Q4 2024 International Flavors & Fragrances Inc Earnings Call

February 19, 2025

Good morning at this time I would like to welcome everyone to the I F F fourth quarter and full year 2024 earnings conference call. All participants will be in a listen only mode until the formal question and answer portion of.

The call to ask a question at that time. Please press star one on your telephone keypad. If you would like to remove your name from the queue. Please press star two.

Speaker Change: 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 like to introduce Michael Bender, Our head of Investor Relations. You may begin Michael. Thank you. Good morning, Good afternoon, and good evening, everyone welcome to Iff's fourth quarter and for.

Speaker Change: Full year 2024 conference call yesterday afternoon, we issued a press release announcing our financial results.

Speaker Change: A copy of the release can be found on our IR website at IR at <unk> Dot com.

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

Speaker Change: During the call, we'll be making forward looking statements about the company's performance and business outlook.

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

Speaker Change: 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.

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

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

Michael Deveau: With me on the call today is our CEO, Eric <unk> and our CFO Michael Deveau.

Speaker Change: We will begin with prepared remarks, and then take questions at the end.

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

Eric: Thanks, Mike and Hello, everyone.

Eric: I'm excited to walk through our full year 2024 financial results and reflect on the progress we've made over the past year.

Eric: I will then turn the call over to Mike Deveau, who will provide a more detailed look at our fourth quarter and our financial outlook for 2025, then I'll come back to discuss our go forward priorities in 2025 to maintain our momentum and continue to drive long term profitable growth.

Eric: We'll then open the call for questions.

Eric: Starting with slide six.

Speaker Change: I'd like to recap the significant improvement and progress achieved by iaff over the past year supported by consistent execution across the businesses one year ago. When I joined ISF I found an exciting company that was not delivering on its full potential with a new perspective on our priorities and renewed.

Eric: Focus on execution by our executive leadership team.

Eric: We got back to basics in 2020 for the renewed commitment to operational discipline by our global teams led to improved financial results, including strong growth in both revenue and profit.

Eric: The transition to our end to end business led operating model.

Eric: Flitting nourish into focus taste and food ingredients business units and our new operating system have better connected us to customer end markets and increased our line of sight into customer dynamics.

These initiatives have driven greater accountability across the organization, while enabling our global teams to be faster more efficient and more responsive to the evolving needs of our customers.

Eric: As part of our updated strategy, we have increased emphasis on biotechnology as an important differentiator and capability across our core business segments. This focus ensures that we are investing in the necessary resources to leverage this competitive advantage and serve our customers more.

Eric: <unk>.

Eric: Alongside this effort. We also implemented a program to increase investments across research and development commercial capabilities and Capex focused on our high growth high margin health and Biosciences taste and scent businesses.

Eric: To enhance our infrastructure and drive innovation at scale.

Eric: We are also continuing to strengthen our talent with several key hires and internal promotions that solidify the next generation of Iff's leadership.

Eric: I'm also pleased to share that our employee engagement levels improved significantly compared to 2023, demonstrating the success of our return to focus on bringing leading innovation to customers.

Eric: Lastly, we announced the next phase in the evolution of our board of directors.

Eric: Pointing three new board members with the backgrounds expertise and proven track records to support management to fulfill our long term strategic vision and unlock greater value for our stakeholders. We are excited to welcome Cynthia Jamison, Dr. Mehmood Khan and Vincent entry Aerie to our <unk>.

Eric: Ward.

Eric: We also announced that Kevin O'byrne will become our new Board chair.

Speaker Change: He will succeed our current chair, Roger Ferguson, who decided not to stand for reelection at the 2025 annual shareholder meeting after 14 years of Distinguished service I think Roger for all his support and guidance and look forward to working with Kevin and his new role.

Speaker Change: Taken together all of these efforts focus on our people customers innovation and operational excellence.

Speaker Change: Form the foundation of our long term profitable growth approach.

Speaker Change: On slide seven we will take a closer look at our financial results in 2024.

Speaker Change: In 2024, Iaff delivered 11 $5 billion in sales.

Speaker Change: Representing 6% comparable currency neutral growth our profitability also improved as iff's delivered over $2 2 billion and adjusted operating EBITDA, representing 16% comparable growth.

Speaker Change: <unk> based volume improvement across our portfolio.

Speaker Change: Strong execution by our commercial teams and the absence of Destocking drove growth across all our businesses.

Speaker Change: At the beginning of 2024, we also adjusted our dividend policy to better support our deleveraging efforts and give us greater financial flexibility to invest in key growth areas across ISS.

Speaker Change: On the portfolio optimization front, we continued to progress toward completing the sale of pharma solutions, which we expect will occur in the first half of 2025.

Speaker Change: From a leverage standpoint, our net debt to credit adjusted EBITDA ended 2024 at three eight times improving from four five times at the end of 2023, we continue to be committed to further deleveraging and the completed sale of pharma solutions will help achieve that goal.

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Speaker Change: I'm very proud of our results and the growth we achieved in the past year and what has continued to be a dynamic market and geopolitical environment. Our businesses achieved solid financial performance and we've made very good progress delivering on our strategic and operational initiatives, while I'm pleased with the significant progress we've made.

Speaker Change: Over the last year, we still have a lot more work to do.

Speaker Change: In 2025, we plan to continue to strategically reinvest in R&D commercial capacity and technology as we aim to strengthen <unk> and build a long term sustainable platform that will deliver strong value creation for all our stakeholders.

Speaker Change: We are also focused on simplifying our business process and systems to improve efficiency and effectiveness.

Speaker Change: I want to also take a moment to thank our <unk> across the globe.

Speaker Change: Passion and relentless focus have been the reason for the value we've created an innovation we've achieved.

Speaker Change: And as I mentioned on the previous slide developing and promoting strong internal talent is a priority.

Speaker Change: <unk> is the kind of leader, we elevate and I would like to congratulate him on his appointment to Iff's Chief Financial Officer.

Speaker Change: Mike has been an integral part of Iff's Global Finance leadership over the last 15 years. He brings a deep understanding of the needs of our global finance operations and the value <unk> delivers for the world's consumer product companies I know, Mike will continue to be an even more incredible asset to <unk>.

Speaker Change: Team in this key role.

Speaker Change: I'll now pass it over to him to share a closer look at our fourth quarter results Mike.

Speaker Change: Thank you for the kind words, Eric and Hello, everyone. After more than 15 years at ISS. It is an honor to join my first call as CFO and I look forward to working closely with all of you in my new role.

Speaker Change: Moving to slide eight as Eric noted, our strong performance and execution through 2024 continued in the fourth quarter and drove solid results.

Speaker Change: <unk> generated revenue of $2 7 billion in the fourth quarter, an increase of 6% on a comparable currency neutral basis, driven by broad based growth across all our businesses and led by mid single digit volume improvement.

Speaker Change: We continue to realize the benefits from our ongoing productivity initiatives, leading to the third consecutive quarter of margin expansion on a comparable basis.

Adjusted operating EBITDA totaled $471 million in the quarter, a 5% increase on a comparable basis and theyre comparable adjusted operating EBITDA margin expanded by roughly 30 basis points.

Speaker Change: This performance was led by volume growth and our ongoing productivity initiatives that were partly offset by increased incentive compensation expense and business reinvestment.

Speaker Change: On slide nine I will provide a closer look at our performance by segment.

Speaker Change: <unk> sales were $1 4, billion% to 4% increase year over year on a comparable currency neutral basis.

Speaker Change: Comparable adjusted operating EBITDA also increased by 4%.

This was led by the fourth consecutive quarter of double digit growth in flavors are testament to that teams continued outperformance in.

Speaker Change: In functional ingredients mid single digit volume growth was mostly offset by our pricing actions. This was consistent with our previously announced price strategy for 2024.

Speaker Change: Double digit gains in home and personal care and grain processing alongside growth across nearly all our businesses resulted in another solid quarter for our health and Biosciences segment.

Speaker Change: Sales came in at $553 million, a 6% year over year increase on a comparable currency neutral basis.

Speaker Change: Comparable adjusted operating EBITDA decreased by 3% largely due to strong year ago comparable as well as business Reinvestments that Eric mentioned earlier.

Speaker Change: In.

Speaker Change: Broad based growth was led by double digit increase in fragrance ingredients and high single digit growth in fine fragrance net.

Speaker Change: Net sales in the quarter totaled $579 million up 7% year over year on a comparable currency neutral basis, and we delivered adjusted operating EBITDA of $97 million up 1% on a comparable basis as volume growth and productivity gains were partially offset by higher reinvestment.

Speaker Change: Finally pharma solutions delivered another strong quarter, achieving sales of 228, million% to 12% year over year increase on a comparable basis, while also recording excellent profitability growth of 81% to $47 million.

Speaker Change: Strong margin expansion was driven by volume and productivity gains and a favorable year ago comparable.

Speaker Change: Turning to slide 10 cash flow from operations totaled $1 1 billion for the full year, and capex totaled $463 million or approximately 4% of sales.

Speaker Change: Our free cash flow position for the full year totaled $606 million, which is consistent to where we expected it to be at the beginning of the year.

Speaker Change: Year to date, we also distributed $514 million in dividends to our shareholders.

Speaker Change: Our cash and cash equivalents finished at $471 million at the end of the fourth quarter, including $2 million in assets held for sale.

Speaker Change: Our trailing 12 month credit adjusted EBITDA totaled $2 2 billion in line with last quarter and our net debt to credit adjusted EBITDA improved to three eight times.

Speaker Change: We remain committed to achieving our net debt to credit adjusted EBITDA target of below three times. Following the completion of our pharma solutions divestiture, which we expect to be complete in the first half of 2025.

Speaker Change: On slide 11, I'd like to share our outlook for 2025, while the current operating environment remains dynamic we are cautiously optimistic about the year ahead as we look to build on our recent momentum.

Speaker Change: Coming off the strong year, we had in 2024, we believe our 2025 planned strikes the right balance as we are targeting strong year over year improvements on.

Speaker Change: On a currency neutral basis, and investing for the future growth of our business.

Speaker Change: Please note that our full year guidance includes six months of pharma solutions with a divestiture assumed to close June 32025 for comparability purposes. We expect divestitures will have approximately a five percentage point adverse impact to sales growth and approximately a <unk> <unk>.

Speaker Change: Six percentage point adverse impact to adjusted EBITDA growth in 2025 in.

Speaker Change: In the event that we can close the pharma transaction earlier, we will adjust our guidance accordingly, and reflect a lower contribution of the business.

Speaker Change: For the full year 2025, we expect sales to be in the range of $10 six to $10 9 billion, representing comparable currency neutral growth of 1% to 4%.

Speaker Change: We believe that this will be driven by continued volume growth against a strong year ago comparable with increases across all our divisions led by HEB taste and scent.

Speaker Change: It should be noted that we expect the 2025 operating environment to be more normalized relative to 2024, which did benefit from the absence of destocking.

Speaker Change: Pricing is expected to be modestly favorable inclusions of FX related pricing as raw material costs remain elevated and in some cases increasing year over year.

Speaker Change: On the bottom line, we expect to deliver full year 2025, adjusted operating EBITDA between two to two <unk>, one 5 billion.

Speaker Change: On a comparable currency neutral basis, this translates to 5% to 10% EBITDA growth.

Speaker Change: Which will be driven by gross margin expansion as a result of volume leverage and strong Cogs productivity.

Speaker Change: Following a year of strong margin expansion and double digit profitability growth in 2024, we will continue to reinvest in long term value creation opportunities, while balancing our near term profitability objectives. What this means is that we will continue to drive strong productivity to mitigate general inflationary pressures in it.

Speaker Change: The same time reinvest a large portion of our incentive compensation reset in R&D innovation and commercial capabilities across our businesses similar to the actions we've taken in the second half of 2024.

Speaker Change: We believe that by doing so not only will we drive short term performance, we will further enhance our competitive position and generate strong returns on these organic investments.

Speaker Change: Based on foreign exchange rates, we expect foreign exchange will have approximately 4% full year adverse impact to sales growth and a 6% full year adverse impact to adjusted operating EBITDA growth.

Speaker Change: This is primarily driven by the strength of the Euro where the current rate is down relative to the 109 average in 2024.

Speaker Change: In addition, there are several other emerging market currencies, such as the Brazilian real and the Argentine peso, where we a suite of modest devaluation versus the USD over the course of 2025.

Speaker Change: As previously communicated we plan to increase our capex investments targeting approximately 6% of sales in 2025.

Speaker Change: Approximately half of this investment is maintenance capex, while the rest is split evenly between deferred investment catch up specifically in food ingredients growth investments such as capacity expansion, <unk> and India Creative Center, Incent and accretive center in Mexico.

Speaker Change: In both taste and scent as well as digital transformation, specifically related to our S&P upgrade.

Speaker Change: We believe these investments will yield strong returns, providing us with incremental growth and efficiency opportunities.

Speaker Change: As a reminder, we have re segmented the business into five divisions taste food ingredients.

Speaker Change: <unk> and pharma and have adjusted our corporate allocations starting in 2025 prior.

Speaker Change: Prior to the first quarter of 2025 earnings release, we plan to provide historical information for comparable purposes. So that when we report first quarter earnings you will have the appropriate baseline.

Speaker Change: Let me close by sharing that we are pleased with the strong progress and foundation. We built in 2024, our recent success gives us confidence in our outlook as.

Speaker Change: As we continue to execute our strategic and financial priorities.

Eric: With that I'd like to turn the call back to Eric.

Speaker Change: Thanks, Mike our outlook for the year reflects our confidence in our businesses and our ability to navigate macro uncertainties, while continuing to deliver for our customers I want to turn to the priorities that will guide our strategy for 2025 and help us reach the goals we've outlined for the year.

Speaker Change: In 2025, our focus will continue to be on creating sustainable growth and returns on capital. We will continue to improve our businesses. While also ensuring we have competitive cost best in class support functions.

Speaker Change: As we've discussed this will require some investment at the same time, we will continue to drive growth and returns by increasing our investment in R&D Valley.

Speaker Change: Value enhancing capital projects and commercial actions to deliver profitable market share growth over time, we will also keep exploring ways for our teams to better innovate, providing greater visibility and transparency into our sales pipeline and formalizing our sales targets and expectations across teams.

Speaker Change: We will continue to deliver cost savings through productivity initiatives and improvements in execution and processes throughout our businesses as we strengthen our continuous improvement culture. In addition to completing our planned divestiture of pharma solutions in the first half of the year, we will continue our ongoing.

Portfolio assessment, including exploring appropriate opportunities to bolster our portfolio through value, creating bolt on acquisitions.

Speaker Change: But I can assure you we will not do anything like another fruit rot.

Speaker Change: Importantly, we remain committed to consistently delivering solid financial results and meeting the goals we've outlined for 2025.

Speaker Change: Lastly, our people are the core of our success and we will continue to invest time and developing talent and strengthening employee engagement to drive greater innovation and productivity.

Speaker Change: This in turn will enable us to better serve our customers enhancing customer satisfaction, which will help us capture new growth and market share over time.

Speaker Change: I am confident that these priorities with the collective efforts of our World class Global teams will make it happen.

Speaker Change: Now to close us out on slide 13.

Speaker Change: Our solid performance in 2024 speaks to the success of our reinvigorated strategy and our focus on operational execution.

Speaker Change: All of US at <unk> are excited to build on this foundation to further strengthen the business and reinforce our market position in 2025, we are well on our way to unlocking our full potential and continuing to deliver innovative and sustainable solutions for our customers and communities all over.

Speaker Change: Round the world.

Speaker Change: Thank you and I'll now open up the call to your questions.

Speaker Change: Thank you Paul at this time, we will now begin the question and answer the question.

Speaker Change: A reminder is star one to ask a question and then term of your question. It is star two.

Speaker Change: If you are using a speaker phone assets you do pick up your handset before asking a question.

Speaker Change: The first question is from the line of Kristen Owen with Oppenheimer. You May proceed.

Kristen Owen: Hi, Good morning, Thank you for taking the question.

Speaker Change: Wanted to ask if you can elaborate on the sources wind versus underlying demand of your volume growth expected in 2025.

Speaker Change: Just as a context, where we're hearing from Cagny many of the CPG theyre, saying that volume is getting harder to come by so we're just trying to understand what what's sustaining that volume growth expectation and any specific areas of relative strength that you would call out. Thank you.

Speaker Change: Sure. Thanks, Chris This is Eric I'll take this question.

Speaker Change: So first of all we're saying that for 2025, our volumes will be 1% to 4% growth.

Speaker Change: If you recall in 2026, we had 6% growth, which about half of it was destocking. So a normalized growth rate is in the range of 3%.

Speaker Change: We believe that our volume increases will be mainly in health and biosciences.

Speaker Change: And taste.

Speaker Change: And we see now that we have strong commercial pipelines in each of those businesses and a high win rate and that means that we're winning more than our fair share in many cases.

Speaker Change: And that's really important and Thats the drive.

Speaker Change: Food ingredients will be much much lower volume increases, but we still see some volume increase there.

Speaker Change: So I think it's really important to step back and see what we're doing over the next three years, what our focus is and what I'll start by saying I think we've made really good progress in 2024 getting back to basics getting the fundamentals in place.

Speaker Change: But over the next three years, we must.

Speaker Change: Keep driving to get to growth rates.

Speaker Change: While we narrow the margin gap versus our best in class competition in each business.

Speaker Change: And we're going to do that by continuing to invest in R&D.

Speaker Change: Commercial capabilities and capacity, particularly.

Speaker Change: Particularly in health and Biosciences scent and taste businesses. Those are three great businesses with high margins and we want to keep making sure that we're fully investing to be fully competitive with best in class competition.

And our functional or excuse me food ingredients business, we are investing selectively in areas like technical service.

Speaker Change: And upgrading some of our facilities that badly needed.

Speaker Change: But at the same time, we're driving an aggressive productivity program across our food ingredients business.

Speaker Change: And then even across the entire company, we are driving strong productivity programs across each business unit and across the corporate functions to make sure that we're fully cost competitive but also fully effective.

Speaker Change: And then as we do all of that we're also leveraging our uniquely strong biotech capabilities.

Speaker Change: Into our scent and flavors businesses and continuing to drive the other health and Biosciences application areas. So we have a great plan for the next three years, we're going to keep investing we're going to keep delivering year by year, but we're going to keep investing so that in three years we are.

Speaker Change: Very strong versus our best in class competition.

Speaker Change: The next question is from the line of Josh Spector with UBS you May proceed.

Josh Spector: Yes, hi, good morning, I wanted to ask two things if I could first just on the EBITDA bridge for 2025 understanding the pharma divestment and FX are negatives I guess, we thought that volume in the incentive comp resets could get you to about neutral. So, there's obviously something else investments or price cost or otherwise.

Josh Spector: Adding a negative variance that bridge that we're not accounting for so how do you build that bridge and then secondly, just around seasonality and your expectations for <unk> versus the rest of the year EBITDA specifically thanks.

Josh Spector: Great. Thanks, Josh I'll take this one in terms of the EBITDA bridge to the midpoint of our 2025 guidance. It's really around just two things is around volume growth and productivity. So if you assume the midpoint of our guidance range sales will grow two 5% on the comparable base of $11 billion.

Josh Spector: With an incremental margin of about 35%, that's yielding you around four to five points of EBITDA growth.

Josh Spector: The second piece of it is that we're really trying to target and drive productivity within the organization and so youre getting another about 2% net productivity benefit which is more than offsetting the inflationary piece in terms of net pricing to input costs. They are expected to be neutrality. So flat when you net them together.

Josh Spector: And in terms of the incentive compensation reset we have about $100 million of a reset and we're fully are essentially reset the offsetting that by reinvestment in the business and so there's about a $30 million carryover for 2024, and a $70 million incremental investment in 2025. So when you net the two together and Thats and Thats.

Josh Spector: Zero.

Josh Spector: In terms of the EBITDA cadence again, if you take the midpoint the first half of the year will be stronger than.

Josh Spector: In an absolute dollar basis, because we are assuming that the pharma transaction will be completed at the end of Q2.

Josh Spector: Also just remember that Q2 is usually our seasonally strongest quarter. So on an absolute dollar basis EBITDA will be the highest in Q2 of 2025.

Josh Spector: Thank you.

Speaker Change: The next question is from the line of Nicola Tang with BNP process. You May proceed.

Speaker Change: Hi, everyone. Thanks for taking the question I wanted to dig a little bit more into your comments around I.

Speaker Change: I guess the currency neutral wonderful person expectations.

Speaker Change: Would you be able to talk a little bit more about what you expect to close the call divisions.

Speaker Change: Yes.

Speaker Change: Yes. Thank you Nicola so first of all it's going to be primarily volume driven.

Speaker Change: With modest pricing.

Speaker Change: With some gives it gives and takes in pricing across businesses and across geographies.

Speaker Change: Primarily the volume growth will be driven by health and biosciences scent and taste.

Food ingredients.

Speaker Change: Volume will be much more moderate.

Speaker Change: With a focus on increasing margins.

Speaker Change: In that business.

Speaker Change: Yeah.

Speaker Change: The next question is from the line of Emily Fusco with Deutsche Bank You May proceed.

Emily Fusco: Hi. This is Emily please go on for Dave Begleiter with Deutsche Bank.

Dave Begleiter: I wanted to ask what are your expectations for inflation this year and how should we expect net pricing to develop through the year.

Emily Fusco: Yes.

Emily Fusco: Thanks again for the question Emily.

Emily Fusco: Maybe just to start by saying that input cost.

Emily Fusco: Ah standpoint remain at historical levels historically high levels in some parts of our business. We are seeing continued modest inflation, specifically in taste and scent and this is really driven by natural ingredients.

Emily Fusco: In food <unk> ingredients, there is a bit of deflation that the team is working with customers.

And on an HEB perspective, it's generally flat and so net net on a consolidated basis, we expect our input cost basket to be flat to up slightly.

Emily Fusco: In all instances, we will continue to work and collaborate with our customers to make sure. We have the opportunities to mitigate this includes re formulations, but also price discussions as well.

Emily Fusco: In terms of pricing contribution over the course of 2025, we expect pricing to be relatively consistent over each each of the four quarters as we go forward.

Speaker Change: The next question is from the line of Pat.

Pat Cunningham: Cunningham with Citigroup you May proceed.

Eric Zhang: Hi, Good morning. This is Eric Zhang on for Patrick You mentioned last quarter about getting functional ingredients to 15.

Pat Cunningham: Plus margins in the coming years.

Pat Cunningham: You're on track for this margin expansion, giving the pricing actions and what are the cost and productivity initiatives savings underpinning this growth. Thank you.

Pat Cunningham: Thanks, Eric we are on track towards this target.

And we made very good progress and if you'll recall in 2023, we talked about high single digit EBITDA margins in food ingredients and 2024, we achieved solid.

Pat Cunningham: So double digits margins EBITDA margins.

Pat Cunningham: And I would say under the new leadership of Andy Mueller with with a strong team.

Pat Cunningham: We are confident in our plans to get to the mid teens in the next few years and we're doing that with a combination of better serving customers so growing our business with attractive margins.

Pat Cunningham: And driving aggressive productivity plans.

Pat Cunningham: Both are making progress.

Pat Cunningham: Andy has a strong background in this business and is helping the team to further strengthen those plans and the execution of those plans. So we are on track.

Pat Cunningham: Thank you.

Speaker Change: The next question is from the line of Lisa de Neve with Morgan Stanley You May proceed.

Pat Cunningham: Hi.

Speaker Change: For taking my question I have a question on free cash flow.

Speaker Change: Can you please give some details and granularity on how you expect free cash flow to play out for this year, especially concerning the net working capital movements and Capex spend that's required.

Speaker Change: And also more in the lights of the limited leverage and we've seen the second half of this year, which clearly will improve first pharma, but just the underlying business would be helpful.

Speaker Change: A small second question I guess on slide <unk>.

Speaker Change: You have now been with the company for over a year I mean is there any intention to set new midterm targets given you keep referring in your presentation towards the next three years, we're driving improvement.

Speaker Change: Are you willing to set any financial targets against that thank you.

Speaker Change: Yeah.

Speaker Change: I think maybe Eric I'll start on the first one.

Eric Zhang: Perfect I'll start on free cash flow and then I'll pass it back to you.

Eric Zhang: In terms of the full year for 2025, we expect free cash flow would be about $500 million.

Eric Zhang: Note that this does include a significant impact of taxes related to the former divestiture, so thats about $350 million.

Eric Zhang: It is our estimate at this point in time, if you adjust for that our free cash flow will be about $850 million, which is kind of consistent to the last couple of years, but more importantly, an improvement versus where we finished 2024 in terms of networking capital we are targeting a slight inflow versus an outflow in 2024.

Eric Zhang: And this is really driven by the work that we're doing around payables and selective strategic inventory reductions.

Eric Zhang: As we stated on the call we expect capex to be about 6% of sales and this is really around increasing the investments to catch up on some deferred spend Eric mentioned moments ago specifically.

Eric Zhang: Putting reagents also to make some growth investments and capacity expansion, new technologies and HSE. Some commercial space facing operations forward and said and then lastly, really start to drive the migration of our digital transformation and so those are the biggest drivers from a from a capex.

Eric Zhang: Piece of it.

Eric Zhang: So maybe Eric I'll turn it over to you for the second part of the question.

Eric Zhang: Yes, so in terms of long term tar.

Eric Zhang: <unk> targets will come back later in the year with with more clarity on that but let me just say that I feel like we are a very strengthened company now versus a year ago, We've got absolute clarity on our organization model and business model.

Eric Zhang: We've separated nourish into taste and food ingredients, two very different businesses with different strategies.

Eric Zhang: <unk> got a strong team a clear five year plan and clear investment plan with both growth investment and driving productivity.

Eric Zhang: So I am confident that we have the right direction now we need to execute very well and I think we did that in 2024 now we need to do it in 2025 and Youll hear more later in the year about our longer term aspirations.

Eric Zhang: Thank you.

Speaker Change: The next question is from the line of Steve Byrne with Bank of America. You May proceed.

Steve Byrne: Yes. Thank you I'm curious how would you characterize the potential impact on your businesses or.

Steve Byrne: Perhaps some regulatory approvals from RFK.

Steve Byrne: Now, we will run the HHS and the staff cuts at FCA.

Steve Byrne: Any near term impacts from that and then Eric you mentioned new investments in biotechnology in R&D.

Steve Byrne: I assume that that could include the use of gene editing for.

Steve Byrne: Natural product expression levels et cetera.

Steve Byrne: Can you think RFK could block this.

Steve Byrne: So first of all thank you Steve.

Steve Byrne: Don't see any of our products as targets.

Steve Byrne: In fact, what we do see is that many of our customers may reformulate products to have cleaner labels, which by the way it plays into our strengths and we've been making very good progress with customers that are working on cleaner labels, which has been a great growth opportunity for us already and we see that as it.

Steve Byrne: <unk> opportunity going forward.

Steve Byrne: In terms of a biotech R&D I think there is lots of opportunities in many areas.

Steve Byrne: And youll be hearing more about that at Cagny, we're going to talk specifically about our biotech.

Steve Byrne: Platform.

Steve Byrne: And we see that as having opportunities in scent taste, but also in the current areas that we're playing in and other areas with our D. B design enzymatic biomaterials, which plays right into the heart of what the world wants consumers want and our customers want the world wants and biodegradable.

Steve Byrne: Materials that are sustainable and sustainably grown sustainably produced so I see this as.

Steve Byrne: Okay.

Steve Byrne: A bit of uncertainty about what will happen when but the general direction I see it is significantly more opportunity than risk.

Steve Byrne: Thank you.

Speaker Change: The next question is from the line of John Roberts with Mizuho you May proceed.

John Roberts: Thanks, and first congrats Michael.

John Roberts: Back to raw materials, how much of Iff's raw material spend is potentially exposed to tariffs here.

John Roberts: And should we only be thinking about an important.

John Roberts: Imported materials into the U S or do you worry about something reciprocal so it's more than just a U S issue.

Speaker Change: Hey, Thanks, John I appreciate that very much.

John Roberts: In terms of the tariff situation is ever evolving.

John Roberts: <unk> on a constant basis, when we assess the various situations or potential situations. We do not expect to have a material impact from any any any any tax change as you know John we haven't expansive and global supply chain, which provides us with a lot of flexibility to adapt so should things change, we're working with our customers to make sure.

John Roberts: We mitigate that to the fullest we lived through this a couple of years ago and this administration's first term and so similar to that approach we've taken.

John Roberts: We're going to work with our customers, our mitigation strategies and including price surcharges as appropriate but that will become a secondary methodology to it. The focus is really seeing what we can do on supply chain to mitigate a lot of our exposure again in material in nature more to come as things develop and we'll keep we'll keep you updated.

John Roberts: Okay.

Speaker Change: The next question is from the line of Mike Sison with Wells Fargo. You May proceed.

Mike Sison: Hey, good morning, nice end of the year and congrats to you Mike.

Eric Zhang: Eric but the year on year about.

Eric Zhang: And I understand you might want to wait a little bit, but where do you think iff's EBITDA should get over time, it's expected to be a pretty big number when you bought it and b.

Eric Zhang: But with divestitures.

Eric Zhang: Framework, where it can be and then and just maybe stepping back a little bit.

Eric Zhang: And then b.

Eric Zhang: Do you think this is a good business for ISS.

Eric Zhang: Longer term.

Eric Zhang: What are the risks because certainly it had a little bit it certainly had a tough time on the get go but what are the risks to the business.

Eric Zhang: And maybe just talk about where what parts of the business now fit really well with our have good synergies with the legacy Iff's. Thank you.

Speaker Change: Sure. Thanks, Mike for the question.

Speaker Change: With our current portfolio over time is getting to the low twenty's EBITDA margin.

Speaker Change: Food ingredients being the most challenged and health and biosciences, being the highest and incentive tastes being very solid.

Speaker Change: And as I look at it.

Speaker Change: We.

Speaker Change: I came to the company a year ago. There was a lot of complexity a lot of performance challenges.

Speaker Change: A lot of companies had been brought together. So there was a lot to clean up and a lot to get the executive team together and clarify for the organization I think we've made very good progress I think we've got a very solid HEB health and biosciences team and business.

Speaker Change: Very strong scent and taste teams and businesses.

Speaker Change: With very good very strong very competitive capabilities and so we just need to continue to strengthen those and move them along in the next three years and I think they'll compete very favorably.

Speaker Change: Within that period.

Speaker Change: With the leading benchmarks food.

Speaker Change: Food ingredients is still a turnaround situation low single digit EBITDA margins in 2023.

Speaker Change: Low double digit EBITDA margins in 2024.

Speaker Change: Andy Miller and his team are absolutely focused on continuing that turnaround and getting those margins up significantly this year as another point of progress.

Speaker Change: And I'm confident in that team to make that happen.

Speaker Change: So I think that.

Speaker Change: Our focus right now is delivering 2025.

Speaker Change: But doing it in a way that we make smart investments that have good returns and get us increasingly competitive.

Speaker Change: And and deliver.

Speaker Change: What we say we're going to deliver.

Speaker Change: And I think we're on good track to make that happen.

Speaker Change: Thank you. Thank you.

Speaker Change: The next question is from the line of Kevin Mccarthy with vertical Research partners you May proceed.

Speaker Change: Hi, This is Matt on for Kevin Mccarthy.

Speaker Change: Can you help us to understand why the FX headwind to EBITDA is 2% higher than the impact on sales.

Speaker Change: How do your margins on international business compare to U S domestic margins.

Speaker Change: Hey, Matt.

Speaker Change: I'll take this one and thank you for the question in terms of the incremental impact on EBITDA relative to sales.

Speaker Change: Keeping buyer purchases our sales are based in local currency, while large reported a portion of our input costs are denominated in euro and U S dollar and so essentially that's what's driving.

Speaker Change: That kind of multiplier effect between sales piece of it.

Speaker Change: EBITDA contribution.

Speaker Change: I think your second question was around margin structure globally internationally versus domestic operations.

Speaker Change: It's actually pretty agnostic in pretty constant the real differential comes when you compare the category exposures and so just let me give you an example in EMEA.

Speaker Change: Do you have the strongest margin profile, just given the exposure to fine fragrance, while India, you'll have a lower margin profile just because the portfolio is geared towards savory as an example, so really when you look at it on a kind of a like for like basis, adjusted adjusting for the portfolio you're pretty agnostic.

Margin aspect of it it really comes down to the category.

Percentages within each one of them.

Speaker Change: Thank you.

Speaker Change: The next question is from the line of Mark <unk>.

Speaker Change: <unk> from Stifel. You May proceed.

Speaker Change: Yes, thanks, good morning, everybody.

Speaker Change: Two questions for me one just could you talk about the growth rates between local regional and private label customers compared to multinationals and maybe just give a rough split of the business as it seems the former group seems to be growing faster and taking share away from <unk>.

Speaker Change: The ladder and then Eric.

Eric Zhang: You had talked about prioritizing best in class margins compared to sales growth Youre, obviously accelerating investments I guess with flexibility in early 'twenty five in terms of the wrap around reinvestment yes.

Eric Zhang: Maybe talk a bit about how you manage the two and if you want to sit there and try to think about prioritizing one versus the other year. How quickly can you get to the margins versus how quickly can you get to a run rate sales growth the growth at least in line consistently with peers. Thank you.

Mike: Mike you want to start and then I'll take the second half.

Mike: Sure. Thanks, Mark for the question when you look at the portfolio the way I would categorize it as you basically have one third global customers, one third kind of mid sized and one third smaller local customers, including some of the private label aspects and so when you look at the dynamics across there.

Mike: Global perspective, the growth, it's a little bit more muted than you see at some of the kind of regional local including private label customers and so for US a big part of the focus on the I'll give an example on the <unk> strategy is really to prioritize private label and smaller customers as we go forward and so that dynamic that growth that you.

Mike: Mark it's true.

Mike: Good thing is that there is still a lot of growth opportunities at the big global customers. That's much more geared towards new innovation and what we can do to help them have winning products are consumer preferred products in the market.

Mike: So on the second half of <unk>.

Mike: <unk>.

Mike: Yes on the second half of the question.

Mike: We want to continue to work towards best in class margins and growth rates.

Mike: No.

Mike: I would say is.

Track us on how we're doing to have growth rates in line with the best in class.

Mike: And gross margins that are improving.

Mike: And EBITDA margins that may improve a little bit slower because of our investments our aggressive investments in research, particularly but also in commercial investments.

Mike: In health and Biosciences.

Mike: Taste and scent.

Mike: Let me just give you. An example in 2024, we had nice margin improvements, but we could have delivered even more EBITDA and higher EBITDA margins. If we wouldn't have made additional investments beyond what we had planned particularly in research and commercial capabilities.

Mike: So what we're going to do is continue to make progress.

Mike: Probably not as fast progress on EBITDA as we could if we werent, making these additional investments, but the investments that we're making we are absolutely sure that in the next three years, we will have a very attractive payout and will strengthen us against our best in class competitors and.

Mike: We're absolutely committed to becoming leaders in innovation across these businesses.

Mike: Health and Biosciences taste and scent, while we continue to turnaround the food ingredients business.

Mike: Okay.

Speaker Change: Thank you. The next question is from the line of Kate <unk> with Barclays. You May proceed.

Mike: Yeah.

Just a couple of questions on the scent business I was wondering why fragrance ingredients growth was so strong this quarter up double drops off.

Mike: Or we should be thinking about growth for 2020 by this there's some pricing pressure on the business and then on fine Fragrances. We were wondering what your expectation is for growth next year.

Speaker Change: You expect global growth and frankly around the world. Thank you.

Speaker Change: Mike do you want to start Eric I'm happy to start.

Mike: Start on this one and then and then pass it over to you for more comments look the team has done a fantastic job in the fragrance ingredients business. They really looked at their portfolio. When you look at that portfolio, there's really high value ingredients.

Speaker Change: And I would say more general kind of industry led.

Speaker Change: And so what they did they bifurcated that target the market to go after some of the high high value ingredients and so what we've seen over the course of this year and 2020 for my apologies in 2020 for performance has been strong.

Speaker Change: As you've noted Kt for.

Speaker Change: For the quarter, we actually finished kind of in that mid teens range. So very good very good and thats really about being proactive and making sure they have adequate capacity to ship product for that.

Speaker Change: <unk> had some good success there in 2024 and 2025 I think you will see the growth start to subside a bit obviously that is a business that's going to be driven by the end market consumption and so as you go forward from here I think the team has some good volume growth, but they will have some reduction in overall price because.

Speaker Change: Some of the <unk>.

Speaker Change: Deflationary environment that we've seen in the.

Speaker Change: Fragrance ingredients market overall, but they are working through that I think their long term strategy is very very strong and I think it still can be a growth driver as we go forward. It's just managing the next couple of couple of quarters in terms of growth.

Speaker Change: Fragrance fragrance ingredients on the fine fragrance side of the business is performing very very well and so.

Speaker Change: I think you finished the quarter at high single digit growth rates on a two year basis, it's kind of in the mid mid single digit basis kind of factor in the year ago comparable and so very very strong based on the access to business and new wind potential that they had they expect growth to continue into 2020.

Speaker Change: And be one of the areas that will lead this sense in terms of overall growth and thats really around the strategy. They have in some of the emerging markets like the middle East in Africa, and winning some of the core big businesses and brands that are in Europe, and North America.

Speaker Change: Thank you the only thing I would add anything else you yeah.

Speaker Change: The only thing I would add is that I think overall the dynamics for that business are favorable and for the industry.

Speaker Change: Both the consumer goods.

Speaker Change: <unk> companies.

Speaker Change: Are putting more emphasis on <unk> as a driver of superiority for their products, whether it's shampoo body wash.

Speaker Change: Laundry detergent et cetera, all of our products that is a critical element of superiority and a low part of the cost product cost. So I think that's going to continue and consumers love to have great sense in their products I think on the fine fragrance that digital media and the desire to have <unk>.

Speaker Change: Experiences through the day, not just an evening.

Speaker Change: For a woman wants she's going out but.

Speaker Change: People of all ages of both sexes increasingly wanting fine fragrances to enhance their day, whether it's.

Speaker Change: Whether it's.

Speaker Change: And energizing.

Speaker Change: That makes you feel more energy, whether it's a relaxing sent whether it's a romantic sent these these.

Speaker Change: Emotional drivers that are being expanded upon our being being talked about.

Speaker Change: By people like Charlotte Tilbury on digital media are helping to expand the market for fine fragrances all around the world.

Speaker Change: The general.

Speaker Change: Direction of growth for the industry continuing to be very.

Speaker Change: Very positive.

Speaker Change: And we are.

Speaker Change: Taking advantage of that.

Speaker Change: Thank you.

Speaker Change: The next question is from the line of.

Speaker Change: From Jpmorgan you May proceed.

Speaker Change: Hi, good morning.

Speaker Change: I have another peeling back the onion question.

Speaker Change: In.

Speaker Change: And nourish yet.

Speaker Change: Flavor.

Speaker Change: But maybe that's like $2 5 billion in size and then there's the function ingredient business, which is great.

Speaker Change: $3 3 billion in size. So if you fund your ingredients business.

Speaker Change: Smaller one grow slowly maybe grows 1% they could take business really has to grow something like 5% to get to that to get to the midpoint of the organic growth, which is two and a half percentage is that the way to think about like just.

Speaker Change: Much higher growth case, maybe closer to mid single digits and theyre slow growth and.

Speaker Change: In functional fragrances and having some of.

Speaker Change: Question for the health and Biosciences business, which I think maybe.

Speaker Change: But that's the enzymes and maybe 45% of the probiotics.

Speaker Change: Is it a similar dynamic where you think youre in.

Speaker Change: Enzyme dramatic business is going to grow more like mid single digits and probiotics.

Speaker Change: At a very low end.

Speaker Change: My question to start with.

Speaker Change: Yes.

Speaker Change: I'll start that so first maybe let me just start with the flavors our taste business.

Speaker Change: It is youre absolutely right. The way I think about $6 billion $2 5 billion is going to be pay side $3 5 billion food ingredient side.

Speaker Change: Flavors, our taste side of the business has been running very very strong and so their performance over the course of the year. If you see it's basically at four quarters of very strong double digit growth.

Speaker Change: As you go into 2025 I think.

Speaker Change: Taste business growth will more normalize relative to what I say historical averages just because the comp is strong and so that is going to be a big piece of the equation in terms of growth for the total company.

Speaker Change: Food ingredients will be a little bit more muted as some volume gains are going to be offset by a little bit of price reductions that are associated with deflation and so to your point you have to grow disproportionately faster on the taste side. The one X factor a caveat is that in the rest of the business, we expect growth and so that's making it up and it's actually taken us.

Speaker Change: Into what I would say a better trajectory.

Speaker Change: In 2025 overall and offsetting some of the food ingredients softness that we have year over year in terms of total topline growth.

Speaker Change: In <unk> B.

Speaker Change: With respect to enzymes probiotics subcategory levels I think broadly speaking all of the businesses are targeting kind of modest growth year over year to health business. The one area on the probiotics side that has been a little bit of a pain point to be very Frank over the last couple of years is expecting to recover a bit as we go into 2020.

Speaker Change: <unk> as well so that will help us.

Speaker Change: Will help us both from a top line perspective, but it's also accretive from a margin.

FX as well.

Eric Zhang: So Eric back to you.

Eric Zhang: Thank you.

The next question is from the line of Laurence Alexander with Jefferies. You May proceed.

Speaker Change: Hi, This is Dan Rizzo on for Laurence Thanks for fitting me in just to kind of revisit tariffs from the tariff issue, but just from a little bit with some perspective I was just wondering what your customers are saying their near term impacts might be on order patterns and how you should think about where margins should.

Eric Zhang: <unk> should be in three to five years.

Speaker Change: Can you can you repeat that second part of the question I'm not sure I heard the second one.

Eric Zhang: The second one is just how do you think where margins and our ROIC should.

Speaker Change: It should be in three to five years.

Eric do you want to from a customer standpoint, I know you're engaged in lots of our customers have you.

Speaker Change: What I would say is if you listen to the customers calls.

Speaker Change: They're they're very conservative about volume growth.

Speaker Change: I think it's not it's separate from tariff issues, but tariff issues make people concerned about the economy.

Speaker Change: With the uncertainty today, I think that uncertainty will hopefully get cleared up in the not too distant future and we'll get back to a more normalized growth.

Speaker Change: But I think what.

Speaker Change: What our customers what we're hearing from our customers, which is really important is that they expect volumes to be soft and therefore, they want to grow with innovation.

Speaker Change: And thats, increasing the opportunity for us to work with them to deliver that innovation that excites.

Speaker Change: Consumers that drives their products and by the way drives value in their products as well. So I think that's very positive, but anything to add to that specifically on tariffs Mike.

Speaker Change: No I think Thats I think thats good covered well I think the second point just on the margin.

Eric Zhang: Our ROIC evolution of Liza for next three years I think Eric addressed it before the simple answer is higher on.

Eric Zhang: On both I think for US, we're making a concentrated effort really on return on invested capital as we go into 2025, and so we're making a big investment.

Eric Zhang: In terms of both carryover and reinvest it incrementally.

Eric Zhang: This year, but the reality is as we go forward, we are being very diligent on how we're thinking about return on every dollar we put in the business. This is both opex and <unk>.

Eric Zhang: On a capex basis, and so the team.

Speaker Change: Trajectory, we don't have a formal target yet and we will come back later in the year as Eric alluded to it but over time, we would expect improvements in terms of again the margin piece of it but also a return on invested capital.

Speaker Change: The next question is from the line of item Tomorrow with Brett Brian You May proceed.

Speaker Change: Hi, good morning, Thanks for taking my question.

Speaker Change: Follow up on that.

Speaker Change: Got it.

Speaker Change: Michael.

Speaker Change: Breakdown by business.

Speaker Change: Okay.

Speaker Change: Helpful. And then looking do you see that.

Speaker Change: Some of them.

Speaker Change: Okay.

Speaker Change: Alright.

Speaker Change: Okay.

Speaker Change: Or could they potentially will be.

Speaker Change: Okay.

Speaker Change: Great.

Speaker Change: I'll start and then Mike Please add anything first of all our health <unk> Biosciences businesses on very solid ground today.

Speaker Change: It's been growing nicely in 2024, we grew I would say consistent with the leading benchmark.

Speaker Change: And had strong solid growth across businesses the slowest growth.

Speaker Change: But still growing was the health business as Mike alluded to we expect that to start to increase again as we put more innovation into that business part of the business.

Speaker Change: But overall the dynamics are solid.

Speaker Change: All of the different areas all the different application areas. We have this new area and designed and somatic biomaterials that we're excited about we've started to get our first commercialization there that's going to add to the growth and we've got a lot of emphasis now on how do we turbocharge, our scent and our taste business with our biotech case.

Speaker Change: Abilities, and we've got resources focused on that that will take some time to get through but it's on a solid.

Speaker Change: <unk> and I am very very optimistic about health <unk> biosciences, and the near term, but even more so in the three to five year timeframe.

Speaker Change: Thank you. Thank you at this time, we will now take the last question from Christopher Parkinson from Wolfe Research you May proceed.

Speaker Change: Great. Thanks, as Harris Fein on for Chris Thanks for taking my question.

Speaker Change: So there's been a lot of active asset sales divestitures within food and nutrition over the past year I guess when you look at what's happened what is that price discovery mean to you in terms of maybe whether you can prune a little bit more from your portfolio.

Speaker Change: You also mentioned potential for small bolt ons I guess what are the implications for your M&A pipeline. Thank you.

Speaker Change: Yes, so first of all on our food ingredients business, Andy Miller's here he knows the business and depth. He spent many years within ESCO actually before.

Speaker Change: He knows the industry very well he's working with his team to turnaround the total business and there are some pieces of it that may likely not fit long term. So we're working on that working through that.

Speaker Change: But we're looking at bolt on acquisitions as I referred to that specifically in health <unk> Biosciences more related to technologies.

Speaker Change: To further enhancing our technology breadth.

Speaker Change: That's and taste, which is more to enhance our geographic footprint.

Speaker Change: But we will only do bolt ons that make absolute sense that have good returns and that really fill strategic voids.

Speaker Change: But I think what the most.

Speaker Change: <unk> is to understand that we're focused on really driving the businesses that we have today and getting the pharmaceuticals solution sale finished and continuing to execute really well this year.

Speaker Change: And I'll just finish all caught my closing remark is that I believe I joined the company excited about Iff's and even more excited today I believe we are much stronger than we were a year ago and I believe we will be much stronger a year from now thanks to our 22000 colleagues around the world that are now.

Speaker Change: I believe much more focused on serving customers with leading innovation, while we also drive productivity.

And I would suggest if you.

Speaker Change: If you know <unk> employees talked to Iff's employees talked to our customers ask them about it we've got positive momentum and we're going to continue to build on that positive momentum and we're going to deliver what we say we're going to deliver in 2025, but we're going to do it in a way that further strengthens us for 26 and beyond.

Speaker Change: And in the three year period, I think youll find us very competitive with the leading.

Speaker Change: Competitive benchmarks. Thank you.

Speaker Change: Thank you all at this time this will now conclude today's Ias Q4, FY 2024 earnings Conference call. We appreciate your participation and hope you all have a wonderful day and you may now disconnect your lines.

Speaker Change: [music].

Speaker Change: Good morning at this time I would like to welcome everyone to the I F F fourth quarter and full year 2024 earnings conference call. All participants will be in a listen only mode until the formal question and answer portion of the call to ask a question at that time. Please press star one on your telephone keypad, if you would like to remove your knee.

Speaker Change: From the queue. Please press star two.

Speaker Change: 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.

Michael Bender: To introduce Michael Bender, our head of Investor Relations you may begin Michael.

Michael Bender: Good morning, good afternoon, and good evening, everyone welcome to Iff's fourth quarter and full year 2024 conference call yesterday afternoon, we issued a press release announcing our financial results a copy of the release can be found on our IR website at IR at <unk> Dot com.

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

Michael Bender: During the call, we'll be making forward looking statements about the company's performance and business outlook.

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

Michael Bender: 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.

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

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

Michael Deveau: With me on the call today is our CEO, Eric <unk> and our CFO Michael Deveau.

Michael Bender: We will begin with prepared remarks, and then take questions at the end.

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

Eric Zhang: Thanks, Mike and Hello, everyone I'm excited to walk through our full year 2024 financial results and reflect on the progress we've made over the past year.

Eric Zhang: I'll, then turn the call over to Mike Deveau, who will provide a more detailed look at our fourth quarter and our financial outlook for 2025, then I'll come back to discuss our go forward priorities in 2025 to maintain our momentum and continue to drive long term profitable growth.

Speaker Change: Well then open the call for questions.

Eric Zhang: Starting with slide six.

Speaker Change: I'd like to recap the significant improvement and progress achieved by iaff over the past year supported by consistent execution across the businesses one year ago. When I joined <unk> I found an exciting company that was not delivering on its full potential with a new perspective on our priorities and are renewed.

Eric Zhang: Focus on execution by our executive leadership team.

Eric Zhang: We got back to basics in 2020 for the renewed commitment to operational discipline by our global teams led to improved financial results, including strong growth in both revenue and profit.

Eric Zhang: The transition to our end to end business led operating model splitting nurse into focused taste and food ingredients business units and our new operating system have better connected us to customer end markets and increased our line of sight into customer dynamics.

Eric Zhang: These initiatives have driven greater accountability across the organization.

Eric Zhang: Enabling our global teams to be faster more efficient and more responsive to the evolving needs of our customers.

Eric Zhang: As part of our updated strategy, we have increased emphasis on biotechnology as an important differentiator and capability across our core business segments. This focus ensures that we are investing in the necessary resources to leverage this competitive advantage and serve our customers more.

Eric Zhang: Effectively.

Eric Zhang: Now alongside this effort. We also implemented a program to increase investments across research and development commercial capabilities and Capex focused on our high growth high margin health, <unk> Biosciences taste and scent businesses to enhance our infrastructure and drive innovation at.

Eric Zhang: Scale.

Eric Zhang: We are also continuing to strengthen our talent with several key hires and internal promotions that solidify the next generation of Iff's leadership.

Eric Zhang: I'm also pleased to share that our employee engagement levels improved significantly compared to 2023, demonstrating the success of our return to focus on bringing leading innovation to customers.

Eric Zhang: Lastly, we announced the next phase in the evolution of our board of directors.

Eric Zhang: Pointing three new board members with backgrounds expertise and proven track records to support management to fulfill our long term strategic vision and unlock greater value for our stakeholders. We are excited to welcome Cynthia Jamison, Dr. Mehmood Khan and Vincent entry Aerie to our <unk>.

Eric Zhang: Ward.

Eric Zhang: We also announced that Kevin O'byrne will become our new Board chair.

Eric Zhang: He will succeed our current chair, Roger Ferguson, who decided not to stand for reelection at the 2025 annual shareholder meeting after 14 years of Distinguished service I think Roger for all his support and guidance and look forward to working with Kevin and his new role.

Eric Zhang: Taken together all of these efforts focus on our people customers innovation and operational excellence.

Eric Zhang: Form the foundation of our long term profitable growth approach.

Eric Zhang: On slide seven we will take a closer look at our financial results in 2024.

Eric Zhang: In 2024, Iff's delivered 11 $5 billion in sales.

Eric Zhang: Representing 6% comparable currency neutral growth our profitability also improved as iff's delivered over $2 2 billion and adjusted operating EBITDA, representing 16% comparable growth.

Eric Zhang: <unk> based volume improvement across our portfolio.

Eric Zhang: Strong execution by our commercial teams and the absence of Destocking drove growth across all our businesses.

Eric Zhang: At the beginning of 2024, we also adjusted our dividend policy to better support our deleveraging efforts and give us greater financial flexibility to invest in key growth areas across <unk>.

Eric Zhang: On the portfolio optimization front, we continued to progress toward completing the sale of pharma solutions, which we expect will occur in the first half of 2025.

Eric Zhang: From a leverage standpoint, our net debt to credit adjusted EBITDA ended 2024 at three eight times improving from four five times at the end of 2023, we continue to be committed to further deleveraging and the completed sale of pharma solutions will help achieve that goal.

Eric Zhang: <unk>.

Eric Zhang: I'm very proud of our results and the growth we achieved in the past year and what has continued to be a dynamic market and geopolitical environment. Our businesses achieved solid financial performance and we've made very good progress delivering on our strategic and operational initiatives, while I'm pleased with the significant progress we've made.

Eric Zhang: Over the last year, we still have a lot more work to do.

Eric Zhang: In 2025, we plan to continue to strategically reinvest in R&D commercial capacity and technology as we aim to strengthen <unk> and build a long term sustainable platform that will deliver strong value creation for all our stakeholders.

Eric Zhang: We are also focused on simplifying our business process and systems to improve efficiency and effectiveness.

Speaker Change: I want to also take a moment to thank our efforts across the globe, whose passion and relentless focus have been the reason for the value. We've created an innovation we've achieved.

Speaker Change: And as I mentioned on the previous slide developing and promoting strong internal talent is a priority.

Speaker Change: Mike Deveau as the kind of leader, we elevate and I would like to congratulate him on his appointment to Iff's Chief Financial Officer.

Speaker Change: Team in this key role.

Speaker Change: I'll now pass it over to him to share a closer look at our fourth quarter results Mike.

Speaker Change: Thank you for the kind words, Eric and Hello, everyone. After more than 15 years in ISS. It is an honor to join my first call as CFO and I look forward to working closely with all of you in my new role.

Speaker Change: Moving to slide eight as Eric noted, our strong performance and execution through 2024 continued in the fourth quarter and drove solid results.

Speaker Change: We continue to realize the benefits from our ongoing productivity initiatives, leading to the third consecutive quarter of margin expansion on a comparable basis.

Speaker Change: Adjusted operating EBITDA totaled $471 million in the quarter, a 5% increase on a comparable basis and theyre comparable adjusted operating EBITDA margin expanded by roughly 30 basis points.

Speaker Change: This performance was led by volume growth and our ongoing productivity initiatives that were partly offset by increased incentive compensation expense and business reinvestment.

Speaker Change: On slide nine I will provide a closer look at our performance by segment.

Speaker Change: And nourish sales were $1 4, billion% to 4% increase year over year on a comparable currency neutral basis comparable adjusted operating EBITDA also increased by 4%.

Speaker Change: This was led by the fourth consecutive quarter of double digit growth in flavors are testament to that teams continued outperformance.

Speaker Change: Functional ingredients mid single digit volume growth was mostly offset by our pricing actions. This was consistent with our previously announced price strategy for 2024.

Speaker Change: Sales came in at 553, Million% to 6% year over year increase on a comparable currency neutral basis.

Speaker Change: Comparable adjusted operating EBITDA decreased by 3% largely due to strong year ago comparable as well as business Reinvestments that Eric mentioned earlier.

Speaker Change: In.

Speaker Change: Broad based growth was led by double digit increase in fragrance ingredients and high single digit growth in fine fragrance net.

Speaker Change: Finally pharma solutions delivered another strong quarter, achieving sales of $228 million or 12% year over year increase on a comparable basis, while also recording excellent profitability growth of 81% to $47 million.

Speaker Change: Strong margin expansion was driven by volume and productivity gains and a favorable year ago comparable.

Speaker Change: Turning to slide 10 cash flow from operations totaled $1 1 billion for the full year, and capex totaled $463 million or approximately 4% of sales.

Speaker Change: Our free cash flow position for the full year totaled $606 million, which is consistent to where we expected it to be at the beginning of the year.

Speaker Change: Year to date, we also distributed $514 million in dividends to our shareholders.

Speaker Change: Our cash and cash equivalents finished at $471 million at the end of the fourth quarter, including $2 million in assets held for sale.

Speaker Change: Our gross debt at the yearend was approximately 9 billion a decrease of more than $1 billion compared to the year ago period. Following the completion of our divestiture of the cosmetic ingredients business. Our trailing 12 month credit adjusted EBITDA totaled $2 2 billion in line with last quarter and our net.

Speaker Change: Debt to credit adjusted EBITDA improved to three eight times.

Speaker Change: On slide 11, I'd like to share our outlook for 2025.

Speaker Change: While the current operating environment remains dynamic we are cautiously optimistic about the year ahead as we look to build on our recent momentum.

Speaker Change: Coming off a strong year, we had in 2024, we believe our 2025 planned strikes the right balance as we are targeting strong year over year improvements on.

Speaker Change: On a currency neutral basis, and investing for the future growth of our business.

Speaker Change: Please note that our full year guidance includes six months of pharma solutions with the divestiture assumed to close June 32025 for comparability purposes. We expect the divestitures will have approximately a five percentage point adverse impact to sales growth and approximately a <unk>.

Speaker Change: Six percentage point adverse impact to adjusted EBITDA growth in 2025 and.

Speaker Change: In the event that we can close the pharma transaction earlier, we will adjust our guidance accordingly, and reflect the lower contribution of the business.

Speaker Change: For the full year 2025, we expect sales to be in the range of $10 six to $10 9 billion, representing comparable currency neutral growth of 1% to 4%.

Speaker Change: We believe that this will be driven by continued volume growth against a strong year ago comparable with increases across all our divisions led by HEB taste and scent.

Speaker Change: It should be noted that we expected 2025 operating environment to be more normalized relative to 2024, which did benefit from the absence of destocking.

Speaker Change: Pricing is expected to be modestly favorable inclusions of FX related pricing as raw material costs remain elevated and in some cases increasing year over year.

Speaker Change: On the bottom line, we expect to deliver full year 2025, adjusted operating EBITDA between two to two <unk>, one 5 billion.

Speaker Change: On a comparable currency neutral basis, this translates to 5% to 10% EBITDA growth.

Speaker Change: Which will be driven by gross margin expansion as a result of volume leverage and strong Cogs productivity.

Speaker Change: Same time reinvest a large portion of our incentive compensation reset in R&D innovation and commercial capabilities across our businesses similar to the actions we've taken in the second half of 2024.

Speaker Change: This is primarily driven by the strength of the Euro where the current rate is down relative to the 109 average in 2024 in.

Speaker Change: In addition, there are several other emerging market currencies, such as the Brazilian real and the Argentine peso, where we have sued a modest devaluation versus the USD over the course of 2025.

Speaker Change: As previously communicated we plan to increase our capex investments targeting approximately 6% of sales in 2025.

Speaker Change: Both taste and scent as well as digital transformation, specifically related to our S&P upgrade.

Speaker Change: We believe these investments will yield strong returns, providing us with incremental growth and efficiency opportunities.

Speaker Change: As a reminder, we have re segmented the business into five divisions taste food ingredients.

Speaker Change: <unk> and pharma and have adjusted our corporate allocations starting in 2025 prior.

Speaker Change: Let me close by sharing that we are pleased with the strong progress and foundation. We built in 2024. Our recent success gives us confidence in our outlook as we continue to execute our strategic and financial priorities.

Eric Zhang: With that I'd like to turn the call back to Eric.

Eric Zhang: Thanks, Mike our outlook for the year reflects our confidence in our businesses and our ability to navigate macro uncertainties, while continuing to deliver for our customers I want to turn that to the priorities that will guide our strategy for 2025 and help us reach the goals we've outlined for the year.

Eric Zhang: In 2025, our focus will continue to be on creating sustainable growth and returns on capital. We will continue to improve our businesses. While also ensuring we have competitive cost best in class support functions.

Eric Zhang: As we've discussed this will require some investment at the same time, we will continue to drive growth and returns by increasing our investment in R&D Valley.

Eric Zhang: Value enhancing capital projects and commercial actions to deliver profitable market share growth over time, we will also keep exploring ways for our teams to better innovate, providing greater visibility and transparency into our sales pipeline and formalizing our sales targets and expectations across teams.

Eric Zhang: We will continue to deliver cost savings through productivity initiatives and improvements in execution and processes throughout our businesses as we strengthen our continuous improvement culture. In addition to completing our planned divestiture of pharma solutions in the first half of the year, we will continue our ongoing.

Eric Zhang: Portfolio assessment, including exploring appropriate opportunities to bolster our portfolio through value, creating bolt on acquisitions.

Speaker Change: But I can assure you we will not do anything like another fruit or op.

Speaker Change: Importantly, we remain committed to consistently delivering solid financial results and meeting the goals we've outlined for 2025.

Speaker Change: This in turn will enable us to better serve our customers enhancing customer satisfaction, which will help us capture new growth and market share over time.

Speaker Change: I am confident that these priorities with the collective efforts of our World class Global teams will make it happen.

Speaker Change: Now to close us out on slide 13.

Speaker Change: Our solid performance in 2024.

Speaker Change: <unk> to the success of our reinvigorated strategy and our focus on operational execution.

Speaker Change: <unk>.

Speaker Change: Thank you and I'll now open up the call to your questions.

Thank you all at this time, we will now begin the question and answer questions. As a reminder is star one to ask a question and then term of your question. It is star two.

Speaker Change: If you are using a speaker phone, we ask that you do pick up your handset before asking a question.

Speaker Change: The first question is from the line of Kierston Owen with Oppenheimer. You May proceed.

Kierston Owen: Hi, Good morning, Thank you for taking the question.

Kierston Owen: Wanted to ask if you can elaborate on the sources wind versus underlying demand of your volume growth expected in 2025.

Speaker Change: Context, what we're hearing from Cagny many of the TPG theyre, saying that volume is getting harder to come by so we're just trying to understand what what's sustaining that volume growth expectation and any specific areas of relative strength that you would call out. Thank you.

Kierston Owen: Sure. Thanks, Chris This is Eric I'll take this question.

Kierston Owen: First of all we're saying that for 2025, our volumes will be 1% to 4% growth.

Kierston Owen: Which if you recall in 2026, we had 6% growth, which about half of it was destocking. So a normalized growth rate is in the range of 3%.

Kierston Owen: We believe that our volume increases will be mainly in health and biosciences.

Kierston Owen: And taste and.

Kierston Owen: And we see now that we have strong commercial pipelines in each of those businesses and a high win rate and that means that we are winning more than our fair share in many cases.

Kierston Owen: And that's really important and Thats the drive.

Food ingredients will be much much lower volume increases, but we still see some volume increase there.

Kierston Owen: Well I think it's really important to step back and see what we're doing over the next three years, what our focus is and what I'll start by saying I think we've made really good progress in 2024 getting back to basics getting the fundamentals in place.

Kierston Owen: But over the next three years, we must.

Kierston Owen: Keep driving to get to growth rates.

Kierston Owen: While we narrow the margin gap versus our best in class competition in each business.

Kierston Owen: And we're going to do that by continuing to invest in R&D.

Kierston Owen: Commercial capabilities and capacity, particularly.

Kierston Owen: Particularly in health and Biosciences scent and taste businesses. Those are three great businesses with high margins and we want to keep making sure that we're fully investing to be fully competitive with best in class competition.

Kierston Owen: And our functional or excuse me food ingredients business, we are investing selectively in areas like technical service.

Kierston Owen: And upgrading some of our facilities that badly needed.

Kierston Owen: But at the same time, we're driving an aggressive productivity program across our food ingredients business.

Kierston Owen: Then even across the entire company, we are driving strong productivity programs across each business unit and across the corporate functions to make sure that we're fully cost competitive but also fully effective.

Kierston Owen: And then as we as we do all of that we're also leveraging our uniquely strong biotech capabilities.

Kierston Owen: Into our scent and flavors businesses and continuing to drive the other health and Biosciences application areas. So we have a great plan for the next three years, we're going to keep investing we're going to keep delivering year by year, but we're going to keep investing so in three years we are.

Kierston Owen: Very strong versus our best in class competition.

Speaker Change: Next question is from the line of Josh Spector with UBS you May proceed.

Speaker Change: He says, adding a negative variance that bridge that we're not accounting for so how do you build that bridge and then secondly, just around seasonality and your expectations for <unk> versus the rest of the year EBITDA specifically thanks.

Speaker Change: Great. Thanks, Josh I'll take this one in terms of the EBITDA bridge to the midpoint of our 2025 guidance. It's really around just two things is around volume growth and productivity. So if you assume the midpoint of our guidance range sales will grow two 5% on the comparable base of $11 billion.

Speaker Change: With an incremental margin of about 35% that is yielding you around four to five points of EBITDA growth.

Speaker Change: The second piece of it is that we're really trying to target and drive productivity within the organization and so youre getting another about 2% net productivity benefit which is more than offsetting the inflationary piece in terms of net pricing to input costs. They are expected to be neutrality. So flat when you net them together.

Speaker Change: And in terms of the incentive compensation reset we have about $100 million of a reset and we're fully or essentially reset the offsetting that by reinvestment in the business and so there's about a $30 million carryover for 2024, and a $70 million incremental investment in 2025. So when you net the two together and Thats and Thats.

Speaker Change: Zero.

Speaker Change: In terms of the EBITDA cadence again, if you take the midpoint the first half of the year will be stronger than.

Speaker Change: In an absolute dollar basis, because we are assuming that the pharma transaction will be completed at the end of Q2.

Speaker Change: Also just remember that Q2 is usually our seasonally strongest quarter. So on an absolute dollar basis EBITDA will be the highest in Q2 of 2025.

Speaker Change: Thank you.

Speaker Change: The next question is from the line of Nicola Tang with BNP process. You May proceed.

Nicola Tang: Hi, everyone. Thanks for taking the question I wanted to dig a little bit more into your comments around.

Nicola Tang: I guess the currency neutral wonderful person expectations would you be able to talk a little bit more about what you expect to close the call divisions.

Nicola Tang: Yeah.

Speaker Change: Yes. Thank you Nicola so first of all it's going.

Nicola Tang: To be primarily volume driven with.

Nicola Tang: Modest pricing with.

Nicola Tang: With some gives gives and takes in pricing across businesses and across geographies.

Primarily the volume growth will be driven by health and biosciences scent and taste.

Nicola Tang: Food ingredients.

Nicola Tang: Volume will be much more moderate.

Nicola Tang: With a focus on increasing margins.

Nicola Tang: In that business.

Speaker Change: The next question is from the line of Emily Fusco with Deutsche Bank You May proceed.

Speaker Change: Hi. This is Emily please go on for David Begleiter with Deutsche Bank.

Speaker Change: I wanted to ask what are your expectations for inflation this year and how should we expect net pricing to develop through the year.

Speaker Change: Yes.

Emily Fusco: Thanks again for the question Emily.

Speaker Change: Maybe just to start by saying that input cost.

Speaker Change: Hi standpoint remain at historical levels historically high levels in some parts of our business. We are seeing continued modest inflation, specifically in taste and scent and this is really driven by natural ingredients.

Speaker Change: In food <unk> ingredients, there is a bit of deflation that the team is working with customers.

Speaker Change: And on an HEB perspective, it's generally flat and so net net on a consolidated basis, we expect our input cost basket to be flat to up slightly.

Speaker Change: In all instances, we will continue to work and collaborate with our customers to make sure. We have the opportunities to mitigate this includes re formulations, but also price discussions as well.

Speaker Change: In terms of pricing contribution over the course of 2025, we expect pricing to be relatively consistent will reach each of the four quarters as we go forward.

Speaker Change: The next question is from the line of Patrick Cunningham with Citigroup you May proceed.

Eric Zhang: Hi, Good morning. This is Eric Zhang on for Patrick You mentioned last quarter about getting functional ingredients to 15.

Eric Zhang: <unk> plus margins in the coming years are you on track for this margin expansion, giving the pricing actions and what are the cost and productivity initiatives savings underpinning this growth. Thank you.

Speaker Change: Thanks, Eric we are on track towards this target.

Speaker Change: And we made very good progress and if you'll recall in 2023, we talked about high single digit EBITDA margins in food ingredients and 2024, we achieved solid.

Speaker Change: So double digits margins EBITDA margins.

Speaker Change: And I would say under the new leadership of Andy Mueller with with a strong team.

Speaker Change: We are confident in our plans to get to the mid teens in the next few years and we're doing that with a combination of better serving customers so growing our business with attractive margins.

Speaker Change: And driving aggressive productivity plans.

Speaker Change: Both are making progress.

Speaker Change: Andy has a strong background in this business and is helping the team to further strengthen those plans and the execution of those plans. So we are on track.

Speaker Change: Thank you.

Speaker Change: The next question is from the line of Lisa de Neve with Morgan Stanley You May proceed.

Speaker Change: Hi, I think you can use it for.

Speaker Change: Taking my question I have a question on free cash flow can.

Speaker Change: And also more in the lights of the limited leveraging we've seen the second half of this year, which clearly will have true first farm, but just the underlying business would be helpful.

Speaker Change: A small second question I guess on slide <unk>.

Speaker Change: You've now been with the company <unk> for over a year I mean.

Speaker Change: Is there any intention to set new mid term targets given you keep referring in your presentation towards the next three years, we're driving improvement.

Speaker Change: Are you willing to set any financial targets against that thank you.

Speaker Change: Yeah.

Mike: Thank you, Mike maybe Eric I'll start on the first one.

Speaker Change: Perfect ill start on free cash flow and then I'll pass it back to you.

Speaker Change: In terms of the full year for 2025, we expect free cash will be about $500 million.

Speaker Change: Note that this does include a significant impact of taxes related to the former divestiture, so thats about $350 million.

Speaker Change: As our estimate at this point in time, if you adjust for that our free cash flow will be about $850 million, which is kind of consistent to the last couple of years, but more importantly, an improvement versus where we finished 2024 in terms of net working capital we are targeting a slight inflow versus an outflow in 2024.

Speaker Change: And this is really driven by the work that we're doing around payables and selective strategic inventory reductions.

Eric Zhang: As we stated on the call we expect capex to be about 6% of sales and this is really around increasing investments to catch up on some deferred spend Eric mentioned moments ago specifically.

Eric Zhang: Putting reagents also to make some growth investments and so capacity expansion, new technologies and <unk> be some commercial space facing operations forward and said and then lastly, really start to drive the migration of our digital transformation and so those are the biggest drivers from a from a capex.

Eric Zhang: Piece of it.

Eric Zhang: So maybe Eric I'll turn it over to you for the second part of question.

Eric Zhang: Yes, so in terms of long term targets.

Eric Zhang: We've separated nourish into taste and food ingredients, two very different businesses with different strategies.

Eric Zhang: <unk> got a strong team a clear five year plan and clear investment plan with both growth investment and driving productivity.

Eric Zhang: Thank you.

Speaker Change: The next question is from the line of Steve Byrne with Bank of America. You May proceed.

Steve Byrne: Yes. Thank you.

Speaker Change: Curious how would you characterize the potential impact on your businesses, where perhaps some regulatory approvals from RFK.

Speaker Change: Now ill run the HHS and the staff cuts at FCA.

Speaker Change: Any near term impacts from that and then Eric you mentioned new investments in biotechnology in R&D.

Speaker Change: I assume that that could.

Speaker Change: It includes the use of gene editing for.

Speaker Change: Natural product expression levels et cetera.

Speaker Change: Do you think RFK could block this.

Speaker Change: But first of all thank you, Steve we don't see any of our products as targets.

Speaker Change: In fact, what we do see is that many of our customers may reformulate products to have cleaner labels, which by the way it plays into our strengths and we've been making very good progress with customers that are working on cleaner labels, which has been a great growth opportunity for us already and we see that as it.

Speaker Change: <unk> opportunity going forward.

Speaker Change: In terms of biotech R&D I think there is lots of opportunities in many areas.

Speaker Change: And youll be hearing more about that at Cagny, we're going to talk specifically about our biotech.

Speaker Change: Platform, and we see that as having opportunities in scent taste, but also in the current areas that we're playing in and other areas with our D. B design enzymatic biomaterials, which plays right into the heart of what the world wants consumers want and our customers want the world wants.

Speaker Change: And biodegradable materials that are sustainable and sustainably grown sustainably produced so I see this as.

Speaker Change: Okay.

A bit of uncertainty about what will happen when but the general direction I see it is significantly more opportunity than risk.

Speaker Change: Thank you.

Speaker Change: The next question is from the line of John Roberts with Mizuho you May proceed.

John Roberts: Thanks, and first congrats Michael.

John Roberts: Back to raw materials, how much of Iff's raw material spend is potentially exposed to tariffs here.

John Roberts: And should we only be thinking about an important.

Imported materials into the U S or do you worry about something reciprocal so it's more than just a U S issue.

John Roberts: Hey, Thanks, John I appreciate that very much.

John Roberts: In terms of the tariff situation is ever evolving.

John Roberts: <unk> on a constant basis, when we assess the various situations or potential situations. We do not expect to have a material impact from any any any any tax change as you know John we have an expansive and global supply chain, which provides us with a lot of flexibility to adapt so should things change, we're working with our customers to make sure.

John Roberts: We mitigate that to the fullest we lived through this a couple of years ago and this administration's first term and so similar to that approach. We've taken is that we're going to work with our customers, our mitigation strategies and including price surcharges as appropriate but that will become a secondary methodology to it the focus has really seen what we can.

John Roberts: On supply chain to mitigate a lot of our exposure again in material in nature more to come as things develop and we'll keep we'll keep you updated.

John Roberts: Okay.

Speaker Change: The next question is from the line of Mike <unk> with Wells Fargo. You May proceed.

Speaker Change: Hey, good morning, nice end of the year and congrats to you Mike.

Speaker Change: Eric but the year on year about.

Speaker Change: I understand you might want to wait a little bit, but where do you think iff's ebitdas should get over time, it's expected to be a pretty big number when you bought it and be above.

Speaker Change: But with divestitures.

Speaker Change: Framework, where it could be and then and just maybe stepping back a little bit.

And then b.

Speaker Change: Do you think this is a good business for ISS.

Speaker Change: Longer term.

Speaker Change:

Speaker Change: What are the risks because certainly it had a little bit it certainly had a tough time on the get go but what are the risks to the business.

Speaker Change: And maybe just talk about where what parts of the business now fit really well with our have good synergies with the legacy Iff's. Thank you.

Speaker Change: Sure. Thanks, Mike for the question.

Speaker Change: With our current portfolio over time is getting to the low twenty's EBITDA margin.

Speaker Change: With food ingredients being the most challenged and health and biosciences being the highest in scent and taste being very solid.

Speaker Change: And as I look at it.

Speaker Change: We.

I came to the company a year ago. There was a lot of complexity a lot of poor performance challenges.

Speaker Change: Very strong scent and taste teams and businesses.

Speaker Change: Within that period.

Speaker Change: With the leading benchmarks food.

Speaker Change: Food ingredients is still a turnaround situation low single digit EBITDA margins in 2023.

Speaker Change: Low double digit EBITDA margins in 2024.

Speaker Change: Andy Miller and his team are absolutely focused on continuing that turnaround and getting those margins up significantly this year as another point of progress.

Speaker Change: And I'm confident in that team to make that happen.

Speaker Change: So I think that.

Speaker Change: Our focus right now is delivering 2025.

Speaker Change: But doing it in a way that we make smart investments that have good returns and get us increasingly competitive.

Speaker Change: And and deliver.

Speaker Change: What we say we're going to deliver.

Speaker Change: And I think we're on good track to make that happen.

Speaker Change: Thank you. Thank you.

Speaker Change: The next question is from the line of Kevin Mccarthy with vertical Research partners you May proceed.

Matt: Hi, This is Matt on for Kevin Mccarthy.

Matt: Can you help us to understand why the FX headwind to EBITDA is 2% higher than the impact on sales.

Matt: How do your margins on international business compare to U S domestic margins.

Hey, Matt.

Matt: I'll take this one and thank you for the question in terms of the incremental impact on EBITA relative to sales.

Matt: Keeping buyer purchases our sales are based in local currency, while large reported a portion of our input costs are denominated in Euro U S dollar and so essentially that's what's driving.

Matt: That's kind of multiplier effect between sales piece of it.

Matt: The EBITDA contribution.

I think your second question was around margin structure globally internationally versus domestic operations.

Matt: It's actually pretty agnostic in pretty constant the real differential comes when you compare the category exposures and so just let me give you. An example in EMEA you.

Matt: You had the strongest margin profile, just given the exposure to fine fragrance, while India, you'll have a lower margin profile just because the portfolio is geared towards savory as an example, so really when you look at it on a kind of a like for like basis, adjusted adjusting for the portfolio you're pretty agnostic.

Matt: Margin aspect of it it really comes down to the category per.

Matt: Percentages within each one of them.

Matt: Thank you.

The next question is from the line of Mike <unk>.

Matt: <unk> from Stifel. You May proceed.

Speaker Change: Yes, thanks, good morning, everybody.

Speaker Change: The ladder and then Eric.

Speaker Change: You had talked about prioritizing best in class margins compared to sales growth Youre, obviously accelerating investments I guess with flexibility in early 'twenty five in terms of the wrap around reinvestment.

Speaker Change: Maybe talk a bit about how you manage the two and if you want to sit there and try to think about prioritizing one versus the other you. How quickly can you get to the margins versus how quickly can you get to a run rate sales growth to growth at least in line consistently with peers. Thank you.

Speaker Change: Mike you want to start and then I'll take the second half.

Speaker Change: Sure. Thanks, Mark for the question when you look at the portfolio that we have.

Speaker Change: Categorized as you basically have one third global customers, one third kind of mid sized and one third smaller local customers, including some of the private label aspects and so when you look at the dynamics across there.

Speaker Change: Global perspective, the growth, it's a little bit more muted than you see at some of the kind of regional local including private label customers and so for US a big part of the focus on I'll give an example on the <unk> strategy is really to prioritize private label and smaller customers as we go forward and so that dynamic that growth that you're referencing.

Speaker Change: Mark It's true the good thing is that there's still a lot of growth opportunities at the big global customers. That's much more geared towards new innovation and what we can do to help them have winning products are consumer preferred products in the market.

Speaker Change: So on the second half of <unk>.

Speaker Change: <unk>.

Speaker Change: Yes on the second half of the question.

Speaker Change: We want to continue to work towards best in class margins and growth rates.

Speaker Change: No.

Speaker Change: I would say is.

Speaker Change: Track us on how we're doing to have growth rates in line with the best in class.

Speaker Change: And gross margins that are improving.

Speaker Change: And EBITDA margins that may improve a little bit slower because of our investments our aggressive investments in research, particularly but also in commercial investments.

Speaker Change: In health and Biosciences.

Speaker Change: Taste and scent.

Speaker Change: And let me just give you. An example in 2024, we had nice margin improvements, but we could have delivered even more EBITDA and higher EBITDA margins. If we wouldn't have made additional investments beyond what we had planned particularly in research and commercial capabilities.

Speaker Change: So what we're going to do is continue to make progress, but probably not as fast a progress on EBITDA as we could if we werent, making these additional investments, but the investments that we're making we are absolutely sure that in the next three years, we will have a very attractive payout and will strengthen us.

Speaker Change: Against our best in class competitors, and we're absolutely committed to becoming leaders in innovation across these businesses.

Speaker Change: Health and Biosciences taste and scent, while we continue to turnaround the food ingredients business.

Speaker Change: Thank you.

Next question is from the line of Kay <unk> with Barclays. You May proceed.

Speaker Change: Thanks, Justin.

Speaker Change: Couple of questions on the scent business I was wondering why fragrance ingredients growth was so strong this quarter up double drops off.

Speaker Change: And how we should be thinking about growth for 2020 by this there is some pricing pressure on the business and then on fine Fragrances. We were wondering what your expectation is for growth.

Speaker Change: Next year, and if you expect a little growth in fine can you on the road. Thank you.

Speaker Change: Mike do you want to Florida, I'm happy to start.

Speaker Change: I'll start on this one and then and then pass it over to you for more comments look the team has done a fantastic job in the fragrance ingredients business. They really looked at their portfolio. When you look at that portfolio, there's really high value ingredients and I would say more general kind of industry led.

Speaker Change: And so what they did they bifurcated and we've targeted the market to go after some of the high high value ingredients and so what we've seen over the course of this year and 2020 for my apologies in 2020 for performance has been strong.

Speaker Change: As you've noted Katy.

Speaker Change: <unk> had some good success there in 2024 and 2025 I think youll see the growth start to subside a bit obviously that is a business that's going to be driven by the end market consumption and so as you go forward from here I think the team has some good volume growth, but they will have some reduction in overall price because.

Speaker Change: Some of the <unk>.

Speaker Change: Deflationary environment that we've seen in.

Speaker Change: In the fragrance ingredients market overall, but they are working through that I think their long term strategy is very very strong and I think it still can be a growth driver as we go forward. It's just managing the next couple of couple of quarters in terms of overall growth.

Speaker Change: Fragrance fragrance ingredients on the fine fragrance side, the business is performing very very well and so I.

Speaker Change: I think it finished the quarter at high single digit growth rates on a two year basis, it's kind of in the mid mid single digit basis kind of factor in the year ago comparable and so very very strong based on the access to business and new wind potential that they had they expect growth to continue into 2020.

Five and be one of the areas that will lead <unk> in terms of overall growth and thats really around the strategy. They have in some of the emerging markets like the Middle East Africa, and winning some of the core businesses and brands that are in Europe, and North America.

Speaker Change: Thank you the only thing I would add anything else you yeah.

Speaker Change: The only thing I would add is that I think overall the dynamics for that business are favorable and for the industry.

Speaker Change: Both the consumer goods.

Speaker Change: <unk> companies.

Speaker Change: Are putting more emphasis on <unk> as a driver of superiority for their products, whether it's shampoo body wash.

Speaker Change: Laundry detergent et cetera, all of our products that is a critical element of superiority and a low part of the cost product cost. So I think thats going to continue and consumers love to have great sense in their products I think on the fine fragrance that digital media and the desire to have <unk>.

Speaker Change: Experiences through the day, not just an evening.

Speaker Change: For a woman wants she's going out but.

Speaker Change: People of all ages of both sexes increasingly wanting fine fragrances to enhance their day, whether it's.

Speaker Change: Whether it's.

Speaker Change: And energizing.

Speaker Change: That makes you feel more energy, whether it's a relaxing sent whether it's a romantic sent these these emotional drivers that are being expanded upon our being being talked about.

Speaker Change: By people like Charlotte Tilbury on digital media are helping to expand the market for fine fragrances all around the world.

Speaker Change: The general.

Speaker Change: Direction of growth for the industry continuing to be very positive.

Speaker Change: And we are.

Speaker Change: Taking advantage of that.

Speaker Change: Thank you.

Speaker Change #100: The next question is from the line of Kelly from Jpmorgan You May proceed.

Speaker Change #100: Hi, good morning.

Speaker Change #100: I have another peeling back the onion question.

Speaker Change #100: In.

Speaker Change #100: And nourish you have here.

Speaker Change #100: Flavor and taste business, maybe that's like $2 5 billion in size and then there's the functional ingredients business, which is great.

Speaker Change #100: <unk> 3 billion in size. So if you fund your ingredients business.

Speaker Change #100: Smaller one grow slowly maybe grows 1% they could take business really has to grow something like 5% to get to that to get to the midpoint of the organic growth, which is two and a half percentage is that the way to think about like just.

Speaker Change #100: Much higher growth case, maybe closer to mid single digits and theyre slow growth and.

Speaker Change #100: In functional fragrances and having some of.

Speaker Change #100: Question for the health and Biosciences business, which I think maybe.

Speaker Change #100: But that's the enzymes and maybe 45% into probiotics.

Speaker Change #100: Is it a similar dynamic where you think youre enzyme dramatic business is going to grow more like mid single digits and probiotics.

Speaker Change #100: At a very low end.

Speaker Change #100: My question to start with.

Speaker Change #100: Yes.

Speaker Change #102: I'll start that so first maybe let me just start with the flavors our taste business.

Speaker Change #102: It is youre absolutely right. The way I think about $6 billion $2 5 billion is going to be pay side $3 5 billion food ingredient side.

Speaker Change #102: Flavors, our taste side of the business has been running very very strong and so their performance over the course of the year. If you see it's basically at four quarters of very strong double digit growth.

Speaker Change #102: As you go into 2025 I think.

Speaker Change #102: Taste business growth will more normalize relative to what I say historical averages just because the comp is strong and so that is going to be a big piece of the equation in terms of growth for the total company.

Speaker Change #102: Food ingredients will be a little bit more muted as somewhat volume games are going to be offset by a little bit of price reductions that are associated with deflation and so to your point you have to grow disproportionately faster on the taste side. The one X factor caveat is that in the rest of the business, we expect growth and so that's making it up and it has actually taken us.

Speaker Change #102: Into what I would say a better trajectory.

Speaker Change #102: 2025, overall and offsetting some of the food ingredients softness that we have year over year in terms of total topline growth.

Speaker Change #102: In <unk> B.

Speaker Change #102: With respect to enzymes probiotics subcategory levels I think broadly speaking all of the businesses are targeting kind of modest growth year over year. The health business. The one area on the probiotics side that has been a little bit of a pain point to be very Frank over the last couple of years is expecting to recover a bit as we go into 2020.

Speaker Change #102: Five as well so that will help us.

Speaker Change #102: Help us both from a top line perspective, but it's also accretive from a margin.

Speaker Change #102: FX as well.

Speaker Change #102: So first back to you.

Speaker Change #102: Thank you.

Speaker Change #102: Question is from the line of Alliance Alexander with Jefferies. You May proceed.

Speaker Change #103: Hi, This is Dan Rizzo on for Laurence Thanks for fitting me in just to kind of revisit tariffs from the tariff issue, but just from a little bit of a term perspective.

Speaker Change #103: I was just wondering what your customers are saying their near term impacts might be on order patterns and how you should think about where margins are IC should be in three to five years.

Speaker Change #104: Can you can you repeat that second part of the question I'm not sure I heard the second one.

Speaker Change #103: The second one is just how do you think where margins and our ROIC should.

Speaker Change #104: It should be in three to five years.

Speaker Change #103: Perfect.

Speaker Change #105: From a customer standpoint, I know you've engaged a lot from our customers have you.

Speaker Change #105: What I would say is if you.

Speaker Change #106: Listen to the customers calls.

Speaker Change #106: They're they're very conservative about volume growth.

Speaker Change #106: I think it's not it's separate from tariff issues, but tariff issues make people concerned about the economy.

Speaker Change #106: With the uncertainty today, I think that uncertainty will hopefully get cleared up in the not too distant future and we will get back to a more normalized growth.

Speaker Change #106: But I think.

Speaker Change #106: What our customers what we're hearing from our customers, which is really important.

Speaker Change #106: Is that they expect volumes to be soft and therefore, they want to grow with innovation.

Speaker Change #106: And that's increasing the opportunity for us to work with them to deliver that innovation that excites.

Speaker Change #106: Consumers that drives their products and by the way drives value in their products as well. So I think that's very positive, but anything to add to that specifically on tariffs Mike.

Mike Sison: No I think Thats I think thats, good covered well I think the second point.

Mike Sison: Just on the margin ROIC evolution of Liza for next three years I think Eric addressed it before the simple answer is higher.

Mike Sison: On both I think for US, we're making a concentrated effort really on return on invested capital as we go into 2025, and so we're making a big investment.

Mike Sison: In terms of both carryover and reinvested incrementally.

Mike Sison: This year, but the reality is as we go forward, we are being very diligent on how we're thinking about return on every dollar we put in the business. This is both opex and <unk>.

Mike Sison: On a capex basis, and so the team.

Mike Sison: Trajectory, we don't have a formal target yet and we will come back later in the year as Eric alluded to it but over time, we would expect improvements in terms of the margin piece of it but also return on invested capital.

Speaker Change #107: The next question is from the line of item Tomorrows with Great Alright, you May proceed.

Speaker Change #107: Hi, good morning, Thanks for taking my question.

Speaker Change #107: Follow up on that.

Speaker Change #107: Would you mind Carl.

Speaker Change #107: The breakdown by business.

Speaker Change #107: That's just it would be it would.

Speaker Change #107: Helpful. And then looking at you see the future some.

Speaker Change #107: Some of them.

Speaker Change #107: Hosting.

Speaker Change #107: Okay.

Speaker Change #107: Or could they potentially will be reviewed.

Speaker Change #107: Okay.

Speaker Change #107: I'll start and then Mike Please add anything first of all our health and Biosciences businesses on very solid ground today and it's been growing nicely in 2024, we grew I would say consistent with the leading benchmark.

Speaker Change #107: <unk> had strong solid growth across businesses the slowest growth.

Speaker Change #107: Still growing was the health business as Mike alluded to we expect that to start to increase again as we put more innovation into that business part of the business, but overall the dynamics are solid in all the different areas all of the different application areas. We have this new area and designed enzymatic biomaterials that we're in.

Speaker Change #107: Excited about we've started to get our first commercialization there that's going to add to the growth and we've got a lot of emphasis now on how do we turbocharge, our sense and our taste business with our biotech capabilities and we've got resources focused on that that'll take some time to get through but it's on a solid.

Speaker Change #107: Start and I am very very optimistic about health <unk> biosciences, and the near term, but even more so in the three to five year timeframe.

Speaker Change #109: Thank you. Thank you at this time, we will now take the last question from Christopher Parkinson from Wolfe Research you May proceed.

Speaker Change #109: Great. Thanks, Liz Harris Fein on for Chris Thanks for taking my question.

Speaker Change #111: So there's been a lot of active asset sales divestitures within food and nutrition over the past year I guess when you look at what's happened what is that price discovery mean to you in terms of maybe whether you can prune a little bit more from your portfolio.

And you also mentioned potential for small bolt ons I guess what are the implications for your M&A pipeline. Thank you.

Speaker Change #112: Yes, so first of all on our food ingredients business, Andy Miller's here he knows the business and depth. He spent many years within ESCO actually before iff's.

Speaker Change #113: He knows the industry very well he's working with his team to turnaround the total business and there are some pieces of it that may likely not fit long term. So we're working on that working through that.

Speaker Change #113: But we're looking at bolt on acquisitions as I referred to that specifically in health and biosciences more related to technologies.

Speaker Change #113: To further enhancing our technology breadth.

Speaker Change #113: And taste, which is more to enhance our geographic footprint.

Speaker Change #113: But we will only do bolt ons that make absolute sense that have good returns and that really fill strategic voids.

Speaker Change #113: But I think what the most important is to understand that we're focused on really driving the businesses that we have today and getting the pharmaceutical solution sale finished and continuing to execute really well this year.

Speaker Change #113: And I'll just finish all caught my closing remark is that I believe I joined the company excited about Iff's and even more excited today I believe we are much stronger than we were a year ago and I believe we will be much stronger a year from now thanks to our 22000 colleagues around the world that are now.

Speaker Change #113: I believe much more focused on serving customers with leading innovation, while we also drive productivity.

Speaker Change #113: And I would suggest if you.

Speaker Change #113: If you know <unk> employees talked to Iff's employees talked to our customers ask them about it we've got positive momentum and we're going to continue to build on that positive momentum and we're going to deliver what we say we're going to deliver in 2025, but we're going to do it in a way that further strengthens us for 26 and beyond.

Speaker Change #113: And then the three year period, I think you'll find us very competitive with the leading competitive.

Speaker Change #114: Competitive benchmarks. Thank you.

Speaker Change #114: Thank you all at this time this will now conclude today's Ias Q4, FY 2024 earnings Conference call. We appreciate your participation and hope you all have a wonderful day and you may now disconnect your line.

Q4 2024 International Flavors & Fragrances Inc Earnings Call

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