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Hello, and welcome to the BIC Full Year 2022 Results. My name is Caroline, and I will be your coordinator for today's event. Please note, this call is being recorded. [Operator Instructions]
I will now hand over the call to your host, Michèle Ventura, to begin today's conference. Thank you.
Thank you, and welcome, everyone, to our Q4 and Full Year 2022 Earnings Call. The call will be hosted by Gonzalve Bich, CEO; and Chad Spooner, CFO, will start by a presentation of our full year 2022 results and 2023 outlook, followed by the usual Q&A session. Gonzalve, over to you.
Thanks, Michèle. Welcome, everyone, and thank you for joining us today to discuss our company's fourth quarter and full year 2022 results. Since the launch of our Horizon plan late in 2020, we've been providing insight into how the plan both grounds our purpose as a consumer-centric company and guides our ability to remain resilient in dynamic evolving markets. In an extraordinary year marked by inflation and recessionary pressures amid soaring energy costs, supply chain disruptions and consumer uncertainty, we put Horizon to its most stringent test yet and I'm proud to say, it delivered. Full year '22 top line performance was exceptional, surpassing our guidance, growing our net sales high single digits to double digits in all divisions, growing our EBIT by 11.4% and achieving our free cash flow target. Most importantly, we remain laser-focused on our consumers, relying on our data-driven approach to deliver a continuous flow of premium product innovations that help improve key regions across the globe. This momentum has us off to a strong start, and we will share more about our 2023 outlook shortly. I want to start, though, with a full year 2022 operational results, followed by Chad, who will take you through our financial performance in more detail. 2022 was a pivotal year of progress and growth for BIC as we doubled down on our investments in operations, brand support, R&D, and M&A. Today, we are more consumer-focused, data-driven, and innovative than ever before. We met our guidance with strong momentum and delivered on both top line and cash. Net sales growth was outstanding, up 13.8% in constant currencies compared to initial projections of 9% to 11% growth and well above our Horizon plans mid-single-digit growth trajectory. We achieved our target of more than EUR 200 million of free cash flow for the fourth year in a row, resulting in a combined total of nearly EUR 890 million in cash generation since 2018. Now let me tell you about the key drivers behind this exceptional global growth across our divisions. In human expression, our performance was bolstered by the continued success of our classic products, including the iconic 4-Color Pen in Europe and the mechanical pencil and ball point in the United States. With inflation persisting and families increasingly under pressure to make their money go further, now more than ever, consumers appreciate the strong value proposition that BIC products represent. We also performed well in added value products, one example being our line of gel writing instruments for which sales have more than doubled in the last 5 years. In 2022, we outperformed the U.S. market in this segment ahead of our peers boosted by our strong value positioning. Consistent with our Horizon goals, we have also actively grown net sales in products in creative and digital expression by 40% since 2019, a year before we launched our Horizon Plan. In Mexico, for example, the intensity range in pastel highlighters delivered over 50% growth. And in Brazil, the creative segments of marketing and coloring more than doubled net sales year-on-year. All told, we've increased our entire coloring segment by 12% in the last 5 years. Our team's commitment to commercial excellence delivered robust back-to-school seasons in both hemispheres with market share gains in key countries. In France, we outperformed the market for the 16th consecutive back-to-school season, further strengthening our #1 position. In Mexico, we gained share for the second consecutive back-to-school season in the modern mass market channel, supported by breakthrough commercial communication campaigns and impactful e-commerce strategies. And in South Africa, net sales saw double-digit growth during the country's most robust back-to-school season in 6 years. Turning to Flame For Life. We continue to address consumer demand for all flame occasions while paving the way towards a more value-driven model. At a global level, added-value lighters accounted for 38% of the division's 2022 net sales, up 2 points versus last year. We're well on track to reach our goal of 50% by 2025. In the U.S., EZ Reach maintained its steady drumbeat of distribution gains and incremental growth in the overall category. We successfully claimed additional share in the utility lighter market, gaining 4.6 points in value versus 3 years ago pre-pandemic. This positive trend indicates consumers' high demand and preference for BIC as their brand of choice for all flame occasions. Zooming in on Brazil, sales performance was boosted from healthy demand for decorated and utility lighters, the latter, which are now manufactured locally at our Manaus production facility have successfully ramped up with a 21% CAGR for the last 3 years, surpassing pre-pandemic levels. Overall, growth in market share gains in key regions were driven by distribution gains in both traditional and modern channels, efficient promotional activities, and a favorable price mix. On to Blade Excellence. We outperformed our market in all key regions, thanks to exceptional commercial execution and the success of the 3 to 5 blade and hybrid ranges, which is a strong proof point supporting our shift towards premiumization in the shaver category. Globally, our 5-blade segment has been growing steadily, showing a 14.2% CAGR for the past 5 years. In the U.S., BIC is now the #1 brand for women's disposables at one of our major customers with a 36% share by value. This success comes from an overwhelming consumer preference for our premium shavers for which a unique value for money positioning. Our new shaver in the Soleil range, the BIC Soleil Escape quickly reached 2.7% of the women's disposable market, becoming the #1 item in the overall disposable category in record time remarkable success for its launch year. In Latin America, Brazil delivered a fifth straight year of share gains, outpacing the market by 1.2 points in value driven by 3 blades in both men and female segments. And in Europe, our 5-blade products had an especially strong showing with 30% sales growth and double-digit net sales growth driven by all segments. Further demonstrating how our CapEx investments are bearing fruit. Our B2B business, Blade Tech, successfully ramped up in 2022, contributing 15% towards total Blade Excellence net sales growth. With this in mind, let's look at an overview of our key financial figures for full year '22. As I already mentioned, we grew net sales by 13.8% at constant currency, which translates to 11% on a comparable basis with strong momentum in all 3 divisions. Our adjusted EBIT grew in absolute value by 11.4%, as we said it would, driven by our resilience to external headwinds and the decisive actions we've taken to offset the impact of inflation, namely volume increases, price adjustments, and further cost savings. Our EBIT margin was 14% compared to 15.3% last year, showing the expected impact of input cost inflation. Our adjusted EPS saw another year of outstanding growth, up 19.3%, which totaled EUR 5.12 for the year. Our net cash position at the end of December was strong at EUR 360 million, and we achieved our target of generating over EUR 200 million of free cash flow for the year. Chad will take you through our financial performance in more detail. BIC's approach to sustainability is deeply rooted in the company's values and has been a cornerstone of day-to-day operations for nearly 70 years. In 2018, we reinforced our commitment to sustainable development by establishing writing the future together, a forward-looking global program underpinned by 5 major commitments. In 2022, these commitments were further strengthened by the company's greenhouse gas emission reduction targets, membership into the United Nations Global Compact, and the ESG share buyback program. However, we know that sustainability is a journey. Navigating this ever-evolving landscape takes time as does making progress against our commitments. Everyone from our customers to our suppliers is on this journey with us, all part of our organized movement to make more sustainably minded products that are better for the planet. We are constantly looking to improve our standards and make a more positive impact. More information on our sustainability achievements will be shared in the coming weeks as we prepare to release our 2022 universal registration document. Moving now to shareholder remuneration. In line with our Horizon plan, capital allocation policy, the Board will propose a EUR 2.56 per share ordinary dividend at the next Annual General Meeting for a payout ratio of 50%, which is an increase of 19% compared to 2021. In addition to the ordinary dividend, we will be executing a share buyback program of up to EUR 100 million throughout 2023. Such an increase underscores our strong belief in the company and our Horizon growth plan and is testament to our commitment to shareholders. As I've said, we're accelerating our path towards genuine long-term value creation for all of our stakeholders, of which I'm quite proud. With Horizon is our North Star, we're winning where it counts. Horizon's first pillar that fuels growth is our consumer-centric approach to innovation. Our investments in brand support in 2022 clearly delivered results. Let's consider BIC EZ Reach, and its ingeniously simple design that consumers simply love. In 2022, this lighter again outperformed the market, up 1.1 points versus 2021. We're now well on track to reach our objective of 10% value share in 2025. And one of our major customers in the U.S., EZ Reach exceeded expectations, claiming 12.8% of the pocket lighter category and value for the year. Joining Snoop Dog and Martha Stewart in our new 2023 marketing campaign is the Legendary Grammy Award-winning singer and songwriter, Willie Nelson, an iconic talent chosen for his cross-generation appeal who will take center stage as the campaign rolls out. We also have big plans to launch EZ Reach in Europe with a campaign featuring Snoop set to premiere in Q2. The second driver of our Horizon strategy for growth is continuing to up our game as an omnichannel specialist. On the e-commerce front, our enhanced digital capabilities boosted online sales with double-digit growth across all regions. We outperformed some of our top markets, including Stationery and Shavers in the U.S., growing 1.1 points and 1.4 points in value, respectively, and in Europe, with the U.K. growing 2.9 points in value, and Germany growing by 1 point in value. Our in-store performance was robust and delivered market share and gains in most of our countries across categories, thanks to a combination of increased in-store visibility and distribution gains. Star performers included Shavers in Brazil and France, where we gained 1.2 points and 1.9 points in value, respectively, as well as utility letters in the U.S. where we gained 1.9 points in value. The third driver is revenue growth management. RGM is a great example of how we doubled down our investments in operations by enhancing further our commercial capabilities throughout 2022 to fuel growth. We simplified the entire product portfolio and improved the in-store shopper experience throughout the year. We successfully reduced SKU count by almost 5,000 SKUs, representing an 11.7% reduction in complexity. At the same time, in 2022, net sales per SKU climbed double digits in all 3 divisions, well above our target for the year. This proves that we're aligned in aligning with our main objective for consumers to find the right pack at the right price wherever they're shopping for our products, a winning formula. We also continue to drive positive mix impact, thanks to added value products and innovations with strong results this year in all 3 categories. Flame for Life was a star performer in the U.S. driven by trade-ups to decorated pocket lighters. We saw a similar dynamic in France with our iconic 4-Color pen, a positive mix impact from trade-ups to decorated options and the wood style body. And lastly, we're making smarter investments with our customers to drive business. One example of our focus on promotional effectiveness is the expansion of our AI-powered, test and learn capability with Eversight. In the U.S., we leverage this technology in 2022 to refine our category-specific promotional guidelines. Sustainability is also a crucial aspect of our Horizon plan as we strive to contribute to a more sustainable future and ensure BIC products have their rightful place. To this end, 2022 saw the launch of several innovative consumer-centric products centered on sustainability. Now let me hand it over to Chad, who will take you through our financial results in more detail.
Thanks, Gonzalve. I'll now review our operational and consolidated financial results for the full year of 2022. Starting with our performance in Human Expression division. Net sales were EUR 838.8 million, up 16.9% at constant currencies. As expected, we saw strong performance with high single to double-digit growth across Europe, North America, India, and particularly Latin America. Our teams delivered solid commercial execution, notably during back-to-school seasons in the Northern Hemisphere. This enabled us to outperform key markets with relentless efforts on distribution gains in various channels as well as efficient consumer-driven promotions. As expected, back-to-school season in Brazil, sell-in and sell-out was solid with a flawless program implementation, where coloring was the main contributor. In South Africa, net sales grew double digits as we experienced the most successful back-to-school for the country in the last 6 years. Capitalizing on our value propositioning net sales growth came not only from core historical products, but also from value-added segments like gel and creative ranges like intensity, a proof point of consumer trust in all BIC products. Adjusted EBIT was EUR 25.4 million with a 3.0% margin compared to 5.4% last year. The decrease was driven by input cost inflation as well as 2022 acquisitions and investments in brand support as expected. This was partially offset by net sales operating leverage, favorable pricing, and favorable fixed cost absorption. Now turning to our Flame For Life division. Net sales were EUR 871.6 million, up 11.2% at constant currencies. Strong sell-in performance was driven by double-digit net sales growth in key countries through successful implementation of price increases, distribution gains and impactful advertising campaigns. In the U.S., BIC EZ Reach Utility pocket lighter continue to be incremental to the overall category, driven by accelerated distribution in all channels of trade and impactful advertising campaigns. EZ Reach now accounts for almost 7% of our pocket lighter sales in the U.S., just over 2 years after its launch. And as Gonzalve mentioned earlier, momentum will continue this year as EZ Reach will be launched in Europe with promising media plans. In line with our strategy to lean towards a more value-driven model, added value lighters, including decorated utility, EZ Reach and Djeep accounted for 38% of the Flame For Life net sales, up 2 points versus last year. Adjusted EBIT was EUR 305.5 million with a 35.0% margin compared to 37.6% in full year of 2021. This was due to higher input cost inflation and an increase in brand support driven by the BIC EZ Reach advertising campaign in the U.S. This was partially offset by net sales operating leverage, favorable pricing and favorable fixed cost absorption. And lastly, in Blade Excellence, net sales were EUR 497.0 million, up 14.6% at constant currencies, driven by added value segments -- with strong results primarily in Europe, followed by Latin America and the U.S. Our 5-blade segment has successfully grown steadily for the past 5 years with a 14.2% CAGR between 2017 and 2022. In Europe, performance was driven by distribution gains in Eastern and Southern countries such as Romania, Poland, and Greece. We outperformed the U.S. 1P segment, driven by consumer preference for our value for money premium shavers, notably the Soleil range. Our new consumer-centric shaver, BIC Soleil Escape, reached 2.7% of the women's disposable market and was the #1 item in the overall disposable category, a remarkable success for this launch year. Net sales grew double digit in both Brazil and Mexico, driven by our 3-blade offering and further distribution gains, a proof point of the success of our trade-up strategy in the region. As Gonzalve mentioned, BIC Blade Tech ramped up and contributed to 15% of the division's growth, lower than the first 9 months of the year due to a less favorable comparison basis as we started to ship our first customers in Q4 of 2021. Adjusted EBIT for the division was EUR 66.6 million with a 13.4% margin in full year of 2022 compared to 14.3% last year, driven by higher input cost inflation. This was partially offset by net sales operating leverage, favorable pricing and positive contribution from BIC Blade Tech B2B business. Let's now review our consolidated results starting with the fourth quarter of 2022 net sales. On an as-reported basis, net sales for Q4 of 2022 totaled EUR 526.7 million, up 20.6% versus last year. On a comparative basis, our net sales were up 9.1%. Currency fluctuations had a positive impact of 8.9 points excluding the foreign exchange impact from Argentina. This was mainly due to the increase of the U.S. dollar and the Brazilian real against the euro, respectively, plus 5.5 points and plus 1.6 points. The perimeter impact adjustment includes the acquisitions of Inkbox, Tattly, and AMI. Let's now turn to the full year of 2022 net sales results. On an as-reported basis, net sales totaled EUR 2.234 billion, up 21.9% versus last year and up 11.0% on a comparative basis. We overdelivered on our full year 2022 guidance and grew 13.8% at constant currency for all the reasons I mentioned earlier. Currency fluctuations had a positive impact of 8.8 points excluding the foreign exchange impact from Argentina. And this was mainly due to the increase of the U.S. dollar for positive 5.7 points in the Brazilian real for positive 1.3 points against the euro. And again, the impact adjustments included the acquisitions of Inkbox, Tattly, and AMI, which were slightly offset by the Pimaco divestiture. Let me now review the adjusted EBIT margin change versus the prior year for the fourth quarter. Q4 gross profit margin decreased by 2.8 points to 46.2% compared to 49.0% in Q4 of 2021. Excluding recent acquisitions, the gross profit margin decreased by 2.9 points. This decrease was mainly driven by the negative impact from input cost inflation, partially offset by favorable pricing in ForEx in Q4 as previously communicated. Adjusted EBIT margin was 8.2% compared to 7.1% in Q4 of 2021, driven by 4.7 points favorable net sales leverage, partly offset by the gross margin decrease just previously in recent acquisitions. As we communicated in October, favorable ForEx in gross profit and lower distribution costs offset the increase in OpEx and brand support investments. I'll now review the adjusted EBIT margin change versus prior year for the full year of 2022. Full year adjusted EBIT margin was 14.0%, down from 15.3% last year. Excluding 2022 acquisitions, the gross profit margin decreased by 2.8 points, mainly driven by input cost inflation as expected, and unfavorable FX, mainly Euro-U.S. hedging, partially offset by favorable fixed cost absorption and pricing. Adjusted EBIT was favorably impacted by 4.3 points from net sales operating leverage. Brand support was higher by 0.8 points, and OpEx and other expenses was 1.3 points as we continue to invest to support our Horizon growth strategy, which is clearly showing results. Examples of investments in brand support include EZ Reach and EasyRinse's media plans in North America, sustainable development campaigns called Reinvent in France and Belgium, and our 4-colored digital campaign in Europe. All of these contributed to boost our sell-in and sell-out performance. On the OpEx front, on top of the investments we did for our innovation and insights capabilities that we made to develop some of the new products that I've just mentioned, we continue to enhance our RGM capabilities and sales strategy to deliver price realization and optimize product mix, which show results, such as a trade-up to decorated lighters in the U.S. or new limited edition for color pens. We also invested in our strategy and M&A capabilities to accelerate growth and expand outside our core categories. And lastly, we've hedged 100% of our 2023 U.S. dollar ForEx needs and $1.08 versus euro. This next slide shows the impact of input cost inflation and gross profit for the full year of 2021 and 2022 in millions of euros. The total input cost inflation impact on full year adjusted EBIT was EUR 105 million. On this slide, you can see the key elements of the summarized P&L results. Adjusted EBIT for full year of 2022 was EUR 311.7 million compared to EUR 279.8 million last year, an increase of 11.4%. As we look at nonrecurring items in full year of 2022, we see mainly EUR 5.2 million of acquisition costs, Rocketbook earn-out and get price adjustment as well as EUR 3 million related to impairment of our Ukraine operations. Full year of 2022 income before tax was EUR 290.6 million with a 28.1% tax rate compared to EUR 447.8 million in full year of 2022, which is due to the sale of our BIC Clichy Headquarters in 2021. Full year 2022 finance revenue decrease is mainly due to Argentina hyperinflation impact in Q4 of 2022. Net income group share was EUR 208.9 million compared to EUR 314.2 million for full year of 2021. EPS group share was EUR 4.75 compared to EUR 7.02 in full year of 2021. And lastly, adjusted EPS group share saw a strong increase of 19.3% to reach EUR 5.12. On this slide, we see the main elements of working capital. Inventories increased by EUR 74.7 million compared to December of 2021, notably driven by EUR 45 million of input cost inflation. Trade and other receivables decreased by EUR 15.1 million as a result of efficient cash collection as previously communicated. In 2022, we invested EUR 96 million in CapEx. The greatest focus was on our growth CapEx, representing more than half of the investment. We invested 33% in blade excellence notably related to new products such as our new launch of EasyRinse. This last slide summarizes the evolution of our net cash position between December of 2021 and December of 2022. Net cash from operating activities was EUR 300 million, including EUR 428 million in operating cash flow and EUR 128 million of impact from the growth in working capital and other. During full year of 2022, we invested EUR 73.8 million related to acquisitions, mainly Inkbox. Net cash was also impacted by investments of CapEx of EUR 96.3 million. The dividend paid in June amounted to EUR 94.7 million, and we bought back EUR 54.5 million worth of shares. Our net cash position at the end of December of 2022 was EUR 359.9 million. This sends a review of our full year of 2022 consolidated results. Now let me give the floor back to Gonzalve.
Thanks, Chad. Now let's turn to the main growth drivers we see for 2023. We expect all of our divisions in key regions to deliver growth this year as we lean into our momentum from last year. That said, we are operating amidst the uncertainty of a macroeconomic environment that harbors potentials for recessionary pressures. Whatever the context, we will continue to sharpen our focus on consumer-centric innovation and drive commercial excellence even further. In human expression, developing markets that grew in the double digits during 2022, we'll continue to recover successfully above their pre-pandemic levels and contribute to the growth of the division. In Europe and North America, we'll be working to ride the momentum from our 2022 market share gains. Broadly, we will lean even more into our RGM capability by further simplifying our lineup and drive greater value by increasing net sales per SKU. And of course, we are aiming to continue double-digit net sales growth in e-commerce. The performance of our Flame for Life division should come from continuing along our value-driven path established in our Horizon goals. In addition to our successful core products, we will continue our portfolio premiumization across our regions. In the U.S., Canada and Brazil, they should enjoy tailwinds from our 2022 market share gains. In Blade Excellence, we will make the most of the momentum from market share gains on added value segments, such as the 3 to 5 blades and hybrids as well as capitalize on our innovative consumer-centric launches, which I'll now cover. To ensure our innovation funnels deliver a strong flow of exciting new products, we remain focused on boosting our global innovation pipeline. This year, we have 4 major new product rollouts. Ecolutions is our full line of eco-friendly stationery products made of at least 50% recycled materials in 100% recycled and recycled packaging. At the heart of the collection is the new BIC Ecolutions Gel Pen made of 78% ocean-bound plastic. With its launch, we are entering the #1 writing segment in the U.S., bringing a truly unique offering to the market. This is an important step because we know that 2/3 of millennial shoppers prefer to buy from sustainable brands and a similar number are interested in purchasing sustainable writing instruments. The second is the break-resistant mechanical pencil, which began as a soft launch in Q4 of last year and will be rolled out this year. Based on a key consumer insight of an unmet need, we created a mechanical pencil that is 75% stronger than the leading U.S. competitor, reinforced by a mechanism that adjusts to pressure applied in writing. Sell-in results from the fourth quarter of last year's soft launch in the U.S. showed promising results already. In 2023, the BIC Soleil Escape line featuring a scented handle that delivers a sense of luxury and an accessible price point will expand in the U.S. with a wider palette of on-trend fragrances. Meanwhile, the original offering that started the scent razor craze, Lavender & Eucalyptus, is now ready to roll out globally. Now I'd like to introduce the breakout innovation for 2023. 92% of people who shave experienced clogged razors, making clogging a universal frustration. After nearly 5 years of development, BIC has solved the clog once and for all with the new BIC EasyRinse, a first-of-its-kind razor with a reverse blade design and anti-clogging technology protected by 21 patents. By quite literally reversing our thinking and attaching the blades to the opposite side of the armature, we were able to double the amount of skin contact points using fewer blades as well as spread the blades further apart to eliminate clogs for a true high-quality shave. Consumer testing showed that 94% of testers loved its rinsability with purchase intent off the charts. An online prelaunch in the fourth quarter in the U.S. already showed promising results with an average star rating of 4.7 to 5 stars. BIC EasyRinse will gradually be hitting shelves in stores in North America throughout 2023, and were set to roll the razor out globally in 2024 with Europe as our next big wind region. We're proud to continue our legacy of innovation with BIC EasyRinse, our latest design milestone that redefines razors for a new generation. Before concluding with our guidance for 2023, let me take you through our market assumptions for this year, which are based into our outlook. These are based on Euromonitor and internal estimates. Taking Europe first, we expect to see softer market trends in lighters and shavers versus the prior year and a flat to low single-digit increase in stationery. In North America, the stationery market should see a low to mid-single-digit decrease following a flat trend last year. In Lighter, we expect the market to decrease low to mid-single digits like last year following a strong performance in 2021 and the disposable shaver market will continue to be challenging with inflation driving trade down. In Latin America, we expect an overall continued increase in both Stationery and Shavers with a continued rebound anticipated in Brazil and Mexico, notably in stationery. Lighter should decrease low to mid-single digit following a flat trend last year. And lastly, we expect a continued steady upward trend in India as of 2022 following a large COVID drop in 2020 and 2021. I'd now like to share the main drivers that will underpin our financial performance this year. We expect organic growth to be driven by pricing, mix, and promotions as we continue to deliver on our revenue growth management goals. Growth will also come from higher volumes, added value, and new products as well as continued market share gains building on 2022 momentum. Therefore, net sales at constant currencies should grow between 5% and 7%, in line with our Horizon trajectory. The gross profit level, raw materials, and freight and import freight costs will remain at very high levels, although a lesser extent than 2022. We aim to mitigate this impact on our P&L as much as possible as we did in 2022, and we have action plans. On top of benefiting from favorable ForEx impact, we will compensate for these headwinds through price and favorable mix, increased volumes, as well as savings from further procurement initiatives and manufacturing efficiencies. As we choose to invest in long-term growth and innovation in line with our Horizon ambition, our adjusted EBIT will be impacted with increased brand support, R&D, and investments in operations such as procurement and M&A. More specifically, brand support investments will include continued impact advertising campaigns, such as EZ Reach and Soleil Escape in the U.S. and Europe and the EZ Rinse launch in stores in the U.S. Regarding our operating investments, we will continue to invest in innovation to increase the pace of delivery for new products and create more added value offerings to improve mix. We'll also invest in new technologies and new customers for our BIC Blade Tech business. We'll double down on our commercial capabilities to further improve shelf presence and enhance revenue growth management with more trade and promotion management, including the expansion of our AI power test and learn capability with Eversight that I mentioned earlier. Lastly, we will invest in procurement to continue to drive direct and indirect efficiencies as well as an M&A to accelerate growth and expand outside our core categories. We'll continue to focus on strong cash flow generation through working capital improvements with adjusted EBIT margin expansion contributing. CapEx is expected to be between EUR 110 million and EUR 120 million, in line with our commitment to invest in maintaining our manufacturing excellence. Full year 2023 net sales are expected to grow between 5% and 7% at constant currencies, driven by price mix and volume. We expect to improve adjusted EBIT and adjusted EBIT margin driven by gross profit margin growth, partially offset by continued investments in our operations and brand support aimed at driving our Horizon ambition to delivering long-term profitable growth. Free cash flow is expected to be above EUR 200 million in 2023 for the fifth year in a row. We'll open the floor to questions in a moment. But before we do, I'd like to leave you with 3 words that I feel resonate strongly with BIC's performance in 2022. The first is trust as households around the world are hit by inflation and energy costs, consumers in every corner of the globe are turning to our brands for the great quality and great value that we deliver. In turn, this trust gives us confidence that we're making the right decisions. The second is momentum. The tangible results from our Horizon plan are a tremendous source of energy that moved us forward in 2022 and will continue to drive our sustainable growth in 2023. And the third is agility. The further we move forward with Horizon focusing on consumer centricity and innovation, the better our business can pivot adjusting as needed to weather continued headwinds we know we will face. Thank you very much. I'll now open the floor to questions.
We will take the first question from Othmane Bricha from Bank of America.
I have a few. First, on the fourth quarter EBIT margin, you expected a tailwind of 100 basis points from fixed cost absorption and no impact from OpEx, but they both negatively impacted your margin by 40 and 30 basis points respectively. Can you explain what's happened here? And specifically on lighters, the margin came below 30% for the first time since the first quarter -- so is the decline attributable to a greater sales exposure to Europe? Or is there anything else you'd like to point out besides the raw material inflation? And then on your gross outlook for 2023, you expect to grow 5% to 7% at constant currency. Why do you post a low to mid-single-digit decline in value for your categories across Europe and North America. Can you expand more on the drivers of the market declines in the 2 regions? And do you expect to grow your categories at the same pace? And how should we think about the contribution of Blade Tech to your 2023 performance? And then my last question is on inventories. Can you comment on the level of inventory at your retailers across your 3 divisions? And in Stationery, do you expect selling to happen early this year as in 2022? Thank you.
Okay. Othmane, thanks for the questions. Let me start with the first 2, and we'll make sure we try to get them on you have to repeat a few of them. But the first one you talked about was the Q4 margin and in terms of what happened there. Q4, when we look at the margin, the decrease in full year was really driven by the input cost inflation, right, as we had talked about. And you had talked about the fixed cost absorption and OpEx, and there's 2 different things, right? The fixed cost absorption was really kind of offset also by the benefit of the input cost inflation not being as much as we thought. So, net-net, really 0 impact from the 2 there. And in regards to what we had said about OpEx, we had talked about OpEx and brand support and FX, all of them kind of being neutral to last year. When you look at all of them combined, as we said in October, I think they actually had a slight positive impact. So, it was in line with what we had said in October. In regards to margins for Lighter, as you know, all the categories were impacted by input cost inflation. And one of the things that I like to remind people of, and I know you know the math, but I just like to remind people is that for every euro of input cost inflation, you would need almost EUR 2 of price to maintain the margin level. So that EUR 1 of input cost inflation has thought has a massive impact -- the EUR 100 million, for example, on our full year sales for 2021 has 580 basis points of impact in gross profit, if nothing else was done. So naturally, the percentages are going to be impacted by the cost inflation that we had. Moving then on to your next question about the growth and how we have the growth in declining markets in BIC Blade Tech contribution, Gonzalve?
Thanks, Chad. And thanks for your question. Let me tackle your question in reverse because it's just easier for me to think about it that way. So as to markets, listen, we're following very closely both consumption trends and market trends in market on a month-by-month basis. And we're seeing a lot of variability across the globe, but signs that show us that the assumptions that we use to build our plans are the right ones. In the U.S. and Europe, we see a continuation of the long-term downward market trends that we've talked about many times driven by the same things that they have. What I take great comfort in though are the market share gains that we make in the face of those market trends. They show a number of things. First, that BIC consumers continue to trust the brand, love the products and want to trade up or sometimes down. And that's the great thing about having the broad ranges that we have. So, in some cases, I talked about consumers trading up in the 4-color ranges going up and up and up into the limited editions. But in other cases, we know that consumers have either traded across pack counts, which I think you're going to continue to see or down to lower priced products, but that's the beauty of BIC in those segments that we have, crystal and round stick and then you can go up or you can go down, but I think you'll continue to see us over delivering, for example, in coloring and marking in the face of that. In Latin America, in Lighter, after a flat year, I think they're going to go a little bit negative, could be a little bit better than that, but there's a lot of noise out there in the world around recessionary pressures, and we want to be mindful of how we plan so that we're resilient as we have been in the last couple of years. BIC Blade Tech this year more than -- well, more than doubled its business, and I think it's off to a really good start because we only have less than 2 years of history behind us in BIC Blade Tech and really delivering above the plan that we had for ourselves. It's going to take some investment, but I've got a lot of really promising leads on further customers. We've got a couple of signed LOIs. We've got some new things to announce probably this quarter with some partnerships with companies making even more innovative things. And we're leaning into those future products. I'm really excited by what BIC Blade Tech delivers to our total growth story.
And then your last question, Othmane, was about the inventory customer levels. Can you repeat the question, what you were asking about there?
Yes, it was about the level of your inventories at your retailers across the 3 divisions and also about the stationery selling, the timing?
Okay. So, I mean we track inventory levels at our customers. We, of course, don't disclose it because from country to country, and market to market, there's a lot of variability. But what's really important, and I think I've been saying this for a number of years. What's important is to make sure that the inventory is there so that it can be bought by the consumer. Now in the 2020, 2021 and '22, man was that tested, right? Supply chain disruption, raw material shortages, all sorts of challenges, and BIC delivered and made sure that we were in full and in store as much as is possible. And I think it helped us really gain a lot of shares, for example, last year. And we're prepared to do that for next year as well. Now to your very good question around timing of sell-in across quarters, we still believe that Q2 will be strong. There will be a little bit less in Q1 than there was last year, and that's going to be reflected a little bit in the first quarter. But I see a very strong back-to-school for us coming this year. And then on inventory more broadly, Chad?
I think that you answered it at customer levels and now I think we're good.
Did we answer all your questions, I'm sorry, because it was hard to...
I think, yes, you did. Thank you.
We will take the next question from the line of Christophe Chaput from ODDO.
I got 3 questions, please. The first one is related to the guidance on the top line of 5% to 7%. Could we know how much of that is related to price? And are those price increases are already implemented or you are still going to implement them, let's say, during the first semester or the second semester? The second question is on the total input cost inflation. So, it weighted EUR 105 million in 2022. If you consider the spot price and the hedging you probably have, what should we expect for 2023? I say that it should still be negative, but it's probably more negative in H1 and positive in H2, just to have granularity on that topic. And the last one is on personnel expense. What could be the impact on your P&L from the salary increase in 2023. Thank you very much.
Do you want to start with the top line?
Yes. So, Chris, as you know, we don't -- we're going to grow the -- yes. So, this year...
In terms of price...
Yes, we're going to grow 5% to 7%, and there will be a mix of higher volumes, price promotion, and the things that frankly drove the great year that we had this year.
Let me add in, Gonzalve. One thing that we'll say is we're not giving specific guidance on price, but we'll say that price will contribute in 2023. We can't really talk about the specifics as we're still negotiating with customers as part of your question in terms of when they'll be implemented. A lot of them are already locked in, but we're still closing some of them out. Mix will contribute more than last year. Still as we refine our RGM processes, and volumes will contribute not to the same extent as in 2022 because as we said, it was almost half price, half volume in 2022. Volumes will to a lesser extent, but still be positive in 2023. The next question, Christophe, was around total input cost inflation, what would 2023 look like. So, for sure, you got it spot on. It's not going to be input cost inflation is not going away, but it will be less negative than it was in 2022. As we get further on in the year, we'll give more clarity on that probably in Q1 and specifically show you some of the phasing of that. But to your point, you should expect to see the impacts in the first half of the year to be stronger and easing on the second half of the year, just as we're seeing sea freight and certain other elements of costs starting to ease a little bit in the second half of 2022. And then your final question on personal expense's impact on 2023. One thing that we'll say is our talent is super important to us. And so, what we are doing is you can see that other major companies talk about increases of 5% to 10% is a range that they give, and we're within that range. One thing that we'll say is we're making sure that we're being very competitive with our increases to make sure that we do retain talent. But all of those impacts are baked into our expectation of increasing EBIT margin in 2023.
We will take the next question from Marie-Line Fort from Société Générale.
I've got 3 questions. First one is about Inkbox performance in 2022. According to my estimate, the company made an operating loss of EUR 30 million. Can you confirm this? And do you maintain your target that the Inkbox will be accretive in 2024? And can you elaborate a bit on the levels? The second question is about the stationery division on its whole. What is your plan to stop the continuing decline of the margins? And the last question is about M&A. What is the pipeline? Have you got some targets in the field? Can we expect something in 2023? Thank you very much.
Thank you for your questions. So, when we acquired Inkbox, we said that it would contribute 1 to 2 points last year for the total company. It contributed 1. What gives me a lot of excitement about what it's going to do this year is the earlier-than-anticipated entry into retail in the U.S. It's a new way for us to bring the product not only physically to the consumer, but to get much higher levels of awareness of the product segment and category to the broader population. So, in addition to the direct-to-consumer website that you all know and hopefully have used, you'll now be able to go into a select number of U.S. stores in the second quarter and buy tattoos there and then for use. What we said is in 2024, it would be breakeven and then it would start being positive at an EBIT margin in 2025, and we're still on track to deliver that. The teams have the plans in place to deliver that both from a growth perspective as well as from an operating perspective. So, I'm really excited about what Inkbox does in addition to the other businesses that we've bought. Chad, do you want to talk about the stationery.
In terms of stationery, we have several things going on, Marie-Line. Number one is our performance. In Cello, we actually just did a relaunch of the Butterflow, which is part of our brand support that we had in Stationery in Q4 of this year, and Cello's had phenomenal growth. The team continues, and we've talked about this in the past, that is not -- that it's been a drain on the stationery margin. The team out there is doing a fabulous stop of really turning that business around. So, we continue to see year-after-year improvement in margin there. So that's one element to it. The second element is, as Inkbox continues to get towards that breakeven level, as you said, we will obviously increase our stationery margins. And all the work that we're doing on RGM is going to have a significant impact in 2023 from what we're seeing from just some of the core business stationery margins. So, we expect to see continued improvement on stationery margins from there. And then from M&A pipeline.
So on an M&A pipeline perspective, I'm pleased with 2022. We did Inkbox, Tattly, and AMI and if you want to reverse think about the funnel, that's 3 deals completed, probably more than about double that is the number of active discussions that we had that ended in us seeking the business. We probably analyzed over 100 different targets during the year and that funnel, I think, is strong. When I look at what we've got active and no, I can't tell you more than that, I think this would be absolutely the inappropriate time to tell you something very specific. I'm pleased. I see a good mix across core, more, and further afield. I see opportunities with geographic dispersion and I see them being good balance of growth, tech, and capability for our business going forward, always in support of our Horizon growth ambitions.
We will take the next question from Mourad Lahmidi from BNP.
I have a question on your brand support in 2023. Would you say that this year, your brand support as far will be more intense in euro terms than in 2022 or relatively similar.
We've talked a lot about all the innovation that we've been doing. So yes, we've talked about brand support in 2022 and 2023 is going to be another year that we continue to support our brands, right? We have EZ Reach going out into Europe. As Gonzalve spoke about, we are launching EasyRinse in retail in the U.S. We have some coloring things in stationery. So, we do expect to continue brand support in a strong way. So, versus 2022, the value will not decrease from a euro perspective. We'll continue to invest more as we launch more and more innovation.
Okay. And in terms of the OpEx, actually, I have the same question the intensity of OpEx deployment versus 2022?
Yes. And so, I'll start back with where we talked about gross margins will increase, and we said that will be tempered by the investment in our operations, so, both brand support and OpEx. And so, when you think about OpEx in 2023, we're going to continue investing in our global supply chain as we work on our integrated business processes, and we talk about our working capital efficiency and really, that's going to help us drive our inventory levels. Investment in IT. We're investing in innovation. So, all the innovation and insights that we talk about as part of our operating expense, our commercial capabilities. You can see the results that RGM is delivering. We're going to continue to invest in that so we can get more and more from RGM output, and we'll continue to invest in strategy and M&A. So many things, which are all driving this horizon growth, which drove the 13.8% at constant currencies in 2022. It's driven by both brand support and OpEx continue to support those is giving us outpaced growth and will give us this increase in gross profit next year even with the input cost inflation that we're going to have.
Okay. Finally have one following up on the raw material and it freight costs. I was actually surprised to see that it's going to be a headwind in 2023 as we all see some of the input cost easing on a spot base. So, is it the case that some of these costs are still baked in your inventories? So, we will not see any reversal before the second half?
Well, for sure, yes. So, we always talk about when something is in our inventory in it takes about 6 months is the rough number we give people before it hits the P&L. So, you will be seeing in the first half of the year, input costs and stuff that's in our inventory now that input cost inflation that flows through next year. But let's be clear, the inflation is still continuing. So, there's going to continue to be impacts from raw material throughout the year, both in our Lighter division and in Shaver, in particular. I think it's stationery won't be as much. So that's some of the reason we'll see some of the stationery margin improvement, but we're going to still see raw material inflation across our Lighter and our Shaver business.
We will take the last question from Cédric Rossi from Bryan Garnier.
Chad, I have 2 questions. The first one is to bounce back on Mourad's questions regarding freight cost. I was also surprised to hear that you were expecting sea freight cost to be a headwind because it differs a little bit from what we are hearing from other consumer groups. So, I was curious to have your view on that. And the second one is regarding the premiumization strategy in Shavers. So, it works, obviously. But I recall that during the past in 2008, 2009, you were gaining market share, thanks to the value for money positioning and the positive price gap versus your competition. So how do you maintain this price gap? And how do you deal with it and to make sure that you are not perceived as being too expensive for your customers? And the last one on Shavers, so you were kind enough to give the share of value-added products in Lighters. Could you also tell what is the share for Shavers?
Let me take your first question, which is the freight cost. So, as I was just explaining to Mourad, the sea freight costs that we see in the second half of 2022 as the spots are starting to drop, realize that we have those costs in our numbers in the second half. The first half, when you think about a comp basis, Q1 or first half of 2022, the cost increased throughout the year and then they started to decrease. So, we're going to see some of that impact from the second half and our first half. As we go into the second half of the year, you're right, we will start to see easing of that. And then market share, I'll hand that over to Gonzalve.
So, I'll do it in reverse. It's 63% in shave, the percentage of added value. And thank you for your question on premiumization and relative pricing positioning on value versus the set, which is a great question. So, it's 2 things that happen at the same time, but they can kind of be distinct. And what I mean by that is, when we talk about premiumization, you're talking about products that retail at a higher price for greater innovation. It doesn't mean it's just price increase and going up the ladder kind of arbitrarily to the consumer. We still absolutely must remain that value and valued brand, right? That double equation is so important. The consumers love the brand. They love the promise, they love the shave and they love the price of the shave as well. So, it's valued and value. Now if I was to take all the shave products and put them on a kind of slope for you, you would see that there's a tremendous range, both total market but also for BIC. And so that's where it allows us to make sure that we stay relatively constant in our facial price difference versus our major competitors. To your point, we don't want to get "too expensive". Now when we're delivering amazing breakthrough innovation like on EasyRinse, you absolutely want to capture the full value of that innovation relative to the total set. Does that make sense?
Yes. Very clear. Thank you.
There appears no further questions. There are no further questions at this time. I'll hand it back over to your host to conclude today's conference. Thank you.
Thank you, everyone. So as usual, we remain at your disposal to answer any follow-up questions, so do not hesitate. A short reminder on our next publication. So, the Q1 2023 results will be released on April 25 after market close. Thanks again, and have a great day.
Thank you.
Thank you.
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