Sensient Technologies Corporation (SXT) Q1 2020 Earnings Report, Transcript and Summary

Good morning, and welcome to the Sensient Technologies Corporation 2020 First Quarter Earnings Conference call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mr. Steve Rolfs. Please go ahead, sir.

Good morning. I'm Steve Rolfs, Senior Vice President and Chief Financial Officer of Sensient Technologies Corporation. I would like to welcome all of you to Sensient's conference call to discuss the 2020 first quarter financial results. I'm joined this morning by Paul Manning, Sensient's Chairman, President and Chief Executive Officer. This morning, we released our 2020 first quarter financial results. A copy of the release is now available on our website at sensient.com. During our call today, we will reference certain non-GAAP financial measures, which we believe provide investors with additional information to evaluate the company's performance and improve the comparability of results between reporting periods. These non-GAAP financial results should not be considered in isolation from or as a substitute for financial information calculated in accordance with GAAP. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is available on the Investor Information section of our website at sensient.com and in our press release. We encourage investors to review these reconciliations in connection with the comments we make this morning. I would also like to remind everyone that comments made this morning, including in responses to your questions, may include forward-looking statements. Our actual results may differ materially, particularly in view of the uncertainties created by the COVID-19 pandemic, governmental attempts at remedial action and the timing of a return of more normal economic activity. We urge you to read Sensient's filings, including our 10-K and forthcoming 10-Q for a description of additional factors that could potentially impact our financial results. Please bear these factors in mind when you analyze our comments today. Now we'll hear from Paul Manning.

Thank you, Steve. Good morning and thanks for joining. Sensient’s adjusted local currency revenue increased by approximately 3% during the quarter with each group showing solid sales growth. This growth was in line with our expectations and occurred in almost all of our business units across the company. As I outlined in our last call, we expected our profit to be down in the first quarter, as a result of the impacts from the inventory reduction efforts in 2019, product mix in cosmetics, higher raw material costs in natural ingredients and the timing of our fixed cost takeout actions. We continue to expect profit improvement in both flavors and colors as the year progresses. Despite COVID-19, we believe we are on track with our plan and outlook for the year. Before I talk about the performance of our groups, I would like to take this time to talk about COVID-19 and what we are seeing in the market. As a provider of ingredients to the food, beverage, and personal care markets, our businesses are considered essential. All of our production facilities are open and operating. On average, our staffing and attendance at our facilities is at 95%. We are actively monitoring and addressing the implications of COVID-19 with our already robust GMP and sanitation practices. Our stringent sanitation practices ensure our employees remain safe and our products continue to meet our quality expectations. Our on-time delivery continues to be high at nearly 95% as our supply chain teams are continually monitoring raw material supply base, increasing safety stock in certain areas and working to ensure raw materials are delivered to our facilities, despite transportation and shipping challenges. This has not been easy. News articles are full of stories about food and personal care companies that are either closing facilities or scaling back their operations substantially due to COVID-19. Overall, our business and employees are responding positively and effectively. Our facilities are open and we are fulfilling our mission to deliver our products to our customers in a safe and timely manner. During the first quarter, we continue to generate new sales wins at a high level, in particular in flavors in Asia. We saw a decrease in new win starting in April as a result of customers working from home. While new wins are an important component for growth, we have also moderated the sales attrition in each of the groups. The impact of COVID-19 varies depending on sales channel, geographic region, and product line. For example, orders increased in packaged food, however, orders were substantially down for restaurant and quick service sales channels. We see that trend continuing in the second quarter and possibly beyond until the economies of the world returned to a more normal rate of activity. Overall, our food and beverage and pharmaceutical product lines were up in almost all geographic regions. While the makeup segment of our personal care business was down substantially in Asia and North America. We are seeing lower demand for makeup as people are working from home and not traveling. Within packaged foods, certain categories such as soups, cereals, and other prepared foods are up, but ice cream, confectionary and energy drinks are down and I expect this to continue in the second quarter and possibly beyond. Now turning specifically to the flavor group. Adjusted local currency revenue for the group was up approximately 4% for the quarter. Our focus on improving our sales win rate and retaining existing business across the group is paying off. Our sales win rate during the first quarter was the highest we have seen in years, which should continue to have a positive impact throughout the year. Furthermore, our attrition rate continues to decline. We saw sales growth in our finished flavors and extract product lines and an improving picture in our flavor ingredient product lines. Our natural ingredients business had a very strong quarter, up double-digits. As expected, our profit for the quarter in the flavor group was below prior year. As noted in our last call, we expected our profit to be down in the first quarter as a result of the impact of our significant inventory reduction in 2019, higher raw material costs, particularly in onion, and as our cost takeout plans materialize. The group has done a nice job to mitigate these headwinds and based upon current trends, I would expect profit to continue to improve as the year progresses. Previously guided, I continue to expect low to mid single-digit revenue growth for flavors. Within our Color Group, adjusted local currency revenue was up approximately 3%. Food colors and pharmaceutical sales were up mid single-digits for the quarter. We continue to realize strong sales growth in natural colors, which was up approximately 7%, as a result of new product launches and as existing products continued to convert to natural color solutions. Our Personal Care business is flat during the quarter. We saw growth in Europe and Latin America. However, our Personal Care business in Asia and North America was down substantially due to COVID-19 and lower demand in general for makeup. I'm pleased to see the order patterns in our Asia business began to increase in March. However, it is unclear how COVID-19 will impact our order patterns for the makeup component of our Personal Care business in the second quarter and beyond. Once again, we are seeing a slowdown in makeup as people are working from home. In terms of operating profit, the Color Group was flat with prior year, which was better than I had predicted during our last call in February. The group experienced double-digit profit in Food & Beverage Colors and Pharmaceutical. Similar to flavors, we are seeing a decrease in the overall attrition rate. However, profit in Personal Care was down substantially, in part due to the impact of COVID-19 in Asia and the overall weak demand in makeup. Similar to the Flavor Group, the Color Group has made some solid progress on their cost takeout actions. However, these actions need more time to realize their full potential. I expect continued profit improvement as the year progresses. Based upon our current trends, I expect the Color Group to deliver low-to-mid single-digit sales growth throughout the year. Our Asia Pacific Group had a strong quarter, revenue increased 8.5% in local currency and profit increased almost 20% in local currency. The group had solid growth in all regions, driven by strong new sales wins, which will continue to be a benefit to the year. Also similar to flavors and colors, the overall attrition rate in Asia Pacific declined. I was pleased to see a return to sales growth in China and Japan in March and a favorable order book for the second quarter. Based upon current trends, I expect the Asia Pacific group to continue to deliver mid-single-digit sales and profit growth throughout the year. We remained focused on controlling costs throughout the company. For over a year now, we have been reducing our cost structure, both in our production plants and in SG&A. We have also focused on a disciplined approach to our capital expenditures. I'm pleased with our efforts and focus on our costs across the company and we're beginning to realize the benefits of these actions. I expect that this benefit will increase as the year progresses. The divestitures of our three product lines, fragrances, inks, and fruit prep for yogurt are all progressing. Each of these divestitures are in varying stages and given the travel restrictions with COVID-19, the timing of each closure is uncertain. We will continue to push ahead to execute these as quickly as circumstances allow. We've had a good start to the year and I'm pleased the results of all three groups during the first quarter. We are still on track with the plans we identified for the year and while I am optimistic about our business, the ultimate impact of COVID-19 remains unknowable. Governments are imposing varying degrees of restrictions, sometimes changing them abruptly, which is creating uncertainty for businesses. Our customers are responding to these changes in various ways. Certain customers are differing innovation and new product development, while others are trying to adapt to keep projects alive. While we see an increase in demand in certain product categories in the food and beverage and personal care markets, we are seeing a lower demand in other categories, such as makeup, ice cream, confectionery and energy drinks. The importance of a strong supply chain and on-time delivery will continue to be critical during this market. There are many transportation and shipping challenges which we must continue to overcome. Given these risks and uncertainties, the true impact of COVID-19 is hard to predict. Consumer demand is changing, there may be more of a greater focus on buying local and a heightened emphasis on healthy products. I am confident that our products can support this changing demand. We have a mission to support our customers and the global supply chain in our markets. Our employees believe in our mission and they are continuing to work to accomplish that mission every day. Steve will now provide you with additional details on the first quarter results.

Thank you, Paul. In my comments this morning, I will be explaining the differences between our GAAP results and our adjusted results. The adjusted results for 2020 and 2019, removed the impact of the divestiture related costs and the operations to be divested. The first quarter 2019 results do not include any divestiture related costs. Included in this year's first quarter reported results are divestiture related costs of $11.8 million or approximately $0.26 per share, which are primarily non-cash charges related to the divestitures of our three product lines. In addition, this year's first quarter reported results include $36.6 million of revenue and $1.4 million of operating income related to the results of the operations to be divested. Last year's first quarter results include $39 million of revenue and an immaterial amount of operating income from the operations to be divested. The impact of the divestiture-related costs and operations to be divested reduced diluted earnings per share by $0.23 in this year's first quarter. Excluding divestiture-related costs and the results of operations to be divested in 2020 and 2019, consolidated adjusted revenue grew 1.8% to $314.1 million in the first quarter of 2020. Consolidated adjusted operating income was $45 million in the first quarter of 2020, compared to $49.4 million in the first quarter of 2019. Adjusted diluted earnings per share was $0.72 in this year's first quarter, compared to $0.78 in last year's first quarter. Cash flow from operations was $36.9 million in this year's first quarter, compared to $23.4 million in the first quarter of 2019, an increase of approximately 58%. Capital expenditures were $9.4 million in the current quarter. Our free cash flow increased approximately 80% in the quarter to $27.5 million. Total debt was $609.4 million as of March 31st, 2020, compared to $619.1 million as of December 31st, 2019. Sensient has adequate liquidity to meet operating and financial needs through our cash flow and available credit lines. At the end of the first quarter, we have over $250 million of unutilized capacity on our committed credit lines. In addition, we do not have any maturities on our private placement notes until 2022. We have stress tested our credit facility covenant ratios and we expect to be within our required covenant limits for 2020 with a goal to continue to reduce our leverage ratio as the year progresses. As Paul mentioned, our results for the first quarter were in line with our expectations and what we communicated during our last call in February. During our last call, we indicated that we would expect positive revenue and profit growth from our flavor, color and Asia segments in 2020, excluding the charges related to the divestitures and the operational results of the businesses to be divested. In addition, we communicated that on an adjusted basis, our consolidated operating income and earnings maybe flat to lower in 2020, because of the level of non-cash performance-based equity that may be deducted in 2020 based on our results. We also expect a higher tax rate in 2020 compared to our 2019 rate which was lower as a result of a number of planning opportunities. Based on current trends, we are reconfirming our previous reported GAAP EPS guidance to be in a range of $1.85 to $2.15 per share, which includes the results of operations of the divested businesses and divestiture related expenses of approximately $0.55 to $0.65 in 2020. This guidance also includes approximately $0.10 of currency headwinds based on current exchange rates. On an adjusted basis, based on current trends, we are maintaining our previous estimate of $2.60 to $2.80, which excludes divestiture related costs, the impact of the businesses we are seeking to divest and foreign currency impacts. The impact of COVID-19 is difficult to predict at this time. As Paul mentioned, our company plays a critical role in supporting the global supply chain. Thank you for your time this morning. We'll now open the call for questions.

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Heidi Vesterinen of Exane BNP Paribas. Please go ahead.

Hi, good morning and congratulations today. A couple of questions. So maybe starting with cosmetics, you did highlight a number of headwinds, especially on the makeup side. Could you maybe elaborate on what you are factoring in, in terms of cosmetics demand by region? When you think about your guidance, you just assume that recent trends continue for the rest of the year. And then secondly, on the packaged food side, anecdotally we're hearing that the big CPGs are winning and people are now gravitating towards traditional products made by traditional bigger companies and bigger brands. You have traditional, you talked about being more exposed to the B and C customers. So what are you seeing in terms of customer trends? And then lastly, perhaps, could you talk about bionutrients please? Because we're hearing that probiotics demand is picking up and I wondered if that could benefit your business. Thank you.

Okay, sure thing, Heidi. So number one, cosmetics, and so just for everybody's clarification here. So we talk about personal care within that we have a lot of different product areas. So we talk about makeup, we talk about hair care and hair dyes, we talk about skin care. But we also have products related to oral care, we have products related to personal care, things like body washes and soaps, et cetera. So it's a pretty broad-based portfolio for us. But, makeup is certainly the single biggest component of our personal care business. And so, as you all are fairly aware makeup took a big – there were a lot of headwinds towards – in the makeup category in Q1 that continued here in Q2. Most notably because people aren't – they're not going out, they're not going to work, they're not traveling. So that's the big headwind there, as we think about how that impacts us for the year, certainly, it will vary by geography to the point you made there. But I think there is elements of it recovering potentially as the year would go on. So for example, in Q1 Asia Pacific was a big headwind for us. China was shut down for a number of weeks, quarantines were issued, lockdown orders were put in place. So the impact was felt most strongly for Sensient in Q1 in the Asia Pacific region. But as those lockdowns continued, we started feeling more of that pressure in Europe and North America, less so in Latin America because, we tend to be more oversubscribed to say hair care and some other product categories. So now we're in a phase where interestingly enough, Asia is kind of recovering a little bit, North America taken a big hit. We've got a lot of exposure to make up in North America and similarly Europe also taking a big hit. So as we think about guidance and how this plays out for the year, yes, to some degree there is an expectation that there will be somewhat of a return to, I guess what we used to call normalcy. But I could anticipate makeup continuing to be a headwind for the rest of the year. Now, could there be some upside for us in skin care or hair care, possibly? With salons being closed, many of the ladies and then some of the men are dying their hairs at home. And so that certainly can provide a little bit of a tailwind for us. So net-net, I would say that makeup – let's just say, we would factor that as being mostly flat to down in many of our regions and probably an overall flat to down for the year for us. Now, your question about packaged food kind of versus where we've sort of built our business around B and C customers. Yes, there is some truth to that, but we obviously have a lot of exposure to packaged food, the big CPGs in color. We do have a fair amount in flavor, although it tends to be more heavily weighted towards flavor ingredients. And so, I think we've got a very broad customer base. I think the bigger trend is packaged foods, when that part of the market is up that is good for Sensient. When restaurants are down, when people are eating out less, if it's quick service , okay, that's going to be a little bit of a headwind for us, but traditional sit down restaurants that doesn't necessarily impact our business strongly. Most of our products are not going into that type of restaurant establishment. So I would say the overall packaged food market depending on the category can be positive for us, but there is probably – we've got a lot of categories that are doing quite well. I mentioned some of those in the monologue, soups, prepared foods for example, but there is a lot of packaged foods that are really suffering substantially right now. Ice cream, big parts of our confectionary business, energy drinks, these are all areas where there is big headwinds and there is all easy explanations, right. In Europe there's not travel. So a third of the ice cream market in Europe is consumed traditionally by travelers and people leaving their home. That part is effectively a substantial headwind for us in Europe. So, in summary on this one, I think that there is a lot of pluses, there is a lot of minuses in the package food, whether it's a big multinational or a B and C. But I think the nature of our sales, whether it's color, flavor, Asia Pacific, we've got a mixture of customers that I think largely can not put us in a position where we're over-weighted. In other words, the big CPGs are up, the B and C are down. I don't think that's going to have a strongly negative impact on us. And the opposite of that would also be true. So I think we can kind of work through those differences. On the bionutrients front, yes, I would agree that there has been a substantial interest in probiotics. I think some of the earlier news headlines were suggesting that probiotics were almost an antivirus remedy, was the opinion of some sources that I had seen in the news. Whether that's true or not, I'm not here to opine on that, but I can tell you that probiotics had an increase in demand and that does benefit our bionutrients business, which is providing many of the protein sources that would feed probiotics style bacterial strains. So that's a net positive.

Thank you.

Okay. Sure, Heidi.

[Operator Instructions] The next question is from Mitra Ramgopal with Sidoti. Please go ahead.

Yes. Hi, good morning. Thanks for taking the questions. First just wanted to follow-up on the earlier comments. Paul, I know you’ve mentioned a lot of positives, a lot of minuses, et cetera. But then the environment where we think COVID resulting in a lot of companies essentially pulling their guidance, et cetera. You've certainly kept yours intact to a large extent. And I was just curious in terms of just, what really gives you the confidence that you have that maybe a lot of the companies and I getting and I noticed spaces are a little different, but your underlying environment is still pretty difficult for many.

Well, I think this Mitra. Number one, we are what is viewed as an essential business. So food, pharmaceuticals and many of our personal care items are viewed as essential. Now some governments that took them a little bit longer to declare us that. But that has been a very strong rallying cry for us as an organization. I think – so that would be number one. Our employees believe in that mission, we continue to articulate that mission and that gives many of them the confidence and the desire to come to work to support the mission. So anytime you have a problem, you have to kind of define a mission for folks, because otherwise people can be very concerned and they can be very fearful. Related to that is we built over the years a very strong GMP and sanitation program. And so, we are always very spiteful of any bacteria or viruses in our facilities. And so coronavirus is okay, it's a new virus, but listen, whether it's E. coli or Salmonella or Pseudomonas or any number of things, we're scared of all of them. So we built a very robust infrastructure around these areas, that has also given our employees tremendous confidence that they could come to work in a safe environment. We were well ahead on many of the sanitation practices that are becoming more common in facilities. So in short, we took great initiative in terms of defining the mission, building the sanitation protocols that were necessary, not only in – well principally in our non-production parts of our business. But we continue to lay out the expectations, very early on. I said, listen folks on-time delivery, coronavirus is not an excuse, we will deliver and we will deliver at the world-class levels that we've been delivering at as an organization. And we've got some great leaders around the company who don't sit around and wait for direction. They knew what to do, they understood the mission and so they acted. Took a lot of initiative and we delivered and we continue to deliver. And so yes, there is shortages and shipping and there is shortages of raw material. We got well ahead of the raw materials scare. We got well ahead a lot of these transportation shortages as well. And that speaks to the initiative of the individuals around the world in this company. And so, we've been able to moderate and mitigate a lot of these impacts. Some companies have not been and I don't know why or what their particular challenges may be. All I can tell you is that we very aggressively took this on and for that reason that was a big part of our success in Q1. We didn't stop operating, all of our plants remained open. China did close for a few weeks, government mandate. India did close for about a week, government mandate. But other than that, every one of our facilities has remained open. Our staffing remains and has continued to be throughout on average about 95% across the world, across each of these segments. So those are some of the things that give me a great deal of confidence. But there is pluses and minuses, but overall, as an essential business, I think we're going to continue to always have demand for our products. But we've also – we've been focused a lot on new wins in this organization, keeping business that we would like to keep. And so a lot of that work happened in 2019, I know, 2019 was not a good year in this company, but really the emphasis we had on sales execution and new wins was profoundly important for a lot of the incremental revenue you're seeing right now in Q1 and it's going to be really, really important for the revenue that we see for the rest of the year. So whether we have tailwinds or headwinds from coronavirus, what we've got is a lot of great wins that are built in to our estimates. We've got a lot of assumptions around mitigating the impact of attrition in the business. And so we feel quite good that we're going to continue to execute on the service levels, we're going to continue to benefit from those wins. And I think that's what gives me the confidence that I have in the business and the business moving forward.

Okay. That's great. And then just wondering again relates to COVID, how was that – if it is at all affecting the divesture process in terms of potential buyers, et cetera, and if you can give us an update on that front.

Yes. So we've got the three pieces that we're selling, we're in the process of selling. I think that – sure I would love to, in normal times I can probably sit here and give you a very definitive date on those. But with – right now with the travel restrictions as they are, it's a little bit tricky. But I can tell you this, that we are committed to these transactions. The folks we're talking to on the buying side of this are very committed to these transactions, both parties, us and them are very interested in getting it done as soon as we can. And hopefully in due course, I'll have some good news that we've been able to execute on them. But I think that, it gets a little bit tricky in the course of due diligence when there is some element that somebody needs to see on site and they can't travel to that site or they, right – there may be some other restriction in place. So yes, hopefully, we can have another update for you here in about, well, certainly on the next call. But if something were to happen before then, then of course we would make that a publicly available event.

Okay. That's great. And Stephen I’m sorry, I don't know if you’ve mentioned it, I might've missed it. But I was wondering if you had the gross margin on the adjusted basis

The gross margin on an adjusted basis for the quarter, it's going to be 33.6%.

Okay.

And that's – go ahead…

No, sorry. I was just seeing if they're ready. I think you’d highlighted some one-time costs in there.

So the two big things impacting in the first quarter are going to be the decline in the makeup segment that Paul talked about, that's a high profit area for us. So just in terms of mix of business, that has an impact on our gross margin. And then within our natural ingredients business, for the year, we think we'll be good on pricing and costs, but there is just a little bit of misalignment in the first quarter on raw material cost versus pricing. So those are two of the items that are impacting that.

Yes. There is some – yes, there is obviously some incremental costs related to COVID, where you have to enhance sanitation in areas that you typically weren't necessarily routinely – in some cases by the hour cleaning, like break rooms, like office spaces, things like that. So there are costs there, there have been some cost to expedite certain products. There have been costs because you don't necessarily have the most optimal transportation options all the time. So these costs as we see them would be probably annualized, a couple of EPS – couple pennies on an EPS basis, if they continue at the current pace. So probably less diluted to gross margin at this point, but certainly not something to be ignored.

Okay. And I know on the SG&A side, I guess the big highlight there was again the divestiture and related costs, if you adjust that and move around too much.

That's right.

Yes. We very much held the line on headcount throughout the organization that's been going on for well over a year, much to the chagrin of many folks out there in the company. But hey, we've got to continue to generate the revenue, we're doing that. I think we're going to continue to do that in Q2 and Q3 and Q4, and then as we get into 2021 as well. So we have the footprint not only from an SG&A standpoint, but from a production standpoint to have a much larger revenue business, without having. So in other words, we don't have to make significant investments in SG&A or production to continue to grow the revenue of this business for the foreseeable future. So I think that's an important consideration.

Great. That’s certainly fair. And I think also in an environment where a lot of companies are looking to conserve cash, et cetera, you clearly have that ability to continue to invest in the development activity you've talked about in the past – as opposed to maybe holding tight right now. Is that fair?

Yes. And speaking of cash, right, we placed we had a nice year last year from a cash flow standpoint. You saw a very nice uptick in not only cash flow from operations, but free cash flow in the first quarter. A lot of that driven by inventory reductions, we've taken out, if you compare the balance sheet last year to this year on inventory, you would see $80 million, $85 million reduction. Now some of that is related to FX and divestitures, that's about half, but the other half is related to deliberate actions to reduce inventory in our businesses. And as we noted, that was going to be a profit headwind here in Q1. As I said to one of our accounts the other day, I said, I suppose we could have made $40 million of inventory in the course of Q4 and Q1 and that would have had a nice tailwind for profit, but that probably wouldn't make a whole heck of a lot of sense from a cash flow standpoint. So a little bit of – you see that in flavors in particular right now and even in colors, the combination of the lower volumes in Q4 from sales side of things, but also lower production output deliberately. There's a very strong effort around the company to continue to reduce inventory for all the obvious reasons why that's a good idea. And – but there is a little bit of an accounting overhang as we like to call it, that will trail you for a few months after you do that. So that's certainly bit of the headwind that you see there in flavors in particular here in Q1. But that moderates right as that sort of – is digested in the organization, you would expect to then see profit growth. And that's what we expect for flavors. And that's going back to your question about what gives me confidence. That's another area that gives me confidence.

Okay. Thanks for the color on that. And then finally, just on the tax rate, I know obviously, there are a lot of moving parts in the first quarter but what should we look for in terms of the underlying tax rate going forward?

So last year, we were pretty low. You'll recall we were just below 15%. A more normal cash tax rate for us is going to be probably 20% to 22%. We had some planning last year that lowered the rate. We may have some additional planning this year that may take it a little bit below the 20% to 22%, but that would be our – our more normal would be say 20% to 22%.

Okay. That's great. Thanks again for taking the questions.

Okay, Mitra, sure thing.

The next question is from Leigh Ferst with HighTower. Please go ahead.

Thank you. Good morning. Thanks for your leadership.

Hi, Leigh.

Good. Hello. You talked about supporting changes in demand around health trends and local trends. Could you elaborate that on that a little bit more pleased and also discuss if your natural products business fits into changing trends or just what the dynamic is there in the natural product side?

Sure. So if I understood you correctly, you're trying to get a little bit more color around sort of health and how the changes in the market and consumer demand, how that can help or hurt our business. So yes, I think it's a great question, right, because everybody's sort of wondering, what's going to happen after this COVID thing, right? You hear this joke about the COVID-15 how people are at home, just gaining weight and eating unhealthy. And I don't know, how to chew a lot of that is, but I can speak for myself when I'm at home I eat more, but that's just a sample size of one so maybe not so meaningful. But nevertheless, there has been an ongoing interest within the marketplace for health, more healthy products, whether that's less sugar, less salt, products derived more closely from nature, whether it's an extract or a natural flavor or a natural color. That has been a very broad based trend in our food and beverage business, in our cosmetics business, pretty much in most of the businesses that we have saved, obviously our inks business. And so that trend is there that can be impacted strongly depending on how many of our customers come out of this pandemic, right. So if many of them focus on core business and scale back their new launches, okay, we would have a benefit because they're buying more of existing products. But if they're not launching new products, that becomes a little bit of a headwind for us. But I think that you're going to continue to see a very strong emphasis on that. I only caution that some companies may scale back on that a little bit. That's the part of the equation right now that we are less confident of understanding. But if we use China as a little bit of a benchmark here, China is – our order book for China, colors, flavors, cosmetics has come back very strong in the last couple of weeks of March and certainly now into April. Many of our customers are open. It's quite restrictive and it's not certainly free access to go to any customer you want and in any city of China does vary by customer and it does vary by city. But what we're seeing here is many of our customers going back to the original pipeline and resuming their focus on the products that they were working on, which again were many of them related to the health and the betterment of the product portfolio that they have. So if China and the Far East is any indication or at least a good data point for us, hopefully, we could see that type of trend emerging in the Americas, Europe and the Middle East. So I'm optimistic that could happen, but I'm also cautious that there may be some brands out there that want to just kind of circle the wagons and perhaps focus on their core products, which may not be promoting as much of that the health trend. In terms of your question around our natural products, obviously our natural colors did quite well again, up 7%, a combination of new wins and conversions of existing customers, still a very strong interest in that category, in that market. I would anticipate that we would see those – that growth again this year, if nothing else on the backs of a lot of the good wins we had in 2019 and in early 2020. If there is a slow down in customers launching products with say, natural colors, extracts or natural flavors or say a cosmetic with a more natural composition, certainly that could be become a little bit of a headwind for 2021. But I think, again, at a minimum, the wins that we've had, we can ride that for a little bit. But here again, I think I'm optimistic that the market will eventually return and the consumer interest is not abated on these areas and I think that we'll continue to incentivize our customers to continue to launch those types of products.

Thank you. And on a different note it's not surprising that you had some transportation and shipping challenges, but could you give us a little more color on that piece and how to manage it?

So yes, a lot of those were early on as you saw lockdowns in China and you saw lockdowns in India. I think that certainly that impacted our ability to get some raw materials. How we manage that was I guess back in March when we started making some pretty good assumptions about what was going to happen here. We said, well, we need to go long on some of our key raw materials, the ones that are very essential to our operation and most closely driving the revenue. And so we that in some cases since we're dual or even we have three sources, we were able to shift our supply chain. That was another important action we took in addition to going long on some of those key raw materials. But I think the fact of the matter is we were well ahead of this and we bought things before there were transportation shortages and challenges of a great scale. If you waited until April, you were probably a little bit behind the eight ball, which is to say, you were going to have some bigger challenges. So now it's just a matter of how good your supply chain people are. And we've got really good supply chain people, who've been very, very creative. I had no idea that there was still a train line from China to Switzerland, for example, but there is. And so we found very, very clever and very, very novel transportation options to continue to help our businesses move along. And that's why you say, or I say, the on-time delivery factor is still really strong in this company. So people found a way because we said the expectation is still 95%, no excuses find a way. And people did. So I say those would probably be three or four of the ways we have done that. I would tell you that today, there's still some backlog in India. I think how that lockdown was enforced or instituted was a bit different than some of the other countries that had more of a kind of a systematic that was more of a just broad based. Everything is shut down. So there's still a lot of shipping delay out of India. China is really done a nice job of catching up, but there is still a backlog out of China. So by no means is anybody out of the woods. But the last point I'll make here, Leigh, is that we're not so strongly dependent on any one raw material in this company. I think the biggest impact of revenue from any raw materials, maybe about 4% or 5% of our revenue. So we've got a pretty diversified footprint when it comes to our supply chain. And I think that's been a real important aspect of our success there as well.

Thank you. That was interesting.

Okay, sure thing.

The next question is a follow-up from Heidi Vesterinen with Exane. Please go ahead.

Hi, few more questions please. Could you talk about why natural ingredients was so strong, was this price or volume or mix of both? And what's your outlook there? And in Asia-Pacific please, some of the segment where you really focused on too much but the growth was quite strong, what drove this. And you had talked about a positive outlook there as well. What will drive this? Thank you.

Okay. So natural ingredients – so onion, garlic, capsicums, parsley, other vegetables. So it was strong for a couple of reasons. We have – so we've got a very broad customer base that we continue to expand. We generated a lot of new wins in that business. So I think that would be number one. Number two, in some cases we share a customer with say, a foreign source of onion or garlic or capsicums and there might have been a little bit more at least in the U.S. preference for a domestic supplier given again, some of the shortages out of China and other parts of the world. So I think that was helpful. But I think really, on top of that is we just had unbelievable service level. I think our on-time delivery in that business, Heidi, it was like about 99% in the quarter, which is just unbelievable because they're really good and they're very focused on it. And the customers recognized and they wanted to stick with a source that was very, very reliable. And I think – now is not the time, perhaps some purchasing folks have concluded to think about saving a penny. What you're really right now is need reliability and assurance and we are really good at providing both of those factors. So I think those would be some of the things that really buoyed our first quarter results. I think you can just continue to see really good results in that business for the year. What you're also going to see is as these raw material costs inflation on onion, you're going to see that continue to moderate as the year goes by as well. So that will be yet another factor and another source of confidence for me, certainly, that the flavor group will continue to change the picture there on the operating profit growth that we've been looking for. Now in the Asia-Pacific side here again, we've got great leadership in the region. We've got a very strong strategy. We made the investments, we've talked about Singapore, we've talked about how other investments in sales and technical areas have been somewhat of an SG&A and otherwise headwind for us for the last couple of years. But as I've commented on previous calls, they were very necessary to really enhance the capabilities and the desirability for customers to deal with us in Asia-Pacific. So I think right now what you're seeing is some of the fruits of that labor and those investments and those changes. I think what also helped us in Asia-Pacific is we are undersubscribed in China, to whereas many other companies might have a substantial presence in China, we don't. And I guess that that was – we were down in China, but it didn't impact us as greatly as say others because we just don't have as much business in China and say we do in other regions. We had great new wins throughout the region, Thailand, Australia, India, New Zealand. And so I think those also helped. And then of course, we've had less of this attrition that I've referenced before. So those five or six factors were pretty important for Asia-Pacific. And as we go into the rest of the year, I'm optimistic China and Japan are going to continue to be improving situations. But we still have some issues in India with respect to what's open and what's closed, whether it's on a customer front or a transportation front. We also have big headwinds in other parts of Asia related to the shutdowns as it pertains to quick service. So we've got – we’re more strongly subscribed to QSR segment in Asia perhaps than any of our other regions. So that represents a bit of a headwind. But there again, I think the tailwind from our wins, the tailwind from the momentum that we have is going to be enough to overcome that and allow us to have what I described as that mid single-digit revenue growth for the rest of the year.

This concludes our question-and-answer session. I would like to turn the conference back over to the company for any closing remarks.

Okay, thanks. Are there any other questions?

No, there are no other questions in the queue.

Okay. So if you do have any other questions, we're always happy to talk, give us a call and we can certainly continue any type of conversation you'd like. And – but Steve, you wanted to say something else?

No, I would just say, that concludes our call. Thank you everyone. And as Paul, if there are any follow-ups please contact us. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.