Givaudan SA (GIVN.SW) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Givaudan 2022 Full Year Results Conference Call and Live Webcast. I'm Andre, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [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 7:00 Swiss Time this morning. This is where you can also find the slides for today's presentation, along with the company news on our website. Both our 2022 integrated annual report and sustainability report are also available. I'd like now to start going through the presentation and invite you to turn to Slide #3 to go through our performance highlights. So I'm happy to announce another solid set of figures. We are very pleased with our performance in 2022 despite the challenging environment that we have operated in throughout the year. We have indeed been facing an unusual number of adverse external circumstances ranging from high inflation in input costs to geopolitical tensions, persisting disruption in the overall supply chain and a contrasted picture of the consumer and customer demand across geographies and segments. In this perfect alignment of headwinds, we have demonstrated 3 things: our ability to focus on supporting the growth of our customers with innovative and differentiating solutions whilst ensuring an excellent supply chain performance. The second one, the natural hedges of Givaudan across clients, geographies and product segments has allowed to deliver a net positive growth. And finally, thanks to the collaboration with our customers, we are on track to fully compensate the sharp increase in input costs over 2022 and 2023. I'm, therefore, extremely grateful to all of the Givaudan employees around the world for their continued commitment to continue 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 2 headwinds. Raw materials, energy and logistics totaled an increase of CHF 360 million 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 than -- lower than usual, reflects the lower EBITDA percentage and the higher levels of working capital we had 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 Beauty. Let's turn now to Slide 5. We're actually back to the usual picture of high-growth markets, growing 4 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 a like-for-like growth. All high-growth markets contributed with high to double-digit growth rates to this result, except for China, which grew a low single digit given the continuous stringent COVID regulations prevailing in 2022 and also the double-digit growth comparable in 2021. The Middle East contributed with strong double-digit growth levels as well as Latin America, which performed strongly, led by Argentina, Brazil and Mexico. Most of Asia have also recovered, including Indonesia and India, the Philippines and Thailand. Our size and operational footprint give us a unique exposure to the diversity of these high-growth markets in which we continue investing both with additional talent and new facilities to service a wide diversity of customers. Mature markets representing 56% of our sales in 2022 have also contributed to the growth with a like-for-like growth of 1.9% led by an exceptional performance in Europe, an encouraging recovery in Japan partly offset by a decline in North America. This demonstrates once again how 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 details. So it's worth mentioning EAME 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 U.K., Northern and Central Europe for the mature markets of Europe but as well as the Middle East for the high-growth markets parts of Europe. Sales in Latin America continued to perform very well. Latin America recorded another outstanding growth of 10.4%, driven mainly by Argentina, Mexico and Brazil. Volume growth and market share gains contributing to most of the growth. Sales in Asia Pacific, as mentioned earlier, 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 these results. Lastly, North America, which had reopened earlier than other regions in 2021, showed a decline of 5.4%. Our 5% growth in 2021 in North America was certainly not an easy comparable, but a certain amount of safety stock building by our customers, followed by a significant destocking as weaker consumption was encountered by our consumer -- customers 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 a like-for-like basis and 5.3% in Swiss francs. The good growth was driven by the sustained strong performance of Fine Fragrances and Fragrance Ingredients, combined with the sustained return to growth in the Consumer Products business. In Active Beauty, the single-digit growth was achieved against a very high double-digit comparable growth in 2021. Across all businesses and customer groups, the good performance was also supported by the increased impact in the second half of the year of the pricing actions, which have been implemented with customers to compensate for the increase in input costs. When looking on the business unit level, Fine Fragrances sales increased by 14.3% in 2022 on top of the very strong performance of 22.5% in the prior year, itself driven by the post-COVID rebound. In 2022, against any expectations, sales have continued this strong momentum due to the recovery of travel retail, an increased offering notably from independent brands in old perfumery and broader distribution with the well-established e-commerce reaching out to more consumers, all this combined with a high level of new wins for Givaudan. So the CAGR, the compounded average growth rates for Fine Fragrances over the last 3 years has been close to 10%. Western Europe, Asia Pacific and Middle East grew strong double-digit sales, whilst North America declined mid-single digits against a double-digit comparable in '21. The second business unit, Consumer Products, the sales increased by 2% on a like-for-like basis. This performance was driven by a solid performance with local and regional clients, which more than offset the decline of volume coming from large customers. On a regional basis, growth was led by Western Europe, South Asia and the Middle East, while sales in North America declined. On a product segment basis, the sales growth was led by fabric care followed by personal care. The compounded average growth rates for Consumer Products over the last 2 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 digits against a very strong comparable in 2021 as already mentioned. And Fragrance Ingredients delivered a strong double-digit growth in 2022 supported by the buoyant Fine Fragrance market demand for ingredients. The compounded average growth rate for Active Beauty and Fragrance Ingredients combined has been 9% for the last 2 years. Now let's turn to the next slide, #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 and wellness as well as all customer groups, contributed positively to the 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 region where Givaudan has a strong footprint. Sales in Latin America increased 16.7% on a like-for-like basis, led by high single to strong double-digit volume growth in Brazil, Argentina, Mexico and Colombia. Sales in Europe increased by 11.1% on a like-for-like basis. The mature markets of Spain, Germany and Italy achieved double-digit growth followed mid- to higher -- 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 customer destocking and more cautious inventory planning following the safety stock building as supply chain disruptions and high inflation prevailed, especially in the first half of the year. Let's turn now to Slide 9. As you all know, our company purpose is about creation. The cornerstone of which is innovation. Innovation is what our customers expect from us. The core of our innovation is about working on the more than 300,000 briefs a year, and winning more than our fair share of those multiple briefs is the only way to compensate more than the average 10% erosion of our business so that we can deliver our average sales growth promise of 4% to 5% on the long term. We continually seek new ways to anticipate consumer needs and help solve our -- their customers' challenges and create value for them while developing creations that contribute to happier and healthier lives, which is our purpose, and this is whilst reducing the impact that we have on the environment. Our research and development activities allowed to provide our teams working on those multiple briefs with novel technologies, differentiating ingredients, which will make those bespoke solutions we develop with our customers win the brief but also and more importantly, win the consumer. In 2022, we invested 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 & 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 whilst having 75% less fat and 30% less calories when compared to a full-fat, full-protein, plant-based products, a good example of how a plant-based protein can not only provide the benefit of being more sustainable but 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 ingredient does not require the use of any citrus ingredients and originates from a renewable natural starting material. This material is used in thousands of flavor applications. In the other division, in Fragrance & Beauty, sustainability is a key driver for creativity and innovation as well. We launched Patchoul'Up, an eco-designed upcycled active for hair and scalp. It is sourced responsibly in Indonesia and is crafted through green fractionation from distilled patchouli leaves after they're used as a raw material in fragrance creation. This is a very good example of how we can use waste and upcycle. In the field of delivery systems, a major breakthrough was the launch of PlanetCaps, the first biodegradable and biosourced fragrance core-shell technology for fabric softeners, laundry sanitizers and scent boosters. And finally, AmbreXolide, a sustainable alternative to the widely used musk, Ambrettolide. This biodegradable and naturally derived molecule exclusively available for Givaudan perfumers is obtained by an innovative process using novel price-winning technology. Finally, in terms of artificial intelligence, we developed Customer Foresight, a proprietary digital engine, leveraging big data, artificial intelligence and Givaudan's deep expertise to detect signals and emerging trends to anticipate future potential food solutions, opening opportunities to enhance the current development processes. With this, I'd like now to hand over to Tom, who will give you more granularity on our financial results. Tom, please.

Thank you, Gilles. I would also like to welcome you all to the call. As always, as Gilles has taken you through the business performance of the group as well as the main aspects of the market and regional development, on the following slides, I would like to focus on the group's operating performance and those of the 2 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 2 companies that we acquired in December 2021. The group's EBITDA is CHF 1.476 billion compared to CHF 1.482 billion 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 1.486 billion ], a margin of 20.9% in 2022 compared to 22.5% in 2021. The net income increased to CHF 856 million and 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 franc. Although the movement in currencies can have an impact on the various lines of the income statement, the net impact on the EBITDA margin is fairly limited given the operational and geographical spread, which provides good natural hedges to our business. Please turn to Slide 13 for an overview of the operating performance of the group. The gross margin decreased from 42.7% in 2021 to 38.8% this year due to, on the one hand, a mechanical margin dilution effect of the pricing as well as the timing of the price increases to offset higher raw material, energy and freight costs. On the 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 billion in 2022 compared to CHF 1.482 billion 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 in 2022 compared to CHF 1.089 billion in 2021, a small increase versus the year, a good performance considering a very challenging operating environment. On the next 2 slides, I would like to spend a few minutes on the operating performance of the 2 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 of 5.2% on a like-for-like basis and an increase of 7.5% in Swiss francs, with excellent sales growth recorded in Europe, Southeast Asia, Middle East, Africa as well as Latin America. The division was particularly impacted by higher raw materials, energy and freight costs and recorded an 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 increases 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 nonoperating 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 inbound supply chain disruptions that the group has been facing throughout the year in order to continue to deliver and to satisfy the needs of its customers. During the year, the group generated an absolute free cash flow of 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 66% -- 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 now 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 that main features of our 2025 strategy. The company's 2025 ambition is to deliver sustainable value creation for all stakeholders. Givaudan's 2025 strategy is fully in line with our purpose whilst placing customers at the heart of our business, supporting them to grow and creating products that are loved by consumers. The 2025 strategy is focused on 3 growth drivers: the first one, expanding our portfolio; the second is extending our customer reach; and the third one is having a focused market strategies, all supported by 4 growth enablers, which are aligned with the company's purpose, namely creations, nature, people and communities. These 3 growth drivers and 4 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 5-year period strategic cycle until 2025. In addition, the company aims to deliver on key nonfinancial targets around sustainability, diversity and safety linked to Givaudan's purpose. Let's move now to Slide 25 on our 2023 outlook. We are confident in our capabilities, the quality of our portfolio, our creative strength 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, the 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 '23, out of which CHF 40 million in cash and CHF 20 million in noncash. And we expect from this initiative savings of CHF 60 million on an annualized basis with CHF 40 million to come through in 2023 and fully in 2024. With that, we have arrived at the end of our 2022 full year presentation. I'd like to thank you for your attention. And now we look forward with Tom to your questions.

[Operator Instructions] The first question comes from the line of Heidi Vesterinen from BNP Paribas Exane.

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 digits. It's quite unusual to see that from Givaudan. What sort of categories and customer types were affected? And is this volume decline likely to continue? Is that happening in Q1? And then lastly, perhaps your current thinking on M&A, please? And do you have large potential targets?

Many questions, Heidi. Thank you. So organic growth, essentially to have -- as you know, we commit on an average growth for 5 years, and we don't give any specific guidance on a given year. Not that we are hiding anything. It's just that the visibility, not just in '23 but always in every year is limited. The only thing we can control is the pricing actions that we have in place. And the other part that we control is the amount of new wins that we win in a given year, which will have a positive effect on the volume growth the following year. But the third element, which is the erosion of the existing business, which essentially is the result of how good our customers are doing around the world, there is no crystal ball to do that. The only way to do that is actually to look at the historic sales, at the historic volume growth of Givaudan, which, in fact, if you look at 3 years, 5 years, 10 years, 15 years, whatever the horizon you take, is actually quite steady because we contribute to products which are consumed on a very regular basis around the world. And Givaudan has always delivered on the continuous volume growth. So that's basically my best answer to you, Heidi. So on the price increase, I can be a bit more specific. First, I mentioned that in 2022, we have encountered, in the P&L, an additional total CHF 360 million of input costs, which include CHF 270 million of additional raw mats and CHF 90 million of everything, logistics, freight and energy. What we have always said is that we are in a good position to actually recovered 2/3 of the CHF 360 million, which we actually did because that's part of the 5.3% growth that we have recorded in '22. So you have roughly 4% of price increase in '22, which amounts to CHF 270 million. So that means the remaining CHF 90 million or CHF 100 million are -- have been already negotiated because it was part of the negotiations in '22, and that will come in '23 in full. The second pricing element has to do with the guidance we are giving on the input cost that we are forecasting a 5% increase of raw mats for the group in '23 and that all actually have been already negotiated entirely, and that will kick for the full year in '23. So that's going to be another CHF 160 million. So basically, you have already CHF 260 million of price increase in '23, which is roughly exactly the same amount actually as '22 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 '23. 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 increased, I mentioned, as you know, Heidi. From a geographic standpoint, we are everywhere. So -- and you can see, again, the natural hedges across Europe is playing in '22 because, yes, everybody has been focusing on the decline in North America, but I actually 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 '23, but to give an exact figure is not easy. The second hedge -- natural hedge is that we are across clients. So now we have 55% of our sales, which are with 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 '22, which has compensated for the actual volume decline that most of our global clients have published over 2022. So that's another natural hedge I mentioned that is important to remind. And then across segments, that's essentially we are across all types of applications, but also all types of price points, whether you have an expensive shower gel, a more affordable soap or affordable snack versus the premium product in food, we are on all sides. So wherever consumers go down trading or going for more affordable and so forth, we are on both sides. So that's also the natural hedge that it creates. So that's the best answer I can give you. 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 because -- that shows because, obviously, Taste & wellbeing we report by region. But what you don't actually see is that the Consumer Products part of Fragrance, which we don't report by region, also includes sales in North America, which have also shown a decline, so a decline overall for the year, which is more or less in the same range as Taste & 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 '21. 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 of the year, especially for Taste & Wellbeing, that certainly has to do with the fact that as supply chains who are incurring disruptions and clients who are quite nervous to actually not miss sales, maybe there's been certainly a bit of safety stock building in the course of '21 into '22, which, as consumers consuming less, those inventories were driven down by our clients. So yes, there's a fair amount of building up and building down in terms of inventories. But what's the split between destocking and consumption? Nobody knows including our clients. So on a long-term basis, the U.S. will grow. The question is basically by what amount and when. Finally, on acquisitions. Essentially, we are always looking at opportunities. We are looking at -- we're active on every opportunity. The number of opportunities have 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 3 big questions, Heidi, but you can always come back.

Very comprehensive.

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

Just a quick follow-up on the volume question and fully appreciate your helpful comment to that. But just in terms of Q1, I know we've only had maybe 3 weeks of trading, but is there signs that destocking is done in North America? I guess, given how quickly you've managed to get the full year results out for us that you've got fairly live systems on the order tracking, so any comments around that would be helpful. And then secondly, on margins for '23, I understand the 5% raw material inflation and also the arithmetic impact from pricing pass-through. 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 a 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, broad based across all of those buckets?

So on the volume question, one, I can't really disclose where we stand in January for 2 reasons: one, because I'm not allowed and two, because it's only, as you said, 2 or 3 weeks, so very difficult to see. And again, it's -- the best way to predict Givaudan is to look more on the multiple months basis. So there, I can't answer this question. On the second one, on the margin profile, I mean, I just will pass over to Tom, but I think in 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 costs included a almost 10% raw mats 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 CHF 360 million which, again, we compensated with price increase, which amounted by CHF 270 million and CHF 90 million of frugality essentially without, as people might have asked the question, without cutting on our research and development capabilities. As it relates to '23, we have -- we basically have -- I will let Tom add but essentially to talk on the restructuring program. So essentially, this is -- because obviously, I can't give details. That has to be obviously discussed, validated with the different employee representatives in the different countries but 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 in 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 noncash, which is actually related to supply chain and footprint optimization. So I would see really a 2- to 3-year journey in terms of recovery of what we would call our fair share of both gross margin and EBITDA margin.

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