SEBYY - SEB SA (SEBYF) Q4 2022 Earnings Call Transcript

February, 25 2023 02:00 PM SEB SA ADR

SEB SA (SEBYF)

Q4 2022 Results Conference Call

February 23, 2023 08:30 AM ET

Company Participants

Stanislas de Gramont - CEO

Nathalie Lomon - Chief Financial Officer

Conference Call Participants

Charles-Louis Scotti - Kepler Cheuvreux

Marie-Line Fort - Societe Generale

Christophe Chaput - Oddo

Sarah Thirion - TP ICAP

Presentation

Stanislas de Gramont

Ladies and gentlemen, thank you for being with us to attend the presentation of Groupe SEB's 2022 Full-Year result. I will be taking you through those results together with Nathalie Lomon, our Chief Financial Officer. And I will be following the current agenda, which is we will look at as an interaction, what is the group strategy and how it's going. Then we look at the key operational highlights for 2022, the key ESG highlights, then we look at financials and we will finish with an outlook to 2023 and beyond.

Right, as way of introduction, a reminder of our key figures that were published yesterday in our press release, sales are close to €8 billion, minus 4.7% like-for-like, of €620 million for the full year lending and operating margin 7.8% and adjusting EBITDA -- adjusted EBITDA of €874 million, minus 16% year-on-year and net profit at €316 million. CapEx stood at €345 million, 4.3% of sales. We landed our inventories at €1.682 billion, 21% of sales. Our net financial debt stands at €1.973 billion, giving a leverage of 2.3 times. And last, the Board of Directors will propose to the May general assembly a dividend of €2.45 per share, stable versus 2021. Of course, Nathalie will come back to those numbers. But before going into that, I'd like to remind all of us what is the group's main strategic drivers. The first driver is a multi-category, multi-activity strategy. Groupe SEB is operating in around 80 private families, split between cookware, kitchenware, split between kitchen electrics either electrical cooking or food preparation. We have a strong division in Home & Personal Care. And last, we expanded since the acquisition of WMF, Schaerer back in 2016 into the professional business.

So the first key pillar of the strategy is a multi-category multi-activity portfolio. The second key pillar is we have a multi-brand approach. We have four kinds of brands. We have consumer international global runs. You will all know TEFAL Groups, Rowenta, Moulinex which are those international global brands. We have some pretty strong local brands, Supor is the biggest one of them. Supor is our brand in China -- main brand in China, but we also have Arno in Brazil or IMUSA in Colombia. We have a portfolio -- a growing portfolio of premium brands with VMF, Lagostina and All-Clad in the United States. And more recently, we've acquired professional brands with WMF, of course in Schaerer, but also the acquisition of Curtis back in 2018 in the U.S., Krampouz 2020, Zummo last year and La San Marco very recently. The third pillar of the strategy is a multi-country strategy. We have a very balanced geographical portfolio. We do a third of our sales, 35% in Western Europe, which is the homeland of most of the activities of the group. We've developed over the last 15 years, a very strong business in China, which now weighs 27% of the group. Our third region is North America with 13%, other EMEA, 13% and then other Asia 8%, South America 4%. We're operating in 150 countries and one is bit more specific about service that we have leadership positions or one or two position in over 75% of our sales portfolio. The fourth element of our strategy is a multichannel strategy. We believe that our consumers should be allowed to reach our products as and where they want in all kind of distribution channels. So our historical channels, mass retail, traditional or electro specialists are still the more important part of the group sales. We have developed in the last 15 years a group own retail activity. We have some other channels with department stores. And of course, what has been developing steadily, fastly in the last five to 10 years is the online sales and I'll come back to that to share the developments in 2022 on that front.

Moving on to 2022, I will take you through what has gone on in terms of products, in terms of brands, in terms of international expansion, in terms of distribution and in terms of investments towards increased competitiveness of the group. Starting immediately with products. Products and innovation are the heart and soul of our business and our industry. And we have a very, I would say, simple and straightforward authorities in consumer. We see massive expansion potential in consumer small electric appliance through new functionalities that improve consumers' well-being that makes simpler products, better products, more capabilities. That is something that is working and will be working. We also work on the consumer experience from purchase to the end of life of the product. And I would also dare to say, beyond the end of life of the product more and more, we work on consumers' engagement based on a best-in-class understanding of their behavior and data collection. More and more, we try to anticipate and meet consumers' needs pre, during and post purchase through an understanding of the way they behave with the products. And last and again, that's maybe a point of differentiation. We do that with an ethical and sustainable approach. As far as professional is concerned, we have, as you know, a very large range of full automatic coffee machines, that is developing and that's basically aiming at offering the best service and the best product for our consumers and our customers.

Now moving into a bit more specifics for 2022, what happened. Maybe the starting point is to talk about oilless fryers. Oilless fryers is a major growth driver in 2022. And the sales of this category for us has just multiplied by four in the course of the last three years. On this picture, you see that we operate oilless fryers under all our brands, Tefal, of course, as an international product, Arno in Brazil, IMUSA in Colombia are key brands for oilless fryers. Second thing we've been doing very consistently is the continued international rollout of our best-selling products. We developed ourselves very substantially in versatile vacuum cleaners in the last five to 10 years and the growth in the last few years have been 70%. We have developed and traded up the Cookeo range with Cookeo touch that is now 30% of Cookeo sales twice as much as it was in 2020 and even on more staple innovations like Ingenio Merci, like differ Ingenio, the stackable cookware, we've reached new heights with 25% plus penetration in our top two markets, Japan and France reached, shows somewhat the potential of this category and this market segment. We have launched successfully some new products. We have a very great range of kitchen knives with the Black Knifes collection from VMF that was launched late last year. We've developed and expanded infrared technology rice cookers in China. Rice cooker is a massive category in China as we expect, around 15 million pieces sold every year. And those infrared technology, rice cookers, now weigh up to 12% of sales, total rice cooker sales in China, which is a very, very strong result. And last, we're expanding our range of cookware through new coatings, ceramic being one and we are expanding rapidly ceramic coating pans and pots on the Tefal brand. Last but not least, of course, we've introduced last year the VMF perfection, that is already available in over 1,000 premium outlets in Europe, out of which 75% in Germany, promising launch and that's a great product with Diane Kruger supporting us for these activities. That is for consumers.

For professional coffee, we have a very strong momentum in machines development. We cover a wide range of products from the 9,000S which is the kind of world choice that makes some runs of coffee in the same day to smaller models. And we have the WMF very sound the bottom right, which is a machine that looks and feel like a Barista machine that gives the convenience and practicality of a fully automatic coffee machine. Schaerer also has very strong product activity, top right corner, you see the Schaerer soul machine that is new launch for this year. On the top right, you see the showroom of Schaerer in Seville in Switzerland. And we've also put your picture of Luckin Coffee. Luckin Coffee is the number one coffee shop chain in China. They have over 8,000 outlets and we are a preferred supplier of coffee machines in that banner. So a very strong development of Schaerer. Last, I mean I cannot finish on that part without mentioning our latest acquisitions. We acquired last summer, Zummo, which is a Spanish born company in Valencia, which is the global leader in juice extraction machines, expanding its business in Spain, of course, but also France, U.S. and many other countries. You'll see those machines typically in supermarkets or in small convenience shops. And most, most, most, most, most recently, we've acquired an Italian company called La San Marco. Italy is a country close to my heart as some of you may know, La San Marco is a traditional coffee machine maker. They're based in [Indiscernible] in Northeastern Italy. They are manufacturing and marketing traditional coffee machines, over 100 years of existence, marked by innovations. They are already the leaders in the traditional lever coffee machines, lever operated coffee machines. They have exclusive patents and trademarks on that. They turnover around €20 million, half of that out of Italy. They have close to 100 employees. It's a very, very nice complement to a portfolio of professional coffee machine and we are delighted to welcome the La San Marco employees into Groupe SEB.

We've worked a lot in 2022 in developing our brand portfolio and as Supor has passed the €2 billion mark, we now can say that we have over €2 billion brands in the group. Supor and Tefal, Tefal is the most international brand of the group. Supor is very Chinese. Both brands operate on a very large variety of categories, cookware, but also kitchen electrics, food preparation and both brands are a leader in many of the markets they operate in. Beyond Supor and Tefal, we have Rowenta that is helping us lead the way in categories like conceding and linen care. We have Moulinex with the number two global brand in food preparation globally and Moulinex that was born and developed in France and Western Europe is expanding across that geography. We are IMUSA, which I mentioned, IMUSA is our leading brand in Colombia. It's the number one brand in Colombia, operates in both cookware, kitchenware and kitchen electrics, food preparation in particular. IMUSA is a key pillar of our brand development in Colombia. Now this is one we like particularly, SEB, which is the origin of the group. And we've taken this picture because today or this year is the 70th anniversary of the production of the first pressure cooker in the SEB factory in [Solange]. We produce over 50 million pressure cookers in that factory. We still produce them and SEB is one of those very strongly rooted local brands that populate the portfolio of brands of the group and that is a very nice complement to our portfolio.

Then we have, as a reminder, All-Clad, number one premium brand in cooker in the United States, probably the most premium cookware around in the world. We have WMF, which is, again, also born in cookware, born in Germany, but that is expanding as All-Clad into kitchen electrics, you'll see steam cooker under WMF brand, very beautifully designed products. And as a reminder, we have this fantastic Italian jewel called Lagostina, which is one of our preferred premium brands, very different distinctive assets and values for this brand. So very strong and dynamic brand portfolio, a lot of things happening on that front. We've also worked very hard in 2022 to enhance our international presence. And I will cover three parts. Maybe starting with a deep dive on China. China is an ongoing success story for the group. We've reached in 2022 sales of €2.1 billion, 5% up on last year like-for-like. But if we step back, our sales in 2006 were €145 million. That means, I've done the expiry of the calculation, 15x growth in 16 years. We can say that it's a pretty established success story. Supor is a very strong brand in China, as enjoys 84% brand awareness. And if we dig into what happens, what goes on and how we got there? Well, we've reached number one position, this is breaking news, this is breaking news. We've reached number one position across all our categories in kitchen electrics in China, both online and offline. We are number one online, not offline, now it's done, with 25% market share and that is driven through innovation. 40% of our kitchen electric sales are made on new products every year in China. So a very, very strong product. You see beautiful products. You'll see a coverage of different categories of products, which is vast and growing. So that's a first element is our success in Kitchen electrics and the growth we've been able to generate in kitchen electrics.

The strong role of Supor was originally into cookware. We have maintained a very high share position. We have 35% share in cookware in China, leader, of course, in online and offline. And again, that's driven by a wide range coverage, the ability to cover all price points, innovation, you see some material innovations on the left side of the corner. So the first pillar of the success of Supor in China is its product portfolio and its ability to innovate. This success is also based on highly competitive manufacturing base. We have five state-of-the-art plants in Supor in China, plus one in Vietnam. We have a capacity of more than 150 million units production capacity. We serve the local Chinese market and we serve the international markets through these production capacities. And this is a very, very -- our 10,000 employees are a very strong support to the development of the business. And maybe the last point I would like to highlight is a remarkable ability of our teams in Supor to access and adapt to a very fast-changing market conditions. You will have followed our ventures in China to realize that over 70% of our sales now are online. And our online distribution picture moves very fast. We have marketplaces, we have social networks that become trading and Supor's remarkable ability to adapt. We're using over 2,300 influencers to help us day in day out do that. We are penetrating the on 2F stores. Now what is a non-on 2F store, it's a store that has been created by Tmall Alibaba or Jingdong to be a local relay of online sales. So the array of China is that the online platforms create physical stores. And we've been able -- and that started I think two, three years ago and we've been able to penetrate 64% of those stores in the span of the last two years.

But better than any speech, let's watch this around two minute video on Supor [Foreign Language]

[Audio/Video Presentation]

All right. So Supor is clearly a big success and 2022 is another record year for this company, but not only -- sorry, I'm moving too fast. We also have some blossoming markets. We've taken three out of our 2022, Colombia, Mexico and Poland that are all part of our top 20 countries, that all post double-digit growth consistently over the last three years that have reached number one position in cookware, number two in SDA for two of them. And that's to say that the group geographical strategy is also made of, yes, big countries, but also the ability to penetrate and grow our business in smaller countries that are bound to become bigger market for us. Do it through strong local or global brands, we do it through products which are designed to match local consumer habit needs, category range extensions and those countries now significantly contribute and support the growth of the group. Another key element of the geographical development of the group has been in the professional business. When we acquired Schaerer and VMF, they were majority sold in Germany and Switzerland. And we see a few years later, a much more balanced portfolio with North America, Europe and Asia, sharing pretty comparable stakes of the business. Asia is a bit behind Europe is still a bit ahead, but the international expansion of the coffee business is clearly there with some specifics in China, in Asia, we are pushed and helped a lot by Luckin Coffee, which is the number one customer. We have a strong rebound in the U.S. with Wilbur Curtis, which is a nice addition to the Schaerer brand, that allows us to expand and widen our customers' portfolio.

In that we've -- sorry in Germany, Switzerland, Austria, we've been able to see a strong acceleration both of VMF and Schaerer and that growth is driven both by machine sales and service, which is also something we're very interested in. We've developed substantially our distribution in the last year or so. Online sales now represent over 40% of our total sales. Of course, when we speak and talk online, we think of pure players, Amazon type or click and mortar like darty.com, [longly.com], mediamarket.com. We have expanded in the last year -- are present on marketplaces in China and beyond China. And we are more and more expanding our direct-to-consumer capabilities. We have developed in the last three years, 70 brand.com websites, brand.com website, can be for instance Rowenta.fr or Tefal.uk. We have 70 of those. We received 55 million visitors on our websites last year and we have 20 new store opening in the sole 2022. So a growing business, a growing capability that allows us to give our customers -- consumers access to our products as and when they visit us. We've also used 2022 to keep investing and developing our competitiveness. In -- our industrial footprint comprises over 40 factories between France, Germany and Asia. This is a global portfolio of factories that has allowed us to maybe serve or be a bit more immune to other stock issues or supply issues in the last two years. Having our own manufacturing footprint and setup allows us to secure the supply chain in a moving environment, that's [Indiscernible].

And we are currently increasing our investments in Egypt, in Czech Republic, in Vietnam and in Colombia to diversify our sourcing basis that allows us to improve diversification, that allows us to improve our agility and global competitiveness. You will have seen, I won't come back to that, that we are reorganizing our activities in Germany, putting together the sales activity of MF and SEB [Inda]. That plan is currently being discussed with social partners and we will have -- we should hopefully reach a conclusion and move into execution in January 2024.And maybe the last point on that one is, we've been investing to optimize our supply chain and our distribution setup in France and in Western Europe. We are opening this now -- those days, this new warehouse of 100,000 square meters in Bully-les-Mines in the north of France that would be serving Western Europe with small domestic appliance products. That was for the operational highlights. I thought it's useful to remind ourselves and to look at what has been -- what have been the achievements in environment, social and governance matters. Starting with the carbon neutrality trajectory, we aim that by 2050 and we've reduced at the end of 2022 by 30% our carbon intensity in Scope 1 and 2, that is mainly our plans, starting from a base of 2016. So we are on track to achieve our objectives of 2023 on that matter.

The second point I'd like to share is the focus on circular economy. We've been talking a lot in the last years of those two matters. We have today 90% of our small domestic appliance products out of China, which are recoverable for 15 years. We hold inventory of Peugeot spare parts in [Indiscernible]. So we have our own inventory of spare parts for 50 years. We have 42% of recycled materials in our products and packaging. So today, 42% of what you buy is made of recycled material. That's on the environment part. We have a strong activity also on the social part. We've been measuring ourselves in lost time injury rate, that is safety in our setups, be it factories, logistics centers or retail stores. We have reached in 2022, a lost time injury rate of 0.84. People say that below one starts to be a very, very good performance. We've reached 0.84 coming from 2.6 back in 2018. We also being an industrial company, we also look carefully at our women manager ratio. That is the number of women who are managers compared to the number of women in the workforce. Today, this ratio is at 95%. That means women are 43% of the staff -- of the workforce of the group and 41% of our managers. And combining environmental and social matters, we are developing RepareSeb activity. RepareSeb is this toleration, this action to repair products that we've opened [Foreign Language] three years ago in Paris. That is combining, repairing and reconditioning products with reinserting, reintegrating people in so in the work society. We take people that have no work left and no mission to work. We bring them back into a professional life. That activity has been recognized by a few rewards.

And of course, as these ESG matters are very important, we are being audited and followed by quite a few companies that are providing ratings. Those ratings put us in a very nice position in many instances. The last part of ESG is the G for governance. 2022 has been a very eventful year. After 20 years of tenure as Chairman and Chief Executive Officer, Thierry de La d'Artaise has moved on to become Chairman of the Board and as the Board has appointed me as Chief Executive Officer of the company. It's a very nice way of dissociating the activities between the Chairman and the CEO and we have a great understanding of the respective roles of one and the other. Beyond that, we have created a strategic committee as one of the board committees that started in July 2022, chaired by Thierry de La d'Artaise, comprising of five board members and its main responsibilities are corporate social responsibility strategy, M&A and competitive intelligence. And maybe the last point on this ESG is, we've increased 3x the share of ESG criteria in the variable compensation of the corporate officers and the senior leadership team. Those are quantitative criterias relating to carbon environment relating to health and safety and relating to ethics and compliance. So obviously, 2022 has been a very eventful year, but it's also been a year of mark by [Technical Difficulty].

Nathalie Lomon

So looking at the financials of the company, starting with the sales. In 2022, the group has delivered around €8 billion sales when compared to 2021, it's a decrease of 1.2% on a reported basis and this is coming from an organic decline of 4.7% minus €378 million, a positive effect from the conversion of currencies for 3.3%, plus €269 million. And you see on the right hand side of the chart, the contribution of Zummo that Stanislas mentioned earlier, the Spanish company specialized in juice extraction for the professional segment that we have acquired in August and consolidated in the fourth quarter. Looking in more details into the currency impact. First, globally currencies are impacted reported sales throughout the year. As you can see, we had positive impacts in all quarters, with very strong impact coming from the revaluation of the Chinese Yuan, the U.S. dollar and the Russian ruble against the €o that you would see on the green part of the chart and negative impact coming from the constant devaluation of the Turkish lira that you would see on the right-hand side in red. Later in the presentation, I will further comment the adverse impact of the evolution of the Chinese Yuan and the U.S. dollar on the operating profit of the company. As you know, the group had short positions in those two currencies. They're coming from our purchases of raw mats, of components of sourced products that are all labeled into those two currencies.

So on sales, looking at the performance of our two segments, the consumer delivered €7.2 billion sales. It's a decrease of 2.6% when compared to 2021 and the professional segment delivered €700 -- sorry, €25 million sales. So it's close to a 16% growth. So we're really back on track after having strongly suffered from the COVID crisis. More details on how our sales have developed in the year. This chart is an extract of the detailed presentation that we have shared with you on January 30. And first, starting with France and Germany, so after a buoyant performance in 2021, obviously, the group faced very high comps, combined with the decrease in demand with high inventories in the trade and with the increase of B brands. The two countries are the largest contributors to the sales decrease in 2022. The war in Russia between Russia and Ukraine also had a negative impact, minus €77 million on our business in those two countries. And then on the positive side, our sales in China have increased by €241 million despite the drop-downs. And for the first time ever, Supor crossed the €2 billion line in terms of sales, so that's a record for this subsidiary. The professional, as I mentioned previously, saw sales increasing by close to €100 million. And then all the other countries combined have delivered quite a resilient sales performance in 2022 after the record 2021.

Now moving to the operating results from activity. So the group has delivered €620 million ORFA, with an operating margin of 7.8%, so slightly higher when compared to our latest margin expectation. And in the next slide, I will walk you through our margin bridge to help you understand how this has been delivered in the year. So first of all, the group has been impacted by a clear decrease in the volume sold, which has started in the second quarter and has accelerated in the second half. And so this is representing a negative impact of minus €359 million on the operating profit. And if I were to refer to the slide I have commented previously, altogether, France, Germany, Russia and Ukraine represent 70% of this negative volume impact. We also have seen throughout the year, the supply and production cost of our sales increase by €367 million. And so the major items explaining this increase are the cost of raw mat components purchasing for €137 million. The freight mainly sea freight for €91 million. And on top of that, as announced earlier in the year, as a consequence of the action plan to reduce our inventories, we have adjusted our production level to accommodate to a lower demand. This adjustment in our production capacities has had a negative impact on our manufacturing cost absorption of €75 million. And last, but while we are decreasing our inventories, we have encountered additional storage cost for €45 million. So these are the bulk items explaining this increase in cost of sales. But all these negative impacts have been compensated by price increases in average 5% when compared to last year and mix enrichment. Though this positive price mix impact is €600 million, actually €598 million and it reflects the pricing power that stems from the group's leading position that Stanislas has commented earlier on.

Now moving to the growth drivers and the SG&A expenses. You may recall that at the end of the first semester, we saw an increase of €101 million of growth drivers and SG&A when compared to H1 2021. And we had announced at that time that we would adapt our cost base to the change in the environment. And so we have decreased our expenses by €82 million in the second half of the year when compared to H2 2022. We're closing the year with a limited increase of growth drivers and SG&A of €24 million when compared to 2021. And last, currencies. So the positive impact on sales that we have seen previously is more than offset by the increase of costs denominated in U.S. dollar and in Chinese Yuan, despite the benefit of the Forex hedges that we have contracted before the devaluation of the €o. So in total, in 2022, we have faced very strong headwinds, totaling approximately €270 million and they compare to the €300 million that we originally announced. So €137 million from raw mats, €91 million from freight, €41 million from currencies. In this slide, I want to give a further deep dive on the headwinds and how they have impacted the profitability of the group in the past two years. So back in 2021, headwinds amounted to €300 million. As you can see here, you have the breakdown between raw mats, freight and currencies. And then on top of that, we have experienced another €269 million of additional headwind, so it's a total of €569 million of headwinds that the group has faced for the last two years.

In 2020, the group has delivered an operating profit of €605 million. In 2022, the operating profit is €620 million. So it means that between those two years, the group has offset this amount of headwinds, €260 million of raw mats, €245 million of freight and €65 million coming from currencies. The resilient operating result between 2020 and 2022 acknowledges the fact that the group is absorbing, is compensating for those headwinds in the very short time frame. And the group is in a position to use its pricing power to contribute to the offset of those headwinds. In 2023, we expect that some of the past headwinds will turn into tailwinds between Q2 and Q3. So we see cost decrease in freight, in raw mats and in components purchases, but those cost decrease will materialize later in the P&L in the year when the current inventory, which has been built with 2022 cost base will be exhausted. And then as far as FX is concerned, the benefit we had in 2022 coming from hedges is fading. So altogether, we expect that the impact of tailwinds from freight and raw mats and the impact of headwinds from FX and especially hedges that we do not have any more will globally offset. And so we have almost a neutral impact of headwinds in our P&L in 2023.

Now moving to our growth drivers. So this slide is showing the same trend as in the rep average that about the FX impacts, I won't get into details, but I would like you to note that despite the headwinds, we have increased our innovation spend by 6.4% between 2022 and 2021, without jeopardizing the future, we are adjusting our cost base. And if you look at the increase versus 2020, it's a significant increase of 24%. Now to the operating profit. So between the operating result from activities and operating profit, we are distributing €18 million of profit sharing, so that's a decrease when compared to 2021, but it's reflecting the lower profitability of the perimeters in which we distribute profit sharing, that's mainly France. We have other operating income and expenses totaling €55 million, they would include €33 million of restructuring cost, mainly in Germany with the cost of the reorg between VMF and [Indiscernible] that Stanislas has presented and that we have commented in detail in Q3. So net profit for the year is €316 million coming from operating profit of €547 million. Financial results is minus €81 million. It's a deterioration of €16 million when compared to 2021, which is coming from two items. The first one being the higher cost of funding our business, totaling €6 million. And the second one is more technical. It's a change in the mark-to-market value of options that we take to cover our share purchases for long-term incentive plans. Non-controlling interest pertain to our minority shareholders in Supor, StoreBound and in Zahran and our tax charge has decreased. Our effective tax rate is down 21% when compared to 2021, it was 21.9%.

Moving to the balance sheet. With the structure, which is strengthening year-on-year, you can see that the total equity of the company is now close to €3.5 billion. Provisions have decreased. This decrease is related to our liabilities for our pension schemes. They've been revised downwards because of increase of long-term interest rate that we use to discount our liability. And I will comment with further detail the change in operating working capital and the evolution of the net financial debt. So starting with the change in operating working capital. Our working capital requirement is €1.4 billion at the end of 2022. So it's an increase of €278 million when compared to last year, but it is a significant decrease when compared to June, when we reported a working capital requirement of €1.8 billion. So since June, the major decrease came from the inventories. At that time, we had in our balance sheet €2.2 billion of inventories and we're closing the year with €1.7 billion. So this significant decrease is the result of the action plan we have implemented to reduce our production and outsourcing to accommodate for the reduction in demand that has materialized in the second quarter. As a consequence, our payables have decreased as well as a consequence of lower purchases, lower manufacturing and decreasing growth drivers in the fourth quarter.

So we're closing the year with a working capital on sales ratio at 17.5%, which cannot be compared to the performance we delivered in 2020 and 2021 because the level of activity of those two years at the year-end was heavily impacted by the consequences of the COVID crisis and the level of demand for our products. So as such, the ratio we have delivered this year is more comparable to the ones we delivered back in 2018 and 2019. And we could consider that delivering a working capital and sales ratio between 16.5% to 17.5% of sales for the company would be a normative value. Now I'm coming to the free cash flow generation. So we come up with a very strong 664 free cash flow delivery in the second half and a total cash consumption of €20 million in the year. So in 2022, we have delivered €874 million of EBITDA to cover for the change in working capital to pay for the capital expenditure, which remained pretty stable when compared to 2021 in percentage of sales. We have also paid taxes, interest for €186 million and we also have a change in non-operating working capital, which is mainly coming from physical and employee-related liabilities. So very strong cash flow generation in the second half of the year. The impact on the net debt of the company is as follows. So we're closing the year with a net debt of €1.973 billion. The increase from 2021 comes from the cash consumption of €20 million, payment of dividends to SEB shareholders and to support minority shareholders for €204 million, some change in the currencies between the year-end balance sheet numbers in the two years. And the last item, other €197 million comes from the acquisition of Zummo that we did in last August. The investments we do in SEB Alliance, which is our venture capital vehicle and some share buybacks in SEB and in Supor stocks.

More details here on our financial debt. So we have in our balance sheet €2.7 billion of financial resources. As you can see on the chart, they are broken down by instrument and you can see that we have access to a very large area of funding instruments, well balanced in terms of maturation and duration. 90% of this debt, long-term debt is fixed term. We have no covenants on the debt and we also have a very large headroom made of an undrawn syndicated credit line of €990 million and the capacity to issue new CPs, a NEU MTN for €750 million. We also have €1.300 billion in terms of cash and cash equivalents in the balance sheet. Looking at the financial ratios over a long period. So we're closing the year with a gearing of 0.6 and a leverage of 2.3, 2.1, excluding IFRS 16, which is impacted by the increase of working capital for sure, impacting the level of net debt, but we're looking for a further deleverage in the year to come. And then last, but very important, the dividend. So as announced by Stanislas, the Board has proposed to the general assembly, will propose the general assembly a cash dividend of €2.45, which is a stable dividend when compared to 2022. So as you can see on the chart and with the exception of the 2020 distribution, which was reduced because of the COVID crisis and the recommendation from AFEP, the group has delivered a steadily growing dividend over time. And I remind you that shareholders who have registered their shares and on them for more than two years benefit from a 10% bonus on this cash dividend. Over to you, Stanislas.

Stanislas de Gramont

[Foreign Language] I will conclude in a couple of slides. Maybe to remind ourselves of two facts, the first one is we see our industry with very positive long-term prospects, positive because we have strong trends in both mature and emerging markets. In emerging markets, we see first equipment levels, we see sophistication and increasing sophistication of the needs, same as in mature markets, despite having strong consumption levels, we see trading up happening. We see multi-equipment happening with new categories, popping up very regularly in our industry. So we have a strong, strong long-term growth potential for the industry. And we also see some very favorable long-term consumer behavioral patterns. We hear and see healthy cooking. We hear and see healthy living, taking of your home, home made my home case. There's a lot of concepts where people take care of their home, they take care of their families, they take care of what they did. And our products are very well positioned to meet those consumer trends. Beyond that, I think the group -- we believe the group has some very strong assets. We have a proven track record of long-term value creation that has been consistently proven year-over-year-over-year. We have, as you see, leading market shares worldwide and that gives us a unique position to benefit from those trends. We have a very balanced position in categories, in markets with brands in distribution. We have expanded six, seven years ago with the acquisition of VMF into the professional business and after the pickup of the COVID we see in 2022, the professional restarts its journey towards a very strong growth -- profitable growth contributor to the group. Innovation was, is and will be at the heart of the group's core development. And last and not maybe was one of the more specific unique points of the group. We've made sustainability as one of our pillars many, many years ago. Repairability is something that is more and more popular and we are convinced that this will only increase over time.

Now I know that we are all enthusiastic and excited about the future, but there's also some strong interest in current trading and 2023. Well, maybe four points. The first one is, 2023 starts, so Q1 will be below Q2. That's on the base of Q1 last year that was still on par with a very, very strong Q1 2021. So it's a comparative number issue, that is -- and that's confirmed in what we see today. We see from Q2 onwards a progressive recovery of sales in the consumer segments. We see throughout the year, a strong growth in the professional sales. And when it comes to offer margin as and based on the assumptions of tailwinds being compensated by currency, by negative currency hedging impacts, we see an increase in the full year group of our margin. That's what we can say at this stage of the year. Maybe I will conclude by thanking, by giving a massive thank to all the teams in the group that throughout 2022 have helped us navigate what has been a very shaky year in a very shaky environment. Our second half is very different from our first half and that's all credit to the group's team throughout the world that have been able to unite as one to curve down inventories, to make sure that we adjust our cost base to our business requirements and needs. So a big thank to the teams for navigating through 2022 and looking forward to having 2023 that will be a bit less shaky hopefully, but that will bring some better prospects. Thank you very much. We've taken 55 or whatever minutes. We have now a lot of time for your questions.

Question-and-Answer Session

A - Stanislas de Gramont

Yes [Foreign Language].

Unidentified Analyst

Just a small question for me, I'm here for Nathalie on the slide…

Stanislas de Gramont

Can you stand up? So let me see you.

Unidentified Analyst

Just to perhaps detail €158 million other noncash items.

Stanislas de Gramont

You said slide…

Unidentified Analyst

76.

Nathalie Lomon

76. Yes. So it's broken then between -- well, the two biggest contributors of this slide, yeah, the first year -- you know that we have acquired a business in 2020 that was -- which name is StoreBound in the U.S. So it's a partial acquisition that we have made at that time, we acquired 55% stake in the business. And we have a put option given by the current shareholders to buy back the 45 remaining. So a part of that is that the valuation of that put option. And the second part is a draft that we issue in China to pay for our suppliers. So it's considered as another noncash item and that would be the two major components of these numbers. But if you want to get more detail, there will be more details in the publication.

Unidentified Analyst

I had a question there.

Stanislas de Gramont

Would you mind standup what?

Unidentified Analyst

Yes, it's not easy to stand up.

Stanislas de Gramont

[Foreign Language] Don't stand up.

Unidentified Analyst

So two questions on my side. The first one is on China. Could you share with us the outlook in the short-term for the country for Supor, China is reopening, consumers are reported to have double the excess savings. So is it going to boost your revenues over there? And my second question is that in the second half, you return to the cruising 10% ORFA margin, is it something to extrapolate for the next year or is it too soon?

Stanislas de Gramont

Are you one who asked -- thank you. Nathalie will take the difficult question on ORFA margin, I will take the easy question on sales trends in China. Right. China has gone through a very, very peculiar moment. I mean we saw China re-opening like back in December. We saw massive and very fast rate of infection. There were some concerns about the impact of this massive flow of infections on the Chinese population. Then Chinese New Year happened and what we can say one is there is no [Indiscernible] on our activities, all our workers are back, our factories are up and running. The supply chain is functioning. Things are working. That's the first thing that we can say. Second, yes, there has been a lot of savings in Chinese consumers throughout COVID days. Today, we see consumption booming, consumption today booms on services and leisure and travel. And so today, we don't quite see an impact on our consumption and our current trading in China is negative and that's okay, that was expected. Yet, we are -- we see China around mid single-digit evolution through 2023, probably a slower start to the year as the rest of the group, but we see that building from strength-to-strength. Remember that China last year in Q1 was up 10% versus a year ago. So steady -- so we see steady consumption. We see our business mid-single digit. And today, we don't see a direct strong impact of those articles on the resumption of consumption on our categories. [Foreign Language] Nathalie? Does the 10% ORFA margin, is it predictive of back to 10% full year?

Nathalie Lomon

There are many ways to answer your question. So first I will confirm you that 10% ORFA margin is the target for the company and this is -- we're comfortable with for managing the profitability of the business. But then you know that there is always 4% to 5% difference between the ORFA margin in the first semester and in the second semester and that is coming from the fact that we have a significant part of our cost structure, which is fixed, whereas we deliver between 44% and 46% of our sales in the first half and the difference in the second half. So by construction, there is always operating leverage delivered in the second half when compared to the first. So what we can say about this performance in the second half that it's very characteristic from the business model of the group, that very, very happy with the fact that we have managed to deliver 10% in the second half despite the headwinds, but as Stanislas said, Q1 will be a tough quarter because of the comparison base of last year. And so we do not expense -- do not expect to see a change in the pattern of the ORFA delivery between H1 and H2. So do not expect H1 being at 10%, that will not be the case and there will still be a significant difference as per what we have delivered in the past between the two quarters. We said that would deliver -- we expect to deliver an increase in ORFA margin in 2023, but that is to compare to the 7.8% that we'll deliver. And for sure, we confirm that the midterm target of the company is 10%.

Charles-Louis Scotti

Charles-Louis from Kepler Cheuvreux. For the consumer sales, you expect a rebound, a treasure rebound from Q2 onwards. So what makes you confident about this rebond beside the easier comparison basis? And the second question, on the professional business, when you say strong growth, can you quantify this growth? And how much visibility do you have as you have very high backlog? And can we expect the profitability to come back to pre-pandemic level?

Stanislas de Gramont

And could we expect the profitability to…

Charles-Louis Scotti

To come back to pre-pandemic level in the high teen -- to the pre-pandemic pre-COVID level in the high teens?

Stanislas de Gramont

We will not be much more specific on the numbers because if we didn't give numbers is because we don't want to give numbers because we don't have numbers to give, just to be very, very clear and specific. What leads us to believe in a rebound from Q2 is several factors. The first one is easier comps, I mean we know that Q2, Q3, Q4 last year have been impacted in consumer sales by bad comps or tough comps. So we think that will -- cycling that will allow us to have a better performance. We will have some recovery -- we see some recovery in our ailing markets, France and Germany. We are back in France by a strong loyalty program with a big customer. So we don't put a number, but we see that we've gone through that tough part of the sales performance. That's, of course, in the current macroeconomic context, I mean, if something happens like another war or whatever I don't wish for that, but of course, that's not taken into account. Strong growth in professional is over 10%, just to state that. And when it comes to margin recovery, I won't give you a number. What I can say is that, yes, there is a seasonality in the margin realization in the business. I mean Q4 is 35% of the full year sales and when you look at our P&L cost base, of course, the breakeven point is much faster reached in Q4 than in Q1. So you won't have a number, but it is a progressive recovery. And what we see in the papers today is not completely stupid.Yes, question on the right.

Marie-Line Fort

Marie-Line Fort, Societe Generale. Could we have got an idea about deleveraging trends that you forget -- you target for 2023, probably in terms of leverage. Can we've got also an idea about your CapEx and drop for the year? And lastly, could you comment also the big launches that you are targeting for 2023 in terms of new products?

Stanislas de Gramont

Nathalie, you take the first two and I will talk about the relaunches.

Nathalie Lomon

So you know that we don't give any specific or clear guidance regarding deleveraging. Obviously, this year has been -- Q1 in terms of cash generation and that mainly pertains from the fact that our working capital requirement have increased. So we had to cope with that and adjust our setup to have it decreased. So we're still working on the decrease of our working capital and that will be one of the trigger to come back to a positive free cash flow generation. So I don't want to give you a specific target regarding deleveraging, but we expect to come back to something that -- what we have seen in the past, whereas we confirm that the situation that we had in 2022 has to remain exceptional. And regarding the CapEx, that would be in the same average trend that we also had in the past. So consider 4% of sales is what you should have in your model.

Stanislas de Gramont

On the big launches, we are very active in many categories, starting with oilless fryers, which is the one that is developing fastest. We're expanding the range with oilless fryers that have a green function as well. We're expanding that also with double drawers, with ability to cook two things with two different programs at the same time that's coming in the second half of the year. We have -- on the Optigrill range of the -- of the OptiGrill range, we have a 41 grill version with Green Barbecue oven and kitchen assistant. So something that is very sophisticated and very nice. It's more something that is actually popular in Western and Eastern Europe than in France, [Indiscernible] Optigrill not really performed in France ever. We're expanding the VMF perfection coffee machine range with models between €1400 and €1600, that's on the kitchen electric side. We're expanding our vacuum cleaner robot trends with the extra 220. That will be -- of course, it has all the navigation that we have on the range of home vacuum cleaners, but you also have a dust emptying station that is when your robot goes back home, it needs a charging station. It can discharge the dust automatically for 40 or 50 cycles.

So that prevents you from having to do it with your hands, very practical. We are expanding in garment steamers in the United States with a full range of garment steamers from, I think, $59 to $109, something like that. That's big for the US. And we are expanding a lot our ceramic coating products in the Tefal range. Tefal has expanded in new materials with stainless steel, with cast iron, with cast aluminum and new coatings with ceramic and we are expanding that trend very substantially, tripling the number of markets, selling ceramics. All right? And then in professional coffee, we have -- that's a bit further away from consumers machines. We have -- we are developing a bean to match -- bean to batch machine in Wilbur Curtis, that mixes the technologies of bean made coffee into a batch production, which allows to have a jug of one or two liters of coffee and serve it in one shot. All right? Question on the -- one here and one there.

Christophe Chaput

Christophe Chaput from Oddo. I just want to come back on the organic that you are supposed to post, let's say, on 2023. So obviously, you do not give any figure, but would you say that it's going to be, let's say, a mix between volume and price or volume and mix? How is it going to evolve, let's say, the price mix and the volume?

Stanislas de Gramont

[Foreign Language] Nathalie?

Nathalie Lomon

So starting or building on what Stanislas said to, have in mind that Q1 would be a difficult one. And obviously, because of the comp base, we will still have decrease in volumes in the first quarter. So that would be partially compensated throughout the year. But what we have for sure in our basket is the impact of the price increases that have been placed over time in 2022 and that will deliver on a full year basis in '23, the mix improvement. So the latest products that have been launched in 2022 and where we'd see also the full year impact in 2023, plus the innovation and the mix improvement that we have in 2023. So what we consider now is a significant part of the growth will come from the full year impact of mix enrichment and price increases.

Stanislas de Gramont

Maybe to give you a bit of color, we don't have price increases this year, except in those countries where there is a very volatile currency, I mean when you have 25% currency devaluation, there's no option but price increase. So our pricing will be pretty stable. Our mix will keep improving and our cost will be what not any described.

Sarah Thirion

Sarah from TP ICAP. I was wondering if you had clear idea about the inventories in the retail so far maybe differs on region. And could it postpone the recovery that you expect on consumer to Q2, because you depend on selling?

Stanislas de Gramont

Well, first, it varies from region to region. Inventory has been a hot topic in retailers' reports in the last few weeks in Europe and in North America. We don't see excess inventory on our categories and we have very regular conversations with our customers. We see some hiccups in deliveries. The because -- not because they have overstock but because they manage the inventory levels, not in one category specifically, but throughout their ranch. So if a retailer has too much of kitchen of refrigerators or televisions where he may order less blenders and heating food processors, but it's not because he has too much of that is because there's too much of inventory. So we do see some irregular sourcing, but I don't see and I don't foresee excess inventory as a way -- as a way to delay recovery of sale. It may have an impact of what goes in that month or this month. But I think those days of excess inventories in our categories are past. Now again, we know what they have in terms of holding our products, a bit of what they have in terms of holding our categories. We have not a very good vision of their total inventory. So that's -- I need to put a disclaimer on my quote. If an American retailer starting with a B and with 2 more Bs in its name, decides that they have too much of, I don't know, written in boards, then it will reduce his purchases of our products.

Unidentified Analyst

I have two follow-ups. So the first one is to jump on Christophe question on pricing. How much of the pricing that you took last year will be embarked in 2023? You should have pretty good vision of that and some high-level thoughts from you guys on the rumors of Media acquiring Electrolux?

Stanislas de Gramont

I'll take the last one, that's easy. We have no eye to rumor. There is no -- it has been denoted by Electrolux, so no comment on the second one. As I've taken the second one, you take the first one.

Nathalie Lomon

So we've made the assumption that bulk of the price increase that we have placed in 2022, we'll be able to keep them in 2023. We will have tough discussions with distribution. And actually, they have already started because they see, as I mentioned earlier, they see the cost of freight decreasing, they see the cost of raw mats of electronic components decreasing. And so they expect that we are in a position to give back a part of this decrease to them very quickly. But as I mentioned as well, that impact will materialize for us later in the year. We have to exhaust the inventory that we have built on '22 cost base first. So we have made a bit of assumption regarding what we can do to help distribution, sell our products so that we would give back a bit of the price increase that we have placed last year, but I would say, a principle of major scenario that we will keep the bulk of it in 2023.

Unidentified Analyst

[Eric LeBlanc Finance Connect]. Just a few questions about, is energy an issue for the group? And how long it take for purchase inventories on all the cost you have because you have inventories, but you have an aging strategy, which can debate also the decline in cost quantity. And just one question I will try, can we have an idea -- some color about the room of improvement you can have in term of profitability by region on geographic area?

Stanislas de Gramont

I'll take the -- I mean, we don't communicate our profitability by region. What I can say is that we're aiming and improving profitability in all regions based on the fact that the structure of our P&L will be improving globally. So it will apply to all regions. I will leave the energy question to Nathalie. Our inventory coverage is between three to four months. It's different in Asia to what it is in Europe, of course. So if there is to be a lag, that probably the size of the lag, unless we have another view, Nathalie?

Nathalie Lomon

No, no, I said that those cost decrease that we see in the market that will materialize for us in our P&L between the second and the fourth quarter. So I'm a bit longer than you are, but that's probably the idea. And regarding energy, we're not an industry that is very high in terms of energy consumption. So of course, we are impacted by the increase in energy cost, but the impact from one year to another is between €10 million to €20 million. So I would not say it's not un-significant, it has nothing to do with the headwinds we had to face on the sea freight and enrollment.

Stanislas de Gramont

And maybe to qualify that, it's impacting a bit more of those activities like VMF retail where, of course, we have a lot of square meters that need cities and with open doors in a cold country. So that's -- that doesn't help or the cookware activity where we have some reuse heating a bit more than in many of our factories in electric appliance. It's a topic, it's not a major topic by far for us.

Unidentified Analyst

[Chinmay] from TP ICAP. I have two simple questions to you in terms of future outlook. Based on the exchange of words that we have been having till now, I observed that you were most stressing upon the coffee-making machines. So in the upcoming days or years that would we be seeing a range of coffee maker machines? And also speaking about the other products, are you looking for any acquisitions in terms of your future prospect?

Stanislas de Gramont

I mean there are two kinds of coffee machines, we have the professional business, which is over 90% coffee machines and here, of course, we are very focused on that category. When it comes to consumers, the big inroads we make through innovation this year is on coffee machines, but we have hundreds of new products. And oilless fryers are growing faster than coffee machines last year and this year. So we like to be balanced and covering all categories in our innovation portfolio, innovation strategy because categories have a very volatile destiny and being where things happen is very important. So yes, the -- the theme of the day is coffee machines because it happens to be what we talk about today, but our innovation portfolio is much more widespread than coffee machines only. Now when it comes -- and of course, the acquisition of La San Marco only reinforces the fact that coffee is important for us. And yes, coffee is important for us. It's not the only one. When it comes to acquisitions, we cannot comment future acquisitions, of course, because they are confidentials, otherwise they are disclosed. What I can say is that what we've done in the last few months and years, which is acquiring, expanding our portfolio of professional distinctive, competitive professional businesses is something that we aim at pursuing. And yes, we'll be active in the world of acquisitions.

Charles-Louis Scotti

One follow-up question, Charles-Louis again from Kepler Cheuvreux. A question on your DTC business. Can you give us more color on your DTC online business and how much it represents in your total revenue? And what's your ambition in this channel? And also more precise question on the profitability of this business. Is it margin accretive today or are you still lacking scale to absorb for example, the IT investment platform investment?

Stanislas de Gramont

The answer is no. I will not give you detailed questions, for a very simple reason is that we are building capabilities and capacities. So today, it is not big enough that we can elaborate on that as a big segment of the company. We are learning. We have decided to make D2C online because we have consumer visiting us and consumer visiting us, don't really understand why they can't buy it when they're on our site. And then to enter a bit more in the specifics in the way how it works. If you don't advertise your site, it's going to be a hugely profitable business. If you have to pay for traffic, it can be a very dilutive business. So there's no -- there's not one answer on royalty or accretive or dilutive on this business. We are developing our capabilities. We're expanding our knowledge. We are expanding geographically to check if that knowledge that we've acquired in France and Germany applies also in Eastern Europe and Asia. It's real early for us to say, "hey, there is something big happening at SEB. And first, because it will not be like other players in the small domestic appliance industry. It will not be our number one or a central strategic part of our development. It is something that is complementary, that is serving a specific equivalents to consumer need and that we're expanding geographically through our brands. So that's what I can tell you at this stage. We will, as we get up the learning curve, we'll elaborate a bit more on as and if there is a strong business ambition, we share that with you, it's not the case today. Okay? With somewhere in the document, I think total D2C of the group is around 10% between offline retail and D2C online, just to give you a sizing of the total piece.

Nathalie Lomon

[Foreign Language]

Stanislas de Gramont

[Foreign Language] Yes, I have a question from -- thank you, from [Frank Stacy], could you describe your current and planned investments in Saint-Lô? Yes, I can. Saint-Lo is a factory of the group that is in Normandy, that is making electronic cards. We're expanding our capacities to serve more products from the group. We are expanding for electrical cooking products for expanding for professional coffee machines and for coffee machine. So we see that as a good asset for the group to have this capacity to make electronic cards in home. And probably that's also a way to protect ourselves from some disruptions in the -- this world of electric components.

Nathalie Lomon

Yes.

Stanislas de Gramont

Company Name:	SEB SA ADR
Stock Symbol:	SEBYY
Market:	OTC

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