Chief Financial and Business Transformation Officer at International Flavors & Fragrances
Thank you, Frank, and thanks to everyone for joining us today. Turning now to slide nine, let me review our first quarter performance across each of our four business segments. In Nourish, sales were flat on a comparable currency-neutral basis, with growth in Food Design & Flavors offset by continued volume declines in Ingredients. As Frank shared, Nourish Ingredients, which includes Protein Solutions, emulsifiers and sweeteners, core texturants and cellulosics and food protection had the most pronounced volume declines in the quarter, representing approximately 60% of our total company volume decline. Despite our pricing actions and productivity initiatives in the quarter within our Nourish segment, the lower volumes and the unfavorable manufacturing absorption due to our inventory reduction program that I mentioned earlier, more than offset those efforts, contributing to a 27% year-over-year decrease in currency neutral adjusted operating EBITDA at $208 million. Those same pressures impacted Health & Biosciences this quarter with a 3% year-over-year decrease in comparable currency neutral sales and a 19% year-over-year decrease in comparable currency neutral adjusted operating EBITDA despite price increases and strong productivity gains. While we saw solid growth in Cultures & Food Enzymes and Home & Personal Care, lower volumes and unfavorable manufacturing absorption also pressured our performance.
As Frank mentioned earlier, our Scent division continues to perform quite well, delivering an 8% increase in comparable currency neutral sales and a 1% increase in comparable currency neutral adjusted operating EBITDA, driven by double-digit growth in Fine Fragrance and Consumer Fragrance. Scent's growth this quarter was driven by higher volumes, pricing and productivity gains as the division has remained resilient. Lastly, I'm pleased to share that Pharma Solutions delivered a 4% increase in comparable currency neutral sales led by continued growth in Core Pharma. That said, like Nourish and Health & Biosciences, the segment was also impacted by lower volumes and unfavorable manufacturing absorption leading to a 6% decrease in comparable currency neutral adjusted operating EBITDA. Overall, for the quarter, sales and EBITDA were slightly ahead of our expectations with pricing on track, modestly better volumes and favorable productivity. Now on slide 10, I'll discuss our cash flow and leverage position for the quarter. Cash flow from operations totaled $127 million this quarter, which is an improvement versus the negative $4 million we reported in a year ago period. One bright spot in the quarter was approximately a $200 million decrease in inventory versus our year-end 2022. As I discussed on our fourth quarter call, we have initiated a number of actions across our business and supply chain teams, including system process enhancements to rapidly reduce our inventories over the course of the year. And while this is adversely impacting the P&L through negative manufacturing absorption, it is a short-term impact that will be recovered over time.
Looking ahead, while the majority of our efforts to reduce inventories for 2023 are behind us, we do have near-term headwind in Q2, albeit to a lesser degree than Q1 as we continue to correct our over inventory position and maximize cash flow. I also want to note that accounts payable in the quarter was adversely impacted as a result of seasoned payment patterns and by our inventory reduction program whereby we slowed the purchase of raw materials, which had a direct impact on our AP. We expect this will improve over the course of the year as we achieve our target inventory level. capex spending for the quarter was $175 million or approximately 5.8% of sales. This was elevated due to project timing, and we expect to moderate through the balance of the year. We continue to believe that we will be around $500 million in capex for full year 2023. Our cash flow for the first quarter was negative $48 million. This is consistent with the seasonality of cash flows for our business included in our free cash flow is about $100 million of costs primarily related to integration and transaction-related costs. In terms of leverage, we finished the quarter with cash and cash equivalents of $594 million, which includes $4 million in assets currently held for sale, while net debt totaled $10.7 million. Our trailing 12-month credit adjusted EBITDA totaled approximately $2.3 billion and our net debt to credit adjusted EBITDA was 4.6 times for the quarter, as we mentioned earlier. While our leverage position is slightly higher than in the past few quarters.
We were proactive in renegotiating our debt covenants in the first quarter to ensure that we have appropriate capital flexibility as we execute on our strategic priorities and what may continue to be a challenging market. Importantly, we continue to actively evaluate the portfolio with consideration for further divestitures that provide additional financial flexibility and debt pay down without impacting our long-term aspirations. Turning to slide 11 for our consolidated outlook for the fiscal year 2023. As we look ahead to the balance of the year, we continue to believe our volume performance will improve yet acknowledge that market conditions remain uncertain. In our discussion with customers, the majority have signaled that their destocking efforts are ending as they believe the consumer will be resilient in the second half. Nevertheless, we have yet to see a broad-based volume improvement across our business, but we remain steadfast in our focus to control what we can control to protect profitability, maximize cash flow and drive portfolio optimization. For the full year, we now expect sales to be approximately $12.3 billion versus $12.5 billion previously. This change is largely related to energy and raw material pass-through price adjustments. In addition, we have a modest increase in unfavorable impact from foreign exchange. As we noted on our February earnings call, about 30% of our original 6% pricing guidance was related to energy inflation, much of which is passed through the surcharges with energy prices having moderated significantly.
We are maintaining our expectation of flat comparable currency-neutral adjusted operating EBITDA growth and continue to believe adjusted operating EBITDA will be approximately $2.34 billion. Foreign exchange headwinds are expected to continue to pressure sales and comparable currency-neutral adjusted operating EBITDA growth, which we now expect will adversely impact us 1% and 3%, respectively. This incremental pressure is due to a handful of hyperinflationary currencies that have and we expect will continue to significantly devalue over the course of 2023. On a comparable currency-neutral basis, all of the above noted items translates into approximately 5% versus approximately 6% previously. The sole driver once again is the energy and raw material pass-through price adjustments as we continue to believe volumes will be flat for the full year. In terms of calendarization, we believe volume will sequentially improve each quarter with a growth rebound expected in the second half of the year as the market challenges are expected to subside and our year ago comparisons are more favorable. To provide additional context, first quarter volume performance was modestly better than we anticipated with the second quarter modestly lower.
The net result is that on a first half basis, we are broadly in line with our expectation, which we believe will be offset by a favorable second half. On a two-year average basis, we expect first half volumes to be approximately negative 2%, reflective of destocking and second half volumes to be up plus 2%. For the second quarter specifically, we expect sales to be approximately $3 billion to $3.1 billion with volume performance down mid-single digits and adjusted operating EBITDA of approximately $540 million to $590 million. We remain intensely focused on improving our inventory levels and driving cost savings through productivity and restructuring initiatives to ensure we generate strong cash flow for the full year. As a result, we continue to target 2023 adjusted free cash flow of more than $1 billion, excluding costs related to integration, restructuring and deal-related items. Turning to slide 12. We recognize that we continue to face a challenging environment, including reduced visibility on consumer and customer demand outlook and the path of inflation. However, we remain intently focused on what we can control with the goal of continuing to strengthen IFF's operating foundation and execution performance. As we've discussed, there are a few top operational priorities that will enable IFF to not only manage these complexities but also to drive long-term profitable growth.
Our highest long-term priority is accelerating top line growth. To achieve this goal, we are making key strategic investments in key areas of our business and continue to be more surgical in our pricing actions to ensure we would recover inflationary pressures while supporting volume growth. We have also made great progress in enhancing our customer service and supply chain agility to reduce bottlenecks and increase efficiency. In the first quarter, we maintained strong service levels while also reducing our inventories, improving approximately $200 million from December '22. In conjunction with this, we will be rolling out a redesigned sales, inventory and operations planning process. Enhancing productivity also remains essential as part of our transformation. As mentioned earlier, during the quarter, we successfully achieved approximately $60 million of productivity benefits and began seeing initial results from our restructuring program.
I expect this benefit will rapidly increase over the balance of the year and be a strong contributor to our EBITDA performance this year. Lastly, we remain laser-focused on improving our cash flows and delivering our long-term deleveraging target. We expect to continue to make improvements in net working capital through the balance of 2023 and into next year. We are in parallel executing against our portfolio optimization efforts, continuing to invest in noncore business. In Q2 and Q3, we expect to complete the sale of our Savory Solutions and Flavored Specialty Ingredients businesses with proceeds used to pay down debt. Going forward, this is a central part of our strategy, and we continue to evaluate additional portfolio optimization opportunities to strengthen our capital structure.
With that, I would like to turn the call back over to Frank.