NYSE:IFF International Flavors & Fragrances Q4 2023 Earnings Report $74.30 -4.90 (-6.19%) As of 02:22 PM Eastern This is a fair market value price provided by Polygon.io. Learn more. Earnings HistoryForecast International Flavors & Fragrances EPS ResultsActual EPS$0.72Consensus EPS $0.75Beat/MissMissed by -$0.03One Year Ago EPS$0.97International Flavors & Fragrances Revenue ResultsActual Revenue$2.70 billionExpected Revenue$2.70 billionBeat/MissBeat by +$4.14 millionYoY Revenue Growth-5.00%International Flavors & Fragrances Announcement DetailsQuarterQ4 2023Date2/20/2024TimeAfter Market ClosesConference Call DateWednesday, February 21, 2024Conference Call Time9:00AM ETConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Annual Report (10-K)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by International Flavors & Fragrances Q4 2023 Earnings Call TranscriptProvided by QuartrFebruary 21, 2024 ShareLink copied to clipboard.There are 15 speakers on the call. Operator00:00:00At this time, I would like to welcome everyone to the IFF Fourth Quarter and Full Year 2023 Earnings Conference Call. All participants will be in a listen only mode until the formal question and answer portion of the call. I would now like to introduce Michael DeVoe, Head of Investor Relations. You may begin. Speaker 100:00:42Thank you. Good morning, good afternoon and good evening, everyone. Welcome to IFAV's Q4 and full year 2023 conference call. Yesterday afternoon, we issued a press release announcing our financial results. A copy of the results can be found on our IR website at ir. Speaker 100:00:57Iff.com. Please note that this call is being recorded live and will be available for replay. Please take a moment to review our forward looking statements. During the call, we will be making forward looking statements about the company's performance and business outlook. These statements are based on how we think things today and contain elements of uncertainty. Speaker 100:01:16For 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 ks and press release, both of which can be found on our website. Today's presentation will include non GAAP financial measures, which exclude those items that we believe affect comparability. A reconciliation of these non GAAP financial measures to their respective GAAP measures is set forth in our press release that we issued yesterday. With me on the call today is our CEO, Eric Fearwalt and our Executive Vice President and Chief Financial and Business Transformation Officer, Glenn Richter. We will begin the prepared remarks and then take any questions that you have at the end. Speaker 100:01:57With that, I would now like to turn the call over to Eric. Speaker 200:02:01Thank you, Mike, and hello, everyone. I'm excited to join you all today. I would like to begin by sharing some initial perspectives since joining IFF. I will then turn the call over to Glenn, who will provide a look at the Q4 and full year 2023 financial results before providing commentary on our current outlook for the full year 2024. After that, we'll open the call for Q and A. Speaker 200:02:27Now I officially joined IFF on February 6 and I have been impressed by the world class teams globally and the strong innovation across our company. I spent the last few weeks visiting our operations and teams in some of our U. S. And overseas businesses. I spent that time listening to our teams, meeting many of our customers and assessing the current status of our businesses. Speaker 200:02:52IFF has a proud history as a global leader in high value ingredients and solutions and a great platform from which to build and expand our partnerships with customers across the value chain to help them create leading consumer products. I believe in our purpose to help create a better world through science and creativity applied to sustainably meet customer and consumer needs. The opportunity we have ahead of us is very big and that is why I joined IFF. We have solid businesses and we'll take the actions needed to unleash our full potential to start to deliver profitable market share gains by bringing great innovation to win with our customers. A perfect example of this is in our scent business, where we have been outperforming competition, something we must do also across our other businesses. Speaker 200:03:53IFF also has other high quality businesses such as flavors and health and biosciences, where we will leverage our innovation to deliver higher growth rates with very attractive profitability. And in some of our challenged businesses, such as functional ingredients, with focus and attention, we can significantly improve performance. In both instances, we will do so by putting the business first, eliminating unnecessary processes and overhead, driving empowerment and strong leadership. And by doing so, IFF will be a more innovative and customer centric organization that will be effective and efficient. We also must be better executors, focus the IFF team away from distractions to continuously grow market share across all our businesses, put more of our investments into our high return businesses and transformative R and D initiatives and our IT infrastructure and achieve our capital structure targets by reducing outstanding debt. Speaker 200:05:04And when we do this over time, I see strong upside and value creation for all IFF's stakeholders. Moving to the next slide, I'll walk through the achievements and factors that marked IFF's progress through the Q4 and full year 2023. Now throughout the past year, IFFers have continued to take important steps to strengthen our financial and operational foundation and position this company to deliver value for the near, mid and long term. Our performance in the 4th quarter demonstrates progress. While reported sales were down, comparable currency neutral sales increased 1% and comparable currency neutral EBITDA grew 17% with an adjusted margin expansion of 2 60 basis points. Speaker 200:05:59We've also seen notable improvements in volume trends across the majority of our business segments in the second half of the year, enabling us to perform within previously stated guidance ranges for full year 2023 sales and adjusted operating EBITDA. Now with this progress and the improving performance through the second half of twenty twenty three, we exited the year on solid footing and we are optimistic about our ability to build on this momentum and are targeting getting back to year on year growth for the full year 2024 while strengthening for 2025 beyond. Now as I said earlier, we are committed to reducing our level of debt. We have therefore announced an update to our dividend policy to reduce the quarterly dividend by approximately 50% to $0.40 per share. This is not a decision the Board and management have taken lightly as we know the dividend is important to shareholders. Speaker 200:07:04However, it will enable us to reduce debt faster, strengthening our capital structure, which will create additional long term value. This will also give the company greater financial flexibility, which will when required give us the ability to make more high return growth investments. I'll now turn it over to Glenn. Glenn? Speaker 300:07:29Thank you, Eric, and hello, everyone. Moving to Slide 7, as Eric mentioned, the Board and management have taken this opportunity to accelerate the improvement of our capital structure as we work towards our deleveraging target of 3x net debt to credit adjusted EBITDA. Consequently, we reduced our quarterly dividend to $0.40 per share. We believe this dividend change provides a dividend yield that is consistent with industry peers and is aligned with IFF's long term cash flow generation and target payouts. The dividend remains an important part of our capital allocation framework and we expect this new base to grow alongside our profit over time. Speaker 300:08:10IFF remains committed to providing competitive returns to our shareholders and firmly believes that these actions set us up for more durable value creation in the long term. Now on Slide 8, as Eric mentioned, our performance for the 4th quarter reflects the operational and strategic initiatives that our team has implemented over the last several months to deliver strong results amid an uncertain operating environment. Despite some continued challenges in the market, volume trends continue to improve sequentially with increases in nearly all businesses, resulting in growth for total IFF. IFF generated $2,700,000,000 in sales, representing a 1% increase in comparable currency neutral sales. This improvement reflected strong growth in our scent business with continued volume pressure in Nourish and Pharma, both impacted by destocking. Speaker 300:09:05Volumes continue to improve sequentially from down mid single digits in Q3 to down low single digits in Q4. And if excluding the impact of functional ingredients, volumes for the 4th quarter would have increased low single digits. Adjusted operating EBITDA totaled $461,000,000 in the 4th quarter, a 17% increase on a comparable currency neutral basis. We also realized a year over year increase of approximately 2 60 basis points to our comparable currency neutral adjusted operating EBITDA margin. This growth in EBITDA was supported by both internal steps IFF has taken, including continued gains and efficiencies from our productivity initiatives and favorable net pricing. Speaker 300:09:55Before moving on, I wanted to share that we recorded a non cash goodwill impairment charge of $2,600,000,000 for the 4th quarter related to our Nourish business. The primary drivers of the goodwill impairment are related to lower business projections due to volumes declines mainly in functional ingredients, continued cost inflation and unfavorable foreign exchange rate fluctuations. Now moving to Slide 9, taking a closer look at our profitability performance for the Q4, we delivered $461,000,000 which equates to a robust comparable currency neutral adjusted operating EBITDA growth of 17%. I'm happy to report that in Q4, IFF realized strong productivity gains and in conjunction with favorable net price to inflation helped us overcome ongoing volume pressures to deliver against our objectives. Importantly, IFF has remained focused on executing upon our productivity program to improve our operational effectiveness and efficiency. Speaker 300:11:01In 2023, we continued to launch additional steps as part of these programs while also making strategic investments in key growth areas. Now on Slide 10, I'll provide a closer look at our performance by business segment during the quarter. In Nourish, sales declined 3% on a comparable currency neutral basis as strong growth in flavors was offset by continued softness in functional ingredients. While functional ingredients remained the main driver of weakness for Nourish in the quarter, it is worth noting that we again saw meaningful sequential improvement. In terms of profitability, the positive impact from our ongoing pricing actions and productivity initiatives drove improvements and led to a 3% increase in comparable currency neutral adjusted operating EBITDA. Speaker 300:11:53Health and Biosciences continues to show robust top and bottom line growth. Price increases, volume growth and productivity gains led to growth across most H and B business segments led by double digit growth in health. Overall, H and B delivered a comparable currency neutral sales increase of 5% year over year and a 35% year over year increase in comparable currency neutral adjusted operating EBITDA. Our scent segment continued to deliver a very strong performance in Q4, including 11% growth in comparable currency Like Health and Biosciences, scent also saw significant growth in adjusted operating EBITDA increasing 34 percent on a comparable currency neutral basis driven by favorable net pricing, volume and productivity gains. While pharma solutions experienced significant pricing and productivity gains, these improvements were offset by lower volume, driven primarily by continued destocking trends as well as strong year ago comparison. Speaker 300:13:09This led to comparable currency sales declining 10% and comparable currency neutral adjusted operating EBITDA declining 13% in the quarter. Turning to Slide 11, I'll discuss our progress improving our cash flow and leverage positions. In the Q4, cash flow from operations totaled $1,440,000,000 a significant increase from the previous year, reflecting the strong improvement in inventory levels. CapEx for the year was $503,000,000 or approximately 4.4 percent of sales. Our progress on working capital improvement led by an intense focus on rightsizing our inventories helped enhance our free cash flow position, which saw a sequential increase of over $500,000,000 totaling $936,000,000 for the full year and ahead of expectations. Speaker 300:14:06Included in our free cash flow is about $430,000,000 of costs, primarily related to integration and transaction related items. We also delivered $826,000,000 in dividends to our shareholders in 2023. Our cash and cash equivalents totaled $729,000,000 dollars including $26,000,000 in assets held for sale in Q4. Additionally, we realized a 200,000,000 sequential reduction in gross debt, which totaled approximately $10,100,000,000 for the quarter with a net debt to credit adjusted EBITDA of 4.5 times. Our trailing 12 month credit adjusted EBITDA totaled approximately 2,100,000,000 With the announced sale of our Lucas Meyer Cosmetics business, which we still expect to close in the Q1 of 2024, the rightsizing of our quarterly dividend and additional portfolio actions we are planning to make, we are taking decisive action to strengthen our balance sheet and achieve our leverage targets. Speaker 300:15:15On Slide 12, I'd like to now turn to our outlook for 2024. Due to a combination of improvements across our business and in the broader market toward the tail end of 2023, we are cautiously optimistic about the year ahead. For the full year 2024, we expect sales in the range of $10,800,000,000 to $11,100,000,000 This reflects our prudent approach to volume expectations and the impact of modest negative pricing in 2024, which is largely isolated to more price competitive categories such as functional ingredients and fragrance ingredients given lower input costs and competitive dynamics. We expect overall pricing to decline approximately 2.5% in 2024 following a 10% increase in 2022 and a 6% increase in 2023. Strategically, we believe this will position us to be more cost competitive in the market and allow us to regain market share in select businesses. Speaker 300:16:18In terms of volume, the visibility to the degree and pace of the recovery remains a bit fluid and has been explicitly incorporated in our 0% to 3% range. The most significant variable impacting this range will be the pace of recovery in functional ingredients. However, this is a marked improvement from 2023 where we finished down mid single digits and 'twenty two we were down low single digits as we believe our industry will return to more normalized growth rates. On the bottom line, we expect to deliver full year 'twenty four adjusted operating EBITDA between $1,900,000,000 $2,100,000,000 dollars Our guidance assumes not just improved volumes from 2023, but also solid profitability and a margin expansion across our segments. We are hyper focused on continuing to execute our productivity initiatives to help mitigate expected inflation, primarily labor costs and incentive compensation reset, while continuing to reinvest in the higher return businesses. Speaker 300:17:25It's also worth noting, we have some benefit of one time items such as the negative impact in 2023 from the inventory reduction program and the previously announced write down of inventory related to locust bean kernel or LBK that will not repeat in 20 24. In particular, there was an approximately $130,000,000 impact from negative absorption in 2023 related to our inventory reduction program and some volume declines, which is down from an estimated $165,000,000 we provided in the Q3. A portion of this will be offset by higher annual incentive compensation expense as we reset our payout to target levels in 2024. While there's still work to do, efforts to bolster our financial profile and portfolio are providing effective and while it's hard to predict the timing and details of the market recovering and its impact on our results, we see opportunity for improvement in 2024 with all divisions targeting better volumes with improvements in profitability and margin expansion across all four divisions. For the Q1, we expect sales to be approximately $2,700,000,000 to $2,800,000,000 with an adjusted EBITDA of approximately $475,000,000 to $500,000,000 Throughout 2024, we will be relentlessly focused on our efforts to optimize our portfolio, improve financial performance and reach our deleveraging targets. Speaker 300:19:00I'm confident that the actions taken in 2023 and our outlook for improving performance in 2024 will position IFF to capture significant value creation. With that, I'll turn the call back over to Eric for closing remarks. Speaker 200:19:15Thank you, Glenn. I'm truly excited to be joining IFF during this transformative time for the company. I have long admired IFF as the category defining leader in the industry and it's an honor to be able to work alongside our talented global teams to help us navigate and even thrive at a critical moment for our company and our industry. Through robust efforts from our teams worldwide and shared commitment to putting the customer at the center of all we do, IFF will continue strengthening our commercial execution and become a more nimble and efficient organization. Our global teams made progress towards ensuring we can meet the evolving needs of our customers and deliver industry competitive returns and we will accelerate the progress going forward. Speaker 200:20:06While 2023 was a challenging year, our financial results in the Q4 highlight an improving trend. Based on this performance and some improving market conditions, we are expecting a return to volume growth this year, which should enable EBITDA growth and margin expansion. Our updated dividend policy and the additional divestitures we continue to work on reflects our commitment to improve our capital structure. While the global economic landscape is uncertain, IFF will be focused on strengthening our execution. And as I said, we have work to do to improve our businesses and achieve our vision, but I am confident we are well positioned to build on our progress and create sustainable value for all stakeholders in 2024 and beyond. Speaker 200:21:01I'd like to thank our teams and partners for welcoming me to IFF and look forward to seeing what we'll achieve in 2024. With that, I'd like to now open the call for questions. Operator00:21:15We will now begin the question and answer session. Our first question comes from the line of Ghansham Panjabi with Baird. Your line is now open. Speaker 400:21:45Hey guys, good morning. And Eric, first off, congrats on your new role. I guess my question is on your fiscal year 2024 EBITDA guidance and I'm hoping that you can sort of bridge on a year over year basis the differential between 2024 and 2023. And also Glenn highlight what changed relative to the variances you highlighted from your 3Q conference call back in November apart from just the fixed cost absorption you cited? And if you could also just give us a sense as to what the embedded volumes are by segment as it relates to the low single digit volume guidance for 2024? Speaker 400:22:16Thanks. Sure. Speaker 300:22:18Good morning, Ghansham. Easily done and a frequently asked question. So if you'll indulge me, I'll start with last year's results at 19.80. There are 2 adjustments to get that to a normalized basis. 1 is the divestitures, which you're aware of is a half a year of Savory Solutions and FSI and the LMC will be closed at the end of the quarter. Speaker 300:22:41So it's roughly 3 quarters of LMC. That's roughly $78,000,000 of normalized impact. And the other factor, which is the same basically we had discussed before, we also have included our updated view of foreign exchange. That's $50,000,000 reduction. I'm not sure that was previously discussed from a standpoint. Speaker 300:23:00So that gets to a like for like base of $18.50 dollars Our volume mix impact for this year is forecasted to be $170,000,000 positive. That is inclusive of the $130,000,000 of positive overlap on absorption. As we noted on our call, that actually came down as the Q4 volumes were higher from a production standpoint. So that was slightly different than we had guided. Our net price for the year is basically 0. Speaker 300:23:31That is inclusive of the $44,000,000 of LBK. So that's netted in that number. We can certainly talk more about the pricing dynamics this year. Then we have about a $35,000,000 reset for AIP, So that's a negative, but that's better than we thought. We thought that would be in the $70,000,000 range from a standpoint. Speaker 300:23:50So I think all of the one timers being absorption slightly lower, the negative reset on AIP is slightly lower, FX is new, and then the deals basically were all known. The last items are sort of wage inflation. That's about $120,000,000 and the productivity is about $150,000,000 in the P and L. So that's sort of consistent with our 3 year view. So that adds up to the midpoint of our range of $2,000,000,000 And then relative to the volume question, I think it's very simple to think about our view of this year. Speaker 300:24:26The functional ingredients, which is circa less than 25% of the business, we are projecting that to be relatively flattish for the year. All the other businesses actually have growth directionally in the 2% to 3% range on a full year basis, a little bit more slower in the beginning of the year and ramping up in the latter. But that's why we mentioned, as we think about that range of guidance, functional ingredients is the area that probably gives us the most pause and we've been the most cautious And that sort of is the difference between the high end of the 3% versus the net day, the 0% range. So hopefully that answers the question. Operator00:25:07Thank you. Speaker 200:25:07Next question. Operator00:25:09The next question comes from the line of Josh Spector with UBS. Your line is now open. Speaker 300:25:16Hi, good morning. Hi, Josh. So I just wanted to hey, so I wanted to ask on the dividend. So I think it's been pretty clear that it's been a pretty big use of cash for a couple of years now. So really the question is why was now the right time versus when you looked at that probably a year ago or maybe 2 years ago? Speaker 300:25:35And what does that mean as it relates to the divestment strategy or timing? Has anything changed as you think about what's next? Speaker 200:25:44So this is Eric. First of all, I wasn't here a year ago, obviously. But I did arrive on February 6, looked at our entire situation, talked to Glenn and his team, talked to the Board and made the decision to go ahead and cut the dividend now. I think it's a wise move in terms of our overall balance sheet efforts to get our balance sheet in great shape. And it doesn't impact the investment timing or strategy. Speaker 200:26:10We continue to work on our portfolio optimization, but obviously we're focused even more on working on strengthening the businesses, increasing our earnings and cash flow. Operator00:26:24Thank you. Speaker 200:26:25Next question? Operator00:26:26The next question comes from the line of Gunther Zechmann with AllianceBernstein. Your line is now open. Speaker 500:26:33Hi. And Eric, welcome back to the public markets as well. Eric, what are your priorities for this year? I appreciate you've only been in the role for a few weeks. But for this year and maybe also beyond when I think about the portfolio and the balance sheet, please. Speaker 500:26:52And in addition, how do you think about IFS mid term targets? And lastly, Glenn, what is your free cash flow guidance for 2024 please? Speaker 200:27:03Thank you, Gunther, and glad to be back in the public markets. My priorities for 2024, I say, our priorities for 2024 are to continue the portfolio optimization work and have that be part of improving our balance sheet. But again, more importantly, we're going to strengthen each business. We're going to make sure that each business is clear on how they can strengthen their customer focus to profitably grow market share, strengthen the R and D and innovation in each business so that we better delight customers with our innovation, so that we bring innovation that they value that we can grow our market share with them. And then thirdly, we're going to keep driving productivity and strengthening our productivity in each business unit and then also corporately. Speaker 200:27:50We want a very effective and efficient back office. What will reduce are the amount of engagement we've had with consultants, advisors and others that have caused us to be too internally focused. We're going to get back to focus on winning with the businesses by better serving our customers and our competition. In terms of how I'm thinking about the midterm targets, it's too early for me to comment, but I'll look at them with the team here and we'll do it by business and then we'll roll it up for the company and we'll get back to you in the not too distant future on that. But on the last one, Glenn? Speaker 300:28:27Yes. So, hey, good morning, Gunther. Our projected free cash flow for this year is $500,000,000 I would note that that's inclusive of an expectation of $100,000,000 of taxes for the sale of LMC and carryover for Savory and then another $100,000,000 for other restructure one time items. So there's $200,000,000 of Reg G, but net of the $200,000,000 we're at $500,000,000 full year free cash flow. Operator00:28:54Thank you. The next question comes from the line of David Begleiter with Deutsche Bank. Your line is now open. Speaker 600:29:03Thank you. Good morning and Eric, congratulations on new role. Eric, two things. First, comment on press reports that a sales process for Pharma Solutions is underway? And secondly, in addition, is 2 0.5% reduction in pricing you're forecasting in 2024 all the pricing you expect to give up versus the roughly 19% pricing you've achieved over the last 3 years on a cumulative basis? Speaker 600:29:29Thank you. Speaker 200:29:31I'll take the first one and Glenn you can have the second piece, because I'm not that familiar with the details at this point, but I'm getting into it. But in terms of any portfolio optimization, we're not going to comment on rumors. All I can tell you is we continue to work on portfolio optimization and we will not sell a business at a price that doesn't make sense, but we're looking at what does make sense for IFF and for our employees and any business that we might consider divesting. So with that, Glenn? Speaker 300:30:01Yes. Thanks. Good morning once again, David. As you point out, we've got 3 years of very significant pricing to reflective of the inflation environment of 18%, 19% cumulatively. 2.5% is all we're anticipating. Speaker 300:30:14That actually reflects sort of overall price decline. So as I mentioned, net price is sort of 0 in our P and L. It is highly concentrated in the functional ingredients and the scent ingredient space and we've been extremely surgical in terms of where we needed to give it back. And at this point, we're pretty much locked in to most of our pricing for the year at this point. So that actually feels like a pretty safe number relative to the plan. Operator00:30:40Thank you. The next question comes from the line of Lisa DeNeve with Morgan Stanley. Your line is now open. Speaker 700:30:49Hi. Thank you for taking my questions. So the question I have is twofold. I mean, how is ISAF positioned versus peers? I mean, does it expect to grow in line with the market, in line with its direct peers or believe that it's actually better positioned and this year, but also maybe more structurally? Speaker 700:31:06And next to that, how should we really think about delivery of the functional ingredients optimization and efficiency for this year? And I have a small follow-up on the pricing. So on the negative pricing in fragrance ingredients, have your customers come back for pricing here? And are your peers offering the same price reductions or comparable price reductions? Thank you. Speaker 200:31:27Thank you, Lisa. And I'll take the first part of that question. I've looked very hard at the data over the last 5 years and clearly we have underperformed as all of you know. We have pockets of strength. Scent is an example I mentioned in the opening comments. Speaker 200:31:44But we have some businesses that are challenged like Food Ingredients. What I can tell you is we're going to have each business be very clear on what is their strategy to win, how are they going to delight their customer set and make sure that we profitably grow our market share, How are we going to make sure that we have our innovation targeted at needs that customers value? And how are we going to make sure we're driving productivity? So each of the business end to end how do we drive the businesses. And as you know we've got strong businesses in great markets like our flavors and our fragrances or scent business, terrific businesses that should be able to fully compete with margins growth rates with Zhivadan and others. Speaker 200:32:32We've got a strong business unit in health and biosciences in great markets and we should be able to fully compete with margins and growth against Novanisis. In our challenged businesses, we've got very good markets in food ingredients and protein solutions and we should be able to be fully competitive with Kari and other food ingredient players. And we've got a very good business and very good markets with pharmaceutical ingredients and we need to be fully competitive with our ingredients set there, Ashland and others. So I don't we have not performed as a company across the company in the last 5 years like we should. In the next 5 years, we'll get back on track. Speaker 300:33:16Lisa, this is Glenn. Let me address your second question regarding functional green. As you know from past conversations, 2021, 2022, we had a number of missteps on our part that caused this business to step backwards. Since that, we've been working on basically 4 major items. One, getting service levels up to the right standard. Speaker 300:33:36I'm happy to say for the last year plus service levels have been at 95% -plus across all the business and across the entire globe. Secondly, and perhaps most importantly, is getting volume back on track, which is a combination of our sales execution pipeline. As we mentioned, that has dramatically picked up over the last year and getting our pricing right in the market. We just talked about that. We've been very smart this year of thinking about market by market, product by product, what makes sense to be competitive to win and retain business. Speaker 300:34:03We feel much better about that. The 3rd item has really been around sort of our general go to market strategy. And as Eric has mentioned, be much more focused across the ingredients team of making sure that they own the results. And lastly, it's cost. So we have been really focusing on all of the costs, but largely the 85% that sits in cost of goods. Speaker 300:34:24So it's SKU rationalization, raw material consolidation, manufacturing footprint consolidation, taking out fixed costs, etcetera. And we're making very good progress. We, a, are seeing successive improvements in volume quarter to quarter. Q2 last year was a low watermark. We're actually moving into sort of flattish as we start this year and we're also continuing to see good expansion in margins. Speaker 300:34:46So we have a lot of work to do as Eric mentioned, but we're beginning to see some progress in terms of what we've been doing. Thank you. Operator00:34:55Thank you. The next question comes from the line of Nicola Tang with BNP Paribas. Your line is now open. Speaker 800:35:03Hi, everyone. I just wanted to pick up on a few topics that were just asked by Lisa. On this pricing side, I was wondering if you could give a bit more detail on this expected price declines in functional ingredients and in fragrance ingredients and whether you could expand on your comment on competitive dynamics in these markets? And then in addition on the volume side, I was wondering why you don't expect more in terms of year on year volume improvement, bearing in mind, I mean, I guess, the headwind of destocking and shrinkflation that are clearly in the base in 2023? Thanks. Speaker 300:35:39Hi. Two very good questions. So on the pricing of our 2.5%, 80% of our downward pricing is concentrated in functional ingredients and the scent ingredients business. Those areas by definition are more commoditized. And in addition, those areas have seen some more meaningful deflation in terms of commodities. Speaker 300:35:59So it's natural. As I mentioned previously, we were doing a very good job of making sure we're competitive in the market by product, by region, and we feel good that, that 2.5% sort of is reflective of the environment. The second question regarding why are we not more optimistic? Honestly, we're just cautious. We're very cautious and prudent given the environment. Speaker 300:36:20The last year was extremely bumpy. We do believe that destocking for most of our business is largely behind us and we're seeing positive signs. But we need a couple of quarters of positive momentum, I think, and stabilization before we can move from cautious to optimistic. Operator00:36:38Thank you. The next question comes from the line of John Roberts with Mizuho. Your line is now open. Speaker 900:36:46And welcome back, Eric. A 2 parter, if I could. Is the functional ingredients business significantly different today than when you were at DuPont? Sounds like you think it's just more of a cyclical problem that can be addressed through productivity, but do you think there are structural changes you need to make there? And then your predecessor was targeting going from 4 segments to 3 segments. Speaker 900:37:07Have you gone back to the whiteboard to start over on those plans? Or was that nearing completion and there's Speaker 400:37:12just some fine tuning left to complete it? Speaker 200:37:16Thanks, John. And let me start with the first one. The makeup of our functional ingredients business is better than what it was when I had responsibility for that as part of agriculture and nutrition back at DuPont a number of years ago. But I so I believe our potential is significantly higher than it was then. I think that it's in a very good market. Speaker 200:37:37I think we've underperformed. And I think we've underperformed because we've been too internally focused. We've had lots of consultants. We've had lots of advisors talking about helping us to figure out what to do around synergies. And what I can tell you is I have been in these businesses for many, many years, these types of businesses. Speaker 200:38:02Functional ingredients business. How are we going to profitably grow our market share with customers by delighting the customers with our solutions approach, with our innovation and then do that in a productive way with our assets and our functions, very productive, We have the potential to significantly improve the performance of this business. I've spent time with our business leaders. I think they're headed in the right direction and we're going to further accelerate the progress and make sure that we profitably grow our food ingredients business and fully compete with our competitors, the leading competitors in food ingredients because we have so much value to bring customers. If we do it right, when we do it right, we'll have a very good business. Speaker 200:38:51And then in terms of the organization structure, no decisions today. But what I will tell you is I'm a big fan of business units that have end to end accountability and responsibility to drive all the levers of the P and L, making sure that everything we do is to delight customers, profitably grow our market share, but do it in a way that's efficient and effective so each business unit can win. And I find when business units are winning, all of a sudden synergies become clearer and become more powerful and easier to access. So we're going to ensure that our businesses are on the right track and that our synergies are additive to further strengthen each of our businesses. Operator00:39:43Thank you. The next question comes from the line of Kevin McCarthy with Vertical Research Partners. Your line is now open. Speaker 1000:39:52Yes. Thank you and good morning. Eric, welcome back. Glenn, two questions from my side, please. Your Health and Bio segment margin was the best in more than 3 years. Speaker 1000:40:05Can you just maybe rank order the drivers of the improvement there? And more importantly, is the 30% plus level sustainable into 2024? And then secondly, what are your input cost trends and the outlook that you're baking into your guidance for this year? Yes. Speaker 300:40:27So I think for the H and B had a very good year, and that was a result of a progressive improvement in volumes. As we noted, the Health business, one of our largest segments, actually had a very good Q4. Secondarily, productivity. So we've driven a lot of productivity across the business. And 3rd, really net price. Speaker 300:40:46So there's been, to your second question, a decline in input cost in that business as well. So that got us to the 30% range for the business. I did note on the call that we are anticipating HMB like all 4 of our businesses. That demonstrate both EBITDA growth and margin expansion this year. So we expect that to be the case for H and B. Speaker 300:41:08In general, our input costs, as I mentioned, are anticipated to be down this year. Energy is flattish at this point. Logistics are down and we're seeing some raw materials deflation. As a reminder, it takes about 4 months for a purchase to run through the balance sheet. So that's a positive momentum. Speaker 300:41:27That's a net zero, as I mentioned, for the overall enterprise for the year. So thanks for the question. Operator00:41:35Thank you. The next question comes from the line of Laurence Alexander with Jefferies. Your line is now open. Speaker 900:41:42Good morning. If end markets do not cooperate, can you provide more granularity on how you can delever in 2024 2025 in terms of reviewing business lines for Brexit, productivity relative to comp and so forth? And Erica, given your initial impressions on IFS operating culture and discussion around productive solutions, can you speak more to the mindset around productivity and R and D? Is it more about operational fixes? Or do you see structural or fill follicle issues around how the firm has targeted ROIC margins or profit growth? Speaker 300:42:20Yes, thanks. This is Glenn. I'll answer the first part of your question. In general, we're pretty cautious on our outlook on volume. So we're, as I mentioned, flattish to 3%. Speaker 300:42:31So we've been we haven't expected a giant recovery this year in our base case. So that's kind of the starting point. In the absence of that materializing, we have been very good at delivering productivity. As Eric mentioned in his opening comments, we are accelerating both ongoing efforts and we have additional efforts underway to take cost out that aren't reflected in the plan. So that would be my second comment. Speaker 300:42:53Relative to the deleverage, so that gives you some sense on the earnings profile and offsets if there's additional softness in the external market. The deleverage will largely be accomplished through divestitures. As Eric mentioned, we are on path. We feel very good in terms of our activities underway, and we do think we'll accomplish our targeted divestitures, which will be the biggest driver of achieving our deleverage goal. Speaker 200:43:18And then on your second question, Laurence, my initial impressions of IFF's capabilities are we've got really great people. We've got really great capabilities in each of our businesses and we have just underperformed. But there are pockets of examples where we are performing tremendously well that give me so much confidence that we can make this happen across the company. I spent time with the leadership of arguably the largest consumer products company in the world where we have a very strong relationship, very much innovation driven, their innovation people with our innovation people to make sure that the best consumer products are being developed. And we were meeting both with our scent teams our scent teams and their fragrance team and with our health and biosciences team and their consumer products teams. Speaker 200:44:12And it was the best relationship, the best dynamic that I've ever experienced in my 42 years of customer interactions. So when and then I had another interaction with the top management of a leading beauty care company in Europe And same thing, our people were working hand in glove with their people to create great, great consumer products that consumers love. So we can do it. We do it. We just need to do it more across the company. Speaker 200:44:45And I'm really excited by helping our teams stop being so internally focused, get more focused by business unit on winning with customers and then collaborate where it makes sense to enhance across our portfolio to bring even more to customers so that the customers win more and we win more. Now in terms of productivity, as Glenn mentioned, there are pockets there where we're doing very well, but there's more we can do on productivity. Ralph Finzel and his production team are really driving tremendous productivity in our operations And it's still early phase, but they're ramping that up very nicely. We've already had efforts in back office productivity for our corporate functions. That's going okay, but we're going to accelerate that. Speaker 200:45:31You'll see more shared service centers and more activity with IT systems to make sure that we're effective serving the businesses and very efficient. So I love what I see. There's so much excellence here, but we've got to get it across the company and we will. Operator00:45:54Thank you. The next question comes from the line of Patrick Cunningham with Citi. Your line is now open. Speaker 1100:46:03Hi, good morning. Just a question on the Q1 guide. So it's about 4.87%, 4.88% at midpoint in a seasonally weak quarter. And you noted some nice volume ramp in productivity throughout the year. So even annualizing that is above the low end of the guide. Speaker 1100:46:19So can you help us understand if that guide is just conservative? And then just a small follow-up, when do you expect to see the end of destocking within your Pharma Solutions business? Speaker 300:46:31Yes, I'll start with the second. Generally, we've seen destocking basically, I'll say it's done everywhere with the exception of pharma largely and it's the second half of the year. Pharma just started late as an industry, part of the destocking for logical reasons given the margin structure, but we do anticipate the second half of this year to be done with pharma. Q1, we think is a very reasonable guide, 475 to 500. We have started off the year generally pretty good on the volume side, but we just want to be cautious as we sort of go through the quarter. Speaker 300:47:04Generally, the volume is slightly lower than the average for the year, so that's a little bit of the impact there, Patrick. Operator00:47:14Thank you. The next question comes from the line of Adam Samuelson with Goldman Sachs. Your line is now open. Speaker 1100:47:23Yes, thank you. Good morning. A couple of questions on cash flow and investment. One, just want to clarify on the deleveraging targets. It had previously been 3 times by the end of calendar 2024. Speaker 1100:47:38Are you no longer committing to that timeline? 2nd, the last slide of the deck references high return growth investment. Can you provide any more clarity on kind of what those are, size and timing of those? And then finally, Glenn, I think you said to an earlier question of $500,000,000 free cash flow guidance for the year. Can you bridge $2,000,000,000 of EBITDA to $500,000,000 of free cash flow? Speaker 1100:48:07But even acknowledging some deal related charges, cash flow would be down year on year and I just want to make sure I understand the kind of similarities of that. Speaker 200:48:19Thank you, Adam. And I'll start and then Glenn can add on. First of all, I fully am aligned with and agree with a target of 3 times net leverage debt as a target to get to. I think the year end 2024, I'd like to see us get there by the end of 2024, but we're not going to do something stupid that destroys significant value to get there in 2024. But I can tell you we're going to make very good progress at least towards that goal in 2024. Speaker 200:48:46In terms of high return growth investments alluded to, I'll just reinforce that flavors and fragrances, we call it scent and health and biosciences are strong business units in great markets. I've been in many chemistry and biological markets. These are great markets and we're going to invest in them to win. Speaker 300:49:12Yes. So, hey, good morning, Adam. So let me take you through the cash flow reconciliation. It's a good question. And I'll start from the top with EBITDA. Speaker 300:49:19So the midpoint of our guide is 2,000,000,000 dollars We are forecasting $345,000,000 of interest expense, cash taxes of roughly 4.50 dollars That includes 3G or transaction related. I'll back them out later. We have networking capital slightly negative. We're being a little cautious in terms of the overall full year part is just the growth of the business. And then there's miscellaneous sort of others about $100,000,000 of other items to get an operating cash flow of $1,050,000,000 ish. Speaker 300:49:51As we mentioned, we have a CapEx target up this year. We're trying to invest in our growth business of about $440,000,000 for the year. That gets us to a free cash flow including Reg G of $500,000,000 I would note, as I mentioned, there's $200,000,000 of Reg G items, dollars 100,000,000 of that's transaction, largely taxes, a little bit of other deal costs, but largely taxes and then there's $100,000,000 of other miscellaneous Reg G items as well. So that gets you to if you back those out on adjusted free cash flow around $700,000,000 for the year. The other note I'd say, Adam, biggest shift year over year is net working capital. Speaker 300:50:35We had an improvement last year of $500,000,000 We're being sort of conservative and flattish to slightly down this year. Operator00:50:45Thank you. The next question comes from the line of Mike Sison with Wells Fargo. Your line is now open. Speaker 1200:50:54Hey, good morning. Hey, Eric, welcome back. I'm sure you've seen several chemical businesses go awry over the years for a lot of different reasons. What's your sort of playbook in terms of turning around a business? And clearly, Functional Ingredients has been a sore spot here. Speaker 1200:51:13Anything in particular you're going to sort of work on to get that business back? And then just a quick follow-up on Pharma, Glen, since Eric's only been here a couple of weeks. But where do you think margins can get back to for that business? It's last two quarters have been pretty light relative to its historical past. Speaker 200:51:34Thanks, Mike. And I'll start with the functional ingredients question. First of all, I like the functional ingredients business. It is a very good business, with lots of opportunity to bring value to customers. And by having multiple elements of the solution set, you can bring value in terms of helping customers achieve their goals and what food products they want to have to delight customers, delight consumers. Speaker 200:52:01So I think what we really have to do here is and the team is working on this is make sure that we're clear on what is our strategy, how are we going to create value in this business, how are we going to make sure that we're focused on the right consumers excuse me, the right customers in the right way, profitably growing our market share and how do we make sure that our assets are very competitive, that our costs are very competitive, that we're driving productivity so that we can be competitive with our product portfolio both in terms of the value we bring and the costs to deliver that value. And then we're spending money on innovation. We've got lots of great innovation. Make sure that innovation is tied to real customer needs that they're willing to pay for that can be part of the solution set. And I think that we've taken our eye off the ball as I said before, too much internal focus, listening to too many consultants going all different directions. Speaker 200:52:59We get clear what we're trying to do, what the goals are and execute well against those goals. This business will significantly improve in 2024 and beyond. Speaker 300:53:13Yes. Hey, good morning, Mike. Good to hear your voice. Regarding pharma, I mean, as you know, this business quarter to quarter could be a little lumpy based on demand. And 4th quarter is typically a lower volume quarter. Speaker 300:53:23So the margins are always compressed seasonally for the Q4. So it's difficult to look at that. We are very optimistic on the strength of this business and the go forward plan. We do expect the business to be in approximately the mid-20s from an EBITDA margin this year from a standpoint. And there's tons of other initiatives to continue to drive up the margin further. Speaker 300:53:43So I think what you're seeing is the function of destocking, idle mills, seasonality over the last couple of quarters that's just not reflective of the fundamentals of the business. Operator00:53:54Thank you. The next question comes from the line of Mark Astrachan with Stifel. Your line is now open. Speaker 1300:54:03Yes, thanks and good morning everybody. I guess lots of questions, but I'll try to keep it narrow here. So today's IFF was created to provide a suite of products to customers, at least that was the initial idea in merging the legacy IFF into the DuPont business. I guess, Eric, how do you think about that as an effective go to market strategy? And as a corollary to it, we hear a lot from investors that this was arguably a better business pre even Frutarom. Speaker 1300:54:38Is there a scenario where you can divest nearly all of those assets of the acquired businesses? How integrated are they? Is that possible? And sort of just holistically thoughts on kind of all of that together. And then just one follow-up for you, Glenn. Speaker 1300:54:53The flattish to plus 3 volumes, considering how easy the comparisons are, would still suggest the 2 year is strongly negative. How do you think about that from a competitiveness standpoint, meaning it would suggest that you're still losing share and I get it's not across all of the businesses equally, but it's still a pretty stark difference relative to your closest peers. Thank you. Speaker 200:55:17Okay. Thank you. I'll start by saying that, I believe that the historical IFF plus the DuPont Nutrition and Biosciences business are stronger together than they were separately. The potential, the opportunity is greater than it was separately. So I believe in that combination very strongly. Speaker 200:55:38Now as I said before, we haven't executed it well and I've seen this happen before. When I got to Syngenta almost 8 years ago, the seeds in the crop protection businesses had been mushed together and the focus was on synergies versus having a great crop protection business and a great seeds business. We made clear that we were going to have those 2 businesses as business units, end to end business units. And as soon as we did that, we found out that we had been losing share, losing margin versus the competition. We started regaining that. Speaker 200:56:12And by the way, when the business units were clear on what they were trying to do, the synergies grew a lot because there were synergies. I see the same thing here at IFF. As we're really good at flavors, at fragrances or scent, at health and biosciences, at food ingredients, those businesses when they're performing well, the synergies will increase not decrease. The ability to help each Speaker 300:56:39other, the different Speaker 200:56:39businesses to help each other, to help customers more together will increase. But we've got to get the businesses performing extremely well by themselves and not have synergy the goal, have synergy a tool. When we do that, I can assure you that the combination will be very strong. Speaker 300:57:01Hey, good morning, Mark. Hey, thanks for the question. You're right. If you look at the 3 year stack, we would still be negative over the 3 year average by about 1%, 1.5% over including if you hit the 3% this year. But I would note, as we've said in the past, I think you have to sort of think about the performance of the business between 75% 25%. Speaker 300:57:2275% of the business, our core scent business forming very well. Flavors has pockets of strengths. H and B, both enzymes, probiotics, cultures business are doing well. Pharma overall is doing well. It's really the other 25 which is functional ingredients we've talked about that actually has been a drag on the overall results of the business. Speaker 300:57:41So if you separate that, I think you clearly have a very different view in terms of that 3 year stack and the 75% is nicely positive and I would submit it's in line with competition. For the most part, we have opportunities, as Eric said, to perform better, but it's focused on that 25%. I also will note once again is we're trying to be realistic. There is some prospects that the markets improve more significantly. Certainly, the start of the year, knock on wood, is pretty encouraging. Speaker 300:58:10But it's too early to call anything above that range until we see consistency month by month in terms of volumes coming back. So appreciate the question. Speaker 200:58:19The only thing I would add is that even in the 75%, there is significant improvement opportunity and we've got businesses are looking at that and we're going to work with those businesses to support them, both with the for the businesses to win more and for the corporate cost overheads to be lower and more effective at supporting the businesses. So there is great opportunity, of course, in Food Ingredients to turn it around, but even the rest of the company to significantly improve performance and we're going to do it. Operator00:58:55Thank you. The next question comes from the line of Salvator Tiano with Bank of America. Your line is now open. Speaker 1400:59:04Thank you very much. I want to ask a couple of questions on the, I guess, strategy shift to growth that you mentioned a little bit more a few more details. And essentially, as you're trying to reposition the business and gain market share that's becoming the clear focus, What would that mean for R and D spending, SG and A spending and CapEx in the next few years, not necessarily 2024, but let's say on a 3 or 4 year basis? And you made a comment about the 2024 price, that 2.5% negative, in part being because of competitive pressures, but also because it will allow you to gain some market share. So how are you thinking in this new strategy about the trade off between price and volume? Speaker 200:59:48So I'll start. And I think our R and D spend is significant today. I think if you look at what we spend, it's very competitive versus the industry leaders, other industry leaders. But I do think we can focus it better, connect it better to the business units and to customers and ensure that the R and D efforts are fully aligned with the highest values needs that our customers have. So I think we can get more out of the R and D spend that we have. Speaker 201:00:20And where there are areas that we need to spend more R and D, particularly in Health and Biosciences and Flavors and Fragrances, we will spend more on R and D. On capital expenditures, I feel similarly that the level of capital expenditures are reasonable, but we have to look at where we're spending it and make sure that it's optimized and we're spending the capital in places that have significant returns, have very good returns and strengthen the businesses where Speaker 301:00:48we need to win. Yes. And I would just add to that. As we mentioned, we're going to be up about 8% year over year in CapEx and at core operational CapEx, which is really, really supporting growth in our core products is up 10%. We're in the right range from a CapEx around 5% of sales in terms of what we need to maintain and grow the business. Operator01:01:08Thank you. There are no further questions at this time. So I would like to hand the call back to the team for concluding remarks. Speaker 201:01:16Great. Well, thank you for joining the call this morning. Again, I just want to finish by saying that I'm thrilled to be at IFF. We've got a tremendous team at IFF. We've got great capabilities. Speaker 201:01:30We haven't performed to our potential in the past, but I can tell you we're all completely committed to making sure that we unleash the full potential of our businesses and drive the right kind of synergies that enhance each of the businesses and make customers very pleased, delighted with what we bring in our innovation and by doing that profitably grow our market share and through the productivity efforts make sure we do that with leading margins. Thank you. Operator01:02:02This concludes today's conference call. Thank you for your participation. You may now disconnect your lines.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallInternational Flavors & Fragrances Q4 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Annual report(10-K) International Flavors & Fragrances Earnings HeadlinesInternational Flavors & Fragrances Inc. (IFF) Q1 2025 Earnings Call TranscriptMay 7 at 1:10 PM | seekingalpha.comIFF targets $10.6B to $10.9B in 2025 sales amid strategic realignmentMay 7 at 1:10 PM | msn.comSilicon Valley Gold RushA new technology has sparked a modern-day gold rush in Silicon Valley. OpenAI’s Sam Altman invested $375M. Bill Gates has backed four companies in this space. The World Economic Forum calls it “the most exciting human discovery since fire.” Whitney Tilson believes this trend could mint a new class of wealthy investors—and he’s sharing one stock to watch now, for free.May 7, 2025 | Stansberry Research (Ad)International Flavors & Fragrances Inc. 2025 Q1 - Results - Earnings Call PresentationMay 7 at 8:10 AM | seekingalpha.comIFF posts upbeat quarterly profit on resilient demand, prior price hikesMay 6 at 10:07 PM | reuters.comIFF Reports First Quarter 2025 ResultsMay 6 at 5:47 PM | gurufocus.comSee More International Flavors & Fragrances Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like International Flavors & Fragrances? Sign up for Earnings360's daily newsletter to receive timely earnings updates on International Flavors & Fragrances and other key companies, straight to your email. Email Address About International Flavors & FragrancesInternational Flavors & Fragrances (NYSE:IFF), Inc. engages in the manufacture and supply of flavors and fragrances used in the food, beverage, personal care, and household products industries. It operates through the following segments: Nourish, Health & Biosciences, Scent and Pharma Solutions. The Nourish segment consists of legacy Taste segment combined with N&B's Food & Beverage division and the food protection business of N&B's Health & Biosciences division. The Health & Biosciences business consists of a biotechnology-driven portfolio of enzymes, food cultures, probiotics and specialty ingredients for food, home and personal care, and health and wellness applications. The Scent business creates fragrance compounds, fragrance ingredients and cosmetic ingredients that are integral elements in the world’s finest perfumes and best-known household and personal care products. The Pharma Solutions business produces a vast portfolio including cellulosics and seaweed-based pharma excipients, used to improve the functionality and delivery of active pharmaceutical ingredients, including controlled or modified drug release formulations, and enabling. 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There are 15 speakers on the call. Operator00:00:00At this time, I would like to welcome everyone to the IFF Fourth Quarter and Full Year 2023 Earnings Conference Call. All participants will be in a listen only mode until the formal question and answer portion of the call. I would now like to introduce Michael DeVoe, Head of Investor Relations. You may begin. Speaker 100:00:42Thank you. Good morning, good afternoon and good evening, everyone. Welcome to IFAV's Q4 and full year 2023 conference call. Yesterday afternoon, we issued a press release announcing our financial results. A copy of the results can be found on our IR website at ir. Speaker 100:00:57Iff.com. Please note that this call is being recorded live and will be available for replay. Please take a moment to review our forward looking statements. During the call, we will be making forward looking statements about the company's performance and business outlook. These statements are based on how we think things today and contain elements of uncertainty. Speaker 100:01:16For 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 ks and press release, both of which can be found on our website. Today's presentation will include non GAAP financial measures, which exclude those items that we believe affect comparability. A reconciliation of these non GAAP financial measures to their respective GAAP measures is set forth in our press release that we issued yesterday. With me on the call today is our CEO, Eric Fearwalt and our Executive Vice President and Chief Financial and Business Transformation Officer, Glenn Richter. We will begin the prepared remarks and then take any questions that you have at the end. Speaker 100:01:57With that, I would now like to turn the call over to Eric. Speaker 200:02:01Thank you, Mike, and hello, everyone. I'm excited to join you all today. I would like to begin by sharing some initial perspectives since joining IFF. I will then turn the call over to Glenn, who will provide a look at the Q4 and full year 2023 financial results before providing commentary on our current outlook for the full year 2024. After that, we'll open the call for Q and A. Speaker 200:02:27Now I officially joined IFF on February 6 and I have been impressed by the world class teams globally and the strong innovation across our company. I spent the last few weeks visiting our operations and teams in some of our U. S. And overseas businesses. I spent that time listening to our teams, meeting many of our customers and assessing the current status of our businesses. Speaker 200:02:52IFF has a proud history as a global leader in high value ingredients and solutions and a great platform from which to build and expand our partnerships with customers across the value chain to help them create leading consumer products. I believe in our purpose to help create a better world through science and creativity applied to sustainably meet customer and consumer needs. The opportunity we have ahead of us is very big and that is why I joined IFF. We have solid businesses and we'll take the actions needed to unleash our full potential to start to deliver profitable market share gains by bringing great innovation to win with our customers. A perfect example of this is in our scent business, where we have been outperforming competition, something we must do also across our other businesses. Speaker 200:03:53IFF also has other high quality businesses such as flavors and health and biosciences, where we will leverage our innovation to deliver higher growth rates with very attractive profitability. And in some of our challenged businesses, such as functional ingredients, with focus and attention, we can significantly improve performance. In both instances, we will do so by putting the business first, eliminating unnecessary processes and overhead, driving empowerment and strong leadership. And by doing so, IFF will be a more innovative and customer centric organization that will be effective and efficient. We also must be better executors, focus the IFF team away from distractions to continuously grow market share across all our businesses, put more of our investments into our high return businesses and transformative R and D initiatives and our IT infrastructure and achieve our capital structure targets by reducing outstanding debt. Speaker 200:05:04And when we do this over time, I see strong upside and value creation for all IFF's stakeholders. Moving to the next slide, I'll walk through the achievements and factors that marked IFF's progress through the Q4 and full year 2023. Now throughout the past year, IFFers have continued to take important steps to strengthen our financial and operational foundation and position this company to deliver value for the near, mid and long term. Our performance in the 4th quarter demonstrates progress. While reported sales were down, comparable currency neutral sales increased 1% and comparable currency neutral EBITDA grew 17% with an adjusted margin expansion of 2 60 basis points. Speaker 200:05:59We've also seen notable improvements in volume trends across the majority of our business segments in the second half of the year, enabling us to perform within previously stated guidance ranges for full year 2023 sales and adjusted operating EBITDA. Now with this progress and the improving performance through the second half of twenty twenty three, we exited the year on solid footing and we are optimistic about our ability to build on this momentum and are targeting getting back to year on year growth for the full year 2024 while strengthening for 2025 beyond. Now as I said earlier, we are committed to reducing our level of debt. We have therefore announced an update to our dividend policy to reduce the quarterly dividend by approximately 50% to $0.40 per share. This is not a decision the Board and management have taken lightly as we know the dividend is important to shareholders. Speaker 200:07:04However, it will enable us to reduce debt faster, strengthening our capital structure, which will create additional long term value. This will also give the company greater financial flexibility, which will when required give us the ability to make more high return growth investments. I'll now turn it over to Glenn. Glenn? Speaker 300:07:29Thank you, Eric, and hello, everyone. Moving to Slide 7, as Eric mentioned, the Board and management have taken this opportunity to accelerate the improvement of our capital structure as we work towards our deleveraging target of 3x net debt to credit adjusted EBITDA. Consequently, we reduced our quarterly dividend to $0.40 per share. We believe this dividend change provides a dividend yield that is consistent with industry peers and is aligned with IFF's long term cash flow generation and target payouts. The dividend remains an important part of our capital allocation framework and we expect this new base to grow alongside our profit over time. Speaker 300:08:10IFF remains committed to providing competitive returns to our shareholders and firmly believes that these actions set us up for more durable value creation in the long term. Now on Slide 8, as Eric mentioned, our performance for the 4th quarter reflects the operational and strategic initiatives that our team has implemented over the last several months to deliver strong results amid an uncertain operating environment. Despite some continued challenges in the market, volume trends continue to improve sequentially with increases in nearly all businesses, resulting in growth for total IFF. IFF generated $2,700,000,000 in sales, representing a 1% increase in comparable currency neutral sales. This improvement reflected strong growth in our scent business with continued volume pressure in Nourish and Pharma, both impacted by destocking. Speaker 300:09:05Volumes continue to improve sequentially from down mid single digits in Q3 to down low single digits in Q4. And if excluding the impact of functional ingredients, volumes for the 4th quarter would have increased low single digits. Adjusted operating EBITDA totaled $461,000,000 in the 4th quarter, a 17% increase on a comparable currency neutral basis. We also realized a year over year increase of approximately 2 60 basis points to our comparable currency neutral adjusted operating EBITDA margin. This growth in EBITDA was supported by both internal steps IFF has taken, including continued gains and efficiencies from our productivity initiatives and favorable net pricing. Speaker 300:09:55Before moving on, I wanted to share that we recorded a non cash goodwill impairment charge of $2,600,000,000 for the 4th quarter related to our Nourish business. The primary drivers of the goodwill impairment are related to lower business projections due to volumes declines mainly in functional ingredients, continued cost inflation and unfavorable foreign exchange rate fluctuations. Now moving to Slide 9, taking a closer look at our profitability performance for the Q4, we delivered $461,000,000 which equates to a robust comparable currency neutral adjusted operating EBITDA growth of 17%. I'm happy to report that in Q4, IFF realized strong productivity gains and in conjunction with favorable net price to inflation helped us overcome ongoing volume pressures to deliver against our objectives. Importantly, IFF has remained focused on executing upon our productivity program to improve our operational effectiveness and efficiency. Speaker 300:11:01In 2023, we continued to launch additional steps as part of these programs while also making strategic investments in key growth areas. Now on Slide 10, I'll provide a closer look at our performance by business segment during the quarter. In Nourish, sales declined 3% on a comparable currency neutral basis as strong growth in flavors was offset by continued softness in functional ingredients. While functional ingredients remained the main driver of weakness for Nourish in the quarter, it is worth noting that we again saw meaningful sequential improvement. In terms of profitability, the positive impact from our ongoing pricing actions and productivity initiatives drove improvements and led to a 3% increase in comparable currency neutral adjusted operating EBITDA. Speaker 300:11:53Health and Biosciences continues to show robust top and bottom line growth. Price increases, volume growth and productivity gains led to growth across most H and B business segments led by double digit growth in health. Overall, H and B delivered a comparable currency neutral sales increase of 5% year over year and a 35% year over year increase in comparable currency neutral adjusted operating EBITDA. Our scent segment continued to deliver a very strong performance in Q4, including 11% growth in comparable currency Like Health and Biosciences, scent also saw significant growth in adjusted operating EBITDA increasing 34 percent on a comparable currency neutral basis driven by favorable net pricing, volume and productivity gains. While pharma solutions experienced significant pricing and productivity gains, these improvements were offset by lower volume, driven primarily by continued destocking trends as well as strong year ago comparison. Speaker 300:13:09This led to comparable currency sales declining 10% and comparable currency neutral adjusted operating EBITDA declining 13% in the quarter. Turning to Slide 11, I'll discuss our progress improving our cash flow and leverage positions. In the Q4, cash flow from operations totaled $1,440,000,000 a significant increase from the previous year, reflecting the strong improvement in inventory levels. CapEx for the year was $503,000,000 or approximately 4.4 percent of sales. Our progress on working capital improvement led by an intense focus on rightsizing our inventories helped enhance our free cash flow position, which saw a sequential increase of over $500,000,000 totaling $936,000,000 for the full year and ahead of expectations. Speaker 300:14:06Included in our free cash flow is about $430,000,000 of costs, primarily related to integration and transaction related items. We also delivered $826,000,000 in dividends to our shareholders in 2023. Our cash and cash equivalents totaled $729,000,000 dollars including $26,000,000 in assets held for sale in Q4. Additionally, we realized a 200,000,000 sequential reduction in gross debt, which totaled approximately $10,100,000,000 for the quarter with a net debt to credit adjusted EBITDA of 4.5 times. Our trailing 12 month credit adjusted EBITDA totaled approximately 2,100,000,000 With the announced sale of our Lucas Meyer Cosmetics business, which we still expect to close in the Q1 of 2024, the rightsizing of our quarterly dividend and additional portfolio actions we are planning to make, we are taking decisive action to strengthen our balance sheet and achieve our leverage targets. Speaker 300:15:15On Slide 12, I'd like to now turn to our outlook for 2024. Due to a combination of improvements across our business and in the broader market toward the tail end of 2023, we are cautiously optimistic about the year ahead. For the full year 2024, we expect sales in the range of $10,800,000,000 to $11,100,000,000 This reflects our prudent approach to volume expectations and the impact of modest negative pricing in 2024, which is largely isolated to more price competitive categories such as functional ingredients and fragrance ingredients given lower input costs and competitive dynamics. We expect overall pricing to decline approximately 2.5% in 2024 following a 10% increase in 2022 and a 6% increase in 2023. Strategically, we believe this will position us to be more cost competitive in the market and allow us to regain market share in select businesses. Speaker 300:16:18In terms of volume, the visibility to the degree and pace of the recovery remains a bit fluid and has been explicitly incorporated in our 0% to 3% range. The most significant variable impacting this range will be the pace of recovery in functional ingredients. However, this is a marked improvement from 2023 where we finished down mid single digits and 'twenty two we were down low single digits as we believe our industry will return to more normalized growth rates. On the bottom line, we expect to deliver full year 'twenty four adjusted operating EBITDA between $1,900,000,000 $2,100,000,000 dollars Our guidance assumes not just improved volumes from 2023, but also solid profitability and a margin expansion across our segments. We are hyper focused on continuing to execute our productivity initiatives to help mitigate expected inflation, primarily labor costs and incentive compensation reset, while continuing to reinvest in the higher return businesses. Speaker 300:17:25It's also worth noting, we have some benefit of one time items such as the negative impact in 2023 from the inventory reduction program and the previously announced write down of inventory related to locust bean kernel or LBK that will not repeat in 20 24. In particular, there was an approximately $130,000,000 impact from negative absorption in 2023 related to our inventory reduction program and some volume declines, which is down from an estimated $165,000,000 we provided in the Q3. A portion of this will be offset by higher annual incentive compensation expense as we reset our payout to target levels in 2024. While there's still work to do, efforts to bolster our financial profile and portfolio are providing effective and while it's hard to predict the timing and details of the market recovering and its impact on our results, we see opportunity for improvement in 2024 with all divisions targeting better volumes with improvements in profitability and margin expansion across all four divisions. For the Q1, we expect sales to be approximately $2,700,000,000 to $2,800,000,000 with an adjusted EBITDA of approximately $475,000,000 to $500,000,000 Throughout 2024, we will be relentlessly focused on our efforts to optimize our portfolio, improve financial performance and reach our deleveraging targets. Speaker 300:19:00I'm confident that the actions taken in 2023 and our outlook for improving performance in 2024 will position IFF to capture significant value creation. With that, I'll turn the call back over to Eric for closing remarks. Speaker 200:19:15Thank you, Glenn. I'm truly excited to be joining IFF during this transformative time for the company. I have long admired IFF as the category defining leader in the industry and it's an honor to be able to work alongside our talented global teams to help us navigate and even thrive at a critical moment for our company and our industry. Through robust efforts from our teams worldwide and shared commitment to putting the customer at the center of all we do, IFF will continue strengthening our commercial execution and become a more nimble and efficient organization. Our global teams made progress towards ensuring we can meet the evolving needs of our customers and deliver industry competitive returns and we will accelerate the progress going forward. Speaker 200:20:06While 2023 was a challenging year, our financial results in the Q4 highlight an improving trend. Based on this performance and some improving market conditions, we are expecting a return to volume growth this year, which should enable EBITDA growth and margin expansion. Our updated dividend policy and the additional divestitures we continue to work on reflects our commitment to improve our capital structure. While the global economic landscape is uncertain, IFF will be focused on strengthening our execution. And as I said, we have work to do to improve our businesses and achieve our vision, but I am confident we are well positioned to build on our progress and create sustainable value for all stakeholders in 2024 and beyond. Speaker 200:21:01I'd like to thank our teams and partners for welcoming me to IFF and look forward to seeing what we'll achieve in 2024. With that, I'd like to now open the call for questions. Operator00:21:15We will now begin the question and answer session. Our first question comes from the line of Ghansham Panjabi with Baird. Your line is now open. Speaker 400:21:45Hey guys, good morning. And Eric, first off, congrats on your new role. I guess my question is on your fiscal year 2024 EBITDA guidance and I'm hoping that you can sort of bridge on a year over year basis the differential between 2024 and 2023. And also Glenn highlight what changed relative to the variances you highlighted from your 3Q conference call back in November apart from just the fixed cost absorption you cited? And if you could also just give us a sense as to what the embedded volumes are by segment as it relates to the low single digit volume guidance for 2024? Speaker 400:22:16Thanks. Sure. Speaker 300:22:18Good morning, Ghansham. Easily done and a frequently asked question. So if you'll indulge me, I'll start with last year's results at 19.80. There are 2 adjustments to get that to a normalized basis. 1 is the divestitures, which you're aware of is a half a year of Savory Solutions and FSI and the LMC will be closed at the end of the quarter. Speaker 300:22:41So it's roughly 3 quarters of LMC. That's roughly $78,000,000 of normalized impact. And the other factor, which is the same basically we had discussed before, we also have included our updated view of foreign exchange. That's $50,000,000 reduction. I'm not sure that was previously discussed from a standpoint. Speaker 300:23:00So that gets to a like for like base of $18.50 dollars Our volume mix impact for this year is forecasted to be $170,000,000 positive. That is inclusive of the $130,000,000 of positive overlap on absorption. As we noted on our call, that actually came down as the Q4 volumes were higher from a production standpoint. So that was slightly different than we had guided. Our net price for the year is basically 0. Speaker 300:23:31That is inclusive of the $44,000,000 of LBK. So that's netted in that number. We can certainly talk more about the pricing dynamics this year. Then we have about a $35,000,000 reset for AIP, So that's a negative, but that's better than we thought. We thought that would be in the $70,000,000 range from a standpoint. Speaker 300:23:50So I think all of the one timers being absorption slightly lower, the negative reset on AIP is slightly lower, FX is new, and then the deals basically were all known. The last items are sort of wage inflation. That's about $120,000,000 and the productivity is about $150,000,000 in the P and L. So that's sort of consistent with our 3 year view. So that adds up to the midpoint of our range of $2,000,000,000 And then relative to the volume question, I think it's very simple to think about our view of this year. Speaker 300:24:26The functional ingredients, which is circa less than 25% of the business, we are projecting that to be relatively flattish for the year. All the other businesses actually have growth directionally in the 2% to 3% range on a full year basis, a little bit more slower in the beginning of the year and ramping up in the latter. But that's why we mentioned, as we think about that range of guidance, functional ingredients is the area that probably gives us the most pause and we've been the most cautious And that sort of is the difference between the high end of the 3% versus the net day, the 0% range. So hopefully that answers the question. Operator00:25:07Thank you. Speaker 200:25:07Next question. Operator00:25:09The next question comes from the line of Josh Spector with UBS. Your line is now open. Speaker 300:25:16Hi, good morning. Hi, Josh. So I just wanted to hey, so I wanted to ask on the dividend. So I think it's been pretty clear that it's been a pretty big use of cash for a couple of years now. So really the question is why was now the right time versus when you looked at that probably a year ago or maybe 2 years ago? Speaker 300:25:35And what does that mean as it relates to the divestment strategy or timing? Has anything changed as you think about what's next? Speaker 200:25:44So this is Eric. First of all, I wasn't here a year ago, obviously. But I did arrive on February 6, looked at our entire situation, talked to Glenn and his team, talked to the Board and made the decision to go ahead and cut the dividend now. I think it's a wise move in terms of our overall balance sheet efforts to get our balance sheet in great shape. And it doesn't impact the investment timing or strategy. Speaker 200:26:10We continue to work on our portfolio optimization, but obviously we're focused even more on working on strengthening the businesses, increasing our earnings and cash flow. Operator00:26:24Thank you. Speaker 200:26:25Next question? Operator00:26:26The next question comes from the line of Gunther Zechmann with AllianceBernstein. Your line is now open. Speaker 500:26:33Hi. And Eric, welcome back to the public markets as well. Eric, what are your priorities for this year? I appreciate you've only been in the role for a few weeks. But for this year and maybe also beyond when I think about the portfolio and the balance sheet, please. Speaker 500:26:52And in addition, how do you think about IFS mid term targets? And lastly, Glenn, what is your free cash flow guidance for 2024 please? Speaker 200:27:03Thank you, Gunther, and glad to be back in the public markets. My priorities for 2024, I say, our priorities for 2024 are to continue the portfolio optimization work and have that be part of improving our balance sheet. But again, more importantly, we're going to strengthen each business. We're going to make sure that each business is clear on how they can strengthen their customer focus to profitably grow market share, strengthen the R and D and innovation in each business so that we better delight customers with our innovation, so that we bring innovation that they value that we can grow our market share with them. And then thirdly, we're going to keep driving productivity and strengthening our productivity in each business unit and then also corporately. Speaker 200:27:50We want a very effective and efficient back office. What will reduce are the amount of engagement we've had with consultants, advisors and others that have caused us to be too internally focused. We're going to get back to focus on winning with the businesses by better serving our customers and our competition. In terms of how I'm thinking about the midterm targets, it's too early for me to comment, but I'll look at them with the team here and we'll do it by business and then we'll roll it up for the company and we'll get back to you in the not too distant future on that. But on the last one, Glenn? Speaker 300:28:27Yes. So, hey, good morning, Gunther. Our projected free cash flow for this year is $500,000,000 I would note that that's inclusive of an expectation of $100,000,000 of taxes for the sale of LMC and carryover for Savory and then another $100,000,000 for other restructure one time items. So there's $200,000,000 of Reg G, but net of the $200,000,000 we're at $500,000,000 full year free cash flow. Operator00:28:54Thank you. The next question comes from the line of David Begleiter with Deutsche Bank. Your line is now open. Speaker 600:29:03Thank you. Good morning and Eric, congratulations on new role. Eric, two things. First, comment on press reports that a sales process for Pharma Solutions is underway? And secondly, in addition, is 2 0.5% reduction in pricing you're forecasting in 2024 all the pricing you expect to give up versus the roughly 19% pricing you've achieved over the last 3 years on a cumulative basis? Speaker 600:29:29Thank you. Speaker 200:29:31I'll take the first one and Glenn you can have the second piece, because I'm not that familiar with the details at this point, but I'm getting into it. But in terms of any portfolio optimization, we're not going to comment on rumors. All I can tell you is we continue to work on portfolio optimization and we will not sell a business at a price that doesn't make sense, but we're looking at what does make sense for IFF and for our employees and any business that we might consider divesting. So with that, Glenn? Speaker 300:30:01Yes. Thanks. Good morning once again, David. As you point out, we've got 3 years of very significant pricing to reflective of the inflation environment of 18%, 19% cumulatively. 2.5% is all we're anticipating. Speaker 300:30:14That actually reflects sort of overall price decline. So as I mentioned, net price is sort of 0 in our P and L. It is highly concentrated in the functional ingredients and the scent ingredient space and we've been extremely surgical in terms of where we needed to give it back. And at this point, we're pretty much locked in to most of our pricing for the year at this point. So that actually feels like a pretty safe number relative to the plan. Operator00:30:40Thank you. The next question comes from the line of Lisa DeNeve with Morgan Stanley. Your line is now open. Speaker 700:30:49Hi. Thank you for taking my questions. So the question I have is twofold. I mean, how is ISAF positioned versus peers? I mean, does it expect to grow in line with the market, in line with its direct peers or believe that it's actually better positioned and this year, but also maybe more structurally? Speaker 700:31:06And next to that, how should we really think about delivery of the functional ingredients optimization and efficiency for this year? And I have a small follow-up on the pricing. So on the negative pricing in fragrance ingredients, have your customers come back for pricing here? And are your peers offering the same price reductions or comparable price reductions? Thank you. Speaker 200:31:27Thank you, Lisa. And I'll take the first part of that question. I've looked very hard at the data over the last 5 years and clearly we have underperformed as all of you know. We have pockets of strength. Scent is an example I mentioned in the opening comments. Speaker 200:31:44But we have some businesses that are challenged like Food Ingredients. What I can tell you is we're going to have each business be very clear on what is their strategy to win, how are they going to delight their customer set and make sure that we profitably grow our market share, How are we going to make sure that we have our innovation targeted at needs that customers value? And how are we going to make sure we're driving productivity? So each of the business end to end how do we drive the businesses. And as you know we've got strong businesses in great markets like our flavors and our fragrances or scent business, terrific businesses that should be able to fully compete with margins growth rates with Zhivadan and others. Speaker 200:32:32We've got a strong business unit in health and biosciences in great markets and we should be able to fully compete with margins and growth against Novanisis. In our challenged businesses, we've got very good markets in food ingredients and protein solutions and we should be able to be fully competitive with Kari and other food ingredient players. And we've got a very good business and very good markets with pharmaceutical ingredients and we need to be fully competitive with our ingredients set there, Ashland and others. So I don't we have not performed as a company across the company in the last 5 years like we should. In the next 5 years, we'll get back on track. Speaker 300:33:16Lisa, this is Glenn. Let me address your second question regarding functional green. As you know from past conversations, 2021, 2022, we had a number of missteps on our part that caused this business to step backwards. Since that, we've been working on basically 4 major items. One, getting service levels up to the right standard. Speaker 300:33:36I'm happy to say for the last year plus service levels have been at 95% -plus across all the business and across the entire globe. Secondly, and perhaps most importantly, is getting volume back on track, which is a combination of our sales execution pipeline. As we mentioned, that has dramatically picked up over the last year and getting our pricing right in the market. We just talked about that. We've been very smart this year of thinking about market by market, product by product, what makes sense to be competitive to win and retain business. Speaker 300:34:03We feel much better about that. The 3rd item has really been around sort of our general go to market strategy. And as Eric has mentioned, be much more focused across the ingredients team of making sure that they own the results. And lastly, it's cost. So we have been really focusing on all of the costs, but largely the 85% that sits in cost of goods. Speaker 300:34:24So it's SKU rationalization, raw material consolidation, manufacturing footprint consolidation, taking out fixed costs, etcetera. And we're making very good progress. We, a, are seeing successive improvements in volume quarter to quarter. Q2 last year was a low watermark. We're actually moving into sort of flattish as we start this year and we're also continuing to see good expansion in margins. Speaker 300:34:46So we have a lot of work to do as Eric mentioned, but we're beginning to see some progress in terms of what we've been doing. Thank you. Operator00:34:55Thank you. The next question comes from the line of Nicola Tang with BNP Paribas. Your line is now open. Speaker 800:35:03Hi, everyone. I just wanted to pick up on a few topics that were just asked by Lisa. On this pricing side, I was wondering if you could give a bit more detail on this expected price declines in functional ingredients and in fragrance ingredients and whether you could expand on your comment on competitive dynamics in these markets? And then in addition on the volume side, I was wondering why you don't expect more in terms of year on year volume improvement, bearing in mind, I mean, I guess, the headwind of destocking and shrinkflation that are clearly in the base in 2023? Thanks. Speaker 300:35:39Hi. Two very good questions. So on the pricing of our 2.5%, 80% of our downward pricing is concentrated in functional ingredients and the scent ingredients business. Those areas by definition are more commoditized. And in addition, those areas have seen some more meaningful deflation in terms of commodities. Speaker 300:35:59So it's natural. As I mentioned previously, we were doing a very good job of making sure we're competitive in the market by product, by region, and we feel good that, that 2.5% sort of is reflective of the environment. The second question regarding why are we not more optimistic? Honestly, we're just cautious. We're very cautious and prudent given the environment. Speaker 300:36:20The last year was extremely bumpy. We do believe that destocking for most of our business is largely behind us and we're seeing positive signs. But we need a couple of quarters of positive momentum, I think, and stabilization before we can move from cautious to optimistic. Operator00:36:38Thank you. The next question comes from the line of John Roberts with Mizuho. Your line is now open. Speaker 900:36:46And welcome back, Eric. A 2 parter, if I could. Is the functional ingredients business significantly different today than when you were at DuPont? Sounds like you think it's just more of a cyclical problem that can be addressed through productivity, but do you think there are structural changes you need to make there? And then your predecessor was targeting going from 4 segments to 3 segments. Speaker 900:37:07Have you gone back to the whiteboard to start over on those plans? Or was that nearing completion and there's Speaker 400:37:12just some fine tuning left to complete it? Speaker 200:37:16Thanks, John. And let me start with the first one. The makeup of our functional ingredients business is better than what it was when I had responsibility for that as part of agriculture and nutrition back at DuPont a number of years ago. But I so I believe our potential is significantly higher than it was then. I think that it's in a very good market. Speaker 200:37:37I think we've underperformed. And I think we've underperformed because we've been too internally focused. We've had lots of consultants. We've had lots of advisors talking about helping us to figure out what to do around synergies. And what I can tell you is I have been in these businesses for many, many years, these types of businesses. Speaker 200:38:02Functional ingredients business. How are we going to profitably grow our market share with customers by delighting the customers with our solutions approach, with our innovation and then do that in a productive way with our assets and our functions, very productive, We have the potential to significantly improve the performance of this business. I've spent time with our business leaders. I think they're headed in the right direction and we're going to further accelerate the progress and make sure that we profitably grow our food ingredients business and fully compete with our competitors, the leading competitors in food ingredients because we have so much value to bring customers. If we do it right, when we do it right, we'll have a very good business. Speaker 200:38:51And then in terms of the organization structure, no decisions today. But what I will tell you is I'm a big fan of business units that have end to end accountability and responsibility to drive all the levers of the P and L, making sure that everything we do is to delight customers, profitably grow our market share, but do it in a way that's efficient and effective so each business unit can win. And I find when business units are winning, all of a sudden synergies become clearer and become more powerful and easier to access. So we're going to ensure that our businesses are on the right track and that our synergies are additive to further strengthen each of our businesses. Operator00:39:43Thank you. The next question comes from the line of Kevin McCarthy with Vertical Research Partners. Your line is now open. Speaker 1000:39:52Yes. Thank you and good morning. Eric, welcome back. Glenn, two questions from my side, please. Your Health and Bio segment margin was the best in more than 3 years. Speaker 1000:40:05Can you just maybe rank order the drivers of the improvement there? And more importantly, is the 30% plus level sustainable into 2024? And then secondly, what are your input cost trends and the outlook that you're baking into your guidance for this year? Yes. Speaker 300:40:27So I think for the H and B had a very good year, and that was a result of a progressive improvement in volumes. As we noted, the Health business, one of our largest segments, actually had a very good Q4. Secondarily, productivity. So we've driven a lot of productivity across the business. And 3rd, really net price. Speaker 300:40:46So there's been, to your second question, a decline in input cost in that business as well. So that got us to the 30% range for the business. I did note on the call that we are anticipating HMB like all 4 of our businesses. That demonstrate both EBITDA growth and margin expansion this year. So we expect that to be the case for H and B. Speaker 300:41:08In general, our input costs, as I mentioned, are anticipated to be down this year. Energy is flattish at this point. Logistics are down and we're seeing some raw materials deflation. As a reminder, it takes about 4 months for a purchase to run through the balance sheet. So that's a positive momentum. Speaker 300:41:27That's a net zero, as I mentioned, for the overall enterprise for the year. So thanks for the question. Operator00:41:35Thank you. The next question comes from the line of Laurence Alexander with Jefferies. Your line is now open. Speaker 900:41:42Good morning. If end markets do not cooperate, can you provide more granularity on how you can delever in 2024 2025 in terms of reviewing business lines for Brexit, productivity relative to comp and so forth? And Erica, given your initial impressions on IFS operating culture and discussion around productive solutions, can you speak more to the mindset around productivity and R and D? Is it more about operational fixes? Or do you see structural or fill follicle issues around how the firm has targeted ROIC margins or profit growth? Speaker 300:42:20Yes, thanks. This is Glenn. I'll answer the first part of your question. In general, we're pretty cautious on our outlook on volume. So we're, as I mentioned, flattish to 3%. Speaker 300:42:31So we've been we haven't expected a giant recovery this year in our base case. So that's kind of the starting point. In the absence of that materializing, we have been very good at delivering productivity. As Eric mentioned in his opening comments, we are accelerating both ongoing efforts and we have additional efforts underway to take cost out that aren't reflected in the plan. So that would be my second comment. Speaker 300:42:53Relative to the deleverage, so that gives you some sense on the earnings profile and offsets if there's additional softness in the external market. The deleverage will largely be accomplished through divestitures. As Eric mentioned, we are on path. We feel very good in terms of our activities underway, and we do think we'll accomplish our targeted divestitures, which will be the biggest driver of achieving our deleverage goal. Speaker 200:43:18And then on your second question, Laurence, my initial impressions of IFF's capabilities are we've got really great people. We've got really great capabilities in each of our businesses and we have just underperformed. But there are pockets of examples where we are performing tremendously well that give me so much confidence that we can make this happen across the company. I spent time with the leadership of arguably the largest consumer products company in the world where we have a very strong relationship, very much innovation driven, their innovation people with our innovation people to make sure that the best consumer products are being developed. And we were meeting both with our scent teams our scent teams and their fragrance team and with our health and biosciences team and their consumer products teams. Speaker 200:44:12And it was the best relationship, the best dynamic that I've ever experienced in my 42 years of customer interactions. So when and then I had another interaction with the top management of a leading beauty care company in Europe And same thing, our people were working hand in glove with their people to create great, great consumer products that consumers love. So we can do it. We do it. We just need to do it more across the company. Speaker 200:44:45And I'm really excited by helping our teams stop being so internally focused, get more focused by business unit on winning with customers and then collaborate where it makes sense to enhance across our portfolio to bring even more to customers so that the customers win more and we win more. Now in terms of productivity, as Glenn mentioned, there are pockets there where we're doing very well, but there's more we can do on productivity. Ralph Finzel and his production team are really driving tremendous productivity in our operations And it's still early phase, but they're ramping that up very nicely. We've already had efforts in back office productivity for our corporate functions. That's going okay, but we're going to accelerate that. Speaker 200:45:31You'll see more shared service centers and more activity with IT systems to make sure that we're effective serving the businesses and very efficient. So I love what I see. There's so much excellence here, but we've got to get it across the company and we will. Operator00:45:54Thank you. The next question comes from the line of Patrick Cunningham with Citi. Your line is now open. Speaker 1100:46:03Hi, good morning. Just a question on the Q1 guide. So it's about 4.87%, 4.88% at midpoint in a seasonally weak quarter. And you noted some nice volume ramp in productivity throughout the year. So even annualizing that is above the low end of the guide. Speaker 1100:46:19So can you help us understand if that guide is just conservative? And then just a small follow-up, when do you expect to see the end of destocking within your Pharma Solutions business? Speaker 300:46:31Yes, I'll start with the second. Generally, we've seen destocking basically, I'll say it's done everywhere with the exception of pharma largely and it's the second half of the year. Pharma just started late as an industry, part of the destocking for logical reasons given the margin structure, but we do anticipate the second half of this year to be done with pharma. Q1, we think is a very reasonable guide, 475 to 500. We have started off the year generally pretty good on the volume side, but we just want to be cautious as we sort of go through the quarter. Speaker 300:47:04Generally, the volume is slightly lower than the average for the year, so that's a little bit of the impact there, Patrick. Operator00:47:14Thank you. The next question comes from the line of Adam Samuelson with Goldman Sachs. Your line is now open. Speaker 1100:47:23Yes, thank you. Good morning. A couple of questions on cash flow and investment. One, just want to clarify on the deleveraging targets. It had previously been 3 times by the end of calendar 2024. Speaker 1100:47:38Are you no longer committing to that timeline? 2nd, the last slide of the deck references high return growth investment. Can you provide any more clarity on kind of what those are, size and timing of those? And then finally, Glenn, I think you said to an earlier question of $500,000,000 free cash flow guidance for the year. Can you bridge $2,000,000,000 of EBITDA to $500,000,000 of free cash flow? Speaker 1100:48:07But even acknowledging some deal related charges, cash flow would be down year on year and I just want to make sure I understand the kind of similarities of that. Speaker 200:48:19Thank you, Adam. And I'll start and then Glenn can add on. First of all, I fully am aligned with and agree with a target of 3 times net leverage debt as a target to get to. I think the year end 2024, I'd like to see us get there by the end of 2024, but we're not going to do something stupid that destroys significant value to get there in 2024. But I can tell you we're going to make very good progress at least towards that goal in 2024. Speaker 200:48:46In terms of high return growth investments alluded to, I'll just reinforce that flavors and fragrances, we call it scent and health and biosciences are strong business units in great markets. I've been in many chemistry and biological markets. These are great markets and we're going to invest in them to win. Speaker 300:49:12Yes. So, hey, good morning, Adam. So let me take you through the cash flow reconciliation. It's a good question. And I'll start from the top with EBITDA. Speaker 300:49:19So the midpoint of our guide is 2,000,000,000 dollars We are forecasting $345,000,000 of interest expense, cash taxes of roughly 4.50 dollars That includes 3G or transaction related. I'll back them out later. We have networking capital slightly negative. We're being a little cautious in terms of the overall full year part is just the growth of the business. And then there's miscellaneous sort of others about $100,000,000 of other items to get an operating cash flow of $1,050,000,000 ish. Speaker 300:49:51As we mentioned, we have a CapEx target up this year. We're trying to invest in our growth business of about $440,000,000 for the year. That gets us to a free cash flow including Reg G of $500,000,000 I would note, as I mentioned, there's $200,000,000 of Reg G items, dollars 100,000,000 of that's transaction, largely taxes, a little bit of other deal costs, but largely taxes and then there's $100,000,000 of other miscellaneous Reg G items as well. So that gets you to if you back those out on adjusted free cash flow around $700,000,000 for the year. The other note I'd say, Adam, biggest shift year over year is net working capital. Speaker 300:50:35We had an improvement last year of $500,000,000 We're being sort of conservative and flattish to slightly down this year. Operator00:50:45Thank you. The next question comes from the line of Mike Sison with Wells Fargo. Your line is now open. Speaker 1200:50:54Hey, good morning. Hey, Eric, welcome back. I'm sure you've seen several chemical businesses go awry over the years for a lot of different reasons. What's your sort of playbook in terms of turning around a business? And clearly, Functional Ingredients has been a sore spot here. Speaker 1200:51:13Anything in particular you're going to sort of work on to get that business back? And then just a quick follow-up on Pharma, Glen, since Eric's only been here a couple of weeks. But where do you think margins can get back to for that business? It's last two quarters have been pretty light relative to its historical past. Speaker 200:51:34Thanks, Mike. And I'll start with the functional ingredients question. First of all, I like the functional ingredients business. It is a very good business, with lots of opportunity to bring value to customers. And by having multiple elements of the solution set, you can bring value in terms of helping customers achieve their goals and what food products they want to have to delight customers, delight consumers. Speaker 200:52:01So I think what we really have to do here is and the team is working on this is make sure that we're clear on what is our strategy, how are we going to create value in this business, how are we going to make sure that we're focused on the right consumers excuse me, the right customers in the right way, profitably growing our market share and how do we make sure that our assets are very competitive, that our costs are very competitive, that we're driving productivity so that we can be competitive with our product portfolio both in terms of the value we bring and the costs to deliver that value. And then we're spending money on innovation. We've got lots of great innovation. Make sure that innovation is tied to real customer needs that they're willing to pay for that can be part of the solution set. And I think that we've taken our eye off the ball as I said before, too much internal focus, listening to too many consultants going all different directions. Speaker 200:52:59We get clear what we're trying to do, what the goals are and execute well against those goals. This business will significantly improve in 2024 and beyond. Speaker 300:53:13Yes. Hey, good morning, Mike. Good to hear your voice. Regarding pharma, I mean, as you know, this business quarter to quarter could be a little lumpy based on demand. And 4th quarter is typically a lower volume quarter. Speaker 300:53:23So the margins are always compressed seasonally for the Q4. So it's difficult to look at that. We are very optimistic on the strength of this business and the go forward plan. We do expect the business to be in approximately the mid-20s from an EBITDA margin this year from a standpoint. And there's tons of other initiatives to continue to drive up the margin further. Speaker 300:53:43So I think what you're seeing is the function of destocking, idle mills, seasonality over the last couple of quarters that's just not reflective of the fundamentals of the business. Operator00:53:54Thank you. The next question comes from the line of Mark Astrachan with Stifel. Your line is now open. Speaker 1300:54:03Yes, thanks and good morning everybody. I guess lots of questions, but I'll try to keep it narrow here. So today's IFF was created to provide a suite of products to customers, at least that was the initial idea in merging the legacy IFF into the DuPont business. I guess, Eric, how do you think about that as an effective go to market strategy? And as a corollary to it, we hear a lot from investors that this was arguably a better business pre even Frutarom. Speaker 1300:54:38Is there a scenario where you can divest nearly all of those assets of the acquired businesses? How integrated are they? Is that possible? And sort of just holistically thoughts on kind of all of that together. And then just one follow-up for you, Glenn. Speaker 1300:54:53The flattish to plus 3 volumes, considering how easy the comparisons are, would still suggest the 2 year is strongly negative. How do you think about that from a competitiveness standpoint, meaning it would suggest that you're still losing share and I get it's not across all of the businesses equally, but it's still a pretty stark difference relative to your closest peers. Thank you. Speaker 200:55:17Okay. Thank you. I'll start by saying that, I believe that the historical IFF plus the DuPont Nutrition and Biosciences business are stronger together than they were separately. The potential, the opportunity is greater than it was separately. So I believe in that combination very strongly. Speaker 200:55:38Now as I said before, we haven't executed it well and I've seen this happen before. When I got to Syngenta almost 8 years ago, the seeds in the crop protection businesses had been mushed together and the focus was on synergies versus having a great crop protection business and a great seeds business. We made clear that we were going to have those 2 businesses as business units, end to end business units. And as soon as we did that, we found out that we had been losing share, losing margin versus the competition. We started regaining that. Speaker 200:56:12And by the way, when the business units were clear on what they were trying to do, the synergies grew a lot because there were synergies. I see the same thing here at IFF. As we're really good at flavors, at fragrances or scent, at health and biosciences, at food ingredients, those businesses when they're performing well, the synergies will increase not decrease. The ability to help each Speaker 300:56:39other, the different Speaker 200:56:39businesses to help each other, to help customers more together will increase. But we've got to get the businesses performing extremely well by themselves and not have synergy the goal, have synergy a tool. When we do that, I can assure you that the combination will be very strong. Speaker 300:57:01Hey, good morning, Mark. Hey, thanks for the question. You're right. If you look at the 3 year stack, we would still be negative over the 3 year average by about 1%, 1.5% over including if you hit the 3% this year. But I would note, as we've said in the past, I think you have to sort of think about the performance of the business between 75% 25%. Speaker 300:57:2275% of the business, our core scent business forming very well. Flavors has pockets of strengths. H and B, both enzymes, probiotics, cultures business are doing well. Pharma overall is doing well. It's really the other 25 which is functional ingredients we've talked about that actually has been a drag on the overall results of the business. Speaker 300:57:41So if you separate that, I think you clearly have a very different view in terms of that 3 year stack and the 75% is nicely positive and I would submit it's in line with competition. For the most part, we have opportunities, as Eric said, to perform better, but it's focused on that 25%. I also will note once again is we're trying to be realistic. There is some prospects that the markets improve more significantly. Certainly, the start of the year, knock on wood, is pretty encouraging. Speaker 300:58:10But it's too early to call anything above that range until we see consistency month by month in terms of volumes coming back. So appreciate the question. Speaker 200:58:19The only thing I would add is that even in the 75%, there is significant improvement opportunity and we've got businesses are looking at that and we're going to work with those businesses to support them, both with the for the businesses to win more and for the corporate cost overheads to be lower and more effective at supporting the businesses. So there is great opportunity, of course, in Food Ingredients to turn it around, but even the rest of the company to significantly improve performance and we're going to do it. Operator00:58:55Thank you. The next question comes from the line of Salvator Tiano with Bank of America. Your line is now open. Speaker 1400:59:04Thank you very much. I want to ask a couple of questions on the, I guess, strategy shift to growth that you mentioned a little bit more a few more details. And essentially, as you're trying to reposition the business and gain market share that's becoming the clear focus, What would that mean for R and D spending, SG and A spending and CapEx in the next few years, not necessarily 2024, but let's say on a 3 or 4 year basis? And you made a comment about the 2024 price, that 2.5% negative, in part being because of competitive pressures, but also because it will allow you to gain some market share. So how are you thinking in this new strategy about the trade off between price and volume? Speaker 200:59:48So I'll start. And I think our R and D spend is significant today. I think if you look at what we spend, it's very competitive versus the industry leaders, other industry leaders. But I do think we can focus it better, connect it better to the business units and to customers and ensure that the R and D efforts are fully aligned with the highest values needs that our customers have. So I think we can get more out of the R and D spend that we have. Speaker 201:00:20And where there are areas that we need to spend more R and D, particularly in Health and Biosciences and Flavors and Fragrances, we will spend more on R and D. On capital expenditures, I feel similarly that the level of capital expenditures are reasonable, but we have to look at where we're spending it and make sure that it's optimized and we're spending the capital in places that have significant returns, have very good returns and strengthen the businesses where Speaker 301:00:48we need to win. Yes. And I would just add to that. As we mentioned, we're going to be up about 8% year over year in CapEx and at core operational CapEx, which is really, really supporting growth in our core products is up 10%. We're in the right range from a CapEx around 5% of sales in terms of what we need to maintain and grow the business. Operator01:01:08Thank you. There are no further questions at this time. So I would like to hand the call back to the team for concluding remarks. Speaker 201:01:16Great. Well, thank you for joining the call this morning. Again, I just want to finish by saying that I'm thrilled to be at IFF. We've got a tremendous team at IFF. We've got great capabilities. Speaker 201:01:30We haven't performed to our potential in the past, but I can tell you we're all completely committed to making sure that we unleash the full potential of our businesses and drive the right kind of synergies that enhance each of the businesses and make customers very pleased, delighted with what we bring in our innovation and by doing that profitably grow our market share and through the productivity efforts make sure we do that with leading margins. Thank you. Operator01:02:02This concludes today's conference call. Thank you for your participation. You may now disconnect your lines.Read morePowered by