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Third Quarter <br/>Investors’ Webcast<br/>November 2, 2006
Robert M. Amen
Robert M. Amen
Chairman and CEO
Douglas J. Wetmore
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These slides contain forward looking information, which may be identified by terms such as “expect”, “may”, “anticipated”, “guidance”, “outlook” and similar terms and involve significant risks and uncertainties. Actual results may differ materially. Risks and uncertainties include general economic and business conditions; interest rates; the price, quality and availability of raw materials; our ability to achieve our business strategy and anticipated cost savings, profitability and growth targets; the impact of currency fluctuation or devaluation; uncertainties related to litigation; the impact of possible pension funding obligations and increased pension expense; and the effect of legal and regulatory proceedings and restrictions. We do not undertake to update or revise such forward-looking statements. These and other factors that could cause actual results to differ materially from such forward-looking statements are discussed in greater detail in our accompanying quarterly earnings release and in our SEC filings.
Forward Looking Statement
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Non-GAAP Financial Measures
The Company uses certain non-GAAP financial measures to supplement our GAAP financial results. These financial measures should not be considered in isolation or as superior to our GAAP financial measures. Additional information concerning our non-GAAP financial measures and a reconciliation to GAAP is available on our website at http://www.iff.com, by clicking on “Investor Relations” and selecting the “Webcast” page.
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Agenda
Third quarter and year-to-date results
Third quarter and year-to-date results
Outlook for 2006
Business unit focus
Strategic direction
Financial goals: 2007- 2009
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Third Quarter Highlights <br/>($ in millions)
Q3 2006 Q3 2005 % Change
Q3 2006 Q3 2005 % Change
Sales $ 539 $ 493 +9%
Op. Margin $ 90 $ 72 +26%
EPS $ .70 $ .72 ( 3%)
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Third Quarter Stronger than First Half
Solid revenue and earnings growth
Solid revenue and earnings growth
Continued strength of fragrance business
Flavors sales improving
Solid growth in all major regions
Good expense control
Improving operating margin
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Third Quarter Sales<br/>($ in millions)
Sales up 9%
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+6%
+12%
Third Quarter Sales<br/>($ in millions)
2005
2006
2005
2006
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Fine fragrance drove total fragrance sales
Third Quarter Fragrance Sales Growth
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Solid growth in all regions
Third Quarter Sales Growth by Region
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Third Quarter Sales
Higher volume
Higher volume
New products
Sales growth driven by
Success of category strategy
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Third Quarter Operating Results <br/>($ in millions)
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Third Quarter <br/>Operating Income Highlights
Gross margin improved one percentage point
Gross margin improved one percentage point
R&D focused spending to support initiatives
Disciplined cost management
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Q3
Q3
2005
EPS
2005 Third Quarter EPS
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AJCA
AJCA
Tax
Benefit
Base
Base
Q3
2005
EPS
2005 Third Quarter EPS Components
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$.05
$.06
Sales
Sales
Productivity/
Productivity/
’05 Product
’05 Product
Contamination
Costs/
Tax
Tax
Rate
Q3
Q3
2006
$.08
Incentive
Incentive
Base
Base
Q3
2005
EPS
Share
Share
Count
Third Quarter EPS Growth Components
$.04
Other
Other
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2005 EPS
2005
2005
EPS
As
Reported
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2005
2005
Base
EPS
AJCA
AJCA
2005 EPS Components
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$.09
$.08
Sales
Sales
Productivity/
Productivity/
Other
Other
income
Tax
Tax
Rate
2006
2006
$.16
Incentive
Incentive
Year-to-Date EPS Growth Components
Share
Share
Count
’05 Product
’05 Product
Contamination
Costs/
2005
2005
Base
EPS
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Earnings Per Share Performance (Excluding AJCA and restructuring)
2006 – A year of solid progress
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Cash Flows Year-to-Date <br/>(in millions)
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2006 Share Buyback Data <br/>(in millions)
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Cash Return to Shareholders
Increased dividend to annual rate of $0.84:
Increased dividend to annual rate of $0.84:
14% increase
$.10 increase
Effective: January 2007 payment
New share repurchase authorization:
Current authorization nearly completed
$300 million authorization
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2006 Third Quarter Summary
Strong sales gain
Strong sales gain
9% as reported
7% local currency
Improving operating margin
Strong cash flow
Dividend increase
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Updated 2006 Guidance
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Strategic Direction
Assessment of external environment
Assessment of external environment
IFF Today
Business Focus
Improvement opportunities
Strategic direction
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Assessment of External Environment
Volume Growth in line with world GDP ~ 4+%
Volume Growth in line with world GDP ~ 4+%
Mature markets 3-4%
Emerging markets 7-10%
Competitive marketplace
![](https://capedge.com/proxy/8-K/0000950136-06-009085/html_q3earningscallfileno28.jpg)
Assessment of External Environment
Volume Growth in line with world GDP ~ 4+%
Volume Growth in line with world GDP ~ 4+%
Mature markets 3-4%
Emerging markets 7-10%
Competitive marketplace
Innovation is rewarded
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IFF Today
Global leader in Flavors and Fragrances
Global leader in Flavors and Fragrances
Strong customer franchise
IFF Brand
Innovative technology
IFF is a great and exciting company with strong potential
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Improvement Opportunities
Business Focus
Business Focus
Product/Technology
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Business Focus
Focus
Focus
Alignment
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Business Focus
Focus
Focus
Alignment
Improved Results
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Business Focus
Flavors Business Unit
Flavors Business Unit
Fragrance Business Unit, including ingredients
Centralized resource groups
R&D, Finance, Legal, HR, IT
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Product/Technology
Customers seek flavors and fragrances that consumers love
Customers seek flavors and fragrances that consumers love
Product performance
Cost effectiveness
Innovation
![](https://capedge.com/proxy/8-K/0000950136-06-009085/html_q3earningscallfileno35.jpg)
Business Model
Research & Development organizational alignment
Research & Development organizational alignment
Leverage global capabilities to reduce costs
Improve focus to best serve customers, employees <br/>and shareholders
![](https://capedge.com/proxy/8-K/0000950136-06-009085/html_q3earningscallfileno36.jpg)
IFF Strategic Direction
Be the global leader in flavors and fragrances
Be the global leader in flavors and fragrances
Bring differentiated solutions to our customers
Grow market share because our products are preferred by consumers
Build a culture that attracts, retains, develops and rewards the best talent in the world ?.
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Financial Goals<br/>2007 – 2009
Grow local currency sales by 4+% per year
Grow local currency sales by 4+% per year
Improve operating margins to 18+% of sales by the end of 2009
Grow EPS on average 10+% per year
Dividend growth in line with EPS growth
Execute stock repurchase plan
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Questions