Givaudan S.A.

Ladies and gentlemen, welcome to the GIVODON 2022 Fall Year Results Conference Call-in Live webcast. I'm Andre, the Corvus Call Operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Gilles Andrié, CEO. Please go ahead, sir.

Thank you, operator. Ladies and gentlemen, so good afternoon, good evening to Asia, and good morning to the Americas. Welcome to our 2022 Fulia Results Conference Call. Tom Hallam, our CFO, will also be on this call. We'll take you through the presentation before answering your questions at the end. The company news on our full year results were published on our Givaudan website before 7 o'clock Swiss time this morning. This is where you can also find the slides for today's presentation. Along with the company news on our website, both our 2022 Integrated Annual Report and Sustainability Report are also available. I'd like now to start going through the presentation and invite you to turn to slide number three to go through our performance highlights. So I'm happy to announce another solid set of figures. We are very pleased with our performance in 2022, despite the challenging environment that we have operated in throughout the year. We have indeed been facing an unusual number of adverse external circumstances, ranging from high inflation in input costs to geopolitical tensions, persisting disruption in the overall supply chain, and a contrasted picture of the consumer and customer demand across geographies and segments. In this perfect alignment of headwinds, we have demonstrated three things. Our ability to focus on supporting the growth of our customers with innovative and differentiating solutions whilst ensuring an excellent supply chain performance. The second one, the natural hedges of Givaudan across clients, geographies and product segments has allowed to deliver a net positive growth. And finally, thanks to the collaboration with our customers, we are on track to fully compensate the sharp increase in input costs over 2022 and 2023. I'm therefore extremely grateful to all of the Givaudan employees around the world for their continued commitment to continue to deliver industry-leading performance. In 2022, we reached We actually passed the bar of 7 billion with 7.1 billion Swiss francs, representing a growth of 5.3% on the like-for-like basis and 6.5% in Swiss francs. This solid growth was supported by many levers. The strong contribution of high growth markets, which increased 9.9% on the like-for-like basis. the strategic focus areas as well as the acquired businesses and the implementation of price increases as already mentioned. The level of innovation has remained high and I will come back to this shortly whilst our new business pipeline remains strong. Finally, our new win rates have been very healthy. The ABTDA in Swiss francs was stable at 1 billion 476 in 2022 compared to 1 billion 482 in 2021. What is interesting to note is that we actually managed to protect our absolute ABTDA in Swiss ranks despite two headwinds. Raw materials, energy and logistics totaled an increase of 360 million CHF for the full year. And the CHF has further strengthened across all currencies, across many currencies. The ABTDA margin was 20.7% in 2022 compared to 22.2% in 2021. On a comparable basis, the EBITDA margin was 20.9% in 2022 compared to 22.5% in 2021. The free cash flow amounted to 479 million Swiss francs, representing 6.7% of our total sales. And as discussed before, this lower free cash flow rate, lower than usual, reflects the low EBITDA percentage and the higher levels of working capital we have to keep throughout 2022 in order to protect our service levels to our customers. At the AGM on March 23rd of this year, the board of directors will propose a dividend of 67 Swiss francs per share, representing an increase of 1.5% year on year. Let's turn now to slide four. Both divisions actually contributed equally strongly to our growth. Fragrance & Beauty reached almost 3.3 billion Swiss francs, growing 5.5%, and Taste & Wellbeing reached 3.9 billion Swiss francs, growing 5.2%. Both growth rates are on a like-for-like basis. The good growth was achieved across most product segments. For fragrance and beauty, it was driven by the sustained, strong performance of both fine fragrances and fragrance ingredients, combined with the return to a positive growth of the consumer product business, especially in the second half. For taste and well-being, the growth was strong, especially in sweet goods, beverages, and snacks, and more modestly in savory and dairy. We also benefited from the continued growth momentum of our local and regional customers, one of our strong 2025 strategic growth platforms, which grew again more than twice as much as with our global customers. Finally, all our strategic focus areas have contributed to our growth, including high-growth markets, health and wellness, plant-based proteins, and active beauty. Let's turn now to slide five. We're actually back to the usual picture of high growth markets growing four to five times the rate of mature markets. At the end of 2022, high growth markets represented 44% of our total sales, delivering 9.9% on the like for like growth. All high growth markets contributed with high to double digit growth rates to this result, except for China, which grew a low single digit given the continuous stringent COVID regulations prevailing in 2022 and also the double digit growth comparable in 2021. The Middle East contributed with strong double digit growth levels, as well as Latin America, which performed strongly, led by Argentina, Brazil and Mexico. Most of Asia have also recovered, including Indonesia and India, the Philippines and Thailand. Our size and operational footprint give us a unique exposure to the diversity of these high-growth markets, in which we continue investing both with additional talent and new facilities to service a wide diversity of customers. Mature markets. representing 56% of our sales in 2022, have also contributed to the growth, with a like-for-like growth of 1.9% led by an exceptional performance in Europe, an encouraging recovery in Japan, partly offset by a decline in North America. This demonstrates once again how Givredan's geographical balance contributes to the natural hedges against demand cycles where timing and intensity can differ by geography. Please now turn to slide six. You can see on slide six the sales development by region for the group in more details. So it's worth mentioning, EME grew a record 11.9% against the high comparable of 2021. It was supported by the strong recovery and expansion of various markets, particularly in France, Italy, Spain, the UK, Northern and Central Europe for the mature market of Europe, but as well as the Middle East for the high-growth markets parts of Europe. Sales in Latin America continued to perform very well. Latin America recorded another outstanding growth of 10.4%, driven mainly by Argentina, Mexico, and Brazil, volume growth and market share gains contributing to most of the growth. Sales in Asia-Pacific, as mentioned earlier, continue to recover despite a subdued performance in China, still impacted by the pandemic, as well as suffering from a very high 2021 comparable, as already mentioned. Overall, the growth in Asia Pacific was 5.2%, with India, Indonesia, and the Philippines contributing significantly to this result. Lastly, North America, which had reopened earlier than other regions in 2021, showed a decline of 5.4%. Our 5% growth in 2021 in North America was certainly not an easy comparable, but a certain amount of safety stock building by our customers followed by a significant destocking as weaker consumption was encountered by our consumers, was certainly amplified, certainly amplified the decline in the second half of 2022 in both taste and well-being, as well as in consumer products as part of the fragrance and beauty division. Let's turn now to slide seven. Fragrance and beauty sales were almost 3.3 billion Swiss francs, an increase of 5.5% on the like-for-like basis and 5.3% in Swiss francs. The good growth was driven by the sustained strong performance of fine fragrances and fragrance ingredients combined with the sustained return to growth in the consumer products business. In active beauty, the single-digit growth was achieved against a very high double-digit comparable growth in 2021. Across all businesses and customer groups, the good performance was also supported by the increased impact in the second half of the year of the pricing actions which had been implemented with customers to compensate for the increase in input costs. When looking on the business unit level, fine fragrances sales increased by 14.3% in 2022 on top of the very strong performance of 22.5% in the prior year, itself driven by the post-COVID rebound. In 2022, against any expectations, sales have continued this strong momentum due to the recovery of travel retail, an increased offering notably from independent brands in haute parfumerie, and broader distribution with the well-established e-commerce reaching out to more consumers. All this combined with a high level of new wins for Givaudan, So the CAGR, the competitive average growth rate for fine fragrances over the last three years, has been close to 10%. Western Europe, Asia Pacific and Middle East grew strong double-digit sales, while North America declined mid-single-digit against a double-digit comparable in 2021. The second business unit, consumer products. The sales increased by 2% on a life-for-life basis. This performance was driven by a solid performance with local and regional clients, which more than offset the decline of volume coming from large customers. On a regional basis, growth was led by Western Europe, South Asia, and the Middle East, while sales in North America declined. On a product segment basis, the sales growth was led by fabric care followed by personal care. The compounded average growth rate for consumer products over the last three years has been 4.2%. Sales of fragrance ingredients and active beauty increased by 10.2% on a like-for-like basis. Active beauty grew mid-single digit against a very strong comparable in 2021, as already mentioned, and fragrance ingredients delivered a strong double-digit growth in 2022, supported by the buoyant fine fragrance market demand for ingredients. The compounded average growth rate for active beauty and fragrance ingredients combined has been 9% for the last three years. Now let's turn to the next slide, number eight. Sales of the taste and well-being division grew 5.2% on the like-for-like basis and 7.5% in Swiss francs. This is a very good performance if we remind that it compares to the 7.6% growth which was achieved in 2021, actually the highest growth ever achieved by the division. Key growth pillars of the 2025 strategy, including alternative proteins and health and wellness, as well as all customer groups contributed positively to this sales growth. From a segment perspective, the good sales performance was achieved across all segments, but mainly in beverages and savory and snacks. From a geographic perspective, as you can see, the growth performance was quite impressive in Europe, South Asia, and the Middle East, and in Latin America. Sales in South Asia, Africa, and the Middle East increased by 17.6% on the like-for-like basis. This double-digit performance was achieved in India, as well as across African markets and the Middle East region, where Givaudan has a strong footprint. Sales in Latin America increased 16.7% on a like-for-like basis, led by high single- to strong double-digit volume growth in Brazil, Argentina, Mexico, and Colombia. Sales in Europe increased by 11.1% on the like-for-like basis. The mature markets of Spain, Germany, and Italy achieved double-digit growth, followed mid-to-high single-digit growth in the UK and France. In the high-growth markets of Europe, there was excellent business momentum, especially driven by Poland. Sales in Asia-Pacific increased by 5.3% on the like-for-like basis. Growth in Asia Pacific was strong despite COVID-19 impacting performance in China in 2022. In the high-growth markets, Indonesia, the Philippines, and Vietnam delivered the strongest performance. And finally, in the mature markets of Asia Pacific, the growth was driven by Korea. On a like-for-like basis, sales in North America decreased by 6.4% after growing a strong 5.8% in 2021. In addition to the strong comparatives, this situation can be explained by customer destocking and more cautious inventory planning following the safety stock building as supply chain disruptions and high inflation prevail, especially in the first half of the year. Let's turn now to slide 9. As you all know, our company purpose is about creation. the cornerstone of which is innovation. Innovation is what our customers expect from us. The core of our innovation is about working on the more than 300,000 briefs a year and winning more than our fair share of those multiple briefs is the only way to compensate more than the average 10% erosion of our business so that we can deliver our average sales growth promise of 4% to 5% on the long term. We continually seek new ways to anticipate consumer needs and help solve their customers' challenges and create value for them, while developing creations that contribute to happier and healthier lives, which is our purpose, and this is whilst reducing the impact that we have on the environment. Our research and development activities allow to provide our teams working on those multiple briefs with novel technologies, differentiating ingredients, which will make those bespoke solutions we develop with our customers win the brief, but also, and more importantly, win the consumer. In 2022, we invested 522 million Swiss francs in R&D in line with what we had spent in 2021, but let me give you some of the key outcome examples that stemmed out of our research programs. In taste and well-being, it's about shaping the future of food and creating food experiences that consumers love. Our new PrimeLock, a natural vegan-friendly solution that mimics animal fat cells, encapsulates, protects, and locks in both flavor and fat in plant-based meat substitutes. This integrated technology enables companies to enhance the food experience of plant-based meat products while having 75% less fat and 30% less calories when compared to a full-fat, full-protein plant-based product. A good example of how a plant-based protein can not only provides the benefit of being more sustainable, but also being healthier than the animal version. Bio-Nutketone, a breakthrough ingredient that responds to the demand for sustainable, natural, clean label citrus flavor without the cost and supply volatility of traditional citrus extracts. Made from a non-GMO sugar source as the starting material, The ingredient does not require the use of any citrus ingredients and originates from a renewable, natural starting material. This material is used in thousands of flavor applications. In the other division, in fragrance and beauty, sustainability is a key driver for creativity and innovation as well. We launched Patchulop, an eco-design upcycled active for hair and scalp. It is sourced responsibly in Indonesia and is crafted through green fractionation from distilled patchouli leaves after their use as a raw material in fragrance creation. This is a very good example of how we can use waste and upcycle. In the field of delivery systems, a major breakthrough was the launch of Planet Caps, the first biodegradable and biosourced fragrance core shell technology for fabric softeners, laundry sanitizers, and scent boosters. And finally, AmbricSolid, a sustainable alternative to the widely used musk, Ambretolid. This biodegradable and naturally derived molecule exclusively available for Givaudan perfumers is obtained by an innovative process using Nobel Prize winning technology. Finally, in terms of artificial intelligence, we developed Customer Foresight, a proprietary digital engine leveraging big data, artificial intelligence, and Givaudan's deep expertise to detect signals and emerging trends to anticipate future potential food solutions, opening opportunities to enhance the current development processes. With this, I'd like now to hand over to Tom, who will give you more granularity on our financial results. Tom, please. Thank you, Gilles.

I would also like to welcome you all to the call. As always, as Gilles has taken you through the business performance of the group, as well as the main aspects of the market and regional development, on the following slides, I would like to focus on the group's operating performance and those of the two divisions. Let me start with the performance highlights on slide 11. Group sales increased this year to 7.1 billion Swiss francs, an increase of 5.3% on a like-for-like basis, and 6.5% in Swiss francs. This result includes the full year impact of DDW and Custom Essence, the two companies that we acquired in December 2021. The group's EBITDA is 1.476 billion Swiss francs compared to 1.482 billion Swiss francs in the prior year. And the reported EBITDA margin is 20.7% in 2022 compared to 22.2% in 2021. The underlying EBITDA is 1,486 million Swiss francs, a margin of 20.9 percent in 2022 compared to 22.5 percent in 2021. The net income increased to 856 million Swiss francs, an increase of 4.2 percent compared to 2021. and the net income margin was 12% of sales. The group achieved a free cash flow of 479 million Swiss francs, or 6.7% of sales. The group's net debt to EBITDA was 3.1 times at the end of 2022, compared to 2.97 times at the end of December 2021. Please turn to slide 12, which shows the exchange rate development. As always, this slide shows the comparison of the exchange rates in 2022 versus the average in 2021. In the current year, mainly due to the geopolitical instability and economic uncertainties, we have seen major fluctuations in the main currencies that the group operates in. especially in the development of the US dollar, GBP sterling, and the euro against the Swiss franc. Although the movement in currencies can have an impact on the various lines of the income statement, the net impact on the EBITDA margin is fairly limited given the operational and geographical spread which provides good natural hedges to our business. Please turn to slide 13 for an overview of the operating performance of the group. The gross margin decreased from 42.7% in 2021 to 38.8% this year. Due to, on the one hand, a mechanical margin dilution effect of the pricing, as well as the timing of the price increases, to offset higher raw material, energy, and freight costs. On the EBTDA level, the impact of the higher raw material, energy, and freight costs was mostly offset by price increases and a lower operating expense due to the strict cost discipline, resulting in an EBTDA of 1,476,000,000 Swiss francs in 2022. compared to 1,482,000,000 Swiss francs in 2021. We had a number of one-off items in the year amounting to 10,000,000 Swiss francs, all relating to the integration of the acquired companies and the optimization of our manufacturing footprint. As such, the underlying eBTDA margin was 20.9% this year, compared to 22.5% in 2021. The operating income increased to 1,112,000,000 Swiss francs in 2022 compared to 1,089,000,000 Swiss francs in 2021, a small increase versus the year, a good performance considering a very challenging operating environment. On the next two slides, I would like to spend a few minutes on the operating performance of the two divisions. If you turn to slide 14, we will start with fragrance and beauty. Fragrance and beauty recorded a sales increase of 5.5% on a like-for-like basis and 5.3% in Swiss francs, mainly driven by the sustained good growth of fine fragrances and of the fragrance ingredients business during the year. EBITDA for the division was 698 million Swiss francs in 2022 compared to 696 million Swiss francs in 2021. The underlying EBITDA margin was 21.6% in the year compared to 22.6% in 2021. The decrease in the margin is a result of the higher input costs partially compensated by price increases. If you now turn to page 15, we will cover the performance of taste and well-being. Taste and well-being recorded a sales increase of 5.2% on a like-for-like basis and an increase of 7.5% in Swiss francs. with excellent sales growth recorded in Europe, Southeast Asia, Middle East, Africa, as well as Latin America. The division was particularly impacted by higher raw materials, energy, and freight costs, and recorded an EBTDA of 778 million Swiss francs, compared to 786 million Swiss francs in the prior year. On a comparable basis, the underlying EBTDA margin was 20.3%, compared to 22.4% in the prior year. Again, the decrease in the margin is as a result of the higher input costs, partially offset by price increases with clients. Please turn to slide 16 for the net income. The net income before tax was 928 million Swiss francs in the year. compared to 965 million Swiss francs in 2021, with the decrease caused by higher non-operating expenses compared to 2021. Although interest expenses remain stable, the group incurred higher realized and unrealized losses from fair value fluctuations of its financial instruments caused by the economic uncertainty in the financial markets particularly during the first half of 2022. The effective tax rate decreased to 8% in 2022 compared to 15% in 2021. The net income was up to 856 million Swiss francs in the year, which is a solid increase of 4.2%. The net income margin was 12% in 2022 and basic earnings per share was 92.83 Swiss francs compared to 89.03 Swiss francs in the prior year. Please turn to the next slide, which shows the free cash flow. In 2022, we had a free cash flow of 6.7% compared to 12.6% in 2021. The decrease is mostly explained by the higher cash investment in working capital driven by the need to manage the inbound supply chain disruptions that the group has been facing throughout the year in order to continue to deliver and to satisfy the needs of its customers. During the year, the group generated an absolute free cash flow of 479 million Swiss francs compared to 843 million Swiss francs in the prior year. Total net investment was 289 million Swiss francs and as a percentage of sales, net investments were 4.1% of sales compared to 3.7% in the prior year as the group continues to invest in growth. Working capital was 26.8 percent of sales compared to 24 percent in 2021. Please turn to slide 18. This slide has been updated to include the final acquisition values of DDW and Custom Essence acquired in 2021 and it gives you a perspective of the future expected amortization. I would like to remind you that on page 101 of the annual report, we provide a split of the changes in amortization on the various income statement lines. As an example, amortization of intangibles decreased by nearly 20 million Swiss francs in R&D between 2021 and 2022. Please turn to slide 19. Over the last 22 years, the company has generated a cumulative 10.7 billion Swiss francs of free cash flow. Including the proposed dividend for 2022, Givaudan has returned 7 billion Swiss francs to shareholders in the form of either dividends or share buybacks since its spin-off in 2000. As mentioned in previous years, this clearly underlines the strong commitment of Givaudan to return surplus cash to its shareholders. Based on the strong, resilient business model of Givaudan, it is with confidence that the Board of Directors will propose a further increase of the dividend to 67 Swiss francs per share in 2022 from 66 francs in 2021, an increase of 1.5%. Please turn to slide 20 to look at the debt profile of the group. This slide shows a well-balanced and stable debt profile compared to the prior year. with interest rates which have been locked in at attractive rates. At the end of the year, the net debt was 4.5 billion Swiss francs with a weighted average interest rate of 1.7% compared to 1.4% in 2021. Finally, please turn to slide 21, which shows the net debt to EBITDA ratio. At the end of the year, the net debt to EBITDA ratio was 3.07 times, relatively stable compared to the 2.97 times at the end of 2021. With this, I would like to conclude my section of the presentation and hand back to Gilles.

Gilles Baillieu- Thank you, Tom. So let me now come back to our 2025 strategy and the outlook for 2023, which I will comment further in the coming slides. Turn now to slide 23. So let me quickly remind the main features of our 2025 strategy. The company's 2025 ambition is to deliver sustainable value creation for all stakeholders. Givaudan's 2025 strategy is fully in line with our purpose, whilst placing customers at the heart of our business, supporting them to grow, and creating products that are loved by consumers. The 2025 strategy is focused on three growth drivers. The first one, expanding our portfolio. The second is extending our customer reach. And the third one is having a focused market strategy. all supported by four growth enablers, which are aligned with the company's purpose, namely creations, nature, people and communities. These three growth drivers and four enablers are all underpinned by a commitment to excellence, innovation and simplicity in everything we do. Let's turn now to slide 24. Ambitious targets are an integral part of Givaudan's 2025 strategy, with the company aiming to achieve organic sales growth of 4% to 5% on a like-for-like basis and a free cash flow of at least 12%, both measured as an average over the five-year period strategic cycle until 2025. In addition, the company aims to deliver on key non-financial targets around sustainability, diversity, and safety linked to Giraudan's purpose. Let's move now to slide 25 on our 2023 outlook. We are confident in our capabilities, the quality of our portfolio, our creative strengths, and our ability to build on the strong start of this strategic cycle. For 2023, let me share with you our priorities and focus areas. We remain very well positioned with our capabilities and our 2025 strategy. We have a strong brief pipeline to support the growth with our customers as they innovate. Our input costs are expected to increase 5% in 2023. We will continue to be focused on delivering pricing actions to compensate for higher input costs. In terms of operational priorities, A performance improvement program is about to be launched aiming at structurally improving our gross margin and our ABTDA margin over the course of this strategic cycle. It includes keeping our strong focus on operational excellence through the manufacturing and the supply chain footprint. It also includes an organizational simplification and further reducing the inventory levels through process optimisation and continue cost and cash discipline across the business. This will imply restructuring costs of up to 60 million Swiss francs to be expected in 2023, out of which 40 million in cash and 20 million in non-cash. And we expect from this initiative savings of $60 million on an annualized basis, with $40 million to come through in 2023 and fully in 2024. With that, we have arrived at the end of our 2022 full year presentation. I'd like to thank you for your attention, and now we look forward with Tom to your questions.

We will now begin the question and answer session. Anyone who wishes to ask a question or make a comment may press star and 1 on their touchtone telephone. You will hear a tone to confirm that you've entered the queue. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use only headsets while asking a question. Anyone who has a question or a comment may press star and 1 at this time. The first question comes from the line of Heidi Festerinen from BNP Paribank Sun. Please go ahead.

Good afternoon. So I have a first question on organic growth. I know you don't give annual guidance, but given the very low visibility out there for most of us listening to this call, could you help us with any hints or thoughts on volume growth in 2023, please? And then as a related question, could you talk more about what happened in Taste and Wellbeing North America, please? Because it seems to be down double digits. It's quite unusual to see that from Jivadan. What sort of categories and customer types were affected? And is this volume decline likely to continue? Is that happening in Q1? And then lastly, perhaps your current thinking on M&A, please. And do you have large potential targets? Thank you.

Many questions, Heidi. Thank you. So organic growth, you know, essentially to have, as you know, we commit on an average growth for five years. And we don't give any specific guidance on the given year. Not that we are hiding anything. It's just that the visibility, not just in 23, but always in every year, is limited. The only thing we can control is the pricing actions that we have in place. And the other part that we control is the amount of new wins that we win in a given year, which will have a positive positive effect on the volume growth the following year. But the third element, which is the erosion of the existing business, which essentially is the result of how good our customers are doing around the world, there is no crystal ball to do that. The only way to do that is actually to look at the historic sales, at the historic volume growth of Givaudan, which in fact, if you look at 3 years, 5 years, 10 years, 15 years, whatever the horizon you take, is actually quite steady because we contribute to products which are consumed on a very regular basis around the world. And Givaudan has always delivered on the continuous volume growth. So that's basically my best answer to you, Heidi. So on the price increase, I can be a bit more specific. First, I mentioned that in 2022, we have encountered in the PNL an additional total 360 million Swiss francs of input costs, which include 270 million Swiss francs of additional roadmaps and 90 million of everything logistics, freight, and energy. What we have always said is that we are in a good position to actually recover two-thirds of those 360, which we actually did. because that's part of the 5.3% growth that we have recorded in 2022. So you have roughly 44% of price increase in 2022, which amounts to 270. So that means the remaining 90 or 100 million have been already negotiated, because it was part of the negotiations in 2022, and that will come in 2023 in full. The second pricing element has to do with the guidance we are giving on the input cost that we are forecasting a 5% increase of ROAMAT for the group in 2023. And that's all actually have been already negotiated entirely and that will kick for the full year in 2023. So that's going to be another 160 million. So basically you have already 260 million of price increase in 2023. which is roughly exactly the same amount actually as 22 in absolute terms. Then in terms of new winds, we track that especially for fine fragrance consumer products and taste and well-being, and we have a very good inflow of new winds, which will come into 23. The only thing I can say about the remaining volume growth is to talk more about the natural hedges of Givaudan. We are... And it's in three dimensions, as you know, Heidi. From a geographic standpoint, we are everywhere. And you can see, again, the natural hedges across Europe is playing in 22. Because, yes, everybody has been focusing on the decline in North America, but I actually have no question about why we have 11% growth in Europe. So one is actually more than compensating the other. And it's true also for high-growth markets versus mature markets. Yes, we have the confidence level in 23, but to give an exact figure is not easy. The second hedge, natural hedge, is that we are across clients. So now we have 55% of our sales, which are with local and regional clients, that you don't have any figures, because they don't usually are publishing their numbers, since they are usually family-owned companies. So this part, most people don't see, but we see it in our figures, and I and I can testify for the strong growth that we have again delivered with this segment of clients in 2022, which has compensated for the actual volume decline that most of our global clients have published over 2022. So that's another natural hedge dimension that is important to remind. And then across segments, you know, across segments, that's essentially... We are across all types of applications, but also all types of price points. You know, whether you have an expensive shower gel, a more affordable soap, or an affordable snack versus a premium product in food, we are on all sides. So wherever consumers go, you know, down trading or going for more affordable and so forth, we are on both sides. So that's also the natural hedge that it creates. So that's the best answer I can give you. Giroudin is the best protectors. across whatever happens, up or down, but difficult to get an exact growth figure for the volume. Lastly, yes, you know, all those products, actually 80 to 90% of all the things that we do are consumed every day for basic essential needs, as you know, that consumers have. Then specifically about taste and well-being in North America, So overall, we have roughly a 6% decline for taste and well-being. That shows because obviously taste and well-being we report by region. But what you don't actually see is that the consumer products part of fragrance, which we don't report by region, also includes sales in North America, which have also shown a decline. So a decline overall for the year which is more or less in the same range as taste and well-being. So what it shows is that yes, it is a combination and difficult again to give an exact science, but certainly a combination of consumers having consumed less at the end of the day on the back of a good growth in 2021 But as it relates to the comparable growth quarter by quarter, well, yes, in the fourth quarter, the decline was stronger than in the early part of the year, especially for taste and well-being. That certainly has to do with the fact that as supply chains were incurring disruptions and clients were quite nervous to actually not miss sales, maybe there's been certainly a bit of safety stock building in the course of 21 into 22. which as consumers consuming less, those inventories were driven down by our clients. So yes, there's a fair amount of building up and building down in terms of inventories, but what's the split between destocking and consumption? Nobody knows, including our clients. So on a long-term basis, the U.S. will grow. The question is basically by what amount and when. Finally, on acquisitions, essentially we are always looking at opportunities, we are active on every opportunity. The number of opportunities has certainly declined because most of the valuations have also declined, so maybe people are waiting for better times, but we are still actively looking in an opportunistic way. I hope it covered your three big questions, Heidi, but you can always come back.

Very comprehensive. Thank you.

The next question comes from the line of Charles Eden from UBS. Please go ahead.

Hi, good afternoon. Thanks for taking my questions. Just a quick follow-up on the volume question, and I fully appreciate your helpful comment to that. But just in terms of Q1, I know we've only had maybe three weeks of trading, but Is there signs that destocking is done in North America? I guess, given how quickly you've managed to get the full year results out for us, that you've got fairly live systems on the order tracking. So any comments around that would be helpful. And then secondly, on margins for 23, I understand the 5% raw material inflation and also the arithmetic impact from pricing parcels. But could you also discuss how you see some of the other major cost buckets like freight, energy and wages developing this year. Maybe that's a question for Tom. And then very quick sort of follow up on the restructuring program, which I assume also results in some job cuts. Are you able to sort of comment on where these job cuts are coming from? Is it sales personnel, R&D, head office staff, or based across all of those buckets? Thank you.

So on the volume questions, one, I can't really disclose where we stand in January for two reasons. One, because I'm not allowed, and two, because it's only, as you say, two or three weeks, so very difficult to see. And again, the best way to predict Giroudon is to look more on the multiple month basis. So there, I can't answer this question. On the second one, On the margin profile, I mean, I just will pass over to Tom, but I think in a very simplistic but high-level way, which I think is the best way to read our financial figures, as I said, in 2022, the total input cost included an almost 10% ROMAT increase, which is roughly 270 million Swiss francs, plus a 90 million which includes the sort of almost abnormal increase in logistics freight and energy which came in and impacted 2022 so that's a total 360 million which again we compensated with a price increase which amounted by 270 million and 90 million of frugality essentially without as people might have asked the question, without cutting on our research and development capabilities. As it relates to 23, we have, you know, we basically have, I will let Tom add, but essentially to talk on the restructuring program, so essentially this is because obviously I can't give details, that has to be obviously discussed, validated with the different employee representatives in the different countries, but we'll go actually quite fast. And this is really across the different divisions and support functions, but not impairing significantly our ability to grow with and to innovate, you know, with our commercial research and development resources. But, Tom, maybe you want to add.

Yeah, thanks, Gilles. You know, Charles, if you look on the long-term margin, and I think we've discussed this many times together, you know, our free cash flow, our long-term guidance is free cash flow as a percentage of sales, more than 12%. You know the numbers as well as I in that that requires a certain EBTDA level. If you look historically where we've been, we've been somewhere between 22% and 24%, and that's the sort of expectation that we would have if we talk about our 2025 guidance. So, of course, the restructuring or the reorganization that Gilles just referred to is part of that getting back to where we've been historically. Of course, we've talked about the pricing actions that we've taken. And as the supply chain has started to ease, we see that we are now able to accelerate the integration of the acquired companies. You see it already in our 2022 numbers in terms of the investments that we've been making on the digital side. And as we just announced today, you know, we have some restructuring costs, which is non-cash, which is actually related to supply chain and footprint optimization. So, you know, I would see really a two to three year journey in terms of recovery of what we would call our fair share of both gross margin and EBTDA margin.

That's helpful. Thank you.

The next question comes from the line of Isha Sharma from Stifel. Please go ahead.

Hi, good afternoon. I just have two left, please. Your IND and admin costs are meaningfully down in the second half. Tom, you also mentioned on the amortization slide a little bit, but could you elaborate more on that? Is this a level that is sustainable that we should think of going forward? And the second one is on the restructuring costs. In general, you guided us that for the acquisitions that you have made recently, we should assume a 50 million integration costs on the special items line. Is this 60 million coming on top of that, or does it include also the integration charges?

Thank you. Yeah. So just, Isha, on the R&D, which is the number that I have top of mind, I think overall there's about a $40 million reduction if you look at the face of the P&L in R&D. $20 million of that or nearly $20 million is amortization. Actually, about $10 million is currency. Again, we show the currency slide just to remind you that we are a global business and it depends very much on where our R&D facilities are located. Just as a reminder, we have a large R&D facility in the UK, in Ashford. And of course, with the weakening pound, that has an impact on the reported R&D, but not on the underlying structure of the business. And that's about another 10 million. And then we have various smaller cost savings on R&D. But we are not, and Jill has referred to it a couple of times, and you see again, the innovation pipeline and the number of projects that are coming through, we are absolutely convinced that we need to invest a certain amount of R&D so that we can differentiate in the market and our clients can differentiate in the market as well. So no cut on the underlying research and development. So that was the first question. Sorry, on the second question, can you just? Yeah, on the implementation, sorry, on the implementation cost. You know, most of the implementation cost this year is on the people side, as we mentioned. So then we have about 20 million of non-cash, which is related to site closures.

Right, I was just wondering if the acquisitions the integration costs that you incur in general close to 40-50 million is that something that you're going to postpone for later or how does that?

That will probably come into 2024 to be honest. What we've talked about so far this year is the reorganization that Gilles referred to.

Perfect. Thank you so much.

The next question comes from the line of Matthew Yates. from Bank of America. Please go ahead.

Hey, good afternoon, gentlemen. We touched on this a bit already, but that really stark contrast in your taste performance between Europe and America. I think you've explained the American impact in terms of customer destocking. Just curious why we haven't necessarily seen that in Europe. Were buffer stocks never built up to begin with, or is that still to come in the coming quarters? And then maybe this one's for Tom, just around the cash flow. You said you chose to strategically invest in working capital to support the customers, which obviously makes sense. But I was a bit surprised by the 15% decline in payables. I was wondering if you could just explain that a little bit and whether that means you're sitting on excess inventory within Giverdan at the moment.

Yes, thank you. The performance of taste and well-being is as unusual in Europe as it is in the US, I must say. And actually, it's not something actually specific to Givaudan, because if you look at the space of ingredients in total, the growth in Europe has been strong. So it's not just about Givaudan, even if we are performing very well and gaining shares and so forth. Yes, you could argue that why is Europe not slowing down? Actually, the outlook in Europe from an economic standpoint now turns out to be positive again. The only thing I can say is that we've been growing across all clients, across all segments, so there is nothing specific about types of products or types of clients. I would say that Even if there would have been, you know, the building stock cannot expand 11%, and certainly we have not seen destocking. So that's my best answer. You know, essentially, it's a great result. We believe that, you know, even if there's been a bit of stock piling up, maybe, even if there is... you know, destocking, the impact will be minimal. The big question is, you know, will the consumption at the retail continue to be strong? That's more the bigger question. Any destocking or upstocking is only temporary, and reflects basically the consumer demand, what's happening at the retail side. So that's more the bigger question. You know, are we going to see a sustained volume as it relates to consumption in Europe? The only difference between Europe and the U.S., though, is that in Europe we include, obviously, a certain amount of high-growth markets in there that you don't have in the U.S., which obviously are always operating at high growth rates, like Eastern Europe, like the Middle East and so on.

Yeah. And, Mathieu, on the working capital, you know, we can go through the technical aspects of it, you know, when inventory is received and accrued and paid and so on, or we can just, you know, sort of stay at the high level, which I think is probably the simplest. You know, fundamentally, we had high levels in 2022. It's, you know, as both Jill and I have mentioned, in order to support our clients as the supply chain was so disrupted, Our total working capital is, at the end of the year, 26.8% of sales. There is absolutely no issue on the underlying accounts receivable, on the underlying accounts payable. It's really a question of inventory. And if you look overall at where we would expect to be over the next two to three years, and Gilles in particular referred to the supply chain, let's say, optimization now, we would target somewhere between 23% and 24% of sales for working capital over the next two to three years. So we're 26.8% at the end of the year. We want to get back to that 23% to 24% over the next two to three years, and that is fundamentally reduction in inventory levels.

Thank you, guys.

I think we're about to take the last question, operator.

The last question comes from the line of Lisa Deneve with Morgan Stanley. Please go ahead.

Hi, good afternoon, and thank you for taking my question, Jillian. So I'll leave it to Juan. So can you please share what your customers' appetite is at this point for innovation and new launches? I mean, the last one to two years may have been in some cases, innovation or new launches may have been held back by a variety of supply chain challenges on your level and on the customer level. So will you please share what you're seeing at your customers today and how you expect the launch cycle to ramp up over the next 12 months? Thank you very much.

Yeah, thank you. So I think we cannot have a single, the same answer for all product categories. Because it all depends, you know, usually the rate of new launches depends on how the market is actually doing. So if you take, obviously, fine fragrances, you know, actually there's been many, many new launches in which, you know, actually Giroudon was very happy to contribute with great perfumes. So actually the number of launches is correlated to the buoyancy of the market, and that's true for fine fragrances. And the reverse is true. When there was the pandemic, you had almost actually no launches of new fragrances. And then when there was an economic downturn in 2008, that was the same. So you see that for fine. You see that for active beauty, which is doing very well on skincare and so on. A fair amount of, you know, if you look across taste and well-being, obviously, a lot of, you know, promising launches around beverages, which continue to be a strong category around plant-based proteins with new food solutions. So, you know, essentially we have an aggregated good number of new launches, but in any case, if you have less new launches, usually you also have less erosion, because obviously new launches replace erosion. So at the end of the day, what matters is how much consumers consume and whether that's through existing businesses, existing products, or new products. That's the net consumption which matters. So that's really what we can say, but essentially we are not in a position to say that across geographic clients are becoming reluctant to launch new products. We don't see that.

Thank you very much.

Okay, so that was the last question. I thank you everyone for your attention, for your questions. I'd like to remind you that we will publish our Q1 2023 sales results, the first quarter sales results on the 13th of April. And you are welcome to register to our annual investor conference, which will be held in person, finally back in person,

in Vernier, close to Geneva in Switzerland. Thank you very much.