Andreas Fibig
Chair of the Board and Chief Executive Officer at International Flavors & Fragrances
Thank you, Mike and thank you everyone for joining us today. I will begin today's call by providing an overview of our performance during the first half of 2021 followed by an update on regarding our ongoing efforts to fully integrate the N&B business following the completion of the transaction in the first quarter of the year. Rustom will then provide a detailed review of our second quarter financials highlighting segment level business performance and the market dynamics, we saw in the quarter. Before we jump into the question-and-answer session Rustom will also conclude with an overview of our expectations for the remainder of 2021. Now, beginning with Slide 6, I would like to review our business highlights for the first half of the year. I'm pleased to report that IFF has delivered a strong performance in the second quarter, which is a robust acceleration viz our combined Q1 growth and through the first half of the year. As I've said before, execution is everything and IFF has delivered strong financial results while advancing our ongoing integration efforts following the completion of the N&B merger in February.
In the first half of 2021, IFF achieved $5.6 billion in sales representing 8% growth or 5% on a currency neutral base. For comparable purposes and to reflect the portfolio differences between our peers, I want also to highlight that both businesses performed well with legacy IFF achieving a very strong high-single digit growth rate with nearly 100 basis points of EBITDA margin expansion, and legacy N&B growing in mid-single digits. At the same time, we continue to operate in a challenging global environment with significant headwinds in material cost and supply chain logistics. In the first half combined EBITDA growth was a solid 6% and a combined EBITDA margin of 22.5%. Importantly, our strong free cash flow of $533 million enables IFF to maintain significant financial flexibility, including our efforts to delever. We remain on track to achieve our deleveraging targets of under three times by year three post transaction close and we improved our net debt to credit adjusted EBITDA leverage on 4.3 times in the first quarter to 4.2 times in the second quarter. Finally, we are also well on track with integrating the N&B business and continue to realize synergies in line with our expectation of the transaction.
As we sharpen the IFF portfolio, we continue to progress on the divestiture of our Food Preparation business which we expect to be completed late in the third quarter or early fourth quarter. As I mentioned last quarter, the divestiture of this non-core business will create a more efficient IFF with an enhanced ability to grow and innovate across the key business segments. We are committed to ongoing active portfolio management and we'll continue to seek ways to increase value equation.
Stepping back to reflect on the first half of the year. I'm very pleased with what we have been able to accomplish. We delivered strong sales growth, which is an acceleration versus historical performance for both legacy IFF and legacy N&B in the midst of a transformational integration as well as a global pandemic. This is a validation of our strategy, motivates our team to continue defying industry expectations as we continue to see the benefits of our expanded product offering and capabilities. Long-term growth prospects of our business are strong and we are making investments in capacity, R&D, and Plant Technologies as well as increasing inventory levels and incurring higher logistic costs to maintain our growth momentum in the interim, specifically in the N&B business as we maximize our growth opportunities going forward. As we look to the third quarter and second half of 2021 our objectives are clear, build on this momentum while executing on our integration plans allowing IFF to fully leverage our new capabilities and chief -- achieve our long-term expectations.
Turning to slide 7, I would like to briefly discuss the regional sales dynamics that influence our results for the first half. Despite persisting global challenges and varied economic recoveries, we are pleased to report growth in each of our four key operating regions. In North America, we achieved growth in all of our business segments, led by a single-digit growth in Scent, Nourish and H&B. Similar to the first quarter, our Asian markets continue to perform well achieving a 5% increase in sales led by double-digit growth in India and a mid single-digit performance in China. While we had anticipated that growth would have been impacted in India due to COVID in the second quarter, the business was resilient and finished higher than we expected with strong double-digit growth in Q2. From a segment perspective and Asia's strong increases across our Nourish, Scent, and Pharma Solutions businesses all contributed to this sustained growth in this key region. Latin America, our strongest performing region, we achieved 12% sales growth driven by double-digit performance in nearly all of IFF's business segments and underpinned by favorable currency movements. [Indecipherable] Brazil, Mexico and South Cone, all achieved growth in the first half. We are particularly pleased to report that our EMEA region has impressively rebounded in the second quarter up to high-single digits. We achieved a 2% increase in sales in the first half as COVID 19 related restrictions eased. Our Scent and Nourish business performed particularly well in Q2, both achieving double-digit growth. Bearing [Phonetic] any newly emerging COVID 19 challenges we expect this growth to continue through the remainder of the year as global vaccination rates increase and Western and Central Europe continue to recover.
Now turning to Slide 8. I will provide a more detailed look at our sales performance across IFF's key business segments through the first half of 2021, particularly those that significantly contributed to our overall 8% sales growth, or 5% growth on a currency neutral basis that I mentioned earlier. We are pleased to report solid growth across all of our four core divisions, Nourish, Health & Bioscience, Scent and Pharma Solutions. Nourish achieved currency-neutral growth of 6% driven by a strong performance in flavors ingredients and Food design. Similar to the first quarter, Scent remains our largest sales driver on a year-to-date basis, achieving 8% of currency-neutral growth led by a strong performance in Fine Fragrance and Consumer Fragrance. Our Health & Bioscience business has return to solid growth in the second quarter following a challenging first quarter where sales were affected by COVID 19 pressures in microbial control and grain processing, While microbial control continues to be challenged for the first half, we saw growth in grain processing, which showed a recovery in the second quarter as well as home and personal care cultures and food enzymes and animal nutrition. Finally, our Pharma Solutions business also delivered growth through the first half of 2021 against a strong year ago comparison.
On slide 9, I would like to discuss the underlying dynamics influencing each of our four segments in the first half. As I mentioned, we saw broad-based growth in all Nourish categories led by robust performance in Flavors. Despite strong volume and continued cost discipline, higher raw material costs continue to affect margin when compared to the first half of 2020. However, on a year-over-year basis, EBITDA grew about 7%. Our Health and Biosciences businesses delivered growth in the first half led by strong performance in Home and Personal Care and grain processing. This growth offsets COVID 19 related pressures in microbial control and a strong year ago comparable in Health. Higher logistic costs related to capacity and strong demand impacted our margin. Nonetheless, we are encouraged by this performance and expect continued improvement as we move into Q3. Our leading growth and profit -- profitability driver Scent achieved an operating EBITDA margin increase of 170 basis points and absolute EBITDA grew nearly 20%. This was driven by a strong rebound in Fine Fragrances as retail channels continue to recover, continued strength in Consumer Fragrances and double-digit growth in Cosmetic Actives. Scent also delivered strong profitability led by higher volumes, favorable mix and higher productivity, which we expect to continue through the remainder of the year. Lastly, in Pharma Solutions, the segment's 1% growth was driven primarily by improvements in industrials, so our margin was significantly challenged due to higher energy costs, lower manufacturing utilization and the result in the weather related raw material shortages.
Now on slide 10 and 11, I would like to discuss our continued synergy progress in connection with our merger with N&B. From a revenue synergy perspective, we remain on track to meet our $20 million revenue synergy target this year. Coupled with continued demand and positive feedback from our customers, we are also confident in our ability to meet our 2024 run rate revenue synergy target of approximately $400 million. I would like to spend a moment highlighting how we realize this significant opportunity and share additional context on some of our recent wins. In only six months since completing the merger, we are already seeing strong affirmation in the opportunity before us. Our Home Care segment is a perfect example of how our expanded portfolio and combined capabilities with N&B delivers creative solutions for our customers and creates new opportunities for our business. Recently, our Health and Bioscience division saw an opportunity to collaborate with our Scent division. A global Scent customer expressed the need for enzyme technology and IFF's capabilities across divisions allowed us to deliver an integrated solution and ultimately create a superior dishwashing detergent. Together with IFF's leading fragrance capabilities, our enzyme technology ensures fit for purpose delivery and performance, which creates a differentiated product for our customers. This opportunity represents more than $5 million in annual sales potential. At the same time, we are actively working with other customers across IFF network to develop solutions that require capabilities across our four divisions. In the Food and beverage category, we continue to see demand for plant based meat alternatives that showcase the best of our expanded portfolio. For low sugar, low fat yogurt, we are introducing new flavor technologies with improved texture and speed to market, which are key advantages for our customers. Lastly, in our Health category we're developing an integrated solution for fiber gummy that leverages our unmatched scientific and technical expertise combined with our best-in-class flavor offering. These are just a few examples of the cross-selling opportunities that we are seeing customers increasingly demand and differentiator for our business over the long term.
We made significant strides in the second quarter from an integration perspective, ramping up our cost synergies from a few million dollars in the first quarter to a total of approximately $15 million on the first-half basis. This was largely a result of the comprehensive savings program we have implemented in the second quarter which allowed us to leverage our increased scale to reduce our indirect spend, benefit from various office consolidations and renegotiations, and right-size our organization. Additionally, because of our operational strengths and commitment to the integration process early on, we were all [Phonetic] able to accelerate exiting our various transition service agreements with DuPont. I'm very encouraged by the continued progress on this front and we are on track to deliver at least $45 million cost synergies for the full year, and ultimately our three-year run rate cost synergy target of $300 million. And now, I will hand it over to Rustom.
