Givaudan SA (OTCPK:GVDBF) Q4 2023 Earnings Conference Call January 25, 2024 9:00 AM ET
Company Participants
Gilles Andrier – Chief Executive Officer
Tom Hallam – Chief Financial Officer
Conference Call Participants
Celine Pannuti – JPMorgan Chase & Co.
Nicola Tang – BNP Paribas Exane
Arben Hasanaj – Vontobel
Gunther Zechmann – AllianceBernstein
Daniel Buerki – Zürcher Kantonalbank
Operator
Ladies and gentlemen, welcome to the Givaudan 2023 Full Year Results Conference Call and Live Webcast. I am Sanda, the Chorus Call operator. I would like to remind you that all participants will be in a 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.
Gilles Andrier
Thank you. Ladies and gentlemen. Good afternoon. Good evening to Asia. And good morning to the Americans. Welcome to our 2023 full year results conference call. Tom Hallam, our CFO will also be on this goal, we will take you soon to the presentation before answering your questions at the end. All relevant documents related to the full yearend results including the slides, which will be presented now have been published this morning and are available in the results center on our website.
So I’m very pleased to present to you a strong set of figures with a sustained growth and the record high free cash flow for 2023. This has been achieved despite the challenging environment that we have faced throughout the year with destocking in end markets, the impact of inflation and the sustained high raw material costs. Those results have been achieved thanks to the strategic choices, which have consistently guided us for the long and the short term. To name three of them, our focused on high value added consumer differentiating supported by continuous innovation, ingredients and solutions. Our natural hedges across customers, geographies and product segments, which help deliver consistent results in a turbulent market. And finally, the proactive steps that we have taken to adapt to the broader environment and deliver a strong financial performance.
Let’s slide — let’s start on slide 3 to comment on our performance highlights. We have delivered total sales of CHF 6.9 billion, a solid like-for-like growth of 4.1%, supported by the strong contribution of high growth markets growing at plus 10%. And the implementation of price increases to fully compensate for the increases in input costs in 2023, with the strengthening of the Swiss francs against all currencies, sales decline 2.8% in Swiss francs. The report EBITDA in Swiss francs remained stable at CHF 1, 473 million compared to 2022. Despite the strong currency headwinds measured in local currencies, the EBITDA increased by 8.8%. This means the comparable EBITDA margin increased by 150 bps to 22.4% on the back of the positive contribution from the price increases across all businesses, the Performance Improvement Program, which we implemented early in 2023, and the continued effective cost management across the business.
Last but not least, we have reached a record high free cash flow of CHF 920 million corresponding to 13.3% of sales. And with that delivering on our target range of above 12%. Tom will elaborate in more details on the financial results shortly.
Finally, the Board of Directors will propose a dividend of CHF 68 at the AGM of 21st of March 2024 which marks the 27th consecutive dividend increase for our shareholders.
Let’s have a more detailed look on the top line performance on slide 4. In an operating environment, which continued to be challenging in some key markets, and segments, we sustain good business momentum in both divisions. We are very happy we are able to deliver on the things we can control. Our pricing actions are focused on performance improvement, and our project pipeline as well as our win rates. The like-for-like sales growth for the group of 4.1% consists of the strong pricing element of 6.3% and the balance of 2.2% in volume decline. The reasons for the volume decline are well known. Destocking, shrinkflation, low consumption elements reflected in the numbers published by our own clients. The positive news is that volume development in both divisions has sequentially improved in the second half. The Group sales increased by 7.9% on the like-for-like basis in the fourth quarter. The strengthening of the Swiss franc continues to have the substantial negative translation effect of over CHF 500 million or 7.3% on our sales. On a like-for-like basis, our Fragrance and Beauty division grew strongly at plus 7.6%. And our Taste and Wellbeing division was slightly up at 1.1% for the full year 2023 with similar pricing contributions across the two divisions. The divergence between the two divisions volume growth can partially be explained by the fact that inflation in food and beverage prices has been particularly strong. And in fact, there are easier alternatives in the home kitchen than for fragrance and beauty products, such as laundry, household or personal care.
We’ll get to more details by division shortly. But let’s have a look at the performance from a geographic standpoint starting on slide 5. Whether the differentiating traits of Givaudan that we have already mentioned is really our natural hedges, which come across the portfolio of products segments, regions and markets. They allow to provide balance and protection in a difficult environment. Our strong global presence allows us to cope with a singular market issue which may occur from time to time, whilst at the same time benefiting from the sustained excellent growth that we have seen in certain high growth markets. So the continued strong like-for-like growth at plus 10% in high growth markets was driven by Latin America and the Middle East, leading to a novel sales share of 46% of group sales.
Our presence in high growth markets has always been a key driver for our growth and continues to be one of our key strategic pillars for 2025. Mature markets like-for-like sales were slightly down by minus 0.6%, almost entirely driven by North America. On the positive note, we have seen continued solid growth in Europe, in particular driven by strong demand for Fine Fragrances in France, Iberia and Italy. Slide 6 shows the geographic sales development on a more granular basis by region for the group. As mentioned before Latin America continued its strong growth trajectory at plus 15.1% supported by key markets like Brazil and Argentina in both divisions, like-for-like sales growth in Asia Pacific remain modest at plus 3.9%. The double digit growth in India and the mid-single digit growth in China was combined with a soft growth in Southeast Asia, mainly driven by the weakness in Taste and Wellbeing. The like-for-like performance in North America was minus 6.8% for the full year with similar declines in all business segments.
We have however, seen a stabilization in the second half on the back of easy comparables. Sales was slightly up for both divisions for the fourth quarter over a weak comparable. Overall, our positioning in the US remained strong and whilst it is too early to say when the turnaround will gain traction we are very well placed to respond when market conditions improve. Finally, we have seen continued good momentum in the EAME regions growing like-for-like at plus 8.4%, even amidst record growth at the previous year of over plus 11% in 2022. As mentioned before, the strong performance was broad based in mature markets such as France, Spain, Italy, as well as in high growth markets such as the Middle East.
Turning into a divisional review on slide 7 starting with Fragrance and Beauty. Sales amounted to CHF 3, 312 million, up 7.6% on the like-for-like basis and plus 1.7% In Swiss franc. The strong like-for-like growth was driven by the impressive progression in Fine Fragrances, and an acceleration of volume growth in the consumer products business in the second half of the year, as well as the positive impact of price increases across all segments. Fine fragrances show the continued excellent like-for-like growth of plus 14%, a double digit increase for the third year in a row. We are well positioned across prestige Fine Fragrances, specialty retail, and we have seen a pickup in solid retail in 2023. Volume growth accelerated in consumer products in the second half together with the already implemented price increases leading to a sound like-for-like growth of plus 7.1% for the full year. Fragrance ingredients and active beauty increased by plus 1% like-for-like on the back of a strong prior year. The active beauty path continues to show positive growth in the mid-single digit range, particularly given the high comparables of the recent years.
Let’s have a closer look at the performance of the Taste and Wellbeing division on slide 8. Sales in this division amounted for CHF 3, 603 million growing 1.1% on the like-for-like basis and a decline of 6.7% in Swiss franc. The positive pricing impact to compensate for higher [inaudible] was partially offset by the weaker demand in North America and some markets in Asia Pacific. Overall, the strategic focus areas with high growth markets and local and regional customers continue to contribute positively to the division’s performance.
Looking at the regional performance, the way the division is managed, like-for-like sales remained solid for Europe with plus 3% and continue to be very strong in SAMEA, which includes India with plus 13.2%, Latin America increased by 16.8%. And as mentioned before, North America like-for-like sales declined by 7.5% due to destocking shrinkflation, whilst Asia Pacific declined by 2.6% on the back of consumers opting for solutions from their own kitchen as opposed to packaged food.
From a segment perspective, double digit growth was achieved in snacks and growth momentum in sweet goods further improved. This was offset by weaker volumes in the other segments.
Let me now move from the financial facts to other highlights around innovation and other purpose led targets starting with slide 9. Innovation is our lifeblood from creating differentiating solutions that address our customers challenges to leading the way in areas such as biotechnology, sustainability and digitalization. Responding to more than 300,000 individual customer briefs annually and winning more than our fair share, lie at its core our ability to deliver unique innovations, imperative not only to offset the industry’s average 10% erosion, but also to meet our long term sales growth targets 4% to 5% annually.
Our R&D activities allow us to provide our creation and development teams working on those briefs with novel technologies, differentiating ingredients which will make those bespoke solutions we developed with our customers win the brief and win consumer. In 2023, we have increased our R&D spend in local currencies by plus 6% corresponding to an absolute amount of CHF 590 million. So let me share with you some examples of the outcome.
In Taste and Wellbeing, we have introduced Oatwell, a unique prebiotic fiber ingredient harnessing the natural goodness of oats to support gut health, with consumers actively seeking ways of optimizing wellbeing and increasingly aware of the crucial role of gut health. Oatwell delivers nutritious and delightful food experiences with scientifically proven benefits in every bite.
In Fragrance and Beauty, we expanded the boundaries of skin hydration, PrimalHyal. Our new cationic hyaluronic acid crafted by white biotechnology is a unique cosmetic active, outperforming standard HA hydration benefits by at least a factor of two. And finally, we stimulate both divisions with the use of digitalization and generative AI, for example with ecommerce solutions for local customers, which are being piloted in Indonesia and China for the use of proprietary AI model supporting the creativity of our perfumers and flavorists.
Let me share now some highlights on our ESG achievements on slide 10. In addition to the financial targets, we also aim to deliver on key nonfinancial targets around sustainability, diversity safety, linked to Givaudan [inaudible]. Let me highlight today our progress against our nature, ambitions, targets. At Givaudan, we are committed to being the change that we want to see in the world and showing our local nature in everything we do. Our decarbonization roadmap has been in place since 2010. It’s an integral part of our purpose commitments to become climate positive before 2050 with clear set interim milestones. And now ambitions are closely aligned with stakeholders, customers and shareholders to the long term incentive plan. Our climate [inaudible] journey is already well on the way and in 2023, we have made further progress towards those ambitions.
Our scope 1 and 2 emissions have been reduced by 43% compared to the 2015 baseline. Converting to renewable energy sources is also part of our emissions reduction strategy. And by the end of 2023, we reach a level of 94% renewable electricity being used across all our sites. We are proud to have achieved and received the prestigious Enterprising Leader award at the RE100 award in New York in 2023, recognizing our leadership in the industry by embarking on the renewable electricity journey.
And with that, I now hand over to Tom for more details on the financial results.
Tom Hallam
Thank you, Gilles. I would also like to welcome you all to the call. On the following slides, I would like to focus on the group’s financial performance and those of the two divisions.
Let me start with the financial highlights on slide 12. Group sales increased this year to CHF 6, 915 million, an increase of 4.1% on a like-for-like basis, and a decrease of 2.8% in Swiss francs. The decrease in Swiss francs is solely due to the currency impact of the strong Swiss franc in comparison with the other major currencies the group operation, as we will see on the following slide in the presentation. If we exclude the effect of currencies, sales growth in local currency would have been 5%, including acquisitions. The net income increased to CHF 893 million, an increase of 4.3% compared to 2022, and an increase of 14.3% when measured in local currency, the net income margin was 12.9% of sales. As Gilles mentioned, the Group achieved a record free cash flow of CHF 920 million or 13.3% of sales. Our net debt-to-EBITDA was 2.9x at the end of the year, compared to 3.7x at June 2023 and 3.1x at December 2022.
Please turn to slide 13, which shows the exchange rate development This slide shows a comparison of the exchange rates in 2023 versus 2022. In the current year, mainly due to the ongoing geopolitical instability and the economic uncertainty. The Swiss franc has continued to strengthen against most of the major currencies, in which the group operates with an impact on the sales in Swiss francs as previously mentioned. Overall, the impact has been limited because of our operational and geographical spread, which continues to provide good natural hedges and our EBITDA margin remains well protected against currency fluctuations. For instance, EBITDA increased by 9% on a currency neutral basis, but was flat on a reported currency basis.
Please turn to slide 14, for an overview of the operating performance of the Group. The gross margin increased from 38.8% in 2022 to 41.2% this year. The gross margin dilution effect of the pricing actions to compensate for higher input costs, as well as a lower cost absorption due to lower volumes were more than offset by the price increase and by the margin improvement measures taken by the Group’s performance and program — improvement program launched at the beginning of the year. On an EBITDA level, the margin improvement measures taken also resulted in an EBITDA margin increase from 20.7% in 2022 to 21.3% in 2023. In absolute numbers, EBITDA was CHF 1, 473 million in 2023 compared to CHF 1, 476 million in the prior year. We had a number of one of items in the year amounting to CHF 74 million, all related to restructuring and project related expenses are mainly related to the Group’s Performance Improvement Program and footprint optimization. The underlying EBITDA margin was 22.4% this year, compared to 20.9% in 2022. Operating income increased to CHF 1, 116 million in ‘23, compared to CHF 1, 112 million in 2022, an increase of 0.3%, which represents an excellent increase of 11% when measured in local currency terms.
On the next two slides, I will spend a few minutes on the operating performance of the two divisions. If you turn to slide 15, we will start with Fragrance and Beauty. So Fragrance and Beauty recorded a sales increase of 7.6% on a like-for-like basis, 1.7% in Swiss francs, mainly driven by the continued excellent growth of fine fragrance, and an acceleration in volume growth in the consumer products business and price increases in all units. EBITDA for the division in 2023 was CHF 769 million, compared to CHF 698 million in 2022. The underlying EBITDA margin was 24.7% in 2023, compared to 21.6% in 2022.
If you now turn to page 16, we will cover the performance of Taste and Wellbeing. Taste and Wellbeing recorded a sales increase of 1.1% on a like-for-like basis, and a decrease of 6.7% in Swiss francs. Sales continued to be good in Europe, South Asia, Middle East and Africa, as well as Latin America, but are challenging in North America and Asia Pacific. The division faced lower cost absorption due to lower volumes and recorded an EBITDA of CHF 704 million in 2023, compared to CHF 778 million in the prior year. On a comparable basis, the underlying EBITDA margin was 20.3% flat when compared to 2022.
Please turn to slide 17 for the net income. The net income before tax was CHF 989 million in 2023, compared to CHF 928 million in 2022, with the increase due to lower non-operating expenses compared to the prior year. Although interest expenses increased, the Group incurred significantly lower realized and unrealized losses on FX derivatives. The effective tax rate increase to 10% in 2023, compared to 8% in 2022. Net income was up to CHF 893 million in 2023, which is a solid increase of 4.3%, measured in local currency net income increased by 14.3%. Net income margin was 12.9% in the year, and basic earnings per share was CHF 96.81, compared to CHF 92.83 in 2022.
Please turn to slide 18, which shows the free cash flow. I’m particularly happy with a strong improvement in our free cash flow driven by the various actions that we’ve taken in the year. This resulted in a free cash flow conversion of 13.3% in 2023, compared to 6.7% in 2022. The increase is mostly explained by the lower cash investment in working capital, especially the positive impact of inventory management as part of the Group’s Performance Improvement Program. During 2023, the Group generated a record CHF 920 million of free cash flow, compared to CHF 479 million in 2022. Total net investments were CHF 270 million and as a percentage of sales net investment was 3.9% compared to 4.1% in the prior year, as the Group continues to invest in growth opportunities. Working capital was 24.1% of sales compared to 26.8% in 2022.
Slide 19 has been updated to include the final acquisition values of Amyris acquired in 2023. And it gives you a perspective of the future expected or amortization for ‘24 and ‘25. Please turn to slide 20. Since the year 2000, the company has generated a cumulative CHF 11.7 billion of free cash flow, including the proposed dividend for 2023. Givaudan has returned CHF 7.6 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 shareholders. The Board of Directors will propose a further increase of the dividend to CHF 68 per share from CHF 67 in 2022, an increase of 1.5%.
Please turn to slide 21 to look at the debt profile of the group. This slide shows a well-balanced and stable debt profile as in the prior year, with interest rates which have been locked in at attractive rates. At the end of the year, net debt was CHF 4.3 billion with a weighted average interest rate of 1.7% at the end of the year, compared to 1.7% in 2022.
Finally, please sentence to slide 22, which shows the net debt-to-EBITDA ratio. At the end of the year net debt-to-EBITDA was 2.9x, a significant improvement compared to 3.7x in June 2023 and 3.1x in December of 2022. We continue to focus on deleveraging the balance sheet using our stronger profitability and lower working capital to reduce our net debt.
With this, I would like to conclude my section of the presentation and hand it back to Gilles.
Gilles Andrier
Thank you, Tom. So let me now come back to our 2025 strategy and the outlook for 2024 on the next coming slides. As a reminder, allow me to highlight the key features of our 2025 ambitions. We are committed to growth with purpose, creating for happier, healthier lives with love for nature, while placing customers at the heart of our business, supporting them to grow and create products that are loved by consumers. The 2025 strategy is focused around three growth drivers. Expand the portfolio, extend the customer reach and focus market strategies. In accordance with the company’s purpose four growth enablers are defined, 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 look now at the performance commitments of the 2025 strategy on slide 25. We have now completed three years of our five year strategic cycle, and our performance thus far reconfirms our strategic choices. Givaudan 2025 strategy consists of ambitious targets aiming to achieve like-for-like average sales growth of 4% to 5%, and free cash flow above 12% of sales on an average basis. Now both measured over the five year period in averages. In addition, the company aims to deliver on key nonfinancial targets around sustainability, diversity and safety, linked to Givaudan purpose. Our focus remains on implementing our 2025 strategic focus areas guided by our purpose, we remain confident in our plan and have the right foundations in place to continue growing with our customers.
Let me finish now with the 2024 outlook on slide 26. We are very well positioned with our capabilities, the quality of our portfolio and our creative strengths to deliver on our 2025 strategy. Our natural hedges across the portfolio segments, regions, clients and markets provide balance. For 2024, the increase in input costs for the Group is expected to be minor. However, with continued pressure in some key naturals. Our proactive approach with the performance improvement program delivered fast results in 2023, we will maintain a strong focus on operational excellence reviewing the manufacturing footprint, supply chains, particularly in Taste and Wellbeing in the next two years of the strategic cycle, whilst emphasizing business continuity to navigate in a volatile geopolitical environment. We expect for this and associated costs of around CHF 50 million in 2024.
With that, we arrived now at the end of our 2023 full year results presentation. And let me hand back to the operator for the instructions to open the Q&A. Tom and I look forward to taking your questions.
Question-and-Answer Session
Operator
[Operator Instructions]
Our first question comes from Celine Pannuti from JPMorgan.
Celine Pannuti
Thank you and good afternoon, Gilles and Tom. And my first question is on the volume outlook as I think about 2024. Gilles you mentioned that there were three issues that you face destocking, shrinkflation and lower consumption as far as volume is concerned. Can you talk about those tricky losses as I look into ‘24? Do you expect some form of restocking? What could be the benefit from the reverse shrinkflation? And then overall, how should we think about consumption when some of your customers seems to be facing weaker demand?
And my second question is on the margin improvement. That has been quite impressive, especially on the fragrance side. But Taste and Wellbeing has been flat. You mentioned that you are focusing on manufacturing footprint in the division. But at the same time, I see that there will be some cost pressure on the natural side. So can you talk about how we should think about the margin progression across the two divisions as we look into the next few years? Thank you.
Gilles Andrier
Thank you, Celine, I see that you’re already in ’24 commenting on ‘23. So the outlook, whereas you know, we don’t give a given outlook. But responding to your questions on the three things which we have seen explaining the volume decline in ‘23. I would say that we can expect that the destocking shrinkflation are things which are one time things in a way. Because at some point you cannot decrease inventories to, our clients cannot decrease inventories to a certain point and shrinkflation, it’s a bit the same. So yes, in Q3, we saw a bit the end of the sort of the stabilization of the destocking, but also the shrinkflation, and then conserving Q4, by seeing an improvement in the volume growth. So we could say that, obviously, those two things are over. But one thing to mention, which I think is important, and especially well, essentially for the destocking, there is an interesting analysis, if one does it, is that if we look actually at our sales in 2021 for actually both businesses, Taste and Wellbeing and consumer products, our growth was actually very strong, and actually is much stronger than our own clients when you compare the two volume development. And in a way, and we can only know that now is that somehow there was a substantial up-stocking in ‘21, which was essentially consequent to issues around if you remember the supply chain and freight and all of that, which essentially turned out to be a destocking in ‘23. So let’s not consider the destocking of ‘23, followed by enough stocking in ‘24.
Basically, we have a plus in ‘21, and then minus in ‘23. And then from now on, at least, from what we can expect is coming back to a sort of a no more normalized growth. But with no elements of going back to two higher inventory levels. Shrinkflation, let’s see how that develops. Because obviously, this, the shrinkflation is consequent to two prices that have been increased by our clients in the first place. So let’s see how that develops. Do we come back to normal sizes and so on, yet to be seen, that would be I would say more than cherry on the cake than anything else. So going forward the volumes, we should see and hope no for normal sort of volumes development. One indication, as you know, we don’t have a portfolio of orders that take us beyond four to five weeks. So the truth, one indication that we always are a good proxy is the amount of briefs that we work on, which testified and supports the obviously the innovation, the appetite for our clients to innovate, to launch new products, and also, I would say testifying basically how they see the future in terms of what is development. And so for us, really the risk pipeline is very good. We have also our win rates, which are also very good showing the clear competitive, let’s say differentiations, that the Givaudan brings in this competitive world. So this is also a positive indication going forward. The lower consumption that we mentioned. Obviously, that’s more the uncertain path, because that can continue going on. But we remain optimistic looking also at 20 years of volume growth for Givaudan, again and the natural hedges, we have always managed to deliver consistent results.
As it relates to the margin development. So, we are happy with the sort of step improvement that we have seen for the group EBITDA, yes, with a differentiated margin, EBITDA margin between the two divisions. But that means the way we look at EBITDA and we have said that a few times now as well on multiple road shows is that we are aiming at coming back to sort of an entitled EBITDA of 24% EBITDA margin through the improvement of the gross profit margin. So we have made a step change there and we have yet to further improve our gross profit margin and that is especially on the Taste and Wellbeing division. And that too by walking as I said, on the manufacturing footprint, costs and the supply chain, we have some opportunities to be better there. But let’s not forget something, the fact that even on the Taste and Wellbeing division, which is actually delivering an EBITDA margin, very, very, reflecting the highly specialized business we are in. If I look at it from a competitive standpoint, holding a 20.3% EBITDA margin, when you have such a decline in volume has been quite an achievement that I feel very proud that the team has achieved, because, as you see, as you know, the operational leverage to improve EBITDA margin on the back of growth is always a reality for us. But it can also work the other way. And despite that, we have managed to hold on the comparable EBITDA margin. So, we are very much committed and focused on improving that for the law, there are works to be done on the footprint on the supply chain going forward. And I’m confident we will get that.
The input cost, yes, it’s really sort of stable might increase with pluses in some naturals, slight minuses on other part. But it will not have — it will not create material headwinds for the EBITDA of the Taste and Wellbeing division. That it’s way to naturals. So, next question.
Operator
The next question comes from Nicola Tang from BNP Paribas.
Nicola Tang
Hi, everyone, thanks for taking the questions. And first, I was intrigued Gilles by your comments on Asia Pacific consumers switching to kitchen solutions versus packaged foods. Do you see any risk that this trend could emerge in other markets outside of Asia? Either because of, from a cost perspective? Or perhaps because of consumer awareness around health and wellness and processed foods? And what do you think needs to happen to get the consumers in a pack to switch back?
And then the second question on consumer products. You noted the volume acceleration and sequentially in H2 last year. Do you see this as a restocking trend? Or is it more reflective of underlying demand? And should we expect continued acceleration into each one as well? Thanks.
Gilles Andrier
Thank you, Nicola. So on Asia Pacific, obviously, we have this idea of competing that we say with the kitchen is yes, it’s an explanation to explain your sort of the lower consumption on packaged foods, we don’t think it’s a long term trend, it’s really a sort of a singular response when you have inflation, I mean, sharp inflation on food and beverage, because at the end of the day, there is still a fundamental thing where convenience for consumers is very important and especially when you have your urbanization people working, more people working in cities and so on convenience is important. So we see it as maybe sort of obviously a temporary trend in Asia Pacific and especially in countries where incomes are very low. So that’s one thing and the health and wellness products. So, the switch is again is not due to health and wellness, actually health and wellness is a very good trend for us when client — when consumers switch to held diet and so forth, we are also there with as we get, as we call them taste modulators to help those products taste good, but also all the phytoactives, health natural products which is a very nice portfolio that we have from Naturex are also helping getting there. So, health and wellness are not competing, like explaining some of those trends when you go back to the kitchen and this is yet very specific to some countries in Asia Pacific.
On the consumer product side, the acceleration that we have seen is I would say more the stop of the destocking coming back to actually normal volume growth. And from what we see this has nothing to do with the idea of restocking again, take into consideration that the stocking up or the restocking or whatever we call it happened in ‘21. And somehow the destocking is basically which happened in 2003 for both tastes and consumer product. We see it as coming back to sort of the more normal inventory levels that were prior ’21. So again, the idea of restocking going forward is not the assumption. It is more about coming back to a normal sort of consumption pace for both consumer products and taste.
Operator
The next question comes from Arben Hasanaj from Vontobel.
Arben Hasanaj
Good afternoon, gentlemen. I would have three short questions. First of all on free cash flow. So, Gilles. wondering, kind of what kind of levers can you still pull there? Because it seems like in terms of networking capital, you’ve already come a long way. So apart from general increase in profitability, where do you see still potential there?
Then the second question will be around M&A. I mean, can we assume that M&A is now again higher on the agenda? Given that free cash flow has bounced back? And also net debt, yes, has gone or has decreased a little? Or can we assume that 2024 will be really focused on footprint optimization before you consider any additions there?
And then a final short question on Fine Fragrances. I mean, to, given the growth that you’ve seen there, are you planning specific capacity extensions for a Fine Fragrances? Or can you accommodate the growth kind of given the footprint that you have right now? Thanks.
Tom Hallam
So thanks Arben for the questions. Maybe I’ll take the free cash flow part of the M&A and I’ll hand it to Gilles for the complimentary part of M&A and then fine fragrance. So free cash flow 13.3% in the year what were the two biggest drivers as you’ve seen, it’s really an improving EBITDA margin and a reduction in the working capital as a percentage of sales. And Gilles already referred to the EBITDA going forward over the next couple of years, we believe that we have opportunity to increase the margin. And on working capital, we also believe we have margin, we finished the year 24.1% of sales. If you look at where we’ve been historically, we’ve been somewhere between 22% and 23%. So really, those are the two levers is increasing the EBITDA margin and reducing the working capital.
On M&A, look, I mean, we’ve never seen our debt. And our net debt EBITDA as a ceiling or something that’s blocking us. The M&A pipeline has been quiet. Gilles, I think we’ll refer to the areas we’re interested in. But we’ve always been active, we’re active in ‘23. You remember, we did the deal with Amyris at the beginning of the year. And we continue to look for opportunities. It’s more that there’s not so many sellers in the market. But I’ll pass it to Gilles to compliment on M&A And then on the fine fragrance.
Gilles Andrier
Yes, some stated. So obviously, we are more in an increasingly more comfortable position to do M&A. But even though it’s not held up for us and never been, it’s really a question of assets, valuable assets. Let me remind some of the themes under which we screen potential opportunities. One is obviously still around our core business; you still have assets around I would say pure players around fragrance makers, as well as flavors makers around local and regional clients. So opportunities there to increase again our footprint in certain countries, which are, which actually allow us to go and engage with new sets of local clients. Actually, I’m very happy with the track record we have had in terms of creation, value creation with all those I would say small midsize players, flavors, expensive perfumery, [inaudible], custom essence in the US as examples. So we’ll continue in this direction.
The second direction has to do with expanding in the field of those, again high value added ingredients which go beyond flavors around the, remember that we expanded on colors. We can be on naturals; it can be on things around health and wellness. So those themes are still quite valid. And then the sale direction can be in terms of further a bit integrating on the — on some ingredients that we buy that we would make rather than buy. So those are examples of the things we look at. I forgot, Active Duty which is also a fantastic success stories over the last few years. But yet we have to find sellers so basically textbook to dance and when multiples are slightly depressed maybe you have less sellers and transactions.
And then I’ll finish with your question on Fine Fragrances, yes, I’m going to say we are very happy and very proud of this growth. Yes, it’s a question of the market, the market has been growing when you look at some of our clients growing strongly in Fine Fragrances, but it has also to do with I would say the market share gain, that we have done in Fine Fragrances and we say the third reason is also which something which makes a bit Givaudan special is that we are in every part of Fine Fragrances meaning that yes, it’s about prestige, Fine Fragrances, and we’ve seen tremendous successes with some of the new launches. But it’s also fine fragrance clients in SAMEA, which has been a spectacular growth over the last few years. Actually, SAMEA for us is as big as LATAM in Fine Fragrances. We started from zero 15 years ago. And then the end market or rather two end market. On one side, it’s the sort of more specialty retailers must Fine Fragrances as well as the prestige. I mean, niche, what we call the niche high end fragrances, so we are really in all different markets, and many of them are growing strongly. So in terms of production capacity, obviously Fine Fragrances doesn’t take as much volume as what you see on consumer products. And so we are well equipped to continue growing and fine with the production capacity that we have.
Operator
Your next question comes from Gunther Zechmann from AllianceBernstein.
Gunther Zechmann
Hi, good afternoon, gentlemen. Couple of questions from my side, okay, hope you can hear me all right. Firstly, Gilles, would you mind talking us through the stabilization you’ve seen in Taste and Wellbeing in North America, especially in Q4, incrementally. That will be really helpful in terms of the CapEx rate and the customers where you’ve seen adapting. That’s the first one.
Secondly, any comment on supply chain disruption, I know it’s early days but are you looking for implementing any third party because of MST disruptions similar to what we’ve seen with Suez Canal ships getting stuck in the past, for example.
And then if I can sneak one more in, could you please provide us with an update on the investigation of anticompetitive behavior by the CMA and other authorities, which have recently extended to personal attention.
Gilles Andrier
Okay, so it was very patchy. So I guess I got some help to understand your questions maybe. So yes, the first one around I would say the stabilization of Taste and Wellbeing in Q4. Actually, and you could argue the stabilization as well on consumer products. Actually, we have seen mild growth in Q4 finally, obviously, in all honesty, we have a lower comparable in Q4 2022. But at the same time, it’s a good signal that maybe we come back to normal times. We have seen on the positive side in terms of the pipeline, the briefs, the win rates, we have a very encouraging position in North America in both Taste and Wellbeing and consumer products. So that’s really the path as you know that we can always control or at least well, by focusing on win rate that can help compensating for higher levels of erosion. So they are, that gives us confidence.
Then on the supply chain disruption. I think you’ll refer maybe to the to the Red Sea. Obviously, what we see is that delays have increased in order to actually get we have quite substantial flows, material flow going through these routes. So lead times have increased with some additional challenges but yet, which are, let’s say controllable and minimized.
And then your final question on investigation. Well, essentially, I don’t have much news other than repeating what we have already said. It’s a worldwide investigation with all US, European committees, Switzerland and the UK. And it involves all the key players. But we have and we are fully collaborating with all of them. With no idea about the outcome yet, but it will take time.
Operator
The next question comes from Daniel Buerki from Zürcher Kantonalbank.
Daniel Buerki
Yes. Good afternoon, everyone. I have a question on this factory optimization program. Could you give us more details? You mentioned it will take two years, CHF 50 million of cost, will we also see some costs in ’25? And then what could be possible benefits savings out of this program? Thank you.
Tom Hallam
Yes, so thank you, Daniel, for the question. So the cost that we outlined in the CHF 50 million is for 2024. I expect that we will also have costs in ‘25, as well. In terms of the benefits, I mean, I think Gilles already elaborated on what you should expect to see on the taste side, because most of the optimization is expected on the taste division. We expect in the long term to have very, very consistent margins. And historically, the two divisions have had very, very similar EBITDA margins. So there you, you can already factor in, we will calculate the benefits that we would expect to see from those two programs. And that’s very similar to what we’ve done in the past. If you look back, and I’m sure you remember, the period 2012 to 2015, we had similar programs. And over those three or four years, we were able to increase the margins, back to the levels that Gilles was talking about before.
Operator
Ladies and gentlemen, this concludes the question and answer session. I hand back over to the management for any closing comments.
Gilles Andrier
Thank you. So, dear, ladies and gentlemen, thank you for your interest and your questions. I’d like to remind you, we will publish our Q1 24th sales results on April 11 of this year, and welcome you to register to our investor event on the same day. This year, we’ll break with tradition and we will hold the event in Kempten close to Zurich. And with that, I thank you very much.
Operator
Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
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