Ladies and gentlemen, welcome to the Givaudan 2022 half year results conference call and live webcast. I am Alice, the Chorus Call operator. I would like to remind you that all participants will be in listen- only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Gilles Andrier, CEO. Please go ahead, sir.
Thank you. Ladies and gentlemen, welcome to our 2022 half year results conference call. I will be on this call with Tom Hallam, our CFO, who will take you through the presentation before answering your questions at the end. The company news on our half year results 2022 was published on our website this morning. This is where you will also find the slides for today's presentation. Along with the media release, you will find our 2022 half year report on our website. I'd like now to start going through the presentation. I invite you to turn to slide number four to go through our performance highlights. I'm very happy to share with you an excellent sales growth and a solid financial performance for the first half of 2022 in a highly challenging environment, to say the least.
Once more, forecasts for 2022 were certainly difficult to make at the start of the year, notably due to tough comparables of 2021. COVID-related concerns slowly phasing down, continuing challenges with our supply chains, and then to add to the list, new geopolitical and economic uncertainties emerged at the early stage of the year, making our environment even more difficult to predict and to operate in. Our results for this first half demonstrate, again, the resilience of our business, supported by our natural hedges, be it in product categories, in types of customers, or through the balanced geographic footprint, and thanks as well to the unique quality of our organization and the dedication of our employees, whom I'd like to warmly thank. Our sales continued to benefit from a robust demand.
Overall, volumes improving further in the second quarter across all categories, and especially the ones which had already strongly rebounded last year, notably Fine Fragrances. These results were especially good in the strategic product categories we have chosen for the coming five years. Confirming our 2025 strategy makes perfect sense and to name a few of those categories, health and well-being, naturals, alternative proteins, Active Beauty. Similar to our strategic focus areas in terms of customers and geographies, local and regional clients have continued to outperform and now account for 56% of our group sales. I'm equally glad to report that high growth markets have gathered pace, notably in the second quarter and outperformed again mature markets.
We have made as well an excellent progress with the integration of our recent acquisitions over the last months, albeit at a slow pace in order to focus the organization's attention on protecting the present customer satisfaction in a very tense supply chain environment. In the first half of 2022, we reached sales of CHF 3.6 billion, a growth of 6.2% on a like-for-like basis, and 8.3% in Swiss francs. This was achieved across all markets, segments and customer categories, despite high comparables in 2021. Supported notably by a balanced growth between mature markets, which are up 5.4%, and high growth markets, which are up 7.4%. Local and regional clients, which have been growing double the pace of global customers, and our key strategic product categories, which are already named.
Our pricing actions to recover the absolute amount of input cost inflation are well on the way, with close to 40% of our 6.2% like-for-like growth being pricing versus 60% volume growth in the first half overall. As I said earlier, Fine Fragrances continue to grow despite high comparables, largely supported by the upturn in travel retail and the continued strong momentum of e-commerce. The other part of COVID impacted business, food service, thanks to a good growth, is now almost fully back to the pre-pandemic levels. We achieved a comparable EBITDA of CHF 820 million, which represents an underlying EBITDA margin of 22.5% compared to 24.2% in the first half of 2021.
Free cash flow was CHF -147 million, representing -4% of our sales, driven by the higher working capital requirements, notably inventories and higher investments compared to 2021. I'm really pleased with this solid performance of our business, with all parts contributing to these excellent financial results. We have shown our resilience, our focus on supporting our customers, and our ability to capture opportunities. Let's now turn to slide five. On a like-for-like basis, our Fragrance & Beauty division grew 4.7% and our Taste & Wellbeing division grew 7.6% versus the same period of 2021. As I mentioned earlier, this performance was driven by further strength in Fine Fragrances, continued recovery in food service, as well as a good growth in most other categories despite the tough first half of 2021 comparables.
Once again, all our strategic focus areas, complemented by acquisitions, have contributed to our growth, namely health and wellness, naturals, local and regional customers, outperforming sales with our multinational customers, which also though showed a very good momentum. Finally, as I mentioned earlier, these numbers include a pricing element reflecting the ongoing recovery of our input cost inflation. Which brings me to say that thanks to the collaboration with our customers, we are fully completed with our pricing actions to fully recover over a period of 18 months, those additional input costs by June 2023, as promised and guided for at the beginning of this year. Let's turn now to slide six. In the first half of 2022, high growth markets delivered a 7.4% growth, gathering pace, notably in the second quarter after a relatively slow start in 2022.
This was achieved despite the pandemic still disrupting parts of both Southeast Asia and China. Despite high comparables in 2021, Latin America kept performing well. The Middle East contributed with strong growth levels as well, and Asia Pacific remains a mixed bag with below the usual average growth rate. In mature markets, we grew a healthy 5.4%. The strong demand in Fine Fragrances and the further recovery of food service fueled the strong recovery in Europe as the economy there reopened later than most other regions in the last few months. North America reported a slight decline in sales due to the combination of high comparables and the ongoing supply chain challenges throughout the first half of this year. The markets of Asia, notably Japan and Australia, remain affected by the pandemic.
Our presence in high growth markets has always been a key driver for our growth and continues to be one of our key strategies for 2025. Structural demographic trends, the ever-growing middle class, and the strong urbanization trends will continue to support the growth of these markets, especially in Asia, where the urbanization and the middle class are still below average. Our market position and our operations footprint give us a unique exposure to these high growth markets in which we continue to invest, both with additional talent and new facilities to service the wide diversity of our clients. However, we have seen the past months how critical our geographical balance is, creating natural hedges against a crisis or economic downturns, where the timing or the intensity of the recovery can be very different across geographies, as seen over the last few quarters.
Please now turn to slide seven. I'd like to highlight the sales development by region for the group. As you can see, EMEA, Europe, Middle East and Africa, has delivered a very strong growth followed by Latin America. EMEA grew a record 13.7%, supported by the strong recovery of most product segments. It's also worth mentioning that the Middle East has also enjoyed a very high growth rate within the region. Sales in Latin America continue to perform well despite high comparables with a growth rate of 9%, driven mainly by Argentina, Mexico and Chile. The growth in Asia Pacific was 2.7% with flat growth in China against the very high double-digit growth rates in 2021 as in China.
High single- digit growth in some major markets, including India and Indonesia, and more subdued growth in other parts of Southeast Asia, notably Vietnam, Thailand and the Philippines, and then the mature markets like Japan and the Pacific area. North America grew -1.5% like-for-like against the high comparables of the first half of 2021, which experienced a strong and early rebound of the economy and consumer demand, but equally some supply chain challenges still ongoing in 2022. Let's turn now to slide eight. The Fragrance division grew 4.7% on the like-for-like basis against the strong comparable growth of 10.1% in 2021, and a growth of 5.3% in Swiss francs for the first half of 2022.
The good growth was driven by the double-digit growth in Fine Fragrances and in Fragrance Ingredients, and Consumer Products returned to growth in the second quarter. Fine Fragrances sales increased by 17.9% on a like-for-like basis. Already, against a very strong first half in 2021, where sales in Fine Fragrances increased by 34.5%. Therefore, the CAGR over three years for the six-month period is 10.2%. This performance is driven by new business wins, notably in the prestige segment. Consumer Products sales increased by 0.4% on the like-for-like basis against a prior year comparable of 4.1%. On the three-year basis, the six-month CAGR amounts to 5.1%. This performance was driven by local and regional clients.
Sales of Fragrance Ingredients and Active Beauty grew by 8% on the like-for-like basis against a high sales growth of 14.4% in the prior years, particularly in Active Beauty. The performance in the first half 2022 reflects the continued strong demand for Fragrance Ingredients and premium actives in Active Beauty. Now let's turn to the next slide, number nine. Taste & Wellbeing sales were CHF 2 billion, an increase of 7.6% on a like-for-like basis, and an increase of 10.9% in Swiss francs. While the sales performance was still affected by the impact of the COVID-19 pandemic across many countries, as well as supply chain challenges, a very good business momentum was seen and maintained across all regions. On a regional basis, sales were driven by Europe, SAMEA, and Latin America. In Europe, sales increased by 14%.
In South Asia, Africa, and the Middle East, sales increased by 16.9%. In Latin America, sales increased by 17.1%, and in Asia-Pacific, sales increased by 5.1%. In North America, sales decreased by 0.9% on a like-for-like basis against a relatively high comparable of 6.1% a year ago. The food service segment continued to experience a strong recovery and is now almost back to pre-COVID levels, 2019 levels. In the key strategic focus area, sales increased double- digits in plant-based proteins, health and wellness, and a very solid single-digit growth in naturals. Finally, from a segment perspective, the positive sales performance was mainly driven in beverages, sweets, and snacks. With this, I'd like to hand over now to Tom, who will give you more granularity on our financial performance.
Tom, over to you.
Thank you very much, Gilles. I would also like to welcome you all to our conference call. As always, Gilles is taking you through the main business performance of the group and also the market and the regional development. On the following slides, I would like to focus on the group's operating performance and those of the two divisions. Let's start with the performance highlights on slide 11. As Gilles mentioned, the group sales for the first half of 2022 were over CHF 3.6 billion, an increase of 6.2% on a like-for-like basis, which excludes the impact of acquisitions as well as any currency impact. In Swiss francs, sales increased by 8.3%.
The reported EBITDA increased to CHF 816 million compared to CHF 809 million in 2021, and the underlying EBITDA margin was strong at 22.5%, despite higher input costs and inbound supply chain disruptions. Net income was CHF 440 million or 12.1% of sales. As Gilles has mentioned, free cash flow as a percentage of sales was -4%, mostly driven by higher working capital requirements to support our supply chain and our customers in an extremely challenging operating environment. Net debt to EBITDA was 3.45x compared to 2.97x at the end of 2021. In the following slides, we will cover the group's performance in further detail, as well as the operating performance of both divisions.
If we turn to slide 12, we can look at the exchange rate development. The global political environment and the economic uncertainties caused the Swiss franc to fluctuate against some of the major currencies in which the group operates, particularly during the first few months of the year. This had a significant impact on other operating expenses, which I'll comment on later. However, our operational and geographical spread has offset the up and down currency fluctuations and therefore continues to provide good natural hedges, which protects our EBITDA margin. Please turn to slide 13, which shows the group operating performance. In 2022, the group's gross margin decreased due to the gross margin dilution effect of the pricing actions, as well as the impact of higher raw materials, energy, and freight costs.
This resulted in a gross margin of 40% in 2022 compared to 43.9% in 2021. As I mentioned, the EBITDA increased to CHF 816 million in the first six months of this year. In the period, the group incurred CHF 4 million related to acquisition and restructuring costs compared to CHF 7 million in the previous period. On an EBITDA level, we continue to maintain a tight cost control on operating expenses, which partially absorbed the impact of the lower gross margin. This resulted in an underlying EBITDA margin of 22.5% compared to 24.2% in 2021. On the next two slides, I'd like to spend a moment on the operating performance of our two divisions, starting with Fragrance & Beauty.
Fragrance & Beauty sales increased by 4.7% on a like-for-like basis, and 5.3% in Swiss francs to CHF 1.6 billion. The division recorded CHF 362 million of EBITDA in the first six months of the year, compared to CHF 375 million in 2021. The EBITDA margin was 22% on a reported basis and 22.2% on an underlying basis. As commented by Gilles, the sales growth was driven by a strong volume increase in Fine Fragrances as well as double-digit growth in Fragrance Ingredients. The margins, however, have been impacted by higher cost imports seen in the first half of 2022. If you now turn to slide 15, we will continue with Taste & Wellbeing.
The Taste & Wellbeing division recorded a high sales increase of 7.6% on a like-for-like basis, and 10.9% in Swiss francs. The sales increased to over CHF 2 billion for the first time and in the first half of this year. The reported EBITDA increased to CHF 454 million from CHF 434 million last year as a result of strong cost discipline to offset the inflation of higher raw materials and higher expenses due to supply chain issues. The reported EBITDA margin was 22.6%, and the underlying EBITDA margin was 22.7%. The income before tax decreased to CHF 512 million from CHF 566 million in 2021.
Caused by higher non-operating expenses compared to the prior year, namely CHF 119 million in 2022, compared to CHF 47 million in 2021. Although financing costs remained stable, the group incurred higher realized and unrealized losses on FX derivatives, given the volatility of currencies and interest rates, particularly in the first few months of the year. In addition, there was a CHF 50 million non-cash swing in the value of the company's financial assets. The net income was CHF 440 million or 12.1% of sales. The group's effective tax rate decreased to 14% in 2022 compared to 15% in June 2021. Basic EPS was CHF 47.74 in 2022 compared to CHF 52.19 in the first semester of 2021.
Please turn to the next slide for the cash flow performance. During the first half of 2022, Givaudan had a negative free cash flow of CHF 147 million or -4.4% of sales, compared to 5.5% of sales in 2021. The operating cash flow for the first six months of the year was CHF 131 million, compared to CHF 415 million in 2021. The decrease in the operating cash flow is mostly driven by the higher cash investment in working capital, driven by the need to manage the inbound supply chain disruptions that the group has been facing in order to continue to deliver and satisfy to a high level the needs of our customers.
The group also continued its investments to support the growth in all markets. As such, total net investments were CHF 164 million in the first half of the year, and as a percentage of sales were 4.5% in 2022 compared to 3.6% in 2021. Working capital increased to 29.6% of sales, compared to 28.3% in 2021, with higher accounts receivable and higher inventory levels related to the good sales growth and the supply chain challenges that I have already mentioned. Please turn to slide 18 to look at the amortization of intangible assets. At the end of 2021, we showed you the forecasted amortization of intangibles.
The projection has now been updated as we've completed the purchase price allocation for the two last acquisitions we made in 2021, notably Custom Essence and DDW. This table gives you a perspective of the future expected amortization. Please turn to slide 19, where we will cover the debt profile of the group. The group continues to have a well-balanced debt profile with a weighted average effective interest rate of 1.34%, which is a slight decrease from last year. Furthermore, on this slide, you will find the maturities of our debt profile, as well as the respective average interest rates for each debt maturity.
In June 2022, the group refinanced its multibank committed credit facility for an amount of CHF 1.25 billion for a period of five years, with two-year extension options and the possibility to upsize the facility during its term. This renewed facility is also the first financing event completed under the group's sustainable linked financing framework. Net debt compared to EBITDA was 3.4x , compared to 2.9x in December 2021, and 3.16x in June 2021. With this, I would like to conclude my part of the presentation and hand back to Gilles.
Thank you, Tom. The company's 2025 ambition is to deliver sustainable value creation for all stakeholders. Givaudan's 2025 strategy is fully in line with our purpose and places customers at the heart of our business, supporting them to grow and create products that are loved by consumers. Let me remind you the main foundations of our current strategic cycle. The 25 strategy is focused around three growth drivers. The first one, expand the portfolio, the second, extend customer reach, and the last one, focus market strategies. It is supported by four growth enablers which are aligned with the company's purpose domains, namely creations, nature, people, and communities. These three growth drivers and four enablers are all underpinned by a commitment to excellence, innovation, and simplicity in everything that we do. Let's turn now to slide 22, that reminds you the performance commitments of the 2025 strategy.
We're actually in the second year of our five-year strategic cycle, and as I mentioned earlier, so far, business trends, customer trends, and consumer behavior in an environment impacted by the pandemic are confirming and reinforcing our strategic choices. Ambitious targets are an integral part of Givaudan's 2025 strategy, with the company aiming to achieve an organic sales growth of 4%-5% on a like-for-like basis and a free cash flow of at least 12%, both measured as an average over the five years period strategic cycle. In addition, the company aims to deliver on key non-financial targets around sustainability, diversity, and safety linked to Givaudan's purpose. I'm confident we are on the right path to deliver on those ambitions. Now let's turn to slide 23. Let me give you some facts about the coming months.
We clearly remain focused on delivering on our pricing actions to compensate for input cost inflation. I can confirm today that overall, raw material inflation in the P&L for 2022 will be around 9%. Given the current challenges around energy supply, notably in Europe, we are planning for business continuity in order to ensure the right adaptability of our production setup. In operations, our focus lies on maintaining operations and supply chain performance at high levels to support our customers and on a continued cost discipline throughout the business. The integration of acquired companies onto Givaudan's operating platform continues to make good progress, and we are progressing further with the implementation of the 2025 strategy. Finally, we are making further progress on our broad-based ESG agenda whilst effectively managing the current business priorities. With this, ladies and gentlemen, many thanks for your attention.
Tom and I are now looking forward to your questions.
We will now begin the question-and-answer session. Anyone who wishes to ask a question or make a comment may press star and one on their touch-tone telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only the handset to ask a question. Anyone who has a question or a comment may press star and one at this time. Our first question comes from the line of Heidi Vesterinen with BNP Paribas. Please go ahead.
Good afternoon, everyone. I have three questions. First, you talked about tight cost control in your speech. Should we expect items such as R&D and sales and marketing to be lower as a percentage of sales going forward, or was there some phasing in the H1 results, as that is what had helped your EBITDA margin. Second question, could you talk about your expectation in terms of free cash flow and your leverage on a full year basis, please, as 3.5x is on the high side for your company. Third related question, I wondered to what extent your leverage impacts your thinking on further M&A. Can you remind us on what you're thinking? You know, what kind of size you would be looking at? You know there's been deals in the sector recently.
Does that change your thinking at all? Thanks a lot.
Thank you and good afternoon, Heidi. Yeah, the question on are we cutting on R&D expenses, absolutely not. You know, this is the engine of Givaudan. In the first place, I can confirm that the actual you know brief pipeline that you know that we are measuring on a monthly basis across the whole group is in very good shape. Also the amount of new wins and that we see going forward. The fact that the ratio of OpEx has been you know going down over the sales has a lot to do with that, yes, we are tightening you know expenses, but more the discretionary expenses.
We are maintaining obviously a bit of a headcount neutral, but in no way are we cutting jobs in any way or slowing down the investment, especially related to working on briefs with our clients and so forth. The fact that the ratio is going down has a lot to do obviously with the fact that the sales growth is high, and therefore you know that helps on the ratio and the fact that we're also frugal on some many items which are not critical to servicing our clients. I guess you know I hand over the question on free cash flow to Tom.
Yeah, thanks, Heidi, for the question. Just to, you know, a couple of additional comments on, particularly on the OpEx. You know, of course, you will have seen in the half year report in the backup, you know, we have a table which shows the amortization of intangibles, which is split between the various elements. We actually have about CHF 12 million of reduction in amortization of intangible expense year- on- year. That's also driving the reduction in absolute R&D expense and selling and marketing. Of course, you know, as I mentioned, there's a lot of volatility in currencies. We are naturally hedged on the EBITDA margin. Of course, you can have currency swings throughout the P&L.
On the free cash flow and on the leverage, you know, in any year, you know, it's really finding the right balance between supporting our customers on growth, investing in the future. You know, you made the comment on R&D, but if you look at our CapEx, you know, we have a significant increase in CapEx this year, which is a clear demonstration of our long-term commitment to invest, and finally delivering on our long-term financial targets. You know, the reason that we set five-year financial targets is, you know, to take into account the volatility that occurs at least once every five years as we've experienced, and that's certainly what we see this year.
You know, if you make the calculation between now and the end of the year and say, "Okay, what would be needed to be done to achieve a single year target?" You know, clearly that would be, you know, reckless in terms of business support. You know, that being said, we have a strong practice of paying the dividend to our shareholders. You know, we're very clear that that requires a certain amount of free cash flow, which needs to be generated during 2022. On leverage, and then I'll hand back to Gilles really to talk about, you know, where we consider bolt-on acquisitions. You know, if you look historically, you know, we've been up to 4.5x net debt EBITDA.
You know, clearly if I look at the pipeline today from an acquisition perspective, you know, there is really nothing that drives up the net debt EBITDA. Anything that we would do would be bolt-on acquisitions and, you know, very similar size to what we've done in the past. Maybe I just hand back to Gilles to comment on the, you know, the areas of interest for us.
Yeah, Heidi, you know, as we have already stated, the areas where we look, you know, for, I would say, companies to acquire and I would say to join the Givaudan family, it's across multiple dimensions. You know, it's still about the core F&F. You know, you still have, you know, some small and mid-size players out there. The second dimension has a lot to do with our 2025 strategy, which is very much around those adjacent spaces. You know that if I just remind the fact that on the, you know, basically the food and beverage related ingredient space, we operate in a market size of, let's say 15 billion of flavors.
We also want to play in the adjacent spaces of health, nutrition, and anything that contributes in a positive way to a formulation in food and beverage. That amounts to, as a reminder, another 14 billion-15 billion of market size. You've seen the acquisition of DDW at the end of last year. You've seen some of the things we did with Ungerer, you know, that comes obviously, you know, after Naturex. They are clearly. Today, we have only a 5% in this 15 billion. Clearly there are assets out there which are interesting. The question that you are asking is really about also availability, because we will remain opportunistic. You know, we have done 20 acquisitions in the last four years.
We have a great, I think, name and reputation in the way, the way not only we make sense out of an acquisition, but also the way we integrate companies. That has been, you know, very successful so far. The question is availability. Valuations of companies have gone down. The question for the owners is that the right time actually to sell my company? Yet, you know, we still, you know, remain very active, and looking at that, you know, from a short-term but also, mid-term perspective, you know, building relationships and so forth. Now the next question, maybe.
The next question comes from the line of Charles Eden with UBS. Please go ahead.
Hi. Good afternoon. Thanks for taking my question. Just one incremental one from me. It's obviously we've seen pricing step up in Q2, and volumes also remain resilient and actually accelerate. Can I just ask how you're thinking about the resilience of these volumes in the second half of the year? I guess we've already seen some US food companies report negative volumes for their quarter to the end of May in recent weeks. I appreciate the CPG are only, you know, about half of your sales, and the category overlap to some of these customers is somewhat limited. I appreciate your thoughts on the volume trajectory from here, given, you know, they've remained very resilient in a, you know, continual price rise environment. Thank you.
Yeah. Certainly. Obviously, we increase prices. Our clients increase prices because many of the categories that they actually acquire, not just buy, you know, not only fragrance, flavors, and other ingredients, increase. But yet, you know, we have not seen on our side a slowdown in volumes. Obviously, and you said it a bit in your question, you're only tracking, let's say now 44% of our sales indirectly by tracking the big clients. Our big clients will report their figures, but you don't see the other 56% of L&R and how they are doing. So that maybe also explains that, you know, at least the 56% are growing 2x or 3x the rate of the large ones.
That's also the natural hedge that we have there. Let's see, you know, what's the coming months, you know, are going to to see in terms of volumes development. Today, you know, today and in any year, actually, it's always very difficult to have a precise number on where the volumes are going to grow on the existing business. The only thing that we control in our business is basically what we call the new wins and the new businesses that we win, which actually is the only way to gain market share, by the way.
That's on that side, and I can only confirm that it's very positive in both divisions, continues to be positive and also explains why in many parts of the business, we are clearly growing, you know, very fast. That's what we can say about, you know, how volumes can develop. You know, what's interesting is that volumes have actually accelerated from Q1 to Q2, so not being impacted by any pricing on the client side. Obviously also something to specify in a way that when we increase prices, that has actually no effect on the volume that we sell to our clients. You know, there is no consequences of having increased prices to the volume that we sell to our clients.
The next question comes from the line of Lisa De Neve with Morgan Stanley. Please go ahead.
Good afternoon, Gilles and Tom. Thank you for taking my two questions. First, can I follow up on the M&A question? You talked about your perspective towards the market. Can you also share some details on how active the M&A market is at the moment, and so in terms of the willingness for companies to potentially divest and what the multiples in the sort of private space look like today, given the sort of reduction we've seen, decline we've seen in the public markets? And secondly, can you provide some detail on how your price conversations with your customers have been evolving through the first half?
Some of your peers, as well as some news that we've seen, are noting sort of a step-up in sort of resistance to higher prices on the sort of retail end or the customer consumer end. Hence my question, what are you seeing on the customer front, in terms of pricing and resistance? Thank you.
Well, on the second question and on price, obviously, I can't disclose our pricing conversations with all our clients because first, you know, they are very numerous, and two, you know, I would say that, you know, the answer is basically in my statement. I can only confirm that essentially, we are fully covered in terms of all the pricing negotiations we have completed with all our clients to recover all the 9% of raw materials cost that we mentioned earlier. That has been done with more or less difficulties and resistance, but basically, I can confirm this is in the systems going forward. That means it's concluded in a positive way. You know, pricing conversations are never easy.
And the second thing, you know, as it relates to the pricing up again of our clients to the retail side and so forth, you know, yet we have not seen any slowdown in volumes to them. Which doesn't mean that, you know, some of them have are seeing that on an individual basis. That's, you know, really what we see today. The M&A, on the M&A side, you know, obviously, I would say as I mentioned, it's true that there is a bit of a correlation between the number of, if you look at history, the number of transactions and M&A deals are usually a function of high valuations.
The reverse is also true that, you know, when valuations slow down, you have also slowing down in transactions. It doesn't mean that there won't be any M&A opportunities going forward. What's important in terms of valuation is really, we have a very almost strict view on whether to make an acquisition or not, which is very much about two principles. One is to make sure that the multiple of buying something is lower than our own multiple. If it's a higher multiple, there must be very good reasons to do that or very big synergies, and we have never been in this situation because Givaudan has a very high multiple.
The second principle is really to make sure that it's not about earnings per share appreciation, it's not about any of that. You know, we look at value creation through synergies, and especially, well, in the first place, cost synergies, that's given, but also sales synergies. In every one of the 20 acquisitions we made, you know, clearly we have looked at both sides, and I can only confirm that we have created a lot of value with many of them, simply by not only delivering on the cost synergies, but accelerating the growth rate of every one of those companies. I'm thinking there of all of them, essentially.
Basically going forward, you know, this discipline we'll continue to have, and this is very much driven by, I would say, a very thorough, disciplined thinking process to say, does it really fit Givaudan? Not from all dimensions, you know, the portfolio, does it make sense for what we do? Do we really see the sales synergies as opposed to dreaming about cross-selling, for example? This, I think, has been valuable for us, you know, to keep on being disciplined when making an acquisition. We'll be remaining active, but again, it takes two to dance.
It's very helpful. Thank you.
The next question comes from a line of James Targett with Berenberg. Please go ahead.
Hello. Good afternoon, everyone. Yeah, a couple of questions. Firstly, if I could turn to North America. I appreciate, you know, the comments you made on comps. Maybe you could clarify, firstly, if the supply chain issues, you know, are still lingering into Q3, the specific ones for North America. Also whether or not you have seen any, you know, well, what are your shares like in North America. Are you seeing any change in a competitive, you know, environment? I guess that's specifically thinking about IFF. Would you hope for North America to be back in positive territory for the second half of the year? 'Cause I think the comp is still relatively demanding in H2 as well. That's my first question on North America.
My second one, I guess, is really on the Fine Fragrances outlook. Clearly had a very strong couple of quarters. Again, obviously you've mentioned the recovery of travel retail, but just any visibility on outlook for H2 for that unit. Thank you.
For North America, yes, you mentioned comparables. I would say, when we mention, you know. There are two sides to the story. There is the supply chain challenges, you know, being having ingredients and raw materials on time so that you can actually make a fragrance or flavor and deliver it on time to your clients. Obviously, we've encountered a lot of challenges in terms of lead times in the supply chain delays. It's actually slightly improving and we've seen some slight improvement over the last recent weeks. The other culprit was the labor market. The labor market in North America is very, very tense, and that didn't start first of January of this year. It was already in the fourth quarter.
There, it's really about. It's true for our industry, it's true for many industries, I believe. There, you know, it's also why, you know, last year we had to use a lot of, you know, temps and had to incur additional production costs in North America. Things are improving gradually in our operations footprint. I don't believe that it's a question of losing market share to anybody because I hear that the issues are a bit the same for everyone, because they are a bit external, labor and supply chains. That's a bit where we are today.
Hopefully, you know, we'll get to better ground in the coming months in North America, especially on the Fragrance Consumer Products side, because Fine Fragrances is doing very well and some other parts of the Taste & Wellbeing is also doing very well. Fine Fragrances. Well, you know, it's a bit, I would say it's a bit the magic of Fine Fragrances. To give you an outlook for the second half, I think that we have just to remind when we are right in the midst of COVID in 2020, all our clients were saying we're going to be back to the 2019 level in 2024, 2025 maybe.
To everyone's surprise, many Fine Fragrance clients, you know, and including ourselves, supplying them, were already back to the 2019 level in August of 2021, given the formidable rebound that we have seen across the business. Everybody thought, you know, maybe that's going to slow down in 2022. As you can see from the figures, it absolutely did not slow down, at least for us. I don't know about our competitors. You know, it obviously echoes a lot of our Fine Fragrance clients, which are growing very strongly. So, will it, you know, continue going forward? You know, I don't know.
The only thing I can say is that, again, back to the thing that we control, the amount of new wins, new businesses, is very strong in Fine Fragrances. We have a formidable momentum, which explains last year's figures but also this year's figures. That's basically what we can say about about Fine Fragrances. We have also a very well-hedged portfolio. We are on both prestige Fine Fragrances as well as more what we call the mass market specialty retail fragrances, you know, which is very strong in the U.S., as well as, you know, SAMEA, Latin America. There's a huge diversity of Fine Fragrances, which also helps us navigating those times and really capturing all growth opportunities.
Thank you.
The next question comes from the line of Matthew Yates with Bank of America. Please go ahead.
Hey, guys. Good afternoon, everyone. The first question was around the continuity planning you alluded to at the end of the presentation. I'm not sure if this is something you're gonna talk more about at the event at the end of August. Just curious if you had any early thoughts there on where you see the risks or the bottlenecks around the gas crisis. Is that with your own production sites or rather your suppliers, particularly of synthetics in Germany? On a somewhat related note, another question, sorry, about M&A. BASF today put some assets up for sale around food and health performance ingredients. I think these are things like emulsifiers and fat powders.
Would that conceptually fit with your strategy of going into adjacent markets, or are these technologies that are perhaps more commoditized than the areas Givaudan typically wants to play in?
Okay. Maybe I'll start by your last question. You know, essentially, we don't have so much appetite, if I may say so, for commodities. This is not our business model. As you know, there are two or three, let's say, almost criteria or attribute to our business model or the company we want to be, which is any ingredients, any contribution to a formula which delivers a very clear benefit to the consumer that customers can actually build upon to build claims, to advertise, and to be proud about. You know, and that's obviously starts with fragrance flavors, but then you go Active Beauty. The many things that we have added in our portfolio follows this first rule.
The second rule is that, you know, those ingredients need to be not only contributing to something very positive that, you know, clients and brands can claim, but also backed by innovation, highly specialized, requiring expertise. Then, obviously, you know, things which can help clients to differentiate and make them, their brands or their products bespoke. Obviously, yes, that's part of fragrance and flavors, but it's the same with many. You know, the more you are innovative with ingredients, the more clients and brands can actually have them developed specifically for them. That's when we start to talk about solutions and things which are bespoke, which is basically the essence of what we do.
That's why at the end of the day, that translates into high levels of pricing, profitability, and so forth. That's. It's a consequence. That's why commodities by definition don't fall in many of those attributes I just mentioned. This is why we've been quite discriminating in terms of the acquisitions we could have made of the recent past, if you look at the landscape which has changed around us. That's basically one. The second question you asked, you know, maybe Tom answers it.
Yeah, Matthew. On the BCP, of course, you picked on a couple of items. You mentioned the gas in Europe and, you know, we are looking at a number of things that we can do. You know, clearly we are a very small portion of the supply chain. As always, you know, we are highly reliant on our suppliers. You know, what you also need to really remember, and if you look even at the lockdowns in Shanghai in the first six months of this year, you know, we have a geographical spread of our footprint. You know, that has protected us. That, you know, clearly was a significant advantage during COVID.
When we talk about BCP, you know, it's also the ability to produce different ingredients in different facilities. You know, this is really part of the BCP that we talk about. We are taking measures, but you know, clearly we are a very small cog in a very long chain. You know, we have many facilities, and we think about how we can balance and supply from each of them.
I guess, Tom, just to follow up. I mean, we all remember the citral crisis of a couple of years ago. Are there particular, you know, material products that you are somewhat dependent on Germany to provide to you? Any context of, you know, across your 10,000 raw material inputs, your dependence on synthetics in Germany?
Well, you named it, huh? One where we are highly dependent in Germany, you named it already. The citral derivatives, absolutely. In Germany, there are no others that I know. The dependency, the 14,000 are really spread across many, many different countries.
Thanks, guys.
The next question comes from the line of Isha Sharma with Stifel Europe. Please go ahead.
Good afternoon. I have one left, please. I appreciate your comments on the net working capital swing to secure supply chain. Based on that, are you still confident of delivering at least 12% of sales after the -4% in the first half?
You know, Isha, as I said, I mean, to achieve 12% this year would, you know, if you look at the numbers, is unachievable. I mean, that's why we set five-year targets, and that's why we have this 12% over five years. You know, again, all I can say is it's really balancing between delivering to our customers, investing, you know, we have a catch-up in CapEx after really two years of not making significant investments because of the COVID pandemic, and delivering on our long-term financial targets.
You know, again, I can only repeat, you know, we have a strong practice of paying the dividends to our shareholders, and this requires a certain amount of free cash flow in any particular year.
Understood. Thanks a lot. Maybe just one follow-up on the margin. Typically, seasonally, you have 100 basis points lower margin in the second half. Would that still hold true for this year, which would actually mean a step up year-over-year from the second half of 2021?
Well, Isha, I think we've, you know, we've told you where we are in terms of raw materials inflation. You know what we need to do in terms of price increase. You know, we said we will fully compensate. Clearly, you know, you see the acceleration in price even from Q1 to Q2, and that will also be in Q3 and Q4. I think, you know, we've given you all of the elements that allow you to make your projections.
Thank you very much.
Okay. I think, we are leading now to the last question, operator.
Today's last question comes from the line of Ranulf Orr with Citi. Please go ahead.
Hi. Afternoon, everyone. If it's all right, it's three last ones, not just one last one. Firstly, on the cost savings, I'm just wondering, you know, how much of this is, you know, could be continued sort of into next year should we hit another year of high inflation? How much of the cost savings, you know, would need to come to end before irreparable damage sort of is done to the business? Secondly, I know we focused a lot on M&A already, but just one more here. I'm just curious to understand whether you think the evolving supply chain environment is leading you to think more about a move upstream, as well.
Thirdly, just on the pricing gains that we've seen this year- to- date, is this all just offsetting, you know, raw material inflation, or is there any sort of kind of mix or underlying pricing power in the business at the moment? That's all. Thank you.
Can you restate the third question because I didn't understand it clearly. You say what?
Yeah. I was just curious to understand if there's any sort of underlying pricing power in the business at the moment or whether the pricing increases are just purely, you know, entirely offsetting raw material increases?
Yeah. They are there to actually entirely offset the raw materials increase. The pricing, you know, is obviously a function of actually on both sides. You know, when you look at raw mats, we give an indication, but that's based on what we actually buy. Therefore, the mix of raw mats can influence the actual end increase. This is also true on the pricing to our clients. It all depends on which types of products and which products are going to be picked up, and that actually translates into a pricing, which can actually have some minor fluctuations. It's not an exact science. As it relates to pricing power, I would not like to overstate, you know, pricing power.
It's true that, you know, however you read it, I can only reconfirm we are fully, all our pricing negotiations are fully complete to be able to recover that in a successful, way.
The first question.
Maybe I can take it. Just, Gilles, thanks. On the cost savings, look, I think at the end of last year, we were very clear. We said we had CHF 30 million of cost incurred in 2021 related to COVID, which we felt that we would be able to get out during this year. You see, we've demonstrated our ability to get that cost out. You know, just again, to reiterate what Gilles mentioned, you know, we are not, you know, we're not cutting muscle, we're not cutting bone. You know, we are not cutting on R&D and sales and marketing from a fundamental business perspective.
Just on the M&A on backward integration, you know, again, as Gilles has mentioned, we buy 14,000 raw materials to try and pick the right one to be backward integrated is extremely difficult. To do, you know, even a handful is, you know, becomes almost impossible. You know, we have our clear areas of focus in terms of M&A, not backward integrating. You know, we like the flexibility and the optionality in terms of having multiple sources of supply. You know, that's very much in line with our M&A strategy.
Great. Thank you.
Okay. Well, thank you very much for your questions. This ends now our call. I'd like to remind you that we hold on August 30th our traditional half year conference in Zurich. The theme of this conference will be dedicated to plant-based food and alternative proteins, co-creating tasty, healthy, and nutritious food experiences for all. I hope not only you will enjoy what we'll tell you, but you know, also as well how we'll feed you. Thank you very much, and looking forward to see you at this event.