Richard O'Leary – Interim CFO Rob Amen – Chairman and CEO

Mike Sisson – KeyBanc Ryan Bennett – Barclays Silke Kueck – JP Morgan Erik Sjogren – Morgan Stanley

At this time, I would like to welcome everyone to the International Flavors & Fragrances first quarter 2009 earnings conference call. Today’s call is being recorded. All participants will be in a listen-only mode until the formal question-and-answer portion of the call. Participants will be announced by their name and company. And in order to give all participants an opportunity to ask their questions, we request a limit of one question per person. I would now like to introduce Richard O'Leary, Interim Chief Financial Officer. You may begin.

Thank you, William. Hello, everybody, and welcome to the IFF first quarter 2009 conference call. With me is Rob Amen, Chairman and Chief Executive Officer. Our earnings release and 10-Q were filed this morning and are available on our website in the Investor Relations section. As you know, during the call today, we may make forward-looking statements about the company's performance. These statements are based on how we see things today, so they do contain elements of uncertainty. For additional information concerning factors that could cause actual results to differ materially from these statements, we ask that you refer to the cautionary statements and risk factors contained in the press release and in our filings with the SEC. Some of today's prepared remarks will exclude first quarter 2008 items that affect comparability. These items are captured in our GAAP to non-GAAP reconciliations for the first quarter 2008 and are still available on our website. What we want to cover today, Rob will start off with an overview of the first quarter performance, and I’ll follow up with a review of the financial results, and following closing comments from Rob, we will then take your questions. Now let me turn the call over to Rob.

Thanks Rich. Good morning, everyone. Before I address IFF’s results for the quarter, let me make a few comments on the economy and the markets. Clearly, the economic slowdown was very sharp in the fourth quarter of 2008. And this was most pronounced in Europe and the United States. This situation carried forward into the first quarter of 2009 and remains with us today. This has had a significant impact on the Fine Fragrance business, reflecting in the combination of lower consumption and an inventory correction, not unlike what we experienced in the US in the first quarter of 2008. But this time it impacts both Europe and the US. Second, the US dollar. The dollar strengthened for our basket of currencies about 14% versus the parity rate of the first quarter 2008. And lastly, raw material and input prices remained high and increased from where they were a year ago. Those are a few things to keep into focus as we talk about our results. So now let’s turn to the first quarter operating results. IFF’s local currency sales for the first quarter were down 2%. Reported sales were down about 6%, reflecting the stronger dollar versus the euro, Brazilian reai, the Indian rupee, and the UK pound. Now, I will address the key drivers of the sales in the individual businesses later. I’d like to talk a little bit about operating margins. Our operating margins did decline, as you can see. That was due to weaker sales mix, higher input cost versus last year, and as I talked to you, the impact of the stronger dollar on translation on costs, and in selective markets on consumption. On the plus side, overhead expenses were lower. The last item to note, which was a little unusual was the close-out of…

Thanks, Rob. Turning to page nine, let’s start with the big picture. Operating earnings are down about $14 million on a reported basis. And if you exclude the unusual items for [ph] the restructuring curve and the insurance recovery in the first quarter 2008, our operating margins were down about 200 basis points. This is really driven by several key items. First, as Rob discussed, sharply lower sales and earnings in the Fine and Beauty category, with higher input costs across both businesses, and year-over-year approximately 5.5% increase across the input categories. We talked about unfavorable currency parity with the dollar up about 14% across the basket of key currencies. We are making good progress on price realization and the cost savings initiatives that are underway. But they were insufficient to offset these segments. As Rob mentioned, we closed out a $300 million interest rate swap for about $16 million during the first quarter, $4 million of which was impacted the earnings during the quarter. We also had a lower effective tax rate by about 2% compared to the first quarter of 2008. And this is really driven by the mix of earnings country-by-country as well as the closeout of about $1 million prior tax positions. Taking a look at the topline sales performance, as we mentioned, net sales were down about 6% on a reported basis that equates to about $37 million. About a quarter of that reflects the underlying commercial performance and the balance is attributable to the currency movements that we have mentioned already. Looking at the results by category and region, overall we feel quite good about the results. All the regions except for EAME were up in local currency. And the decline in EAME really reflects lower demand and significant inventory corrections for our customers…

Thanks, Rich. I remain optimistic that IFF’s business strategies will deliver against our long-term goals with growing local currency sales faster than the world economy, providing for margin expansion and trend line EPS growth. The feedback I received from our customers is encouraging. And the number and the value of new projects we have in house continues to run well ahead of where we were a year ago. I’m also realistic. In Q2, I’m not expecting any meaningful change in demand from what we saw in Q1. Excluding Fine Fragrance, I can see local currency sales, broadly speaking, to be about flat or slightly less. Fine Fragrance sales will again be weak, perhaps down as much as 20%, maybe more from a year-ago period. Currency parity will be more adverse in Q2, perhaps 15%, and this will be a strong headwind. Raw material cost escalation will continue, but I believe it will be at a lower rate. And our savings initiatives, which is showing in March, and recovery efforts, which are being positive, will continue to contribute. Our leaders and I are balancing meeting the requirements of short-term performance improvement with those of building a strong company. We are committed to our R&D and technical development programs, as these will drive value creation in the future. Our investments in the creative centers have been well received by our customers. We will continue to invest in our facilities to provide needed capacity in Asia and for improved efficiency throughout the company. I believe the people of IFF are focused on wide [ph] priorities and are delivering on their promise to make IFF a great company. Now, William, if you could help me, we’ll be happy to receive and answer the questions for people on the call.

Thank you, sir. (Operator instructions) We’ll take our first question from Mike Sisson, KeyBanc. Mike Sisson – KeyBanc: Hi, guys, good morning.

Good morning, Mike.

Good morning, Mike. Mike Sisson – KeyBanc: It looks like the -- when you take a look at your first quarter results that the raw material situation is really the big headwind -- I know Fine Fragrances was pretty weak, but when look at the little chart, the input costs refer that $0.16. So I mean, do you just sort of have to wait unfortunately till that reverses until the raw material fall before you can get some margin expansion going forward?

Well, Mike, first of all, raw material stocks is a function of flowing through the inventory, when average inventories were there for a while. We’ve begun to see the incremental purchase prices moderate, but it’s going to take a while for that to average down. And I think earlier for the fourth quarter call we said we didn’t really expect to see improvement in material cost until the second half of the year. And I still think that’s accurate. We may see some commodities come in sooner, but many of the natural materials continue to be at high level. And that has been a big drag.

And Mike, as we talked about it last time, (inaudible) several of the key contracts have either quarterly or semiannual resets. So those -- we do believe from a market standpoint that the peak levels in terms of purchase prices were late last year, but we’ve got to go through the reset process on the contracts and then have it flow through the inventories. Mike Sisson – KeyBanc: Okay. Then, on a sequential basis then, when you think about second and third quarter, it looks like in total Flavors and non-Fine Fragrances are going to hold up very well. If you assume that Fine Fragrances are about in that range that you suggested, it looked like local currency sales could be down sort of low -- sort of mid-single digits. So when you think about profitability, as we think about second, third and fourth quarter, can you see a sequential improvement sort of in that given the raw material headwind?

Sequential to what? Sequential to -- Mike Sisson – KeyBanc: To the first quarter.

To the first quarter. Mike Sisson – KeyBanc: You got it right.

I mean, I think the second quarter tends to be a stronger quarter than the first quarter and typically it is better. The revenues, as I said, I don’t expect the growth in revenues to be dramatically different from the first quarter. And cost initiatives, where they were with some moderation in raw materials, I suspect the company will operate constructively. Could I imagine sequential improvement? Yes, I can absolutely imagine sequential improvement. Mike Sisson – KeyBanc: Okay, great. And just one last -- one follow-up. Congrats in getting your CFO. Could you just give us a little bit of some background and why Kevin and what he sort of offers to IFF and why he was the right person for you? Thank you.

We were very demanding in looking for a CFO. I was looking for a partner who could help me address the strategic needs of the enterprise, who was a strong business analyst and somebody who was comfortable dealing with the complex international organization. And Kevin, I thought, fit the bill [ph] really wonderfully. He is a very warm and gauging guy. He has had a very successful career at Nestle, has been an ex-pat twice, which I think to gain a perspective on international business helps a good deal. He had broad total company exposure at Nestle. So he understands the complexity of reporting and dealing with things. He was the CFO at the Purina business following the acquisition by Nestle. So integrating a company and seeing the totality was something he was comfortable with. He has got a lot of skills. He is roughly 50. And I think he is going to be a very good partner for me and the other senior leaders of IFF. Mike Sisson – KeyBanc: Great. Thanks, Rob.

William?

We’ll move for the next question from Lauren Lieberman, Barclays. Ryan Bennett – Barclays: Hi, good morning. This is actually Ryan sitting in for Lauren today.

Hello, Ryan.

Good morning, Ryan. Ryan Bennett – Barclays: Good morning. Just a couple questions. First, in the press release, you mentioned that the company will be working on some initiatives to reduce fixed and variable costs. Can you just talk about a little bit of what these initiatives are? I’m assuming they are incremental to the restructuring in the fourth quarter.

It’s really a continuation of the things we started in the fourth quarter. As I indicated, there are some selective reductions in resources in areas that are underperforming or that don’t have the growth demands. We are clearly continuing to invest in the areas where we think have the most promising growth in the emerging markets, China, India and Brazil. We are going to be looking at facilities and see what could be done to reduce our fixed costs and simplify our footprint. There is some very, very good exciting work being done on the procurement and logistic side. I’m not really prepared to give you all the details of it, but they are aimed at having impact in the next quarter as well as the quarters ahead. Ryan Bennett – Barclays: Okay. There was an article yesterday, an adage talking about how new product launches were down 51% in the first quarter. Are you seeing a pullback in the product activity [ph] as your customers?

A good question and I try to note that. That’s something we are monitoring very closely on both sides of the house, Flavors and Fragrances. Because that really -- the largest part of our estimated [ph] cost structure is really related to the work we are developing for new products or reformulations of existing products. And as I indicated, the new projects in house are greater -- or more numerous and of greater value than they were a year ago. So we are not seeing any diminution. Now, I can’t guarantee that all those are going to be launched. But at this stage, we have not seen our customers pull back from the commitment, maybe some change in shift. There has been more focus on taking cost out of products and reformulating to avoid materials, but we still see a very healthy flow of products with our customers. Ryan Bennett – Barclays: And just to follow up on that, if new product activity, I guess (inaudible) IFF is one that are launched, that really is the best for I guess most -- you know, that's the biggest way that IFF gained market share, right? It’s actually by launching those new briefs?

Yes. Organically, that’s the best way. I mean, what it does is it not only gives us more of our customer, but if we help our customers with that, we will grow as they grow their share in the market. Ryan Bennett – Barclays: Okay. And I guess my last question is really is for Rich. I just wanted to ask about on the tax rate for the year, I think last time the guidance was somewhere around maybe 27% to 27.5%. Is that still your anticipated effective tax rate? Was there anything special in the first quarter that we should be thinking about? Because I think the tax rate was a little bit lower.

Yes, it was lower than last year. As I mentioned in my comments, there was about $1 million of closeout of provisions and positions that we earned previously that helped in the first quarter of 2009. If overall sales stays equal through the end of the year, I’d say we have an opportunity to be in between set 26.5% and 27%. So, no major changes. Most of the difference between this quarter and last year was just where the mix of earnings were and the mix of the performance country-by-country. Ryan Bennett – Barclays: Great. Thanks very much.

Yes.

(Operator instructions) We’ll move to our next question from Jeff Zekauskas, JP Morgan. Silke Kueck – JP Morgan: Good morning. This is Silke Kueck for Jeff.

Good morning, Silke. Silke Kueck – JP Morgan: Good morning. When I look at some of your customers results this morning as well as the Colgate reported and Procter & Gamble reported, what’s remarkable was sort of like I guess the amount of incremental prices that the company achieved. And so I guess I was interested in finding out how much price benefit you saw in either the Fragrance or the Flavor business in the quarter and whether that should improve throughout the year?

We have continued to -- we talked about the price increases that we initiated to a large extent the latter part of last year. We continue to make progress on that. What I would say is, as we head into the second and third quarters, those benefits year-over-year will be down because we started to get particularly in the Ingredients business price increases in the second quarter.

They will be down, they will be less.

Well, less of an increase. Less of an increase than what we saw in the first quarter. Silke Kueck – JP Morgan: How much was it in the first quarter?

It was about $20 million pretax. Silke Kueck – JP Morgan: And was it mostly on the Flavor side or did the Fragrance business benefit as well?

Both businesses benefited from it. It’s about a third of that on Flavors and two-thirds of that in both the Fragrance and Ingredients business. Silke Kueck – JP Morgan: That’s helpful, thank you. Maybe I can ask one more question. When I look at your EPS waterfall, what is the impact from lower volumes to earnings?

The commercial impact of about $0.03 really takes the pricing impact net of volume and mix. And so you’ve got the positive $20 million and then you have about $17 million combination of volume and mix going the other way.

The most pronounced volume decline was in Fragrance. Other than that, volume was fairly flat.

The price was about $0.18 to $0.19, and then the volume and mix was $0.15, in that range. Silke Kueck – JP Morgan: Okay, that’s helpful. And maybe one cash flow question. What is your expectation for capital spending this year? And should working capital at the end of the year be a contributor to operating cash flow?

I think we will be in the range of low $80 million in terms of CapEx, assuming that the market stays where we expect it to be. We’ve talked about that earlier. And then in terms of working capital, clearly we’ve got initiatives internally to reduce working capital and I expect we will have a year-over-year benefit. Silke Kueck – JP Morgan: Thank you very much. I’ll get back into queue.

Thanks.

Thank you, Silke.

(Operator instructions) We will take our next question from Erik Sjogren, Morgan Stanley. Erik Sjogren – Morgan Stanley: Yes, good afternoon.

Good afternoon.

Hi, Erik. Erik Sjogren – Morgan Stanley: I just had a very quick question. On the destocking, I mean, looking at the -- listening to the staples [ph] company’s visibility obviously, it’s quite low across the supply chain. But have you noticed during the first quarter and now in April any kind of shift in the -- or I should say, normalization in the order patterns or any kind of indication that the destocking is at least tapering off, so to say, versus the fourth quarter and early this year?

Yes. We have been destocking broadly across either business. The destocking that is very, very clear is Fine Fragrance. And that’s with a number of the Fine Fragrance accounts. But Europe, I think there is some decline, but it’s hard for me to separate the destocking from consumption declines because of the declining economy. The economy in Southern Europe is off so much. But we haven’t seen too much pronounced outside of that, and so I can’t tell you that it’s shifting around. So one of the reasons I feel so good about the Flavors business performance, you would have thought that the consumption and destocking in North America would have been more adverse. And in the fourth quarter and again in the first quarter, our Flavors in the US showed very, very solid, good growth in sales. Erik Sjogren – Morgan Stanley: Okay, great. Thanks very much.

It appears we have no further questions at this moment.

Well, I do appreciate you taking the time to be with us. It’s an interesting time and I’m pleased with the overall performance of the enterprise. Fine Fragrance team, I think, is doing a very, very good job in a tough market condition. And I know the initiatives that both businesses have underway to both grow their topline, improve their cost structure are showing good progress and will continue. And I look forward to reporting on the progress of that in the next couple of quarters. Thank you very much and good luck too.

And that concludes our conference for today. We thank you for your attendance.