At this time, I would like to welcome everyone to the IFF First Quarter 2022 Earnings Conference Call. 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. 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 Michael DeVeau, Head of Investor Relations. You may begin.

Thank you. Good morning, good afternoon and good evening, everyone. Welcome to IFF's first quarter 2022 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 second quarter and full-year 2022. 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 forward-looking statements, please refer to our cautionary statement and risk factors contained in our 10-K filed on February 28, 2022 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. Please note that we will be using comparable results for the first quarter defined as three months of legacy IFF results, January through March and three months of legacy N&B results in both the 2021 and 2022 periods, these results also exclude the impact of divestitures and acquisitions. With me on the call today is our CEO, Frank Clyburn and our Executive Vice President and CFO, Glenn Richter. We will begin with prepared remarks and then take any questions that you may have. With that, I would now like to introduce Frank.

Thank you, Mike, and hello, everyone. Thank you for joining us today. I am pleased to be speaking with you all and excited to share perspectives from my first 90 days as CEO of IFF. During today's call, I will discuss my initial thoughts since joining IFF and highlight our key operating priorities and commitments as a company for the full-year 2022. As I've spent the last 90 days meeting with IFF colleagues and key customers around the world, asking questions, listening and evaluating our business, it has become even more clear to me that IFF has built a very strong foundation with incredible opportunities ahead. Our business has built the robust diversified portfolio and driven team needed to continue leading our industry while delivering sustainable profitable growth. Simply put, I am thrilled to lead and work along such a passion team of more than 24,000 employees with a shared commitment to strengthening customer partnerships and driving differentiated innovations. Together, we will focus every day on the operational rigor and executional excellence required to deliver even greater value for our customers and shareholders. Before moving forward, I first must acknowledge the humanitarian tragedy facing the Ukrainian people since Russia's invasion began. As we have previously stated, IFF unequivocally stands with the people of Ukraine. Our top priority remains the safety of our team members and their families in Ukraine. And like many other global companies, we are working closely with local governments to offer assistance where possible. Aligned with our core values several weeks to ago, we limited production and supply of ingredients in into Russia to only those that meet the essential needs of people, including food, hygiene and medicine. Our plan at this time is to continue to supply to the best of our ability in accordance with…

Thank you, Frank. Good morning, and good afternoon to everyone. Let's start on Slide 11 with sales performance of each of IFF's core businesses. Together, Nourish, Health & Biosciences, Scent and Pharma Solutions achieved $3.2 billion in sales revenue in Q1, representing comparable currency neutral sales growth of 13%. Of note, all our sub-businesses posted year-over-year comparable currency neutral growth in the first quarter. Nourish delivered the most substantial growth with significant broad-based strengths in our flavors, ingredients and food design businesses. Health & Biosciences similarly achieved strong sales growth having managed headwinds in the Health business. The Scent division carried a strong momentum from last year through the first quarter with strong results in fine fragrance, consumer fragrance and ingredients. Lastly, Pharma Solutions also achieved currency neutral sales growth driven by the division's continued strength in its industrial business and resume demand for pharma. In terms of sales growth contribution, pricing increased approximately 8% and volume grew approximately 5%. Turning to Slide 12, let's walk through our profitability in the quarter. First quarter adjusted operating EBITDA totaled $702 million, representing 9% comparable currency neutral adjusted operating EBITDA growth versus the first quarter of 2021. Our adjusted EBITDA margin in the first quarter was 21.8% and on an inflation adjusted basis, would have been approximately 175 basis points higher or approximately 23.5%. Margin did come in better than we expected in the first quarter through the stronger than anticipated volume growth, better cost management as well as the fact that a significant amount of our higher inflationary cost remains in inventories and did not impact the P&L to the degree originally anticipated. However, this is largely timing-related and will change as we progress throughout the year. Including our results is a charge of approximately $20 million related to expected credit…

Thanks, Glenn. Turning now to Slide 16. As I look back on the last three months, I am proud of the work underway to ensure that IFF’s next chapter is as brightest yet. Our solid results, including consistent volume growth across our portfolio reflects IFF’s critical role in the consumer goods value chain, particularly amid such a challenging operating environment. While market volatility will inevitably continue to impact our industry, we will closely monitor developments, strengthen our financial discipline and fortify our portfolio to address ongoing pressures. With the strong foundation we established in the first quarter, I remain confident in our ability to achieve our full-year 2022 financial targets, improve value creation and further cement our key operating priorities. Having begun the process of our strategic refresh, I look forward to sharing additional updates on IFF’s long-term strategic vision at an Investor Day in the second half of 2022. I know many of you have questions as it relates to my perspective on IFF’s long-term financial targets. Given we are going through a robust review of our value creation opportunity via our strategy refresh, I ask that you give us time to appropriately assess our long-term financial objectives. I want to thank you very much for all of your support, and I know that the best is yet to come for IFF. With that, I would like to now open the call for questions.

Thank you. And we'll take our first question from Gunther Zechmann with Bernstein. Please go ahead. Your line is open.

Hi. Good morning. Thanks for taking my question. Gunther Zechmann from Bernstein. The 3 percentage point increase in organic sales growth, Frank, to 9% to 12%, that's almost unprecedented, pretty brave move. Given your tenure as a company, in what businesses do you expect to see the biggest price increases? And in what businesses do you include demand reduction as part of your guidance? And then I've got a question 1b as well, but I'll pause there.

Sure. Gunther, I’ll let Glenn maybe to give some specific color on the different business segments.

Yes. Hey, Gunther. Let me first sort of – by the way, good afternoon to you. I want to unpack the $300 million. So you know sort of the nature of that, and then we’ll talk about sort of where it sits. So the $300 million change is a function of several items. First of all, we have some portfolio adjustments, so the acquisition of Health Wright and then one additional month of Microbial Controls, the value that's about $130 million of incremental revenue. That's completely offset with our foreign exchange update, i.e., the stronger euro or the stronger dollar relative to euro rather, basically offsets that completely from a revenue standpoint. The residual is we have incremental pricing of around $370 million, and that's all related to raw material increases, which I'll come back to. And as we mentioned on the call, we're actually bringing down volume balance of the year. For a full-year, down about a $100 million from our original plan, so a little over a half a point full-year. We actually were better in the first quarter by a point. So we're taking down the balance of the year down by a $100 million. Where we're seeing basically the impact of the price/volume, it pretty much mirrors where the cost increases are occurring. So we've had more material cost inflation in our Nourish business and other businesses. So that's why you see the higher growth rates in that business. But we are continuing to see the impact on all the businesses. So nobody sort of is exempt from the second round of this $300 million in terms of kind of overall pressure, but a bit more in Nourish than the other business because of the raw material impact.

Great. And thanks, Glenn. And then 1b) can you provide an update where you see cost inflation for IFF this year? And as far as you can for next year, I know you don't guide for 2023 yet, but if you can share how much earnings you expect to recover next year from costs that you incurred last or this year, please?

Yes. It is a great question Gunther, and also something that we're working on now where we don't really have a stats in part because there's two tough parts of the equation. One is to understand the overlap of the latest round of raw materials into next year. So there's a carry forward, but then equally are basically the pricing dynamics. So as mentioned, we're having to go back in the market because incremental pricing. So there'll be a full-year effect of that as well. I would also remind the group that last year we were still in the whole i.e. the inflation exceeded pricing in 2021 by $200 million. So we're still planned to basically go after a full capture, unfortunately, with the latest addition of inflation, it's just going to take a little bit longer into 2023 to sort of get us back to whole.

And we'll take our next question from Ghansham Panjabi with Baird. Please go ahead. Your line is open.

Thank you. Good morning, everybody. And Frank, welcome to the industry. Congrats on your new role. I guess, my question was more so on Slide 6, where you have the opportunity section, and the third one in terms of reinvesting in capacity and R&D and so on. Can you just expand on that? And if you could just sort of assess the technological capabilities within the company? The way you see it at this point, I know it's very early in your tenure at IFF. Thank you.

Yes. Ghansham, hi. It's Frank, and thanks for the welcome, and also for the question. A couple things I want to highlight is – and you look at that slide, I do want to start with the fact that, I am very still encouraged by the opportunity that we have in IFF. The industry trends look very strong overall in the long-term around sustainability, health and wellness and naturals. Also, IFF with this highly diversified business mix across categories, regions, and customers, I think positions us very well. When you look at that slide and we talk about the opportunities, I think a couple of things I would highlight there is one is we are focused on really doing everything around our culture of executional excellence, that's going to be really important for us through our talent, instilling accountability and also our strong link to incentives for our teams. As far as reinvesting, clearly, we are going to look at that. That's going to be a part of our strategy refresh process, and we'll be spending a lot of time on that in the second half of the year when we share our overall plans. But early view would be clearly, we need to continue to build our capabilities around digital, data analytics are going to be really important. And then also we'll invest in our commercial efforts as we see opportunities for continued profitable growth. And then we're also doing a deep dive in R&D portfolio, and we'll look at the best innovation in R&D opportunities to invest behind as well. But much more to come as we head to the second half of the year.

Okay. Look forward to the Investor Day. Thank you.

And we'll take our next question from Jonathan Feeney with Consumer Edge. Please go ahead. Your line is open.

Good morning, Frank. Thanks. Let me add my congratulations. You've been very vocal about taking pricing across a broad range of customers, and these are – it's not quite like gas prices, right? These are very sensitive industrial relationships where companies are intertwined. And you mentioned that in the script, how it takes time, but I wanted to ask specifically, when your customers do push back on pricing? What do they say? What are the common push backs you get? Or if somebody says no to pricing, what's the reason when that happens? And is that happening? Or are those kinds of things getting said now more often than January, as you know, some companies, maybe some of your customers are under a little bit more stress now than they were in January? Thanks.

Yes. Jonathan, thanks for the question. I'll start and I'll let Glenn to add on as well. One, I think the teams have done a really good job starting off this year and working with customers to try to recoup the significant inflationary pressures we're seeing in the business. So we have, I think a strong value proposition. We have strong commercial teams that are working very closely with their customers to really understand the importance of us recouping our inflation, what we're seeing from an inflationary perspective. So I do feel we're off to a very good start. There are push backs. I think some of the push backs are in some of the smaller customers, some of our emerging market customers where price is much more sensitive. We are seeing pushback there. But all in all we feel as though, we are in a good place and will continue to work closely with our customers to navigate, which is, as we all know, unprecedented times. Glenn, anything you'd add?

Yes. Hey. Thanks Jonathan for the question. I'd say, first of all, obviously we're not unique is every industry is experiencing substantial increases in inflation, and all of our competitors are out there basically taking prices up as well. And as you're well aware, as it relates to our value add from our customers supply chain, we tend to be a relatively sort of low cost high value add relative to their overall value change. And I would say, simply put, with 60% of our cost structure related to raw materials, energy and logistics, it's sort of impossible for us to absorb. Those level increases. And rather as our customers well appreciate, we are in business who really provide them superior solutions, which requires significant investment in innovation, customer service capabilities, building and maintaining a very robust global supply chain. I would remind everybody, we're adding $200 million at CapEx this year alone to build out. So that's the value we add to our customer. And as a result of that, we can't sort of, if you will speculate on material costs and our customers appreciate that. Frankly, where we sit relative to our value add, they completely appreciate what we're doing for them. And that's been reflected in the success of pricing. I will note though, there are some sectors, as we mentioned, Scent as an example, that there's a lag. So it's not every single customer is out front here in terms of the pricing, but in general, the level of productive dialogue has been very, very good with our customers.

Thank you.

And we will take our next question from Mark Astrachan with Stifel. Please go ahead.

Yes. Thanks, and good morning, everyone. I guess, maybe to start, Glenn, what are you assuming for volumes throughout the rest of the year? Guidance would suggest flattish, I guess, 2Q through 4Q, you alluded to April trend softening, were they positive? Curious too if you've seen competitors pricing and is just a more IFF impact. And then Frank, I appreciate the commentary, I'm still evaluating the business. I guess the question that we get most often is the 26% EBITDA margin target most seem to think that that's just unrealistic at this point. Maybe if you could talk a bit about that, that would be helpful for folks. Thank you.

Thanks, Mark. So I'll start off with our volume outlook. 5% for the first quarter, we're actually projecting 1% for the balance of the year. So relatively flattish. I would remind everybody, we have a very strong overlap in the last three quarters. The three quarters of last year were on average around 10% in terms of currency neutral sales of which that was around 8% volume each of the quarters is a very strong one. That's why we actually planned the second half of the year more flattish versus the first half of the year. Why we've taken it down is basically taken the balance of the year down about a $100 million in revenue, that is basically split into two components. One is the direct impact on Russia and Ukraine volumes. And the second half is really a combination of supply chain and demand issues. So supply chain would include a combination of all material access as well as China, and then generally we just feel that we're seeing early signs relative to the consumer pulling back. We really don't view this as a – not being competitive on a pricing standpoint, but frankly, just what we're seeing in the consumer and it's manifested itself literally in the last couple weeks a little bit more in the home and personal care side of the business versus sort of the food and beverage or pharma side. So we're not sure, honestly, whether that's sort of an end consumer sort of permanent pullback or adjustment in inventories, but we're just, frankly, just being cautious relative to sort of what's going on in the global economy.

And hey, Mark. It’s Frank. Thanks for the question. And as I mentioned in some of the early remarks, we are working through our strategy refresh process and that does include our long-term plan in detail and we're looking at our current inputs into our plan. We will need some additional time to appropriately assess our long-term financial targets. And my immediate focus, our management team's focus is delivering our 2022 objectives and the financial goals that we're outlining here this morning, as which of course, there's a lot of focus on pricing as you continue to hear productivity an important levers in working with our customers to grow our absolute sales and dollar profit as we manage through the significant inflationary period. Longer term, Mark, there's no doubt in my mind, we have a lot of value creation ahead of us in the company, and I believe our business will generate sustainable profitable growth and it will yield margin expansion over time. As far as your specific question on the 26% adjusted EBITDA target, I think it's really safe to say as we look at where we are today, and you look at how the world has changed, we're not going to be able to achieve that 26% adjusted EBITDA target in 2023. With that said, as I mentioned, I do want the time to come back and share with you in the back half of the year, our plans, and also our focus on driving really strong profitable growth for the future.

We will take our next question from Heidi Vesterinen with BNP Paribas. Please go ahead.

Good morning. Just to clarify on pricing again. So you're looking to fully offset the dollar headwind from inflation for the full-year, I think you said. Can you, once again, explain how you hope to achieve this because it's normal industry practice for certain parts of your portfolio, like Scent to have a lag. So is there another segment of setting that lag for this full-year? Thank you.

Yes. Well, we actually are lagging, Heidi. As a reminder, we're $200 million behind from last year. So we're sort of catching up from last year and capturing a large – the largest percentage this year, but there's still a lag that will be going into 2023 as well.

Okay. But on a full-year 2022 basis, I think you had said you're looking to fully offset, right? So you won't have a squeeze from raw materials?

Yes. Now let me be clear. We have $200 million from last year from 2021 that we didn't capture, we began to implement. So if you look at the cumulative 2021, which is really the second half of 2021 in all this year, we're still $200 million behind.

Okay. And then the idea is to pass that on as we go into next year. Okay. Thank you.

Thank you, Heidi.

We will go next to John Roberts with Credit Suisse. Please go ahead. Your line is open.

Thanks. Welcome, Frank. Just one question. You've got one of the largest R&D budgets in the industry and the major drug hands are known for best in class R&D management here. But we don't get an innovation or vitality index. We don't get any stage-gate processing reported hard to know how productive R&D is or what the right level of spend is here. If you had a chance to kind of go through the processes within R&D and the Center of Excellence – and so forth, do you think there are changes that need to be made there?

Yes. Thanks John, for the question. I'll just sum it up in a couple of quick points and based on my experience, one, I have been very encouraged by some of the recent visits I've taken to our R&D centers. I just got back from Palo Alto, California, and really good innovation taking place. Some of the work we're doing in with regards to our enzymes, with regards to some of our Scent and sustainable delivery systems, flavor technology. So I'm encouraged early on of what I'm seeing. I think what I would highlight is from an R&D perspective, there's three things that come to mind. One is making sure you have the best talent, and that's a major focus for us in allowing our scientists to innovate. Number two is we have a process and model where you have very close connection with your commercial teams. So your arm in arm, your scientists and your commercial teams are really working on innovations that are going to be meaningful from a customer and consumer perspective. And that's a major focus that we're putting in place. And then number three is doing it in an efficient way and putting our capital against the biggest R&D opportunities. So early on, encouraging, this is going to be a focus for us, and this also will be a part of our second half Investor Day where we'll come back and share more about some of the exciting projects we're working on in our pipeline.

And we'll take our next question from Matthew DeYoe with Bank of America. Please go ahead. Your line is open.

Good morning, everyone. Frank, one of the criticisms we often here about IFF is the senior management churn has been pretty elevated following the N&B acquisition and that perhaps the broader leadership team is relatively inexperienced. How do you plan to address this as the new CEO when you think about the team that's around you?

So Matt, that's an important question. And what I would say is that we have to do everything that we can as a management team to really build, as I've been saying, the right culture, the right focus for the organization. As I highlighted in my prepared remarks, we have a tremendous opportunity in front of us with IFF, but we do need to deliver and we do need to focus on executional excellence. Yes, there has been some change in the management ranks. That is something that obviously we all take seriously, but our focus right now is with the team that we have in place is really to be laser focused on delivering and working on behalf of our customers to create value in the marketplace. So that's really the focus and I am excited about the passion and the energy I see from so many IFFer’s around the world, I've had a chance to engage with a lot of them. And I think we're really in a good place as long as we can focus on the – through four priorities that Glenn mentioned earlier. I do feel good about our opportunity as we work through 2022 and then as we start to build the company for the future.

And we'll take our next question from Mike Sison with Wells Fargo. Please go ahead.

Hey, good morning. Welcome Frank. I guess, your background has a lot of integration. And so I'm kind of thinking when you think about the DuPont acquisition, N&B and putting the company together, it does seem like the initial outlook for 2023 or the sort of initial goals are going to – a little bit off. So when you think about how we should measure, if this will be inevitably a successful deal together, what do you think we need to look for? And I know a lot of this will probably come in your Analyst Day, second half. I'm certain, you're looking at Cleveland as a possible site, and I’m joking. But what should we think about as the metric or couple of metrics that. And at the end of the day would suggest this has been a really good deal over time.

Yes. Mike, and I think you recognized as where we started, we also are in some unprecedented times from inflationary perspective. And also what's happening with regards to China and COVID lockdowns, and what's happening with the war and impossible recessionary pressure. So clearly, the world is changing significantly. Mike, the way I would say, is that we will spend time, like you said, in the second part of this year, but really look at our focus. And I keep using this phrase about driving sustainable, profitable growth. We want to have a company that's growing top-tier within our peer set. And from a topline perspective, good strong leverage throughout the company, a relentless focus on constant improving of productivity and making sure we're doing everything that we can to deliver for our customers and our shareholders. So I think that will be some of the metrics and we'll come back obviously, as we get to the second half and give you specific metrics, but that's how I would have you think about it. Glenn, I don't know if you want to add…

Hey, Mike. I would just add. By the way, I lived in Cleveland, I'm not sure I'm allowed to come back though. But really at the end of the day, we are trying to deliver a superior outcome for our shareholders. And the way to do that as Frank had mentioned is to make sure we outpace the topline versus the industry. So having superior topline growth and secondarily superior return on invested capital, the way we view doing that is actually driving significant productivity, which we believe there is, and allowing that to basically reinvest back and help accelerate the topline and to continue to actually drive some of that to the bottom line while we're optimizing our portfolio. So to Frank's point, that will be sort of the major agenda when we get together later in the year, maybe in Cleveland.

Yes. And Mike, just one last one, and I did mention that ROIC is now a part of our metrics as a team. So that's something that we've incorporated.

And we'll take our next question from Lisa De Neve with Morgan Stanley. Please go ahead.

Hi. Good afternoon and thank you for taking my questions. I have two. First one is, can you talk a little bit on how the growth has been evolving in the first quarter through the different regions and how you expect volume growth to develop over the coming quarters or through the year? So the plus and minuses would be very helpful. And secondly, can you share a little bit what you're seeing in your innovation pipeline, in what segments are you seeing stronger levels of innovation. And also, do you see sort of any levels of reformulation activity? Thank you.

Good morning, Lisa. So relative to the first quarter and balance of the year relative to region, our strongest areas have been the developed markets. So combination of Europe and North America, laggards has really been actually Greater Asia has slower growth in the first quarter. We expect, as we look at the balance of the year, we need to have a little bit challenges in Greater Asia, particularly China, as we mentioned, likely also to see a slowdown – meaningful slowdown in Europe, given the – what's happening from the economy standpoint, but are still sort of fairly optimistic on combination of North America and LATAM as well.

Yes. And just real quickly, we're doing a lot of R&D work in Health and Biosciences area with regards to our enzymes and focusing on probiotics and also, laundry dish programs with global key accounts. We have work in some of our plant-based protein and dairy alternatives, couple of other quick ones to highlight in the scent area, some of the renewable and biodegradable fragrance ingredients were also really focusing, in nourish around a lot of our flavor technologies. And I highlighted one of the big wins that we had with vanilla recently with one of our customers. So we'll spend a lot more time here on the pipeline and portfolio, as I mentioned, coming up in the second half of the year.

And we'll take our next question from David Begleiter with Deutsche Bank. Please go ahead. Your line is open.

Thank you. Good morning, and Frank, congratulations as well on the new role. Frank, building off your early view of the company, do you think IFF does a good job capturing the full value of this products with the customers? And secondarily, what do you think the IFF does better than competitors and where do you think it is lacking versus competitors? Thank you.

Yes. Very good questions. I think when you say, what do we do better, then I'll start there. I do think our global scale, the diversity of our and breadth of our portfolio and how we engage with our customers. I think we are leading in many categories and in many areas, and that's something that we will continue to leverage. And it also allows for us to work quickly with customers to co-create solutions with them. So that to me is a big strength of ours. What does some of the competitors do? There are competitors that are focused in certain areas that I do think have done a nice job from a pricing perspective or have in certain categories a little bit better margin construct than we do. And that's really why we're staring into our portfolio to make sure that we put our resources against the best opportunities and where we see those opportunities we're going to invest and then where we see opportunities to improve, we'll focus there. And then in some areas we will pull back investment or possibly even divest if we need to. So those are going to be some things that we're going to be looking at to make sure that we continue to build the strength around our portfolio, but those were some initial thoughts on how I think we are lining up with our customers and then how we compare to some of our competitors.

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

Great. Thanks. Good morning. I was curious that you touched earlier on pricing and how quickly you move during the first quarter? And Glenn, in your comments, you more or less referred to the press release that IFF put out discussing its kind of new approach to pricing. I mean, from where I said it feels like that's the first moment of the company now with this much greater scale, really taking on the role of industry leader. And I was curious what, if anything, you've seen in the competitive landscape, how others are now approaching pricing, if the industry as a whole is moving faster. I know it's been a short period of time, but it's an interesting question in the sense of IFF role again as industry leader? Thanks to this newfound scale. Thanks.

Yes. Thanks for the question. We actually, as you recall, in the fourth quarter, signaled pretty quickly given we saw this large tsunami of inflation and went out very quickly, in the fourth quarter of the first round that press release was really in advance of the second round. And all our competitors are seeing exactly the same, inflationary pressures as well. So I think, that was intended really to help our teams relative to the customer dialogue, sort of understand the dynamics and the impact on the business. Hence the purpose of the press releases, I did mention all our competitors as you're well aware are basically in the market doing the same thing and are passing along prices and time as well. We just moved fast even we saw in the fourth quarter. And as I mentioned on the call, we really also invested in, I'll say in infrastructure around the organization to make sure we're more closely monitoring what's happening in the market and just moving much, much, much quicker because I think we are concerned that this – even the second round may be the second of others. So we just want to be prepared to do that. And that answer was the purpose of that, that press release.

And we'll take our next question from Jeff Zekauskas with JPMorgan. Please go ahead. Your line is open.

Thanks very much. Originally, when you bought the DuPont business, the idea was to take out $300 million in costs and to spend about $335 million to do it. And to date, I think IFF has spent $32 million, so it seems that the original cost reduction program is moving more slowly. Is that fair? That is why aren't the charge is larger? And secondly, on Slide 8, where you lay out your return on invested capital distribution. It looks like about a third of the company has unsatisfactory returns. What conclusion do you draw from that? Does that mean that you really need to overhaul the structure of the company dramatically or do you draw a different conclusion from that?

Yes. Let me – maybe I'll take the second one and come back to the first one. Your conclusion is correct in terms of the third – hardly one third of our business from a capital utilization standpoint needs to improve. And there are two major levers. So not surprisingly as it relates to some of our non-core divestiture work by the fall within that basket, if you will. So continue to optimize the portfolio as one lever. The second is really thinking about ultimately a combination of capital investment in those businesses and in addition, how we think about optimizing the profitability. So as part of the Frank's comments about the refresh strategy, we are thinking about the portfolio in that way. And by the way, that's also in the spirit of taking some of those dollars and moving them up to the far left of that chart and accelerating the growth dynamics of the higher return segments as well. Relative to our cost savings, as a reminder, we get roughly $300 million targeted for synergies, about half of those were procurement. So it's not surprising that you would have little to no integration-related expenses for those. Those pieces honestly are, as we've mentioned in the past, we are the farthest behind simply because of this environment. It's harder to materialize. The other half of the 150, we're sort of midway through in terms of capture. To your broader point about how we think about restructuring opportunities, we've moved beyond a discussion of just synergies, deal-related synergies was too narrow and we really are focusing more broadly on productivity. As I mentioned, there are three large buckets operations, procurement and then shared services. The first two of those are likely to have relatively low one-time costs because they're really optimizing operations, digital throughput, some fixed cost reduction, indirect material purchases. The latter being shared service probably will have some one-time restructuring charges as we build out our current infrastructure and continue to add capabilities into that network.

And we'll take our next question from Josh Spector with UBS. Please go ahead.

Yes. Hi. Thanks for taking my question. I guess just a couple follow-ups on the price rise dynamics. So just curious now what's your length of visibility on the raw material front? So how far ahead are you seeing today? And as you look at your pricing guide for the year, I guess, are you pricing your second round increase is that to capture the visibility that you see now? Or are you pricing ahead of that and does your guide imply a low double-digit price exit rate for the year at this point? Thanks.

Yes. Generally, we're looking out to the third or fourth quarter for the raw materials. Energy is more problematic as well as logistics that tends to sort of – it's really kind of here and now if you will, in terms of kind of what's happening in the marketplace, we've done best estimates based on sort of where the markets are trading relative to energy as well as logistics costs. But generally the raw materials are sort of about six months out. But some of them have been – a lot of them have been locked in, some of them not. So we are continuing – by the way, we're continuing to monitor every single week. We sort of have an update on how we're feeling about the market in general over the last sort of month, six weeks, there's been some ebbing and flowing so slightly higher in energy, some relief in raw materials, but it hasn't materially been different than that 350-ish number that I provided you to earlier. So relative to sort of the carryover for next year, we still have to sort of work that through. As I mentioned, it's a combination of, what the tail of this year's annualized raw materials and then very importantly, we got to figure out as well as the tail of the pricing actions in the next year as well?

And we'll take our next question from Christopher Parkinson with Mizuho. Please go ahead. Your line is open.

Great. Thank you. Frank, now that you've had just a couple weeks to evaluate the portfolio, you just name kind of the two to three sub businesses that you're the most excited about. I mean, in your remarks, you've mentioned, probiotics and proteins, just coming from your background, what's getting you the most excited on a go-forward basis? Thank you.

Sure. I'll be quick because I know, we've got a couple more that we’re waiting on as well, but just to give you an example, enzymes, I think are areas that I'm excited about. And we're going to deploy resources to drive growth and really mix improvement there over time. There's also, I think some really solid areas such as fabric care, we think there's opportunities to improve our cash flow there. And then, we will continue to look at some of the underperforming areas as well. And I think this is something and Glenn highlighted on our four priorities, which is why we have made the decision to exit for instance, our Microbial Control business and we've announced that divestitures. So those are some examples and like I said, we'll spend much more time opening up and sharing a lot more as we get to the back half of the year.

And we will go next to Andrew Keches with Barclays. Please go ahead. Your line is open.

Yes. Hi, good morning. Glenn, perhaps a question for you. If you take a step back and look at the balance sheet where a little more than a year into the N&B transaction and leverages essentially where it was at closing. And I think I heard you said you're dropping the balance sheet metric from executive compensation. So I guess I just want to understand your confidence and the ability to hit that 3.0x mark by the beginning of 2024, how critical are these divestitures that you're talking about? And is it right to think that maybe the scope for divestitures can expand particularly as we lap that two year IRS anniversary for N&B?

Yes. So just a clarification, the reason we dropped the balance sheet metric is because we launched the new three-year plan. So to some extent, this is the window beyond sort of our deleverage. So I am very, very confident that we will hit three less. We will be closing on the Microbial Controls business at the end of this quarter, that's going to be net proceeds of $1.1 billion. As I mentioned in the past, we have three to four additional deals that will cumulatively add $1.5 billion to $1.7 billion of gross. They're proceeding nicely, by the way, despite the sort of volatility in the market, they are attractive property strategically. That alone will basically get us to the goal independent of cash flow. To the last point of your question, we're going to continue obviously to take a look at the portfolio, that's part of the strategy refresh, which will probably afford additional opportunities to continue to approving the portfolio, but nothing to announce at this point and nor do we need that to accomplish that goal. So thanks for the question.

And there are no further questions at this time. I'll turn the call back over to Frank Clyburn for any closing remarks.

So thank you to all for joining our call. I really appreciate your interests and the time we spent this morning discussing our first quarter results. And hopefully you could hear from myself, Glenn and on behalf of all of IFF, we're really encouraged and excited about the future. And we look forward to sharing more about our plans as we head to the second half of this year and also want to reiterate just how focused we are on a company, making sure we're executing and working with our customers to deliver important solutions for consumers around the world. So thank you and we look forward to speaking to you soon.

Thank you. And this does conclude today's program. Thank you for your participation. You may disconnect at any time.