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Text: A copy of the release can be found on our IR website at ir.
These statements contain elements of uncertainty, which we have laid out on Slide 2 under the cautionary statement.
A reconciliation of these non-GAAP financial measures to their respective GAAP measures is available on our website.
Please also note that we'll be using combined historical results for the first quarter as defined as three months of legacy IFF results, and two months, February and March, of N&B results, in both the 2020 and 2021 period, to allow for comparability in light of the merger completion on February 1, 2021.
With me on the call today is our Chairman and CEO, Andreas Fibig; and our Executive Vice President and CFO, Rustom Jilla.
I will begin today's call by providing an overview of our first quarter results, including a review of our performance by region and segment.
I would also like to share with you an update regarding our efforts to integrate DuPont, N&B business, which continues to progress well, following the completion of our transaction in February.
Rustom will then provide a more detailed financial review of the business, highlighting segment level business dynamics and performance and cover cash flow and leverage as well.
IFF is off to a strong start in 2021, and I'm confident that the momentum we have built will continue for the remainder of the year and beyond.
Now beginning with Slide 6, I would like to review our performance and notable developments in the first quarter.
We achieved 3% in combined sales growth, or 1% in currency-neutral basis, compared to the first quarter of 2020.
Also because of our change to a fiscal calendar rather than a traditional 4-4-5 calendar, we have had less -- two days less in first quarter.
If we were to normalize for that, our combined currency-neutral growth in the first quarter would also have been approximately 3%.
And on a two-year average basis, to factor in our strong 7% year-ago comparison, growth would be strong at approximately 5%.
Our adjusted operating EBITDA margin improved by 30 basis points, reflecting our team's diligent execution of our cost management strategy.
IFF also continues to generate strong free cash flows, and we remain on track to meet our deleveraging target.
For the first quarter, our leverage ratio was 4.3 times.
I'm also pleased to say we have reached an agreement to divest our fruit preparation business to Frulact, who specializes in fruit preparations for the food & beverage industry.
The divestiture is expected to close in the third quarter 2021, pending customary closing conditions, including regulatory approvals.
The fruit preparation business contributed approximately $70 million to IFF's Nourish segment pro forma sales in 2020.
This is our first step in terms of our portfolio optimization strategy.
So, I expect more news as we progress through 2021.
As you can see, we have established a solid foundation to carry us forward.
As we have said before, the opportunities in front of us and our mission is to execute on our plan to deliver industry-leading returns for our shareholders.
As we move into the second quarter, we remain squarely focused, leveraging our new capabilities to reach our business objectives, and further establish ourselves as an innovation leader in a global value chain for consumer goods and commercial products.
Now on Slide 7, I would like to briefly discuss the regional sales dynamics that have influenced our first quarter financial results.
As you all know, there are notably significant differences in how different countries are managing the continued impacts of the pandemic.
So we want to talk to the dynamics we are seeing in our business across the world.
We are pleased to report that most of our operating regions saw sales growth in Q1.
In North America, we achieved solid performance across our portfolio with growth in nearly all of our segments.
This performance in North America reflects the impressive results in our Scent segment.
We continued to see healthy performance across our Asian markets, achieving a 6% increase in combined currency-neutral sales, primarily driven by double-digit growth in China and India.
While we are pleased to see growth across many of these key markets, we must recognize that our growth in India could be challenged in the near term as the country is grappling with hardship related to the pandemic.
We wish everyone in India, our Indian colleagues and their loved ones the very best, and hope to see rapid improvement in conditions.
In Latin America, we saw an 11% increase in overall sales for the region with growth primarily driven by local currency sales.
Two highlights, that I would like to call out, in Brazil and South Cone, where both grew double-digits in Q1.
COVID-19 and related ongoing restrictions continue to heavily impact Western and Central Europe, which has resulted in challenges across the entire EMEA region and a 5% decline in overall sales.
That said, we remain optimistic about the region's recovery as global vaccination rates increase and related restrictions ease.
As we press ahead, we will continue to work diligently with our regional teams and communities, particularly those that remain on the most pandemic-related pressure to adapt our [Phonetic] supply chain ensure that our customers continue to receive the leading solutions they have come to expect.
Let's move to Slide 8.
I would now like to review our first quarter sales performance across IFF's key business segments, so you can get a more granular view.
We are pleased to report solid growth across our Nourish, Pharma Solutions and Scent divisions.
Our largest group, Nourish, achieved combined currency-neutral sales growth of 1%, led by robust performance in Flavors.
We continue to see pandemic-driven headwinds in Food Design, which is driven primarily by continued declines in Food Service.
This channel, while improved from the fourth quarter trends, was down mid-single digits in the first quarter.
Scent continued its strong performance, achieving combined currency-neutral sales growth of 5%, the largest growth driver across our four divisions, led by continued strengths in Consumer Fragrances, double-digit growth in Cosmetic Actives, and a strong rebound in Fine Fragrance.
For our Pharma Solutions division, we achieved combined currency-neutral sales growth of 3%, with continued strong performance across the entire division and all sub-categories.
For Health & Bioscience division, combined currency-neutral sales decreased 3% against a strong double-digit year-ago comparison.
Increases in both health and home and personal care were offset by pressures in Microbial Control and Grain Processing.
Together, we have an in demand and diversified portfolio that is meeting that needs of our core end markets.
I feel, we are very well-positioned to continue executing our ambitious growth initiatives and the complexity of the global marketplace.
Now turning to Slide 9, I want to show a summary that highlights our business performance, particularly with regard to the segment-level adjusted operating EBITDA margin.
As you know, we are focused on driving overall group operating efficiencies as we execute on our integration plans.
Rustom will cover our first quarter segment performance in much more detail, but I wanted to present this slide as it will be included in our standard earnings package going forward, specifically focusing on year-to-year performance.
Some highlights for Q1, that are worth mentioning; within our largest division, Nourish, I'm very pleased to see early progress on margin expansion.
We achieved strong results in our Scent division.
The team did a great job, driving higher volumes, benefiting from the rebound in Fine Fragrance, which drove favorable mix and continued, therefore, to capture productivity savings.
In H&B and Pharma Solutions, adjusted operating EBITDA margins were pressured by increased raw materials and logistics costs, which overshadowed the strong cost discipline the team has accomplished.
Now on Slide 10, I would like to provide you with an update on our integration progress with N&B.
Since completing our combination in February, we have achieved several financial organizational integration milestones, which reflect the incredible efforts of our global team.
From an organizational perspective, we have established a comprehensive operating and leadership structure for our combined company, having identified and announced roles all the way from CEO, down to third level leaders.
These leaders are working closely with the integration management office to ensure that all employees are provided for the tools and resources they need to succeed.
They've also completed all IT migration from DuPont to IFF, and are on schedule regarding exiting many of our transition service agreements with DuPont.
On the revenue synergies front, we have a robust pipeline of projects, including both cross-selling and integrated solutions, that we expect will accelerate our ability to meet our $20 million synergy target this year.
This quarter, we achieved a significant cross-selling win within our Health & Bioscience divisions by detergents, and we've invoiced our first sales in April.
We are pleased with our project pipeline and with the efforts so far, and continued expressions of demand from customers.
We are confident in our ability to meet our three-year run rate synergy target of $400 million.
From a cost synergy perspective, we are under way and already seeing modest P&L benefits, given we are in early days.
We expect these cost savings to increase over the course of the year, putting us well on track to meet our $45 million cost synergy target in the full year 2021, and our year three run rate cost synergy target of $300 million.
I would now like to pass the call over to Rustom, who will provide a more detailed review of our financial performance in the first quarter.
First, let me go a bit deeper into our consolidated financial results.
In the first quarter, IFF generated $2.5 billion in sales, a 3% combined year-over-year increase, including foreign exchange benefits, or up 1% on a currency-neutral basis, primarily led by strong performances in our Scent and Pharma Solutions divisions.
As you may recollect, from 2021 onwards we are applying prior-year average FX rate to our current year non-US dollar revenues to derive currency-neutral growth rates.
This is the more common practice and makes us more comparable to our competitors.
Our gross margin was impacted in Q1 at Nourish, H&B and Pharma by higher raw material and logistics costs headwinds arising from input cost inflation and higher freight rates, tight inventories and weather-related plant disruptions.
Meanwhile, our aggressive cost management program led by headcounts and other expense reductions, enabled us to improve RSA to sales by 120 basis points and deliver year-on-year adjusted operating EBITDA growth of 4%.
As an aside, Q1 2020 was our most difficult comp with 7% combined currency-neutral sales growth and strong adjusted operating EBITDA growth.
IFF also delivered adjusted earnings per share, excluding amortization of $1.60 for the first quarter.
Now on Slide 12.
I'd like to discuss the first quarter performance of Nourish, which now includes the enhanced capabilities of N&B's pharma, food and beverages business.
Nourish sales totaled $1.3 billion for the quarter, representing 1% growth on a combined currency-neutral basis.
Adjusted operating EBITDA grew 6%, with a 60 basis point margin expansion led by strong cost management.
Looking at Nourish's performance by business, Flavors drove growth in nearly all our regions.
Within ingredients, which was flat year-over-year, Protein Solutions grew double-digits, but this was offset by softness in emulsifiers and sweeteners.
Continued pandemic-related challenges impacted Food Design, particularly Food Service, which declined mid-single-digits year-over-year.
As the effects of the COVID-19 pandemic lessen, and retail and away-from-home channels continue to recover, returning to growth in this area, while maintaining our strong performance in Nourish's other segments will remain a top priority for the remainder of 2021.
Moving to Health & Biosciences on Slide 13.
As Andreas noted, H&B had a combined currency-neutral sales decline of 3%, but this was against a robust 11% positive year-over-year comparison.
It should be noted that on the two-year average basis, currency neutral growth was solid at 4%.
Adjusted operating EBITDA was also pressured and operating margin declined by 70 basis points, primarily driven by lower segment volumes and higher raw material and logistics costs.
Our Home & Personal Care business grew strong double-digits this quarter, supported by evolving consumer buying trends related to the pandemic that has persisted through Q1.
But declines in Animal Nutrition this year, when compared to mid-teen growth in the prior-year period, offset that performance and impacted overall year-over-year growth.
Microbial Control & Grain Processing were also impacted by continued pre-COVID cycling, which impacted H&B's overall growth by approximately 5 percentage points.
We are pleased to say that over the course of the first quarter, these businesses showed improvement and were positive in April as we cycle the comparable.
We are encouraged by the tremendous performance of Home & Personal Care, which is a testament to evolving consumer trends that prioritize individual health more than ever before.
Turning now to Slide 14 to discuss the results of our Scent division.
Overall, we are very pleased with Scent's strong performance, which has been a significant contributor to our Companywide growth.
Our Scent division generated $569 million in total sales, representing 5% combined currency-neutral growth against a strong 7% growth in the year-ago period as well.
On a two-year basis, growth is exceptional at approximately 6%.
Adjusted operating EBITDA improved 8% with a 70 basis point margin expansion predominantly driven by volume growth across the entire segment, as well as favorable mix from Fine Fragrance recovery and continued productivity.
As we began to see last quarter, our Fine Fragrance business experienced a solid recovery as away-from-home restrictions continued to lift and consumer behavior returned to more traditional levels.
Coupled with this rebound, continued strength in Consumer Fragrances and mid-teens growth in Cosmetic Actives, resulted in another quarter of strong performance for the entire division, driven by volume recovery and new business wins across the segment.
Our new core wins also providing strong contributions with all three customers growing double-digits in the first quarter.
Now on Slide 15, I would like to discuss the results of Pharma Solutions, our fourth division.
As previously mentioned, Pharma Solutions had an impressive quarter of broad-based growth and made a solid contribution to IFF's overall higher Q1 sales.
Pharma Solutions delivered $162 million in net sales, representing 3% in combined currency-neutral growth while adjusted operating EBITDA grew 2%.
Taken in the context of the 11% growth in the prior-year period, growth is impressive on a two-year basis -- average basis at approximately 7%.
Looking at Pharma Solutions performance by business, Core Pharma and Industrial Pharma led the division with volume growth for METHOCEL, seaweeds and coatings, providing -- proving instrumental to Core Pharma.
And Global Specialty Solutions and Nitrocellulose supporting the success of Industrial Pharma.
While we are very pleased with Pharma Solutions' sales performance in the first quarter, we saw adjusted EBITDA margin declined due to higher cost of goods related factors.
More specifically, gross margin was hurt by higher raw material and logistics costs related to supply chain challenges and force majeures due to the bad weather in the Midwest earlier this year.
We had two plants shutdown temporarily, which impacted raw material availability and caused higher distribution costs.
Now turning to Slide 16, I'd like to review our cash flow dynamics and capital allocation, which remain a top priority.
As you will see, our operating cash flow was very strong at $358 million.
We are quite pleased with Q1 cash generation.
For legacy IFF, Q1 is usually the lowest cash flow quarter of the year.
We typically have net working capital headwinds, as we reset off Q4's loss and we make annual bonus payments in March.
And this year, we also had large deal-related costs such as, cost to achieve investment banking fees, consulting expenses, etc.
A large part of our Q1 success came from core working capital, where we generated $193 million, a great job by our global team and a great outcome.
But we don't expect this quarter after quarter, as we like to build inventory up in some of our legacy N&B business areas to support future growth.
In the first quarter, capex was approximately $93 million or 3.5% of sales, up from last Q1's combined comparative $76 million or 2.6% of sales.
Free cash flow generation was, therefore, strong $265 million, and we distributed $82 million in dividends to our shareholders.
Our leverage, which is net debt divided by credit adjusted EBITDA ended at 4.3 times, as Andreas noted back on Slide 6.
This is ahead of our expectation of 4.5 times first quarter post-merger leverage.
Now to provide some full year context.
Legacy IFF generated $520 million of free cash flow in 2020 and combined, we expect to generate $1 billion in 2021.
In 2021, we will invest more in legacy N&B production capacity to meet expected strong future demand, but will only be slightly above our original full-year capex projection of approximately 4.5% of sales.
The dividend payment this year will be -- this quarter will be $197 million reflecting our higher post-merger share count.
And we remain on track to meet our long-term deleveraging target of 3 times net debt to credit adjusted EBITDA in 24 months to 36 months from deal close.
Turning to Slide 17, I'd like to provide an update on our full-year 2021 consolidated financial outlook.
But before doing so, I want to remind everyone that in mid-April, we provided sales and adjusted EBITDA metrics for each of IFF's four segments on a 2020 pro forma and combined basis, and additional detail on a segment level via our Learning Labs series.
On a combined basis, IFF generated $10.6 billion of revenue for the full year 2020, with currency neutral growth of approximately 2%.
And our combined adjusted operating EBITDA margin for 2020 was approximately 22%.
Please remember that combined includes 11 months of N&B and 12 months of IFF in 2020 and 2021.
In our fourth quarter conference call in February, we gave initial pro forma guidance, which assume the full 12 months of IFF and N&B, in order to be directly comparable to our previously provided S-4.
Moving forward, to be more aligned with actual results and reporting, we are transitioning to guiding on 11 months of N&B, which excludes January and 12 months of IFF in the 2021 year, in light of the merger completing on Feb.
Also, please note that in January 2021, N&B's actual sales were approximately $507 million and adjusted operating EBITDA was $107 million.
Given our first quarter results, our April preliminary sales, our rest of year FX expectations incremental pricing to recover costs and the fact that Q1 was our toughest comparative period quarter, we are forecasting stronger sales growth through the rest of 2021.
We have, therefore, increased our sales expectation for 2021 to be approximately $11.25 billion in combined revenues, or plus 6% growth with an approximately 23% adjusted operating EBITDA margin.
Since the beginning of the year, we have seen a rise in the cost of goods, driven by input cost, including raw materials and logistics.
In terms of raw material costs, we are seeing a large increase in selected commodities, soy, locust bean kernels, vegetable oil, turpentine and propylene glycol.
In addition, freight costs are higher as a result of greatly increased rates.
For example, the global freight index is up three times due to non-availability of containers at contracted rate.
And we're also seeing an uplift in air freight volumes due to strong demand and supply chain challenges like force majeure earlier this year.
This has required us to go back to have additional pricing discussions to cover our exposure.
While we are confident that over time we can fully pass along the increase, there is a time lag before pricing is fully realized, which can pressure gross margin in the short-term.
Ultimately, by the end of the year, we are confident that through pricing and our ongoing focus on cost reduction, we can achieve our full year adjusted operating EBITDA goal on a combined basis.
With regard to Q2, we are pleased that we've started the quarter strong, a nice growth acceleration versus where we ended the first quarter.
We are optimistic that for the full second quarter, revenue growth including currency benefit should be in the high-single-digits range, with an adjusted EBITDA margin also around 23%.
To assist with understanding and modeling the new IFF, we are also sharing our expectations with regard to depreciation, amortization, interest expenses, capex, our adjusted effective tax rate, excluding amortization and our weighted average share count on a combined basis.
While, most of these metrics probably don't need to be elaborated upon, it's worth noting that we expect moderately higher capex in 2021, as we invest for growth and work to exit some of our IT-related transition services agreements with DuPont more quickly than planned.
We're also providing a 2021 adjusted effective tax rate, excluding amortization for the first time.
And the 21.5% is broadly in line with our early expectations.
This is still preliminary and will change as we finalize purchase accounting and intangibles by jurisdiction.
The equivalent for heritage IFF on a similar basis for the full-year 2020 was approximately 18.5%.
Collectively, these metrics and decisions reflect our confidence in IFF's ability to deliver solid results even in this volatile global environment.
It has truly been a busy quarter, and we all have much to be proud of, especially as this all was accomplished during a global pandemic.
Looking beyond our solid Q1 financial results, I want to reemphasize the important first step that we took in tightening our business and optimizing our portfolio strategy, by agreeing to divest our fruit preparation business.
By divesting this non-core business, IFF will be more efficient organization with a greater capacity to focus on growth and innovation across our key businesses, ultimately generating greater value for our shareholders.
As we enter Q2 together, we are confident that we have the right team and the right structures in place to ensure that our newly combined company will meet our financial and operational goals.
As I mentioned, we are targeting strong year-over-year financial improvements with accelerated sales growth over the coming quarters, backed by our commitment to delivering industry-leading innovative products and services to our customers around the world.
And as Rustom stated, we are pleased that we have started Q2 strong, and optimistic that our full second quarter sales growth should be in a high-single-digit range.
I'm tremendously proud of all we have accomplished, and I firmly believe that the best is yet to come.
We're taking each and every learning from the N&B integration process to create a stronger, more agile and diversified company, that defines the future of our industry and showcase of what it means to be a leading ingredients and solutions partner.

user
q1 adjusted earnings per share $1.60.
sees combined fy 2021 (excluding.
n&b jan) sales about $11.25 billion.
qtrly adjusted earnings per share excluding amortization $1.60.

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