IFF (IFF) expects to achieve mid-single digit adjusted operating EBITDA growth for 2023

IFF (NYSE: IFF) today announced the next phase of its strategic transformation by previewing its refreshed strategic plan and new operating model, developed through an extensive assessment with the Company’s senior leadership, customers, investors and key partners.

At its Investor Day on Dec. 7, 2022, IFF management will provide additional commentary on the following financial and strategic initiatives:

• Growth-Focused Strategy: IFF shared a new strategic framework, positioning the Company to Do What Matters Most, driving sustained profitable growth, deepening its commitment to customers, and embedding Environmental, Social and Governance (ESG+) priorities across the entire enterprise.
• Enhanced Cost & Productivity Initiatives: IFF communicated an additional $100 million in run-rate savings to support reinvestment and grow earnings. The Company expects to realize net annualized savings of approximately $350 to $400 million during the 2023-2025 period.
• Redesigned Operating Model: IFF outlined plans to create a simplified operating structure more closely aligned to end markets and customer demand.
• Financial Guidance: IFF introduced its preliminary financial outlook for 2023, where it expects to achieve mid-single digit adjusted operating EBITDA growth on a currency-neutral basis and outlined its long-term financial objectives. The Company expects – on average – to grow sales by 4% to 6% and adjusted operating EBITDA by 8% to 10%, on a comparable currency neutral basis over the 2024, 2025 and 2026 period. In addition, the Company expects to reach <3x Net Debt / Credit Adjusted EBITDA in 2024 through operational improvements and non-core divestitures, at which time the Company intends to reactivate its share repurchase program.
• Portfolio Optimization: IFF restated its commitment to continued portfolio optimization initiatives.
• Governance and Leadership: IFF Board of Directors introduced a plan to evolve its Board in line with best-in-class governance standards. IFF also announced several updates to the Company’s Executive Committee.

The transformed IFF will be a premier partner to its customers, delivering unmatched innovation, service and quality with an industry-leading product portfolio. The Company will be guided by a customer-centric approach with a commitment to growth, greater productivity and disciplined execution. IFF’s broad portfolio, diverse platform and leading capabilities provide compelling cross-selling opportunities to achieve greater sales growth, and incremental cost-reduction initiatives position the Company to deliver long-term profitable growth.

“IFF has built an incredible foundation as a trusted partner with world-class talent, a robust R&D pipeline and broad portfolio that delivers for our diverse customers around the world,” said IFF CEO and Director Frank Clyburn. “Now, having completed several transformative milestones, we are acting with urgency to capitalize on strengths and address opportunities through a more growth-centric strategy. Our refreshed strategic framework and new operating model will increase customer centricity and better align with end-market needs. This next phase is designed to ensure we are innovative, efficient and disciplined as we strengthen our competitive position and achieve long-term financial success. To do so effectively, we are enhancing our productivity to reduce our cost base, reinvesting in our highest-value businesses, embedding ESG+ in all we do, and enhancing our culture to maximize value creation for our customers, employees and shareholders.”

“These strategic actions represent an exciting opportunity to strengthen IFF’s focus on customers and better align with today’s marketplace, positioning IFF to accelerate its growth potential,” said Dale Morrison, chair of IFF’s Board of Directors. “Our Board is aligned with the vision Frank and the management team have developed through a comprehensive review. We are pleased to begin the process to evolve IFF’s Board, including ensuring we have the right composition of experience and skillsets, so we can best support and oversee the Company through its next phase of growth and value creation.”

Evolving IFF’s Board of Directors:

IFF Board of Directors plans to evolve its Board in line with best-in-class corporate governance standards, ensuring the Company has the optimal support and oversight to advance its growth and transformation strategy. The Board intends to reduce the size of its Board from its current size of 14 directors to a target size of approximately ten directors by the May 2023 Annual Shareholder Meeting.

The IFF Board also intends to evolve the composition of its Board by adding outside senior executives with specific management, strategy and operations expertise relevant to IFF’s current profile, and to progress toward best-in-class governance standards. IFF today announced the appointment of Mark Costa, Chairman and CEO of Eastman, to the Company’s Board of Directors, effective Jan. 1, 2023. Costa brings several decades of leadership experience in the specialty materials industry and oversaw a successful transformation and sustained growth at Eastman.

Morrison continued, “I am pleased to welcome Mark to the Board. His experience leading a global organization through a period of strategic transformation, growth-focused execution and sustainable innovation will benefit IFF’s customers, shareholders and teams around the world.”

Growth-Focused Strategy to Do What Matters Most:

IFF’s new strategic framework will position the Company to Do What Matters Most and drive sustained profitable growth, concentrating on customer excellence, incremental cost reductions, consistent execution and disciplined investments to advance the opportunities with greatest potential returns. The strategy deeply embeds ESG+ priorities across IFF’s entire enterprise, strengthening the Company’s commitment to positively impact its environmental footprint and communities in which it operates. With this refreshed strategic framework, IFF will be positioned to meet customer demand and fulfill its purpose of applying science and creativity for a better world.

IFF’s strategic framework will be guided by the following objectives and key pillars:

• Be the Premier Partner: IFF renews its commitment to be a premier partner to its customers. By upgrading key commercial capabilities, enhancing service levels, and expanding its geographic coverage, IFF will be better able to address evolving customer demands, creating the products and technologies designed to lead consumer megatrends. IFF’s deep focus on customer partnerships will enable the Company to extend its collaboration with high-value customers, accelerate development in high-growth geographic markets, and capture market share through incremental revenue opportunities by leveraging its world-class product portfolio to cross-sell and develop integrated solutions.

• Build Our Future: IFF aims to drive profitable growth and gain market share by strategically prioritizing resource allocation to reinvest in the highest-value businesses and focus on the areas where IFF is positioned to win. The Company will efficiently manage assets to maximize performance in core businesses and intends to optimize its portfolio by divesting non-core assets as appropriate. IFF’s R&D capabilities will be concentrated on enhancing its strong product pipeline to meet and anticipate customer needs and desires. This includes transformative projects powered by AI and robotics, high-value customer collaborations and innovative projects that demonstrate the breadth of IFF’s integrated capabilities, all calibrated with an emphasis on sustainability.

• Become One IFF: Building on the Company’s strong foundation, IFF is creating a more unified and integrated organization, bolstered by a winning culture of accountability and collaboration. IFF is strengthening talent, enhancing its digital analytics and data capabilities, and transforming its ability to share insights and services across the enterprise. IFF is optimizing its operating model into a customer-centric and market-backed approach aligned around core end markets. This new model will power IFF to become more efficient and deliver the full breadth of the IFF portfolio to customers with greater speed and agility.

New Operating Model Aligned to End Markets and Customer Demand:

IFF previewed its vision for its new operating model to transform the Company into “One IFF”. The Company will transition its current divisional structure to align businesses to three core end markets: Food and Beverage, Home and Personal Care, and Health. This transition will transform IFF’s operating model into a more customer-centric and market-backed approach, consistent with IFF’s goal to become the premier partner for its customers for all solutions within their respective business areas. The new simplified operating structure will enhance execution and streamline customer delivery. IFF expects its new operating model to be fully in effect by the end of 2023.

IFF has also established a Center for Commercial Excellence, reporting to CEO Frank Clyburn. This group will focus on enhancing IFF’s sales capability, including global key account planning and accelerating incremental sales opportunities through a more holistic approach to customers by leveraging IFF’s full product portfolio. In addition, IFF will centralize global marketing, commercial analytics and leverage digital capabilities within the Commercial Excellence team.

Updates to Executive Leadership Team:

The Company will maintain its existing four division structure until its new operating model is fully in effect by the end of 2023. After 34+ years at IFF, Nicolas Mirzayantz, currently president of IFF’s Nourish division, will be leaving the Company effective Dec. 31, 2022. Upon Mirzayantz’s departure, IFF CEO Frank Clyburn will lead IFF’s Nourish division until a replacement is named. All other divisional leadership will continue in their current positions.

Ana Paula Mendonça, currently IFF president, Fragrance Ingredients, has been named senior vice president, Commercial Excellence, where she will lead the Company’s new Center for Commercial Excellence and oversee the sales excellence program, global marketing and commercial analytics, leveraging digital capabilities. With this appointment, Mendonça becomes a member of IFF’s Executive Committee and will be based in the Company’s New York City headquarters.

Michael DeVeau, currently IFF senior vice president and chief investor relations and chief communications officer, has been appointed senior vice president, corporate finance and investor relations and will lead the Company’s corporate and divisional financial planning and analysis team, as well as corporate strategy, M&A and investor relations. With this transition, Deborah Borg, executive vice president, chief human resources and diversity & inclusion officer, will assume leadership of IFF’s corporate communications.

With the recent additions of Ana Mendoca, Deborah Borg, and Ralf Finzel, executive vice president and global operations officer, who was announced in Oct. 2022, IFF continues to transform its Executive Committee, augmenting institutional knowledge with experienced, diverse and talented senior leaders from adjacent industries.

Financial Outlook:

The Company has announced preliminary financial guidance for 2023, where it expects to achieve mid-single digit adjusted operating EBITDA growth, on a comparable currency-neutral basis, as it continues to take necessary pricing action to offset inflation, drives productivity and delivers cost reductions. At the same time, the Company will make commercial, R&D and capacity investments critical for long-term success.

IFF today outlined long-term financial objectives, where the Company believes that it can deliver industry-leading sales and adjusted operating EBITDA growth. The Company expects – on average – to grow sales by 4% to 6% and adjusted operating EBITDA by 8% to 10%, on a comparable currency neutral basis over the 2024, 2025 and 2026 period. In addition, the Company expects to reach <3x Net Debt / Credit Adjusted EBITDA in 2024 through operational improvements and non-core divestitures, at which time the Company intends to reactivate its share repurchase program. The Company also maintains its commitment to return cash to shareholders through its competitive and growing dividend.

IFF has accelerated and expanded enterprise-wide productivity initiatives to drive additional cost reductions in administrative expenses implementing a restructuring program to improve efficiency across the organization. The Company is targeting approximately $100 million in annualized savings through headcount reduction. With these additional savings, the Company now expects to realize net annualized savings of $350 to $400 million during the 2023-2025 period.

Portfolio Optimization:

IFF reconfirmed its plan to continue to optimize its portfolio through non-core divestitures, subject to tax and other requirements stemming from its N&B merger, to improve the Company’s capital structure and allow for greater investment in high-return businesses. The Company expects to announce three non-core divestitures by the end of the first quarter of 2023, with expected proceeds of approximately $1.2 billion to be used for debt reduction.

IFF is continuing to assess its portfolio to identify additional portfolio optimization and divestiture opportunities.

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