Good afternoon, and good morning to everyone. I am Luca Borlini, Head of Nestle's Investor Relations. Today, I am joined by our Chief Executive Officer, Mark Schneider and Chief Financial Officer, Francois Ruggier. Mark will begin with an overview of 2019 and the outlook for 2020. Francois will follow with a review of the full year 2019 sales and profit figures.
We will then open the lines for your questions. Before we begin, please take note of our disclaimer. And now I hand over to Marc.
Thank you, Luca, and a warm welcome to all of you joining us on this conference call today. We appreciate your interest in our company. I'd like to move on right to the key messages for 2019. I'd like to point out the picture of success that we've seen in this year, the continued progress with our value creation model. As you know, for us, this value creation model, the key cornerstones are success with top line, bottom line and capital efficiency at the same time.
When all these three come together, it means good things for the company and also good things for our shareholder. I think that is the story of 2019. Specifically, when it comes to organic growth, we were able to increase our growth from 3% to 3.5%, so 3% in 2018, 3.5% in 2019. We saw strong momentum in the United States, our largest market and also from Corina Pet Care globally. In terms of the underlying trading operating profit margin, we saw an increase by 60 basis points to 17.6%.
As you do know, going back to 2017, we do have a midterm underlying trading operating profit margin target in place for 2020. It called for a range of 17.5% to 18.5%. So we're inside that range 1 year early. So very good work here when it comes to the underlying trading operating profit margin and very much also something that you saw coming as we progressed very nicely on that margin in 2019. Now on both of these, growth and margin, I think we came smack inside our guided ranges here for the year.
We were not only staying very close to the guidance, I think we were also staying very close to the profile of growth and margin development in the year that we let you do expect. So very strong first half of twenty nineteen, some of that also driven by the commodity cycle. And then we told you early on to expect lower growth in the second half and also a bit more pressure on the margin as some of these commodities were turning against us. In the Q4, also mathematically, the fact that Skin Health was no longer part of the consolidation circle made itself felt. Skin Health, as you know, did significantly benefit from a strong, strong turnaround that we put in place in the years 2017 2018.
It grew by almost 10% in 2019. And so a EUR 3,000,000,000 business growing at almost 10%. When that leaves you mathematically, of course, with the next quarter, there's going to be a bit of an air pocket and this is what you saw with Q4. Now the important thing is, 1st of all, please appreciate the precision here of the guidance and also the expectations but that the fundamental growth drivers when it comes to organic growth and also the underlying trading operating profit margin improvement, those are still in place and you will see that later on reflected in our guidance. Portfolio transformation, very much on track.
I'll talk more about that later. And then you see a significant return of cash to our shareholders CHF16.9 billion through the share buybacks and the dividends in 2019. On the dividend, the good news is also slated to continue. Our Board approved to propose a dividend increase of CHF 25 per share to CHF 2.70. If approved at the Annual Shareholders' Meeting in April, this would mark the 25th consecutive annual dividend increase.
So 20, 25% teams in the 25th year of increase, very stable, sustainable dividend increase over time that I think has become the hallmark of our company. With this increase, we will then also draw on the rank of the dividend aristocrats, who stocks that for the 25th consecutive year are able to raise the dividend. By the way, when it comes to not just raising it, but keeping it stable, we have a 60 year history now of not lowering the dividend. So for 60 years, the dividend has either been stable or increasing. So tremendous financial stability coming from the business to the benefit of our shareholders.
Let me also point out, we believe very much in creating shared value. So we create a lot of value in that past year, but I think we also took some pretty bold steps in sustainability and diversity inclusion. As you know, we followed the UN pledge to become carbon neutral by 2,050. We unveiled major initiatives in plastic waste reduction. And then as part of the diversity inclusion plan, among many other things, we also unveiled a new parental leave policy in the fall of 2019, which now is in the process of being rolled out globally and which will grant primary caregivers 18 months of parental leave.
So all in all, busy year with lots of successes across a broad spectrum and something to be proud of. Moving on to the next slide. I won't spend too much time on the detailed financials. I know Francois will talk about that later. The key message here is simply to point out the consistency across all the metrics.
And again, stressing the fact that we saw success in the top line, the bottom line and also when it comes to cash and balance sheet intensity and return on invested capital benefiting from that very nicely. I would also like to point out that our underlying earnings per share in constant currency increased in double digit rates for the 2nd year in a row. I think when top line and bottom line success come together, you typically see very nice things happening for underlying EPS. Next, I'd like to talk about organic growth. And you see here a slide that we have also featured in previous years showing you the main buckets of organic growth improvement, fixing underperforming businesses, portfolio management and then also advancing high growth categories and innovation.
So in all three buckets, I think a lot of activity happening in 2019 and contributing then to that increase towards 3.5%. On portfolio management, as you know, it's been a busy year on the divestiture front. The one regret I have over the year is that we didn't do that much on the acquiring side. I hope that's going to change now in 2020. We already announced through Nestle Health Science the acquisition of Senpep in January, and we have a few other projects to work on.
So I believe that 2020 will see a more balanced view between acquisitions and disposals, but it will continue to be a busy year on portfolio management. That much is pretty clear as from now. While on portfolio, I think it is worthwhile after a few years to kind of step back and to see what has been accomplished. You see here a summary of some of the disposals over the last 3 years and then companies we have invested in. And I think it's pretty clear that the businesses we have invested in are higher growth, higher margin.
They're more on trend, more in tune with younger, more affluent consumers. They're more premiumized products. They also make better use of digital opportunities and personalization. So very much continued trends here that are going to be very important for the company. All in all, more than 50 transactions have been closed or announced in that time frame, and this represents about 12% of group sales.
So this is north of what we told you to expect in 2017. We had talked of about roughly 10% of group sales. And looking now ahead, looking at the next 3 years, I would expect a similar level of activity when it comes to portfolio transformation. Next, I would like to talk about faster innovation internally. As you know, this has always also become a hallmark of our company.
Significant changes happening in our R and D and innovation engine. And you see some of the key examples highlighted here. I won't talk about all of them in a great amount of detail, but I'd like to point out a few. So clearly on coffee, we saw significant success with the rollout of the Starbucks product range. As you know, we unveiled that range exactly 1 year ago.
It was very easy for you to see that we only had about 5 to 6 months to develop this because the Starbucks transaction only closed in late August 2018. And here we were a year ago in February 2019 showing you 24 SKUs at the time. Starting from March, these SKUs hit the shelves. We're now out there in more than 40 countries. In November, when we saw already the overwhelming success of this launch, we told you to expect about CHF 250,000,000 of additional sales to expect in 2019.
As it happens, we beat those we bet those numbers. We came in at more than CHF300,000,000 of additional sales in 2019. So very nice success here on the coffee front. As you know, that rollout is now being bolstered by continued innovation under the Starbucks label. It was very important for us after the initial excitement with these products to continue now with the new stream of exciting must have products.
And so we continue to be very bullish when it comes to that Starbucks franchise for 2020. Pet Care, as you know, as a category was flying last year, both in premiumization and also in veterinary and science based products. So this is where we bring the full strength of our research and development team to the table. And here again, we also continue to be very bullish when it comes to 2020 beyond. And then last but not least, plant based food.
As you know, that segment has received a lot of attention in 2019. 1 of the signature products that people talked about was the plant based burgers, where I think early on we were able to compete both in Europe and the United States. In Europe with the Incredible Burger, which is soy based in the United States with the Awesome Burger that's yellow pea based, both of those fantastic products that have taken good share in the market. This story, however, is way, way, way beyond the burgers. So all in all, for this plant based segment, we have achieved sales of about CHF 200,000,000.
We're growing at double digit strong double digit rates. And the good news is that these growth rates keep accelerating. So here is something that is way beyond just a short term trend and rather something that does have a runway in it. Aside from plant based burgers, we are also talking about analogs for meatballs, for ground beef. We're talking chicken analog products like chicken nuggets and chicken fillets.
And we're even working now on tuna salad analog, which I think holds great promise and should be out on the shelves later this year. So lots of good examples in the works. It's very important to gain credibility with these pure play ingredients. But then the bigger picture of the size of the opportunity is to look at our CHF 12,000,000,000 category, which we call prepared dishes and cooking aids. This category, as you know, is a signature category for us.
It has delivered solid growth, but not exciting growth in recent years. And I think what you're seeing here is a once in a generation opportunity to revive, rejuvenate, reenergize this category because these ingredients, these plant based ingredients can find their way in so many other dishes and follow on products that make up this category. So from a frozen pizza to frozen or chilled meals, to some of the seasonings, the plant based opportunity is one that I believe has lots of follow on opportunities that we can use to make this category more exciting going forward. So very interesting development here. Let me also point out while we did not invent the no compromise sector where we try to resemble the original product as closely as possible, due to our 30 year history in plant based products, we were able to move up to this really, really fast.
So this is why we didn't miss much of a beat. And I think we're out there now among the top offerings, and we continue to be very, very much invested in that race. Next, let me talk about business as a force for good. One thing you would have noticed starting from last March is that with each quarterly report, I'm also talking about a sustainability or ESG type project that we pursue as a company. When we looked at sheer number of projects we have, it was very clear that we have a lot of quarters to cover here with good things that we're doing for the people that do business with us, the people that work for us, the communities we live in or the consumers or suppliers that work with us.
And this quarter, I would like to talk about, again, plastics packaging and packaging innovation in general. This builds on a press release that we issued in January that outlined 2 further steps on the road towards our 2025 commitment to make packaging sustainable and basically make all of it reusable or recyclable by that year. The first one is to get a market for food grade recycled plastics going. So we are devoting more than CHF 1,500,000,000 to incentivize supply in this area. We saw a weakness when it comes to food grade recycled plastics.
There was simply not enough capacity. People were reluctant to invest because they didn't see stable demand. And so by committing to purchase up to 2,000,000 metric tons in this 5 year time frame and to pay a premium for this material, we hope to create a market in particular for PP and PE where the lack of food grade alternatives was quite troubling. On PET, which makes up the plastic bottles, the situation was better. But even there, you need to pay a premium right now to get your hands on recycled material.
As investors, it's important for me to point out to you that we have sufficient cost reduction efforts underway that we can make this commitment in a cost neutral way. So this is not coming at the expense of margin. But I do believe this is important to stay in tune with our sustainability commitment and also stay in favor with the public and consumers in general who expect from us that we improve the eco footprint of our packaging. The right side of the screen, talking about packaging innovation. As you know, traditionally, we looked at packaging as a supplier issue.
But it is true that in this industry, there was not that much innovation coming. So we started to take things into our own hands. We inaugurated our Institute of Packaging Sciences last year, where as part of our research center, we do our own research in packaging material to drive innovation. We know from our food and beverage research that not all good ideas come from inside our own four walls. And hence, we complemented now the Institute of Packaging Sciences with a CHF250 1,000,000 venture fund that focuses on ideas that happen outside of our company.
So these CHF250 1,000,000 are available to invest in start up companies in this space, and we hope that way to get more innovation in the packaging space off the ground. We'll be looking at all options. So it's going to be reuse and refill, which I think in densely populated areas does have great promise. We're looking at recycling, of course, and we're looking at new materials, including biodegradable materials. Before I hand it over to Franspa, let me talk about the guidance for 2020.
And looking at the first two bullet points, again, what you're seeing here is the good news continuing when it comes to organic growth and the underlying trading operating margin. On organic growth, however, what we did say is that when it comes to this mid single digit range, that 4% to 6% range, that will need another 1 to 2 years to make it towards that. So organic growth will continue to improve, but it will improve not quite as fast that we get to that range in 2020 yet. So looking back at the 2017 midterm targets, you see us basically being 1 year early when it comes to the underlying trading operating profit margin and you see us 1 to 2 years late when it comes to the organic sales growth. The important thing, however, is on both of these, we will get there.
We are there already on the underlying trading operating profit margin, and we will get there on organic sales growth. I think that's pretty apparent now. And the confidence level that we have a path to get there has certainly increased very much from the time that we had in 2017, where we were quite far away from these targeted numbers. In terms of restructuring costs, we expect about CHF 500,000,000. And then when it comes to underlying earnings per share in constant currency and capital efficiency, we expect those to increase as in previous years.
For good order, it's important to point out that it's too early to quantify the financial impact of the coronavirus outbreak. I think this is very much in line with the practice from other companies. When it comes to the situation on the ground, I would like to recognize the enormous efforts from our team here. As you know, China is our 2nd largest market. The Greater China region accounts for about 8% of our revenues.
We have spent weeks weeks now to get prepared for this, tremendous effort from the team on the ground. It's important for us, of course, to be sure that our associates are safe. It's important that we cooperate fully with the local authorities to be sure that we take all measures to prevent the spread of the virus. And of course, given that we have a stronger responsibility here as a producer of food and beverage products, it's important to the largest extent possible to maintain the uninterrupted supply of these products. Think on all these metrics, we're doing very well, thanks to the strong efforts on the ground.
I think it's particularly important for the youngest and the oldest members of society that food production and food supply is maintained to the largest extent possible. So especially when it comes to infant nutrition and when it comes to medical nutrition, we are giving it very, very strong efforts. We have restarted the largest part of our more than 30 factories in China earlier this week. So the largest part of these factories are running, albeit they're running at a lower rate than usual because as you can imagine, distribution capacity is much, much tighter than usual. And also some of our employees have not been able to leave their home provinces after Chinese New Year and rejoin us at these manufacturing sites.
But overall, I would just like to underline our strong commitment to the Chinese market at this time and our strong commitment to work with the authorities to do all we can to overcome this challenge. With that, let me hand it over to Francois.
Thank you, Marc. Good morning or good afternoon to you all. Marc has shared with you the financial headlines, I will provide you with some of the details behind those numbers. Starting with sales growth with the different building blocks of our top line growth, Sales for the full year totaled CHF92,600,000,000 a 1.2% increase on a reported basis. Our organic growth increased to 3.5% for the 2nd year in a row.
Nestle Skin Health contributed around 20 basis points of organic growth in 2019. The most significant contributor to growth was RIG, which accelerated to 2.9%, the highest level in the last 6 years. Our RIG was supported by innovation, strong growth in the e commerce channel and portfolio management. Pricing was 0 point 6% and returned to positive territory in the Q4. Net acquisitions had a negative impact of 0.8% largely related to the divestment of Nestle Skin Health on the 1st October.
Foreign exchange reduced sales by 1.5% mainly as a result of the appreciation of the Swiss francs against the euro and against a number of emerging market currencies. These slides illustrate the development of our sales by geography. It includes both our zones as well as our globally and regionally managed businesses. Our growth was broad based both in terms of organic growth and RIG, which were positive in all geographies. Organic growth in AMS at 4% increased significantly versus the previous year.
Pricing was positive in the Americas and AOA. Europe saw slightly negative pricing, mainly impacted by decreasing coffee prices. This was more than compensated by stronger real internal growth. And overall we have been very encouraged by MENA's resilience and momentum in a low growth environment. Now turning to growth dynamics between developed and emerging markets.
Developed markets, especially North America, saw increased growth momentum. The increase came mainly from RIG and was largely driven by innovation, strong growth in the e commerce channel and disciplined execution. Emerging markets posted steady mid single digit organic growth. The slowdown in China was offset by an acceleration in most of the other regions. Let's now look at the result of our 5 operating segments starting with Zone AMS, where we are pleased to see a significant increase in organic growth.
Sales were CHF33.2 billion. Organic growth was 3.9 percent supported by a strong rig of 2.6%. North America grew at a mid single digit pace led by the United States, which saw 4.1 percent organic growth when including the globally managed businesses. Organic growth in the U. S.
Reached its highest level in the last 10 years. This performance reflects a pipeline of successful innovations and strong demand for premium products across categories. The largest contributors to organic growth were Purina Pet Care and Beverages. Purina Pet Care saw strong sales development in e commerce and science based premium brands such as Purina Proplan, Purina 1 and Vetarina Re products. The beverage category saw high single digit growth supported by strong demand for Starbucks and CoffeeMed products.
The transition of the U. S. Pizza and ice cream businesses from a direct store delivery system to a warehouse distribution model was successfully completed 6 months ahead of schedule. The DSD transition will have a marginal negative impact on group organic growth in 2020. Latin America posted posted mid single digit growth with positive contribution across all categories.
Brazil returned to mid single digit growth supported by better results in dairy and strong performances in infant nutrition, KitKat and Nescafe. Mexico grew at a mid single digit rate with Nescafe being the standout performer. Latin America recorded double digit growth for Purina Pet Care and strong mid single digit growth in dairy and coffee. The zone's underlying trading operating profit margin increased by 10 basis points. Pricing and structural cost reduction more than offset cost increases from commodity inflation and one off transition costs associated with the DSD exit.
Marketing and commercial investment increased to support innovation and brand building. Next, Zone MENA with sales of CHF 18,800,000,000. Organic growth was 2.7 percent. RIG was 4.2%, the best level in the last 5 years. In a low growth environment, the zone made broad based market share gains across categories and geographies.
Each sub region had positive organic growth with an acceleration in both Western Europe and Eastern Europe, particularly Russia. By category, the largest contributor to growth was Purina Pet Care supported by Felix, Purina 1 and the expansion of teles.com. Infant nutrition grew mid single digit with strong growth in Eastern Europe and MENA helped by innovation, particularly with human milk oligosaccharide or HMOs. Coffee saw positive growth, particularly in the second half of the year with mid single digit rig helped by the launch of Starbucks and a stronger performance from Nescafe. Confectionery maintained solid momentum with good growth for KitKat.
Vegetarian and plant based food products grew at a double digit pace supported by the successful launch of Incredible Burger and Incredible Mince. The zone's underlying trading operating profit margin increased by 20 basis points. This improvement was supported by structural cost savings, operational efficiencies and product mix. Marketing and commercial investment increased to support innovation and brand building. Moving now to Zone AOA with sales of CHF 21,600,000,000.
Zone AOA posted 3.2% organic growth for the year. RIG was 2.5%. Growth was solid in spite of a slower momentum in China and negative sales development in Pakistan due to the challenging trading conditions. China had slightly positive growth with some benefit from the timing of Chinese New Year in the Q4. Culinary, coffee and ice cream performed well.
Yinlu, peanut milk and congee continued to see a decrease in sales. Infant nutrition in China posted low single digit growth as strong sell momentum for Illumina was largely offset by a decline for the S26 range. With more than CHF1 1,000,000,000 in sales in China, Illumina is now a member of our billionaire brands. Southeast Asia posted good growth with strong momentum in Indonesia and Vietnam. Bear brand, ready to drink Milo and Nescafe grew at a double digit rate.
South Asia reported mid single digit growth, driven by strong sales in India. Maggie, NAN and Nescafe performed well, helped by innovations, distribution expansion in smaller cities and strong execution. Sub Saharan Africa accelerated to mid single digit growth supported by infant nutrition, Maggi and Nescafe. Japan and Oceania maintained low single digit growth with strong demand for Purina Pet Care Products and the newly launched Starbucks range. By product category, the largest contributions to the Zone's growth came from culinary products, infant nutrition and Purina Pet Care.
Infant nutrition maintained mid single digit growth with good momentum in all markets with the exception of the S26 range in China. The zone's underlying trading operating profit margin at 22.7% was unchanged. Pricing, structural cost reductions and favorable mix offset cost increases from commodity inflation. Marketing investment increased to support innovation and brand building. Moving on to our globally managed businesses and starting with Nestle Waters.
Organic growth for the year was 0.2% driven entirely by pricing as RIC finished at minus 1.9%. Total sales were CHF 7,800,000,000. In North America, organic growth was slightly positive. International premium brands saw double digit growth with strong demand for San Pellegrino, Perrier and Aquapana. The launch of San Pellegrino Essensa resonated strongly with consumers.
The ready refresh direct to consumer business grew at a mid single digit rate held by pricing and the deployment of a new online platform. The mainstream segment, particularly the case pack format and Nestle Pure Life continued to be challenged. Europe saw negative growth impacted by high comparables and a soft market in the second half of the year. Emerging markets posted mid single digit growth. Nestle Water is now managed as part of the group's 3 geographical zones from January 1, 2020.
This move is one of the several steps we are taking to address the underperformance of the water business. The underlying trading operating profit margin for the Water business increased by 80 basis points. The improvement came through increased pricing and structural reduction structural cost reduction. This more than offset higher PET packaging cost as well as higher marketing investments. Finally, we review our other businesses, which includes Nespresso, Nestle Health Science and Nestle Skin Health.
We completed the sale of the Nestle Skin Health business on the 1st October 2019. Total sales for other businesses were CHF 11,200,000,000 strong organic growth of 6.4% largely came from RIG at 5.8%. Nespresso maintained solid mid single digit organic growth with positive momentum across all regions. North America grew at a strong double digit pace with significant market share gains. The virtual system was a key contributor to growth as sales grew more than 60%.
The out of home segment also had a good sales development. We also continued to develop and optimize our boutique network to increase availability while maintaining personalized services. As of the end of 2019, Nespresso operated 8 10 boutiques, more than 70% of them being in a smaller format. Nestle Health Science grew at a high single digit rate, supported by the strong growth of medical nutrition and Atrium products in consumer care. Successful innovation and strong growth in the e commerce channel were key contributors.
In September, Nestle Health Science expanded into personalized nutrition with the acquisition of Persona, a leading personalized vitamin business. Nestle Skin Health posted high single digit growth for the 9 months of consolidation until September. The underlying trading operating profit margin of other businesses increased by 220 basis points as a result of broad based improvement across all businesses. Looking now at our growth by product categories, where all segments sustained positive organic growth. Other than liquid beverages, which is largely coffee, maintained solid organic growth driven entirely by RIG.
Pricing declined slightly largely as a consequence of lower green coffee prices. Coffee had a good momentum helped by strong demand for Starbucks products rolled out in more than 40 countries. Nutrition and Health Science performed well driven by solid rig in all 3 subcategories. Infant Nutrition posted 3.1 percent organic growth with robust momentum in emerging market outside of China. We already commented on Nestle Health Science and Nestle Skin Health.
Pet Care accelerated to 7% organic growth with positive contribution from most region, brands and product segments. The strong performance was supported by successful innovation and sustained demand for premium products. The e commerce channel grew by more than 40% and now slightly exceeds 10% of our total Purina pet care sales. We are also particularly pleased with the progress made by the 10th dotcom in Europe, which grew above 50%. These platforms open up exciting opportunities in the areas of personalized nutrition and direct to consumer.
Prepared dishes and cooking aids saw rig led growth. Ambient culinary benefited from strong momentum in Maggie Bouillon and Nudon's in emerging markets. Confectionery posted positive growth, all rig driven. KitKat delivered another year of high single digit growth supported by innovation and geographic expansion. We are continuing to premiumize our product range.
During the year, we opened new chocolatary boutiques, expanded KitKat Ruby and successfully launched Les Rocettes de la Tourie Les Boucher in the high value gifting segment, what else we already discussed. Moving now to profit evolution by product categories. Our largest categories, powdered and liquid beverages, nutrition and health science as well as pet care, continue to deliver the highest levels of margin in our portfolio. Most categories maintained their profitability at a similar level to 2018. The margins of Nutrition and Health Science increased significantly largely due to Nestle Skin Health, which benefited from our turnaround efforts.
Nestle Health Science margins also increased based on strong sales growth. Milk products and ice cream margins increased, helped by pricing
and operating leverage.
Looking at our gross margin, we finished the year at 49.6%. Excluding the impact of Nestle Skin Health, which we disposed off, the gross margin improved by 20 basis points. Significant structural cost reduction in manufacturing, positive product mix and pricing more than offset increased commodity and packaging cost of about CHF350 1,000,000. In manufacturing, we continued to optimize our production footprint. Our factory fixed overheads declined by 5.5%.
In procurement, we continued to leverage our scale. Global buying through our 3 global purchasing hubs increased from 55% in 2018 to 61% in 2019. Now looking at our underlying trading operating margin. We have delivered a significant improvement of 60 basis points in underlying trading operating profit margin in 2019. The improvement adds up to a 160 basis points increase since 2016 to a record operating margin for the company.
It also means we are within our 2020 guidance range 1 year ahead of schedule. The improvement mainly comes from the successful execution of ongoing restructuring initiatives, which reduced our structural cost for the 3rd year in a row. We also had some benefits coming from pricing, improved portfolio mix and marketing efficiencies, all of these savings more than offset an increase in input cost. Consumer facing marketing expenses increased by 3.4% in constant currency, which underlines our growth focus. Digital spend continued to increase, reaching 41% of total media spend.
Moving on to the P and L items from underlying trading operating profit down to underlying EPS. We had restructuring costs slightly more than €550,000,000 and we expect to spend around €500,000,000 in 2020. Impairment of assets increased by 100 basis points, largely related to INLO. As a result, our trading operating profit margin was 14.8% on a reported basis, representing a decrease of 30 basis points versus the previous year. We benefited higher income related to gains made on the disposal of Neste Skin Health.
Net financial expenses grew by 30 basis points mainly reflecting an increase in average net debt during the year. Our underlying tax rate declined by 220 basis points to 21.6 percent mainly as a result of the development of our geographic and business mix. As a result, net profit increased by 250 basis points to 13.6%. Underlying earnings per share increased by 11.1% in constant currency, a 2nd year of double digit increase. Although this growth level will moderate in 2020 as a consequence of the disposal of Neste Skin Health on U.
S. Ice cream, we expect to maintain U EPS growth at a sustainable mid to high single digit level going forward. The share buyback program contributed 1.9% to the underlying earnings per share increase net of finance cost. Moving on to working capital. The chart shows our working capital levels based on a 5 quarter rolling average.
In 2019, we managed to deliver a further 80 basis points improvement in working capital as a percentage of sales. The main factors driving this improvement was continued strong improvement in payables. We continue to see opportunities for further improvements and expect working capital to trend towards 0, but at a more moderate pace going forward. Return on invested capital improved for a 5th consecutive year. Given our disciplined approach to capital allocation, we expect ROIC to continue to increase and trend over time towards 15% including the impact of any future midsize acquisitions.
Free cash flow grew strongly, increasing nearly 11% to reach CHF11.9 billion or 12.9 percent of sales. These results reflect the reliability and sustainability of our profitable growth model as we grow so does our cash flow. The increase in 2019 was mainly the result of higher operating profit and disciplined capital expenditure. We continue to work on all the levers of cash generation, growth, margin improvement as well as working capital improvement. Going forward, we expect our cash flow to remain at around 12 closing at CHF27.1 billion on December 31, 2019.
The decrease in net debt largely reflected our strong free cash flow generation and the net cash inflow from acquisition and divestments, mainly the disposal of Nestle Skin Health. During 2019, we bought back nearly CHF10 1,000,000,000 worth of shares through our buyback program and paid over CHF7 1,000,000,000 in dividend. This means that we returned a record CHF16.9 billion of cash to our shareholders in 2019. We are committed to maintaining our 25 year practice to increase the dividend every year in Swiss francs. Future dividend increases will be more closely linked to underlying EPS growth.
At the Annual General Meeting on April 23, the Board of Director will propose a dividend of CHF2.70 per share, an increase of CHF0.25 The net dividend will be payable as of April 29. Our net debt to EBITDA ratio stood at 1.4 times. The net debt level will increase again as we initiated a new share buyback program of CHF 20,000,000,000 in January. This concludes my remark. I now hand over to Luca to open the Q and A session.
Thank you, Francois. With that, we move to the Q and A session. We open the lines for questions from financial analysts. The first question comes from Celine Panuti. Please go ahead, Celine.
Please go ahead, Selena. Okay. I see that Warren, can you please go ahead?
Yes. Luca, it's Warren here at Barclays. Hi, Marc. Hi, Francois. Two questions for me, please.
Can you hear me okay?
Yes, we can hear you really well.
Okay. First one is for Mark. It's more of a bigger picture question. So when I look at the geographies, Mark, zone AOA, 3.2 percent growth in the year is lower than we would expect mid term. Obviously, coronavirus is a short term headwind.
But what can you do to get growth back to mid or high single digits in the zone? Or is the pushback in the mid single digit because of zone AOA? I'm just trying to work out how much work do you need to do to premiumize the portfolio and whether you can do a similar job to Zone AOA as you did in the U. S. A few years ago when you turned around the growth?
Just interested in the perspective of what you're thinking about with Chris Johnson running the zone. And then the second one is for Francois. Just on the ROIC target, so very interesting, you've given us a target today of 15 percent. It's quite a big uplift, almost 300 bps. Could you maybe discuss the drivers or the buckets for that big uplift?
What are you assuming on things that the key levers, the margin, the asset turn? Where are we on the asset turn, for example, where you're trying to reduce it by 30%? Thank you.
Warren, this is Marc, and thanks for your question. I think the question on AOA is absolutely spot on. So we have a number of specific issues to address. And we know that I'm in total agreement with Chris Johnson on this. So one is, for example, in China, as you know, we have been slowed down by Yinlu where we felt in 2017 2018 we had sterilized the situation, but we saw in 2019 that, that was not the case.
So we work on the strategy. We'll be back to you later this year on how to address that. We had a situation in Pakistan that really, really slowed us down last year, which we're in the process of overcoming. We have new leadership there in place. I was actually in Pakistan end of last year to convince myself that we have good solid growth strategies in place, and I'm quite bullish on that.
We have a few specific issues in Japan to address. We're working on those. So once these specific issues are addressed, there is no reason why we just stay at the growth rate that we are. So mid term, I fully expect AOA to be the growth engine of the group, which it rightfully should be given Asia's importance for the world economy and growth rates we're seeing. And this is what our clear ambition is, and I think Chris and I are working towards that.
Wael, Francois speaking. So on your question on ROIC, first of all, you need to understand that even in 2019, we have been able to make some progress of 20 basis points in spite of the fact that we had significant impairment, which reduced our ROIC. Actually without the impairment for Yilu, for example, we would be already north of 13% last year. In the future to move from, let's say the 13% underlying last year to the direction of 15% over time, we will use all levers, which means accelerated growth as we discussed earlier, improved margin as we discussed earlier. We will continue to reduce our working capital maybe not to the same extent as what we have done over the last few years, but still we expect to be probably at 0 or below 0 already in 2020 and to continue to slow down a little bit further in the negative territories.
You talked of asset turnover, so we will be disciplined there. I must say that the asset turnover ratio used to go down. And over the last 2 years, we started to move up again, so which is very good. We are very disciplined on CapEx as well. We have introduced much tighter policies.
We don't limit CapEx because CapEx is driving growth. But we have reduced the payback on average over the last 3 years by about 1 year, so which is quite significant both in terms of cash positive impact, but in terms of ROIC as well. And we will continue to be disciplined in M and A as we have been. It doesn't mean that we can't do any. I mean we bought Atrium.
We bought Starbucks rights and other assets as well. You noticed as well that we gave that indication of direction towards 15% including midsize acquisition, which de facto means that we could potentially exclude any large acquisition, if any.
Next question is from sorry, Boren, do you want to add something? Okay. Celine, you're the next one on the queue. Please go ahead.
Yes. Could you hear me?
Yes.
Great. Good afternoon. So I have a first clarification on the absolute. Could you remind me what the impact is on the DSD? I think it would be 20 basis points for 2020, is that right?
And I understand that reaching the mid single digit in 2020 has been delayed because of the DSD and also the Skin Health disposal, both of which you knew at Q3 stage when you said you were on track for 2020. So I wonder if there was anything else that you've seen since Q3 last year that led to the top line outlook today. My second question is on the savings. Where are we in the journey? If I remember correctly, in 2017, Mark, at the Capital Market Day, you said that there's indeed need to be a step up in terms of cost savings.
And now you have reached the bottom end of the 17.5% to 18.5% target range. Are we done? Or is there more to go in 2020 in terms of that step up before we get into a more normalized margin development?
Thanks, Alina. Let me address both. So for 2020, we do expect some negative consequence as a result of the DSD exit. This is unavoidable given the pretty heavy surgery that we're doing there in our operations. And let me confirm, everything that we have seen since we announced this step and put it in place totally convinced us that we're doing the right thing for the company here to position us better in the U.
S. Market at a time when these separate DSD systems are falling more and more out of favor. And so we're doing the right thing. It's going exceedingly well. But again, there's going to be a minor price to be paid in organic growth in 2020.
We did not itemize it here by the basis points, but there is a minor price to be paid. And we nonetheless took it because we felt it's the right thing to do. Midterm, you will see as a result of that step significant benefits when it comes to operational efficiencies. Those will get reinvested towards further growth. And so again, it will strengthen the U.
S. Business significantly. When it comes to the outlook, I think that you should see the positive side of what we're saying. And that is we are expecting further increase in our organic growth. That leaves us very little downside here when it comes to where organic growth could go.
And so compared to traditional 2 percentage points bands where we had guided in the past, I think this is a strong statement. And all we're saying is towards the top end, it may not sort of cross over towards the 4% yet. And to me, one of the swing factors here clearly is the fact that our waters business is not in great shape. And the Q4 has confirmed that. The change here in governance of the waters business from a globally managed business to one that's managed by the zones has also confirmed some of the issues.
We're very, very busy working on a strategy. We will unveil to you that water strategy in the first half of this year so that you have some confidence where we're going with the waters business. So we're addressing all of this with a large degree of certainty and intensity. And we'll give you a better sense of where exactly we're going with that business in a short order of time. Secondly, when it comes to the savings, clearly, inside the company, we will continue to target this with a lot of intensity.
We will start to reinvest more of that towards growth, because clearly, that is the best long term value driver. And I think this is in everyone's best interest to do that. But there's still lots of savings efficiencies to be had, and we will patiently pursue those.
Next question is from Richard Taylor at Morgan Stanley.
Good afternoon, everyone. I'd like to start by asking a strategic question about coffee. If you reflect on the last 20 years, Nestle has stayed the number one player. But I suppose the as the number one player, the profit pool in coffee that you've, I suppose, actively chosen not to participate in is the retail coffee chain. You've got your Nespresso boutiques, of course, and you bought Blue Bottle a few years ago, but you're tiny in context of the overall retail chain profit pool in coffee.
Please can you give us an update on blue bottle, now you've owned it for a little while? And then maybe some more strategic thoughts on how you think about that profit pool and your non participation? And then secondly, just on plastic, you set out some leading industry targets on plastic, but 2,000,000 tonnes of plastic is still a great deal even if it is recyclable. So can I ask a bit more specifically how much you expect to be recycled? How much will be biodegradable?
And maybe you can give some more details on how you expect your investments Sure
Sure. Thanks, Richard. So let me start on coffee. So blue bottle is doing very well for us, both in the cafes and also when it comes to exploring CPG opportunities that are related to the blue bottle brand. I'm particularly excited about the Asian growth opportunity with blue bottle.
And but in addition to that, also when it comes to the home U. S. Market, that business is doing fine. So this is one of those cases where it's not a coffee shop only play. I think it's one of those where you have a coffee shop opportunity and a related CPG opportunity at the same time.
Clearly, our home is CPG, and you see that also from our Starbucks transaction, where we're focusing on what we do best and we're doing it well. And in addition to that, there's kind of a halfway house and that is the out of home opportunity where you cooperate with food service operators, people that run canteens, cafeterias, hotels, restaurants and so forth. And you basically make sure that your coffee brands make their way into those situations. But that doesn't mean you have to own the real estate. You don't have to own the place.
You don't have to run the place. You just need to make sure your products are in it. And here again, the strong stable of brands that we command, whether it's Starbucks, whether it's Nespresso, whether it's Nescafe, I think helps us to make a foray into that segment. So I feel pretty good with the focus that we have and that focus is not coffee shops per se. Now on plastics, let me just be very clear.
Recycling is not the only game in town. So you have other options like the refill and reuse and also biodegradable material. It's in order to make a real dent into the waste problem, I think you have to pursue every opportunity that's available. And this is what we're doing. It's too early to give specific indications as to what percentage will fall to recycling and what percentage will fall to reuse and refill or biodegradable.
It will also be vastly different by geography. So for example, markets that have a very dense population and also a population that is in a more northern moderate climate, I think those markets will be more attractive for reuse and refill. And markets that have vast distances and also an absence of recycling systems, those may be more interesting when it comes to biodegradable material. But again, these are early indications. I think everyone is in the process of testing and scaling various alternatives.
And then once we see the winners, we can give more specific numbers as to how fast they will scale up and what they will mean. What we saw is that for PET, which makes the largest part of the water bottles, that we do have sufficient recycling quantities so that we can actually use recycled PT to very good percentage for most of our bottles. But when it comes to PE and PP, 2 very important packaging plastics, there was pretty much a complete absence of food grade recycled material. And so by committing to purchase this 2,000,000 metric tons and paying a premium for that, we hope to get that market going.
Next question is from Jon Cox at Kepler.
Yes. Thank you very much. Jon Cox, Kepler Cheuvreux. I have a couple of questions. 1 on just on coffee and Starbucks and the boost of the business.
Just looking at the sort of like organic sales growth from Powdered Beverages and in the others businesses, you don't really see any acceleration in terms of organic sales growth. I'm just wondering what is actually going on there. Maybe instant or other parts of the coffee business aren't doing so well. I guess the others segment is impacted by the skin health removal. I wonder if you can sort of talk us through that on the coffee side.
And then just an outlook regarding commodities for 2020. Just wondering what your thoughts are in terms of commodities. And also pricing generally, pricing remains relatively fragile, although obviously, it did improve in the Q4? Thanks very much.
Thank you, John. Good afternoon. So let me take both questions. Indeed, the powdered and liquid beverages category has slowed down a little bit. So this is not necessarily linked to coffee.
If we take the different bits and pieces of this category, 1st of all, soluble is positive, but it is growing a little bit less than it used to largely as a consequence of declining green coffee prices. And this is especially true in Western Europe as you know where we had to pass on to the trade and to consumer part of the decline significant decline in commodities. We are not talking of a small number. It's close to 25% last year versus the previous year. The other thing within this category you have other assets as well.
Nesquik is one of them. Nesquik is under pressure somewhat across geographies. And then the last section is Milo, which continues to grow nicely but at a slightly lower level. Moving to the question on commodities. So we had an increase of commodities and packaging material last year, which was around CHF 350,000,000 an increase, which we totally reflected and passed on in terms of pricing on our side to the trade and to consumers.
This year in 2020, we expect to get an increase of commodity and packaging material, which will be higher than the one that we had last year, so more than €350,000,000 It will be different from last year, though it will be essentially targeted at Dairy and Packaging, which was different from what we had in 2019, which was largely cereals, grains and cocoa.
John, if I could just follow-up on this. Let me point out that in Q4, we did return as projected to positive pricing. So I know this was a point of concern in our Q3 conference call. I think our prediction at the time proved to be right. And then second, I'd like to remind everyone that with the system we use, real internal growth versus pricing.
The pricing is the pure like for like pricing. And in this day and age of increased transparency and digitalization, that usually means passing on commodity cost increases. The bit that comes from innovation, the new products, this exciting engine here of innovation that we got going, all of that is essentially in rig. We call it mix, but essentially it's innovation. And hence, I think you're seeing here this very strong picture with rig doing very well even in challenged geographies, but then giving up some of that in pricing when there is price pressure.
But it's important to know that system is different from some of our competitors that report volume and then pricing on their side includes the innovation. On our side, the innovation is in RIG.
Next question is from James Targett at Berenberg. Please go ahead, James.
Hello. Good afternoon. Two questions on categories, please. Firstly, on Pet Care. Clearly, very strong growth, 7% in 2019.
Just wondered how confident you are that the drivers of that growth, the premiumization, vet, etcetera, can sustain that level of growth in 2020? And then secondly, on coffee, just obviously impressed by the growth rate in the VERTUO business. Can you maybe give us an indication of how big Vertuo is in the context of Nespresso considering it's growing at over 60%? Thanks.
Thanks. So on pet care, I think we're very bullish on the fundamentals going forward. Having said that, I mean, 2019 was truly a stellar year. And so I would not exactly pencil in that growth rate now year after year. But I think this is a category that is clearly on trend in emerging markets and developed markets.
And so we see us very well positioned in there playing to all the major trends. And so going forward, it's going to be a very, very reliable growth driver. On coffee, yes, Vertuo doing fantastically well, making good progress in Europe. We try to be helpful, but I also ask for your understanding that we're not disclosing the separate sales on that. As you know, we're not even disclosing the total sales of Nespresso.
So I think we want to stay away here from any competitive signaling, and that's in your best interest.
Next question is from David Hayes at Societe Generale. Please go ahead, David.
Thanks, Luca. Hello, all. So 2 from me. Firstly, on Waters, just to come back to that. Obviously, we've seen the slowdown in the second half in the marketplace you mentioned.
Is that a backlash by consumers to the plastic water usage? And is that therefore a trend that you think will continue to get worse through 2020 beyond? And I guess related to that, I think waters was one of your core categories alongside beverages, nutrition, pet food. Is that still the case? Or is waters now changed its dynamic and maybe it's perceived to be slightly differently as you look at portfolio management?
And the second question is actually related to some headlines that came out earlier. I think, Mark, you were on TV being interviewed, but we didn't manage to see that unfortunately. But the headline suggested that you talked about the L'Oreal estate being a potential source for bigger acquisitions. So I guess the two questions on that are, is that of new positioning on L'Oreal estate? And secondly, is that an indication that some of these acquisitions could be larger as you look at 2020 beyond?
Thank you.
Thanks, David. And let me start with the second one first because it's the easiest one. No, there's no change in position whatsoever. I think we've described this. It was non news.
We described this as a financial stake before. It's a very significant financial stake. And so this was not any signaling or hinting here on my part. And I think made it very clear, they would not intend to day trade with the L'Oreal stock. Let me also point out that I think over 40 plus years, this investment has done very well for Nestle and Nestle shareholders, and that includes recent years.
On waters, so we continue to stay committed to waters as a growth category, and I think healthy hydration is a growing trend and one that can deliver serious growth. What we have to do is to position the business better in the segments of the waters business that are doing well. So we are over indexed in some segments and geographies that are not doing so well. We are under indexed in some of the ones that are doing extremely well. And that shift is something we have to do and we have to outline to you.
And as I mentioned, we will come back to you in the first half of this year and give you a very specific plan. As you recall, when we announced the geographic transition here from a globally managed business to 1 by handled by the zones, we told you that that structural change alone is not going to be enough. It really has to be a new strategy, and that's the one that we will unveil you later this year. When it comes to the softening of the business in Europe, I know everyone is jumping to that conclusion, it must be about plastic. Plastic in some isolated markets, in some isolated circumstances has something to do with it.
But I would attribute much more of this to this whole notion that we are in quite a few segments and geographies in a market segment that was not doing so well. That's usually the lower price segment where you battle private label and other low priced competitors. What we're doing extremely well is in the premium and functional waters. This is where you're seeing good growth and good margin.
Next question is from Bertschuy at Vontobel. Please go ahead, Jean Philippe.
Thanks a lot. Good afternoon, gentlemen. I have two questions as well. The first one would be on the innovation, the fast innovation. Is it possible for you to quantify the growth contribution of the products launched in the past 12 months?
And the second one would be on confectionery. Growth in the past 3 years were actually literally anemic. Competitors are growing faster. The margin is trending down. And the return on capital is, let's say, unimpressive.
What are your thoughts or your strategy with regards to the local brands in this category over the long term? Thanks.
Jean Philippe, maybe I'll start with the second one on confectionery. So I think you are seeing a bifurcated picture here where we're doing extremely well on some of our flagship brands. And so the consolidated numbers do not do justice to the amazing success we're seeing on some of the key brands. And I think the poster boy for that is Kit Kat, which is just flying. So I tip my hat to what the team has done to remind this.
And so on the key brands, usually the larger ones, the more international ones, we're doing extremely well. On the local ones, we do have some pockets of success and here again, nice job. But then we also have a few that are still weighing us down. So this to me is very clearly in the fixed category and China. So we're working on that.
But I think this is one of those moments, if you just take the average now, you're not seeing the significant success of the ones that we have focused on and where we actually got things going and we will do more of that. So when it comes to simple turnaround efforts, frankly, inside the group and sort of looking at the work that various categories have done, I think confectionery is one of those stellar examples.
On the innovation side, we don't measure it as a percentage of sales. The only thing I can tell you is what we share usually, which is the fact that we have about a third of our SKUs, which are fully renovated or are part of total innovation every year. Or to turn it another way around, we have about a third of our SKUs today on the market that did not exist 3 years ago, which is about the same concept.
Next question is from John Henniss at Goldman Sachs.
A couple of questions from me as well, please. The first is on inventory levels in China. Do you have enough inventory in the system to ensure that retailers have products to sell given the distribution and production issues in the region? And then my second question is on the guidance for mid single digit growth in 2020 onetwenty 2. You helpfully outlined some category country combinations that need to be fixed in AOA.
And I wondered if you think that you can get to mid single digit growth with the current portfolio? Or is it or is that target reliant on more rationalization and acquisitions as well?
Thanks, John. So look, on inventory, we do have inventory, of course, and inventory sits at various levels, raw materials, work in process, finished goods, and then of course, there's a lot in the supply chain towards the retailers. So I think whether sufficient or not will all depend on what the next few weeks will look like and to what extent transportation distribution capacity will be constrained and what the future of this outbreak is looking like. So hence, I think it is too early to give a precise estimate on where we stand. What I did applaud is the efforts by the team to really be available to start up early, take all precautions that are necessary and work very closely with the Chinese authorities to do as well as we can because we understand that in addition to a business, we also have a responsibility to fulfill.
And so I feel very, very good about that. On the guidance, I think we did point out I did point out that for the next several years, you should expect a similar level of portfolio transformation as you've seen for the past 3 years. And that will contribute to improve organic growth just as much as, for example, improved innovation and strengthening our high growth categories and also fixing underperforming areas. So again, it's going to come down to the same three buckets that were accounting for the past improvements. And we should not forget, I mean, 2 years ago, we were looking back at a year that had 2.4 percent of organic growth.
We're now looking back at a year that has 3.5 percent of organic growth. So I think that balanced plan to build on those 3 buckets is working, and we will bet on the same tools going forward. And I feel very confident that will help us get there. So you heard about some of the issues we're fixing in AOA. You heard about the water plan that we will unveil to you later this year.
And then clearly, more innovation, more work in the high growth categories and to more portfolio transformation will help us to get there.
Okay. Thank you very much.
Next question is from Patrick Schwendiman at Zurcher Kantonal Bank. Please go ahead, Patrick. Yes.
Patrick Schwendiman, Zurcher Kantonal Bank. Hi, Marc. Hi, Francois. Hi, Luca. I'm coming back to the coffee business.
What has to change at NESCafe besides pricing that you can reach a mid single digit organic growth in the future again? And second question, you have mentioned that you would like to do more acquisitions in 2020. Is there a possibility that this could impact the buyback program? Or would you say you still will have more bolt on acquisitions in mind? Thank you.
Thanks, Patrick. So on the acquisitions, clearly, small to midsize acquisitions aside from any buyback considerations are the surest and best way to create value. And so that has always been our preference and continues to be. I wouldn't want to rule out large deals, but clearly, the sweet spot is small to midsize. Usually, it's the much larger integration job, which means more financial certainty.
And there typically tends to be much less antitrust risk and antitrust leakage, because typically you get by without any antitrust divestitures. So clearly, that's the sweet spot. And let me say that just with the Senpep acquisition alone, which we announced a few weeks ago, the buying volume is already going to be larger in 2020 than it was in 2019. So it was a pretty low hurdle here that we had to clear. We have a few more projects to work on and all of those are in the small to midsize category.
But overall, I think everyone would understand that portfolio transformation, ideally, you do it on both sides of the ledger, the buying side and the selling side. We want to position the portfolio towards higher growth, but we don't want to deleverage the company when it comes to the size and the operating leverage that we have. And that's why I think a balance between buying and selling is the best way to go. I don't see, as of this point, any threat here to the ongoing share buyback program. When it comes to coffee, so clearly there was some pressure on green coffee prices and Nescafe tends to be exposed to that.
I think we have a lot of good other initiatives underway in Nescafe to get that a whole new lease of life when it comes to growth. And so I feel pretty good about the work I'm seeing around the world in Nescafe. Next
question is from Alan Erskine of Credit Suisse. Please go ahead, Alan.
Yes. Good afternoon, gentlemen. If I may, I'd like just
to go back to coffee.
The powdered and liquid beverage division grew at just under 3%. I know you mentioned the other product categories. But it looks like coffee was mid single digit growth in Zone Americas. It looks like Nespresso was mid single digit. And coffee was mid single digit rig in Zone EMEA.
So I just want to check, was most of that rig canceled out by negative pricing in Zone Amina? Or were there some headwinds in Zone AOA specifically for coffee? And just as a follow-up, can you give us an idea what the growth was for Dolce Gusto last year, please?
Alan, let me take that one. Just to come back because I think I can answer to partly the previous one on your question as well. First of all, Nescafe had a positive growth overall and across the 3 zones which is important. Even in Europe where we are feeling the pressure in terms of pricing, we are growing and we are gaining market share at the same time, so which is good. Nescafe continues to grow mid single digit in emerging markets as well.
So the picture is not bad. What we are suffering from essentially is the low coffee bean prices, which are putting pressure on organic growth, but there is nothing dramatic there. Nescafe Dolce Gusto, it's a sizable business for us. It's feeling the same pressure at the end with green coffee prices as well. We have sizable business with a mixed performance by market.
We have positive growth for example, in France, in Benelux, in Iberia, Brazil. It's a little bit more difficult in some other markets and especially a few European ones. But and we focus on margin improvement as well, but nothing really negative there.
Thanks, Alan. Please, Jeff, please go ahead. This is Jeff Stant from Exane.
Good afternoon. Just one question, if I may. I recall when Mark outlined his strategy in 2017, you showed us chart with 3.2 percent organic growth in 2016 and then the 3 building blocks of the base business, portfolio change and high growth categories would take you into mid single digit growth. But given today you've said that M and A has added 35 basis points, it kind of implies that in aggregate the base business and high growth categories haven't added anything since 2016. Am I misinterpreting that?
Or how should we think about it? Thanks.
Thanks, Jeff. I think what you're seeing here is that the borders between the portfolio side and what is internal development are blurring at times. And the single biggest example, I think, is Starbucks, where the origin of it all was a transaction, the acquisition of those Starbucks rights. But that would not have been worth very much without the very diligent work that the teams have done to develop a whole range of very cool products and then do picture perfect launches all across the globe. So it's kind of an internal and external hybrid that for the purposes of the slide we have sort of attributed to M and A.
But you might as well say, it's a good example of advancing our high growth category. So all in all, I think all three buckets are active depending on which year. I think it's 1 more than the other, but continue to count on all three buckets going forward to contribute to organic growth.
Okay. Thank you.
Next question is from Alain Oberhuber at MainFirst. Please go ahead, Alain.
Good afternoon, Marc, Francois and Luca. This is Laurent Blauber MainFirst. Two questions. Just to come back regarding the transformation. So what we heard this afternoon is, obviously, we'll see a similar trend.
But I understand you're right that it will be much more into divestment versus acquisitions, if you could verify that? And the second question is regarding China. You did significant impairment in EU of more than SEK 1,000,000,000 as well as in Zufuji of SEK 0.5 billion. Do I read it correctly, that's the first step for the exit? And if not, what do you have to do in order to turn around the IMLO in Sufuchi?
I think the impairment is an accounting recognition of a reality that has happened. And so this is our conservative financial practices to be sure that we recognize what has gone on and reflect that in our carrying values for these businesses going forward. That should not be read about where something is going forward. When it comes to the transformation, when it comes to buying and selling, the point I was trying to make is last year was certainly more weighted towards the selling. If necessary, if we feel that there's no other option, we will continue to look at these options.
But we are also eager to build the business and to buy where we can strengthen attractive categories and market positions going forward. And that's my hope for 2020 that we'll come to more balanced picture in that regard, which I think is a good thing to build into grow the company.
Next question is from Jeremy Fialco at HSBC. Please go ahead, Jeremy.
Hi, good afternoon. A couple of M and A related questions for me. So the first one is really just clarifying on your answer to the previous question. To what extent are you saying that your divestments going forward are going to be rather more contingent on your ability to find suitable acquisitions? And the second part is that you're clearly going to be exiting quite a bit of turnover in 20 20 relative to 2019.
So can you talk about what the size of any unrecovered overhead hit might be to your margin, just sort of kind of a little hump that you have to get over in 2020 even though we know that you are guiding for margin expansion overall? Thanks.
So Jeremy, just I'm glad you're bringing this up. I want to be sure I'm not misunderstood. If we come to the conclusion on a business it has to be sold, we will not slow that down just to wait for something to be bought. That was not the intended message here. And I think you saw us in 2019 do exactly the right thing for shareholders on these three businesses Nestle Skin Health and U.
S. Ice Cream and Herta. So I think that's proof that even in a year where there was almost no acquisition, I mean, we did exactly the right thing for shareholders at the right time. That attitude is going to continue unchanged in 2020 beyond. All I'm saying is, with a lot of diligent work, we have started to refill our pipeline of interesting projects on the acquisition side of the ledger.
And I was expressing hope that by more success on that front, we come to a more balanced picture. But you should never assume that we're slowing down anything that has to happen simply because there's a lack
of buying opportunities. Jeremy, Francois speaking. On the question of the absorption of our fixed costs and central costs and the impact of the leverage and especially in the context of disposals. This is something that obviously we have fully factored in our guidance and in our model. We are not worried at that stage, 1st of all, because we continue delivering outstanding results in terms of saving program.
For the 3rd year in a row, we have reduced our structural cost, fixed factory overheads and fixed distribution cost and G and A in general. We still have a lot of room to go. So this will help us as well to absorb the fact that we have a little bit less leverage as a consequence of some disposal. But it's not that material either. So no specific concern on the impact that it has on the margin going forward.
Sorry, we are approaching the end of the call. I think we still have time for 2 more calls or 2 more questions. Andreas von Arce from Baader. Please go ahead, Andreas.
Yes. Good afternoon. Just quick one. I mean, you called plant based the once in a lifetime opportunity for prepared dishes and cooking ads. Could you explain to me why you need a frozen food business to expand on a mostly chilled plant based products?
I mean, where are here exactly the synergies? And secondly, on your sugar drinks businesses like Milo and Nesquik, which seem to slow down in recent, I guess, quarters or even years. I mean, wouldn't it be now prudent to think early about an exit of a category where also behavior of consumer seem to be changing? Thank you.
Thanks, Andreas. So on plant based, let me be very clear. The business in and for itself is super attractive. So when you have a CHF 200,000,000,000 business growing at strongly and accelerating double digit rates, there's nothing to reject. The point I was trying to make to you is that over and above that, with our footprint in this category, we also have lots of follow on opportunities, which we extend to pursue.
That's not the only reason to maintain that business. I think we've seen a turnaround in frozen as a category overall, and I think we're also seeing very promising work in our own frozen business when it comes to improving growth rates. But I think it's one added opportunity here to breathe new life into this category. Hence, I was saying it's a once in a generation opportunity to rethink these products and to give them competitive advantage. On your frozen versus chilled, let me just be sure and point this out to you.
The purity of these products is you can actually do them both ways. So these are chilled products and we have a chilled pipeline. And then you can also serve them frozen. The same happens out of home. Some people prefer them chilled, others prefer them frozen.
So you can actually serve these up both ways, which I think makes them very versatile. And that's one of the reasons why these ingredients are very, very powerful and very good to breathe new life into our various follow on dishes and products in this category.
On chocolate based beverages, I mean, we have, first of all a sizable business, which is growing and which is delivering an attractive level of growth. I just said before that it's a little bit less than what it used to be. But so there is absolutely no plan whatsoever to dispose of these businesses. There are changing consumer demands and especially the move from powder to liquid beverages and ready to drink. And by the way, ready to drink is growing double digit and we have very attractive position there, so which we are really leveraging upon.
Thanks, Andreas. We move on to Tristan from Strien at Redburn. This is the last questions of the day. Please go ahead, Tristan.
Thank you, Luca. Good morning, gentlemen. Just 2 for me, please. Just first one on restructuring. When I look at Nestle over the last 20 years, you've averaged about 50 bps of restructuring charges a year and again last year, and again you're guiding it to for this a bit more than that next year.
How do you think about it? Does it just cost $500,000,000 a year for a business like Nestle every year to stay on Astellas? Is this just a normal charge the way you think about it to keep Nestle going over the next decade on a per annum basis? Maybe a bit of a philosophical question. And the second one, just a question about Zenpep.
You seem to skirt the line of going into much more pharmacological area. Where is the line in your mind for that, Marc? What won't you or will you look at as you go on the edge of medical nutrition?
Thanks, Tristan. So let me start on Senpep. This is a prescription product, but it's very clearly designed to address the metabolism deficiency. And it is not a high-tech product. It's not something that, for example, needs to be injected or so.
It's not a biotech product. It's actually fairly established technology. And as such, we had several other products initiatives in our Nestle Health Science portfolio that already came very close. So while the owner at the present time is a traditional big pharma company, it is not something that we saw as out of bounds and something that we cannot handle. That's not only our view.
In order to qualify as a buyer, we had to submit all of this to the FTC in the United States. The FTC wanted to be sure that the buyer is a qualified buyer and owner, and they came out with a strong thumbs up that they see us as a qualified buyer and owner for this business going forward. The last thing that the FTC wants is that, Senpep as a product withers away under new owner. And I think they convinced themselves that Neste Health Science is a very credible owner for this asset going forward. So on the restructuring, maybe I'll do this together with Francois, but let me just say we have seen ups and downs.
We have seen numbers as low as €150,000,000 in recent years, and we have seen numbers as high as 700 plus. So I think the €500,000,000 number shows you that a big deal of what we wanted to do in terms of restructuring is behind us. I think some people like to see these numbers all included. Other people like to see them before restructuring expenses. We cater to both needs.
We are fully public and transparent on underlying trading operating profit margin, but we also give you all numbers including the trading operating profit margin. So whichever way you want to look at it, I think we're focusing on both sides.
Yes. I think you said it wrong, Marc. But just I mean we had 2 years of heavy restructuring in 20172018, which were around €700,000,000 but that followed a few years where we were between €100,000,000 €300,000,000 I think that we had heavy programs like what we did for Nestle Skin Health, what we did recently for the DSD exit as well in the U. S. These were heavy programs.
We don't have any heavy program currently ongoing, but we continue managing quite a large number of small to medium sized project. And there will be some further one in the future obviously.
So as we close out the call, appreciate you staying with us here. We've ran slightly longer than usual at almost 90 minutes. Appreciate your patience. I think this gave us a good opportunity to answer all the questions on your mind. Look forward to talking to you again as part of Q1.
And just wanted to show you the value creation journey here continues full fledged on all the key metrics that we talked about, top line, bottom line, capital efficiency. And so we are as bullish as we have been, and we'll continue to work in that direction. Appreciate it, and talk to you in Q1.