International Flavors & Fragrances Inc. (NYSE:IFF) Q4 2023 Earnings Call Transcript

International Flavors & Fragrances Inc. (NYSE:IFF) Q4 2023 Earnings Call Transcript February 21, 2024

International Flavors & Fragrances Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: At this time, I would like to welcome everyone to the IFF Fourth Quarter and Full Year 2023 Earnings Conference Call. [Operator Instructions]. Participants will be announced by their name and company. In order to get all participants an opportunity to ask their questions, we request a limit of one question per person. I would now like to introduce Michael DeVeau, Head of Investor Relations. You may begin.

Michael DeVeau: Thank you. Good morning, good afternoon and good evening, everyone. Welcome to IFF’s fourth Quarter and full year 2023 Conference Call. Yesterday afternoon, we issued a press release announcing our financial results. A copy of the results can be found on our IR website at ir.iff.com. Please note that this call is being recorded live and will be available for replay. Please take a moment to review our forward-looking statements. During the call, we’ll be making forward-looking statements about the company’s performance and business outlook. These statements are based on how we see things today and contain elements of uncertainty. For additional information concerning the factors that can cause actual results to differ materially, please refer to our cautionary statement and risk factors contained in our 10-K and press release both of which can be found on our website.

Today’s presentation will include non-GAAP financial measures, which exclude those items that we believe affect comparability. A reconciliation of these non-GAAP financial measures to their respective GAAP measures is set forth in our press release. With me on the call today is our CEO, Erik Fyrwald; and our Executive Vice President and Chief Financial and Business Transformation Officer, Glenn Richter. We will begin with prepared remarks and then take any questions you may have at the end. With that, I would now like to turn the call over to Erik.

Erik Fyrwald: Thank you, Mike, and hello, everyone. I’m excited to join you all today. I would like to begin by sharing some initial perspectives since joining IFF. I will then turn the call over to Glenn, who will provide a look at the fourth quarter and full year 2023 financial results before providing commentary on our current outlook for the full year 2024. After that, we’ll open the call for Q&A. Now I officially joined IFF on February 6th, and I have been impressed by the world-class teams globally and the strong innovation across our company. I spent the last few weeks visiting our operations and teams in some of our U.S. and overseas businesses. I spent that time listening to our teams, meeting many of our customers, and assessing the current status of our businesses.

IFF has a proud history as a global leader in high-value ingredients and solutions and a great platform from which-to-build and expand our partnerships with customers across the value chain to help them create leading consumer products. I believe in our purpose to help create a better world through science and creativity applied to sustainably meet customer and consumer needs. The opportunity we have ahead of us is very big, and that is why I joined IFF. We have solid businesses and will take the actions needed to unleash our full potential to start to deliver profitable market share gains by bringing great innovation to win with our customers. A perfect example of this is in our scent business, where we have been outperforming competition, something we must do also across our other businesses.

IFF also has other high-quality businesses such as flavors and health and biosciences where we will leverage our innovation to deliver higher growth rates with very attractive profitability. And in some of our challenge businesses, such as functional ingredients, with focus and attention, we can significantly improve performance. In both instances, we will do so by putting the business first, eliminating unnecessary processes and overhead, driving empowerment and strong leadership. And by doing so, IFF will be a more innovative and customer-centric organization that will be effective and efficient. We also must be better executors, focus the IFF team away from distractions to continuously grow market share across all our businesses, put more of our investments into our high-return businesses and transformative R&D initiatives and our IT infrastructure, and achieve our capital structure targets by reducing outstanding debt.

And when we do this, over time, I see strong upside and value creation for all IFF’s stakeholders. Moving to the next slide, I’ll walk through the achievements and factors that marked IFF’s progress through the fourth quarter and full year 2023. Now, throughout the past year, IFF FERC [ph] have continued to take important steps to strengthen our financial and operational foundation and position this company to deliver value for the near, mid, and long-term. Our performance in the fourth quarter demonstrates progress. While reported sales were down, comparable currency-neutral sales increased 1% and comparable currency-neutral EBITDA grew 17% with an adjusted margin expansion of 260 basis points. We’ve also seen notable improvements in volume trends across the majority of our business segments in the second half of the year, enabling us to perform within previously stated guidance ranges for full year 2023 sales and adjusted operating EBITDA.

Now, with this progress and the improving performance through the second half of 2023, we exited the year on solid footing, and we are optimistic about our ability to build on this momentum and are targeting getting back to year-on-year growth for the full year 2024 while strengthening for 2025 and beyond. Now, as I said earlier, we are committed to reducing our level of debt. We have therefore announced an update to our dividend policy to reduce the quarterly dividend by approximately 50% to $0.40 per share. This is not a decision the board and management have taken lightly, as we know the dividend is important to shareholders. However, it will enable us to reduce debt faster, strengthening our capital structure, which will create additional long-term value.

This will also give the company greater financial flexibility, which will, when required, give us the ability to make more high-return growth investments. I’ll now turn it over to Glenn. Glenn?

Glenn Richter: Thank you, Erik, and hello, everyone. Moving to slide seven, as Erik mentioned, the board and management have taken this opportunity to accelerate the improvement of our capital structure as we work towards our deleveraging target of three times net debt to credit-adjusted EBITDA. Consequently, we reduced our quarterly dividend to $0.40 per share. We believe this dividend change provides a dividend yield that is consistent with industry peers and is aligned with IFF’s long-term cash flow generation and target payouts. The dividend remains an important part of our capital allocation framework, and we expect this new base to grow alongside our profit over time. IFF remains committed to providing competitive returns to our shareholders and firmly believes these actions set us up for more durable value creation in the long-term.

Now, on slide eight, as Erik mentioned, our performance for the fourth quarter reflects the operational and strategic initiatives that our team has implemented over the last several months to deliver strong results amid an uncertain operating environment. Despite some continued challenges in the market, volume trends continue to improve sequentially, with increases in nearly all businesses resulting in growth for total IFF. IFF generated $2.7 billion in sales, representing a 1% increase in comparable currency-neutral sales. This improvement reflected strong growth in our scent business with continued volume pressure in Nourish and Pharma, both impacted by de-stocking. Volumes continue to improve sequentially from down mid-single digits in Q3 to down low single digits in Q4, and if excluding the impact of functional ingredients, volumes for the fourth quarter would have increased low single digits.

Adjusted operating EBITDA total $461 million in the fourth quarter, a 17% increase on a comparable currency-neutral basis. We also realized a year-over-year increase of approximately 260 basis points to our comparable currency-neutral-adjusted operating EBITDA margin. This growth in EBITDA was supported by both internal steps IFF has taken, including continued gains and efficiencies from our productivity initiatives and favorable net pricing. Before moving on, I wanted to share that we recorded a non-cash goodwill impairment charge of $2.6 billion for the fourth quarter related to our nourish business. The primary drivers of the goodwill impairment are related to lower business projections due to volume declines, mainly in functional ingredients, continued cost inflation, and unfavorable foreign exchange rate fluctuations.

Now moving to slide nine, taking a closer look at our profitability performance for the fourth quarter, we delivered $461 million, which equates to a robust comparable currency-neutral adjusted operating EBITDA growth of 17%. I’m happy to report that in Q4, IFF realized strong productivity gains and in conjunction with favorable net price to inflation, helped us overcome ongoing volume pressures to deliver against our objectives. Importantly, IFF has remained focused on executing upon our productivity program to improve our operational effectiveness and efficiency. In 2023, we continued to launch additional steps as part of these programs while also making strategic investments in key growth areas. Now on slide 10, I’ll provide a closer look at our performance by business segment during the quarter.

In nourish, sales declined 3% on a comparable currency-neutral basis as strong growth in flavors was offset by continued softness in functional ingredients. While functional ingredients remained the main driver of weakness for nourish in the quarter, it is worth noting that we again saw meaningful sequential improvement. In terms of profitability, the positive impact from our ongoing pricing actions and productivity initiatives drove improvements and led to a 3% increase in comparable currency-neutral adjusted operating EBITDA. Health & Biosciences continues to show robust top and bottom line growth. Price increases, volume growth and productivity gains led to growth across most H&B business segments led by double-digit growth in health. Overall, H&B delivered a comparable currency-neutral sales increase of 5% year-over-year and a 35% year-over-year increase in comparable currency-neutral adjusted operating EBITDA.

Our scent segment continued to deliver a very strong performance in Q4, including 11% growth in comparable currency-neutral sales, driven by double-digit growth in consumer fragrance, as well as mid-single-digit growth in Fine fragrance. Like Health & Biosciences, scent also saw significant growth in adjusted operating EBITDA, increasing 34% on a comparable currency-neutral basis, driven by favorable net pricing, volume, and productivity gains. While Pharma Solutions experienced significant pricing and productivity gains, these improvements were offset by lower volume, driven primarily by continued de-stocking trends, as well as strong year-ago comparison. This led to comparable currency-neutral sales declining 10% and comparable currency-neutral adjusted operating EBITDA declining 13% in the quarter.

Turning to slide 11, I’ll discuss our progress in improving our cash flow and leveraged positions. In the fourth quarter, cash flow from operations totaled $1.44 billion, a significant increase from the previous year, reflecting the strong improvement in inventory levels. CapEx of the year was $503 million, or approximately 4.4% of sales. Our progress on working capital improvement, led by an intense focus on right-sizing our inventories, helped enhance our free cash flow position, which saw a sequential increase of over $500 million, totaling $936 million for the full year and ahead of expectations. Included in our free cash flow is about $430 million of costs, primarily related to integration and transaction-related items. We also delivered $826 million in dividends to our shareholders in 2023.

Our cash and cash equivalents totaled $729 million, including $26 million in assets held for sale in Q4. Additionally, we realized a $200 million sequential reduction in gross debt, which totaled approximately $10.1 billion for the quarter, with a net debt to credit-adjusted EBITDA a 4.5 times, our trailing 12-month credit-adjusted EBITDA totaled approximately $2.1 billion. With the announced sale of our Lucas Meyer Cosmetics business, which we still expect to close in the first quarter of 2024, the right-sizing of our quarterly dividend and additional portfolio actions we are planning to make, we are taking decisive action to strengthen our balance sheet and achieve our leveraged targets. On slide 12, I’d like to now turn to our outlook for 2024.

Due to a combination of improvements across our business and in the broader market toward the tail end of 2023, we are cautiously optimistic about the year ahead. For the full year 2024, we expect sales in the range of $10.8 billion to $11.1 billion. This reflects our prudent approach to volume expectations and the impact of modest negative pricing in 2024, which is largely isolated to more price-competitive categories such as functional ingredients and fragrance ingredients, given lower input costs and competitive dynamics. We expect overall pricing to decline approximately 2.5% in 2024, following a 10% increase in 2022 and a 6% increase in 2023. Strategically, we believe this will position us to be more cost-competitive in the market and allow us to regain market share in select businesses.

In terms of volume, the visibility to the degree and pace of the recovery remains a bit fluid and has been explicitly incorporated in our 0% to 3% range. The most significant variable impacting this range will be the pace of recovery in functional ingredients. However, this is a marked improvement from 2023, where we finished down mid-single digits and ’22 we were down low single digits, as we believe our industry will return to more normalized growth rates. On the bottom line, we expect to deliver full year ’24 adjusted operating EBITDA between $1.9 billion and $2.1 billion. Our guidance assumes not just improved volumes from 2023, but also solid profitability and a margin expansion across our segments. We are hyper-focused on continuing to execute our productivity initiatives to help mitigate expected inflation, primary labor costs, and incentive compensation reset, while continuing to reinvest in the higher-return businesses.

It’s also worth noting, we have some benefit of one-time items such as the negative impact in 2023 from the inventory reduction program and the previously announced write-down of inventory related to Locust Bean Kernel or LBK that will not repeat in 2024. In particular, there was an approximately $130 million impact from the negative absorption in 2023 related to our inventory reduction program and some volume declines, which is down from an estimated $165 million we provided in the third quarter. A portion of this will be offset by higher annual incentive compensation expense as we reset our payout to target levels in 2024. While there’s still work to do, efforts to bolster our financial profile and portfolio are providing effective, and while its hard to predict the timing and details of the market recovering and its impact on our results, we see opportunity for improvement in 2024 with all divisions targeting better volumes, with improvements in profitability and margin expansion across all four divisions.

For the first quarter, we expect sales to be approximately $2.7 billion to $2.8 billion, with an adjusted EBITDA of approximately $475 million to $500 million. Throughout 2024, we will be relentlessly focused on our efforts to optimize our portfolio, improve financial performance, and reach our deleveraging targets. I’m confident that the actions taken in 2023 and our outlook for improving performance in 2024 will position IFF to capture significant value creation. With that, I’ll turn the call back over to Erik for closing remarks.

Erik Fyrwald: Thank you, Glenn. I’m truly excited to be joining IFF during this transformative time for the company. I have long admired IFF as the category-defining leader in the industry, and it’s an honor to be able to work alongside our talented global teams to help us navigate and even thrive at a critical moment for our company and our industry. Through robust efforts from our teams worldwide and shared commitment to putting the customer at the center of all we do, IFF will continue strengthening our commercial execution and become a more nimble and efficient organization. Our global teams made progress towards ensuring we can meet the evolving needs of our customers and deliver industry-competitive returns, and we will accelerate the progress going forward.

While 2023 was a challenging year, our financial results in the fourth quarter highlight an improving trend. Based on this performance and some improving market conditions, we are expecting a return to volume growth this year, which should enable EBITDA growth and margin expansion. Our updated dividend policy and the additional divestitures we continue to work on reflects our commitment to improve our capital structure. While the global economic landscape is uncertain, IFF will be focused on strengthening our execution, and as I said, we have work to do to improve our businesses and achieve our vision, but I am confident we are well-positioned to build on our progress and create sustainable value for all stakeholders in 2024 and beyond. I’d like to thank our teams and partners for welcoming me to IFF and look forward to seeing what we’ll achieve in 2024.

With that, I’d like to now open the call for questions.

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Q&A Session

Operator: We will now begin the question and answer session. [Operator Instructions] Our first question comes from the line of Ghansham Panjabi with Baird. Your line is now open.

Ghansham Panjabi: Hey, guys. Good morning. And Erik, first off, congrats on your new role.

Erik Fyrwald: Thank you.

Ghansham Panjabi: I guess my question is on your fiscal year ’24 EBITDA guidance, and I’m hoping that you can sort of bridge on a year-over-year basis the differential between ’24 and ’23. And also, Glenn, highlight what changed relative to the variances you highlighted from your three-queue conference call back in November, apart from just the fixed-cost absorption you cited. And if you could also just give us a sense as to what the embedded volumes are by segment as it relates to the low-single-digit volume guidance for ’24? Thanks.

Glenn Richter: Sure. Yes, good morning, Ghansham. Easily done and a frequently asked question. So if you’ll indulge me, I’ll start with last year’s results at 1980. There are two adjustments to get that to a normalized basis. One is the divestitures, which you’re aware of. It’s a half a year of savory solutions in FSI, and the LMC will be closed at the end of the quarter, so it’s roughly three-quarters of LMC. That’s roughly $78 million of normalized impact. And the other factor, which is the same, basically, we had discussed before, we also have included our updated view of foreign exchange, that’s $50 million reduction. I’m not sure that was previously discussed from a standpoint. So that gets to a like-for-like base of $18.50.

Our volume mix impact for this year is forecasted to be $170 million positive. That is inclusive of the $130 million of positive overlap on absorption. As we noted on our call, that actually came down as the fourth quarter volumes were higher from a production standpoint, so that was slightly different than we had guided. Our net price for the year is basically is zero. That is inclusive of the $44 million of LBK, so that’s netted in that number. We can certainly talk more about the pricing dynamics this year. Then we have about a $35 million reset for AIP, so that’s a negative, but that’s better than we thought. We thought that would be in the 70 range from the standpoint. So I think all of the one-timers being absorption slightly lower, the negative reset on AIP is slightly lower, FX is new, and then the deals basically were all known.

The last items are sort of wage, inflation, that’s about $120 million, and the productivity is about $150 million in the P&L, so that’s sort of consistent with our three-year view. So that adds up to the midpoint of our range of $2 billion. And then relative to the volume question, I think it’s very simple to think about our view of this year. The functional ingredients, which is circa less than 25% of the business, we are projecting that to be relatively flattish for the year. All the other businesses actually have growth directly in the 2% to 3% range on a full year basis, a little bit more slower in the beginning of the year and ramping up in the latter, but that’s why we mentioned. As we think about that range of guidance, it’s functional ingredients is the area that probably gives us the most pause and we’ve been the most cautious, and that sort of is the difference between the high end of the 3% versus the 0% range.

So hopefully that answers the question.

Operator: Thank you.

Glenn Richter: Next question.

Operator: The next question comes from the line of Josh Spector with UBS. Your line is now open.

Josh Spector: Hi. Good morning.

Glenn Richter: Hi, Josh.

Josh Spector: Hey. So I just wanted to — hey, so I wanted to ask on the dividend. So I think it’s been pretty clear that it’s been a pretty big use of cash for a couple of years now. So, really the question is, why was now the right time versus when you looked at that probably a year ago or maybe two years ago? And what does that mean as it relates to the divestment strategy or timing? Has anything changed as you think about what’s next?

Erik Fyrwald: So this is Erik. First of all, I wasn’t here a year ago, obviously, but I did arrive on February 6th, looked at our entire situation, talked to Glenn and his team, talked to the board, and made the decision to go ahead and cut the dividend now. I think it’s a wise move in terms of our overall balance sheet efforts to get our balance sheet in great shape, and it doesn’t impact the divestment timing or strategy. We continue to work on our portfolio optimization, but obviously we’re focused even more on working on strengthening the businesses, increasing our earnings and cash flow.

Operator: Thank you.

Erik Fyrwald: Next question.

Operator: The next question comes from the line of Gunther Zechmann with Alliance Bernstein. Your line is now open.

Gunther Zechmann: Hi, and Erik, welcome back to the public market as well. Erik, what are your priorities for this year? I appreciate you’ve only been in the role for a few weeks, but for this year maybe also beyond when I think about the portfolio and the balance sheet, please. And in addition, how do you think about IFF’s midterm targets? And lastly, Glenn, what is your free cash flow guidance for 2024, please?

Erik Fyrwald: Thank you, Gunther, and glad to be back in the public market. My priorities for 2024, I should say, our priorities for 2024 are to continue the portfolio optimization work and have that be part of improving our balance sheet. But again, more importantly, we’re going to strengthen each business. We’re going to make sure that each business is clear on how they can strengthen their customer focus to profitably grow market share, strengthen the R&D and innovation in each business so that we better delight customers with our innovation so that we bring innovation that they value, that we can grow our market share with them. And then thirdly, we’re going to keep driving productivity and strengthen productivity in each business unit and then also corporately.

We want a very effective and efficient back office. What will reduce the amount of engagement we’ve had with consultants, advisors, and others that have caused us to be too internally focused. We’re going to get back to focus on winning with the businesses by better serving our customers than our competition. In terms of how I’m thinking about the midterm targets, it’s too early for me to comment, but I’ll look at them with the team here and we’ll do it by business and then we’ll roll it up for the company and we’ll get back to you in the not too distant future on that, but on the last one, Glenn?

Glenn Richter: Yes. Hey, good morning, Gunther. Our projected free cash flow for this year is $500 million. I would note that that’s inclusive and an expectation of $100 million of taxes for the sale of LMC and carryover for savory and then another $100 million for other restructure one-time items. So there’s 200 of Reg G, but net of the 200, we’re at $500 million for your free cash flow.

Operator: Thank you. The next question comes from the line of David Begleiter with Deutsche Bank. Your line is now open.

David Begleiter: Thank you. Good morning. And Erik, congratulations on your role. Erik, two things.

Erik Fyrwald: Thanks David.

David Begleiter: First, can you comment on pressure ports that a sales process for pharma solutions is underway? And secondly, in addition, it’s 2.5% reduction in pricing you’re forecasting in ’24. All the pricing you expect to give up versus the roughly 19% pricing you’ve achieved over the last three years on a cumulative basis? Thank you.

Erik Fyrwald: I’ll take the first one, and, Glenn, you can have the second piece, because I’m not that familiar with the details at this point, but I’m getting into it. But in terms of any portfolio optimization, we’re not going to comment on rumors. All I can tell you is we continue to work on portfolio optimization, and we will not sell a business at a price that doesn’t make sense, but we’re looking at what does make sense for IFF and for our employees and any business that we might consider divesting. So with that, Glenn?

Glenn Richter: Yes, thanks. Good morning once again, David. As you point out, we’ve got three years of very significant pricing to reflective of the inflation environment of 18%, 19% cumulatively. 2.5% is all we’re anticipating. That actually reflects sort of overall price decline. So as I mentioned, that price is sort of zero in our P&L. It is highly concentrated in the functional ingredients and the scent ingredient space. And we’ve been extremely surgical in terms of where we needed to give it back. And at this point, we’re pretty much locked in to most of our pricing for the year at this point. So that actually feels like a pretty safe number relative to the plan.

Operator: Thank you. The next question comes from the line of Lisa De Neve with Morgan Stanley. Your line is now open.

Lisa De Neve: Hi. Thank you for taking my questions. So the question I have is two-fold. I mean, how is IFF positioned versus peers? I mean, does it expect to go in line with the market, in line with its direct peers, or believe that it’s actually better positioned and this year, but also maybe more structurally? And next to that, how should we really think about delivery of the functional ingredients optimization and efficiency program for this year? And I have a small follow-up on the pricing. So on the negative pricing in fragrance ingredients, have your customers come back for pricing here? And are your peers offering the same price reductions or comparable price reductions? Thank you.

Erik Fyrwald: Thank you, Lisa. And I’ll take the first part of that question. I’ve looked very hard at the data over the last five years, and clearly we have underperformed, as all of you know. We have pockets of strength, scent as an example I mentioned in the opening comments, but we have some businesses that are challenged, like food ingredients. What I can tell you is we’re going to have each business be very clear on what is their strategy to win. How are they going to delight their customer set and make sure that we profitably grow our market share? How are we going to make sure that we have our innovation targeted and needs the customer’s value? And how are we going to make sure we’re driving productivity? So each of the business end-to-end, how do we drive the businesses?

And as you know, we’ve got strong businesses in great markets, like our flavors and our fragrances or scent business, terrific businesses that should be able to fully compete with margins and growth rates with Givaudan and others. We’ve got a strong business unit in Health & Biosciences in great markets, and we should be able to fully compete with margins and growth against Novonesis. In our challenged businesses, we’ve got very good markets in food ingredients and protein solutions, and we should be able to be fully competitive with Kerry and other food ingredient players. And we’ve got a very good business and very good markets with pharmaceutical ingredients, and we need to be fully competitive with our ingredients set there, Ashland and others.

So, we have not performed as a company, across the company in the last five years like we should. In the next five years, we’ll get back on track.

Glenn Richter: Hey, Lisa, this is Glenn. Let me address your second question regarding functional ingredients. So from past conversations, 2021-’22, we had a number of missteps on our part that caused this business to step backwards. Since that, we’ve been working on basically four major items. One, getting service levels up to the right standard. I’m happy to say for the last year plus, service levels have been at 95% plus across all the business and across the entire globe. Secondly and perhaps most importantly, is getting volume back on track, which is combination of our sales execution pipeline. As we mentioned, that has dramatically picked up over the last year in getting our pricing right in the market, we just talked about that.

We’ve been very smart this year thinking about market-by-market, product-by-product, what makes sense to be competitive, to win and retain business. We feel much better about that. The third item has really been around sort of our general go-to-market strategy, and as Erik has mentioned, be much more focused across the ingredients team, making sure that they own the results. Lastly, it’s cost. So we have been really focusing on all of the costs, but largely the 85% that sits in cost of goods. So it’s skew rationalization, raw material consolidation, manufacturing footprint consolidation, taking out fixed costs, et cetera, and we’re making very good progress. We are seeing successive improvements in volume quarter-to-quarter. Q2 last year was a low watermark.

We’re actually moving into sort of flattish as we start this year, and we’re also continuing to see good expansion in margin. So we have a lot of work to do, as Erik mentioned, but we’re beginning to see some progress in terms of what we’ve been doing. Thank you.

Operator: Thank you. The next question comes from the line of Nicola Tang with BNP Paribas. Your line is now open.

Nicola Tang: Hi, everyone. I just wanted to pick up on a few topics that were just asked by Lisa. On this pricing side, I was wondering if you could give a bit more detail on this expected price declines in functional ingredients and in fragrance ingredients, and whether you could expand on your comment on competitive dynamics in these markets. And then, in addition, on the volume side, I was wondering why you don’t expect more in terms of year-on-year volume improvement bearing in mind, I mean, I guess the headwind of de-stocking and inflation that are clearly in the base in 2023? Thanks.

Glenn Richter: Thanks. Two very good questions. So on the pricing of our 2.5%, 80% of our downward pricing is concentrated in functional ingredients and the scent ingredients business. Those areas, by definition, are more commoditized, and in addition, those areas have seen some more meaningful deflation in terms of commodities. So it’s natural. As I mentioned previously, we were doing a very good job of making sure we’re competitive in the market by product, by region, and we feel good that that 2.5% sort of is reflective of the environment. The second question regarding why are we not more optimistic? Honestly, we’re just cautious. We’re very cautious and prudent given the environment. The last year was extremely bumpy. We do believe that de-stocking for most of our business is largely behind us, and we’re seeing positive signs, but we need a couple of quarters of positive momentum, I think, and stabilization before we can move from cautious to optimistic.

Operator: Thank you. The next question comes from the line of John Roberts with Mizuho. Your line is now open.

John Roberts: And welcome back, Erik, two-part or if I could. Is the functional ingredients business significantly different today than when you were at DuPont? It sounds like you think it’s just more of a cyclical problem that can be addressed through productivity, but do you think there are structural changes you need to make there? And then, your predecessor was targeting going from four segments to three segments. Have you gone back to the whiteboard to start over on those plans, or was that nearing completion and there’s just some fine-tuning left to complete it?

Erik Fyrwald: Thanks, John. And let me start with the first one. The makeup of our functional ingredients business is better than what it was when I had responsibility for that as part of agriculture and nutrition back at DuPont a number of years ago. So I believe our potential is significantly higher than it was then. I think that it’s in a very good market. I think we’ve underperformed. And I think we’ve underperformed because we’ve been too internally focused. We’ve had lots of consultants. We’ve had lots of advisors talking about helping us to figure out what to do around synergies. And what I can tell you is, I’ve been in these businesses for many, many years, these types of businesses. The goal was not synergy. Synergy is a tool.