International Flavors & Fragrances Inc. Price & Performance (IFF)

A reconciliation of these non GAAP financial measures to the respective GAAP measures is set forth in the press release that we issued yesterday. With me on the call today is our CEO, Eric Fierwald and our CFO, Michael DeVoe. We will begin with prepared remarks and to take questions at the end. With that, I would now like to turn the call over to Eric. Thanks, Mike, and hello, everyone. I'm excited to walk through our full year 2024 financial results and reflect on the progress we've made over the past year. Then turn the call over to Mike DeVoe, who will provide a more detailed look at our fourth quarter our financial outlook for 2025. Then I'll come back to discuss our go forward priorities in 2025, to maintain our momentum and continue to drive long term profitable growth. We'll then open the call for questions. Starting with Slide six, I'd like to recap the significant improvement in progress achieved by IFF over the past year, supported by consistent execution across the business One year ago, when I joined IFF, I found an exciting company that was not delivering on its full potential. With a new perspective on our priorities, and a renewed focus on execution by our executive leadership team, we got back to basics in 2024.

The renewed commitment to operational discipline by our global teams led to improved financial results including strong growth in both revenue and profit. The transition to our end to end business led operating model splitting Nourish into focused taste and food ingredients business units have better connected us to customer end markets and increased our line of sight into customer dynamics. These initiatives have driven greater accountability across the organization, while enabling our global teams to be faster, more efficient and more responsive to the evolving needs of our customers. As part of our updated strategy, we have increased emphasis on biotechnology as an important differentiator and capability across our core business segments. This focus ensures to leverage this competitive advantage and serve our customers more effectively. Now alongside this effort, we also implemented a program to increase investments across research and development, commercial capabilities and CapEx, focused on our high growth, high margin health and biosciences taste, and scent businesses to enhance our infrastructure and drive innovation at scale. We are also continuing to strengthen our talent with several key hires and internal promotions, that solidify the next generation of IFF leadership. I'm also pleased to share that employee engagement levels improved significantly compared to 2023 demonstrating the success of our return to focus on bringing leading innovation [indiscernible] Lastly, we announced the next phase in the evolution of our Board of Directors.

Appointing three new Board members, with the backgrounds, expertise and proven track records to support management to fulfill our long term strategic vision, and unlock greater value for our stakeholders. We are excited to welcome Cynthia Jamieson, Doctor. Mehmed Khan, and Vincent Intriary to our Board, We also announced that Kevin O'Byrne will become our new Board Chair. You will succeed our current Chair, Roger Ferguson, who decided not to stand for reelection at the twenty twenty five Annual Shareholder Meeting after fourteen years of distinguished service. I thank Roger for all his support and guidance and look forward to working with Kevin in his new role. Taken together, all these efforts focus on our people, customers, innovation, and operational excellence form the foundation of our long term profitable growth approach. On Slide seven, we'll take a closer look at our financial results in 2024. In 2024, IFF delivered $11,500,000,000 in sales representing 6% comparable currency neutral growth our profitability also improved as IFF delivered over $2,200,000,000 in adjusted operating EBITDA representing 16% comparable growth. Broad based volume improvement across our portfolio strong execution by our commercial teams, and the absence of destocking drove growth across all our businesses. At the beginning of 2024, we also adjusted our dividend policy to better support our deleveraging efforts and give us greater financial flexibility to invest in key growth areas across IFF.

On the portfolio optimization front, we continue to progress toward completing the sale of Pharma Solutions which we expect will occur in the first half of twenty twenty five. Our net debt to credit adjusted EBITDA and 2024 at 3.8 times. Improving from 4.5 times at the end of twenty twenty three. We continue to be committed to further deleveraging and the completed sale of Pharma Solutions will help achieve that goal. I'm very proud of our results and the growth we achieved in the past year and what has continued to be a dynamic market and geopolitical environment. Our businesses achieved solid financial performance and we've made very good progress delivering on our strategic and operational initiatives. While I'm pleased with the significant progress we've made over the last year, we still have a lot more work to do. In 2025, we we plan to continue to strategically reinvest in R and D, commercial, capacity and technology as we aim to strengthen IFF and build a long term sustainable platform for all our stakeholders.

We are also focused on simplifying our business process and IT systems to improve efficiency, and effectiveness. I want to also take a moment to thank our IFFers across the globe whose passion and relentless focus have been the reason for the value we've created and the innovation we've achieved. And as I mentioned on the previous slide, developing and promoting strong internal talent is a priority. Mike DeVoe is the kind of leader we elevate and I would like to congratulate him on his appointment to IFF's Chief Financial Officer. Mike has been an integral part of IFF's global finance leadership over the last fifteen years, He brings a deep understanding of the needs of our global finance operations and the value IFF delivers for the world's consumer product companies. I know Michael continued to be an even more incredible asset to our team in this key role. I'll now pass it over to him to share a closer look at our fourth quarter results. [indiscernible] Thank you for the kind words, Eric, and hello, everyone. After more than fifteen years at IFF, is an honor to join my first call as CFO and I look forward to working closely with all of you in my new role.

Moving to Slide eight, as Eric noted, our strong performance and execution through 2024 continued in the fourth quarter and drove solid results. IFF generated revenue of $2,700,000,000 in the fourth quarter an increase of 6% on a comparable currency neutral basis driven by broad based growth across all our businesses and led by mid single digit volume improvement. We continue to realize the benefits from our ongoing productivity initiatives. Leading to the third consecutive quarter of margin expansion Adjusted operating EBITDA totaled $471,000,000 in the quarter, a 5% increase on a comparable basis and our comparable adjusted operating EBITDA margin expanded by roughly 30 basis points This performance was led by volume growth and our ongoing productivity initiatives that were partly offset by increased incentive compensation expense and business reinvestment. On Slide nine, I'll provide a closer look at our performance by segment. In Nourish, sales were $1,400,000,000 a 4% increase year over year on a comparable currency neutral basis. Comparable adjusted operating EBITDA also increased by 4%. This was led by the fourth consecutive quarter of double digit growth in Flavors a testament to that team's continued outperformance. In Functional Ingredients, mid single digit volume growth was mostly offset by our pricing actions.

This was consistent with our previously announced price strategy for twenty twenty four. Double digit gains in home and personal care and grain processing alongside growth across nearly all our businesses resulted in another solid quarter for our Health and Biosciences segment. Sales came in at $553,000,000 a 6% year over year increase on a comparable currency neutral basis. Comparable adjusted operating EBITDA decreased by 3% largely due to strong year ago comparable as well as business reinvestments that Eric mentioned earlier. In Cent, broad based growth, was led by double digit increase in fragrance ingredients and high single digit growth in fine fragrance. Net sales in the quarter totaled $579,000,000 up 7% year over year on a comparable currency neutral basis we delivered adjusted operating EBITDA of $97,000,000 up 1% on a comparable basis as volume growth and productivity gains partially offset by higher reinvestment. Finally, Pharma Solutions delivered another strong quarter achieving sales of $228,000,000 a 12% year over year increase on a comparable basis while also recording excellent profitability growth of 81% to $47,000,000 Strong margin expansion was driven by volume and productivity gains a favorable year ago comparable. Turning to Slide 10, cash flow from operations totaled $1,100,000,000 for the full year, and CapEx totaled $463,000,000 or approximately 4% of sales.

Our free cash flow position for the full year totaled $6.00 $6,000,000 dollars which is consistent to where we expected it to be at the beginning of the year. Year to date, we also distributed $514,000,000 in dividends to our shareholders. Our cash and cash equivalents finished at $471,000,000 at the end of the fourth quarter including $2,000,000 in assets held for sale. Our gross debt at the year end was approximately $9,000,000,000 a decrease of more than $1,000,000,000 compared to the year ago period following the completion of our divestiture Our trailing twelve month credit adjusted EBITDA totaled $2,200,000,000 in line with last quarter and our net debt to credit adjusted EBITDA improved to 3.8x. We remain committed to achieving our net debt to credit adjusted EBITDA target of below three times following the completion of our Pharma Solutions divestiture which we expect to be complete in the first half of twenty twenty five. On Slide 11, I'd like to share outlook for 2025. While the current operating environment remains dynamic, we are cautiously optimistic about the year ahead as we look to build on our recent momentum. Coming off the strong year we had in 2024, we believe our 2025 plan strikes the right balance as we're targeting strong year over year improvements on a currency neutral basis and investing for the future growth of our business.

Please note that our full year guidance includes six months of Pharma Solutions with a divestiture assumed to close 06/30/2025. For comparability purposes, we expect that divestitures will have approximately a five percentage point adverse impact to sales growth and approximately a six percentage point adverse impact to adjusted EBITDA In the event that we can close the Pharma transaction earlier, we will adjust our guidance accordingly and reflect the lower contribution of the business. For the full year 2025, we expect sales to be in the range of $10,600,000,000 to $10,900,000,000 representing comparable currency neutral growth of 1% to 4%. We believe that this will be driven by continued volume growth against a strong year ago comparable with increases across all our divisions led by H and B, Taste and Scent. It should be noted that we expect the 2025 operating environment to be more normalized relative to 2024 which did benefit from the absence of destocking. Pricing is expected to be modestly favorable, inclusive of FX related pricing as raw material costs remain elevated and in some cases increasing year over year. On the bottom line, we expect to deliver full year 2025 adjusted operating EBITDA between $2,000,000,000 to $2,150,000,000 On a comparable currency neutral basis, this translates to 5% to 10% EBITDA growth which will be driven by gross margin expansion as a result of volume leverage and strong COGS productivity.

Following a year of strong margin expansion, and double digit profitability growth in 2024, we will continue to reinvest in long term value creation opportunities while balancing our near term profitability objectives. What this means is that we will continue to drive strong productivity to mitigate general inflationary pressures and at the same time reinvest a large portion of our incentive compensation reset in in R and D, innovation and commercial capabilities across our businesses, similar to the actions we've taken the second half of twenty twenty four. We believe that by doing so, not only will we drive short term performance, we will further enhance our competitive positions and generate strong returns on these organic investments. Based on foreign exchange rates, we expect foreign exchange will have approximately 4% full year adverse impact to sales growth and a 6% full year adverse impact to adjusted operating EBITDA This is primarily driven by the strength of the euro where the current rate is down relative to the 109 average in 2024. In addition, there are several other emerging market currencies such as the Brazilian real and the Argentine peso we issued a modest devaluation versus the USD over the As previously communicated, we plan to increase our CapEx investments targeting approximately 6% of sales in 2025.

Approximately half of this investment is maintenance CapEx. While the rest is split evenly between deferred investment catch up specifically in food ingredients, growth investments such as capacity expansion in H and B, and India Creative Center and Scent and a creative center in Mexico, in both taste and scent as well as digital transformation, specifically related to our SAP HANA upgrade. We believe these investments will yield strong returns providing us As a reminder, we have resegmented the business into five divisions, [indiscernible] food ingredients, [indiscernible] [indiscernible] and Pharma and have adjusted our corporate allocations starting in 2025. Prior to the first quarter of twenty twenty five earnings release, we we plan to provide historical information for comparable purposes so that when we report first quarter earnings, you will have the appropriate baseline.

Let me close by sharing that we are pleased with the strong progress and foundation we built in 2024. Our recent success gives us confidence in our outlook as we continue to execute our strategic and financial priorities. With that, I'd like to turn the call back to Eric.

Thanks, Mike. Our outlook for the year reflects our confidence in our businesses, and our ability to navigate macro uncertainties continuing to deliver for our customers.

I want to turn to the priorities that will guide our strategy for 2025 and help us reach the goals we've outlined for the year. In 2025, our focus will continue and returns on capital. We will continue to improve our businesses while also ensuring we have competitive cost best in class support functions.

As we've discussed, this will require some investment. At the same time, we will continue to drive growth and returns by increasing our investment in R and D, value enhancing capital projects, and commercial actions to deliver profitable market share growth over time. We will also keep exploring ways for our teams to better innovate, providing greater visibility and transparency into our sales pipeline and formalizing our sales targets and expectations across teams. We will continue to deliver cost savings through productivity initiatives and improvements in execution, and processes throughout our businesses As we strengthen our continuous improvement culture, In addition to completing our planned divestiture of Pharma Solutions in the first half of the year, we will continue our ongoing portfolio assessment including exploring appropriate opportunities to bolster our portfolio through value creating bolt on acquisitions. I can assure you we will not do anything like another Frutarom. Importantly, we remain committed to consistently delivering solid financial results and meeting the goals we've outlined for 2025.

Lastly, our people are the core of our success.

And we will continue to invest time in developing talent and strengthening employee engagement to drive greater innovation and productivity.

This in turn will enable us to better serve our customers enhancing customer satisfaction I am confident that these priorities with the collective efforts of our world class global teams We'll make it happen. Now to close us out on Slide 13, our solid performance in 2024 speaks to the success of our reinvigorated strategy, and our focus on operational execution.

All of us at IFF are excited to build on this foundation to further strengthen the business and reinforce our market position, in 2025.

We are well on our way to unlocking our full potential and continuing to deliver innovative and sustainable solutions for our customers and communities all around the world.

Thank you And I'll now open up the call Thank you, all. At this time, we will now begin the question and answer portion. The first question is from the line of Kiersten Owen with Oppenheimer. You may proceed.

Hi, good morning. Thank you for taking the question. I wanted to ask if you can elaborate on the sources wins versus underlying demand of your volume growth expected in 2025. Just for context, we're hearing from CAGNY many of the CPGs are saying that volume is getting harder to come by. So we're just trying to understand what's sustaining that volume growth expectation and any specific areas of relative Thank you.

Sure. Thanks, Kristen. This is Eric. I'll take this question.

So first of all, we're saying that for 2025, our volumes will be 1% to 4% growth. Which if you recall in 2026, we had 6% growth which about half of it was destocking. So normalized growth rate is in the range of 3% We believe that our volume increases will be mainly in Health and Biosciences, scent and taste, and we see now that we have strong commercial pipelines in each of those businesses and a high win rate And that means that we're winning more than our fair share in many cases. And that's really important and that's the drive. Food ingredients will be much lower volume increases but we still see some volume increase there. But I think it's really important to step back and see what we're doing over the next three years, what our focus is. And what I'll start by saying, I think we made really good progress in 2024 getting back to basics, getting the fundamentals in place [indiscernible] over the next three years, we must keep driving to get to growth rates while we narrow the margin gap versus our best in class competition in each business. And we're going to do that by continuing to invest in R and D, commercial capabilities, and capacity particularly in Health and Biosciences, scent and taste businesses.

Those are three great businesses with high margins and want to keep making sure that we're fully investing to be fully competitive with best in class competition. In our food International excuse me, food ingredients business, we are investing selectively in areas like technical service, and upgrading some of our facilities that badly needed But at the same time, we're driving an aggressive productivity program across our Food Ingredients business. And then even across the entire company, we're driving strong productivity programs across each business unit and across the corporate functions to make sure that we're fully cost competitive but also fully effective. And then as we do all that, we're also leveraging our uniquely strong biotech capabilities into our scent, and flavors businesses and continuing to drive the other health and biosciences application areas. So we have a great plan for the next three years. We're going to keep investing. We're going to keep delivering year by year. We're going to keep investing so that in three years, we are very strong versus our best in class The next question is from the line of Josh Spector with UBS. You may proceed.

Yes. Hi, good morning. I wanted to ask two things if I could. First, just on the EBITDA bridge for 2025. Mean, understanding the pharma divestment and FX are negatives, I guess we thought that volume and the incentive comp resets could get you to about neutral So there's obviously something else investments or price cost or otherwise, which is adding a negative variance to that bridge that we're not accounting for. So how do you build that bridge? And then secondly, just around seasonality and your expectations for 1Q versus the rest of the year? EBITDA specifically? Great. Thanks, Josh. I'll take this one.

In terms of the EBITDA bridge to the midpoint of our 2025 guidance, it's really around just two things. It's around volume growth and productivity. So if you assume the midpoint of our guidance range, sales will grow 2.5% on the comparable base of $11,000,000,000 with an incremental margin of about 35%. That's yielding you around four to five points of EBITDA growth. The second piece of it that we're really trying to target and drive productivity within the organization. And so you're getting another about 2% net productivity benefit which is more than offsetting the inflationary piece.

In terms of net pricing to inflow costs, they're expected to be neutrality. So flat when you net them together. And in terms of the incentive compensation reset, have about $100,000,000 of a reset and we're fully or essentially offsetting that We net the two together. And that's to zero. In terms of the EBITDA cadence, again, if you take the midpoint, the first half of the year will be stronger in that sort of dollar basis because we're assuming that the pharma transaction will be completed at the end of of Q2. Also just remember that Q2 is usually our seasonably strongest quarter. So on an absolute dollar basis, EBITDA will be the highest in Q2 of twenty twenty five.

The next question from the line of Nicola Tang with BNP Parabas. You may proceed.

Hi, everyone. Thanks for taking the question. I wanted to dig a little bit more into your comments around volume or I guess the currency neutral 1% to 4% ex expectation for the year. Would you be able to talk a little bit more about what you expect across the core divisions? Yes. Thank you, Nicola. So first of all, it's going to be primarily volume driven.

With modest pricing. With some gives and takes in pricing across businesses and across geographies. But primarily the volume will be growth will be driven by Health and Biosciences, Scent and Taste. Food Ingredients, volume will be much more moderate with a focus on increasing margins. In that business.

The next question is from the line of Emily with Deutsche Bank. You may proceed. Hi, this is Emily Fusco on for Dave Begleiter with Deutsche Bank. I wanted to ask what are your expectations for input inflation this year?

And how should we expect net pricing to develop through the year? Thank you. Thanks again for the question, Emily.

Maybe just to start, by saying that import cost from an IFS standpoint remain at historical levels, historically high levels. In some parts of our business, we are seeing continued modest inflation specifically in taste and scent, and this is really driven by natural ingredients. In food ingredients, there is a bit of deflation that the team is working with customers on. And on an H and B perspective, it's generally flat. And so net net on a consolidated basis, we expect our input cost baskets to be flat to up slightly. In all instances, will continue to work and collaborate with our customers to make sure we have the opportunities to mitigate. This includes reformulations, but also price discussions as well. In terms of pricing contribution over the course of 2025, we expect pricing to be relatively consistent of the four quarters as we go forward.

The next question from the line of Patrick Cunningham with Citigroup.

You may proceed.

Hi, good morning. This is Eric Zhang on for Patrick. You mentioned last quarter about getting functional ingredients to 15% plus margins in the coming years.

You on track for this margin expansion given the pricing actions? And what are the costs and productivity initiatives savings underpinning this growth. Thank you.

Thanks, Eric. We are on track towards this target. And we made very good progress If you recall in 2023, we talked about high single digit EBITDA margins in Food Ingredients. In 2024, we achieved solid low double digits margins, EBITDA margins And I would say under the new leadership of Andy Mueller with with a strong team, we are confident in our plans to get to the mid teens in the next few years. And we're doing that with a combination of better serving customers, growing our business, with attractive margins and driving aggressive productivity plans. Both are making progress Andy has a strong background in this business. And is helping the team to further strengthen those plans and the So we are on track The next question is from the line of Lisa D. Meade with Morgan Stanley. [indiscernible] taking my question. I have a question for free cash flow. Can you please give some details and granularity on how you expect free cash flow to play out for this year, especially concerning the networking capital movements and CapEx spend that's required? And also more in the light of the limited leveraging we seen in the second half of this year, which clearly will improve First Pharma, but just the underlying business would be helpful?

And a small second question, I'm just going to slide in. I mean, you've now been with the company as a CEO for over a year. I mean, is there any intention to set new midterm keep referring in your presentation towards the next three years, we're driving improvements. So are you willing to set any financial targets against that? Thank you.

Thank you, Aviso. Maybe Eric, I'll start on the first Perfect. I'll start on free cash flow and then I'll pass it back to you. In terms of the full year for 2025, we expect free cash flow to be about $500,000,000 No, this does include a significant impact of taxes related to the Pharma divestiture. So that's about $350,000,000 is our estimate at this point in time.

If you adjust for that, our free cash flow will be about $850,000,000 which is kind of consistent to the last couple of years. But more importantly an improvement versus where we finished 2020. In terms of net working capital, are targeting a slight inflow versus an outflow in 2024. And this is really driven by the work that we're doing around payables and select strategic inventory reductions. As we stated on the call, we expect CapEx to be about 6% of sales and this is really around increasing investments to catch up on some deferred spend Eric mentioned it moments ago, specifically in food ingredients. Also to make some growth investments And so capacity expansion, new technologies in H and B, some commercial facing operations for [indiscernible] And then lastly, really start to drive the migration of our digital transformation. So those are the biggest drivers from a CapEx piece of it.

And so maybe, Eric, I'll turn it over to you for the second part of the question.

Yes. So in terms of long term targets, we'll come back later in the year with with more clarity on that. But let me just say that I feel like we are a very strengthened company now versus a year ago. We've got absolute clarity on our organization model, our end to end business model, We've separated Nourish into taste and food ingredients two very different businesses with different strategies We've got a strong team a clear five year plan and clear investment plan with both growth investment and driving productivity So I am confident that we have the right direction Now we need to execute very well. And I think we did that in 2024. Now we need to do it 2025. And you'll hear more later in the year about our longer term aspirations.

Thank you. The next question is from the line of Steve Byrne with Bank of America. You may proceed.

Yes, thank you.

I'm curious, how would you characterize the potential impact on your businesses or perhaps some regulatory approvals from RFK now run-in HHS and the staff cuts at FDA any near term impacts from that? And then Eric, you mentioned new investments in Bio technology and R and D. I assume that that could include the use of gene editing for natural product expression levels, etcetera, do you think RFK could block this? So first of all, thank you, Steve.

Don't see any of our products as targets. In fact, what we do see is that many of our customers may reformulate products to have cleaner labels by the way plays into our strengths. And we've been making very good progress with customers that are working on cleaner labels, which has been a great growth opportunity for us already. And we see that as a continued opportunity going forward. In terms of biotech, R and D, I think there's lots of opportunities in many areas and you'll be hearing more about that at CAGNY, we're going to talk specifically about our biotech platform and we see that as having opportunities in scent taste, but also in the current areas that we're playing in and other areas with our DEB Design Enzymatic biomaterials which plays right into the heart of what the world wants, consumers want our customers want, the world wants in biodegradable materials that are sustainable. Sustainably grown, sustainably produced, So I see this as a bit of uncertainty about what will happen when, but in the general direction, I see it as as significantly more opportunity than risk.

Thank you. The next question is from the line of John Roberts with Mizuho.

Thanks. And first, congrats, Michael.

Back to raw materials, how much of IFF's raw material spend is potentially exposed to tariffs here And should we only be thinking about important imported materials into The U. S? Or do you worry about something reciprocal so that it's more than just a U. S. Issue?

Hey, thanks, John. Appreciate that very much. In terms of the tariff situation, it's ever evolving. It changes on a constant basis. When we assess the various situations or potential situations, we do not expect to have a material impact. From any tariff change. As you know, John, we have an expansive and global supply chain, which provides us with a lot of flexibility to adapt So should things change, we're working with our customers to make sure we mitigate that to the fullest. We lived through this a couple of years ago in this administration's first term, And so similar to that approach, we've taken now. That we're going to work with our customers on mitigation strategies and including price surcharges as appropriate. But that will become a secondary methodology to it. The focus is really seeing what we can do on supply chain to mitigate a lot of our of our exposure. Again, immaterial in nature, more to come as things develop and we'll keep you updated there.

The next question is from the line of Mike Cason with Wells Fargo. You may proceed. Hey, good morning. Nice end of the year and congrats to you, Mike.

Eric, with the year on year about and I understand you might want to wait a little bit, but where do you think IFS EBITDA should get over time it's expected to be a pretty big number when you bought NNB. But with divestitures, maybe framework where it could be. And then and just maybe stepping back a little bit, with N and B, Do you think this is a good business for IFS longer term what are the risks because certainly it had a little bit it certainly had a tough time on the get go. But what are the risks to the business And maybe just talk about where what parts of the business now fit really well with or have good synergies with the legacy IFS.

Sure. Thanks, Mike, for the question. I mean, I see with our current portfolio over time us getting to the low 20s EBITDA margin with food ingredients being the most challenged and health and biosciences being the highest and scent and taste being very solid. And as I look at it, [indiscernible] I came to the company a year ago, there was a lot of complexity, a lot of performance challenges. A lot of companies had been brought together So there was a lot to clean up and a lot to get the executive team together and clarify for the organization. I think we've made very good progress. I think we've got a very solid H and B Health and Biosciences team and business, very strong scent and taste teams and businesses, with very good, very strong, very competitive capabilities So we just need to continue to strengthen those and move them along in the next three years. And I think they'll compete very favorably within that period.

With the leading benchmarks. Food ingredients, is still a turnaround situation low single digit EBITDA margins in 2023 low double digit EBITDA margins in 2024, Andy Mueller and his team are absolutely focused on continuing that turnaround and getting those margins up significantly this year as another point of progress. And I'm confident in that team to make that happen. So I think that our focus right now is delivering 2025 but doing it in a way that we make smart investments that have good returns and get us increasingly competitive and deliver what we say we're going to deliver. And I think we're on good track to make that happen. The next question is from the line of Kevin McCarthy with Vertical Research Partners. Hi. This is Matt Hetler on for Kevin McCarthy.

Can you help us to understand why the FX headwind to EBITDA is 2% higher than the impact on sales? How do your margins on International business compare to U. S. Domestic margins?

Hey, Matt. I'll take this one. Thank you for the question. In terms of the incremental impact on EBITDA relative to sales, entirely driven by our purchases. Our sales are based in local currency, while larger port of portion of our input costs are denominated in euro and US dollar. So essentially that's what's driving the kind of multiplier effect between sales piece of it and EBITDA contribution. Your second question was around margin structure globally International versus domestic [indiscernible] It's actually pretty agnostic and pretty constant. The real differential comes when you compare the category exposures. And so just let me give you an example. In EV, You have the strongest margin profile just given the exposure to fine fragrance, while India you have a lower margin profile just because the portfolio is geared towards savory. As an example. So really, when you look at it on a kind of a like for like basis, adjust a lot, portfolio, you're pretty agnostic margin aspect of it. Really comes down to the category percentages within each one of Thank you. The next question is from the line of Mark Ostrand from Stifel. You may proceed.

Yes. Thanks. Good morning, everybody.

Two questions for me. One, just could you talk about the growth rates between local, regional and private label customers compared to multinationals and maybe just give rough split of the business as it seems former group seems to be growing faster and taking share away from the latter. And then Eric, you had talked about prioritizing best in class margins compared to sales growth. You're obviously accelerating investment, I guess, with flexibility in early 'twenty five in terms of the wraparound reinvestment. Maybe talk a bit about how you manage the two and if you want to sit there and try to think about prioritizing one versus the other, how quickly can you get to the margins versus how quickly can you get to run rate sales growth that grows at least in line consistently with peers? Thank you.

Mike, do you want to start and then I'll take the second half?

Sure. Thanks, Mark, for the question. When you look at the portfolio, the way I would categorize is you basically have one third global customers one third kind of midsized and one third small global customers. Including some of the private label aspects.

And so when you look at the dynamics across their global perspective, the growth is a little bit more muted. Than you see at some of the kind of regional, local, including private label customers. So for us, a big part of the focus on the give you an example on the taste strategy is really to prioritize private label and smaller customers as we go forward. And so that dynamic, that growth that you referenced, Mark, is true. The good thing is that there's still a lot of growth opportunities at the big global customers. That's much more geared towards new innovation what we can do to help them have winning products or consumer preferred products in the market.

So on the second half of your question, yes, on the second half of the question, we want to continue to work towards best in class margins. And growth rates. So what I would say is track us on how we're doing have growth rates in line with the best in class and gross margins that are improving and EBITDA margins that may improve a little bit slower because of our investments our aggressive investments in research, particularly, but also in commercial investments, in health and biosciences, [indiscernible] and scent. Let me just give you an example. In 2024, We had nice margin improvements but we could have delivered even more EBITDA and higher EBITDA margins if we wouldn't have made additional investments beyond what we had planned particularly in research and commercial capabilities.

So what we're going to do is continue to make progress but probably not as fast a progress on EBITDA as we could if we weren't making these additional investments but the investments that we're making, we are absolutely sure that in the next three years, will have a very attractive payout and will strengthen us against our best in class competitors. And we're absolutely committed to becoming leaders in innovation across these businesses Health and Biosciences, Taste and Scent while we continue to turn around the Food Ingredients business.

Thank you. The next question is from the line of Kate Grabenstein with Barclays. You may proceed. Thanks. Just a a couple of questions on the Scent business. I was wondering why fragrance and ingredients growth so strong this quarter, up double digit. And how we should be thinking about growth for 2025, if there's some pricing pressure on the business? And then on Fine Fragrances, you were wondering what your expectations [indiscernible] and if you're expecting any growth in FIND to normalize Thank you. Mike, you want to start? Eric, I'm happy to start. Yes, I'll start on this one and then pass it over to you for more comments. Look, the team has done a fantastic job in the fragrance ingredients business. They really looked at their portfolio. When you look at portfolio, there's really high value ingredients, and I would say more general kind of industry led [indiscernible] So what they did, they bifurcated that and they've targeted the market to go after some of the high value ingredients. And so what we've seen over the course of this year, in 2024, my apologies, in 2024, performance has been strong. As you noted, Katie. And for the quarter, we actually finished kind of in that mid teens range.

So very, very good. That's really about being proactive and making sure they have adequate capacity to ship product. For that. And had some good success there in 2024. In 2025, think you'll see the growth start to subside a bit Obviously, that is a business that's going to be driven by the end market consumption. And so as you go forward from here, I think the team has some good volume growth but they will have some reductions in overall price. Because of some of the deflationary environment that we see in the fragrance ingredients market overall. But they're working through that I think their long term strategy is very, very strong. And I think it still can be a growth driver as we go forward. It's just managing the next couple couple of quarters in terms of overall growth. So that's fragrance ingredients. On the fine fragrance side, the business is performing very, very well. And so, I think it finished the quarter at high single digit growth rates. On a two year basis, it's kind of in the mid single digit basis. Kind of factoring the year ago, comparable and so very, very strong Based on the access to business, and new win potential that they have, they expect growth to continue into 2025.

And be one of the areas that will lead the sense in terms of overall growth. And that's really around the strategy they have in some of the emerging markets like The Middle East and Africa winning some of the core big businesses and brands that are in Europe and North America.

The only thing I would add is that I think overall the dynamics for the Scent business are favorable and for the scent industry. Both the consumer goods companies are putting more emphasis on scent as a driver of superiority for their products, whether it's shampoo, body wash, laundry detergent, etcetera, all their products that is a critical element of superiority and a low part of the cost. Product cost. So I think that's going to continue and consumers love to have great sense in their products. I think on the fine fragrance the digital media and the desire to have better experiences through the day, not just an evening scent for a woman when she's going out, but people of all ages, both sexes increasingly wanting fine fragrances to enhance their day, whether it's whether it's an energizing scent that makes you feel more energy whether it's a relaxing scent, whether it's a romantic scent, these emotional drivers that are being expounded upon are being talked about by people like Charlotte Tilbury on digital media are helping to expand the market for scent fine fragrances all around the world. So I see the general Direction of growth for the scent industry continuing to be very positive.

And we're taking advantage of that.

Thank you. The next question is from the line of Sulk Koo from JPMorgan. You may proceed.

Hi, good morning.

I have another peeling back The Onion question. [indiscernible] your legacy flavor or your corn taste business and maybe that's like $2,500,000,000 in size. And then there's the function ingredients business, which is that's like $3,300,000,000 in size.

So if you Fungsure Ingredients business, which is the smaller one, growth slowly, maybe grows 1%. Like your taste business really has to grow something like 5% to get to the midpoint of your organic growth, which is 2.5%. Is that the way to think about it? You have like just much higher growth in taste, maybe like close to mid single digits and very slow growth in and function fragrances. And I have a similar question for the Health and Biosciences business, which I think maybe split to enzymes and maybe 45% into probiotics. Is it a similar dynamic where you think your enzyme the enzymatic business is going to grow more like mid single digits and probiotics at a very low end.

Mike, why don't you start and I'll end. [indiscernible] I'll start that. So first, maybe let me just start with the Flavors or Taste business. Silica, it is you're absolutely right. The way I think about $6,000,000,000 $2,500,000,000 is going to be taste side, dollars 3,500,000,000.0 food ingredient side. Flavors or taste side of the business has been running very, very strong. So their performance over the course of the year, if you see, it's basically had four quarters of very strong double digit growth. As you go into 2025, I think the taste business growth will more normalize. Relative to when I say historical averages just because the comp is strong, so that is going to be a big piece of the equation in terms of growth for the total company. Food ingredients will be a little bit more muted. As some of volume games are going to be offset by a little bit of price reductions that are associated deflation. And so to your point, you have to grow taste side.

The one X factor caveat is that in the rest of the business, we expect growth. And so that's making it up and has actually taken us into I'd say a better trajectory in 2025 overall and offsetting some of the food ingredient softness that we have year over year in terms of total top line growth. In H and B, with respect to enzymes versus probiotics in the subcategory levels, I think broadly speaking, all the businesses are targeting kind of modest growth year over year. The health business, the one area on the probiotic side that has been a little bit of a pain point to be very frank, over the last couple of years, expecting to recover a bit as we go into 2025 as well. So that will help us that will help us both from a top line perspective it's also accretive from a margin aspect as well. So Barry, back to you. Thank you. The next question is from the line of Laurence Alexander with Jefferies. You may proceed.

Hi. This is Dan on for Laurence. Thanks for fitting me in.

Just to kind of revisit [indiscernible] the tariff issues, but just from a little bit of a term perspective, was just wondering what your customers are saying their near term MTECs might be on order patterns and how you should think about where margins and ROI should be in three to five years? Can you repeat that second part of the question? I'm not sure I heard the second part. Well, the second one is just how do you think where margins in ROIC should be in three to five years?

Perfect. Eric, do you want to from a customer standpoint, I know you engage a lot from the customers, What I would say is, if you listen to the customers calls they're very, conservative about volume growth.

I think it's not it's separate from tariff issues, but tariff make people concerned about the economy With the uncertainty today, I think that uncertainty will hopefully get cleared up in the not too distant future and we'll get back to a more normalized growth But I think what [indiscernible] our customers what we're hearing from our customers, which is really important, is that they expect volumes to be soft and therefore they want to grow with innovation. And that's increasing the opportunity for us to work with them to deliver that innovation that excites consumers that drives their products. And by the way drives value in their products as well. I think that's very positive. But anything to add to that specifically on tariffs [indiscernible] No, I think that's good. Covered well.

Think the second point just on the margin ROIC evolution of LiveFORD next three years.

Think Garrett addressed it before. The simple answer is higher.

On both. Think for us, we're making a concentrated effort really on return on invested capital as we go into 2025.

And so we're making a big investment in terms of both carryover and reinvestment incrementally. I think this year, The reality is as we go forward, we are being very diligent on how we're thinking about return on every dollar we put in the business.

This is both OpEx and a cash basis. And so the team Trajectory, we don't have a formal target yet. We'll come back later in the year as Eric alluded to But over time, we would expect improvements in terms of again the margin piece of it, also return on invested capital.

The next question is from the line of Artem Chuvarov with Redburn.

You may proceed.

Good morning. Thanks for taking my question. I've got a follow-up on the Health and BioSciences business. Would you remind us of the current sales breakdown by businesses? [indiscernible] be helpful. And then looking ahead, do you see the future for some of those [indiscernible] Considered for a review Thank you.

I'll start and then Mike please add anything. First of all, our Health and Biosciences business is on very solid ground today. It's been growing nicely in 2024. We grew I would say, consistent with the leading benchmark and had strong solid growth across businesses. The slowest growth but still growing was the Health business. As Mike alluded to, we expect that to start to increase again as we put more innovation into that, business part of the business But overall, the dynamics are solid. In all the different areas, all the different application areas.

We have this new area and designed enzymatic biomaterials that we're excited about. We've started to get our first commercializations there. That's going to add to the growth. And we've got a lot of emphasis now on how do we turbocharge our scent and our taste business with our biotech capabilities we've got resources focused on that that will take some time to get through, but it's on a solid start. And I'm very, very optimistic about Health and Biosciences in the near term, but even more so in the three to five year timeframe.

Thank you.

At this time, we will now take the last question from Christopher Parkinson from Wolfe Research.

Great. Thanks. This is Harris Fine on for Chris. Thanks for taking my question.

So there's been a lot of active asset sales divestitures within Food and Nutrition over the past year. I guess when you look at what's happened what does that price discovery mean to you in terms of maybe whether you could prune a little bit more from your portfolio And you also mentioned potential for small bolt ons. I guess, what are the implications for your M and A pipeline? Thank you.

Yes. So first of all, on our Food Ingredients business, Andy Mueller is here. He knows the business in-depth. He spent many years with Dinysco actually before that with IFF. He knows the industry very well. He's working with his team to turn around the total business And there are some pieces of it that may likely not fit long term. So we're working on that, working through But we're looking at bolt on acquisitions as I refer to that's specifically in Health and Biosciences, more related to technologies, to to further enhancing our technology breadth, and taste which is more to enhance our geographic footprint But we will only do bolt ons that make absolute sense that have good returns and that really fill strategic voids. But I think what the most important is to understand that we're focused on really driving the businesses that we have today and getting the Pharmaceuticals Solution sale finished and continuing to execute really well this year. And I'll just finish. My closing remark is that I believe I joined the company excited about IFF and even more excited today I believe we are much stronger than we were a year ago and I believe we will be much stronger a year from now, thanks to our 22,000 colleagues around the world that are now I believe much more focused on serving customers with leading innovation while we also drive productivity.

And I would suggest if you know IFF employees talk IFF employees, talk to our customers, ask them about it, We've got positive momentum and we're going to continue to build on that positive momentum and we're going to deliver what we say we're going to deliver in 2025 but we're going to do it in a way that further strengthens us for 2026 and beyond And in the three year period, I think you'll find us very competitive with the leading [indiscernible] Thank you.

Thank you all. At this time, this will now conclude today's IAF Q4 and FY twenty twenty four earnings conference call. We appreciate your participation. We hope you all have a wonderful day and you may now disconnect your [indiscernible] [indiscernible] [indiscernible]