International Flavors & Fragrances Inc. (IFF) Q2 2020 Earnings Report, Transcript and Summary

At this time, I would like to welcome everyone to the IFF Second Quarter 2020 Earnings Conference Call. All participants will be in a listen-only mode until the formal question-and-answer portion of the call. I would now like to introduce Michael DeVeau, Head of Investor Relations. You may begin. Michael DeVeau - International Flavors & Fragrances, Inc.: Thank you. Good morning, good afternoon and good evening, everyone. Welcome to IFF's second quarter 2020 conference call. Yesterday evening, we distributed a press release announcing our financial results. A copy of the release can be found on our IR website at ir.iff.com. Please note that this call is being recorded live and will be available for replay. Please take a moment to review our forward-looking statements. During the call, we'll be making forward-looking statements about the company's performance, particularly with regard to our outlook for the third quarter and full year 2020. These statements are based on how we see things today and contain elements of uncertainty. For additional information concerning the factors that can cause actual results to differ materially from our forward-looking statements, please refer to our cautionary statement and risk factors contained in our 10-K filed on March 3, 2020 and in our press release, all of which are on our website. Today's presentation will include non-GAAP financial measures, which exclude those items that we believe affect comparability. A reconciliation of these non-GAAP financial measures to their respective GAAP measures is set forth in our press release that we issued yesterday and which is posted on our website. With me on the call is our Chairman and CEO, Andreas Fibig; and our Executive Vice President and CFO, Rustom Jilla. We will begin with prepared remarks and then take any questions that you may have. With that, I would now like to introduce Andreas. Andreas Fibig - International Flavors & Fragrances, Inc.: Thank you, Mike. Good morning and good afternoon, everyone. Before I get into some of the highlights and key accomplishments for the first half of 2020, I would like to take a moment to recognize essential workers around the world, including some of our IFFers who continue to fuel our global supply chain and keep our economy moving forward. Your strength and dedication are truly commendable and I thank you for your efforts. While we continue to operate in challenging times, I'm proud to say that our employees have continued to meet and exceed the needs and expectations of our customers around the world. Today, I will focus my remarks on a review of the highlights from the first half of 2020, as well as an update of business dynamics with regards to COVID-19. Rustom will then provide a more detailed review of our Q2 financial performance. Lastly, we will provide an update on our progress towards completing the previously announced transaction with DuPont N&B. There is no question that over the last several months, our business has been operating in a very difficult environment. Nevertheless, we have acted quickly to maintain continuity across our global operations in 44 countries, while simultaneously integrating the Frutarom business and establishing the foundation for our pending combination with DuPont N&B. I'm extremely proud of what our teams around the world has accomplished as we continue to move our business forward and tirelessly serve our customers. In this uncertain environment, our business has proven to be resilient. Fortunately, approximately 85% of our portfolio serves end markets that remain in high demands for COVID-19, including food, beverage, hygiene and disinfection. Our strong performance and growth in these areas, which in the first half of 2020 was approximately 5% on a currency neutral basis, helped to partially offset expected weakness in our segments that have been most affected by the pandemic. These markets, including Fine Fragrance and Food Service, have been particularly sensitive to the downward pressure of the pandemic and have seen a double-digit decline over the first half of 2020. The challenges of 2020 also affirms to us that IFF plays a vital role in the global CPG supply chain, especially for the world's most import manufacturers in food and beverage, as well as essential home, personal care and sanitation supplies. IFF's broad-based exposure across regions, categories and customer positions us to remain resilient through the ongoing challenges brought about by the pandemic. Amid these challenges, we remain on track with our Frutarom integration efforts, with only modest delays due to COVID-19, achieving very good cost synergies. We continue to expect to have majority of the integration completed by the end of this year. Similarly, we continue to make significant progress with our efforts to complete our merger with N&B. We have now achieved regulatory clearance in the United States, China, Colombia and Serbia. We have filed our definitive proxy statement and look forward to the shareholder award on August 27. We continue to make significant strides in our integration planning, which is very exciting when you consider the long-term potential of the combined businesses. As we shared in our business update in June 8, 2020, we remain cautiously optimistic in our outlook for the remainder of the year. The pandemic continues to be significant and a volatile factor in our lives. It creates uncertainty around the world, with rapidly changing operating environment and economic impacts. We are fortunate that a majority of our end markets continue to operate with relative strengths, but, as we have discussed before, our business is not totally immune from disruption of the pandemic. Turning to slide 7 and an overview of our financial performance in the first half of 2020, the first two quarters, we achieved $2.5 billion in sales, with currency neutral sales growth of 1%, which is largely attributed to the strong growth we saw in the Consumer Fragrances, which grew double digits and Savory Solutions, which was up mid-single digits. We also generated an adjusted operating profit of $478 million and adjusted EPS of $2.99, both excluding amortization. While this performance is moderately down year-over-year, these metrics reflect pressure from lower sales volume and adverse mix, as well as higher costs as a result of COVID-19. Through the prioritization of CapEx and improving our core working capital, I am pleased to report that we are able to generate significant free cash flow. For the first half of 2020, cash flow improved double digits, with operating cash flow increased 12% and free cash flow growing a very strong 94%. I'm encouraged by the resilience of our business through incredible challenging environment of the second quarter, where we saw the global peak to-date of regulatory restrictions. Moving to slide 8, I would like to walk you through IFF's effort and approach to managing through the pandemic, while ensuring the safety of our employees and our continued uninterrupted partnership with our customers around the globe. As our teams have led a truly admirable performance to deliver through the challenging period, we have also begun to look ahead to our operations in this new normal. Like I've said before, ensuring the health and safety of our employees has and always will be our utmost concern and is number one priority at IFF. As many countries and cities have begun to reopen and are moving out of complete lockdown, we are keeping a close eye on the recommendations of local and global public health officials, especially as it relates to implementing our return to work protocols. With each region recovering along varying timelines, our approach is to evaluate each of our facilities and offices on a case-by-case basis. While all of our manufacturing sites are open and operating fully, most remain limited to essential employees only. As for our corporate offices, all of our non-essential employees continue to work from home as of right now. Logistics remain an operating challenge, with lead times still higher than they would be on a normal basis, but we have been able to adapt fairly quickly to new local policies with minimal incremental expense. On the procurement side, costs remained elevated, as there are still some challenges in obtaining various raw materials. We are proactively addressing the situation to secure these necessary materials going forward and evaluating opportunities to mend processes of our supply chain for the future. Finally, when it comes to our creative centers, I am proud to say that even amid a global pandemic, in typical IFF fashion, we are creating innovative solutions to support our customers, whether in person or remotely. As restrictions and closures ease, we have already seen significant improvement in our pipeline. With that, I will turn the call over to Rustom, who will discuss the Q2 results in greater detail. Rustom F. Jilla - International Flavors & Fragrances, Inc.: Thank you, Andreas. Good morning and good afternoon, everybody. On slide 9, we've outlined a more detailed look at our financial performance in the last quarter. On a currency neutral basis, IFF generated $1.2 billion in sales, down 4% when compared to Q2 2019 and primarily driven by weakness in Fine Fragrance and Food Service, which represents approximately 15% of our portfolio. The remainder of our portfolio, which includes food, beverage, hygiene and disinfection products, collectively grew 2% in the quarter on a currency neutral basis, though offset by a 38% decline on a currency neutral basis in Fine Fragrance and Food Service combined. In addition to lower sales volume, we were impacted by an adverse sales mix and unfavorable price to raw material costs in the quarter, which pressured our operating profit excluding amortization and offset operational expense savings in the quarter. Despite a lower effective tax rate and more favorable other income, therefore, our adjusted earnings per share, excluding amortization, was similarly impacted in Q2, driven by the decline in operating profit. Before moving into the details, I want to take a moment to remind those that are new to the IFF story about the currency neutral sales growth methodology difference between the way we report our growth and our competitors report. For a variety of reasons, many of our sales transactions in the emerging markets occur either in US dollars or other hard currencies, or are indexed to hard currencies when we have to invoice in local market currencies. When reporting our currency neutral sales growth, we exclude these foreign exchange-related prices in emerging markets. But this is different from our peers. We believe our reporting standard provides investors with a truer assessment of underlying currency neutral growth, especially when there are large emerging market devaluations relative to the US dollar or euro. However, it's important to have all of you understand our performance relative to competition. During the second quarter of 2020, the stronger USD environment, plus significant emerging market devaluations year-over-year in several key markets, had approximately a 2 percentage point currency impact on growth, if we include emerging market pricing. Factoring in this comparability adjustment, our second quarter sales decline would have been 2% rather than 4%. Turning to slide 10, it's important to take a closer look at the underlying dynamics of our various business segments. In our first quarter 2020 conference call, I presented this slide in the outlook section as I believed it provided a good summary of the many moving parts we saw at that point in time. As we now see, much of what we expected and communicated came to fruition. As we've said before, we remain fortunate that most of IFF's business serves end markets and categories with relative strength. The categories most exposed to temporary disruption of customer access to retail markets, such as Fine Fragrance and the away-from-home channel, such as Food Service suffered. And yet, increased demand for products used in packaged food, beverage, hygiene and disinfection categories has led to strong results in Taste, excluding Food Service and in Consumer Fragrances. In our Fragrance Ingredients business, demand is strong. Yet, the pandemic created a raw materials headwind as we prioritize the use of our Fragrance Ingredients to support our Fragrance Compounds business forgoing external sales. I'm happy to report that in the month of July, as restrictions have eased, we have seen that the business has returned to growth, a trend that we expect to continue in the third quarter. As we approach the new normal in many regions across the world, we expect that the supply chain complications will ease and demand for away-from-home products will slowly return. Looking at slide 11, I'd like to review the underlying drivers impacting our profitability in the quarter. COVID-19 has clearly had an impact on profitability, significantly influencing volume, mix, and costs. The year-over-year change in profitability is mainly a result of a significant drop in volume, representing approximately half of our adjusted operating profit decline. Unfavorable price to raw material costs also impacted profitability, primarily in Fragrance Ingredients where prices were reduced to reflect future commodity cost reduction and where we are working through higher cost inventory. Unfortunately, with the steep decline in Fine Fragrance, sales mix was unfavorable and we also saw incremental COVID-19 manufacturing and procurement costs. To minimize these impacts, we were focused on disciplined cost management and continued productivity, both helping to protect profitability during this difficult time. We were encouraged by the realization of cost synergies from the Frutarom deal and expect this will remain core to our profitability story as we see revenues return in the coming quarters. Now, looking at our Scent division on slide 12, currency neutral sales declined 4% in the quarter. I'm happy to share that for the third quarter in a row, we achieved double-digit sales growth in Consumer Fragrance, which can be attributed to robust growth in fabric, home, hair care, and personal wash. And while we did benefit from COVID-19 in some areas through higher volume, our commercial performance, or new wins was very strong, nearly 50% higher than our previous five-year average for the second quarter. Also the new core lists (16:34) where we recently gained access, core to our 2021 strategy, grew more than 85% in the second quarter and represented nearly 20% of our Consumer Fragrance growth. At the BU level, this was offset largely by the 40% sales decline in Fine Fragrance due to the disruption of our consumers' ability to reach retail markets and reduced travel needs. This had an adverse impact on volume in the existing business, which was down double digits, as well as new wins which traditionally are very strong but were also down as a result of COVID-19. We also saw lower Fragrance Ingredients external sales as we prioritized our Fragrance Compounds business due to supply restrictions in India. This has now improved, and we expect performance will continue to improve going forward. Cumulatively, the Scent business had sales of $450 million, down 4%; and a segment profit of $70 million, down roughly 25% at a 15.6% profit margin. Now, moving to Taste on slide 13, we saw currency neutral sales decline 5% in the quarter. From a category perspective, as COVID-19 restrictions kept consumers from eating outside their homes, away-from-home channels, such as Food Service, saw a significant 36% decline in the quarter. To put this in context, the decline in Food Service represented about 5 percentage points of the sales decline, meaning the business would have grown, excluding Food Service. From a regional perspective, North America showed resilience, yet emerging markets underperformed, given significant COVID-19 driven regulatory restriction in places like India and Latin America. India alone, which represents about 4% of total Taste sales, saw sales drop by almost 30%. From a customer perspective, we saw weakness across smaller local and regional customers, mainly Food Service. This was most evident in Frutarom, where standalone sales declined high-single digits in the second quarter. Discontinued Frutarom businesses, which will not be in the comparative periods going forward, remained headwind in Q2. So, for Taste overall, the business had $748 million in sales, down 5%; and segment profit of $107 million, down 15% for a 14.3% profit margin. Now, turning to slide 14, I'd like to provide an overview of IFF's cash flow performance and it's probably more useful to look at this year-to-date. The chart on the left is designed to show the reconciliation from reported net income to free cash flow, inclusive of all the drivers. Operating cash flow was up 12% in the first half, which was primarily due to improvements in core working capital levels in Q2. Within core working capital, the improvement was largely driven by days payable outstanding, while days sales outstanding ended better than expected. We will continue to effectively manage our balance sheet by taking actions to generate strong cash flow and to maintain ample liquidity even during a prolonged global downturn. We also continue to invest in the business, especially as we work towards completing the Frutarom integration. Our capital expenditure as a percentage of sales was roughly 3.1% compared to 4.6% the previous year. The improvements in core working capital levels combined with the prioritized CapEx structure has led to strong free cash flow of $128 million, up 94% from the year ago period. Reflecting our confidence in our future cash flow generation, we are pleased to announce that we are raising our quarterly dividend by 3% to $0.77 per share. This marks 11 years of consecutive dividend increases and underscores our confidence in our business, our long-term strategy, and strong cash flow generation. Moving forward, we will continue to take a thoughtful approach to managing cash flow, continuing to prioritize the focus on core working capital and CapEx. Before passing back to Andreas, I want to take a moment to provide an update through the first month of the third quarter. On slide 15, you can see our sales trajectory during the first half of 2020 and the marked rebound we have seen unfold in the third quarter so far. We started the year strong in January with mid-single digit currency neutral sales growth. And although the emergence of COVID-19 impacted sales from mid-March, we are starting to see a notable performance in – improvement in performance in July. As global mobility is gradually improving and restrictions and closures are eased, the categories and markets impacted in Q2 are showing promising signs of improvement. Should the environment continue to improve, we're quite hopeful that we can regain a more normalized level of growth. And with that, let me turn back to Andreas. Andreas Fibig - International Flavors & Fragrances, Inc.: Thank you, Rustom. Now, as we consider what the remainder of 2020 will look like for IFF, we're doing our best to anticipate performance in a global environment that remains quite volatile and unpredictable. We are actively evaluating evolving global market dynamics and regulatory conditions to understand and anticipate how these factors will impact our business performance, our people, and our customers. We are proud to supply solutions and ingredients for essential products in the food, beverage, hygiene and disinfection product categories, especially as these drive 85% of our current portfolio. As Rustom has stated earlier, our July sales performance has improved, growing in low-single digits. Consumer Fragrance continues to grow double digits and we are seeing a double-digit trend in Cosmetic Actives. Fragrance Ingredients had also improved as restriction eased, growing mid-single digits in July. In Taste, growth in Flavors in North America led by Tastepoint is more than offsetting pressure in Latin America. And we are seeing robust double-digit growth in health-oriented products, as well as an improvement in natural colors. We do, however, anticipate that Fine Fragrances and Food Services will remain impacted by market pressures in the second half of the year, but expect improving trends versus what we experienced in Q2. A good example of this is that our gelato ingredients, a category severely impacted by COVID-19 in the second quarter is now up low-single digits to-date in the third quarter. As we enter the second half of 2020, we will continue to effectively manage our business by taking actions to generate strong cash flow by targeting reductions in operational and capital expenses. With the positive signs of improvement in our performance that we are beginning to see in the third quarter, we remain cautiously optimistic that we will see further market improvements in the quarter and beyond. Turn to slide 17, I'm very pleased to share with you now an update on where we stand with the integration planning of our previously announced merger agreement with DuPont N&B. We made a lot of headway in the first half of 2020, reaching key milestones like clearance in the US, China, Colombia, Ukraine, and Serbia, regulatory processes and announcing our combined company's progress vision, operating model, and leadership team. We are well on our way to establishing the foundation and framework that will be essential to achieving the potential of this exciting combination. More recently, in July, we filed definitive proxy and set the date for our special shareholders' meeting in connection with the merger which will occur later this month on August 27. We expect to earn our shareholder support for this exciting combination in the coming weeks, and remain on track to completing our transaction and uniting our organization in the first quarter of 2021. In summary, I'm proud to say that IFF has stayed resilient through the first half of 2020 amid the unprecedented circumstances of COVID-19. We have achieved solid financial performance, while delivering for our 30,000-plus customers globally and executing on the integration processes for Frutarom and N&B. As we have said before, IFF plays a central role in the global CPG supply chain as a vital partner to world renowned brands, regional leaders and new innovators alike. Our position across end markets, customers with our global reach has created a real resiliency in our business that shines through these difficult times. With Frutarom, we are realizing the significant potential that our enhanced capabilities and expanded customer base will have for the IFF's long-term growth. Similarly, we look forward to joining forces with DuPont N&B and have made significant advancements in our integration planning and paths to regulatory and shareholder approval. I am deeply grateful to our employees across the globe, whose commitment and dedication to IFF and our customers has been unwavering. We have started to see improvements in our performance in July and remain cautiously optimistic about how this may translate into financial performance in the second half of 2020. IFF and our balanced portfolio remain well equipped to adapt and succeed in this unpredictable global environment. With that, I would now like to open the call for questions.

We'll take our first question from Mark Astrachan with Stifel. Please go ahead. Your line is open.

Hey, good morning, everybody. Andreas Fibig - International Flavors & Fragrances, Inc.: Good morning.

I guess just to start. So, if you look at the broader share trend, even normalizing for how you're accounting for FX relative to peers, it seems there's a bit of an increasing divergence in your results for sales versus those of the largest F&F peers. I guess, I'm curious. Do you see the same thing, or it seems somewhat obvious to the folks from the outside in? So, I'd be curious to that perspective. And then if so, what is driving it and when should we anticipate those trends to normalize? And sort of related to that, it would seem, maybe, to trace back to the Frutarom deal. So, if true, what are you doing, best practices and such that you're putting in place, so as to not repeat those when you close the DNB (28:09) deal early next year. Andreas Fibig - International Flavors & Fragrances, Inc.: Sure. Thank you, Mark, for the question. I'll take it. As you alluded, certainly, it's good to take the FX reported numbers and compare apple-to-apples. I think that's number one. Number two I would say, we should judge our performance beyond just one quarter and should look at multiple quarters. And if you see, for example, in the first quarter, we led our industry in growth. I think that's a topic. The second one is, if you look at Q2, the emerging markets were pretty much under pressure. And you see that we are a bit over-indexed in the emerging markets. For example, India, we're a market leader in India with our Taste business, for example. That was actually a pretty bad hit on that business, which is, by the way, rebounding. And then we are – certainly, we're winning some smaller customers, which plays a role here as well. Fundamentally, I believe both will help us with our long-term growth, the smaller customers and the emerging market as well, as soon as we see the COVID pressures are easing. And if you look at July, I expect, actually, that the third quarter already will be – will look much different than the second quarter. That's what we have seen in our numbers for July. I think Rustom has shown it in his slide. We see it, in particular, in some of these areas where we have a good and strong performance on Consumer Fragrances, for example. You see that categories like home care or personal wash are really up in very, very high single digits. We believe that's a trend to stay. So, hygiene products will stay even after the, let's say, acute COVID crisis, quite as strong. We see a good rebound already in Fine Fragrances, so not as bad as we have seen it before. And the same holds true actually for Food Service. I just looked it up. April was our worst number and Food Service was down by 44.1%; in July, it's down by minus 7.7%. Just to tell you that the weak spots I think are improving, and the strong pieces of the portfolio are staying strong and helping us to grow our business going forward, which will help us with our mix going forward in the third quarter as well. I hope that helps, Mark.

Sure. Thank you. I guess just somewhat related to that, maybe sticking on the commentary about June versus July. So, I guess, I was surprised a bit that June was worse, given that most of your customers kind of talked about sequentially improving trends through the second quarter. So, maybe why, beyond the obvious, the comparisons for you are easier in 3Q, why did you see this improvement beginning in July? Why was June a bit worse? Does it speak to inventory levels for customers? Is it just simply third quarter, people started ordering more product? Where do you think inventory levels are for those customers? And how do you think about the durability of what you just said about July through the quarter? Andreas Fibig - International Flavors & Fragrances, Inc.: Look, on inventory levels of the customers, it's tough to comment on, because we see huge differences from customer-to-customer, from region-to-region, and category-to-category. That's a big difference. I would say July is better for us because some of the categories which were hard hit in the second quarter, like Food Service, are improving better. That's certainly helping and that some of the emerging markets like India, for example, are performing much, much better. In July, we have actually a double-digit growth going forward and that helped us a lot. Why June had a little bit of a dip even compared to May? If I look at our daily sales, it's not so much. I think it's a comparable. I would not take this too – I think it depends also on the order pattern and what we see right now, as I said, July pretty strong for us and the order book for the third quarter is up mid-single to high-single digits as well. So, I believe that the trend will continue. So, it's a bit of phasing in there as well. But, Rustom, you please or Mike, you please comment. Rustom F. Jilla - International Flavors & Fragrances, Inc.: No. I agree, Andreas. I would just – you've seen the phasing, you've seen the average daily sales. There's no deceleration in the numbers. And then coming through into July, I mean, you've seen a very nice – we've seen a very nice in comparative terms pickup in areas that were like Fine Fragrances where – compared to where they were going through May, and then June, and where July is, and then Food Service, as Andreas said. So, nothing, but reiterating what he said really there. Andreas Fibig - International Flavors & Fragrances, Inc.: Okay.

Thank you. We'll take our next question from Faiza Alwy with Deutsche Bank. Please go ahead.

Yes. Hi. Good morning. Andreas Fibig - International Flavors & Fragrances, Inc.: Good morning.

So, I wanted to just shift gears a little bit actually, and talk about N&B because it feels like – so you have your shareholder vote at the end of this month, and it feels to me that the deal might close soon after that, maybe earlier than your target. And I'm looking at slide 17 and I was wondering, Andreas, maybe if you could give us a little bit more color around how do you expect to go from at close, like the second to last box that you have on that slide to the revenue and cost synergy capture by end of year three. So, I'm sure we'll get into it in more detail as time goes on, but I was wondering if you could give us a little bit of a preview of how you are expecting things to play out from here. Andreas Fibig - International Flavors & Fragrances, Inc.: Yeah. So, first of all, our assumption is still that we're closing first quarter next year. That's actually the plan also for the carve-out of the business. I think that's important. And right now, we are focusing a lot on, let's say, closing on our food integration. So, the remaining piece of it, which will happen in the early part of the fourth quarter, I think that's important. On the N&B side, as we said, we are progressing actually absolutely according to plan, in some of the areas even a couple of days ahead, which is quite interesting during the COVID environment. I think the teams are doing really a fantastic job. We see also – and just as a remark on the N&B business, you have seen when they reported, actually a bit of growth with 1%, a strong mix. 85% of the portfolio is pretty resilient against the COVID crisis as well. So very similar and a good mix in particular tilted towards the probiotics. But maybe, Rustom, if you can comment as well on the page 17? Rustom F. Jilla - International Flavors & Fragrances, Inc.: Yes. Absolutely, I'd love to Andreas. We're – and good morning. We are also – in a very detailed way on the synergies, on the sales synergies, we have teams from within the project from the IMO, the integration team working with our business unit people and specifically identifying opportunities to have revenue synergies and what pre-work needs to be done as much as possible. Now, obviously, we can't work together with the N&B people, but we can plan together at this point in time. And so, we are trying to do that. Likewise, on the costs, I mean, I can sort of put on a functional hat for a second. I mean, we are looking at our structure, looking at their structure, looking at our systems, looking at their systems, and basically in a very methodical way going through and trying to identify opportunities to optimize the business and make it stronger and get greater revenue growth without cost and also areas where there's duplication of costs that we can take out. So, just a bit more detail, but it's moving. We want to basically hit the ground running. Andreas Fibig - International Flavors & Fragrances, Inc.: Yeah. And absolutely, and I would say on the cost savings, we're really on both parts, on the sales savings or synergy certainly as well. We have pretty robust plans in place. I just give you two numbers. We certainly have for the cost savings internally a higher number, which we are working towards. And secondly, we have started with, I think, 400 projects, which could help us with the sales synergies. We narrowed it down to around 100, to make sure that we really focus on the most important ones. And I would say these are really good and robust plans we have in place. And we still have a couple of months until day one. And – but it gives us a good feel because in some areas, as Rustom said, it's robust and we are probably even ahead of plan, which is great.

Thank you. And we'll take our next question from John Roberts with UBS. Please go ahead.

Thanks. You noted double-digit growth in Consumer Fragrance. I assume that included a decline in emerging markets outside of China. So, maybe you could peel that apart, how much was emerging markets, excluding China, down in Consumer Fragrance? And then how – actually how high was the rest of the portfolio? Andreas Fibig - International Flavors & Fragrances, Inc.: Yeah. Sure. So, we see actually a good rebound in our China business, that's for sure. But we have to say that it's not just China, we saw, for example, in July already, actually, a very strong performance of our Consumer Fragrance business in India. Actually, it might just because we looked at the numbers, it was more than 40% for July, which was kind of amazing. But it is because we had a couple of good wins and it's going very well. And we have actually a quite significant and good performance in Latin America as well, believe it or not. So, it's not just China, it is also on the Consumer Fragrance side, some of the emerging markets. Not all of them, but some of the emerging markets are actually performing better than we have expected as well. But maybe, Rustom, you give even more details. Rustom F. Jilla - International Flavors & Fragrances, Inc.: Sure. So, the emerging markets, there's – John, there's variation between the emerging markets rather than treating them as a particular group, right. India has been the outlier in terms of underperformance. But we have also had an impact in Latin America, in Brazil, and where we have switching from Consumer from – into Fine, where we have a significant market over there that we have seen come off. We don't really think that what's going on in emerging markets is necessarily predictive of what the future is going to be. I mean, it's just as you look at different countries, country-by-country on where they are in terms of the – on the curve of handling COVID is really what we're seeing in terms of Consumer, Food Service, Fine, I mean, all the areas basically. Andreas Fibig - International Flavors & Fragrances, Inc.: What might be interesting, John, for you and for all the colleagues on the phone as well, what we try, because in this very volatile environment, we have doubled down on our consumer insights' studies, and we look certainly how the Consumer looks like during COVID and what can we expect after COVID. And we have never drawn down on three scenes which we're sharing with our customers as well; it's health, home, and hygiene. So, we believe that in some of the areas, like, for example, hygiene and we see it in our Scent products we are selling there, this is a trend which will stay even post-COVID. And as I said, our home care in July, category is up by 27% and personal wash by plus-16%, just to show you what the impact on the business is because these products are so much in demand. On the other hand, it's the home area. We believe that this cocooning at home will stay at least for a couple of months through the winter. So, culinary, everything which is culinary products for home cooking will stay up. We believe that malodor control is an important one. And on the health side, we see that all of our health ingredients, most of them we got through Frutarom, are very much in high demand, that the modulation of sweet is in high demand because governments are again starting to double down on sugar and products. So what I tried to say here is, that we have looked at the consumer insights quite carefully and we are basically now looking how we can orient our organization towards these trends where we believe they will stay for a while to make sure that we get more than a fair share of growth out of these categories. So that's what we're doing, just to give you a bit of a bigger picture and an outlook beyond the third quarter. Rustom F. Jilla - International Flavors & Fragrances, Inc.: And I didn't answer the specific question by the way. The emerging market is actually mid-single digit. Just to put it in context. So not negative or anything like that, but not as strong as the developed markets, which were obviously much higher to get us to the average.

And we'll take our next question from Adam Samuelson with Goldman Sachs. Please go ahead. Adam Samuelson - Goldman Sachs & Co. LLC: Oh, yes. Thank you. Good morning, everyone. Andreas Fibig - International Flavors & Fragrances, Inc.: Good morning. Adam Samuelson - Goldman Sachs & Co. LLC: A lot of ground's been covered on the revenue side, so maybe just switching to the cost side a little bit, a lot of moving pieces in the second quarter given the volume declines in mix and COVID costs. And I'm just trying to make sure I understand kind of what happened in 3Q, if we're back to organic revenue growth. Price cost, just how do we think about that dynamics playing out over the balance of the year? Kind of what's the incremental COVID-related cost expenses you expect to be absorbing in the next couple of quarters? And just thinking about kind of the operating leverage that is or is not in the business if the revenue growth is back to the trend you saw in July? Rustom F. Jilla - International Flavors & Fragrances, Inc.: So, let me... Andreas Fibig - International Flavors & Fragrances, Inc.: Sure. Absolutely. We take this. Rustom, you take it. Rustom F. Jilla - International Flavors & Fragrances, Inc.: Yes. Thanks. Yeah. So, let me break it up and give you a thing. First of all, I'll give you the COVID-related costs, okay? And then primarily procurement, logistics and manufacturing costs. And in Q2, they were about $6 million, okay? $6 million and we would expect this to start declining as we go through the rest of the year, right? Because Q2, as we've already said, is when we thought we had the highest point. There will still be some continuing manufacturing, because as Andreas has said many times, we put the safety of our people first. And so, there are things that we are doing differently until the vaccine comes, in terms of how we manufacture. Then the second part of your question, I believe, and if I missed something, take me back. But the second part of your question was really about pricing and raw material costs, right, and what we have. So, in Q2, it was negative. I mean, our pricing actions did not fully recover our higher costs. And Fragrance Ingredients, for example, we talked about that as well. Now, moving forward, we have the oil-related costs selectively helping us as we move forward. And we should see a benefit from some of those – from – in general, the input costs, we will see a benefit coming from them, right? Definitely. We, however, will have a negative on pricing and that comes a lot from vanilla. I mean, vanilla has dropped back. It was in the 500s. It's dropped back into the 200s. I mean, it could go even lower. And so, you will see that impact on pricing. So, what we are projecting right now is for the net price to raw material costs for the rest of the year to remain negative. Did I cover the – your – both aspects of your question there? Adam Samuelson - Goldman Sachs & Co. LLC: And then just maybe following on, the cash flow performance in the second quarter was very strong. Is there any reason why that wouldn't persist in the second half of the year? Any cash flow dynamics we should be mindful of? Rustom F. Jilla - International Flavors & Fragrances, Inc.: No. I mean, we'll continue to work on cash flows. So, let me sort of just break up the components, right? I mean, first of all, on our CapEx, I mean, we've been very focused on our CapEx, very early literally from probably February or so. And we set ourselves the target of spending roughly about 10% less on our CapEx for the year than our budget. And we're running even below that, by the way, at this point in time, but that will continue. That's the CapEx, right? We're watching our cash expenses, in general, across the board. And some things are obvious and you'll see that like some things benefit EBITDA, like travel, which will keep coming through. But the other biggest one is working capital. And on our working capital, if you remember what we said even a few months ago, we deliberately moved to build up our inventories so as to avoid customer disruption. I mean, because the two things we tried to do is keep our people safe and avoid disrupting our customers, right? And so far, we've managed to do both. Inventory, we – inventory actually, because of lags in actually receiving it, we were actually a little bit better in Q1 than we expected, a little bit worse in Q2. We do expect that to start to come down now gradually as we go through Q3 and Q4 as we have built it up, right? On our DSO, which is the other big area where we flagged that we were expecting an increase, we actually did particularly well in terms of – compared to where we expected to be. And that was just, say, a lot of focused management from the teams. And that should continue and we would hope as the broad economic situation abates and things get a little bit better, we'd hope to do well on that, too. And then the last component of it was just payables. I mean, we managed that very tightly, in terms of making – sometimes accelerating payments and there's smaller suppliers that we want to keep afloat. And other times, just managing it very tightly, like you'd expect from any company of our size.

And we'll take our next question from Jeffrey Zekauskas with JPMorgan. Please go ahead.

Thanks very much. So first, could you update us on regulatory developments on Nutrition & Biosciences transaction in Europe? Why haven't we received a ruling from Europe and do you expect to get one before the shareholder vote? Andreas Fibig - International Flavors & Fragrances, Inc.: We expect actually in the August-September timeframe the ruling. We were going back and forth with them to answer the questions before the summer break. And I think in the next couple of weeks, we should get the clearance in Europe. That's what our lawyers are telling us. So I think we should be on track. Whether we can make it before the shareholder vote, I'm not 100% sure, but early September will be my best guess right now.

And then secondly, it looks like your Fine Fragrance business in the first half was down, I don't know, 25%, and maybe your key Swiss competitor was down 16%. Can you talk about the differences in like-for-like sales growth? Rustom F. Jilla - International Flavors & Fragrances, Inc.: Yeah. Look, the differences, I would say, are, probably, with the customers. If you look at many of our big Fine Fragrance customers, you see even worse performance than the minus 20%, 25% and that's what's driving it. Because the win rate in our Fine Fragrance business is still pretty good. We see also a good influx of new projects coming. And, as we said, the start into the third quarter was actually pretty encouraging, what we have seen for Fine Fragrances. So, I would say the main differences is the customer structure and how much the customers are selling of their actual products. But I actually expect that this will normalize over the course of the year, because in general, I think our win rate in that area is a very, very good one. And we will see the – and just the – the most important season is right before the holidays, that's where we sell most of our Fine Fragrances. So, end of third quarter, early fourth quarter is actually – that's where you win the year. And that's what we have to watch and I hope when we have the third quarter announcement, that we can give you more news on that one as well. I hope that helps.

And we'll take our next question from Lauren Lieberman with Barclays. Please go ahead.

Thanks. Good morning. Andreas Fibig - International Flavors & Fragrances, Inc.: Good morning.

I just wanted to – good morning. I wanted to ask a bit first about the US. So, the business was down slightly in the second quarter. It was a sequential improvement, because it was down closer to 1% in the first quarter. But can you talk a little bit about what's going on there because given the first half performance, it wouldn't seem to be specifically COVID-related? All consumer packaged goods sales are through the roof, when you kind of look at what's going on from an end market standpoint. So, what's going on in that business? Maybe have you lost any big contracts or things like that, because it's kind of fallen off because the performance there is, candidly, a bit surprising still? Thanks. Andreas Fibig - International Flavors & Fragrances, Inc.: Yeah. So, Rustom, can you take the numbers? Rustom F. Jilla - International Flavors & Fragrances, Inc.: So, yeah. I mean, I think you're – are you comparing – are you including sales of Consumer Fragrances in there as well, with the Fine Fragrances or what (51:56)?

I'm just looking at just US sales. Andreas Fibig - International Flavors & Fragrances, Inc.: In general, Taste and Fragrances, everything?

Correct. Rustom F. Jilla - International Flavors & Fragrances, Inc.: In general, our North American business has held up relatively well. I mean, we have seen – if you look at Taste and you look at some of the performance that we've had there, we haven't really seen any big disappointments. We did have the impact in Fine, specifically in North America and Europe. And that could be coloring part of our numbers there because that's where our large global customers are concentrated, right. And in terms of our Consumer business, our Consumer business did well across the board. I mean, in developed markets and I don't have the North American number in my fingertips, but if you look at developed markets, it was in the high-teens, the growth in Q2, Consumer specifically. So, I mean... (52:52)

Okay. Yeah. I think the numbers in the Q suggested the US entirely did not grow in the second quarter, nor in the first, and North America, in total, was like 1% or 2%. So, again, it is a huge contrast to what the majority of the customers are doing. But we'll look back at the Q and double check I haven't misread something that's in the filing. Thanks. Rustom F. Jilla - International Flavors & Fragrances, Inc.: Sure. Sure. And we can always follow up. We can always follow up later as well, too.

Yes. Andreas Fibig - International Flavors & Fragrances, Inc.: Yeah. That would be good. Let's follow up on that one.

We'll take our next question from James Targett with Berenberg. Please go ahead. James Targett - Joh. Berenberg, Gossler & Co. KG (United Kingdom): Hi. Good morning. Two questions for me. Just, firstly, on innovation, you mentioned that you see the project pipeline improving as restrictions are minimized. But just generally, could you talk about what you're seeing in terms of customer appetite for innovation, new product launches, generally? Obviously, we're hearing a lot of CPG companies talk about rationalizing their innovation programs, cutting tail innovations, SKUs, et cetera. So, any color you can give on your position that'd be great. And secondly, just on the – sort of the recovery momentum you're seeing in July. Can you maybe talk about a little – any sort of differences you're seeing between the momentum in your large customers, your global customers versus your smaller or more local ones? Thank you. Andreas Fibig - International Flavors & Fragrances, Inc.: Sure. Absolutely. If I touch on innovation, what we have seen actually when the COVID crisis was on its peak in Europe and in the US, so starting in March, April, even parts of parts of May, we've seen a slowdown in our innovation pipeline. Also, driven by the demand of some of the packaged food, for example, or some of the Consumer Fragrances. So, everybody was trying to get the existing product on the shelf as fast as they could. Since then actually, starting with May, we have seen actually a continuous influx of new projects, actually across the board, in all of our different categories we are playing in and there's more coming. We saw it first, obviously, in China, because that was the first country basically out of the gates in – after the COVID crisis for them and they are already almost back to normal. So, we see that many of the bigger CPGs and also the smallers are now really are back to normal. It's certainly depending customer-by-customer, but many are coming again with new projects to us. So, that's on the first one. On the second one, on the recovery, we see a recovery. We should look at country-by-country and category-by-category. Let me start with not maybe countries, but with regions. Here as well, in the recovery, Asia is now big, in particular India is surging, after India was very impacted in the second quarter. It's really coming back. We see a good comeback on Europe as well. The US is very, very good for us, maybe with the exception of the Fine Fragrance business. And we see an impact on newer projects in Latin America, where we see – and in particular in Brazil and Mexico are now at the peak of the crisis. In terms of the categories, we are happy to report back that not just everybody is looking for solutions on hygiene products, but we see also more demand and new projects on Food Service products, which is really good. I commented already on the Fine Fragrances. Fine Fragrance are coming back as well. On the customer base, we certainly see it with large customers; with smaller customers, it's probably more of a mixed situation where we are in, but some of them are coming back to us as well. So I hope that helps to picturize how we see the situation right now, in terms of innovation, but in terms of recovery as well. And as I said, look, I don't want to bank too much on just the July results, but we see that the order book is quite strong as well for the rest of the quarter and that should help us, actually, with a positive performance as far as we see it. Rustom? Rustom F. Jilla - International Flavors & Fragrances, Inc.: Yes. Thank you. And we talked a fair amount about Scent earlier on and maybe a little bit of color on our Taste categories, right? If you look at Flavors and if you exclude the impact of India, which we have covered in Food Service, right, the big negative, all our other businesses grew at around 2.5%, and that was mainly due to an increase in North America and Greater Asia, driven by strong commercial performance there and some decrease in EMEA in EAME, due to some postponed new wins, and then of course Latin America, where you have the big negative because of COVID. Savory was another strong quarter, I mean, comparatively. I mean, the in-home consumption channels were up like over 5%, call it, mid-single digits. And again, strong performance in North America and Great Asia offset by some weakness in EMEA and that was due to Food Service because we have a lot of small Food Service customers in EMEA. And then inclusions, I mean, obviously impacted a lot by COVID, but this – as Andreas said, I mean, with gelato coming back quite strongly with what we are going there since – in the last several weeks. And finally, MPS, mixed performance in there. The health aspects of it is extremely strong. And then in some of other food protection areas, there have been some delayed launches and stuff like that. So, all in all, I mean, that just gives a bit of additional color that we didn't share earlier.

We'll take our final question today from Mark Connelly with Stephens. Please go ahead.

Thank you. Just two quick things. How much differently would you run your operations if we did have a long-term shift to more meals at home, a limited restaurant recovery? I'm wondering how big a restructuring that would be for you. And second, I was just hoping you could help me understand your exposure between quick serve and regular restaurants, and whether those two trended differently as you started to see recovery. Andreas Fibig - International Flavors & Fragrances, Inc.: Look, for the meals at home, actually, we are pretty well positioned with our Savory Solutions business because we have an extra culinary area, which we're using for that area. We certainly would look and double down what we can develop here. So, I think that's an important aspect. So, I think it – I wouldn't say it would benefit us more, but it would be certainly very manageable for us as well. On QSR and retail restaurants, we have almost a similar mix. I think that's an important one. And what we see is that some of the quick service restaurants are really coming back now, which is good and it's helping us on the Food Service area as well. But, Rustom, you may comment if you have any more insights. Rustom F. Jilla - International Flavors & Fragrances, Inc.: No. I mean, it's a mix of those two. I mean, we're actually seeing the restaurants coming back as well too, if you looked at our most recent Food Service numbers. But apart from that, the quick service is clearly coming back faster.

Very good.

Thank you. And this will conclude today's Q&A session. I'll return the floor to Andreas for closing remarks. Andreas Fibig - International Flavors & Fragrances, Inc.: Yes. Thank you very much for your time. And these are very exciting times. I hope we gave you good insights on how we see the business, even beyond the second quarter. And we are looking forward to the one-on-ones. Thank you very much. Take care and stay healthy.

We'll conclude today's program. Thanks for your participation. You may now disconnect. Have a great day.