Hello, and welcome to BIC Q2 and H1 2022 results. Please note this call is being recorded, and for the duration of the call, your lines will be on listen-only. However, you'll have the opportunity to ask questions. This can be done by pressing star one on your telephone keypad to register your question. If you require assistance at any point, please press star zero and you will be connected to an operator. I will now hand over to your host, Sophie Palliez-Capian, to begin today's conference. Thank you.
Thank you. Good morning, everyone, and welcome to BIC H1 2022 results conference call. Our hosts today will be Gonzalve Bich, Chief Executive Officer, and Chad Spooner, Chief Financial Officer. Gonzalve and Chad will go through a short presentation of the results and then we will open the usual Q&A session. Let me give the floor to Gonzalve.
Thank you, Sophie, and good morning, everyone. Thank you for joining us today. Since its launch in 2020, you've heard me passionately talk about our Horizon strategic plan and our relentless focus on its execution. Quarter- after- quarter, I see firsthand how our teams around the world have united under one vision to build our brand further, innovate long-lasting products, and deliver profitable growth. Today, I am more confident than ever that we are best positioned to weather the headwinds ahead. This morning, you'll hear more about how we're bringing our Horizon plan to life, how it fuels our consumer obsession and commercial excellence, and more importantly, how it drove our revenue growth in H1. All told, the story of the first half of 2022 is one of momentum for BIC.
We achieved an overall net sales growth of 15.5% at constant currencies with a strong performance in all divisions. Based on this result, I'm happy to report that we're raising our net sales guidance for the full year and now expect to deliver between 10% and 12% growth on a comparative basis, up from 7%-9%. Our adjusted EBIT margin was stable versus last year at 18%, demonstrating our strong resilience to the significant external challenges facing the entire global business community. Notably, throughout this time, we protected ourselves from supply disruptions and were able to deliver to our customers and respond to consumer needs across every division and region. Net cash position was EUR 229.9 million, driven by higher receivables with back-to-school sell-in orders kicking off in Q2 and inventory build-up to fuel growth.
Chad will take you through our financial performance in more detail shortly. Starting with our divisions, here are a few takeaways that reflect our strong momentum since the beginning of 2022. First, in Human Expression, we outperformed in 70% of the countries where we operate, fueled by commercial excellence and a continued focus to deliver on what consumers want and need. We gained in our top countries, including Brazil, France, the U.K., and the U.S., where we are rapidly recovering our market share, thanks to a return to reliability in our regional supply chains. Consistent with our Horizon ambition to strengthen our presence in Creative Expression, we outperformed the strategic segment of coloring in five key countries.
These include the U.S. and the U.K. and South Africa, where we achieved an outstanding 7-point gain, as well as in Brazil and Mexico, where we grew share by more than 2 points. Back-to-school sell-in was a success, growing 23% in value across Europe, North America, and Mexico. Both core and added-value products contributed to the success, and we expect sell-out to be strong in-store and online during the key Q3 season. In the U.S., 70% of consumers plan to shop in brick-and-mortar stores and look for quality and value in the face of rising inflation. In France, our strong in-store visibility in the modern trade, coupled with a more than 50% increase in promotional activities, is setting us up to outperform the French market for the 16th consecutive year.
In Flame for Life, we outperformed markets in all key countries, including the U.S., France, Germany, and Brazil, powered by continued distribution gains and innovation. We saw 17% growth in the added-value part of our business, with products such as EZ Reach, Decorated Lighters, and Djeep contributing significantly to the division's growth. Decorated Lighters continue to be a success and now represent nearly 34% of lighter sales in the U.S.. This is up 5 points versus last year and more than 10 points in 10 years. Djeep premium lighters successfully contributed to growth, with net sales growing almost 10% versus last year in Europe. Since July, Djeep has been available in the U.S. on multiple e-commerce sites, including Walmart.com.
In Europe, our invest to grow countries, including Germany and Turkey, achieved a double to triple-digit growth by executing our RGM strategy with efficient pricing and promotional activity. Lastly, in Blade Excellence, we outperformed in approximately 80% of our countries and recorded a record high market share in five key markets, including Mexico, Brazil, Poland, Portugal, and the U.K. We continued our strategy towards premiumization with double-digit growth in added value products. Globally, our five-blade segment net sales grew 35% versus last year, powered by the performance of Flex 5 and the Soleil ranges. In Latin America, our trade-up strategy in Brazil led to further share gains up 1 point in value, following four consecutive years of share gain. We reached a historical high of 24% market share and value boosted by premium male and female products, such as Comfort 3 and Simply Soleil.
the same time our new B2B BIC Blade Tech business is ramping up quickly, contributing to 31% of the total division's growth in the first half. In 2022, only one year into launch, we expect to reach EUR 15-20 million of net sales, incremental to our overall Blade Excellence division. We anticipate that this growing and highly profitable business will represent 25%-30% of the division's net sales in three to five years. On the innovation front, we're bringing to market ingeniously simple and joyful propositions that are meeting real consumer needs in the moment and resulting in tangible growth for our business. Our EZ Reach innovation, designed to be the perfect lighter for hard-to-reach places, has capitalized on the staying at home consumer trend and already represents close to 4% of our total lighter sales.
Just two years since launch, EZ Reach has captured 5.5% market share in the U.S.. Thanks to efficient brand support, EZ Reach also reached over 50% distribution in less than eight months after launch and continues to grow, contributing to the overall lighter market expansion by bringing awareness to the utility segment. At the same time, our recent launch of the Soleil Escape shaver in the U.S. has already reached 2% of women's one-piece category in less than six months. Uniquely designed to tackle a deep-rooted consumer desire, this innovation performs a mundane task in a full-blown sensorial experience. Soleil Escape has outpaced iconic competitors and brought new buyers to the category. Today, the Soleil product line ranks at number one and number two amongst new items sold in the disposable category year to date.
Along with bringing new innovations to market, we remain laser-focused on leveraging our revenue growth management capability to ensure we have the right pack in the right place. In H1, we delivered efficiencies across pricing and promotional activities, directly boosting profitability. At the same time, we augmented net sales per SKU by 25% while tackling complexity. For example, in France, we've simplified our Human Expression portfolio in writing instruments, marking, and coloring to bring increased simplicity for consumers through ease of shop and reduced complexity. This has resulted in a 6% SKU reduction and accelerated net sales growth. At the same time, we're meeting the consumer where they are, delivering on their need to purchase anytime, anything. Our e-commerce sales grew 14%, with omni-retailers driving performance in India and Brazil, coming in at high- double-digit growth.
From a marketing spend perspective, over 82% of our advertising was digital. Our strategy dictates that we not only drive our existing business, but continue to bring in exciting new brands. As part of our strategy to pivot our stationery business towards Human Expression and expand revenue opportunities in fast-growing creative segments, we acquired Tattly, a small U.S.-based decal company. This acquisition further grows and diversifies our Skin Creative business, adding a third brand that perfectly complements Inkbox and BodyMark. Our ambition is to create a new category in the same way we created the one-piece shaver segment almost 45 years ago. I'm also very excited by the development of BIC Blade Tech, our B2B shaver business, which is ramping up quickly, having signed another contract very recently with a new customer in Asia as we broaden our reach geographically.
Lastly, we continue on our path to sustainability, meeting a rising consumer and societal demand for products that are better for the consumer and better for the planet. In less than 10 months since its launch in Sweden, our BIC Bamboo shaver has reached 2.6% volume market share. This clearly demonstrates that when we deliver relevant, sustainable propositions to the market, consumers embrace these innovations. At the end of June 2022, we reached more than 70% of reusable, compostable or recyclable plastic in our consumer packaging, and we're on track to achieve our 100% goal in 2025. At a macro level, we're also on track to deliver our greenhouse gas emission reduction target for 2030, making this a key component of our long-term business strategy. With that, Chad, over to you.
Thanks, Gonzalve. I will now review our operational and consolidated financial results for the first half of 2022, starting with our performance in the Human Expression division. Net sales were EUR 438 million, up 25.4% at constant currencies. Performance was driven by robust back to school performance in the Northern Hemisphere, with 18.5% volume and 23% value sell-in growth in the U.S., Europe, and Mexico, fueled by a solid commercial execution from our teams. Developing markets such as Brazil, South Africa, Nigeria, and India continue to rebound, showing high double-digit growth year-on-year on a comparative basis and having now successfully recovered to 2019 levels. Adjusted EBIT was EUR 35.6 million with an 8.1% margin compared to 8.3% last year.
This slight decrease was driven by higher raw materials and freight costs and Inkbox's investment in growth, partially offset by net sales operating leverage and favorable fixed cost absorption. Now turning to our Flame for Life division. Net sales were EUR 436 million, up 10.1% at constant currencies. Sell-in performance was driven by high single- to double-digit growth in key countries, notably across Europe and Latin America. Our U.S. lighter business contributed 51% of the division's organic growth, boosted by further distribution gains, effective pricing actions, and catch-up of orders from Q1. As Gonzalve already mentioned, another key growth area was our BIC EZ Reach lighter, which continued to outperform the market, driven by increased distribution primarily in convenience stores.
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 in the first half. Adjusted EBIT was EUR 166.9 million with a 38.3% margin compared to 39.6% in the first half of 2021. This is explained by the higher raw materials and air and sea freight import costs. Brand support investments were also higher, driven notably by BIC EZ Reach advertising campaign in the U.S. This was partially offset by favorable net sales operating leverage and fixed cost absorption. Lastly, in Blade Excellence, net sales were EUR 240.3 million, up 11.8% at constant currencies.
Performance was driven by strong results from premium products such as our one-piece three to five blade and hybrid shavers, which now represent 63% of the division's net sales. In Europe, performance was driven by the success of both Flex and Soleil ranges. In the U.S., our new innovative BIC Soleil Escape shaver, which was launched earlier this year, drove the overall growth of the Soleil range. In Latin America, our trade-up strategy continued to pay off as we outperformed the markets in both Mexico and Brazil, thanks to our three-blade products such as Comfort 3 and Simply Soleil. Finally, as Gonzalve mentioned, BIC Blade Tech continues to ramp up and contributed to 31% of the division's growth.
Adjusted EBIT for the division was EUR 43.3 million with an 18% margin for the first half of this year, compared to 16.2% last year, driven by net sales operating leverage, favorable fixed cost absorption, and the positive contribution from BIC Blade Tech. This was partially offset by higher production cost of product, and brand support investments. Let's now review our consolidated financial results, starting with Q2 of 2022 net sales evolution. On an as-reported basis, net sales for the second quarter of 2022 totaled EUR 611.4 million, up 20.9% versus last year. On a comparative basis, our net sales were up 9.6%, mainly explained by the rebound of our stationery business.
Currency fluctuation had a positive impact of 9.5 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. The perimeter impact adjustment includes the acquisition of Inkbox. Now turning to the first half of 2022 net sales evolution. On an as-reported basis, net sales totaled EUR 1.127 billion, up 23% versus last year. On a comparative basis, net sales were up 13.7%, mainly explained by volume increase, favorable mix, and the successful implementation of price adjustments in all regions. Currency fluctuations had a positive impact of 7.8 points, excluding the foreign exchange impact from Argentina. This was also mainly due to the increase of the U.S. d ollar and the Brazilian real against the euro.
The perimeter impact adjustment includes the acquisition of Inkbox, partially offset by the Pimaco divestiture. Let me now review the adjusted EBIT margin change versus the prior year for the second quarter. Q2 gross profit margin decreased by 3.9 points to 47.9% compared to 51.8% in Q2 of 2021. Excluding Inkbox, the gross profit margin decreased by 4.3 points. This decrease was mainly driven by the negative impact from raw material, sea and air freight costs, as well as ForEx, which is mostly hedging-related. This was partially offset by positive pricing and favorable fixed cost absorption. Adjusted EBIT margin was 16.5% compared to 20.9% in Q2 of 2021, mainly due to the gross profit margin decrease just explained previously.
This decrease was partially offset by + 3.2 points favorable net sales operating leverage, as well as a decrease in freight and distribution versus Q2 of 2021, when the costs were higher due to increased customer demand. Brand support was higher by 1.3 points, negatively impacting adjusted EBIT margin as we continue to invest to support short-term and long-term growth. A good example of this being our successful EZ Reach advertising campaign in the U.S. I'll now review the adjusted EBIT margin change versus prior year for the first half of 2022. First half adjusted EBIT margin was 18%, almost flat compared to H1 of 2021. Excluding Inkbox, the gross profit margin decreased by 2.3 points.
Similarly to Q2, the margin was negatively impacted by higher raw material, sea and air freight costs, as well as ForEx. Here again, mostly hedging-related. This was partially offset by positive pricing and fixed cost absorption. The adjusted EBIT was favorably impacted by + 4.6 points from net sales operating leverage, and brand support was higher by 1.1 points. This next slide shows the impact of input cost inflation on gross profit in 2021 and 2022 in millions of euros. Total input costs weighed approximately EUR 48 million on the first half adjusted EBIT.
As already communicated, we expect approximately EUR 100 million impact on adjusted EBIT for the full year, which should be more than offset by volume increases, price adjustments, and additional savings, such that we end the year with an increase in adjusted EBIT in absolute terms. On slide 11, you can see the key elements of the summarized P&L results. Adjusted EBIT for H1 of 2022 was EUR 202.9 million compared to EUR 166.1 million last year. As we look at non-recurring items in the first half of 2022, we see mainly EUR 2.3 million of acquisition costs related to Inkbox, the Rocketbook earn-out, and Djeep price adjustment, as well as EUR 3 million related to the impairment of our Ukraine operations.
First half of 2022 income before tax was EUR 193.6 million with a 28.0% tax rate compared to EUR 328.5 million in the first half of 2021. Net income group share was EUR 139.4 million compared to EUR 230.2 million for the first half of 2021. EPS group share was EUR 3.15 compared to EUR 5.12 in H1 of 2021. Lastly, adjusted EPS group share increased by 35% to EUR 3.39 . In H1 of 2022, we invested EUR 40 million in CapEx. The greatest focus was on our growth CapEx, which represent about half of these investments.
On slide 13, we see the main elements in working capital. Inventories ended the period at EUR 625.5 million. The EUR 102.1 million increase was notably driven by EUR 40 million of input cost inflation. Trade and other receivables increased by EUR 138.8 million and ended at EUR 577.2 million as a result of strong net sales growth. We expect a decrease in the second half of this year, and we plan to be in line with the December 2021 levels of receivables at the end of this year. Trade and other payables were EUR 203.7 million at the end of the first half of 2022.
This last slide summarizes the evolution of our net cash position between December of 2021 and June of 2022. Net cash from operating activities was EUR 62.8 million, including EUR 275.6 million in operating cash flow and EUR 212.8 million of impact from growth in working capital and others. During the first half of 2022, we invested EUR 67.8 million related to acquisitions, mainly Inkbox. Net cash was also impacted by investments in CapEx of EUR 40.4 million. The dividend paid in June amounted to EUR 94.7 million, and we bought back EUR 28.8 million worth of shares.
Our net cash position at the end of June 2022 was EUR 229.9 million. This ends the review of our first half of 2022 consolidated results. Now let me give the floor back to Gonzalve.
Thank you, Chad. Our solid H1 results are a testament to the power of our global teams and the operational advancements achieved worldwide. These new capability builds on our iconic brand and historical strengths, accelerating profitable growth responsibly and sustainably. Based on this result, we're raising our net sales guidance for the full year and now expect to deliver between 10% and 12% growth at constant currencies, up from the original 7%-9%. All divisions will grow mid-single- digits in H2. In H2, we look forward to exciting new product launches, including our Ecolutions lighter, made from alternative and recycled materials, and the relaunch of the Djeep brand in the U.S. market. Input cost headwinds will continue to be widespread across the markets.
The impact in the second half should be slightly above EUR 50 million, leading to approximately EUR 100 million of headwind for the full year, impacting operating margins. While continuing to reinforce our brand support and operational investments, we expect to grow full year 2022 adjusted EBIT in absolute terms. This will be driven by higher volumes, positive pricing, and additional savings. We maintain our target of over EUR 200 million in free cash flow. While we're certainly not immune to economic volatility, we're well-positioned to weather a continuing inflationary environment. Whatever challenge come next, we will respond with agility, resiliency, and clear-eyed optimism, and continue to actively manage our portfolio to deliver both sustainable growth and returns in all our activities and geographies. During these uncertain times, consumers turn to brands they trust to deliver great value, great quality everyday essentials.
At BIC, we have proudly fulfilled this consumer promise for over 75 years and will continue to do so, bringing simplicity and joy to everyday life while caring for our people and planet and creating sustainable value for our shareholders. This concludes our presentation for today, and we're now ready to take your questions.
Thank you. As a reminder, if you'd like to ask a question on today's call, please press star one. To withdraw your question, please press star two. The first question comes from Christophe Chaput from Oddo. Please go ahead.
Yeah. Good morning to all, and congratulations for the results. I've got three questions, please. The first one is on the stationery markets. It increased during the first half in USA by roughly 3% in value. In your assumption for the full year, you seems to expect a low to mid-single-digit decrease. Is there a specific factor in H2 we should be aware of? Or is it other, let's say, area than the USA that explain the swing? Or is it probably cautiousness, let's say, from your part? The second one is on pricing. Regarding the H1, the pricing between 4%-5%. What could be your strategy regarding the H2 and going forward in 2023? Should we expect further increase in that period?
The last one, if I may, is on CapEx. Roughly EUR 100 million for 2022. The volume were very strong during the period or should be. Should we expect the CapEx to be up in 2023? What could be the amount, please? Thank you.
Good morning, Christophe, and thank you for your questions. Stationery market, I think what we have to remember is last year in the second half, the market grew significantly, I think on a little bit over 10%. The comps are really a big against that. What we need to make sure that we do is monitor sell-out through the back-to-school period, so let's call it up until mid-September, then really make sure that we're positioning ourselves for 2023. To your point, making sure that inventories are cleaned out in-store, that'll happen naturally, and preparing for the key growth battle that'll be back-to-school 2023 that we have to ramp up for already starting in the fourth quarter. It's really important.
From a market perspective, I think the market call that we're making is the right one. Could we have a little bit of positive surprise? Yes. We remain cautious around different recessionary pressures that we might all be facing in the markets in the next few months.
Christophe, in regards to your question on price, you could expect to see similar rates for the second half of the year that you saw in the first half. In regards to 2023, I would say that we will continue to evaluate the inflationary environment we're in and respond accordingly. I think we've been pretty effective this year, executing price adjustments as appropriate, and 2023 won't change from that strategy. In regards to CapEx, you hit it spot on. What you'll see is we talk about investment in growth. This year, you know, more than half of our CapEx is in growth. As we go forward, I expect to see that trend to continue even more, and we'll continue to invest in growth.
I wouldn't expect anything materially different from this year, but you'll probably see a greater percentage on the growth side of the CapEx next year as well as we go forward.
I guess building on what you're saying, Chad, one of the areas in which we know that there's a ton of momentum ahead of what we had expected and planned is BIC Blade Tech.
Yep.
Probably a little bit more than we might have expected originally in CapEx for BIC Blade Tech, but nothing material at the total level.
That's correct. Like we said, very growth-focused.
Okay, great. Thank you very much.
The next question comes from Cédric Rossi from Bryan Garnier. Please go ahead.
Yes, good morning. Thank you for taking my questions. I have three, actually. The first one is regarding the inventory build up. It was mainly driven by volumes. Could you comment on these trends by category? I assume that stationery was the main driver. Probably referring to the positive surprise you have just mentioned. My second question is regarding Inkbox. Could you comment on the performance of Inkbox in Q2? Could you also give us a few examples of on which BIC is already helping Inkbox to grow, or whether it's a geographical rollout or in terms of marketing, because I've already seen a huge marketing campaign on social media.
My third question is regarding the phasing of the margin headwinds. You're reiterated the EUR 100 million. Could you just give us the phasing in H2? I assume that probably Q3 will be more impacted than Q4, but I just wanted to have your comment on that. Thank you.
Let me first handle questions one and three, and then I'll hand over question two to Gonzalve, Inkbox. In regards to inventory, the way I'd rather, I think the right way to look at it is just across all three categories, where do we expect to end the total year, which is really the more relevant question. We talked about the EUR 40 million of cost inflation that's in our inventory at the end of June. We kind of anticipate by the end of the year, we should be back in line with where our inventory levels were last year, with the addition of a similar amount of cost inflation. That can probably help you think about levels getting back to normal levels across the board at the company level, and the only difference will be cost inflation.
The third question you had on margin headwinds, what's the H2 phasing? Between Q3 and Q4, I would say it's roughly similar actually, in terms of the impact to the P&L, the slightly over EUR 50 million. We'll see it spread across those quarters kind of evenly, is what you should expect to see there. Inkbox, Gonzalve Bich.
Inkbox, I think if we take a step back and we think about the six months we had, I mean, we're stopping these comments at July 1st, but we're on August 1st. Let's say, six months of operation. The integration into the company has gone well. I'm happy from that perspective. I'm super happy with the exchanges between their teams and our teams and some of the collaborations. Thank you very much, by the way, for going to the website, looking at the new product offering, and the collabs. There's more to come. Where BIC is adding value to Inkbox already is definitely on the non-digital marketing stuff, where they're experts. They're probably better than some of our teams from a how to generate. I'm getting a lot of feedback from your line. There's regional expansion.
It's early days for Inkbox, and we'll give you more color towards the end of the year on how things have gone. Most importantly, it's product roadmap for H2 2022 and then into 2023 to really continue to develop the offer, and that's why we made the really interesting Tattly acquisition just recently in the U.S. to continue to be able to offer whatever solution the consumer wants in Skin Creative and then grow regionally. 'Cause to your point, it's still a very U.S-focused business, so Europe and then other parts of the world.
Great. Thank you.
Before moving to the next question, to ask a question, please press star one. The next question comes from Marie-Line Fort from SG. Please go ahead.
Yes, good morning. First question is about your EUR 100 million headwinds. You maintain this amount despite some uncertainties about the electricity cost. I would like to know what are the moving parts of your estimates. The second one is on lighters. Do you plan to have a positive organic growth in H2? And what will be the drivers? And the second question, just a little question. What is the reason for the Q2 sales decline in MEA?
Great. Thank you very much. I will take one and two and then hand it back to Gonzalve for the question for MEA. First in regards to the headwinds, you know, great question in terms of electricity. One of the things I'd like to point out, we've talked a lot in the past about our procurement organization and the savings that they've done, from a cost perspective. This is where they're adding value not only in dropping costs, but also in thinking of the future and containing our costs and fixing them. In regards to electricity, specifically in Europe where the issues are, we've actually bought almost 100% or 100% of our capacity needs for France for this year and next year, and then the vast majority for our Greece factory as well.
We've got ahead of the electricity issue with very favorable rates, and locking in purchases for that. That's what's helping us with some of those headwinds to keep it from getting even higher than EUR 100 million. In regards to lighter growth, yes, we do expect lighter growth in the second half of the year. It'll be in line with our overall growth. All the categories, very similar growth rates. The growth in lighter will come from Europe in the second half of the year and not from the U.S., which is where our strongest profit margins come in. Keep that in mind as you think of the lighter growth, mid-single-digit growth coming mainly from Europe, not at the same margin rates as the U.S. Gonzalve, I'll hand it over to you for the MEA.
Thank you for your question. The reason behind the MEA number that you quoted is a phasing impact in the Ethiopian market, so it'll correct itself in the second half. I think what really excites me about MEA, because it's been a long story, the transformation of that region, started before Horizon, but kind of boosted as we've gone into execution of the Horizon plan. It's a region with, from a BIC perspective, with fantastic momentum, driven by a team that's been built over the years, really solid. What I like about the strategy that we've done there and that we've done in other parts of the world is it's choiceful. We've picked the markets and the segments in which we wanted to fight and the ones we wanted to win in.
What's coming to mind as I talk to you is Nigeria. We made the investment in the Lucky Stationery Nigeria Ltd in Nigeria, on track to be one of the most populous countries in the world. We'll have continued demographic growth, continued disposable income growth. It's a great place for us to be with the BIC brand and BIC products. That business has really delivered ahead of plan and continues to offer us opportunities. It's a long-term play because, you know, this is kind of a Brazil of 20 or 30 years ago.
with 1 billion consumers in the MEA region, I think in a few years, not, you know, the number of fingers I have on my hands, on one hand, but definitely less than two hands, it's gonna meaningfully contribute to our continued and sustainable growth at a global level.
Okay. The next question comes from Othman Bricha from Bank of America. Please go ahead.
Hello, good morning, and thanks for taking my questions. I have three. First, as of your latest trading, have you noticed any consumer turning down in stationery and in shaving? If not, do you expect any in the second half? Second for Chad on cost margin recovery. If current raw materials spot rates and you've locked in electricity. When do you expect to fully recover cost inflation with the different initiatives, savings, price increases, volume growth? Third, this is more long term. Working capital has always been a high asset percentage of sales. So beyond the effects of the current inflationary environment and tight supply chain, what are the actions that you're taking to reduce working capital for the long term? Maybe compared to historical levels, what would be a sustainable level of working capital for the long term? Thank you very much.
Good morning, Othman. Thank you for your questions. I'll do one, and then I'll let Chad do two and three. To your point, very vigilant on consumers and how they're shifting across product segments. We're not seeing, at a global level, any trading down that I would point you to with very significant you know, 20% or 30% going down. We are starting to see some shifts, mostly from online to offline and those types of things. As we go through back to school, it'll be really important for us to come out with key learnings on price pack architecture for 2023 in stationery, especially. In shave, not so much. It's something that we definitely keep an eye on.
In regards to your question, first on margin rate, what I will say is, you know, we're in a very uncertain environment with, you know, things changing every single day, inflation worries, and the wars in the world, et cetera. What we're really trying to do, and I think we've done a great job with this year, is maintaining or growing our EBIT in absolute basis. You know, the rate is very difficult to comment on, right? Because as you know, a euro of price and a euro of cost will give you the exact same euro output on margin, but the rate will drop as a result of the math.
We are doing everything we can to maintain our EBIT on an absolute basis, and we're gonna continue to do that, to grow it on an absolute basis, right? To grow our absolute EBIT in euro. The actual percent margin rate, that is something that'll. Time will tell and see what happens with inflation long term, right? We are committed to maintaining, growing our absolute EBIT, and EPS. In regards to the working capital, I think that's, you know, a great question, and we have a renewed focus in the company on working capital management. I think in this environment, we've probably benefited some from our strategic inventory.
As we said at the end of last year, we purposefully grew inventory to make sure that we had a very strong back to school season, and I think we've proven that's been successful. Over the long term, and this isn't a quarterly kind of thing, but over the years, you will see improvement in our working capital metrics to get back to levels that we think are, you know, more competitive. That's a long-term journey, but the company's focused on as we speak.
The two things that are coming to mind, Chad, listening to you on working cap are, one is tactical and the other is strategic. Tactically, we've been reducing SKUs.
Yep.
Working really hard to improve or increase the net sales per SKU. You're cutting the tail and growing the volumes on those high runners. When we look at the numbers that we've published for H1, we're seeing proof points there. We're seeing both absolute increases in volume, but we're also seeing increases in volume per SKU, which is gonna help our working capital because it helps inventory management.
Yep.
The math goes down the line. What we don't know, because the world is evolving, there's one push towards globalization, the other one towards regionalization, and both are happening at the same time. Now, we're well positioned because we have both a global and a regionalized supply chain, but really making sure that we optimize in that equation versus getting trapped with both penalties. Really something that you, I, and the team are very focused on as we plan for 2023, where we have to just execute with excellence, but also forward look for 2024 and 2025 for the future. Now, that's without the acquisitions, which should have a dilutive effect and should help us work.
Okay, thank you. Maybe just a follow-up on the SKU reduction. I think you mentioned in the presentation that you've achieved 25% average sales growth per SKU. What's the comparative period? If you could break down maybe the 25% between maybe mix price increases, promotional activity. What are the moving parts here?
I'm going to be really honest with you. Sophie's looking at me. She doesn't understand the question. I'm not sure I understood it. Can you simplify the question for me?
You've achieved +25% average sales growth per SKU. Is this relative to last year or is this relative to 2019 pre-COVID? This is 25%, is this all related to reducing, as you mentioned, complexity and removing the unprofitable and let's say price dilutive SKUs? What's the breakdown between let's say mix and price increases for this 25%?
Okay. The answer to your question is yes, it's versus last year. Yes, it's reducing the "bad". Our chief commercial officer talks about good and bad cholesterol when he talks to the teams. Sometimes you have good cholesterol or good complexity, which is the massive theatricalized back-to-school displays that you see right now anywhere you wanna go and shop. I think we all love that bad cholesterol.
Good .
Good cholesterol, sorry. The bad cholesterol is the long tail. Last year, 'cause I wanna remind you, last year, we cut our SKU count 22%. This year, we're further doing, and there's more to go get. We have to be careful, 'cause at the beginning you can go fast, and then as you go on, you have to go slower and slower to make the choices. It's really also working the promotional angle. Instead of promoting the bad cholesterol SKUs, you promote the good, and so you have a compounding effect. This is. It's a journey. You don't turn a company of our size, scale, and complexity, especially in a category like stationery, on a dime. It has negative consequences.
We're giving ourselves the time and the energy to do it, but you're already starting to see some of that benefit in how we operate, and I think you'll see more of it in 2023 from the actions of 2022.
Thank you very much. That's very clear.
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Okay. This ends our session for today. As usual, our investor relations team remains at your disposal for any follow-up questions. Short reminder, our Q3 results will be released on October 27th. In the meantime, we wish you a nice summer. Thank you all.
Thank you.
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