Societe BIC SA

PAR:BB

Earnings Call Transcript 2022-Q3

[Operator]

Hello, and welcome to the BIC Third Quarter and 9 Months 2020 Results Call. Please note, this call is being recorded. [Operator Instructions]

I will now hand you over to your host, Sophie Palliez-Capian to begin today's conference.

[Sophie Palliez-Capian, executive]

Thank you. Thank you, and welcome, everybody. So this is BIC's Q3 and 9 months results conference call. The call will be hosted by Gonzalve Bich, Chief Executive Officer; and Chad Spooner, Chief Financial Officer. We'll start by a short presentation of our Q3 and 9-month results followed by the usual Q&A session.

Gonzalve, over to you.

[Gonzalve Bich, executive]

Thanks, Sophie. Good morning, everyone, and thank you for joining us today. Q3 was another quarter of record sales growth for BIC with many strong wins for our business as we continue our path towards meeting our horizon ambition. Nonetheless, it's also a challenging time for the world with inflation and high energy costs continuing to impact consumers and businesses alike.

But where others see uncertainty as an insurmountable challenge we see uncertainty is an impetus for our organization to continuously learn and adapt, and we couldn't be better positioned to do so than we are today. Thanks to the fundamental reset we initiated back in 2018 with our inventive future initiative and since 2020 with Horizon, we are more consumer focused, data-driven and innovative than ever before. We're also faster, more agile and importantly, more integrated. This new capability has strengthened our resilience. And with the power of our worldwide teams, today, we are set up to better anticipate headwinds and flex our business to face the challenges that lie ahead. With our strategic Horizon plan in full motion, we're winning [ wear ] accounts, fueling our growth and moving towards our goal of mid-single-digit growth trajectory.

So let's start with a review of our third quarter and 9 months operational results and how our transformation journey continues to fuel our performance. Chad will then take you through our financial performance in more detail. Let's first have a look at our key financial figures for the first 9 months of 2022. We grew net sales by 13.8% at constant currency, which translates into 11.3% growth on a rolling 12-month basis, with strong momentum in all 3 divisions. Based on these results, we are upgrading our full year 2022 net sales guidance once more and now expect to grow between 11% and 13% at constant currencies from 10% to 12% previously.

Our adjusted EBIT margin is 15.7% compared to 17.8%, impacted as expected by significant external headwinds. However, we continue to demonstrate strong resilience supported by the decisive actions we've taken to offset the impact of inflation. Net cash position at the end of September was EUR 347 million, and we maintain our target of over EUR 200 million of free cash flow for the full year. Chad will take you through our financial performance in more detail later.

The momentum we gained in the third quarter demonstrates that our business can deliver and our top line can grow even against the challenging backdrop. Across each of our divisions, we achieved notable results. First, in Human Expression, net sales continued to grow, up 17.6% on a 12-month rolling basis. Following a successful Back-to-School sell-in, we delivered robust sell-out across Europe, the U.S. and Mexico, outperforming both the market and major competitors. This was fueled by commercial excellence and a continued focus on delivering what consumers want, but more importantly, need. In an environment where consumers are looking more and more for value for money products, Back-to-School sell-out performance demonstrated that consumers recognize the tremendous value that BIC's high-quality products provide for less money.

This was reflected in the U.S. where we bounced back after a challenging 2021 with core stationery segments leading the overall stationery category and driving performance during the season. We successfully gained 3 points in Mechanical Pencil and 1.8 points in Ball Pen. In Mexico, where in-person classrooms resumed in full for the first time after 2 years, the market grew over 60% in value and our team delivered remarkable results. We gained 0.6 points boosted by Coloring and Marking, and we consolidated our leadership position in the Modern Mass market Channel, boosted by strong in-store visibility, effective communication campaigns and good performance in e-commerce.

In France, BIC was the only brand to gain share in the overall declining market, and we outperformed the market for the 16th consecutive year. During the season, 13 of the top 20 products were BIC branded. This includes correction items, writing instruments and added value coloring products. I'm also proud to say that our historical best sellers like the BIC Cristal ball pen and BIC 4-Color continued to outperform. During the third quarter, more specifically, net sales growth was affected by customers' requests to receive earlier their Back-to-School orders, which we shipped during the first half. And we think this trend will continue next year. We're already planning for next year's Back-to-School, and we're seeing similar requests from our customers.

In Flame for Life, net sales in the division grew 8.4% on a 12-month rolling basis, and we outperformed markets in key countries, including the U.S., France and Brazil, where we continue to gain distribution, notably in decorated lighters and innovations like EZ Reach that led growth. In the U.S., the lighter market trends improved during the third quarter, down 6.3% in volume but up 0.2% in value. And we continue to outperform the market, driven by the utility segment, where we successfully gained 3.8 points share versus 2019. In line with our Horizon ambition, we grew 13% in added value products, decorated lighters in Latin America and Europe as well as in the United States contributed significantly to the division's growth. In July, we launched our premium Djeep Lighters in the U.S. in the convenience channel and have strong plans to gain distribution rapidly.

Lastly, in Blade Excellence, we outperformed the market in all of our major regions, with star performers such as France and Brazil, driven by our 3-blade products. In the U.S., partly thanks to our new innovation, BIC Soleil Escape, I'm proud to say that we were the only major women's disposable shaver brand to gain share, gaining 1.5 points in value year-to-date against other brands. We continued our strategy towards premiumization as part of our transformation goals and grew net sales double digit in value-added products.

Globally, our 4- and 5-Blade segment sales grew 21% versus last year, fueled by the performance of both our Flex and Soleil ranges. In Latin America, our trade-up strategy continued to pay off. In Brazil, we gained 1.3 points market share in value following 4 consecutive years of share gain and reached close to 25% value market share. Premium male and female products such as Simply Soleil and Comfort 3 were a success, thanks to strong communication and marketing plans, coupled with further distribution gains.

In Mexico, the BIC Comfort 3, Hybrid shaver was the #1 item in the Modern Mass market Channel, followed by BIC Simply Soleil, powered by efficient promotional activity and distribution efforts. Our new B2B BIC Blade-Tech business continued to ramp up quickly, contributing to 20% of the total division's growth on top of the already good results in our BIC branded business. BIC Blade-Tech is expected to reach EUR 15 million to EUR 20 million in net sales in 2022.

As you know, our Horizon plan is at the heart of our transformation. With discipline and consistent focus, we continue to make progress on bringing these pillars -- the pillars of this plan to life. On the innovation front, we continue to launch new product solutions in response to unmet consumer needs that result in tangible growth for our business. Our EZ Reach Utility pocket lighter continues to be a success. Just over 2 years since its launch, EZ Reach has already captured over 5% market share in the U.S. pocket lighter market, and we continue to invest in efficient brand support, including the major advertising campaign featuring Martha Stewart and Snoop Dogg. EZ Reach has now achieved over 70% of distribution, up 6 points since the beginning of the year and now represents close to 7% of the total pocket lighter net sales in the U.S.

In 2023, I'm very excited about our strong marketing plans, which will bring additional celebrities on board. We'll continue to launch new design series to delight our consumers and further boost our distribution in the U.S. Our other recent innovation like BIC Soleil Escape shaver with sensorial benefits showing promising results reached 2.2 market share year-to-date in value. This clearly demonstrates our ability to respond to consumer needs through innovative solutions. And finally, I'm happy to share with you the launch of our upcoming breakthrough innovation, the new BIC EasyRinse shaver, which will begin rollout in the U.S. next week. This is the most highly researched and technically advanced razor ever developed in our portfolio. The multi-patented design and reimagined blade architecture is the first of its kind in the razor industry and a clear indication of the power of our consumer insights and innovation teams working together with agility to identify and solve deep-rooted consumer pain points.

Along with bringing new innovations to market, we remain laser-focused on leveraging our revenue growth management capabilities to ensure we have the right pack at the right place. Since the beginning of the year, we've delivered efficiencies across pricing and promotional activities directly boosting profitability. As always, we remain focused on tackling complexity in our business and driving simplicity for our consumers. This effort is paying off. Net sales per SKU grew 25%, with progress in all 3 divisions and way ahead of our target of 11% for the full year. At the same time, we've reduced our SKU count by 10.3%. We delivered 79% of the full year expected price mix, and we continue to invest in pricing analytics to deliver packs and pricing that meet consumer needs and expectations while driving profitability. Our next step is in building RGM capability is to ensure that we have the right product in the right pack at the right price. Price pack architecture as we call it, is natural next step, building off of our focus on complexity management and simplifying our portfolio in line with our Horizon plan.

At the same time, we're on track to become an omnichannel specialist, both on and offline, making sure our products are available everywhere. E-commerce sales grew 10%, with core sales driven by omni retailers and developing markets such as Mexico and Brazil coming in at high double-digit growth. We successfully gained market share online in both the U.S. in both shaver and stationery and in the U.K. in stationery. Our direct-to-consumer business continues to ramp up, boosted by successful limited edition in partnership with premium brands and artists such as the leather style BIC Cristal with Pinel et Pinel and the 4-Color designed by Richard Orlinski.

Lastly, we continued on our path to sustainability, meeting a rising consumer and societal demand for products that are better for the planet and better for all. Increasing our renewable energy use, decreasing our greenhouse gas emissions and further optimizing sustainability measures across our supply chain remains a key area of focus. Today, I'd like to highlight the most recent innovation in the space from our Frame for Life division. With support from the Tara Ocean Foundation, we built an applied scientific research program, a first for both BIC and the industry to identify how we could use less raw material in addition to recycled or alternative materials to make our lighters more sustainable. The first lighters resulting from this research are already being rolled out to retailers worldwide, including the new BIC Ecolutions pocket lighter created with 16% lower environmental impact and launching during the summer in the U.S.

And with that, Chad, over to you.

[Chad Spooner, executive]

Thanks, Gonzalve. I will now review our operational and consolidated financial results for the first 9 months of 2022, starting with our performance in Human Expression division.

Net sales were EUR 663.2 million, up 18.4% at constant currencies. As expected, Q3 net sales growth slowed down as a result of customers' requests for early Back-to-School shipments this year. The overall performance continued to be driven by our core reading instruments and coloring segments. The growth in Europe was fueled by Southern and Eastern Europe, notably Poland and Romania. Back-to-School season was robust in the U.S. and developing markets, such as India, Africa and Latin America continue to rebound. Net sales more than doubled in Brazil. And as Gonzalve mentioned, we expect a solid 2022, '23 Back-to-School season in this country.

Adjusted EBIT was EUR 34.3 million with a 5.2% margin compared to 7.6% last year. The decrease was driven by input cost inflation and the impact of Inkbox, partly offset by net sales operating leverage and favorable fixed cost absorption. Q3 adjusted EBIT margin was impacted by FX and OpEx, which were higher than Q1 and Q2.

Now turning to our Flame for Life division. Net sales were EUR 652 million, up 10.8% at constant currencies. Selling performance was driven by high single to double-digit growth in key countries driven by distribution gains. In the U.S., net sales growth was fueled by the distribution gains and innovation as well as a temporary decrease in Chinese lighter imports due to sea freight disruption. Our BIC EZ Reach lighter continue to outperform the market with an increased distribution primarily in convenience stores. EZ Reach accounted for almost 7% of our pocket lighter sales in the U.S. at the end of September. In line with our strategy to lean towards a more value-driven model, added-value lighters including decorated utility, EZ Reach and Djeep accounted for 35% of Flame for Life net sales in the first 9 months.

Adjusted EBIT was EUR 241.6 million with a 37.1% margin compared to 39.8% in the first 9 months of 2021. This was a result of higher raw materials, freight and electricity costs and an increase in brand support driven by the BIC EZ Reach advertising campaign in the U.S. partially offset by net sales operating leverage and favorable fixed cost absorption. And lastly, in Blade Excellence, net sales were EUR 372.9 million, up 12.8% at constant currencies. In Europe, performance was driven by distribution gains in Eastern and Southern countries such as Romania, Poland and Greece. We continue to gain market share in the U.S. one-piece segment, thanks to the success of our Soleil range for women. Net sales grew double digit in both Brazil and Mexico, where we reached a record high 25% market share, a proof point of the success of our trade-up strategy in the region.

BIC Blade-Tech continues to ramp up and contributed 27% of the division's growth during the first 9 months, slightly lower than our first half due to less favorable comparison base as we started to ship our first customers in the Q3 of last year. Adjusted EBIT for the division was EUR 56.6 million, with a 15.2% margin in the first 9 months of the year, compared to 16.7% last year, driven by higher manufacturing costs, electricity and freight costs and higher brand support. This was partially offset by net sales operating leverage favorable fixed cost absorption and a positive contribution from the BIC Blade-Tech business.

Now let's review our consolidated results starting with Q3 2022 net sales evolution. On an as-reported basis, net sales for Q3 of 2022 totaled EUR 580.1 million, up 21.3% versus last year. On a comparative basis, our net sales were up 7.6%. Currency fluctuations had a positive impact of 11.3 points excluding the foreign exchange impact from Argentina. This was mainly due to the increases in the U.S. dollar and the Brazilian real against the euro. The perimeter impact adjustment includes the acquisitions of Inkbox, Tattly and AMI.

Now turning to the 9 months 2022 net sales evolution. On an as-reported basis, net sales totaled EUR 1.707 billion, up 22.4% versus last year. On a comparative basis, net sales were up 11.6%, mainly explained by volume increases, favorable mix and the successful implementation of price adjustments in all regions. Currency fluctuations had a positive impact of 9 points, excluding the foreign exchange impact from Argentina. This was mainly due to the increase of the U.S. dollar and the Brazilian real, we get 0. The perimeter impact adjustment includes the acquisitions of Inkbox, Tattly and AMI, partially offset by the PIMACO divestiture. For the balance of the year and on the back of weak Q4 of 2021, we expect net sales growth to be high single digits, equally weighted between volumes and price.

Let me now review the adjusted EBIT margin change versus the prior year for the third quarter. Q3 gross profit margin decreased by 3.4 points to 47.4%, compared to 50.8% in Q3 of 2021. Excluding Inkbox, the gross profit margin decreased by 3.8 points. This decrease was mainly driven by the negative impact from input cost inflation as well as ForEx, which was mostly hedging related. As you may remember, we hedge our internal commercial flows particularly the exposure to the U.S. versus the euro. In 2022, the hedging rate is unfavorable compared to 2021, which weighs on our adjusted EBIT. We were hedged at USD 1.17 to euro in 2022, and we've already nearly covered 100% of our 2023 needs at approximately USD 1.08 to euro. FX and input costs inflation were partially offset by positive pricing and favorable fixed cost absorption. Adjusted EBIT margin was 11.3% compared to 17.2% in Q3 of 2021, notably due to the gross margin decrease just explained and previously -- just explained previously in Inkbox. Brand support was higher by 0.5 points, and OpEx and other expenses increased by 3.4 points, negatively impacting adjusted EBIT margin as we continue to invest to support short- and long-term growth. Transportation and distribution increased by 0.6 points. This adjusted EBIT decrease was partially offset by a positive 3.3 points favorable net sales operating leverage.

I'll now review the adjusted EBIT margin change versus prior year for year-to-date September of 2022. The 9-month adjusted EBIT margin was 15.7%, down from 17.8% last year. Excluding Inkbox, the gross profit margin decreased by 2.8 points similar to the Q3 trends that we just spoke about. The adjusted EBIT was favorably impacted by 4.2 points from net sales operating leverage. Brand support was higher by 0.9 points and OpEx and other expenses by 1.6 points. We expect fourth quarter adjusted EBIT to increase compared to 2021 low levels. In addition to positive net sales leverage, the main drivers of Q4 adjusted EBIT will be 500 to 600 basis points headwinds from input cost inflation, partially offset by 300 to 400 basis points from price increases, approximately 100 basis points from fixed cost absorption and 70 to 80 basis points from lower freight and distribution costs. FX, brand support and OpEx should be relatively flat as a percent of net sales.

This next slide shows the impact of input cost inflation on gross profit in the first 9 months of 2021 and 2022 in millions of euros. The total input -- the total cost inflation weighted approximately EUR 79 million in the 9-month adjusted EBIT. We now expect approximately EUR 110 million impact on adjusted EBIT for the full year. The increase versus prior forecast is mostly due to electricity prices.

On Slide 11, you can see the key elements of the summarized P&L results. Adjusted EBIT for the first 9 months of 2022 was EUR 268.5 million compared to EUR 248.6 million last year. As we look at nonrecurring items in the first 9 months of 2022, we see mainly EUR 3.6 million of acquisition costs related to Inkbox, Tattly, AMI, Rocketbook earnout and Djeep price adjustment as well as EUR 3 million related to the impairment of our Ukraine operations. Nine months 2022 income before tax was EUR 258.6 million with a 28% tax rate compared to EUR 410.4 million in the first 9 months of 2021. Net income group share was EUR 186.2 million compared to EUR 287.5 million for the first 9 months of 2021. EPS group share was EUR 4.22, and compared to EUR 6.40 in the first 9 months of 2021. And lastly, adjusted EPS group share increased by 19.2% to EUR 4.53.

On Slide 12, we see the main elements in working capital. Inventory increased by EUR 93.5 million compared to December of 2021, notably driven by EUR 38 million of input cost inflation. We expect the level of stock to decrease in Q4. Although we will prepare for early BTS shipments as required by our customers, we will decrease the level of strategic inventories as a result of improved supply chain environment. Trade and other receivables increased by EUR 56.6 million as a result of strong net sales growth. We still expect a decrease in Q4 of 2022, and we plan to be in line with the December 2021 levels of receivables. This last slide summarizes the evolution of our net cash position between December of 2021 and September of 2022.

Net cash from operating activities was EUR 208.1 million, including EUR 357.8 million in operating cash flow and EUR 149.7 million of impact from the growth in working capital and others. Q3 showed an improvement in working capital by EUR 87.3 million, mostly due to the improvements in trade receivables. During the first 9 months of 2022, we invested EUR 73.3 million related to acquisitions, mainly Inkbox. And net cash was also impacted by an investment in CapEx of EUR 57.4 million. The dividend paid in June amounted to EUR 94.7 million, and we bought back EUR 43.7 million worth of shares. Our net cash position at the end of September of 2022 was EUR 347 million.

This ends the review of our 9 months 2022 consolidated results. Now let me give the floor back to Gonzalve.

[Gonzalve Bich, executive]

Thanks, Chad. To conclude, our solid results year-to-date have been supported by many wins and are a testament to the power of our global team and the operational advancements we've achieved worldwide. As we continue on our path towards achieving our 2025 Horizon ambition, we're now clearly benefiting from our ability to both fund and fuel our growth. This lies at the very heart of our transformation.

As we work to close out 2022, I'm confident that we'll finish the year strong. We're raising our net sales guidance for the full year and now expect to deliver between 11% and 13% growth at constant currencies up from the 10% to 12% previously communicated. This includes 1 to 2 points of growth from acquisitions. For Q4, we anticipate net sales increasing high single-digit driven by both volume and pricing with all divisions contributing to this growth. Input cost headwinds will continue to be widespread across our markets. We now expect approximately EUR 110 million of headwind for the full year. However, we continue to demonstrate strong resilience supported by the decisive actions that we've taken. We've increased prices with no pullback from customers, and we are effectively managing cost of raw materials and freight, even though these continue to weigh on our profitability. At the same time, we continue to invest in our brand and operations and expect to grow full year 2022 adjusted EBIT in absolute terms. This will be driven by higher volumes, positive pricing and additional savings.

With respect to free cash flow, we're on target to deliver over EUR 200 million. During these uncertain times, when households around the world are being hit hard by inflation and energy costs, our role in providing the long-lasting everyday essentials they need is more important than ever and as consumers in every corner of the globe are turning to our brand for a great quality and great value that we deliver. This consumer trust, along with our business fundamentals gives us confidence that in 2023, we will achieve mid-single-digit growth consistent with our Horizon strategy. As I said before, whatever challenge comes next, we will respond with agility, resilience and clear-eyed optimism, actively managing our portfolio to deliver sustainable growth and returns in all of our activities and geographies.

This concludes our presentation for today, and we're now ready to take your questions.

[Operator]

[Operator Instructions] The first question comes from Kate Rusanova from UBS.

[Kate Rusanova, analyst]

So firstly, could you please provide a bit more detail as to what happened within the OpEx line in the third quarter? Why such a significant sequential increase from, if I remember correctly, 180 bps headwind in Q2, up to 340 bps in Q3? What were the key moving parts? And more importantly, is it temporary a one-off? Or do you think there are certain elements that are recurring and can impact your cost base in the next quarter and potentially into the next year?

My second question is on your operating margins as it seems that you have now changed the language a little bit around potential margin per question this year, you are now specifically saying that profits will grow at a slower pace compared to net sales. So I'm just wondering if you could elaborate on the potential extent on the -- of that margin contraction for the full year and whether Q3 operating margins represented a trough, particularly for stationery and whether we should expect some more headwinds ahead? And lastly, I appreciate it is early days to talk about 2023 margins, but it would be useful if you could maybe walk us through the key moving parts for next year, be it inflation, pricing, favorable FX hedging that you mentioned, And just as a big picture, do you see scope for some rapid margin recovery next year?

[Chad Spooner, executive]

Kate, this is Chad. Thanks for your questions. I'll just take them in sequential order you gave them. First of all, in regards to Q3 from an OpEx perspective, the main driver of the difference really is we look at wages. And as we've performed better than expectations, that also impacts our incentives. So we think that we've adjusted properly in Q3 for that. And as I said before, Q4 as a percent of net sales should be flat. So you won't see any systemic -- there's not a systemic issue with the op margin that's continued to grow. So I think that's what you need to know there for OpEx in Q3.

From an operating margin perspective, we haven't really changed. The nuance and whatever language doesn't mean anything different than what we said before. As we've talked about, our EBIT margin will grow from a value -- an absolute value is what we've always said. So that has not changed and the nuance and change in language doesn't imply anything different.

And finally, for 2023, margins, Gonzalve's given guidance, we've given confidence on our sales, but it's really too hard to say right now, given the uncertainty and all the changes in the market. And when we come back with our full year results, obviously, we have a lot clearer picture from what we're seeing on the total inflation and pricing, et cetera, standpoint. But one thing that you can be assured of is that we are doing everything that we can that as we see inflation to make sure that we find ways to offset it, whether it be pricing, volume, efficiencies of the business and the resilience that Gonzalve talked about is something that we will be consistent to show next year as well.

[Operator]

The next question comes from the line of Othmane Bricha from Bank of America.

[Othmane Bricha, analyst]

So my first question is with regards to pricing. What pricing do you expect for 2023? And second, on -- can you comment on your recent acquisitions? What are your expectations for Rocketbook going into 2023? And how much have you grown Djeep since taking over 2 years ago? And my third question is on CapEx. I think you've invested EUR 57 million as of 9 months 2022. And this is well below the budgeted target of EUR 100 million. So do you feel that you are underinvesting in the business?

[Gonzalve Bich, executive]

Othmane, thanks for your questions. So 2023 pricing, as you might imagine, we're in the middle -- we're not in the middle. We've started discussions with our customers about that. And so it's too early to give the final score. But what we've demonstrated, I think, clearly, in the last 2 or 3 years is the capabilities that we have around RGM, revenue growth management. Revenue growth management is not really only about managing list price. It's also about optimizing your promotional effectiveness as well as other elements of your mix.

And in my prepared remarks, I talked about reducing the complexity of the business, increasing net sales per SKU, reducing SKU [indiscernible] at the scale of our business at the global level, it's been really important and it's very hard part of the transformation -- the Horizon plan transformation to make sure that we're consistently becoming more and more operationally efficient as well as taking price where appropriate from a consumer and customer perspective. So in February, when we talk again, I'll give you guys better understanding and clarity on just how much by division, by -- by division, not by geography, but you can expect us to continue to take price into 2023.

On your -- on the acquisition. So Rocketbook has had a difficult year this year, but that's really in comparison to last year, where I'll remind us all that the business last year grew more than 50%. We were at the tail end of COVID. There was still a lot of heavy online buying and shopping at that point. And so things have normalized a little bit. But Rocketbook is above its acquisition case for us internally, and we're still very pleased with the business and where it's going long term. To give you an idea, it's still 20% growth over the last 2 years. And so that's really what we were looking at when we found the business.

It was a good growing business, 20% growth is better than good growth in that space as well as it's profitable, which made it a kind of a unique opportunity for us. I really like what Rocketbook does. I think it's great, the consumers love it. I don't know if you've seen the recent advertising campaign that dropped a couple of weeks ago, but we're taking it in a little bit of a different tone and a little bit of a different space. And I think that we're going to see consumers react through the end of this year, and I'm excited about 2023.

Djeep is growing 20% year-to-date, and I'm also happy with how that's gone. The big unlock, I think, is going to be in the U.S. It's just gone into convenience store distribution there, which is the biggest channel. It's the biggest number of units for that market and therefore, globally. And I'm really excited about how that complements the BIC portfolio of products as we continue to grow our all-flame occasions, Flame For Life strategy.

[Chad Spooner, executive]

In regards to CapEx, the EUR 57 million, I think it's actually above the spend rate where we were last year. And I definitely don't think that we're under investing. I think what happens is, as we had last year, sometimes, the things that you want to get, your vendors can't give you all of the shipments. So that's why sometimes we are underneath our target. It's not that we don't have the investments. We are definitely investing in all the areas of growth that we think they're important. So that's -- as we've talked about, the split of our CapEx is really starting to evolve and a lot more of it is towards our growth and higher profitable parts of business. And we'll continue to support that and invest in that because investing in growth, that's our first step in capital allocation is to invest in the business.

[Othmane Bricha, analyst]

And if I can follow up on Kate's earlier question on stationery margin. Do you think that the margin has troughed in Q3? Or -- and what should we expect in Q4? And one last thing, if I may. If you could update us on your business in India, Cello, what are the margins, especially since that it is growing much faster than the rest of your business and it has a deep dilutive impact.

[Chad Spooner, executive]

Okay. Othmane, I will take the Q3 question first. So as you know, stationery, we had softness in Q3 from a net sales perspective. So we also had our negative growth in Rocketbook versus last year. And as Gonzalve said, it is very accretive to our margin rates, the categories had impacted the softness. So as we see the growth, we'll get that leverage back there. The impact of Inkbox is also in our stationery margin. So that will be consistent throughout the year. But as we've talked about, as we go in towards 2024, the profitability will actually start to be profitable in 2024. So you'll start to see a change from Inkbox contribution to a less negative impact next year. And then the double-digit growth, and this kind of curtails into your next question, from Cello, it is margin accretive to the overall category.

[Gonzalve Bich, executive]

So the India business, Cello has been growing this year quite substantially. So it's posting 60% growth for the year and margins haven't -- we don't give margins specifically by business unit on that but we can tell you that those margins have been improving this year.

Thanks in part to the same things that I was talking about a second ago, which is price pack architecture, RGM we did take some price increases at strategic times during the year in India as well. But you're seeing it across the business. We're delivering in kind of the same way, faced the different challenges and it's paying off.

[Operator]

The next question comes from the line of Christopher Chaput from ODDO.

[Christophe Chaput, analyst]

It's Christophe Chaput from ODDO. The first question is, I would like to come back on the price effect that you could expect in 2023. Regarding the price hike that you already implemented in 2022, the part of it will go through 2023 for sure. So what could be the impact of just that, let's say, element? And again, on 2023, you seem to be very confident to reach the 5% organic growth, that is. So that's my first question. The second one is on the headwind, so raw material and freight. Should we expect a positive impact in Q1? Or is it going to be more back-end loaded because the whole map and the freight seems to reverse? So I just would like to know in terms of timing, when is it going to materialize, let's say, in your P&L? And if you get any figure, let's say, to compare with the minus EUR 110 million that you seems to book in 2022, it would be great as well.

[Gonzalve Bich, executive]

Thanks for your questions, Christophe. I'm sorry about your -- the mispronunciation of your name. Price increases this year started in Feb and have been sequential because we took them at different times per geography as the inflation was ramping up. In some countries, we've taken it more than one. And so what we told or what I said a little bit earlier is we're at about 79% -- let's call it, roughly 80% of the capture has been done. We still will capture the rest as the months roll through of 2022. So those -- and then there will be the new price increases or adjustments or price back changes for 2023. That's baked into my confidence to grow the business approximately 5% next year.

We've got really strong momentum when you look at the last 7 quarters now of Horizon execution, the brand, new products coming to market. I'm particularly excited to see how EasyRinse in the U.S. does in the shave market. I talked about Soleil Escape earlier that's actually doing super well, and it's delivering a lot of positive momentum for our shave business. In stationery, talked about market share gains, strong Back-to-School. Back-to-School is kind of a cumulative sport as you go through year-to-year. So we're already in discussions for 2023. And our Flame for Life division continues to deliver significant positive growth. So you should see growth in all 3 categories next year in both volume and price.

[Chad Spooner, executive]

And then, Christophe, in regards to your raw material question, as we normally say, you see about a 6-month lag from when we see the raw material cost hitting us from an inventory perspective until it goes through our P&L. Giving guidance right now on inflation for 2023, it's a bit too soon. We'll give a picture of that when we give our full year results and a better picture for 2023.

[Christophe Chaput, analyst]

Okay. And just as a remainder, because you've gone very fast, on the Q4 regarding the margin, you say that the headwind is 500 to 600 basis points on the raw mat and then there was positive about price, [ EUR 300 million ], plus [ EUR 100 million ] on fixed costs and [ EUR 70 million ] to [ EUR 80 million ] on distribution, that is?

[Chad Spooner, executive]

Yes, it was EUR 300 million to EUR 400 million on price, exactly right and that is on fixed cost. And then EUR 70 million to EUR 80 million.

[Operator]

The next question comes from the line of Marie Fort from Societe Generale.

[Marie-Line Fort, analyst]

Most of my questions have been already asked, but I've got two or the one. I just would like you to come back on the relays of growth for 2023 without showing any figures, of course. But how do you see the 2023 momentum given the high basis comps you will have to face in first half? So about the new shavers, what kind of pocket of growth you could benefit from? And the second question is about Blade-Tech. It seems that you don't have win any other contract in -- at the last of the year. Could you elaborate a bit? And how do you see the new client gains for the end of the year?

[Gonzalve Bich, executive]

Marie, thanks for your questions. All right. So the elements of growth for 2023 versus comps. And you alluded at some point in your question on first half and then total. And you're right, our first half this year was absolutely incredible, partly just the momentum of the business. But again, I'm going to insist partly also because customers in Back-to-School in the Northern Hemisphere have changed the order patterns and are asking for it much earlier, which is -- means that instead of splitting it between May, June, July and August, you're shipping Feb, March, April, May, a little bit in June, less in July. That has an effect sequentially over the half, and it's something that we're going to need to give you guys information on a reoccurring basis on because that's what the customers ask for, and that's how we have to serve the business.

It's good insofar as it means that you have the displays out on floor potentially longer, the quality of the display is potentially better. But we need to continue winning, let's call it, share of store by putting out more displays and more products during that key product. So what will continue to fuel growth. We still have opportunities for distribution gains. You heard us, both Chad and I talk about it through our prepared remarks. There's opportunities in even our strongest geographies to continue to gain distribution either at a numerical perspective or an accumulated weighted perspective where you're just growing the number of packs. So if you have 10 products listed at retailer A, you go to 11, you go to 12.

Hopefully, those are higher added value products, and that provides growth. Then you have the RGM work, which you should continue to expect us to deliver or do better on next year, working on price pack architecture, promotional effectiveness and the like. I'm equally excited by a number of innovations. Today, we gave you one of them, and that's a lot earlier than we would normally talk to you about innovation because EasyRinse is now launching both online and offline. So we can talk about it a little bit earlier. In February, I'll tell you all about the other products that will go into distribution for 2023. And then you have new initiatives like BIC Blade-Tech that you referenced, and I talked about more a second ago as well as the new businesses in tattoo and digital notebooks and the like.

So all of those combined give us confidence in our 20 -- in how we're thinking '23 is going to shape up for now. BIC Blade-Tech, you're correct. I'm not announcing formally another customer. Our customer base is strong. We continue to grow the business with our existing customers, as I've said earlier, it's still contributing 20% to the total growth of the division. And you might be asking yourself, well, Okay, Gonzalve, the last time you said 30%, 20% is less than 30%. And you're right. Last year, I'll remind you, we had already started shipping in the third quarter, and so it's just a comp thing. The business is still strong. We've created EUR 15 million to EUR 20 million of net sales, where there was nothing 2 years ago.

I'll remind everyone that it's margin accretive to the total division and total company. So it's fully in line with Horizon in a good, if not great way to continue to grow the business from a future forward perspective. I'm excited by the new customer list that we have ahead of us, and I'll be giving you new customers in Feb when we talk again. But what's really important is, today, EUR 15 million to EUR 20 million, I think mid-term or long-term depending on how you want to think about it, it could reach 25% to 30% of the total division sales, which will improve margins for the total division overall.

[Marie-Line Fort, analyst]

30% of the total sales, long-term?

[Gonzalve Bich, executive]

Yes, that's what I've said a number of times, 25% to 30% of the total Blade Excellence long-term sales pipeline.

[Operator]

We currently have no questions coming through. [Operator Instructions] The next question comes from the line of Kate Rusanova, UBS.

[Kate Rusanova, analyst]

I just wanted to quickly ask on Blade-Tech. It was impacted by the cost inflation in the same way as the core stationery portfolio or maybe it's easy to pass through cost increases to your B2B partners? And also considering to enjoy a higher level of profitability compared to the core stationery -- core shavers portfolio. How sustainable do you think that high level of profitability is in the medium-term?

[Gonzalve Bich, executive]

Because I don't want to get into micro, micro details, the main raw materials are going to be impacted the same -- so steel is exactly the same. The plastic is exactly the same. So on the variable cost, it's the same on the fixed overhead, you're using absorption. So no, it's lesser than [indiscernible]. These contracts are longer term, but they do have price adjustment clauses built into them. It continues to be accretive over the long-term and should continue to be accretive on the long-term. I mean one of the big differences, Kate, is when you sell these, you have no brand support, no OpEx, no anything.

So it just makes it more profitable. It can't be the whole business because we definitely want to continue to invest in the BIC branded shave business, which has a pretty healthy EBIT margin itself. And as we launch more and more new products at higher prices with better margins, that continues to improve. And I think the last 2 years have displayed that in that division. But we'll have to make sure that we're always optimizing the portfolio with those customers.

[Operator]

The next question comes from the line of Othmane Bricha from Bank of America.

[Othmane Bricha, analyst]

Yes, just on Q4. So you've upgraded your top line guidance as this implies Q4 growth concurrency between 5.6% and 14%. So can you maybe just comment on how growth should impact the 3 divisions differently?

[Gonzalve Bich, executive]

Sure. To be honest, I thought somebody was going to ask that as the opening question, but I'm happy to get the question. All 3 divisions will be driving the increase in outlook and therefore, growth, both in volume and in value. And I think in today's economic environment, it's very important that both volume and value be contributing. In human expression, as I think Chad mentioned, we're expecting a better than initially expected Back-to-School in Brazil in the Southern hemisphere that happens in the first quarter. In Flame for Life, we've had really strong performance in convenience stores in the U.S. and a slight improvement in pocket lighters market trends, which we benefit from because we continue to grow share.

At this point, we grew 0.2% value on 0.6% in pocket lighter. So as we continue to grow share, that will drive both volumes and value. And we've got good growth, actually better-than-expected performance in the Brazilian business in lighter fueled by consumption. And finally, in the Blade Excellence business, we're upgrading by sales in Eastern Europe and North America. And again, I think I talked about it, Soleil Escape has been quite a success this year. We're gaining 2.2 points of market share relative -- I mean that's pretty fast in that particular space. It's very competitive, has been very promotionally active this year. And I'm really interested to see how much it can gain next year to really round out that strong Soleil franchise that's so important to us in the U.S. market and with consumers. So again, volume and value across all 3 divisions impacted the upgrade and guidance.

[Operator]

There are no further questions, so I will hand you back to your host to conclude today's conference.

[Sophie Palliez-Capian, executive]

Okay. Thank you. Thank you, everyone. So as usual, we remain at your disposal to answer any follow-up questions. And a short reminder, on our full year results, they will be released on February 14. Thank you.

[Gonzalve Bich, executive]

Thanks very much, have a great day.

[Chad Spooner, executive]

Thank you, bye-bye.

[Operator]

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