Now, I would like to welcome everyone to the International Flavors & Fragrances Third Quarter 2016 Earnings Conference Call. All participants will be in a listen-only mode until the formal question-and-answer portion of the call. I would now like to introduce Michael DeVeau, Vice President, Global Corporate Communications & Investor Relations. You may begin. Michael DeVeau - International Flavors & Fragrances, Inc.: Thank you. Good morning, good afternoon, and good evening, everyone. Welcome to IFF's third quarter 2016 conference call. Yesterday evening, we distributed a press release announcing our financial results. A copy of the release can be found on our website at ir.IFF.com. Please note that this call is being recorded live and will be available for replay on our website. Please take a moment to review our forward-looking statements. During the call, we will be making forward-looking statements about the company's performance, particularly with regard to the outlook for the fourth quarter and full year 2016. These statements are based on how we see things today and contain elements of uncertainty. For additional information concerning the factors that can cause actual results to differ materially from forward-looking statements, please refer to our cautionary statement and risk factors contained in our 10-K filed on March 1, 2016 and our press release that we filed yesterday. 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 Chairman and CEO, Andreas Fibig; and our Executive Vice President and CFO, Rich O'Leary. We will start with prepared remarks and then take any questions that you may have. With that, I would now like to introduce Andreas. Andreas Fibig -…

And your first question comes from the line of Mark Astrachan with Stifel, Nicolaus. Mark Astrachan - Stifel, Nicolaus & Co., Inc.: Yeah, thanks. Morning, everybody. So, Rich, productivity outpaced reinvestment in the quarter I think a little bit more favorable, too, than expectations going in at the beginning of the year. So I guess I'm curious your thoughts from here about anticipated productivity initiatives and reinvestment. As I recall in June last year, you had talked about anticipation of reinvestment being net neutral versus productivity initiatives, and now it's obviously more favorable. So, I guess how should we think about that dynamic in the fourth quarter, but also into 2017 and beyond and sort of what level of productivity initiatives are now required to grow EBIT in line with those long-term targets? Richard A. O’Leary - International Flavors & Fragrances, Inc.: Okay. Thanks, Mark. More clearly, as I talked about last year in the current situation, productivity gains are clearly a key component of our financial algorithm. When we do better, we have more ability to reinvest. When we don't, we've got to adjust our spending and control our costs. The combination of volume growth and productivity gains are really what drive the foundation of our P&L leverage, and we've got to manage all three of those dynamics, volume growth, productivity and how much we reinvest and invest in the business. In the current environment, as you've seen, it's challenged. Growth is below our historical trends and below our long-term financial long-term guidance. And, as a result, we've had to adjust how we allocate those resources. Mark Astrachan - Stifel, Nicolaus & Co., Inc.: Got it. Okay. And just related to that last point, so and I'll preface it by saying macros have clearly become a bit worse probably…

Your next question comes from Lauren Lieberman with Barclays.

Great. Thanks. Good morning. Andreas Fibig - International Flavors & Fragrances, Inc.: Good morning, Lauren. Richard A. O’Leary - International Flavors & Fragrances, Inc.: Morning, Lauren.

Great thanks. I want to focus first on the North America Flavors; that business came in a bit lighter than I had expected. And I remember there being some business that was expected to be commercialized in the second half, a big win. So just wondering if that happened, if there was another delay or what the situation is there? Thanks. Andreas Fibig - International Flavors & Fragrances, Inc.: No. I would say it's just a challenging environment in North America for us at the moment. No, I think that's what I would comment. And that makes it even more important for us that with the two acquisitions, David Michael and Ottens, that we bring it together as our platform for the mid-market, because that's where we see the growth. And that's our main objective right now to become the leader for the mid-market and the smaller customers. And I think when that's happening, you will see growth as well, because now with these two companies in our portfolio, we have enough critical mass to move a big market like North America for us. Richard A. O’Leary - International Flavors & Fragrances, Inc.: Yeah, Lauren, from a category standpoint, I'd say Beverage was down. And on the other side, Savory and Sweet were up slightly, but not enough to offset the weakness that we saw in Beverage.

Okay, great. And then, also, it just looked like the comments in the release and in the earnings bridge on the difference between input costs and pricing, and then I think in the Q, you talked about a fairly benign input cost environment. So could you just help me understand, triangulate those two? Richard A. O’Leary - International Flavors & Fragrances, Inc.: Yeah, sure. I mean, it's a combination of factors, Lauren. I think we saw price input pressures in both businesses. On the Flavor side, it's really driven by the price increases on naturals, and the inventory levels that we have, where we're experiencing the impacts of those very, very quickly. Vanilla is certainly one of the key aspects that we're seeing that pressure. As Andreas talked about, I mean, the acquisition of David Michael will help us on that aspect. On the Fragrance side, it's really a of couple things. One, from a pricing standpoint, it's been more about pricing pressure from a customer standpoint. And then, the second piece is really related to our Ingredients business, being aware we've wanted to address the declines in that business. And we've gone and looked at our go-to-market strategy. And we want to protect our market share more aggressively. And so we've had to adjust pricing accordingly. On the compound side, it's more about pricing pressure from the customers and what's necessary to defend the business that we have today.

Okay. So, then look forward into next year, and that would suggest we're in a sort of more price-constrained marketplace than maybe we would have expected 6, 9, 12, 24 months ago. Is that reasonable? Richard A. O’Leary - International Flavors & Fragrances, Inc.: Yeah, Lauren, I don't want to go into too much detail. I mean, we'll have more clarity in February, but I would say that what we're seeing today and what we expect today, that input costs will be up next year; not huge amounts, like we've seen in the past, but it's going to be up. And that's principally going to be driven by naturals in both businesses, as well as some of the downstream effects of oil-related derivatives as we've gone from $30, $40 a barrel up to $50 a barrel.

Right. Okay. But at the same time, your ability to price to recover some of that is more constrained? Richard A. O’Leary - International Flavors & Fragrances, Inc.: Yeah. I mean, certainly on the Fragrance side, yes.

Okay. And then, would the thought be to accelerate productivity to try to make up that gap, because it definitely sounds like the Fragrance business, where there's a little bit less ability to recover costs, and the naturals exposure? Richard A. O’Leary - International Flavors & Fragrances, Inc.: Yeah, I think, as I mentioned earlier on Mark's question, we're going to have to look at productivity and what we can do from a productivity standpoint at the manufacturing level. We're going to have to look at what we can do to simplify and streamline the organization and the overhead levels. And we're going to look towards, as I mentioned earlier, benefits associated with embedding ZBB-type principles across the organization. And all three of those things are going to enable us to, as I said earlier, manage the dynamic between profitability growth, our expectations and our ability to invest in the business long term.

Okay. Thank you. Andreas Fibig - International Flavors & Fragrances, Inc.: Yeah.

Your next question come from Mike Sison from KeyBanc.

Hey, guys, and... Andreas Fibig - International Flavors & Fragrances, Inc.: Hey, Mike. Richard A. O’Leary - International Flavors & Fragrances, Inc.: Good morning.

Congrats on the new role there, Rich. Richard A. O’Leary - International Flavors & Fragrances, Inc.: Thanks.

So, when I take a look at the third quarter currency sales growth outlook relative to what you said in the second quarter, it's actually up. So it's a little bit better. And then you've talked about some of the headwinds you faced. And your currency neutral operating profit growth is lower than you said in the second quarter. How long do you think it will take to sort of flush through some of these issues? And I would imagine you think that the leverage on operating profit growth should be better than sales growth rate, right? Richard A. O’Leary - International Flavors & Fragrances, Inc.: Yeah, as I said in my remarks earlier, for Q4, operating profit leverage, in Q4, will be better than top line. I think that that's despite the incentive comp reset that I mentioned earlier. I think short, medium term, we still expect to see pressures on sales mix. Fine Fragrances is still going to be pressured, and I think, you think about early next year, Q1 was the strongest quarter we had for Fine, and so, I think it's going to be very challenging as we start next year. So, as we look into next year, we're planning and we're acting on a conservative basis, and I don't think that we're sitting here saying that there is going to be a robust environment or robust recovery next year.

Right. Right. Okay. And then, when I think about acquisitions, you mentioned you're going to add about $150 million in sales growth for next year, it's about 5%. Does that or should that lever to a similar amount of EPS growth next year? Andreas Fibig - International Flavors & Fragrances, Inc.: It's probably a bit early – that's Andreas taking it, because we will, let's say, integrate these companies fully next year. So, David Michael, we have closed the deal early October. So, we need some time to make sure that we integrate it well into our platform here. It's actually turning then organic in the fourth quarter next year. And the other deal with Fragrance Resources, we will hopefully close early 2017, so it will take some time, I expect let's say, to integrate it very well into our network as well. So, it will help us quite significantly on the top-line growth, as you just outlined, but Rich might comment on the cost side. Richard A. O’Leary - International Flavors & Fragrances, Inc.: Yeah. So, Mike, from a profitability standpoint, EPS, I think as you saw in our commentary, we expect it to be EPS accretive, but it's not going to be anywhere near that impact from a profit standpoint, because we're going to have this step-up in basis. And so, as we saw with Lucas Meyer, as we saw with Ottens, particularly early on, it's not going to have much of an impact at all on operating profit, depending upon what comes out of the valuation work. On a cash basis, sort of an EBITDA basis, it certainly will be more positive. And then over time, as Andreas alluded to, as we're able to integrate the two acquisitions and drive the business rationale and the synergies, we'll be able to start to get more and more of an impact on an operating profit basis. Andreas Fibig - International Flavors & Fragrances, Inc.: And as we always said that, we started last year was our first two acquisitions, we haven't done too many over the last 15 years, but now I think we're getting a little bit more skilled, also integrating these assets into our network and as fast as we can do it, as fast as we can produce results here. So, we are actually pretty well on track with that and I'm very satisfied with our focus we are making on the M&A front here, because that gives us another, let's say, critical mass we can basically play with.

Great. Thank you.

Your next question comes from John Roberts with UBS.

Thank you. Could you actually elaborate a little bit more on the Fragrance Ingredients strength? It was up double-digit in most areas. And a little bit more detail on the North American Beverage weakness, what's behind that? Andreas Fibig - International Flavors & Fragrances, Inc.: I'll get started. Richard A. O’Leary - International Flavors & Fragrances, Inc.: Yeah, you'll get started. Andreas Fibig - International Flavors & Fragrances, Inc.: So, John, first of all, good morning, it's Andreas. On the Fragrance Ingredients, it's quite a remarkable turnaround we are seeing here. And it's basically led to a couple of factors. Let's start with the not so exciting one, it's technically, because we are cycling through with one of our big customers we lost before, so the comparison is a bit better for us, but also the strategy is revamped now. And Nicolas and his team have done a great job to look into the business and to our customers, made a good, let's say, approach in terms of target the right customers and started also selling of our more captive molecules earlier, which is actually bringing us a greater value equation already upfront. We have waited probably too long in the past. And these two, let's say, two measure has really helped us to revamp the Ingredients business after two years of really not so good performance. We are pretty happy with what we're seeing here. Does that answer your question, John?

Yeah. And then, North America Beverage? Andreas Fibig - International Flavors & Fragrances, Inc.: North American Beverage... Richard A. O’Leary - International Flavors & Fragrances, Inc.: I think some of it is, as we talked about, alluded to earlier, I mean, I think the win performance in both businesses is pretty good, but particularly on the Flavors side, the lifecycle of those wins has been shorter than what we've seen in the past, so the erosion impact is principally what's driving down or pressuring the performance year-over-year.

Okay. And then, Rich, I think you said compliance and litigation costs reduced margins by 100 bps versus a year ago. Could you provide some additional details on that? Richard A. O’Leary - International Flavors & Fragrances, Inc.: Yeah. I mean, the drivers really are two things. One, you saw in the Q that we have a case going on and we're actively pursuing that and vigorously defending that, but that costs money. And as we prepare for trial, potential trial, early next year, we're getting prepared around. That's a piece of it. The bigger piece of that is really related to the REACH requirements in the fragrance business and it goes through a cycle where there is another – the next cycle is in 2018. And so we have to prepare for the registrations now, when we incur cost this year, we incur it again next year. And then the following year, potentially we get a little bit of money back from other companies that use our products. But it's really the registration and compliance costs associated with our materials that we operate within the European environment.

Thank you. Richard A. O’Leary - International Flavors & Fragrances, Inc.: Yeah.

Your next question comes from Faiza Alwy with Deutsche.

Yes. Hi. Good morning. So, I just wanted to again go back to North American Flavors. So, Ottens was in the base this quarter. Can you talk about how that business performs, because I think the worry is that it's run separately, but do you think you're experiencing any dis-synergies as Ottens becomes part of a larger company and some of your customers are more used to doing business with a company that's more agile and quick to deliver a solution? Andreas Fibig - International Flavors & Fragrances, Inc.: We're actually not, because we keep that platform quite separate in terms of how they act. The only thing we are doing is that we are delivering our technologies to make sure that they can use these more high-tech solutions as well. So dis-synergies, we don't see actually. So now the next thing is actually to combine it with David Michael's because that's important. The good thing is that both companies are in Philadelphia, which makes it much easier than if they would have been in different cities. So no, we don't see dis-synergies and that would be my comment on that. Richard A. O’Leary - International Flavors & Fragrances, Inc.: Yeah. So, Faiza, I think as I mentioned earlier, I think one market, I think, is pressured and certainly, certain key clients. The lifecycle on the wins was another factor. I think we expect to see improvement in a strong rebound in Q4. So, I think it's more short-term than we think anything long-term or structural.

Okay. Great. And then, Rich, could you just expand on the manufacturing cost? I think you said that was on the Fragrance Ingredients business. Was there something specific that happened this quarter and it's not expected to continue next quarter or just a little more detail around that? Richard A. O’Leary - International Flavors & Fragrances, Inc.: Sure. No problem. I think it is primarily manufacturing yields in the Ingredients business that I alluded to earlier. Q3 last year was a very strong result, so I would say above average productivity. Our planning was to expect this to be more or less more in line with historical trends, so on average. And we came in below that in the quarter. So, the year-over-year impact is bigger than the absolute impact. I don't think it's structural. I think there is a lot going on in the Fragrance and Ingredient business, in terms of the runs and the product mix, which we're working through and working to optimize, but I don't think it's a long-term challenge. I think it's certainly the big impact was a function of year-over-year performance going two different directions.

Okay, great. Thank you. Richard A. O’Leary - International Flavors & Fragrances, Inc.: Yes.

Your next question comes from Jeff Zekauskas with JPMorgan.

Good morning, it's Silke Kueck for Jeff. How are you? Richard A. O’Leary - International Flavors & Fragrances, Inc.: Hey, Jeff – Silke, sorry. Andreas Fibig - International Flavors & Fragrances, Inc.: Silke, good morning.

Good morning. What's the EBITDA that you expect from the acquisitions next year? So typically, EBITDA level is something like 50%. So, do you think the business can contribute, I don't know, $80 million EBITDA next year or it will be something lower than that? Richard A. O’Leary - International Flavors & Fragrances, Inc.: No, 50% – Silke, let's come back on that one offline. But, I mean, I think if you look at kind of the amortization levels that are in the Q, that we provide visibility in the Q and in the press release, I would expect similar levels. I mean, obviously, we have to go through the details.

Yes. Richard A. O’Leary - International Flavors & Fragrances, Inc.: Over the next several quarters, but that I think that overall profitability is the two businesses are pretty close to our existing businesses. And I think the existing amortization levels for Ottens and Lucas Meyer is a close enough proxy to use to try to estimate what the EBITDA levels are.

I apologize, I didn't mean to imply that EBITDA was up 50%. So EBITDA was somewhere like in the mid-20%s and so, I apologize. I miscalculated something, but do you think like a mid-20% EBITDA level is something that's reasonable? Richard A. O’Leary - International Flavors & Fragrances, Inc.: Yeah. Certainly, not short term, but long term, I think it should be. Again, it's our core business and there is no reason why it shouldn't be similar to what our existing business is.

It takes some time, okay. In terms of the strategic investments you are making, do you expect to make similar investments in 2017 and is there any quantifiable benefit that you can sort of like indicate? Like is this something where you see a benefit over like a two-year period or a three-year period, like what do you get from it? Richard A. O’Leary - International Flavors & Fragrances, Inc.: So I talked about the REACH expenses, which is more on the compliance end.

Yes. Richard A. O’Leary - International Flavors & Fragrances, Inc.: From a strategic investment standpoint, some of that work was related to embedding in the ZBB principles. And, as I mentioned earlier, we'll expect to begin to get those benefits next year. And I would expect those things to continue to build over the medium and long term. I'm not ready to say today exactly what those are, but we're going to get benefits related to that. Another key part of the strategic investments is more the overall profitability of the business and leverage not only at the operating profit line but at the EPS line.

And is there like a level of investment you expect for the next year, that's quantifiable? Richard A. O’Leary - International Flavors & Fragrances, Inc.: I think that, year-over-year, the level of investment will likely go down a little bit next year versus this year. It's part of the dynamic that I mentioned earlier of managing strategic investments versus growth versus reinvestment in the business. And we've got to work with the entire management team in working that balance. And so part of that will be moving those three levers, but I do expect some of those costs to come down year-over-year.

Okay. And then, my last question is in terms of your business in Europe, is the business, in general terms, is it the same, is it slowing, is it growing? Do you have any views on whether you're affect by the exit of the UK? What are business conditions like in Europe? Andreas Fibig - International Flavors & Fragrances, Inc.: I probably can take it. I would say, first of all, it depends on the category or on the business. We see still growth in Flavors, but in all parts of the region, there's Europe, Africa, Middle East, and that's one thing. We suddenly see stronger growth in Africa, Middle East here than we see in Western Europe. So, it's not great growth trends we are seeing. In general, also on our Fragrance business, it's slower than what we see in other regions of the world. Richard A. O’Leary - International Flavors & Fragrances, Inc.: Certainly for Fine. Andreas Fibig - International Flavors & Fragrances, Inc.: Certainly for Fine Fragrance. So, I think it's a tough environment for us. The Brexit, I would say, there's no impact for us right now, despite the currency impact. We are all having it at the moment. And it all depends how finally the deal is negotiated with the UK and the rest of Europe. But right now, I think it's a pretty limited impact we are seeing. Richard A. O’Leary - International Flavors & Fragrances, Inc.: And then, I think the other thing on consumer is, we mentioned early about one of our large customers, and so, I think that's in the short and medium term, that's something that we have to work through.

Yes. Is that something that you will anniversary at a point in time because the divestiture happened a while ago? Richard A. O’Leary - International Flavors & Fragrances, Inc.: I'm not sure I... Andreas Fibig - International Flavors & Fragrances, Inc.: I'm not sure I...

I'm assuming that you're referring to like the fragrance divestiture by one of your larger customers to Coty or I'm imagining that's what it is, but that happened like some time ago. And so I was wondering whether you sort of like anniversary like the headwind from that? Richard A. O’Leary - International Flavors & Fragrances, Inc.: My comment around the large customer was more on a consumer side.

On the consumer side. Richard A. O’Leary - International Flavors & Fragrances, Inc.: So, I think, Fine, we talked about the issues with the customer, but I think we are seeing buying pressure and erosion in one of our big consumer Fragrance customers that we have to work through. And that's not going to be lapped yet.

How many more quarters are there to go? Richard A. O’Leary - International Flavors & Fragrances, Inc.: It's a least a couple more quarters.

So it's just begun then, okay. That's helpful. Thanks very much for the detail, appreciate it. Richard A. O’Leary - International Flavors & Fragrances, Inc.: Yeah. Andreas Fibig - International Flavors & Fragrances, Inc.: Okay, Silke.

Your next question comes from Jonathan Feeney with Consumer Edge.

Good morning. Thanks. I wanted to dig in a little bit on the gross margin piece of this, especially the two-year progression. Am I right, Rich, that Fine Fragrance is a significantly higher gross margin than the rest of the business? Is there any way you could kind of quantify for us on a basis-point basis, just give us an indication like how much of the two-year slowdown here, which has been, on a two-year basis, pretty dramatic from the second quarter to the third quarter. Was that Fine Fragrance shortfall and just you're making a lot of money before and maybe how much is other things like currency or the contribution from Lucas Meyer and Ottens? Thanks very much. Richard A. O’Leary - International Flavors & Fragrances, Inc.: Sure, no problem. I think, as I said earlier, I mean, Fine is our most profitable category on the fragrance side. Beverage is the most profitable category on the flavor side. And both of those were pressured in Q3. I'm not going to provide details in terms of how much that is, but they're well above average. So the mix impact is a significant pressure, and you saw in the quarter what kind of impact that can have.

And how about – maybe this is a simple question, but how does currency impact you at the gross margin line over the past couple of years, does it hurt you at all? Richard A. O’Leary - International Flavors & Fragrances, Inc.: Yeah. I mean, we try to strip that out and so but it's a complex supply chain in term of where it can go. We start at the ingredients plants and go through our ingredient plant network and then through compounds plant, so there is a time lag impact. There is a multiple currency impact. We do our best to try to isolate that and pull that out of the individual drivers. So, what you see in terms of, as we talk about volume, price mix is our best estimates on ex-currency.

I understand. Thank you very much. Richard A. O’Leary - International Flavors & Fragrances, Inc.: Yes. No problem. Andreas Fibig - International Flavors & Fragrances, Inc.: Thank you.

And your next question comes from Gunther Zechmann with Bernstein.

Good morning, gentlemen. When you look at raw material costs, some of your competitors have started building strategic inventories. You seem to follow a different strategy and your net working capital and cash flow was strong, but you took a hit on the P&L. How should we think about the way you handle raw material cost inflation and what raw material impact also do you see going into year end and 2017, please? Richard A. O’Leary - International Flavors & Fragrances, Inc.: I think, Gunther, as I mentioned earlier, we do expect to see modest input cost pressures next year. There, we do have strategic stocks similar to our competitors. The exact strategy may not be the same. And so it's hard for me to comment versus what we're doing versus they're doing. As I had mentioned earlier in my comments, one of the key things that we're seeing pressure on the flavor side is on vanilla. David Michael has a tremendous amount of experience in that area. And we're already looking to leverage that to help us in that market going forward. So we do work with our procurement teams in terms of looking out 6 to 12 months on a rolling basis and make decisions around strategic stocks. Some of it can be driven by the mix of the business now.

What other than vanilla are strategic stocks for you? Richard A. O’Leary - International Flavors & Fragrances, Inc.: We got vanilla. Most of it's the naturals side of it, natural citrus, some of those things. Andreas Fibig - International Flavors & Fragrances, Inc.: Patchouli. Richard A. O’Leary - International Flavors & Fragrances, Inc.: Patchouli, all key things that we have strategic stocks in.

Okay. Thank you. Andreas Fibig - International Flavors & Fragrances, Inc.: Yes.

Your next question comes from Heidi Vesterinen with Exane BNP Paribas

Hi. Just on the input cost question again, I wondered if your ability to recover input cost pressures to pricing differs by customer type or product area. I wondered, for example, is there a difference between globals and smaller customers? Thank you. Richard A. O’Leary - International Flavors & Fragrances, Inc.: Go ahead. Andreas Fibig - International Flavors & Fragrances, Inc.: No. You go. Richard A. O’Leary - International Flavors & Fragrances, Inc.: No. I think, Heidi, clearly, our objective and our strategy has always been to cover our costs. It has an impact. It can have an impact on our margins, because as we recover it, by sort of the pure math of that, it can have a dilutive effect on our margins. The market is tough right now, that I mentioned earlier, with certain categories of customers, but our objective is always to cover the costs.

At this time, I would like to turn the call back to Andreas for closing remarks. Andreas Fibig - International Flavors & Fragrances, Inc.: Thank you very much for everybody participating. Thank you for the vivid Q&A, and we see each other, or talk to each other, for the next call. Thank you. Have a good day.

Thank you for joining today's IFF. You may now disconnect.