Good morning and welcome to the International Flavors & Fragrances First Quarter 2008 Earnings Conference Call. Today’s call is scheduled to last about one hour including remarks by IFF Management and question-and-answer session. Today’s conference is being recorded. I will now turn the call over to Yvette Rudich, Director of Corporate Communications. Please go ahead.

Hello and thank you for joining us today. With me are Rob Amen, Chief Executive Officer and Doug Wetmore, Chief Financial Officer. Our earnings release was issued and our 10-Q was filed earlier today. Both are available on our website at iff.com in the Investor Relations section. As you know, during this call, we may make certain forward-looking statements about the Company’s performance. These statements are based on how we see things today so they contain elements of uncertainty. These forward-looking statements may be identified by words such as expect, believe, outlook, guidance, may, or similar expressions. Actual results may differ materially due to risks and uncertainty. For a more detailed explanation of the inherent limitations in such forward-looking statements, please refer to the cautionary statement and risk factors contained in today’s earnings release and in our 10-K and 10-Q filings available on our website. Some of today’s prepared remarks will exclude those items that affect comparability. These excluded items are captured in our GAAP to non-GAAP reconciliations available on our website. For today’s call, Rob will begin with some high level comments on the quarter. Then Doug will provide a review of the financial results. Following closing comments from Rob, we will then take your questions. With that, I’ll now turn the conference over to Rob. Rob?

Thanks, Yvette, and good morning. Welcome to the call. I thought I would start with some overview comments on the flavor and fragrance markets and then take a look at the quarter. Demands for flavor and fragrances really reflects both the economic mentality of a country as well as its stage of economic development. For example in mature economies, we expect flavor and fragrance demand to be inline with GDP. While in a country like India, demand should be far higher than GDP growth, double or even higher. The rising number of middle class consumers fuel rapid growth for our customers’ products. Consequently, while the US market demand may be adversely impacted by a weak economy, we are seeing solid growth in demand in China, India, and Brazil. Now, for the first quarter 2008, IFF reported sales growth of 5% over the first quarter 2007. Excluding currency parity changes, the increase would have been 1%. Sales were driven higher by strong performances in the emerging economies of Asia, Latin America and the Middle East. The European region was up sharply in dollar terms and stable in local currency. Operating margins improved in fragrance ingredients due to mix and cost recovery while margins in regions outside of North America benefited from higher sales and good cost control. We had challenges with our business in North America and with the Fine Fragrance business globally. These businesses were clearly impacted by the weak retail environment and an inventory correction. As I suggested on our last call, the fragrance business was likely to face a tough quarter. The inventory correction we suspected is real and pronounced. I am pleased that the fragrance business activity as measured in new projects is up year-to-year and we are again winning a healthy share of the projects. This will be reflected in sales in late 2008 and in 2009. I will have more to say on how we are working through our challenges and why I remain confident that we will meet our financial goals. However, now, I would like Doug to take you through the details of the quarter.

Thank you, Rob, and good morning everyone. Let’s begin with an overview of sales. We provided the breakdown of sales and growth by our two business units. As you can see, Flavors grew 12% in dollars and on 8% local currency in Greece, and Fragrance sales were flat in dollars with the 2007 quarter, declining 4% in local currency. The primary drivers of the difference between the local currency growth and the reported dollar performance, was the strength of the euro compared to the dollar. The euro was about 11% stronger than the prior year quarter. A basket of other currencies accounted for the remainder of the exchange effect. The Fragrance decline resulted mainly from sharp declines in North America Fragrance sales in all categories, which I will touch on in more detail in a few moments. In 2008, we’ve also begun to realign our portfolio of Fragrance ingredients following the pricing pressure and margin compression experienced in 2007. During the first quarter, we discontinued the sale of certain ingredients, which in total accounted for about one half of the Fragrance local currency decline in the first quarter. While sales declined as a result of this portfolio realignment, the benefit was improved ingredient profitability. We also undertook a series of price increases in ingredients that had a modest impact on Q1 results but such impact will increase in the second quarter and as the balance of the year progresses. As you can see on the map, we had solid growth in each geographic region, but North America. Europe reported very strong growth increasing 9% over Q1 ’07 and quarterly sales benefited from the strength of the euro as I mentioned but the reported growth reflected a local currency increase of 1% led by a 3% increase in Flavors. Latin America…

Thanks, Doug. 2008 is and will likely remain a challenging year. The greatest challenge remains the US. I am not an economist and I’m not making a forecast, but it’s hard to see a recovery this year. The next unknown we are dealing with is whether or by how much the US slowdown will impact other economies. We have seen some slowing of growth in several emerging economies, but growth remains in the 7 to 10% range. Fine Fragrance business will be a challenge. First quarter sales reflected lower sell-through and an inventory correction, which we expected. I can’t forecast to turnaround this business until sales enable inventory at our customers to be back at more normal levels. Lastly, in the past, we’ve reported raw material price increases of about 2 to 3%. In Q1, we saw this tick up slightly to 4%. Now, we continue to work hard to recover these cost increases. However, the inflationary pressures on raw materials is a concern. That being said, I believe IFF is well positioned to deal with the challenges of 2008. IFF is a truly global company with a strong position in every marketplace of importance. Yes, the North American market, which accounts for about 27% of our sales, is currently weak. This is a cyclical issue and we believe is a long-term potential of the US market. Our presence in the emerging markets is a key strength and the key opportunity. I am very pleased both with our current performance and our future prospects in these fast growing economies. Consequently, we continue to build IFF for the future. As a result, we remain focused on our strategic priorities, growing our market share by helping our customers win, increasing profitability by improving effectiveness and efficiencies, and the outsourcing initiative Doug mentioned is representative of these efforts. We will continue to invest to meet the needs of the future. For example, we are investing in new and larger creative facilities to drive future growth in China, Brazil, and here in the US. These are key assets which are integral to winning new business. Our goal is to build a stronger company based on materials excellence, in-depth understanding of consumers, and superior creativity. I believe by focusing on these strategic comparatives, IFF will deliver on its financial goals. And now, Steve if you can help me, we will open up the call to take questions.

Certainly. (Operator Instructions). Our first question will come from Douglas Chudy from KeyBanc.

Good morning

Hi Doug.

Hi. I just want to check with you, you noted the inventory correction in Q1. Do you think this is largely complete or should we expect this to flow through into the next quarter or next couple of quarters?

Doug, as I indicated it’s really impossible to know whether or not it’s complete until after the fact. I think the overhang remains with us. I think it will be an impact in the second quarter and will slowly diminish over the course of the year.

Okay. And secondly you mentioned that new project activity picked up year-over-year in the first quarter, is this on a consolidated basis, can you maybe breakout what you are seeing in Flavors versus Fragrances? I assume maybe the Flavor side was a little bit stronger?

Well, I actually I made the comment referencing Fragrance and it’s interesting to know we are seeing a pickup of Fragrance projects here in the United States and that’s very very good and as I said we are winning up a good share of those things. So I feel better about the Fragrance business as we move through the year. The Flavors business is doing terrifically around the world and the activity is up, the win rates are up, we are winning in the categories that we said. I mean, Doug indicated, but I have to tell you, I am really impressed with our Flavors team and what they are achieving.

Okay. And just finally, one other question. I know you don’t provide specific guidance, but given the current state do you think that the Fragrance in a tough start to the year, the Fragrance segment can get I guess local currency growth positive in 2008 or you think that may be a challenge at this point?

I think at this point in time, first of all, we have very difficult comparisons in Fragrance for the first half of the year and that will certainly be an element, but only an element. But I think we are seeing very good growth outside the United States and while, as Rob mentioned, you have to be somewhat cautious about the US market. We are pretty confident that overall we will deliver local currency growth for the Fragrance business unit during the course of ’08.

All right. Thank you very much.

Thanks Doug.

(Operator Instructions). Our next question comes from Jeffrey Zekauskas from JP Morgan.

Good morning. This is Silka Koopf for Jeff. How are you?

Hi Silka. Good morning.

I have got a couple of questions. Can you breakout the 1% local currency growth by volume and price or can you just generally talk about prices in the quarter?

Silka, there was not a measurable price increase impact in the quarter. As we mentioned, we passed through some price increases on the Fragrance Ingredients, but that was just an element, but it’s really overall that 1% is primarily volume related and driven by the new wins and volume increases on existing creations.

Secondly, related to the restruction you are taking and on cost savings that may slow some of the income statement in the second half of the year, what benefits should we be looking for, like could it be like 1 million or 1.5 million a quarter in savings beginning in the second half or is that too larger number?

I would prefer at this point in time not to quantify. As I said, we expect some savings to begin in the second half of the year. But at this point in time, it’s probably a bit premature to quantify that Silka. But it does bear mentioning that these are one of the things that we’ve talked about in the past as a contributor towards our getting to that 18% plus operating profit as we exit 2009.

And maybe a last question, I’ll get back into queue. On the -- there has been very strong growth on the Flavor side, and can you at all disaggregate what amount is due to share gain, market share gains, what portion is due to new product introduction and at what rate the base business has grown?

That’s great question, Silka. We had really good market data we would be able to give you good analysis. We think there is a decent market share gain and the market share gain comes from new wins. I mean, you either have growth in existing business, growth and erosion in existing business and then the new wins. So Doug, I would imagine it’s about half and half.

Yes, pretty close to that. I think, Silka, we do have some disclosures in the MDA portion of the Q, which depending on how you print it off, I have it on page 14 in mine, but it provides a breakdown of some of the new wins and then the balance of the growth in those regions was volume related.

Okay. That’s helpful. Thanks very much. I’ll get back into queue.

Thank you.

(Operator Instructions). And we have a follow-up question from Jeffrey Zekauskas, JP Morgan.

I’m sorry. I guess I'd just stand in the call. I had a question related to the encapsulation technology and you mentioned that you launched a new product on the functional side related to encapsulation technologies. In which region was it launched? And just like, how many products are in the market today on the functional fragrance side that use encapsulation technology?

We have had two major launches, we’ve got some other ones, but we have got one major launch in Europe and then we had one major launch in this quarter in Latin America. And I’m very pleased with the response in the marketplace. Both products have gained meaningful amount of market share against their competitor products, our customers are happy, and it’s a demonstration of the technology. So we remain very very optimistic about the potential of encapsulation to help our customers.

And maybe just follow-up on that. If I look at the functional -- if I look at the local currency growth on the functional fragrance side of 3% this quarter, is that something you think may be sustainable throughout the year like a similar rate given the -- given like the success on encapsulation and maybe other products?

I think the 3% is definitely sustainable. If you take a look at what’s going on in North America. If we just get North America stabilize a little bit, you can envision numbers well above the 3%. This is really a tale of two cities in Fragrance, I mean you had all other and then you had North America.

Right.

And, if we understood North America was going to be weak we are working in and that will improve not quickly not dramatically, but it will improve. And to the extent that the inventory corrections starts to be behind this, we’ll see much better numbers. But outside of North America, we are seeing really excellent growth in functional fragrance and certainly flavors on a global basis.

So, if I had to summarize, like to me it sounds that some of the -- on the Fragrance side that local currency growth and functional maybe improved throughout the year. Fine Fragrances maybe a bit challenging just because it’s been weak demand, it’s not really clear what the inventory levels are on the retail level. Ingredients business may have a little bit of headwind because of some of the probably like lower margin product that you chose to exit, which over time should then improve the margin and Flavors has a good win rate and a good rate of growth, which it seems to expect to continue throughout the year?

I think you’ve summarized the quarter very effectively.

Okay. Thanks very much and I will stay on for the call.

Thank you, Silka.

Thank you.

Steve, any more questions?

Yes. Our next question comes from Erik Sjogren from Morgan Stanley.

Yes, good morning.

Yes, good morning.

Good afternoon, Erik.

Good afternoon. Thanks. I just had two quick questions. First on the bit more color on the North America fragrance market. Could you talk a little bit more about which category is it, which is driving this weakness? Is it really just the perfumes or is it across all the different one? And also within the Fragrance Ingredients, is discontinued price pressure here or is it the actual volumes, which are falling off? And then secondly, just on the margin, nice seeing the SG&A coming down so much as a percentage of sales, is this kind of a leverage sustainable during the rest of the year do you think or was it mainly related to this compensation expense during the first quarter? Thanks.

I will try to answer each of them and if I overlook one healthy factor that’s a lot. First of all, I would encourage you to take a look at the table in the 10-Q because we explore the sales by area, by region or by product category by region. And North America was most products decline in Fine, but Functional and Ingredients following that because Ingredients follows Functional, and we think that is, as I said, some decline in consumption but certainly in inventory correction.

Okay.

Okay.

And I certainly don’t anticipate that we are going to see that continue. I expect that will improve through the course of the year. Don’t look for an enormous balance from the second quarter but certainly in the latter part of the year, this should be strong. Now, Fragrance Ingredients, there is a lot of good things going on there. Last year we saw pricing pressure. I said we will, on our December call that we were addressing it, we have gone to the market on these materials and increased prices. We saw a very modest amount of that in the first quarter. Those will be -- those increases will be more evident as we move through the remaining quarters of this year. So you did see an improvement in margins in the first quarter and there will be further improvement in margins as we progress through the course of the year.

Okay.

Okay.

And maybe you asked about Fine Fragrance.

Erik, if you look in the Q as Rob said, we breakout the category performance by geographic region. I think that we talked about it a bit. But I think your second question was on the selling and admin and can we continue at the current level. As we mentioned, the lower incentive compensation accruals, we had a very strong first quarter in 2007, which drove higher incentive accruals and they were not quite as high this quarter because our performance was not quite as good and they are very much performance-driven incentive accruals. But our goal is to continue to reduce the selling and admin expenses and that’s really why we have undertaken some of the initiatives such as the outsourcing that I mentioned on the call and those will benefit selling and admin, basically the admin expense in this case. And I think Rob mentioned in his comments that this is just an example of what we are undertaking, which means that there are other initiatives that we have to undertake to further take on value added costs out of our business and the primary tool for that is to leverage this wonderful tool that we have in SAP.

Okay. That’s great. Thanks very much.

Okay. That’s great. Thanks very much.

Okay. Steve?

Our next question will come from John Roberts from Buckingham Research.

Good morning Bob. Good morning Doug.

Good morning.

Could you compare or contrast the current economic cycle impacts on your business with past quarter cycles, is this divergence between Flavors and Fragrance performance in North America kind of unprecedented?

I guess on the causative story and I have that John so let me address that. There is a couple of differences between this one and the last let's say 2001 and dating back to the early 90s and I think that’s probably -- you can argue about the disconnect between the global economies now and or the de-linking of the global economies and I think that’s certainly an element because the growth in India and Brazil and China and Indonesia are examples, it might be effective a little bit by the US, but I don’t think it’s going to cause those economies to come to a screeching halt because they have acquired so much momentum on their own. And only the fullness of time will prove whether that assessment is correct. The second thing for us typically in an economic slowdown, it’s always been the Flavor business that is perhaps been a little bit more impacted, which is I think a surprising change for this one because Flavors, typically the food companies would really slowdown new product launches, would curtail marketing expenditures and all with the focus on driving or maintaining their earnings and I think now they are continuing to launch new products and they are really focusing on growth and so that’s probably a difference from the last two cycles that I have experienced here in North America.

Are there substantial supply chain difference that is down the Fragrance customer applications versus the food ones of it, wouldn't expect inventories (inaudible) flavors that you are seeing over on the Fragrance side?

I think the one key difference in Flavors from Fragrances is you have a much shorter shelf life for our Flavor and Fragrance compounds. Food has a shelf life whereas Fragrance as long as it's properly stored really has a very long shelf life, so that makes it just that there could conceivably be more inventory of the detergent product or a Fine Fragrance product than other snack or a beverage product.

That’s what I was trying to get at because you really got the same consumer at the end of the day, buying either a food product or a household cleaning and personal care product.

Well, there is a different dynamic if you think to John on the product development and introduction. Flavor product development is much quicker. I mean we can see things as rapidly as three or four months being in, going from development to being in the market, where in Fine Fragrance, it's always it seems to me close to a year and sometimes longer. So they are the end consumer, but how they develop the product, the intricacies of the customer supply chain and the supply chain complexity cause there a difference.

I think the other thing that has to -- our experience has shown is that the phenomenon of destocking is pretty much contained within North America. We have never seen the European or Lat Am or Greater Asia companies accumulate the inventory in their distributor chain as we have seen in North America. So that when the destocking effect happens or the pendulum swings the other way that impact is most pronounced in North America.

Has there been a shift over the past couple of cycles and a difference between Flavors and Fragrances between them, say discretionary applications of, I am thinking about a candle scent being discretionary for example, versus a shampoo scent or a cleaner scent being a basic. I mean, I don’t know what you are more exposed these days or the industry is more exposed to a lot of new things that have been introduced that I viewed as discretionary purchases by customers. I mean so that some of the functional business has become kind of like the Fine Fragrance business?

Yeah. We have not seen enough evidence to suggest there is any change in consumption in the functional area, data -to-date. Now, may be in a year’s time, we will have some different insights on that.

Okay.

And certainly, I mean let's all be open and honest on this, the American consumer, the working class family is going to face some real tough challenges over the course of 2008. They are going to be making trade offs. How they are going to make? I don’t think we understand yet nor is it evident. But so far, we have not seen a significant shift. We are seeing in the functional fragrance area more supply chain adjustments and more sort of adjustment and some push back on some of the ingredients price increases to some degree, but that’s now sort of returning to more normal levels.

Okay. My concern was that in the food side, I think a lot of the new product introductions by the customers have been new drinks, new things that might be discretionary purchases by customers, on the food side even not basic foods but more of these alternative new age beverages and so forth. But if you aren't -- you are saying you aren't seeing really pull back in Functional on discretionary type product, you don’t think you would see it in the food side either?

No good data with which to draw conclusions yet, John.

And then lastly, I thought R&D as a percent of sales might just gradually trend down a little bit because you’re going to this center of excellence model globally in R&D and that there would be some savings in that function as well. What's really the evidence of that I guess in the quarter?

You know, John to be fair I think you would have seen that come down. It was at 8.7%. North America sales just stayed flat, it probably would have been down to about 8.5%. So, long term you can’t just look at an individual quarter, you have to look at it long term and I think that long term because of a higher rate of sales growth and a very tight focus on certain R&D initiatives that the R&D expenditure will trend down closer to 8% than to 9% over the course of the next couple of years and that’s really what we have been saying all along.

We are committed to spending between 8 to 9% on R&D because ultimately we have got to develop unique materials to help our customers. They may be more powerful materials, they may be materials that enable the customers’ product to be lower cost. But we see enormous potential for new products and new materials and we are going to continue to invest. So that’s in our strategic plan to be in the 8 to 9% range.

Thank you.

(Operator Instructions). Our next question will come from Chris Leshock from Perkins Wolf.

Good morning, Rob and Doug. Have you just put any numbers around the impact of the inventory destocking during the quarter?

I think there is a couple of things you can do. First of all, we know we haven’t lost a significant amount of business in terms of it just being replaced and certainly that’s the case in Fine Fragrance where you just don’t -- you are not replaced. So, it really is an element of destocking or just a slowdown in order activity, a slowdown in the restocking activity. But I think, if my experience over the last decade has been any indication, it typically takes a couple of quarters after the destocking effect passes before you really come to grips with what the impact was. I think back to the fourth quarter, it’s rather ’03 or ’04 where we certainly had the surge in Functional Fragrance activity, North American sales for Functional jumped 20% give or take in that quarter. We knew we didn’t have any wins that would drive that order of magnitude, but it was more along the lines of the restocking because at some point in time the customer was concerned that they were going to lose the sale because they didn’t have sufficient inventory in their pipeline. So it’s 20/20 [hindsight] that will only allow us to really analyze that.

Okay. Next question I guess is probably the bigger one in my mind is you have mentioned you are seeing the raw material inflation rate tick up here and now looking at about I guess around 4% and your pricing is more or less flat. How do you tackle that 4% cost inflation, which in my opinion is probably only going to get worse here in the next quarter or two or three, how do you about getting that back?

Well, there is really two ways of going back. First of all, we have to go to our customers on some materials and get cost relief and that’s a big part of it. The other part is you design the higher cost into new products. Every time we are developing a new product, we understand the new cost and we are developing those new products with those cost in place. So, in effect, you are capturing that on a go-forward basis. We are out and we have been seeking cost relief and achieving it. So, we will get a little bit more of that but as the portfolio turns you are effectively re-pricing your materials.

Great, thank you.

And at this point, we have no further questions.

Well, thank you all for joining us, and we look forward to speaking with you in future quarters.

Thank you very much.

And this concludes the teleconference. We thank for your participation. Have a great day.