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Text: A copy of the release can be found on our IR website at ir.
These statements are based on how we see things today and contain elements of uncertainty.
A reconciliation of these non-GAAP financial measures to their respective GAAP measures is available on our website.
Please note that we'll be using combined historical results for the second quarter defined as three months legacy IFF results and three months of legacy N&B results, and for the first half 2021 defined as six months of legacy IFF January to June, and five months of legacy N&B February to June in both the 2020 and '21 periods to allow 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 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.
I will begin with an overview of our consolidated second quarter results on Slide 12.
In Q2, IFF generated approximately $3.1 billion in sales, representing a 13% year-over-year increase or 9% on a combined currency-neutral basis, primarily driven by double-digit growth in our Nourish and Scent divisions and a strong Health & Biosciences performance.
Though our gross margin was pressured by higher input cost, raw materials and logistics inflation and higher air freight volumes, this was partly offset by our disciplined cost management practices, administrative expense reductions and cost synergies.
This enabled us to deliver adjusted operating EBITDA growth of 7%.
We also achieved strong adjusted earnings per share, excluding amortization of $1.50 for the second quarter.
I want to provide a perspective on sales performance in Q2 versus pre-COVID.
There is no doubt that 2020 was an extraordinary year due to COVID 19, so it makes more sense to also evaluate our performance relative to 2019's levels.
And as you can see, all four divisions in the second quarter delivered strong sales growth as compared to the space period.
Total company sales were up 8% on a two-year basis with double-digit growth in Nourish and Pharma Solutions, a high single-digit increase in Scent, and mid single-digit growth in H&B.
With the exception of a handful, all of our sub categories have grown relative to their pre-COVID levels.
Most notably, we are pleased to report that those categories most impacted by COVID 19 are ahead of their respective Q2 2019 levels including Cosmetic Actives, which is up double digits, Fine Fragrance, which is up high-single digits, and grain processing which is up low-single digits.
Foodservice in microbial control while we had strong growth in the second quarter of 2021 remained below Q2 2019's levels, but we expect it will continue to improve as we move forward.
This performance underscores the strength and diversity of our portfolio as well as our position as an essential partner to our customers.
Now on the next few slides, I will dive deeper into the second quarter financials of each of our four divisions.
Beginning with Nourish on Slide 14.
Sales for the division increased by 15% year-over-year or 11% on a currency neutral basis, driven by robust double-digit growth in flavors with Frutarom contributing to growth, and a strong ingredients performance particularly from our protein solutions, cellulosic, locust bean gum, and Food Protection categories.
Nourish also saw a strong rebound in Food design including a very strong 24% growth in foodservice as pandemic related restrictions continue to ease and consumer behavior and away from home channels continue to normalize.
As I mentioned in the previous slide, higher raw material costs put relatively modest pressure on the margins of most of our individual segments.
Although we are pleased to have delivered adjusted operating EBITDA growth of 7%.
Pricing continued to accelerate in Q2 and contributed over a percent of growth in the second quarter.
As we will discuss later, we expect this will increase significantly in the third and fourth quarter as more of our pricing actions take hold.
Turning to slide 15.
Our Health & Biosciences division saw year-over-year growth of 9%, or 5% on a currency neutral basis, led by double-digit growth in Home and Personal Care.
As Andreas mentioned earlier, we are particularly encouraged by Health & Biosciences returned to growth this quarter, led by our microbial control and grain processing categories strong recoveries from the industrial and supply chain challenges related to COVID 19.
Performance in our Health category was challenged based on the particularly strong double-digit probiotics year-over-year comparison, although this did not offset the rest of the segment's growth and we remain confident in the Health category's trajectory moving forward.
Health & Biosciences also delivered adjusted operating EBITDA growth of 5%.
While you see that the division's margin was down this quarter, this was due to higher logistics costs in order to balance robust customer demand and available capacity.
We have increased capacity investments in this business to support long-term growth and invested R&D and plant technology to increase output later this year.
We are incurring significantly higher air freight costs to maintain our growth momentum in the interim, and this is impacting our EBITDA margin.
Now turning to slide 16 to discuss the results of our Scent division, which continued to be a standout growth contributor this quarter.
Our Scent division generated $550 million in total sales representing year-over-year growth of 16%, or 13% on a currency neutral basis.
Scent also achieved adjusted operating EBITDA growth of 34% with margin expansion of 300 basis points, driven by robust volume mix and productivity, which did offset some inflationary pressures.
While Consumer Fragrances was down slightly this quarter against a very strong double-digit year ago comparison, a significant rebound in Fine Fragrances which grew by approximately 85% led by new wins and improved volumes more than offset Consumer Fragrance's more modest performance due to last year's double-digit growth.
Our Ingredients category also contributed the division's strong performance growing double-digits led by strong performance in Cosmetic Actives and Fragrance ingredients.
Overall, we are extremely pleased with Scent's continued strong performance.
Lastly, turning to Slide 17 to discuss Pharma Solutions.
Currency-neutral sales were flat against a strong year ago comparison with Industrial Pharma the most significant performance driver for this division, led by Global Specialty Solutions.
Core Pharma's performance was challenged against a very strong year ago comparison.
On a two-year basis, growth was solid at about 3.5%.
Adjusted operating EBITDA was pressured this quarter with the margin decline due to higher energy costs and lower manufacturing utilization due to a couple of plant shutdowns as a result of weather related raw material shortages.
Specifically we had raw material availability issues related to the Midwest storm in the US earlier this year, which meant we were not able to run production and absorb our fixed costs.
Going forward, the supply chain is improving, which we expect will lead to stronger margins in Pharma Solutions for the balance of the year.
Now turning to Slide 18.
I'd like to review our cash flow position leverage dynamics for the first half of 2021, which remain a top priority as we continue to navigate a recovery in global markets.
As you will see in the first half IFF generated $533 million in free cash flow, with free cash flow from operations totaling $698 million, driven by an improvement in core working capital.
CapEx for the first half totaled $165 million or approximately 3% of sales as we continue to invest in growth accretive areas that we believe will ultimately prove rewarding over the long term as well as in integration-related activities.
In the first half, we also delivered $274 million in dividends to our shareholders.
As we look ahead, we are confident that our cash generation will remain robust, and have announced that we are raising our quarterly dividend marking the 12th consecutive year of dividend increases.
From a leverage perspective, our cash and cash equivalents finished at $935 million with gross debt holding steady at $12 billion.
Our trailing 12 month credit adjusted EBITDA totaled $2.61 billion, and our net debt to credit adjusted EBITDA was 4.2 times.
We are slightly better than we expect to be at this point in time and we are still expecting to delever to below three times net debt to EBITDA in the first three years post transaction close.
Now moving to Slide 19, I'd like to provide an update on our financial outlook for the full year 2021.
IFF has built a solid foundation in the first half of the year and delivered particularly strong second quarter performance, and we expect strong growth will continue through the rest of the year.
For the full year 2021, we are once again increasing our forecast for total revenues with an expectation to achieve 2021 total revenues of approximately $11.4 billion, which equates to about 7% growth.
This is up from our previous $11.25 billion or 6% growth as we have confidence in our sales momentum continuing into Q3 and through the rest of the year.
Breaking down the contributors of growth, we expect currency-neutral sales to be about 5% and FX benefits to be approximately 2%.
While pandemic related uncertainties persist, we are encouraged by the strong performance and important recoveries we are seeing across the business, which we believe position us well to capture continued strong sales growth in Q3 and Q4.
At the same time, we now see full-year 2021 adjusted EBITDA margin at about 22.5% versus approximately 23% previously.
A part of this reduction is related to our margin performance in Q2 for all the reasons I explained earlier.
We also continue to see inflationary pressures across the supply chain.
From a raw material perspective, we have seen raw material costs continue to increase over the course of the year.
In the first half we were successful in raising our prices to recover a portion of the cost increases, and continue to expect close to full cost recovery in the second half.
It should be noted that we are also seeing more broad based non-raw material inflation such as higher energy costs that we're managing through.
Our expectations for air freights has also increased significantly as rates are higher, but mostly higher volumes to balance robust customer demand and available capacity.
We are absorbing higher logistics costs to grow the business in the short term and expect this is only temporary until our capacity expansion projects are complete.
The combination of unfavorable price to raw material costs and higher logistics costs are negatively impacting operating margin in 2021 by more than 100 basis points.
However, through higher sales, strong cost discipline, and our focus on unlocking additional cost synergies, we believe we will end up only about 50 basis points lower than our previous expectations with higher revenues and a roughly similar dollar EBITDA level.
For modeling purposes, please note the depreciation and amortization, interest expense, CapEx as a percentage of sales, adjusted effective tax rate excluding amortization, and weighted average diluted share count all remain the same as what we shared in Q1.
Overall, we are confident that we are well placed to continue capturing additional growth over the next two quarters and beyond, while maintaining our focus on execution, continued financial discipline and leveraging our significantly bolstered resources and expertise as a stronger, more diversified company.
Before I wrap up today's call I would like to first recognize our thousands of employees around the world who continue to display their unwavering commitment to serve our customers, unify our teams together with N&B and deliver for our communities.
Despite the uncertain environment that we have continued to navigate, IFF's first half and Q2 results showcase the strengths of our combined portfolio and our ability to execute our ambitious business objectives.
And I'm incredibly proud to lead such a talented and passionate group of IFFs.
We have much to be proud of this quarter as we move ahead, I'm confident that we have built the financial operational structures needed for our combined company to reach even greater heights.
As Rustom and I have mentioned, we are targeting a strong full year performance indicative of our post-pandemic aspirations, and I know we are exceptionally positioned to achieve this, and we are seeing this strong top line momentum will continue in the early days of the third quarter.
Together, we will further our mission to be an innovative force for good and redefine what it means to be a leader in the global value chain for consumer goods and commercial products.

user
iff q2 adjusted earnings per share $1.50.
q2 adjusted earnings per share $1.50.
sees fy sales up about 7 percent.
raises full year 2021 sales outlook.
board of directors authorized a 3%, or $0.02 increase, in quarterly dividend to $0.79 per share.
sees fy sales about $11.4 billion.

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