Givaudan SA
SIX:GIVN
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Givaudan SA
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Ladies and gentlemen, welcome to the Givaudan 2022 Full-Year Results Conference Call and Live Webcast. I am Andre, the Chorus 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. [Operator Instructions] The conference must not be recorded for publication or broadcast.
At this time, it's my pleasure to hand over to Gilles Andrier, 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 full-year results conference call. Tom Hallam, our CFO will also be on this call. We will 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 will 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 also available.
I’d like now to start going through the presentation and invite you to turn to Slide number 3 to go through our performance highlights. So, I am 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, the systems disruption in the overall supply chain, and a contrasted picture of the consumer and customer demand across geographies and segments.
In this perfect of 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 to 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 who 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 CHF 7 billion with CHF 7.1 billion, representing a growth of 5.3% on a 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 a 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 EBITDA in Swiss francs was stable at CHF 1.476 billion in 2022, compared to CHF 1.482 billion in 2021. What is interesting to note is that we actually managed to protect our absolute EBITDA in Swiss francs despite two headwinds. Raw materials, energy and logistics totaled an increase of [CHF 360 million] [ph] for the full-year. And the Swiss francs has further strengthened across all currencies, across many currencies.
The EBITDA 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 CHF 479 million, representing 6.7% of our total sales. And as discussed before, this lower free cash flow rate, lower than usual, reflects the lower 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 23 of this year, the Board of Directors will propose a dividend of CHF 67 per share, representing an increase of 1.5% year-on-year.
Let's turn now to Slide 4. Both divisions actually contributed equally strongly to our growth. Fragrance & Beauty reached almost CHF 3.3 billion growing 5.5% and Taste & Wellbeing reached CHF 3.9 billion growing 5.2%. Both growth rates are on a like-for-like basis. The good growth was achieved across most product segments. For Fragrance & 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 Products business especially in the second half.
For Taste & Wellbeing, 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 platform, 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 duty.
Let's turn now to Slide 5. We're actually back to the usual picture of high growth markets growing 4x to 5x 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. Overall, 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 continued stringent coverage 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 our operations 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 has 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 Givaudan’s geographical balance contributes to the natural hedges against demand cycles where timing and intensity can differ by geography.
Please now turn to Slide 6. You can see on Slide 6, the sales development by region for the group in more detail. 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 markets of Europe, but as well as the Middle East for the high growth market starts 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 gain contributing to most of the growth. Sales in Asia Pacific, as mentioned earlier continued 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 has 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 comparison, but a certain amount of safety stock building by our customers, followed by a significant destocking as weaker consumption was encountered by our [customers] [ph] was certainly amplified the decline in the second half of 2022 in both Taste & Wellbeing, as well as in consumer products as part of the Fragrance & Beauty division.
Let's turn now to Slide 7. Fragrance & Beauty sales were almost CHF 3.3 billion, 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 a sustained return to growth in the Customer Products business. In active duty, 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] [ph] was also supported by the increased impact in the second half of the year of the pricing actions, which have been implemented with customers to compensate for the increase in input costs. When looking at the business unit level. Client balances, sales increased by 14.3% in 2022 on top of the very strong performance of 22.5% in the prior year. It's self-driven by the post-COVID rebound.
In 2022, against any expectations, sales have continued this strong momentum due to the recovery of travel retail, in increased offering notably for independent brands in [indiscernible] and broader distribution with a well-established e-commerce reaching out to more consumers. All these combined with a high level of new wins for Givaudan. So, the [CAGR] [ph], the competitive average growth rates for Fine Fragrances over the last three years has been close to 10%. Western Europe, Asia Pacific, and Middle East grew strong double-digit shops, 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 like-for-like basis. This performance was driven by solid performance with local and regional clients, which more than offset the decline of volume coming from large customers. On the regional basis, growth was led by Western Europe, South Asia, and the Middle East, while sales in North America declined.
On the product segment basis, the sales growth was led by Fabric Care followed by Personal Care. The compounded average growth rates 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 balanced 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 8. Sales of the Taste & Wellbeing division grew 5.2% on a 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 & 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 a like-for-like basis. This double-digit performance was achieved in India, as well as across African markets and the Middle East regions 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 a 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 U.K. 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 a 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 comparative, this situation can be explained by customers destocking and more cautious inventory planning following the safety stock building as supply chain disruption and high [indiscernible] prevailed, especially in the first half of the year.
Let's turn now to Slide 9. As you all know, our company [profit is above creation] [ph]. 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 per year and winning more than our fair share of those multiple rigs 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 our – their customers challenges, and create value for them, while developing creations that contribute to happier and healthier life, which is our purpose. And this is whilst reducing the impact that we have on the environment.
Our research and development activities allowed to provide our teams working on those multiple rigs with novel technologies, differentiating ingredients, which will make those [bespoke solutions] [ph] we develop with our customers, win the [indiscernible], but also add more importantly, win the consumer.
In 2022, we invested CHF 522 million in R&D in-line with what we had spent in 2021, but let me give you some of the key outcome examples that stand-out of our research programs. In Taste and Wellbeing, 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 cutting 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 provide the benefit of being more sustainable that's also being healthier than the animal version. BioNootkatone, 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 ingredients 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 & Beauty, sustainability is a key driver for creativity and innovation as well.
We launched Patchoul, [an eco-design] [ph] upcycled active for hair and scalp. It is sourced responsibly in Indonesia and is crafted through green fractionation from distilled patchouli leaves after they 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 with the launch of PlanetCaps, the first biodegradable and bio-sourced fragrance [indiscernible] technology for fabric softness, laundry sanitizers, and scent boosters. And finally, AmbreXolide, a sustainable alternative to the widely used musk Ambrettolide. This biodegradable and naturally derived molecule is exclusively available for Givaudan [consumers] [ph] is obtained by an innovative process using noble price within 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 opportunity to advance the current development processes.
With this, I'd like now to hand over 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 CHF 7.1 billion, 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 CHF 1.476 billion, compared to [CHF 1.482 billion] [ph] in the prior year, and the reported EBITDA margin is 20.7% in 2022, compared to 22.2% in 2021.
The underlying EBITDA is [CHF 1486 million] [ph] , a margin of 20.9% in 2022, compared to 22.5% in 2021. The net income increased to CHF 856 million, an increase of 4.2%, compared to 2021 and the net income margin was 12% of sales. The group achieved a free cash flow of CHF 479 million or 6.7% of sales. The group's net debt-to-EBITDA was 3.1x at the end of 2022, compared to 2.97x 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 U.S. dollar, GBP sterling, and the euro against the Swiss francs.
Although the movement in currency 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 EBITDA 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 EBITDA of CHF 1,476 million in 2022, compared to CHF 1,482 million in 2021.
We had a number of one-off items in the year amounting to CHF 10 million all relating to the integration of the acquired companies and the optimization of our manufacturing footprint. As such, the underlying EBITDA margin was 20.9% this year, compared to 22.5% in 2021. The operating income increased to [CHF 1.112 billion] [ph] in 2022, compared to [CHF 1.089 billion] [ph] 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 & Beauty. Fragrance & 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 CHF 698 million in 2022, compared to CHF 696 million 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 & Wellbeing. Taste & Wellbeing recorded a sales increase 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 EBITDA of CHF 778 million, compared to CHF 786 million in the prior year.
On a comparable basis, the underlying EBITDA 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 increase with clients.
Please turn to Slide 16 for the net income. The net income before tax was CHF 928 million in the year, compared to CHF 965 million in 2021 with the decrease caused by higher non-operating expenses, compared to 2021. Although interest expenses remained 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 CHF 856 million 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 CHF 92.83, compared to CHF 89.03 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 in-bound 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 CHF 479 million, compared to CHF 843 million in the prior year. Total net investment was CHF 289 million, 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% of sales, compared to 24% 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 CHF 20 million in R&D between 2021 and 2022.
Please turn to Slide 19. Over the last 22 years, the company has generated a cumulative CHF 10.7 billion of free cash flow. Including the proposed dividend for 2022, Givaudan has returned CHF 7 billion 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 CHF 67 per share in 2022 from CHF 66 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 CHF 4.5 billion, 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 3.07x relatively stable, compared to the 2.97x at the end of 2021.
With this, I would like to conclude my section of the presentation and hand back to Gilles.
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, while 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 expanding 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 strategy cycle until 2025. In addition, the company aims to deliver on key non-financial targets around sustainability, diversity, and safety, linked to Givaudan’s purpose.
Let's move now to Slide 25, [on our] [ph] 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 EBITDA margin over the course of this strategic cycle.
It includes keeping our strong focus on operational excellence to the manufacturing and the supply chain footprint. It also includes an organizational simplification and further reducing the inventory levels through process optimization and continue cost and cash discipline across the business. This will imply restructuring costs of up to CHF 60 million to be expected in 2023, out of which CHF 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 [indiscernible] to your questions.
[Operator Instructions] The first question comes from the line of Heidi Vesterinen from BNP Paribas EXANE. 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 & Wellbeing North America, please, because it seems to be down double-digit? It's quite unusual to see that from Givaudan. What sort of categories in 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 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 2023, 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 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 that 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 P&L an additional total CHF 360 million of input costs, which include CHF 270 million of additional [indiscernible] 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 tw0-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 4% of price increase in 2022, which amounts to 270. So, that means the remaining 90 million 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 costs that we forecasting a 5% increase of raw material for the group in 2023 and that 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 2022 in absolute terms. Then in terms of new wins, we track that especially for Fine Fragrance consumer products and Taste & Wellbeing. And we have a very good inflow of new wins, which will come into 2023.
The only thing I can say about the volume, 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 2022 because yes, everybody has been focusing on the decline in North America, but I actually had no question about why we have 11% growth in Europe. So, one is actually more than compensating the other. And it's also for high growth markets versus mature markets.
So, yes, we have the confidence level in 2023, 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 the 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 can testify for the strong growth that we have again delivered with this segment of clients in 2022, which are 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, across segments that's essentially – we are across all types of applications, but also all types of price points, whether you have an expensive [indiscernible], a more affordable soap or the affordable snack versus the premium product in food, we are on all sides. So, wherever consumers go down trading or are 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.
Givaudan is the best protected across whatever happens up or down, but difficult to get an exact growth figure for the volume. Lastly, yes, 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 & Wellbeing North America, so overall, we have roughly a 6% decline for Taste & Wellbeing. It's true that – it's because – that shows because obviously Taste & Wellbeing we report by region. But what you don't actually see is that the consumer product start of fragrance, which we don't report by region, also include 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 & Wellbeing. So, what it shows is that, yes, there is – it is a combination and difficult again to give an exact – it’s not 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 where, yes, in the fourth quarter, the decline was stronger than in the early part the year, especially for Taste & Wellbeing 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 a certainly a bit of safety start building in the course of 20211 into 2022, 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 de-stocking 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're looking at – we're 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 time, 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 help or comment to that. But just in terms of Q1, I know we've only had maybe three weeks of trading, but is there a sign to 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 2023, I understand the 5% raw material inflation and also the arithmetic impact from pricing [pass-through] [ph]? 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 Givaudan, if you look more on a multiple month basis. So there, I can't answer this question. And the second one, on the margin – on the margin profile.
I mean, I just will pass over to Tom, but I think in 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 almost 10% [raw material] [ph] increase, which is roughly CHF 270 million, plus a CHF 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 pricing increase, which amounted by EUR 270 million and EUR 90 million of frugality essentially without as people might have asked the question without [cutting] [ph] on our research and development capabilities. As it relates to 2023, we basically have – I will let Tom add to that, 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 representative in the different countries, but will 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 with our commercial research and development resources. But Tom, maybe you want to add?
Yes. Thanks, Gilles. Charles, on the – if you look on the long-term margin and I think we've discussed this many times together, 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 and that that requires a certain EBITDA 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, we have some restructuring costs, which is non-cash, which is actually related to supply chain and footprint optimization. So, 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 EBITDA 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 R&D 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.
Yes. 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 located.
Just as a reminder, we have a large R&D facility in the UK and 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 Gilles 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…Yes. On the implementation, sorry, on the implementation cost. 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 acquisition in the integration costs that you incur in general close to 40 million, 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 Isha. 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 really star 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? Well 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 Givaudan at the moment?
Yes. Thank you. So, yes, the performance of Taste & Wellbeing is as unusual in Europe as it is in the U.S. 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. And 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.
So, the only thing I can say is that we've been growing across all clients, across both segments. So, there is nothing specific about types of products or types of clients. And I would say that even if they would have been – the building stock cannot expand 11% and certainly we have not seen destocking. So, that's my best answer. Essentially, it's a great result. We believe that even if there's been a bit of stock piling up, maybe. Even if there is destocking, the impact will be minimal.
The big question is, will the consumption at the retail continue to be strong. That's more the bigger question. Any destocking or up-stocking is only temporary, but – and reflects basically the consumer demand, what's happening at the retail side. So, that's more of the bigger question. 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.
Yes. And Matthew, on the working capital, we can go through the technical aspects of it when inventory is received and accrued and paid and so on or we can just, sort of stay at the high level, which I think is probably the simplest. Fundamentally, we had high levels in 2022. It's as we both, both Gilles 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 under – 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, both.
So, I think we're about to take the last question. Operator?
The last question comes from the line of Lisa De Neve with Morgan Stanley. Please go ahead.
Hi. Good afternoon, and thank you for taking my question, Gilles and Tom. So, I leave it to one. So, can you please share what your customers' appetite is at – is going 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, would you please share what you're seeing at your customers today and how you expect the launch cycle, sort of to ramp up over the next 12 months? Thank you very much.
Yes. Thank you. So, I think we don't – 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, actually there's been many, many new launches in which actually Givaudan was always very happy to contribute with great perfume. So, actually the number of launches is correlated to the [buoyancy] [ph] of the market and that's true for Fine Fragrances. And the reverse is true.
When there was a pandemic, you had almost actually no launches or 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 actually Beauty, which is doing very well on skincare and so on. A fair amount of – if you look across Taste & Wellbeing, obviously, a lot of promising launches around beverages, which continue to be a strong category, around plant-based proteins with new food solutions.
So, 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 geographies, 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 publish our Q1 2023 sales results, the first quarter sales results on 13 of April, and you are welcome to register to our Annual Investor Conference, which will be held in-person, finally back in-person in [indiscernible] Geneva and Switzerland. Thank you very much.
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