truly excited to be joining <unk>. During this transformative time for the company.

Eric Fear: I have long admired <unk> as the category defining leader in the industry and it's an honor to be able to work alongside our talented global teams to help us navigate and even thrive at a critical moment for our company and our industry.

Eric Fear: Through robust efforts from our teams worldwide and shared commitment to putting the customer at the center of all we do.

Eric Fear: <unk> will continue strengthening our commercial execution and become a more nimble and efficient organization.

Eric Fear: Our global teams made progress towards ensuring we can meet the evolving needs of our customers and deliver industry competitive returns and we will accelerate the progress going forward.

Eric Fear: While 2023 was a challenging year, our financial results in the fourth quarter highly.

Eric Fear: Highlight an improving trend.

Based on this performance and some improving market conditions, we are expecting a return to volume growth this year, which should enable EBITDA growth and margin expansion.

Eric Fear: Our updated dividend policy and the additional divestitures, we continue to work on reflects our commitment to improve our capital structure.

Glenn Richter: While there's still work to do, efforts to bolster our financial profile and portfolio are providing effective, and while it is hard to predict the timing and details of the market recovering and its impact on results, we see opportunity for improvement in 24 with all divisions targeting better volumes, with improvements in profitability, and margin expansion across all four divisions. For the first quarter, we expect sales to be approximately $2.7 to $2.8 billion, with an adjusted EBITDA of approximately $475 to $500 million. Throughout 2024, we will be relentlessly focused on our efforts to optimize our portfolio, improve financial performance, and reach our deleveraging target. I'm confident that the actions taken in 23 and our outlook for improving performance in 24 will position IFF to capture significant value creation. With that, I'll turn the call back over to Eric for his closing remarks. Thank you, Glenn.

Eric Fear: While the global economic landscape is uncertain.

Eric Fear: <unk> will be focused on strengthening our execution.

Eric Fear: And as I said, we have work to do to improve our businesses and achieve our vision, but I am confident we are well positioned to build on our progress and create sustainable value for all stakeholders in 2024 and beyond.

Speaker Change: I'd like to thank our teams and partners for welcoming me to Iff's and look forward to seeing what we'll achieve in 2024 with that I'd like to now open the call for questions.

We will now begin the question and answer session.

Speaker Change: As a reminder, keefer question. It is star one on your telephone keypad.

Speaker Change: Remove your name from the queue. It is star two.

Speaker Change: In order to give all participants an opportunity to ask their questions. We request a limit of one question per person.

Speaker Change: Our first question comes from the line of Ghansham Panjabi with Baird. Your line is now open.

Ghansham Panjabi: Hey, guys. Good morning, Eric first off congrats on your new role.

Ghansham Panjabi: I guess my question is on your fiscal year 'twenty for EBITDA guidance and I'm, hoping that you can sort of bridge on a year over year basis.

Eric Feerwald: I'm truly excited to be joining IFF during this transformative time for the company. I have long admired IFF as a category-defining leader in the industry. And it's an honor to be able to work alongside our talented global teams to help us navigate and even thrive at a critical moment for our company and our industry. Through robust efforts from our teams worldwide and a shared commitment to putting the customer at the center of all we do, IFF will continue strengthening our commercial execution and become a more nimble and efficient organization. Our global teams made progress towards ensuring we can meet the evolving needs of our customers and deliver industry-competitive returns, and we will accelerate the progress going forward. While 2023 was a challenging year, our financial results in the fourth quarter highlight an improving trend.

Ghansham Panjabi: Differential between $20 23, and also Glenn to highlight what changed relative to the variances you highlighted from your <unk> conference call back in November apart from just the fixed cost absorption decided and if you could also just give us a sense as to what the embedded volumes are by segment as it relates to the low single digit volume guidance for 'twenty for sure yes.

Speaker Change: Yes, good morning <unk>.

Speaker Change: Easily done in a frequently asked question. So if you'll indulge me I'll start with last year's results at $19 80.

Speaker Change: There are two adjustments to get that to a normalized basis. One is the divestitures, which youre aware of its a half a year of savory solutions in MSI.

Speaker Change: And the LLC will be closed at the end of the quarter. So it's roughly three quarters of LFC, that's roughly $78 million of normalized impact.

Eric Feerwald: Based on this performance and some improving market conditions, we are expecting a return to volume growth this year, which should enable EBITDA growth and margin expansion. Our updated dividend policy and the additional divestitures we continue to work on reflect our commitment to improve our capital structure. While the global economic landscape is uncertain, IFF will be focused on strengthening our execution. As I said, we have work to do to improve our businesses and achieve our vision, but I am confident we are well positioned to build on our progress and create sustainable value for all stakeholders in 2024 and beyond. I'd like to thank our teams and partners for welcoming me to IFF and look forward to seeing what we'll achieve in 2024. With that, I'd like to now open the call for questions. We will now begin the question and answer session. As a reminder, to queue for a question, it is star 1 on your telephone keypad. To remove your name from the queue, it is star 2.

Speaker Change: And the other factor, which is the same basically we have discussed before we also have included our updated view of foreign exchange, that's $50 million reduction I'm not sure that was previously discussed from the standpoint, so that gets to a to a like for like base of $18 50.

Speaker Change: Our volume mix impact for this year is forecasted to be $170 million positive that is inclusive of the $130 million of positive overlap on absorption.

Speaker Change: As we noted in our call that actually came down as the fourth quarter volumes were higher from a production standpoint, so that was slightly different than we had guided.

Speaker Change: Our net price for the year is basically zero.

Speaker Change: That is inclusive of the $44 million of <unk>. So that's netted in that number and we can certainly talk more about the pricing dynamics this year.

Speaker Change: We have about a $35 million reset for AIP. So that's a negative but that's better than we thought we thought that would be in the 70 range from a standpoint. So I think all of the one timers being absorptions slightly lower the negative reset on the AIP is slightly lower FX is new and then the deals.

Glenn Richter: In order to give all participants an opportunity to ask their questions, we request a limit of one question per person. Our first question comes from the line of Ghanshyam Pajabi with Baird. Your line is now open. Hey guys, good morning. And Eric, first off, congrats on your new role. I guess my question is on your fiscal year 24 EBITDA guidance, and I'm hoping that you can sort of bridge, on a year-over-year basis, the differential between 24 and 23. And also, Glenn, highlight what changed relative to the variances you highlighted from your 3Q conference call back in November, apart from just the fixed-cost absorption you cited. And if you could also just give us a sense as to what the embedded volumes are by segment as it relates to the low-singular volume guidance for 24.

Speaker Change: Basically we're all known the last items are sort of wage inflation, that's about $120 million and the productivity is about $150 million in the P&L. So thats sort of consistent with our three year view, so that that adds up to the mid point of our range of $2 billion.

And then relative to the volume question I think it's very simple to think about our view of this year.

Speaker Change: Functional ingredients, which is circa less than 25% of the business. We are projecting that to be relatively flattish for the year. All the other businesses actually have growth directionally into 2% to 3% range on a full year basis.

Speaker Change: A little bit more slower in the beginning of the year and ramping up in the latter, but that's why we mentioned as we think about that range of guidance.

Speaker Change: Functional ingredients is the area that probably gives us the most pause that we've been the most cautious and that sort of is the difference between the high end of the 3% versus a net.

Speaker Change: The zero percent range.

Speaker Change: Hopefully I answered the question.

Speaker Change: Thank you next question.

Glenn Richter: Thank you. Sure. Yeah, good morning, Ganshim. Easily done and a frequently asked question.

The next question comes from the line of Josh Spector with UBS. Your line is now open.

Josh Spector: Yeah, Hi, good morning, So I just wanted to hey.

Glenn Richter: So if you'll indulge me, I'll start with last year's results at 1980. There are two adjustments to get that to a normalized basis. One is the divestitures, which you're aware of, it's a half year of savory solutions and FSI, and the LMC will be closed at the end of the quarter, so it's roughly three quarters of LMC. That's roughly $78 million of normalized impact. And the other factor, which is basically the same as we discussed before, we also have included our updated view of foreign exchange, that's $50 million reduction. I'm not sure that was previously discussed from a standpoint, so that gets to a like-for-like basis. Safety

Josh Spector: So I wanted to ask on the dividend.

Josh Spector: So I think it's been pretty clear that it's been a pretty big use of cash for a couple of years now. So really the question is why was now the right time versus when you looked at that probably a year ago or maybe two years ago and what does that mean as it relates to the divestment strategy or timing has anything changed as you think about what's next.

Eric Fear: So this is Eric.

Eric Fear: First of all I wasn't here a year ago, obviously, but I did arrive on February 6th.

Eric Fear: Looked at our entire situation talk to Glenn and his team talked to the board and made the decision to go ahead and cut the dividend now I think its a wise move in terms of our overall balance sheet efforts to get our balance sheet in great shape and it doesn't impact the <unk>.

Eric Fear: <unk> timing our strategy, we continue to work on our portfolio optimization, but obviously, we're focused even more on working on strengthening the businesses, increasing our earnings and cash flow.

Glenn Richter: Our volume mix impact for this year is forecasted to be $170 million positive. That is inclusive of the $130 million of positive overlap on absorption. As we noted on our call, that actually came down as the fourth quarter volumes were higher from a production standpoint, so that was slightly different than we had guided. Our net price for the year is basically zero. That is inclusive of the $44 million in LBK, so that's netted out in that number.

Speaker Change: Thank you next question.

Speaker Change: The next question comes from the line of Gunther Zechman with Alliance Bernstein. Your line is now open.

Gunther Zechmann: Hi, Eric welcome back to the public market.

Gunther Zechmann: Okay.

Gunther Zechmann: What are your priorities for this year I appreciate it.

And the role for a few weeks.

Gunther Zechmann: But for this year and maybe also beyond when I think about the portfolio at the balance sheet. Please.

Gunther Zechmann: And in addition, how do you think about midterm.

Gunther Zechmann: Midterm targets and <unk>.

Glenn Richter: We can certainly talk more about the pricing dynamics this year. Then we have about a $35 million reset for AIP, so that's a negative, but that's better than we thought. We thought that would be in the 70 range from a standpoint.

Gunther Zechmann: Last week.

Gunther Zechmann: What is your free cash flow guidance for 2024.

Speaker Change: Thank you <unk> and glad to be back in the public market.

Gunther Zechmann: Yeah.

Speaker Change: My priorities for 2024, I should say our priorities for 2024 are to continue the portfolio optimization work and have that be part of improving our balance sheet, but again more importantly, we're going to strengthen each business.

Glenn Richter: I think all of the one-timers are absorption slightly lower, the negative reset on AIP is slightly lower, FX is new, and then the deals basically were all known. The last items are wage inflation, that's about $120 million, and productivity is about $150 million in the P&L, so that's consistent with our three-year view. That adds up to the midpoint of our range of $2 billion. And then, relative to the volume question, I think it's very simple to think about our view of this year. Uh, the functional ingredients, which is circa less than 25% of business... We are projecting that to be relatively flattish for the year. All the other businesses actually have growth directionally in the 2% to 3% range on a four-year basis.

Speaker Change: Going to make sure that each business is clear on how they can strengthen their customer focus to profitably grow market share.

Speaker Change: Strengthen the R&D and innovation in each business, so that we better delight customers with our innovation so that we bring.

Bring innovation that they value that we can grow our market share with them and then thirdly, we're going to keep driving productivity and strengthen our productivity in each business unit and then also corporately.

Speaker Change: On a very effective and efficient back office.

Speaker Change: We will reduce our the amount of engagement, we've had with consultants advisors and others that have caused us to be too internally focused we're going to get back to focus on winning with the businesses by better serving our customers and our competition.

Speaker Change: In terms of how I'm thinking about the midterm targets. It's too early for me to comment, but I'll look at them with it with the team here and we will do it by business and then we'll roll it up for the company and we'll get back to you in the not too distant future on that but on the last one Glenn Yeah. So hey, good morning, Gunther our project.

Glenn Richter: A little bit slower in the beginning of the year and ramping up in the latter, but that's why we mentioned, as we think about that range of guidance, you know, functional ingredients are the area that probably gives us the most pause and we've been the most cautious, and that sort of is the difference between the high end of the 3% versus the 0%. Hopefully, that answers the question. Thank you.

Glenn Rector: Free cash flow for this year is $500 million.

Speaker Change: I would note that thats inclusive of an expectation of $100 million of taxes for the sale of LNG and carryover for savory and then another $100 million for other restructure onetime items. So theres 200 of Reg G. But net of the 200 were at 500 million full year free cash flow.

Glenn Richter: Next question. The next question comes from the line of Josh Spector with UBS. Your line is now open. Hi, good morning.

Eric Feerwald: Hey, so I wanted to ask about the dividend. I think it's been pretty clear that it's been a pretty big use of cash for a couple years now. So really, the question is, why was now the right time versus when you looked at that probably a year ago, or maybe two years ago?

Speaker Change: Thank you.

Speaker Change: The next question comes from the line of David Begleiter with Deutsche Bank. Your line is now open.

David Begleiter: Thank you and good morning, and Eric Congratulations on new role.

David Begleiter: Two things first David your comment can you comment on press reports that a sales process for pharma solutions is underway.

Eric Feerwald: And you know, what does that mean as it relates to the divestment strategy or timing? Has anything changed as you think about what's next? So, this is Eric.

David Begleiter: And secondly edition is two 5% reduction in pricing you're forecasting in 'twenty for all the pricing you expect to give up versus the roughly 19% pricing you achieved over the last three years on a cumulative basis.

Eric Feerwald: First of all, I wasn't here a year ago, obviously, but I arrived on February 6th, looked at our entire situation, talked to Glenn and his team, talked to the board, and made the decision to go ahead and cut the dividend now. I think it's a wise move in terms of our overall balance sheet efforts to get our balance sheet in great shape. And it doesn't impact the investment timing or strategy. We continue to work on our portfolio optimization, but obviously, we're focused even more on working on strengthening the businesses, increasing our earnings, and cash flow. Thank you. Next question. The next question comes from the line of Gunther Zechmann with Alliance Bernstein. Your line is now open.

Speaker Change: Thank you.

Speaker Change: I'll take the first one and Glenn you can have the second piece because I'm not that familiar with the details at this point, but I am getting into it but.

Glenn Rector: But in terms of any portfolio optimization, we're not going to comment on rumors all I can tell you is we continue to work on portfolio optimization, and we will not sell a business at a price that doesn't make sense, but we're looking at what does make sense for <unk> and for our employees and any business that we might consider.

Speaker Change: <unk>.

Speaker Change: With that Glenn yes.

Glenn Rector: Yes, thanks, good morning, once again David.

Glenn Rector: Yes, as you pointed out we've had three years of very significant pricing reflective of the inflation environment of 18, 19% cumulatively two 5% is all we're anticipating that actually reflect sort of overall price decline. So as I mentioned net prices sort of zero in our P&L. It is highly concentrated in the functional ingredients in ascent ingredients space.

Eric Feerwald: Hi, and Eric, welcome back to the public market as well. Eric, what are your priorities for this year? I appreciate you've only been in the role for a few weeks.

Glenn Rector: And we've been extremely surgical in terms of where we needed to give it back in at this point, we're pretty much locked in.

Eric Feerwald: But for this year and maybe beyond when I think about the portfolio and the balance sheet, please. And, in addition, what do you think about IFS's midterm targets? And lastly, Glenn, what is your free cash flow guidance for 2024, please? Thank you, Gunther, and I'm glad to be back in the public market. My priorities for 2024, I said, I should say our priorities for 2024 are to continue the portfolio optimization work and have that be part of improving our balance. But again, more importantly, we're going to strengthen each business. We're going to make sure that each business is clear on how it can strengthen its customer focus to profitably grow market share. The Intellectual Property Officers Company, LLC.

Glenn Rector: So most of our pricing for the year at this point, so that actually feels like a pretty safe number relative to the plan.

Speaker Change: Thank you.

Speaker Change: The next question comes from the line of Lisa de Neve with Morgan Stanley. Your line is now open.

Speaker Change: Hi, Thank you for taking my questions.

Speaker Change: And I have is twofold.

Speaker Change: Iff's position versus peers, I mean does it expect to grow in line with the market in line with its direct peers or belief that its actually better positions and this year, but also maybe more structurally and next to that how should we really think about delivery of the functional ingredients optimization and efficiency program for this year and they have a small follow up.

Speaker Change: On the pricing so on the negative pricing in fragrance ingredients, how have your customers come back for pricing here and are your peers offering the same price reductions or comparable price reductions. Thank you.

Eric Feerwald: We want to bring innovation that they value, so that we can grow our market share with them. And then, thirdly, we're going to keep driving productivity and strengthening productivity in each business unit and then also corporately. We want a very effective and efficient back office. What we'll reduce is the amount of engagement we have had with consultants, advisors, and others that have caused us to be too internally focused.

Speaker Change: Thank you Lisa and I will take the first part of that question.

Speaker Change: I've looked very hard at the data over the last five years and clearly we have underperformed as all of you know we have pockets of strength.

Speaker Change: As an example, I mentioned in the opening comments, but.

Speaker Change: But we have some businesses that are challenged like food ingredients.

Lisa: I can tell you is we're going to have each business be very clear on what is their strategy to win.

Eric Feerwald: We're going to get back to focus on winning with businesses by better serving our customers than our competitors. In terms of how I'm thinking about the midterm targets, it's too early for me to comment, but I'll look at them with the team here, and we'll do it by business, and then we'll roll it up for the company, and we'll get back to you on that in the not-too-distant future But on the last one, Glenn?

Lisa: How are they going to.

Lisa: Delight their customer set.

Lisa: And make sure that we profitably grow our market share.

Lisa: How are we going to make sure that we have our innovation targeted.

Lisa: It needs that customers value and how are we going to make sure we're driving productivity. So each of the business end to end.

Lisa: How do we drive the businesses and as you know, we've got strong businesses and great markets like.

Glenn Richter: Yes. Hey, good morning, Gunther. Our projected free cash flow for this year is $500 million. I would note that that's inclusive of an expectation of $100 million in taxes for the sale of LMC and carryover for Savory, and then another $100 million for other restructuring one-time items. So there's $200 of Reg G, but net of the $200, we're at $500 million full-year free cash. The next question comes from the line of David Begleiter with Deutsche Bank. Your line is now open.

Lisa: Like our flavors and our fragrances business.

Lisa: Terrific businesses that should be able to fully compete with margins and growth rates with <unk> and others.

Lisa: We've got a strong business unit and health and Biosciences, and great markets, and we should be able to fully compete with margins and growth against <unk>.

Lisa: And our challenge businesses, we've got very good markets and food ingredients and protein solutions, and we should be able to be fully competitive with carry another food ingredient players and we've got a very good business and very good markets with pharmaceutical ingredients and we need to be fully competitive with our ingredient set their ashland and others.

Eric Feerwald: Thank you, good morning, and Eric, congratulations on your new role. Eric, two things. First, can you comment on press reports that a sales process for Forma Solutions is underway? And secondly, in addition, is the 2.5% reduction in pricing you're forecasting in 2024 all the pricing you expect to give up versus the roughly 19% pricing you've achieved over the last three years on a cumulative basis? I'll take the first one, and Glenn, you can have the second piece because I'm not that familiar with the details at this point, but I'm getting into it.

Speaker Change: So I don't we have not performed as a company across the company in the last five years like we should in the next five years, we will get back on track.

Speaker Change: So hey leases, let me address your second question regarding functional Green as you know from past conversations 2021, 'twenty. Two we had a number of missteps on our part that caused this business to step backwards since that we've been working on basically four major items, one getting service levels up to the right store.

Speaker Change: <unk> I'm happy to say for the last year plus service levels of about 95% plus across all the businesses and across the entire globe Secondly, and perhaps most importantly is getting volume back on track, which is combination of our sales execution pipeline. As we mentioned that is dramatically picked up over the last year in getting our pricing right in the market, we just talked about.

Eric Feerwald: But in terms of any portfolio optimization, we're not going to comment on rumors. All I can tell you is we continue to work on portfolio optimization, and we will not sell a business at a price that doesn't make sense, but we're looking at what does make sense for IFF and for our employees and any business that we might consider divesting. With that, Glenn.

Speaker Change: That we've been very smart this year thinking about market by market product by product what makes sense to be competitive to win and retain business, we feel much better about that.

Glenn Richter: Yeah, thanks. Good morning once again, David. As you point out, we've had three years of very significant pricing to reflect the inflation environment of 18-19% cumulatively. Two and a half percent is all we're anticipating. That actually reflects a sort of overall price decline. So as I mentioned, that price is sort of zero in our P&L. It is highly concentrated in the functional ingredients and the scent ingredient space, and we've been extremely surgical in terms of where we needed to give it back. And at this point, we're pretty much locked in to most of our pricing for the year at this point, so that actually feels like a pretty safe number relative to what we're expecting. Thank you. The next question comes from the line of Lisa Deneve with Morgan Stanley. Your line is now open.

Speaker Change: The third item is really been around sort of our general go to market strategy.

Speaker Change: Eric has mentioned would be much more focus across the ingredients teams are making sure that they own the results and lastly, its cost. So we've been really focusing on all of the costs, but largely the 85% that sits in cost of goods. So its SKU rationalization raw material consolidation manufacturing footprint consolidation, taking out fixed costs et cetera.

Speaker Change: And we're making very good progress we are seeing successive improvements in volume quarter to quarter Q2 last year was a low watermark, we're actually moving into sort of flattish as we start this year and we're also continuing to see good expansion in margins. So a lot of work to do as Eric mentioned, but we're beginning to see some progress in terms of what we've been doing.

Speaker Change: Thank you.

Speaker Change: The next question comes from the line of Nicola Tang with BNP Paribas. Your line is now open.

Eric Feerwald: Hi, thank you for taking my questions. So the question I have is twofold. I mean, how is ISF positioned versus peers? Does it expect to grow in line with the market, in line with its direct peers, or believe that it's actually better positioned this year, but also maybe more structurally? And next to that, how should we really think about delivery of the functional ingredients optimization and efficiency program for this year? And I have a small follow-up question on pricing. So on the negative pricing in fragrance ingredients, have your customers come back for pricing here? And are your peers offering the same price reductions, or comparable price reductions? Thank you.

Hi, everyone I just wanted to pick up on a few key topics that are just offset by visa.

Nicola Tang: On this pricing side I was wondering if you could give a bit more detail.

Nicola Tang: Expected price declines and functional ingredients and fragrance.

Nicola Tang: It's ingredient and whether you could expand on your comment on competitive dynamics in these markets.

Nicola Tang: And then in addition on the volume side I was wondering why you don't expect more intensive year on year inventory that bearing in mind.

Speaker Change: I mean I guess.

Speaker Change: Headwind of Destocking and shrink patients that are PD.

Speaker Change: Okay.

Speaker Change: Thanks.

Speaker Change: Two very good questions. So on the pricing of our two 5% 80% of our downward pricing is concentrated and functional ingredients in the scent ingredients business those areas by definition are more commoditized.

Speaker Change: And in addition, those areas of that season more meaningful deflation in terms of commodities. So it's natural.

Eric Feerwald: Thank you, Lisa, and I'll take the first part of that question. I've looked very hard at the data over the last five years, and clearly, we have underperformed, as all of you know. We have pockets of strength, scent is an example I mentioned in the opening comments, but we have some businesses that are challenged, like food ingredients. What I can tell you is we're going to have each business be very clear on what their strategy to win is. How are they going to do that?

Speaker Change: As I mentioned previously we were doing a very good job of making sure we're competitive in the market by product by region and we feel good that that two 5% sort of is reflective of the environment.

Speaker Change: The second question regarding why are we not more optimistic honestly, we're just cautious we're very cautious and prudent given the environment.

Speaker Change: Last year was extremely bumpy, we do believe that the destocking for most of our business is largely behind us and we're seeing positive signs, but we need a couple of quarters of positive momentum I think in stabilization before we can move from cautious to optimistic.

Eric Feerwald: Delight their customer set and make sure that we profitably grow our market share. How are we going to make sure that we have our innovation targeted at, www.globalonenessproject.org, Strong Businesses? Great markets, like our flavors and our fragrances or scent business, terrific businesses that should be able to fully compete with margins and growth rates with Gividon and others. We've got a strong business unit in health and biosciences and great products. And we should be able to fully compete with margins and growth against Novenesis. In our challenge businesses, we've got very good markets for food ingredients and protein solutions, and we should be able to be fully competitive with Cary and other food ingredient players. And we've got a very good business and very good markets for pharmaceutical ingredients, and we need to be fully competitive with our ingredients set there, Ashland and others. So, I don't, we have not performed as a company, across the company, in the last five years like we should. In the next five years, we'll get back on track. Oh, so, Lisa, this is Glenn.

Speaker Change: Thank you. The next question comes from the line of John Roberts with Mizuho. Your line is now open.

John Roberts: And welcome back Eric two parter, if I could is the functional ingredients business significantly different today than when you were at Dupont sounds like you think it's just more of a cyclical problem that can be addressed through productivity, but do you think there are structural changes you need to make there and then your predecessor was targeting going from four.

John Roberts: Segments to three segments have you have you gone back to the whiteboard to start over on those plans or was that nearing completion and theres just some fine tuning left to complete it.

Eric Fear: Thanks, John.

Eric Fear: Let me start with the first one the makeup of our functional ingredients business is better than what it was when I had responsibility for that as part of agriculture and nutrition back at Dupont a number of years ago.

Eric Fear: But but so I believe our potential is significantly higher than it was then I think in a <unk>.

Good market I think we've underperformed and I think we've underperformed.

Eric Fear: We have been too internally focused we've had lots of consultants. We have had lots of advisers talking about helping us to figure out what to do around synergies.

Eric Fear: And what I can tell you is I have been in these businesses for many many years these types of businesses.

Glenn Richter: Let me address your second question regarding functional ingredients. As you know from past conversations, 2021-22, we had a number of missteps on our part that caused this business to step backwards. Since that, we've been working on basically four major items. One is getting service levels up to the right standard. I'm happy to say for the last year plus, service levels have been at 95% plus across all business and across the entire globe.

Eric Fear: The goal is not synergy synergy as a tool.

Eric Fear: The goal is to have a very clear strategy for our functional ingredients business. How are we going to profitably grow our market share with customers by delighting the customers with our solutions approach with our innovation and then do that in a productive way with our assets and.

Eric Fear: And our.

Eric Fear: Functions very productive.

Eric Fear: We have the potential to significantly improve the performance of this business I've spent time with our business leaders I think theyre headed in the right direction and we're going to further accelerate the progress and make sure that we profitably grow our food ingredients business.

Glenn Richter: Secondly, and perhaps most importantly, is getting volume back on track, which is a combination of our sales execution pipeline. As we mentioned, that has dramatically picked up over the last year in getting our pricing right in the market.

Eric Fear: <unk> fully compete with our with our competitors the leading competitors in food ingredients, because we have so much value to bring customers. If we do it right. When we do it right. We will have a very good business.

Eric Fear: And then in terms of.

Glenn Richter: We've been very smart this year of thinking about market by market, product by product, what makes sense to be competitive, to win and retain business. We feel much better about that. The third item has really been around our general go-to-market strategy, as Eric has mentioned, being much more focused across the ingredients team, making sure that they own the results. Lastly, it's cost.

Eric Fear: The organization structure.

Eric Fear: No no no decisions today, but what I will tell you is I'm a big fan of business units that have end to end.

Eric Fear: Countability and responsibility to drive all the levers of the P&L, making sure that everything we do is to delight customers profitably grow our market share, but do it in a way that's efficient and effective so each business unit can win and I find win business units are winning all of a sudden.

Glenn Richter: We have been really focusing on all of the costs, but largely the 85% that sits in the cost of goods. It's skew rationalization, raw material consolidation, manufacturing footprint consolidation, taking out fixed costs, etc. We're making very good progress. We are seeing successive improvements in volume quarter to quarter. Q2 last year was a low watermark.

Eric Fear: Synergies become clear and become more powerful and easier to access so we're going to ensure that our businesses are on the right track and that our synergies are additive to further strengthen each of our businesses.

Speaker Change: Thank you.

Speaker Change: The next question comes from the line of Kevin Mccarthy with vertical Research partners. Your line is now open.

Kevin Mccarthy: Yes, Thank you and good morning, Eric welcome back Glenn.

Glenn Richter: We're actually moving into sort of flattish as we start this year. We're also continuing to see good expansion in margins. We have a lot of work to do, as Eric mentioned, but we're beginning to see some progress in terms of volume. Thank you. The next question comes from the line of Nicola Tang with BNP Paribas. Your line is now open.

Kevin Mccarthy: Glenn two questions from my side please.

Kevin Mccarthy: Your health and bio segment margin was the best in more than three years can you just maybe rank order the drivers of the improvement there and more importantly is the 30% plus level sustainable into 2024, and then secondly, what are your input.

Glenn Richter: Hi everyone. I just wanted to pick up on a few topics that were just asked here by Lisa. On the pricing side, I was wondering if you could give a bit more detail on the expected price declines in functional ingredients and in fragrance ingredients and whether you could expand on your comment on competitive dynamics in these markets. And then, in addition, on the volume side, I was wondering why you don't expect more in terms of year-on-year volume improvement, bearing in mind, I guess, you know, the headwind of destocking and shrinkage that are Thanks. Two very good questions.

Kevin Mccarthy: Cost trends and the outlook that youre baking into your guidance for this year.

Speaker Change: Yes, so I think for the <unk> had a very good year.

Speaker Change: And that was a result of a progressive improvement in volumes as we noted the health business one of our largest segments actually had a very good fourth quarter secondarily productivity. So we've driven a lot of productivity across the business and third really net price. So the there has been to your second question.

Speaker Change: A decline in input cost in that business as well so so that got us to the 30% range for the business I did note on the call that we are anticipating <unk> like all four of our businesses.

Glenn Richter: So on the pricing of our 2.5%, 80% of our downward price, The Bulletproof Executive 2013, And in addition, those areas have seen some more meaningful deflation in terms of commodities, so it's natural. As I mentioned previously, we're doing a very good job of making sure we're competitive in the market by product, by resource. And we feel good that that two-and-a-half percent sort of is reflective of the environment. The second question regarding why are we not more optimistic: honestly, we're just cautious. We're very cautious and prudent given the environment. You know, the last year was extremely bumpy.

Speaker Change: Demonstrate both EBITDA growth and margin expansion. This year. So we expect that to be the case for <unk> in general our input cost as I mentioned are anticipated to be down. This year energy is flattish at this point logistics are down and we're seeing some raw materials deflation as a reminder, it takes about four months for.

Speaker Change: Purchased to run through the balance sheet. So that's a positive momentum that's a net zero as I mentioned for the overall enterprise for the year. So thanks for the question.

Speaker Change: Thank you. The next question comes from the line of Laurence Alexander with Jefferies. Your line is now open.

Laurence Alexander: Good morning.

Laurence Alexander: Do not cooperate can you provide more granularity on how you can delever in 2024 and 2025 in terms of.

Glenn Richter: We do believe that destocking for most of our business is largely behind us, and we're seeing positive signs, but we need a couple of quarters of positive momentum and stabilization before we can move from cautious to optimistic. Thank you. The next question comes from the line of John Roberts with Mizuho. Your line is now open. And welcome back, Eric.

Laurence Alexander: Reviewing for business lines, Brexit productivity relative to comp and so forth.

Speaker Change: And Eric given your initial impressions on Iff's pretty coltrane discussion around productive solution.

Can you speak more to the mindset around productivity and R&D is.

Eric Feerwald: Is the functional ingredients business significantly different today than when you were at DuPont? Sounds like you think it's just more of a cyclical problem that can be addressed through productivity, but do you think there are structural changes you need to make there? And then your predecessor was targeting going from four segments to three segments. Have you gone back to the whiteboard to start over on those plans, or was that nearing completion, and there's just some fine-tuning left to complete it? Thanks, John. And let me start with the first one.

Speaker Change: Is it more about operational fixes or do you see structural or philosophical issues around how the firm has targeted ROIC margins or profit growth.

Speaker Change: Yeah. Thanks, Alex This is Glenn I'll answer the first part of your question in General we're pretty cautious on our outlook on volume. So we're as I've mentioned flattish to three.

Glenn Rector: So we've been we haven't expected of giant recovery. This year in our base case, so that's kind of a starting point.

Glenn Rector: In the absence of that materializing, we have been very good at delivering productivity as Eric mentioned in his opening comments, we are accelerating both ongoing efforts and we have additional efforts underway to take cost out that aren't reflected in the plan. So that would be my second comment relative to the deleverage. So that gives you some sense on the earnings profile.

Eric Feerwald: The makeup of our functional ingredients business is better than what it was when I had responsibility for that as part of agriculture and nutrition back at DuPont a number of years ago. But, but I, so I believe our potential is significantly higher than it was then. I think that it's in a very good market. I think we've underperformed.

Glenn Rector: And offsets if theres additional softness in the external market.

Glenn Rector: Leverage will largely be accomplished through divestitures as Eric mentioned, we are on path, we feel very good in terms of our activities underway and we do think we will accomplish our targeted divestitures, which will be the biggest driver of achieving our deleveraging goal.

Eric Feerwald: And I think we've underperformed because we've been too internally focused. We've had lots of consultants, we've had lots of advisors talking about helping us to figure out what to do around synergies. And what I can tell you is I have been in these businesses for many, many years, these types of businesses. The goal is not synergies.

Speaker Change: And then on your second question Laurence.

Speaker Change: My initial impressions of Iff's capabilities are we've got really great people.

Speaker Change: We've got really great capabilities in each of our businesses.

Eric Feerwald: Synergy is a tool. The goal is to have a very clear strategy for our functional ingredients. How are we going to profitably grow our market share with customers by delighting customers with our solutions approach, with our innovation, and then do that in a productive way with our assets and our functions, very productive. We have the potential to significantly improve performance. I spent time with our business leaders.

Speaker Change: And we have just underperformed.

Speaker Change: But there are pockets of examples where we are performing tremendously well that give me so much confidence that we can make this happen across the company.

Speaker Change: I spent time with the leadership of arguably the largest consumer products company in the world, where we have a very strong relationship very much innovation driven their innovation people with our innovation people to make sure that the best consumer products are being developed.

Eric Feerwald: I think they're headed in the right direction, and we're going to further accelerate the progress and make sure that we profitably grow our food ingredients business and fully compete with our competitors, the leading competitors in food ingredients, because we have so much value to bring customers. If we do it right, when we do it right, we'll have a very good And then, in terms of the organization structure, no decisions today, but what I will tell you is I'm a big fan of business units that have end-to-end... Accountability and Responsibilities to drive all the levers of the P&L, making sure that everything we do is to delight customers, and profitably grow our market share, but do it in a way that's efficient and effective so each business unit can win. And I find that when business units are winning, all of a sudden... Synergies become clearer and are more powerful and easier to access.

Speaker Change: And we were meeting both with our sent teams are sent teams in their fragrance team and with our health <unk> Biosciences team and their consumer products teams.

Speaker Change: It was the best relationship the best dynamic that I've ever experienced in my 42 years of customer interactions. So when.

Speaker Change: And then I had another interaction with the top management of leading beauty care company in Europe and same thing our people were working hand in glove with their people to create great great consumer products that consumers love.

Speaker Change: So we can do it we do it we just need to do it more across the company and I'm really excited by health, helping our teams.

Speaker Change: Stopping so internally focused get more focus by business unit on winning with customers and then collaborate where it makes sense to enhance across our portfolio to bring even more to customers. So that the customers win more than we went more now in terms of productivity as Glenn mentioned, there are pockets, there where we're doing very.

Eric Feerwald: So we're going to ensure that our businesses are on the right track and that our synergies are additive to further strengthen each of our businesses. The next question comes from the line of Kevin McCarthy with Vertical Research Partners. Your line is now open. Yes, thank you.

Speaker Change: Well, but there's more we can do on productivity.

<unk> pencil and as production team are really driving tremendous productivity in our operations and it is still early phase, but they are ramping that up very nicely. We've already had efforts and back office productivity for our corporate functions, that's going okay, but we're going to accelerate that youll see more share.

Glenn Richter: And good morning, Eric. Welcome back. Glenn, two questions from my side, please. Your health and biosegment margin was the best in more than three years. Can you just maybe rank order the drivers of the improvement there? And, more importantly, is the 30 percent plus level sustainable into 2024?

Speaker Change: <unk> service centers in more activity with with systems to make sure that were effective serving the businesses and very efficient. So I love what I see theres. So much excellence here, but we've got to get it across the company.

Glenn Richter: And then secondly, what are your input cost trends and the outlook that you're baking into your guidance for this year? Yes, so I think H&B had a very good year. And that was a result of a progressive improvement in volumes. As we noted, the health business, one of our largest segments, actually had a very good fourth quarter, primarily due to productivity. So we've driven a lot of productivity across, and third, really net price, so there's been, to your second question, a decline in input costs in that business as well. So that got us to the 30% range for the business. I did note on the call that we are anticipating H&B growth like all four of our businesses, which will demonstrate both EBITDA growth and margin expansion this year. So we expect that to be the case for H&B. In general, our input costs, as I mentioned, are anticipated to be down this year. Energy is flattish at this point, logistics are down, and we're... raw materials deflation. As a reminder, it takes about four months for a purchase to run through the balance.

Speaker Change: And we will.

Speaker Change: Thank you.

Speaker Change: The next question comes from the line of Patrick Cunningham with Citi. Your line is now open.

Patrick Cunningham: Hi, Good morning, just a question on the Q1 guide so it's about 480, 788 midpoint and a seasonally weak quarter and you noted some nice volume ramp in productivity throughout the year. So even annualizing that is above the low end of the guide. So can you help us understand at that guidance.

Patrick Cunningham: Thats Conservative and then just a small follow up what do you expect to see the end of Destocking within your pharma solutions business.

Speaker Change: Yes, I'll start with the second generally we've seen Destocking basically I'll say, it's done everywhere with the exception of pharma largely and it's the second half of the year pharma just started late as an industry and part of the Destocking for logical reasons, given the margin structure, but we do anticipate the second half of this year to be done with farm.

Speaker Change: Emma.

Speaker Change: In Q1, we think is a very reasonable guide $4 75 to 500.

Speaker Change: We have started off the year generally pretty good on the volume side, but we just want to be cautious as we sort of go through the quarter.

Glenn Richter: So that's a positive momentum; that's a net zero, as I mentioned for the overall enterprise. Thanks for the question. The next question comes from the line of Laurence Alexander with Jeff... Your line is now open.

Speaker Change: Generally the volume slightly lower than the average for the year. So there's a little bit of the impact there Patrick.

Patrick Cunningham: Thank you.

Patrick Cunningham: The next question comes from the line of Adam Samuelson with Goldman Sachs. Your line is now open.

Glenn Richter: Good morning. If end markets do not cooperate, can you provide more granularity on how you can de-lever in 2024 and 2025 in terms of reviewing business lines, Brexit, productivity relative to comp, and so forth? And, Erica, given your initial impressions of IFF's operating culture and discussion around productive solutions, can you speak more to the mindset around productivity and R&D? Is it more about operational fixes, or do you see structural or philosophical issues around how the firm has targeted ROIC margins or profit growth? Yeah, thanks. This is Glenn.

Adam Samuelson: Yes. Thank you good morning, a couple of questions on cash flow and investment one just wanted to clarify on the deleveraging targets and previously been three times by the end of calendar 'twenty four are you no longer committing to that.

Adam Samuelson: Timeline.

Adam Samuelson: Second.

Adam Samuelson: Last slide in the deck references high return growth investment.

Adam Samuelson: Any more clarity on what those are.

Adam Samuelson: And timing of those and then finally, Glenn I think you said the really to an earlier question that $500 million free.

Adam Samuelson: Free cash flow guidance for the year can you bridge $2 billion EBITDA $500 million of free cash flow because even acknowledging some.

Adam Samuelson: Some deal related.

Adam Samuelson: Charge is cash flow would be down year on year, and I just want to make sure I understand.

Adam Samuelson: Yes.

Speaker Change: Thank you Adam and I'll start and then Glenn can Kevin.

Glenn Richter: I'll answer the first part of your question. In general, we're pretty cautious about our outlook on volume, so we're, as I mentioned, flattish to three, so we haven't expected a giant recovery this year in our base case, so that's kind of a starting point. In the absence of that materializing, we have been very good at delivering productivity. As Eric mentioned in his opening comments, we are accelerating both ongoing efforts, and we have additional efforts underway to take costs out that aren't reflected in the plan, so that would be my second comment. Relative to the deed leverage, so that gives you some sense of the earnings profile and offsets if there's additional software.

Glenn Rector: Add on.

Speaker Change: First of all I fully them aligned with and agree with a target of three times net leverage that as a target to get to.

Speaker Change: Thank the year end 24, I'd like to see us get there by the end of 'twenty four, but we're not going to do something stupid that destroy significant value to get their 24, but I can tell you we're going to make very good progress at least towards that goal in 'twenty four.

Speaker Change: In terms of high return growth investments alluded to.

Speaker Change: I'll, just reinforce that flavors and fragrances and we call it <unk>.

Speaker Change: And health and Biosciences, our strong business units in great markets I've been in many chemistry and biological markets. These are great markets, and we're going to invest in them to win.

Glenn Richter: In the external market, the de-leverage will largely be accomplished through divestitures. As Eric mentioned, we are on the path, we feel very good in terms of our activities underway, and we do think we'll accomplish our targeted divestitures, which will be the biggest driver of achieving our de-leverage. Now on your second question, Lawrence, my initial impressions of IFF's capabilities are that we've got really great people. We've got really great capabilities in each of our businesses, and we have just underperformed. But there are pockets of examples where we are performing tremendously well that give me so much confidence that we can make this happen across the company. I spent time with the leadership of arguably the largest consumer products company in the world, where we have a very strong relationship, very much innovation-driven, between their innovation people with our innovation people to make sure that the best consumer products are being developed. And we were meeting both with our scent teams, our scent teams and their fragrance team, and with our health and biosciences team and their consumer products. And it was the best relationship, the best dynamic that I've ever experienced in my 42 years of customer interaction. So when, when?

Speaker Change: Yes, So hey, good morning, Adam So let me take you through the cash flow reconciliation is a good question and I'll start from the top with EBITDA. So the midpoint of our guide is $2 billion.

Adam Samuelson: We are forecasting $345 million of interest expense cash taxes of roughly $4 50 that includes Reg G are transaction related.

Adam Samuelson: Back then that later, we have networking capital is slightly a negative we're being a little cautious in terms of the overall full year part is just the growth of the business.

Adam Samuelson: And then there is miscellaneous sort of others about $100 million of other items to get to an operating cash flow of $1 billion 50 ish.

Adam Samuelson: As we mentioned we have a capex target up this year, we're trying to invest in our growth business.

Adam Samuelson: About four im sorry about $5 40 for the year.

Adam Samuelson: As to a free cash flow, including Reg G $500 million I would note as I mentioned, there is $200 million of Reg G items, a $100 million of that's transaction largely taxes, a little bit of other vehicles, but largely taxes, and then theres a $100 million of other miscellaneous Reg G items as well.

Adam Samuelson: So that gets you to if you back those out on adjusted free cash flow of around $700 million for the year.

Eric Feerwald: And then I had another interaction with the top management of a leading beauty care company in Europe, and the same thing: our people were working hand in glove with their people to create great, great consumer products that consumers love. So, we can do it. We are doing it.

Adam Samuelson: Biggest other note I'd say I don't think biggest shift year over year is networking capital. We added improvement last year of $500 million, we're being sort of conservative at flattish to slightly down this year.

Speaker Change: Thank you.

Speaker Change: Our next question comes from the line of Mike Sison with Wells Fargo. Your line is now open.

Michael J. Sison: Hey, Good morning, Hey, Eric welcome back.

Eric Feerwald: We just need to do it more across the company, and I'm really excited about helping our team. Stop being so internally focused, get more focused by business unit on winning with customers, and then collaborate where it makes sense to enhance across our portfolio to bring even more to customers so that the customers win more, and we win more. Now, in terms of productivity, as Glenn mentioned, there are pockets there where we're doing very well, but there's more we can do on productivity. Ralph Finzel and his production team are really driving tremendous productivity in our operations. And it's still in the early phase, but they're ramping that up very nicely.

Michael J. Sison: I'm sure you've seen several chemical businesses go awry over the years for a lot of different reasons.

Michael J. Sison: What's your sort of playbook in terms of turning around.

Michael J. Sison: Our business and clearly a function of ingredients has been a sore spot here.

Michael J. Sison: In particular, youre going to Youre going to start to work on to get that business back and then just a quick follow up on farm Gladden.

Speaker Change: <unk> only been here a couple a couple of weeks, but.

Speaker Change: Where do you think margins can get back to for that business in the last two quarters have been pretty pretty light relative to its historical past.

Speaker Change: Thanks, Mike I'll start with the functional ingredients question.

Speaker Change: First of all I like the functional ingredients business. It is a very good business.

Speaker Change: With lots of opportunity to bring value to customers and by having multiple elements of the solution set you can bring value in terms of helping customers achieve their goals.

Eric Feerwald: We've already made efforts to improve back office productivity for our corporate functions. That's going okay, but we're going to accelerate that. You'll see more shared service centers and more activity with IT systems to make sure that we're effective serving the businesses and very efficient. So I love what I see.

Speaker Change: Food products, they want to have to delight customers delight consumers.

Speaker Change: So I think what we really have to do here is.

Speaker Change: And the team is working on this is make sure that we're clear on what is our strategy how are we going to <unk>.

Speaker Change: Create value in this business how are we going to make sure that we're focused on the right consumers excuse me the right customers in the right way.

Eric Feerwald: There's so much excellence here, but we've got to get it across the company, and we will. The Bulletproof Executive, 2013. Your next question comes from the line of Patrick Cunningham with Citi. Your line is now open.

Speaker Change: Profitability growing our market share and how do we make sure that our assets are very competitive that our costs are very competitive that we're driving productivity. So that we can can be competitive with our with our product portfolio. Both in terms of the value we bring.

Glenn Richter: Hi, good morning. Just a question on the Q1 guide. So it's about 487, 488 at midpoint in a seasonally weak quarter. And you noted some, you know, nice volume ramp and productivity throughout the year. So even annualizing that, it is above the low end of the guide. So can you help us understand if that guide is just conservative? And then just a small follow-up question, what do you expect to see the end of destocking within your pharma solutions business? Yeah, I'll start with the second.

Speaker Change: And the cost to deliver that value and then we're spending money on innovation. We've got lots of great innovation make sure that innovation is tied to real customer needs that they are willing to pay for that can be part of the solution set and I think that we've taken our eye off the ball as I've said before too much internal focused listen.

Speaker Change: To too many consultants going all different directions, we get clear what we're what we're trying to do what the goals are and.

And execute well against those goals this business will significantly improve in 2024 and beyond.

Glenn Richter: Generally, we've seen de-stocking basically everywhere, I'll say it's done everywhere with the exception of pharma. Generally speaking, this is the second half of the year. PhRMA just started late as an industry, part of the de-stocking for logical reasons given the margin structure, but we do anticipate the second half of this year to be done with PhRMA. Q1 we think is a very reasonable guide, 475 to 500. We have started off the year generally pretty good on the volume side, but we just want to be cautious. The Bulletproof Executive 2013, The next question comes from the line of Adam Samuelson with Goldman Sachs. Your line is now open. Yes, thank you.

Speaker Change: Hey, good morning, Mike Good to hear your voice regarding pharma I mean, as you know this business quarter to quarter can be a little lumpy based on demand in the fourth quarter is typically a lower volume quarter. So the margins are always compressed seasonally for the fourth quarter. So it's difficult to look at that we are very optimistic on the strength of this business in the go forward plan, we do expect the.

Michael J. Sison: Business to be in approximately the mid twenties from an EBITDA margin. This year from our standpoint, there's tons of other initiatives to continue to drive up the margin further so I think what youre seeing is the function of Destocking, Idaho mill seasonality over the last couple of quarters, but just not reflective of the fundamentals of the business.

Speaker Change: Thank you.

Speaker Change: The next question comes from the line of Mark Astrachan with Stifel. Your line is now open.

Mark Stiefel Astrachan: Yeah, Thanks and morning, everybody.

Mark Stiefel Astrachan: I guess.

Eric Feerwald: Good morning. A couple of questions on cash flow and investment. One, just want to clarify on the deleveraging targets. It had previously been three times by the end of calendar 24.

Mark Stiefel Astrachan: Lots of questions, but I'll try to keep it.

Mark Stiefel Astrachan: Arrow here so.

Speaker Change: Todays Iraq was created to provide a suite of.

Speaker Change: Products to customers, we thought it was the initial idea emerging need the legacy ISF into the Dupont business.

Eric Feerwald: Are you no longer committing to that? Timeline. Second, on the last slide of the deck with references to high-return growth investment, can you provide any more clarity on kind of what those are, the size and timing of those? And then finally, Glenn, I think you said to an earlier question, $500 million. Free Cash Flow Guidance for the Year. Can you bridge $2 billion of EBITDA to $500 million of free cash flow because even acknowledging some deal-related charges, cash flow would be down year on year? And I just want to make sure I understand.

Speaker Change: Eric how do you think about that.

Eric Fear: Go to market strategy and as a corollary to it.

We hear a lot from <unk>.

Eric Fear: Investors that this is arguably a better business pre even crude Rob is there a scenario where you can divest nearly all of those assets of the acquired businesses. How integrated are they is that possible.

Eric Fear: And sort of just holistically thoughts on kind of all of that together and then just one follow up for you Glenn.

Glenn Richter: Thank you, Adam. And I'll start and then Glenn can add on. First of all, I fully agree with and align with a target of three times net leverage debt as a target to get to. I think the year end 24, and I'd like to see us get there by the end of 24.

Eric Fear: Plus three volumes considering how easy.

Eric Fear: The comparisons are would still suggest the two year is strongly negative.

Eric Fear: How do you think about that from a competitiveness standpoint, meaning it would suggest that you're still losing share and I get it.

Eric Fear: Across all of.

Eric Fear: The business is equally but it's still a pretty stark difference relative to your closest peers. Thank you.

Eric Feerwald: But we're not going to do something stupid that destroys significant value to get there in 24. But I can tell you we're going to make very good progress, at least towards that goal in 24. In terms of the high return growth investments alluded to, I'll just reinforce that flavors, we call it Scent, and Health and Biosciences are strong business units in great markets. I've been in many chemistry and biological markets. These are great markets, and we're going to invest in them to win. Yeah, so, good morning, Adam. So let me take you through the cash flow reconciliations. Good question.

Speaker Change: Okay. Thank you I'll start by saying that I believe that the historical iaff plus the Dupont nutrition <unk> Biosciences business are stronger together than they were separately the potential.

Speaker Change: So the opportunity is greater.

Speaker Change: Then it was separately so I believe in that combination very strongly now as I said before we haven't executed it well and I've seen this happened before when I got to Syngenta almost eight years ago.

Speaker Change: The seeds and crop protection business businesses had been.

Bush together.

Speaker Change: Focus was on synergies versus having a great crop protection business and a great seeds business.

Speaker Change: Made clear that we're going to have those two businesses as business units end to end business units and as soon as we did that we found out that we have been losing share losing margin versus the competition, we started regaining that and by the way when the business units. We are clear on what they were trying to do the synergies grew a lot because there were synergies.

Glenn Richter: And I'll start from the top with EBITDA. So the midpoint of our guide is $2 billion. We are forecasting $345 million of interest expense, and cash taxes are roughly $450.

Glenn Richter: That includes the Reg G or transaction related issues. I'll back them out later. We have networking capital, which is slightly negative. We're being a little cautious in terms of the overall full year. Part of that is just the growth of the business. And then there's miscellaneous sort of others, about $100 million of other items to get an operating cash flow of a billion-fifth-ish. As we mentioned, we have a CapEx target up this year. We're trying to invest in our growth business for about $540 per year. That gets us to a free cash flow, including regulatory expenses, of $500 million. I would note, as I mentioned, there's $200 million of Reg G items, $100 million of that's transaction tax, a little bit of other deal costs, but largely taxes, and then there's a hundred million of other miscellaneous. Break Please see the complete disclaimer at https://sites.google.com/biggest, the other note I'd say, Adam, the biggest shift year over year is networking capital

Speaker Change: The same thing here in Iff's.

Speaker Change: We're really good at flavors.

Speaker Change: Print fragrances are sent and health and biosciences that food ingredients.

Speaker Change: Those businesses when they are performing well the synergies will increase not decrease the ability to help each other the different businesses to help each other to help customers more together will increase but we've got to get the business is performing extremely well by themselves.

Speaker Change: And not have.

Speaker Change: Synergy that go have synergy a tool when we do that I can assure you that the combination will be very strong.

Speaker Change: Hey, good morning, Mark Hey, Thanks for the question you are right. If you look at a three year stack.

Speaker Change: We'd still be negative over the three year average by about one 5% over including if you hit the 3% this year, but I would note as we've said in the past I think you have to sort of think about the performance of the business between 75% and 25% 75% of the business. Our core business is performing very well flavors has pockets of strength.

Speaker Change: <unk> H b, both enzymes probiotics cultures businesses are doing well pharma overall is doing well, it's really the other 25, which is a function ingredients. We've talked about that actually has been a drag on the overall results of the business. So the separate that I think we have clearly have a very different view in terms of that three year stack and a 75.

Glenn Richter: We had an improvement last year of $500 million; we're being sort of conservative; it flattens just slightly down. The next question comes from the line of Mike Sison with Wells Fargo. Your line is now open.

Speaker Change: Percent is nicely positive and I would submit it's in line with competition for the most part we have opportunities as Eric said to perform better but focus on that 25% I also will note. Once again, we're trying to be realistic. There is there are some prospects that the market's improved more significantly certainly the start of the year.

Eric Feerwald: Hey, good morning. Hey, Eric, welcome back. You know, I'm sure you've seen several chemical businesses go awry over the years for a lot of different reasons. What's your sort of playbook in terms of turning around a business? And clearly, functional ingredients have been a sore spot here. Anything in particular you're going to sort of work on to get that business back and then just a quick follow-up on Pharma Glen since Eric's only been here a couple weeks but, Where do you think barges can get back to for that business? It's, you know, the last two quarters have been pretty, pretty light relative to its historical past. Thanks, Mike. I'll start with the functional ingredients question.

Speaker Change: On what is pretty encouraging, but it's too early to call anything above that range until we see a consistency month by month in terms of volume coming back. So I appreciate the question.

Speaker Change: One thing I would add is that even in the 75% there is significant improvement opportunity and we've got businesses that.

They are looking at that and we're going to work with those businesses to support them.

Speaker Change: Both.

For the businesses to win more and for the corporate cost overheads to be lower and more effective in supporting the businesses.

Eric Feerwald: First of all, I like the functional ingredients business. It is a very good business with lots of opportunity to bring value to customers. And by having multiple elements of the solution set, you can bring value in terms of helping customers achieve their goals and what food products they want to have that delight customers, delight consumers.

Speaker Change: So there is great opportunity of course in food ingredients to turn it around but even given the rest of the company to significantly improved performance and we're going to do it.

Speaker Change: Thank you the.

Speaker Change: Your next question comes from the line of Salvator Tiano with Bank of America. Your line is now open.

Salvator Tiano: Yes. Thank you very much I wanted to ask a couple of questions from the.

Eric Feerwald: So, I think what we really have to do here is... And the team is working on this, is make sure that we're clear on what our strategy is, and how are we going to create value in this business. How are we going to make sure that we're focused on the right consumers, sorry, the right customers in the right way, profitably growing our market share, and how do we make sure that our assets are very competitive, that our costs are very competitive, that we're driving productivity so that we can be competitive with our product portfolio, both in terms of the value we bring and the costs to deliver that value? And then we're spending money on innovation. We've got lots of great innovation.

Salvator Tiano: On the I guess strategy shift to grow that you mentioned a little bit more.

Salvator Tiano: A few more details essentially as youre trying to reposition the business and gain market share.

Salvator Tiano: A clear focus.

Salvator Tiano: What would that mean for R&D spending SG&A spending in Capex in the next few years not necessarily 2024, but that's almost three or four year basis.

Salvator Tiano: And you made a comment about the 2020 for price.

Salvator Tiano: About two 5% negative in part because of competitive pressures, but also because it will allow you to gain some market share. So how are you thinking in these new strategies of the trade off between price and volume.

Eric Feerwald: Make sure that innovation is tied to real customer needs that they're willing to pay for that can be part of the solution set. And I think that we've taken our eye off the ball, as I said before, too much internal focus, listening to too many consultants, going in all different directions. If we get clear about what we're trying to do, what the goals are, and execute well against those goals, this business will significantly improve in 2024 and beyond. Yeah, good morning, Mike.

Speaker Change: So I'll start and I think our R&D spend is significant today I think if you look at what we spend it's very.

Speaker Change: <unk> versus <unk>.

Speaker Change: The industry leaders.

Speaker Change: Other industry leaders, but.

But I do think we can.

Speaker Change: Focus at better connected better to the business units and customers and ensure that.

Speaker Change: Our R&D efforts are fully aligned with the highest values needs that our customers have.

Speaker Change: We can get more out of the R&D spend that we have and where there are areas that we need to spend more R&D, particularly in health <unk> Biosciences, and flavors and fragrances, we will spend more on R&D.

Glenn Richter: Good to hear your voice. Regarding pharma, I mean, as you know, this business quarter to quarter can be a little lumpy based on demand, and the fourth quarter is typically a lower volume quarter, so the margins are always compressed.

Speaker Change: On capital expenditures I feel similarly that.

Speaker Change: Level of capital expenditures are reasonable but.

Speaker Change: But we have to look at where we're spending it and make sure that it's optimized and when we're spending the capital in places that have significant returns have very good returns and strengthen the businesses, where we need to win.

Glenn Richter: We are very optimistic about the strength of this business and the go forward plan. 2012 University of Georgia College of Agricultural and Environmental Sciences UGA Extension Office of Communications and Creative Services. The next question comes from the line of Mark Astrachan with... Your line is now open.

Speaker Change: I would just add to that as we mentioned, we're going to be up about 8% year over year on Capex and a core operational capex, which is really really supporting growth in our core product was up 10%. So we're in the right range from a capex around 5% of sales in terms of what we need to maintain and grow the business.

Eric Feerwald: Yeah, thanks and good morning, everybody. I guess lots of questions, but I'll try to keep it narrow here. So today's IFS was created to provide a suite of www.globalonenessproject.org, investors that this is arguably a better business pre even fruit around. Is there a scenario where you can divest nearly all of those assets of the acquired businesses? You know, how integrated are they? Is that possible?

Speaker Change: Thank you.

Speaker Change: There are no further questions at this time, so I would like to hand, the call back to the team for concluding remarks.

Speaker Change: Alright, well. Thank you for joining the call. This morning, again, I just want to finish by saying that I'm thrilled to be to be at Iff's.

Speaker Change: We've got a tremendous team at Iff's, we've got great capabilities.

Speaker Change: We haven't performed to our potential in the past, but I can tell you. We are all completely committed to making sure that we unleash the full potential of our businesses.

Eric Feerwald: and sort of just holistic thoughts on kind of all of that together, and then just one follow-up for you Glenn. Flattish to plus three volumes, considering how easy the comparisons are, would still suggest the two-year is strongly negative. How do you think about that from a competitiveness standpoint, meaning it would suggest that you're still losing share, and I get that it's not across all of the businesses equally, but it's still a pretty stark difference relative to your closest peers. Thank you. Okay, thank you.

Speaker Change: And drive the right kind of synergies that enhance each of the businesses and make customers very pleased delighted with what we bring in our innovation and by doing that profitably grow our market share and through their productivity efforts make sure we do that with leading margins.

Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect your lines.

Eric Feerwald: I'll start by saying that I believe that the historical IFF plus the DuPont nutrition and biosciences business are stronger together than they were separately. The potential, and the opportunity are greater than they were separately. So I believe in that combination very strongly.

Eric Feerwald: Now, as I said before, we haven't executed it well, and I've seen this happen before. When I got to Syngenta almost eight years ago, the seeds in the crop protection businesses had been mushed together, and the focus was on synergy. Rather than having a great crop protection business and a great seed business, it made clear that we were going to have those two businesses as business units, end-to-end business units. And as soon as we did that, we found out that we had been losing share, and losing margin versus the competition. We started regaining that. And by the way, when the business units were clear on what they were trying to do, the synergies grew a lot because there were synergies. I see the same thing here at IFF. As we're really good at flavors, at Fragrances, or scents for Health and Biosciences. Food Ingredients

Speaker Change: [music].

Eric Feerwald: Those businesses, when they're performing well, the synergies will increase, not decrease. The ability of the different businesses to help each other, to help customers more together, will increase. But we've got to get the businesses performing extremely well by themselves and not have... Synergy be the goal; have Synergy be a tool. When we do that, I can assure you that the combination will be very strong. Hey, good morning, Mark. Hey, thanks for the question. You're right.

Glenn Richter: If you look at a three-year stack, we would still be negative over the three-year average by about 1, 1.5% over, including if you hit the 3% this year. But I would note, as we've said in the past, I think you have to sort of think about performance of the business between 75% and 25%. 75% of the business, our core scent business is forming very well, flavors has pockets of strength, H&B, both enzymes, probiotics, cultures business are doing well, pharma overall is doing well, it's really the other 25 which is the functional ingredients we've talked about that actually has been a drag on the overall, So, if you separate that, I think you clearly have a very different view in terms of that three-year stack, and the 75% is nicely positive, and I would submit it's in line with competition.

Glenn Richter: For the most part, we have opportunities, as Eric said, to perform better, but it's focused on that 25%. I also will note, once again, as we're trying to be realistic, there are some prospects that the markets will improve more significantly. Certainly, the start of the year knock on wood is pretty encouraging, but it's too early to call anything above that range until we see consistency month-by-month in terms of volumes coming back. So, I appreciate the question.

Eric Feerwald: The only thing I would add is that, even in the 75%, there is significant improvement out there. We've got businesses that are looking at that, and we're going to work with them. The Bulletproof Executive 2013, www.globalonenessproject.org. So there is great opportunity, of course, in food ingredients. www.globalonenessproject.org. The next question comes from the line of Salvatore Tiano with Bank of America. Your line is now open. Thank you very much.

Eric Feerwald: I want to ask a couple of questions on the strategy shift to grow that you mentioned a little bit more, a few more details. Essentially, as you're trying to reposition the business and gain market share, which is becoming the clear focus, what would that mean for R&D spending, SG&A spending, and CapEx over the next few years, not necessarily 2024, but let's say on a three- or four-year And you made a comment about the 2024 price, about 2.5% negative, in part because of competitive pressures, but also because it will allow you to gain some market share. So, how are you thinking in this new strategy about the trade-off between price and volume? So I'll start.

Eric Feerwald: And I think our R&D spend is significant today. I think if you look at what we spend, it's very competitive versus the industry leaders, other industry leaders. But I do think we can focus it better, connect it better to the business units and to customers, and ensure that the R&D efforts are fully aligned with the highest value needs that our customers have. So I think we can get more out of the R&D spend that we have and where there are areas that we need to spend more on R&D, particularly in health and bioscience. We will spend more on R&D and capital expenditures. I feel similarly that the level of capital expenditures is reasonable, but we have to look at where we're spending it and make sure that it's optimized and we're spending the capital in places that have significant www.globalonenessproject.org. There are no further questions at this time, so I would like to hand the call back to the team for concluding remarks. Well, thank you for joining the call this morning. Again, I just want to finish by saying that I'm thrilled to be at IFF. We've got a tremendous team at IFF.

Speaker Change: [music].

Operator: We've got great capabilities. We haven't performed to our potential in the past, but I can tell you we're all completely committed to making sure that we unleash the full potential of our businesses and drive the right kind of synergies that enhance each of the businesses. And, make customers very pleased and delighted with what we bring in our innovation, and by doing that, profitably grow our market share, and through their productivity efforts, make sure we do that with leading margins. Thank you.

Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect your line.

Operator: © The Ultimate Parody Site! All rights reserved. ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? www.globalonenessproject.org www.globalonenessproject.org www.globalonenessproject.org www.globalonenessproject.org www.globalonenessproject.org www.globalonenessproject.org www.globalonenessproject.org www.globalonenessproject.org www.globalonenessproject.org www.globalonenessproject.org www.globalonenessproject.org www.globalonenessproject.org www.globalonenessproject.org www.globalonenessproject.org www.globalonenessproject.org www.globalonenessproject.org www.globalonenessproject.org www.globalonenessproject.org www.globalonenessproject.org www.globalonenessproject.org www.globalonenessproject.org www.globalonenessproject.org, All participants will be in a listen-only mode until the formal question-and-answer portion of the call. To ask a question at that time, please press star 1 on your telephone keypad. If you would like to remove your name from the queue, please press star 2.

Michael Deveau: Participants will be announced by their name and company. In order to give all participants an opportunity to ask their questions, we request a limit of one question per person. I would now like to introduce Michael DeVeau, Head of Investor Relations. You may begin. Thank you.

Michael Deveau: Good morning, good afternoon, and good evening, everyone. Welcome to IFF's fourth quarter and full year 2023 conference call. Yesterday afternoon, we issued a press release announcing our financial results. A copy of the results can be found on our IR website at ir.iff.com. Please note that this call is being recorded live and will be available for replay.

Speaker Change: All participants will be in a listen only mode until the formal question and answer portion of the call.

Speaker Change: To ask a question at that time, Please press star one on your telephone keypad.

Speaker Change: If you would like to remove your name from the queue. Please press star two.

Speaker Change: Participants will be announced by their name and company.

Speaker Change: In order to give all participants an opportunity to ask their questions. We request a limit of one question per person.

Michael Deveau: For additional information concerning the factors that can cause actual results to differ materially, 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 that we issued yesterday. With me on the call today is our CEO, Eric Feerwalt, and our Executive Vice President and Chief Financial and Business Transformation Officer, Glenn Richter. We will begin with prepared remarks and then take any questions that you have at this time. With that, I would now like to turn the call over to Eric. Thank you, Mike, and hello everyone. I'm excited to join you all today.

Speaker Change: I would now like to introduce Michael Deveau head of Investor Relations you may begin.

Michael Deveau: Thank you good morning, good afternoon, and good evening, everyone. Welcome trying times fourth quarter and full year 2023 conference call Yes.

Michael Deveau: Yesterday afternoon, we issued a press release announcing our financial results a copy of the results can be found on our IR website at IR Dot Iff's Dot com.

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

Michael Deveau: Please take a moment to review our forward looking statements during the call we were making forward looking statements about the company's performance and business outlook. These statements are based on how we're seeing things today and contain elements of uncertainty for additional information concerning the factors that can cause actual results to differ materially. Please refer to our cautionary statements and risk factors contained.

Michael Deveau: In our 10-K and press release, both of which can be found on our website.

Michael Deveau: 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 that we issued yesterday.

Eric Feerwald: I would like to begin by sharing some initial perspectives since joining IFA. I will then turn the call over to Glenn, who will provide a look at the fourth quarter and full year 2023 financial results before providing commentary on our current outlook for the full year 2024. After that, we'll open the call for Q&A.

Eric Fear: Thank you, Mike and Hello, everyone I'm excited to join you all today.

Eric Fear: I would like to begin by sharing some initial perspectives since joining ISS.

Glenn Rector: I will then turn the call over to Glenn who will provide a look at the fourth quarter and full year 2023 financial results before providing commentary on our current outlook for the full year 2024.

Glenn Rector: After that we'll open the call for Q&A.

Glenn Rector: No I officially joined <unk> on February 6th and I have been impressed by the World class teams globally and the strong innovation across our company.

Glenn Rector: I spent the last few weeks visiting our operations and teams and some of our U S and overseas businesses.

Glenn Rector: I spent that time listening to our teams meeting many of our customers and assessing the current status of our businesses.

Glenn Rector: ISS has a proud history as a global leader in high value ingredients and solutions and a great platform from which to build and expand our partnerships with customers across the value chain to help them create leading consumer products.

Eric Feerwald: We have solid businesses and will take the actions needed to unleash our full potential to start to deliver profitable market share gains by bringing great innovation to win with our customers. A perfect example of this is in our scent business, where we have been outperforming competition, something we must do also across our other businesses.

Glenn Rector: I believe in our purpose to help create a better world through science and creativity applied to sustainably meet customer and consumer needs.

Glenn Rector: The opportunity. We have ahead of US is very big and that is why I joined <unk>.

Glenn Rector: We have solid businesses and we will take the actions needed to unleash our full potential to start to deliver profitable market share gains by bringing great innovation to win with our customers.

Glenn Rector: A perfect example of this is in our <unk> business, where we have been outperforming competition.

Glenn Rector: Something we must do also occur.

Glenn Rector: Across our other businesses.

Glenn Rector: <unk> also has other high quality businesses, such as flavors and health <unk> Biosciences, where we will leverage our innovation to deliver higher growth rates with very attractive profitability.

Eric Feerwald: And by doing so, IFF will be a more innovative and customer-centric organization that is effective and efficient. We also must be better executors, focus the IFF team away from distractions to continuously grow market share across all our businesses, put more of our investments into our high-return businesses and transformative R&D initiatives and our IT infrastructure, and achieve our capital structure targets by reducing outstanding debt. And when we do this over time, I see strong upside and value creation for all IFF stakeholders. Moving to the next slide, I'll walk through the achievements and factors that marked IFF's progress through the fourth quarter and full year 2023.

Glenn Rector: And in some of our challenged businesses, such as functional ingredients with focus and attention weakened significantly improved performance in.

Glenn Rector: In both instances, we will do so by putting the business first eliminating unnecessary processes and overhead.

Glenn Rector: Driving empowerment and strong leadership.

Glenn Rector: And by doing so <unk> will be a more innovative and customer centric organization that will be effective and efficient.

Glenn Rector: We also must be better executed.

Glenn Rector: Focus the <unk> team away from distractions to continuously grow market share across all our businesses.

Glenn Rector: Put more of our investments into our high return businesses and transformative R&D initiatives.

Eric Feerwald: Throughout the past year, IFFers have continued to take important steps to strengthen our financial and operational foundation and position this company to deliver value for the near, mid, and long term. Our performance in the fourth quarter demonstrates progress. While reported sales were down, comparable currency-neutral sales increased 1%, and comparable currency-neutral EBITDA grew 17%, with an adjusted margin expansion of 260 basis points. We've also seen notable improvements in volume trends across the majority of our business segments in the second half of the year, enabling us to perform within previously stated guidance ranges for full year 2023 sales and adjusted operating EBITDA. Now, with this progress and the improving performance through the second half of 2023, we exited the year on solid footing, and we are optimistic about our ability to build on this momentum and are targeting getting back to year-on-year growth for the full year 2024 while strengthening for 2025 and beyond. Now, as I said earlier, we are committed to reducing our level of debt.

Glenn Rector: And alright key infrastructure.

Glenn Rector: And achieve our capital structure targets by reducing outstanding debt.

Glenn Rector: And when we do this over time.

Glenn Rector: Strong upside and value creation for all Iff's stakeholders.

Speaker Change: Moving to the next slide.

Speaker Change: I'll walk through the achievements and factors that marked iff's progress through the fourth quarter and full year 2023.

Speaker Change: Now throughout the past year.

Speaker Change: <unk> have continued to take important steps to strengthen our financial and operational foundation and position this company to deliver value for the near mid and long term.

Speaker Change: Our performance in the fourth quarter demonstrates progress.

Speaker Change: While reported sales were down comparable currency neutral sales increased 1% and comparable currency neutral EBITDA grew 17%.

Speaker Change: With an adjusted margin expansion of 260 basis points.

Speaker Change: Now with this progress and the improving performance through the second half of 2023.

Speaker Change: We exited the year on solid footing.

Eric Feerwald: We have therefore announced an update to our dividend policy to reduce the quarterly dividend by approximately 50% to $0.40 per share. This is not a decision the board and management have taken lightly, as we know the dividend is important to shareholders. However, it will enable us to reduce debt faster.

Speaker Change: Now as I said earlier, we are committed to reducing our level of debt.

Speaker Change: We have therefore announced an update to our dividend policy to reduce the quarterly dividend by approximately 50% to <unk> 40 per share.

Glenn Richter: Strengthening our capital structure, which will create additional long-term value. This will also give the company greater financial flexibility, which will, when required, give us the ability to make more high-return growth investments. I'll now turn it over to Glenn.

Speaker Change: This is not a decision the board and management have taken lightly as we know the dividend is important to shareholders.

Speaker Change: However, it will enable us to reduce debt faster.

Speaker Change: Strengthening our capital structure, which will create additional long term value.

Speaker Change: This will also give the company greater financial flexibility, which will when required give us the ability to make more high return growth investments.

Glenn Richter: Glam. Thank you, Eric, and hello, everyone. Moving to slide seven, as Eric mentioned, the board and management have taken this opportunity to accelerate the improvement of our capital structure as we work towards our deleveraging target of three times net debt-to-credit adjusted EBITDA. Consequently, we have reduced our quarterly dividend to $0.40 per share. We believe this dividend change provides a dividend yield that is consistent with industry peers and is aligned with IFF's long-term cash flow generation and target payout. The dividend remains an important part of our capital allocation framework, and we expect this new base to grow alongside our profits over time. IFF remains committed to providing competitive returns to its shareholders and firmly believes that these actions set us up for more durable value creation in the long term.

Speaker Change: I'll now turn it over to Glenn Glenn.

Speaker Change: Glen.

Glenn Rector: This new base to grow alongside our profit over time.

Glenn Rector: <unk> remains committed to providing competitive returns to our shareholders and firmly believe these actions set us up for more durable value creation in the long term.

Glenn Richter: Now, on slide 8, as Eric mentioned, our performance for the fourth quarter reflects the operational and strategic initiatives that our team has implemented over the last several months to deliver strong results amid an uncertain operating environment. Despite some continued challenges in the market, volume trends continue to improve sequentially, with increases in nearly all businesses resulting in growth for total IFF. IFFs generated $2.7 billion in sales, representing a 1% increase in comparable currency-neutral sales.

Glenn Rector: Despite some continued challenges in the market volume trends continue to improve sequentially with increases in nearly all businesses, resulting in growth for total <unk>.

<unk> generated $2 7 billion in sales, representing a 1% increase in comparable currency neutral sales. This improvement reflected strong growth in our set business with continued volume pressure in Europe and pharma.

Glenn Richter: This improvement reflected strong growth in our scent business with continued volume pressure in Nourish and Pharma, both impacted by de-stocking. Volumes continue to improve sequentially from downed mid-single digits in Q3 to downed low-single digits in Q4, and if excluding the impact of functional ingredients, volumes for the fourth quarter would have increased by low-single digits. Suggested operating EBITDA totaled $461 million in the fourth quarter, a 17% increase on a comparable currency-neutral basis.

Glenn Rector: Both impacted by Destocking.

Glenn Rector: Volumes continue to improve sequentially from down mid single digits in Q3, two down low single digits in Q4.

Glenn Rector: And if excluding the impact of functional ingredients.

Glenn Rector: Williams for the fourth quarter would have increased low single digits.

Glenn Rector: Adjusted operating EBITDA totaled $461 million in the fourth quarter, a 17% increase on a comparable currency neutral basis. We also realized a year over year increase of approximately 260 basis points to our comparable currency neutral adjusted operating EBITDA margin.

Glenn Richter: We also realized a year-over-year increase of approximately 260 basis points to our Comparable Currency Neutral Adjusted Operating EBITDA margin. This growth in EBITDA was supported by both internal steps IFF has taken, including continued gains and efficiencies from our productivity initiatives and favorable net prices. Before moving on, I wanted to share that we recorded a non-cash goodwill impairment charge of $2.6 billion for the fourth quarter related to our nourish business. Primary drivers of the goodwill impairment are related to lower business projections due to volume declines mainly in functional ingredients, continued cost inflation, and unfavorable foreign exchange rate fluctuations.

Glenn Rector: This growth in EBITDA was supported by both internal steps ISF is taken including continued gains and efficiencies from our productivity initiatives and favorable net pricing.

Glenn Rector: Before moving on I wanted to share that we recorded a noncash goodwill impairment charge of $2 6 billion for the fourth quarter related to our nearest business. The primary drivers of the goodwill impairment related to lower business projections due to volume declines mainly in functional ingredients continued cost inflation.

Glenn Rector: <unk> and unfavorable foreign exchange rate fluctuations.

Glenn Richter: Now, moving to slide 9, taking a closer look at our profitability performance for the fourth quarter, we delivered $461 million, which equates to a robust, comparable, currency-neutral adjusted operating EBITDA growth of 17%. I'm happy to report that in Q4, IFF realized strong productivity gains and, in conjunction with favorable net price to inflation, helped us overcome ongoing volume pressures to deliver against our objectives. Importantly, IFF has remained focused on executing upon its productivity program to improve operational effectiveness and efficiency.

Glenn Rector: I am happy to report that in Q4, Iff's realized strong productivity gains and in conjunction with favorable net price to inflation helped us overcome ongoing volume pressures to deliver against our objectives.

Glenn Rector: Importantly, ISS has remained focus on executing upon our productivity program to improve our operational effectiveness and efficiency.

Glenn Rector: 2023, we continue to launch additional steps as part of these programs, while also making strategic investments in key growth areas.

Glenn Rector: Now on slide 10, I will provide a closer look at our performance by business segment during the quarter.

Glenn Richter: While functional ingredients remained the main driver of weakness for Nourish in the quarter, it is worth noting that we again saw meaningful sequential improvement. In terms of profitability, the positive impact from our ongoing pricing actions and productivity initiatives drove improvements and led to a 3% increase in comparable currency-neutral adjusted operating EBITDA. Health and biosciences continue to show robust top and bottom line growth. Price increases, volume growth, and productivity gains led to growth across most H&B business segments, led by double-digit growth in healthcare. Overall, H&B delivered a comparable currency-neutral sales increase of 5% year-over-year and a 35% year-over-year increase in comparable currency-neutral adjusted operating EBITDA. Our scents segment continued to deliver a very strong performance in Q4, including 11% growth in comparable currency-neutral sales, driven by double-digit growth in consumer fragrance, as well as mid-single-digit growth in fine fragrance.

Glenn Rector: In terms of profitability.

Glenn Rector: Positive impact from our ongoing pricing actions and productivity initiatives drove improvements and led to a 3% increase in comparable currency neutral adjusted operating EBITDA.

Glenn Rector: Health and Biosciences continues so robust top and bottom line growth price increases volume growth and productivity gains led to growth across most HEB business segments led by double digit growth in health.

Glenn Richter: Like health and biosciences, Scent also saw significant growth in adjusted operating EBITDA, increasing 34% on a comparable currency-neutral basis, driven by favorable net pricing, volume, and productivity gains. However, while pharma solutions experienced significant pricing and productivity gains, these improvements were offset by lower volume, driven primarily by continued de-stocking trends, as well as strong year-ago comparisons. This led to comparable currency neutral sales declining 10% and comparable currency neutral adjusted operating EBITDA declining 13% in the quarter.

Glenn Rector: And adjusted operating EBITDA, increasing 34% on a comparable currency neutral basis, driven by favorable net pricing volume and productivity gains.

Glenn Rector: This led to comparable currency neutral sales declining, 10% and comparable currency neutral adjusted operating EBITDA declined 13% in the quarter.

Glenn Richter: Turning to slide 11, I'll discuss our progress improving our cash flow and leverage positions. In the fourth quarter, cash flow from operations totaled $1.44 billion, a significant increase from the previous year, reflecting the strong improvement in inventory levels. CapEx for the year was $503 million, or approximately 4.4% of sales. Our progress on working capital improvement, led by an intense focus on right-sizing our inventories, helped enhance our free cash flow position, which saw a sequential increase of over $500 million, totaling $936 million for the full year and ahead of expectations. Included in our free cash flow is about $430 million of costs primarily related to integration and transaction-related items. We also delivered $826 million in dividends to our shareholders in 2023. Our cash and cash equivalents total $729 million, including $26 million in assets held for sale in Q4. Additionally, we realized a $200 million sequential reduction in gross debt, which totaled approximately $10.1 billion for the quarter, with a net debt-to-credit adjusted EBITDA of 4.5 times. Our trailing 12-month credit adjusted EBITDA totaled approximately $2.1 billion.

Glenn Rector: Turning to slide 11, I'll discuss our progress improving our cash flow and leverage positions.

Glenn Rector: In the fourth quarter cash flow from operations totaled 144 billion.

Glenn Rector: A significant increase from the previous year, reflecting the strong improvement in inventory levels Capex for the year was $503 million or approximately four 4% of sales.

Glenn Rector: We also delivered $826 million in dividends to our shareholders in 2023.

Glenn Rector: Our cash and cash equivalents totaled $729 million, including $26 million in assets held for sale in Q4. Additionally.

Glenn Rector: Additionally, we realized $200 million sequential reduction in gross debt, which totaled approximately $10 1 billion for the quarter with a net debt to credit adjusted EBITDA of four five times, our trailing 12 month credit adjusted EBITDA totaled approximately $2 one bill.

Glenn Richter: With the announced sale of our Lucas Meyer Cosmetics business, which we still expect to close in the first quarter of 2024, the right sizing of our quarterly dividend, and additional portfolio actions we are planning to make, we are taking decisive action to strengthen our balance sheet and achieve our leveraged target. On slide 12, I'd like now to turn to our outlook for 24. Due to a combination of improvements across our business and in the broader market toward the tail end of 23, we are cautiously optimistic about the year ahead. For the full year 2024, we expect sales in the range of $10.8 to $11.1 billion. This reflects our prudent approach to volume expectations and the impact of modest negative pricing in 24, which is largely isolated to more price competitive categories, such as functional ingredients and fragrance ingredients, given lower input costs and competitive dynamics.

Glenn Rector: <unk>.

Glenn Rector: For the full year 2024, we expect sales in the range of 10 eight to 11 $1 billion. This.

Glenn Richter: We expect overall pricing to decline approximately 2.5% in 24, following a 10% increase in 22 and a 6% increase in 23. Strategically, we believe this will position us to be more cost competitive in the market and allow us to regain market share in select. In terms of volume, the visibility to the degree and pace of the recovery remains a bit fluid and has been explicitly incorporated in our 0-3% range. The most significant variable impacting this range will be the pace of recovery in functional ingredients. However, this is a marked improvement from 23 where we finished down mid-single digits, and 22 where we were down low single digits.

Glenn Rector: Line, approximately two 5% and 24 following a 10% increase in 'twenty, two and a 6% increase in 'twenty three strategically we believe this will position us to be more cost competitive in the market and allow us to regain market share in select businesses.

Glenn Rector: 23, where we finished down mid single digits and 22, we were down low single.

Q4 2023 International Flavors & Fragrances Inc Earnings Call

Request a DemoDemo

IFF

International Flavors & Fragrances

Earnings