Good morning, ladies and gentlemen. Welcome to our 2016 9 month sales conference in VIVE. This conference will be held in English, but you can also follow it in French or German using your headsets. If you're watching the webcast, you can choose the right language by clicking on the respective link on the webcast page. On the podium, we have our CFO, Bouquet and our CFO, Francois Xavier Roger.
I take the Safe Harbor
First of all, welcome to our 2016 9 month sales conference. Also welcome to all of you who are following this conference through the web cast. You saw the figures which we published this morning. Over the 9 1st months of 2016, we achieved sales of CHF 65,000,000,000,000 with an organic growth of 3.3 percent and a real internal growth of 2.5%. In this soft trading environment, which is marked by deflation and low raw material prices, we have continued to privilege volume growth, which is at the higher end of the industry and that in both emerging and developed markets.
But at the same time, our pricing remains soft but is increasing. Our growth was also broad based across categories, which allowed us to gain or maintain market shares in most of our businesses. We are also making good progress in addressing our challenges and driving our different initiatives amidst this generally softer trade environment. We also continue to invest for the future, that in line with our strategy. We maintain a high level of brand support while continuing to build an innovation pipeline, both globally and locally.
And at the same time, we drive more operational and structural efficiencies through standardizing, sharing and scaling more and more activities above market. Now for the full year. And considering the current software environment, we expect Nestle to deliver organic growth of around 3.5% with improvements in margins and underlying earnings per share in constant currencies and increased capital efficiency. But let me now hand over for more details to you, Francois.
Please. Thank you very much, Paul, and good morning to all. In the 1st 9 months of 2016, our sales reached CHF 65,500,000,000. RIG stood at 2.5%. I remind you that RIG is a combination of volume and mix.
OG is at 3.3%. We had a negative foreign exchange deviation of minus 1.7 percent. And net divestment M and A had a minus 0 point 6 percent effect. As a consequence, our reported sales increased by 1%. In the context of deflation and weaker consumer demand, we delivered a solid rig and we gained or maintained market share in almost 60% of our business sales.
This reflects the resilience of our portfolio and our strong execution capabilities in a difficult context. Pricing remains low, but with some sequential improvements since June, mainly coming from Brazil and Russia. First, looking at our performance by geography. I remind you that this split includes our zones on our GMBs. Our growth has been broad based across the 3 zones.
In Americas, rig was 2.3% with OG of 4.8 percent. EMEA had rig of 2.4% with OG of 2.1% And finally, AOA had RIG of 3% with OG of 2.5%. This is relatively consistent with the shape of growth that we saw in H1. The main variance come from the half year comes from Zona Americas, where we rebalanced our growth from volume to value, mainly in Brazil. Looking now at the shape of our growth between Developed and Emerging Markets.
Developed Markets account for 58% of group sales, while Emerging Markets are accounting for 42%. Organic growth is pretty consistent with what we had in H1, with developed markets growing 1.9% and emerging markets by 5.3%. The notable change is that pricing improved in emerging markets, while RIG was softer, and the biggest driver of that was Brazil. In Developed Markets, the dynamic was more consistent with positive rig driven by innovation and continued negative pricing in a deflationary environment. As we don't and we don't see really any improvement in pricing in developed markets in the short term.
Moving to our businesses by reporting segment, and I will start with Zone AMS. We achieved sales of £18,800,000,000 OG of 4.5% and RIG of 1.6%. In North America, the environment remains deflationary, reflecting both low commodity pricing and pricing pressure in the market. RIG remained solid but decreased slightly from H1. Pet Care and Coffee Mate remains as key growth drivers.
Frozen Food continued to grow well with further market share gains. After a complete overhaul of the marketing mix, Frozen has reached a normalized level of lowtomidsingledigit growth. Confectionery in the U. S. Remains difficult with pressure on the entire category.
Latin America is still a mixed picture. Mexico is one of the leading performers for the group, with good growth across all categories. Brazil remains positive with a different growth profile. We implemented some price increases in recent months, mainly in dairy, but we did it as well in other categories like cocoa and malt beverages, chocolate and coffee. Our price increases have had an impact on volume in the short term as we anticipated as the trade had increased their inventories before the price increases.
Volume started to stabilize towards the end of the period, but we need to remain cautious on Brazil because we don't the environment is quite unstable at this stage. Moving now to Zone M and A. We had sales of €12,200,000,000 2.2 percent of OG and 2.7 percent of RIG. The momentum differs across the 3 subregions of the zones, but overall, we continue to see good RIG momentum, driving market share gains across geographies. Going by subregion, and I will start with Western Europe.
Pricing remains negative with deflation across geographies. We had good rig performances in France, in Germany, in Southern Europe. I would talk there about Spain, Portugal and Italy. The U. K.
Has been notably more challenging since the half year, mainly in confectionery and coffee. By product category in Western Europe, Dolce Gusto, Pet Care and frozen pizzas were the key growth drivers. Central and Eastern Europe at both positive rig and pricing. Overall, we continue to gain market share in the region. Russia remains a leading performer with double digit growth driven by both RIG and pricing.
However, Poland, the Baltics and Ukraine have been more challenging. Pet Care continues to do exceptionally well in the region with strong double digit growth. And Nescafe soluble coffee is still enjoying a very good growth as well. Middle East and North Africa overall maintained positive results, but with a mixed picture by country. Turkey remains a key growth driver with double digit growth, along with the North and East Africa regions.
The Middle East is more challenging, and the ongoing instability has impacted our ability to supply countries like Iraq, Yemen or Syria. Finally, in MENA, we are happy to confirm the start of our operations at Fronery, our new ice cream joint venture. We will move to equity accounting for this business from the 1st October 2016, and we are very excited about the significant potential for value creation through this partnership. Moving now to Zone AOA with sales of £10,600,000,000 2.8 percent of OG and 2.7 percent of RIG. The majority of markets in AOA are showing a good and sustainable growth with meaningful market share gains.
This includes some categories in China, but as expected, Yinlu remained challenging and diluted the growth acceleration of AOS since June. Southeast Asia has maintained its high single digit growth. Most markets performed strongly from Indonesia to the Philippines and Vietnam. This strong performance was driven by Milo, coffee, ready to drink beverages and Maggi. Sub Saharan Africa continued to grow well across most categories, especially with Maggi and overall the affordability range, what we call PPP.
Within the region, countries like Nigeria, Angola, Ghana, Ivory Coast are the highlights. And as far as developed market is concerned, Japan's solid growth continue to build on innovation and premiumization, mainly with Nescafe and KitKat. Oceania is still under pressure, mainly from pricing, in a very challenging trade landscape with intense retail competition. Moving to India. We have made a strong return to growth in the market.
Magi New Dawns have continued to gain market share since the relaunch, and we are now at 58% market share. And sales are back to about 80% of the pre crisis levels, ahead of expectations. And our strategy to continue engaging with consumers even at the heart of the crisis is really paying off now. Looking in more details at China, the market remains rather challenging. The food and beverage categories in which we operate are basically flat in terms of growth.
But we have performed well in coffee and chocolate as both had double digit growth. As we said at this year's Investor Seminar in May, the turnaround of Yinlu will take time as trading conditions remain difficult. Now let's move to our globally managed businesses, and I will start with Nestle Waters. We had sales of €6,100,000,000 with 4.2 percent of OG and 4.4 percent of RIG. Nestle Waters delivered solid growth in all geographies with strong growth in emerging markets.
We also saw solid growth in Europe in spite of the very challenging comparatives. The U. S. Grew well despite the fact that we lost some sales from the destruction of 1 of our factory in Texas, Biotornado, earlier in the year. The international premium brands Perrier and San Pellegrino continued to drive an attractive performance across markets.
Nestle Pure Life remains accretive to growth for the Waterly business, and there were strong contributions from many of our iconic local brands. I would mention there are Poland Springs in the U. S, Buxton in the U. K, or Santa Maria in Mexico. Moving to Nestle Nutrition.
We had sales of 7 point €7,000,000,000 1.3 percent of OG and 0.8 percent of RIG. Our modest growth reflects the category dynamics in our 2 largest markets, namely China and the U. S. In China, our biggest market, the category is basically flat. Low dairy prices and a challenging competitive environment we have there more than 100 players continue to impact the market.
We start seeing as well some inventory destocking in the trade ahead of the new regulation that will be introduced at the beginning of 2018. Premium and mainstream segments have taken the largest hit with significant price reductions. We are more focusing on the super premium segment, and our super premium brand, Illumah, continued its excellent growth at over 30% year to date, confirming our leadership in the segment. Overall, in China for Nutrition, we are gaining market share, and we are consolidating our leadership position. Whilst we are losing a small amount of share in offline channels, we are making strong gains in the online B2C channel.
Moving to the U. S. For Nutrition. We experienced some pressure from the beginning of the year following the transition to new packaging for meals and drinks from glass to plastic. We also had some supply issues with pouches, but this is largely behind us now, and we are starting to regain positive momentum in the U.
S. We had good performances in a number of other markets across Latin America and Asia. I would mention there Brazil, Mexico, the Philippines and Indonesia, Indonesia, just to name a few. However, the social and political instability in the Middle East has impacted our ability to supply the market. Let's move now to our other businesses, which include Professional, Nespresso, Nestle Health Science and Nestle Skin Health.
We had sales of €10,100,000,000 OG of 4.6% and RIG of 4%. Starting with Nestle Professional. This division grew in both Emerging and Developed Markets, although Europe continues to be a little bit tough. We have announced earlier this month a change in the business structure of Nestle Professional, which will start with effective which will be effective from the 1st January 2017. We will be merging Nestle Professional into the zones with the support of a strategic business unit.
We believe the new structure will allow us to better leverage market specific knowledge and platforms. We will restate our group accounts next year in order to allow comparison. Moving now to Nespresso. Nespresso maintained its good growth momentum across all regions. The geographic expansion continued.
We opened 21 new boutiques across the world since the beginning of the year. Europe's growth remains solid and resilient in the context of an increased competition and higher penetration rates. And we have seen a strong momentum in the U. S, driven by the Virtual Line system. Talking about the Virtual Line system, we have now even launched this system in France at the beginning of this month.
And we also see double digit growth for Nespresso across AOA and Latin America. Moving to Nestle Health Science, which performed well. We have seen double digit growth in our Consumer Care business, driven by Boost and Carnation Breakfast Essentials in the U. S. We rolled out Meritaine in Europe, and it is going very well.
And we have a strong pipeline for further geographic expansion for our Consumer Care franchise globally. Medical Nutrition also delivered good growth, driven by our allergy portfolio, mainly in China. Moving to Nestle Skin Health. Our Consumer business has performed well, driven by the Cetaphil and Delong lines. Aesthetic and Corrective has also gained momentum with market share gains in the U.
S. The Rx business, the prescription business, is more complicated with some pressure from generic substitution overall for the category as well. Moving now to product categories. I will not spend too much time here because we covered most aspects as part of the zones on globally managed businesses. We'll just cover quickly powdered and liquid beverages that had a strong and consistent performance, driven by continued good growth momentum across Nescafe del Che Gousto, soluble coffee as well as Nespresso, as I just mentioned.
Overall, for coffee, we gained further market share during the period. Waters, we have discussed already. Milk product and ice cream, the performance of this line is impacted by Ginlou, which we have already discussed. In terms of dynamics since June, pricing has accelerated whilst RIG has slowed down, which largely reflects the pricing action that we had in Brazil and that I mentioned earlier. Nutrition and Health Science include Nestle Nutrition, Nestle Health Science and Nestle Skin Health.
And we have already talked about it, so I won't repeat myself. Prepared dishes and cooking aid, it improved since H1 with the successful relaunch of Maggi Noodles in India. And we are also seeing sustained good results in U. S. Frozen, particularly with Lean Cuisine and Staffers.
Confectionery remains under pressure with negative rig. We face challenges in the mainstream chocolate market in the U. S. As well as some softness in Brazil and also in the U. K.
Kit Kat continues to do well globally. We are addressing our challenges in confectionery through innovation and marketing support behind our brands. Pet Care, to finish, has maintained its good growth momentum with strong contribution from Latin America and Europe, particularly Eastern Europe, and with very good market share gains across zones. The U. S.
Continues to perform well for Pet Care, and we have recently relaunched both Benefool and Darkshire. In summary, we feel these results demonstrate our resilient portfolio and strong execution, which is supporting real internal growth momentum in a context of weaker consumer demand globally. We continue to make further market share gains. And in the current climate, this volume driven growth is unique and differentiating in the industry, and it reflects our long term value creation model. By growing volume and premiumizing, we are creating substance and bringing relevance to both our consumers and to the trade.
Pricing does remain low due to the deflationary environment, but we saw some improvement since H1. For the full year 2016, considering the softer environment, we now expect to deliver organic growth of around 3.5%, improvements in margins and underlying earnings per share in constant currency and increased capital efficiency. Now I will hand over to Paul for his final remarks.
Well, thank you, Francois. While these figures reflect indeed a global soft trading environment, But our volume growth is a point of differentiation. What this figure also reflects is the fundamental resilience and strength of our portfolio, the fact that our growth is broad based. We grow both in emerging and in developed markets. We grow consistently across a wide range of different categories and businesses.
But what they don't fully reflect yet are the many innovations, actions and initiatives that we have been taking and are taking to strengthen our portfolio, where we explore and invest in new avenues for future value growth and the many initiatives and programs that we are implementing to be leaner and more efficient and cost effective as a company. That is what we have been doing through our 150 years of history: permanently challenging ourselves, reinventing ourselves so that we can compete successfully. And that is, again, what we are doing today, challenging and reinventing ourselves. Yes, we have to care for the short term. Yes, we have to perform.
But at the same time, we have also to invest and make choices to build for long term. These are important times, times with so many challenges and opportunities converging, times to do the right things, to shade the future and to set up our company for long term success. And to do this innovation, it's all about innovation. Innovation is at the core of everything we do. It starts with innovating and renovating what we have, our products, our brands, formulating and reformulating thousands and thousands of products each year, adding value to them and adapting them to the evolving expectations of consumers and society.
Our product innovation is broad. It is diverse. It is global and local. And it leverages our unique R and D capabilities. Often, these innovations are small incremental improvements, but it is also about putting resources behind bold and disruptive ideas and giving them the time to develop like we did with Nespresso 30 years ago.
Nespresso has evolved to what it is now today, a global iconic brand present in almost 70 markets and countries, completely redefining how we enjoy the best cup of coffee. And with the new virtual line, which we are now extending from the U. S. To Europe, we are bringing a new dimension to it. And the same goes for Nest Coffee Logical.
So a global beverage system now that we built in just 10 years and also present in 90 markets already. And that goes also for Purina beyond in pet food. ILLUMA in infant formula or the rollout of Boost and Merythene to answer the needs of an aging population. And I could go on. But innovation is not just in products and systems or services.
It's also about new businesses and business models like our joint venture of Fronery that just started. Here, we are combining our ice cream business with R and R to create a leading player with presence in more than 20 countries. It's all about innovation. Also innovation in the ways we work, how we organize ourselves. And that is what Nestle Business Excellence is all about.
Over 10 years ago, Globe gave us a significant competitive advantage. Globe was about processes, systems, data. And now Neste Business Excellence is taking this all to a next level. It is redesigning our processes and structures for the future, simplifying and, on average, cutting the steps involved by half. It is about realizing the benefits of scale and skills and rewiring completely how we work as a company.
We are organizing ourselves through Nestle Business Excellence in a way that frees up our markets, our operations in the countries, to focus on what matters, consumers and customers, innovation and on generating demand. It is a multiyear journey, and we are halfway through. This is also linked to how we further leverage our procurement above market how we revisit our global industrial setup and other initiatives. We are all about innovation, innovation also with digital, where we are going beyond communication and e commerce and commerce by building digital ecosystems, engaging and working with all relevant players, global and local, small and big. And finally, innovation is also about pushing the boundaries, the boundaries of nutrition.
And this is also what we're doing now through our new Nestle Health Science and Nestle Skin Health. These businesses are shaping entirely new opportunities that entail a fascinating promise of growth and value creation. Well, ladies and gentlemen, Nestle is about consistency. Nestle is about continuity, permanently balancing the taking care of the short term while at the same time building and investing for the future. This has characterized us during 150 years, and that is exactly what we're doing today.
As I said, these are special times, times where we don't want to compromise and that in order to get even stronger. I thank you very much for your attention. And, Robin, take over.
So those of you on the call, if you want to ask a question, please Now let's take the first question from the call. Warren Ackerman of Societe Generale.
Good morning, everybody. It's Warren Ackerman here at SocGen. Two questions, please. The first one is actually for Francois Xavier. If I take you back to the first half results, you were confident that you could get back to the Nestle model or around 5% or close to 5%.
And here we are at close to 3% in Q3, so a marked slowdown rather than an acceleration. My question is, were you not too bullish back at H1? And what has been the biggest variance versus your expectations in Q3? I mean, you already knew that China and Brazil were very tough back then. And have they got materially worse?
Or has category growth rates slowed materially in Q3? And then the second question is on pricing. I mean, commodity prices are now turning sugar, dairy, but you're still saying you don't expect any improvement in pricing in the short term. And what does this say about Nestle's pricing ability globally? Thank you.
Thank you, Warren. I will answer the first question. In H1, we said that we expected indeed a growth acceleration in H2, which was mainly driven by pricing, which actually happened because we implemented pricing in Brazil, in Russia and in other geographies. We expected as well to get an acceleration coming from easier comps because we had a one off adjustment last year. It happened as well.
Because of innovation, which happened as well. And portfolio management. But portfolio management is something that will happen in Q4 because this is linked to the Fronery deconsolidation. We had said as well at that time that there were a couple of risks. One of them was the impact on volume in the short term due to the price increases that we have put through.
Some of it happened, and especially in Brazil. And so at the end of the period in Q3, we started to be back to positive volume growth in Brazil. So there was not really a negative elasticity, as I said earlier. There was a little bit of piling of inventory maybe by the trade before we put through the price increases and then some adjustment in July August, but we were back to the normal situation at the end of September. What I would say surprised us a little bit is a general soft conception across the region, which we didn't expect.
And I think that through that, we can see that the growth is relatively fragile in the fast moving consumer industry overall. I don't think it's only for us. I think it has been reflected as well in markets in general. Moving to your second question on commodity pricing. We have seen indeed over the last two quarters some increase in commodity pricing.
It doesn't reflect fully yet in terms of pricing because we have some inventory first and we have put in place some hedging. So usually, there is a 6 to 9 months delay between the commodity pricing in the market and the time when it impacts our P and L. So I don't think that we can conclude anything at this stage in terms of pricing power. We are confident that we have good pricing power because of the strength of our brands overall.
But on growth, it's true that actually I'm an optimist, and I wouldn't say bullish. And it's true also that the deflationary environment is somewhere lasting and is deeper and lasting longer than we all would have expected. Pricing, we backed off. We are privileging through all the initiatives we have in innovation, etcetera, volume growth because that is what sticks. We saw some pricing.
We thought we had more pricing needs than actually considering the deflationary environment we actually have to apply. That is what combining these two things is what brought us where we are. And I just want to stress again, we have volume growth linked with market share gains on the higher end of the whole industry, and that is what stays afterwards. And so yes, that's why we projected 3.5% for the full year.
Thanks, Paul. The next question from the call is from Eileen Ku, Morgan Stanley.
Good morning, gentlemen. It's Eileen Ku here, Morgan Stanley. I have two quick questions. The first one is actually, I suppose on the pricing market share equation, obviously, you're talking about the fact that you're prioritizing volume and market share. But I suppose now that you're starting to take pricing, are you seeing that reverse?
So can you talk about that generally? And then secondly, when you talk about guidance being now around 3.5 for full year, does that I mean, am I right in understanding that, that implies a acceleration in the 4Q? And if so, what confidence do you have that momentum will improve? Is it to do with the innovation pipeline that you alluded to earlier? Can you just give us a bit of clarity on that?
That would be great. Thank you.
Well, pricing and volume is always a fiddle line. You know why we always say pricing is done locally. There's no such thing as a global dimension or a global instruction of our company. But if you have a lot of efforts coming in, in innovation, if you have a lot of brand support, etcetera, that has to reflect in your market positions and driving the categories. We have leadership in many, many markets.
So it is for us to drive these categories in an inflationary soft environment. That is what we're doing. That's where these market shares and volumes are coming into play. This is important to us. As I mentioned, that is what stays.
When we
do pricing, yes, you have certain effects. We saw that to a certain extent in Brazil, where we had quite substantial pricing in certain categories. And there you have a certain adjustment. We have always a little bit upfront of pricing, some retail actions, etcetera. But then we saw it straightaway coming back.
The strength of brands and the strength of the support behind our brands is what, at the end of the day, stays, as I said, sticks. And that is what we are looking for.
To be more specific, if I take the example of Brazil, we increased our prices significantly in June. That being said, we continued seeing our market share increasing in Q3, so which means that we managed to handle it, I think, very well. But obviously, we changed the profile of our growth from as far as Brazil is concerned, from volume to value in Q3. You were talking about Q4. The guidance for 0.5% this year is actually very close to where we are today at 3.3%.
So we see some color coming back from innovation, from pricing, obviously, but we want to be cautious in view of the conception slowdown that we noticed across the board in Q3 for us and for our markets.
And we saw in the 3rd quarter already some pricing that's going to be part of that, too. So that's why we project 3.5% around 3.5%.
Okay. But now let's take the first question from the room. Ralph?
Ralph Atkins from Financial Times. Your last press conference, I understand this, Chief Executive. Yet again, sales are below the long term target. You have 5% to 6 percent. Do you think this 5% to 6% long term target is going to remain?
And second question on the UK. Can you tell us what your intentions are as regards pricing in the UK given the fall in the pound recently? How much is a KitKat going to cost in the UK?
Well, you said this long term target of 5% to 6%, I say no, that's our ambition. And that's something that we are building this company for over time. These are now a few years of very, very soft trading environments and deflationary environment where the low raw material prices, etcetera. So that's why we speak about the projection of 3.5% for this year. But what matters to me is that it's on the higher end of the industry, especially in volumes.
And again, I repeat, that is what matters. It's a relative game towards winning in the marketplace. And that's who, as I mentioned before, an innovation driver. I think innovation, having the initiative, driving your categories, that is what matters and that's where we invest in. Also building the capabilities of having out of this softer environment that we all live with to come out as a company much stronger and not going for short term bypasses.
I think that's an obligation that leadership of the company has to do. That is what we're doing. So we don't make these trade offs so easily for growth the future. So this ambition stays. This ambition stays.
Now in the U. K, that's a question that we have read quite a little bit about. First of all, I want to say pricing is done in the markets. So pricing is done in the U. K.
By our people there. And what they do is consider all elements. You referred to the fact that the devaluation may induce some need for. They're going to have to sort out to do that responsibly again. That means seeing all other possible actions to absorb the maximum of the need.
We produce actually almost over 90% of all what we sell in the U. K. Locally. So there's quite a lot of local dimension in that absorbs quite a bit of that need. I think Kit Kat is going to stay a very enjoyable, great break.
So I don't see that in the short term turning differently.
The next question comes from the call of John Cox of Kepler. John, you have the floor.
Yes. Good morning, guys. Just a question. Well, actually, I have 2 questions. 1 is a margin question.
Obviously, you've got a lot of headwinds this year in terms of top line. You said that you would deliver more than maybe we've got used to in terms of margin. I see consensus is around for a 40, four-zero basis point margin improvement this year. Are you comfortable with that currently? That's the first question.
And the second question really on sort of a slowdown in food or packaged goods you guys alluded to and something of a, I wouldn't call it a crisis within packaged goods, but a feeling that things have decelerated and they are unlikely to come back anytime soon. I wonder if you can just give your thoughts on that. What can you do as a leader in the industry to try and get growth going? Or is it you need to focus on more innovative products? It seems that a lot of the small start up independents or local players are winning share from the big packaged producers, which are maybe seen as not producing not particularly healthy food.
Why don't you just give us some thoughts on that? Thank you.
Well, what we say is that we have growth with margin increase, and that combines many things. I don't pronounce numbers specific on that. I also believe in the continuum of year after year having margin increase, which is actually linked with our strategy more than just going after margin for margin. We also combine that margin increase with upfront deeper investments behind brands. You have seen it over the last years.
We have increased our brand support, supporting our innovation. We are investing more in R and D because I feel the differentiation and the drive, the engine behind growth of the future is going to be new products, exactly answering your second question. That is what's going to drive. And we as market leader in many categories have to do that. And we see many areas in our portfolio that are growing very handsomely.
So we and that is basically true innovation. You mentioned smaller players finding angles. We have to cover these angles, too, and we can and we have through what, for example, what we have done by relaunching our frozen business in the United States that are growing above our average. So these are the things we have to do. I don't feel that our industry per se is there to be low growth as an industry.
I do see, if you think about we have been speaking about the millennials, how they pressure and how they value food much more in their lives and for that spend more on food, I see actually upsides. If you see the new venues we're exploring and investing in, They have still to come to bear the growth momentum that I definitely believe it's in there. And yes, the health science, they're already accretive on our sales growth. Well, that is going to gain momentum over time. These are all dimensions that society is embracing, that consumers are valuing and are going to make part of their lives and, as such, also buy products from.
But these are the quite, I would say, new connections that we as a company are making that are having and entailing a good promise of value growth. Then you see these shifts in commerce. I tell you, we are living on an inflection point in society too and how a whole industry is adapting to that. Do you speak about the commerce, e commerce and the digital ecosystems that are building up. It's not only commerce or only social media.
It goes much beyond that. And these are and that's why I say these are ideal times. These are ideal times of a company like Nestle to invest. So if you combine all that, we are also increasing our efforts in adapting, considering these inflection points over our organization. Nestle Business Excellence is part of that.
This is not small. This is overarching the whole organization of Nestle and in all countries. It is really resetting, call it, reinventing, challenging the structures we have today. This is rewiring in a much more, call it, the 4th Industrial Revolution. At the end of the day, we are in the process on that inflection point of adapting and anticipating and structuring and investing.
So we have also and that is all covered by the figures we're promising, but a substantial more, call it, restructuring per se or building new dimensions into this company that are all covered by the same promise of higher margin. I think that is the quality of what we promised on the bottom line.
Just maybe to complement what Paul said on the margin. So we are committed to deliver our trading operating profit margin improvement this year. This is part of our models. This is part of our guidance. We just reiterated it.
So we will do it again this year. Be aware of the fact that our trading operating profit is after restructuring. And we are going to do more restructuring this year. We didn't do that much in the first half, but we will do more in the second half as part of the structural saving program that we have announced in our Capital Market Day a few months ago. So we will increase restructuring this year, but we will increase, obviously, our trading operating margin after restructuring as it is part of our model and guidance.
Well, let me stress a point, John, thank you for your question actually, because it goes beyond margin. We could sit here also and promise margin and say, let's have 100 basis points. I cut a little bit my support behind the brands, and we have actually added to it. We do a little bit less here, a little bit less of longer term because at the end of the day, longer term or medium term we can sit. We have brand momentum, so brand strength.
So I tell you one thing. That is exactly what we should not do because that creates what they call business anemia or company anemia. And it's that balancing out. That is what we want to be as a company, balancing out this continuous delivering because it is intrinsic to our strategy, added value, more efficiencies. That should reflect on the bottom line.
But at the end, also continues investing so that we have this fine balance of short, long medium and long term. And I think that is what brought us here as a company. So during 150 years, this is an anniversary year. That is what we do now today. We can do that today because somebody did it in the past.
Well, I want whoever comes after to say the same thing. But you have to balance it out. Yes, you have to deliver today too. That's what we call the model.
The next question is from the call from James Targett of Berenberg. James, you have the floor. James? Okay. Let's take the next question from the room.
John?
John Royfield, Reuters. A couple of points. I was wondering if this follow-up to Ralph's point. Could I have a little bit more color on how you see the UK market developing in the future post Brexit? And also, how will this will this affect your investments in the country?
That's the first point. And then secondly, you said that 90% of your products are produced in the U. K, but obviously, you still want to buy quite a lot of commodities to go into your factories in the U. K. So the currency shock is going to have some effect.
So can you give us some kind of color on the effect of the currency shock, how that will affect pricing there? I know you do it locally, but there's got to be some kind of ballpark guidelines there. And then secondly, you've talked in very broad terms about innovation and things like that to drive growth moving forward. Is there any kind of specific examples you can refer us to or gives a bit more specifics on how you think you're going to get pricing back moving forward?
Well, let's first Brexit gives gets some form and shape and definition because we all speak Brexit. I wouldn't speak about Brexit until they really landed, what it means and all that. But fact is our investments, we're going to see we have invested quite heavily in the U. K. And so whatever they export again, while the added value they deliver is actually making them more competitive on that sense for what they and we export quite a bit to Europe from the U.
K. So we have an investment plan that is basically a long term structure. So we're not going to start now revisiting all the investment we did and starting to readjust that. Let's first let the dust settle and give that some perspective. Investments are long term commitments.
So we're not going to start doing short term dimensions and corrections and decision making on something that is for us medium, long term. Even more so, as what I said before, that's Brexit first get some form and shape. Then on we do import. Yes, do. We have cocoa very strongly, coffee very strongly.
And again, that has to be seen how we freight and land that dimension in the U. K. And there is many forms and things actions that can be taken to help. And be actually also in an efficiency drive to help to absorb part of it. But then locally, when it has to be, it has to be, we're going to see.
And then again, if there's no to back straightaway. You have to pace that out. And you have to be a petite with the consumer, but you have to care also about the substance of your business. Combining that, that's the balancing act that we're always doing. We have increased prices in Brazil, but balancing that out.
In Russia, we had to increase certain parts of our business, too. I would not have asked for more definition for the time being. Let's just settle first.
The next question is from the call David Hayes of Merrill Lynch. David, you have the floor.
Firstly, just on the sequential profile of the quarter. You've obviously alluded to the fact that the beginning of the quarter was tough due to the pricing shock and the inventory build at the back end of last quarter. And so I just wonder if I can tell you to be a little bit more specific about maybe the months within the quarter or certainly the beginning of the quarter, the back end of the quarter in terms of the rig. So as you look at the 1.9%, how much better at the end of the exiting of the quarter it was? And then secondly, Mr.
Schneider, I believe, has been with you now for about 6 weeks or so, shadowing Paul, I imagine, over that period. I just wonder whether you can be a bit more whether you can tell us what he's been up to in the early days at Nestle? And then I guess more specifically as Chairman, Paul, and as part of the Board, what kind of objectives and remit you've given Mr. Schneider as he comes into the business beginning of next year formally? Thank you.
Maybe I'll take the first part of the question. No, I don't want to comment on months because it's difficult to read anywhere. On the top of it, there were different number of invoicing days in July August. So it's very difficult to read. Even from time to time for us, it's very difficult to read and we don't manage the business by the month.
My comment earlier was just about Brazil because we saw some pile up of inventory prior to the price increase at the end of Q2, but we went back to a normal situation as far as volume growth is concerned post price increase for Brazil, but I don't want to comment further on any given month specifically.
Marc Schneider, indeed, he's 6 weeks with us. He is the most, I would say, visible trainee we have. And he is actually not shadowing me in that sense. What he does is he gets to emerge in the company and its operations. He's connecting with all the different dimensions of this company here at the center also in the markets.
And he is with me in certain dimensions like our executive boards clearly. So what he does is being a sponge and absorbing this multifacetical, fascinating dimension Nestle is. So that's what he is in for. So then you asked about the objectives as Chairman is to be Chairman of this company. And I think one of the very important objectives for next year is also to make sure, first, that I assume and get in the saddle there.
I had the privilege of being part of the Board already for many years. But also having worked with Peter in Continuum, so that's going to help. But then another objective is to make sure that Mark is very firm and good in the saddle and that there is continuum in this company. So I think these are the objectives for the time being.
The next question is from James Targett of Berenberg. James, you have the floor.
Good morning, everyone. Hope you can hear me this time. Two questions. Firstly, on Nutrition. Just looking at the outlook really, over the last few quarters, growth has been in the 0% to 2% range.
And going forward, obviously, we've got improving dairy prices. You mentioned the supply chain issues in the U. S. Have been resolved. So should we expect a material pickup in nutrition?
Or is the volatility surrounding the new regulation in China going to continue to be a big drag, you think, on growth during 2017? And then secondly, just on Espresso and VertuLine. I guess, clearly, the rollout into France has been driven by a good response in the U. S. Perhaps you could talk about how strong the growth has been of Vertuline in the U.
S. And also if you have any plans to roll out Vertuline further in other countries soon.
Well, on Nestle Nutrition, indeed, we had the conversion of quite a few, I would say, soft elements. And the whole category worldwide was soft or, I would say, flat. Also, you have to know that in National Nutrition or in the Nutrition business per se, China is very important. Worldwide, it's almost half of the business. And China has its specifics.
This whole category is resetting itself also in the expectation of this new law that is actually going to clean up some gray areas and formalize this business a little bit more. That goes into our hands. What we have is again I'm going to be repeating myself again, but we had some supply issues by the conversion of a whole product category. But these are the things that are operationally over now. I think innovation again.
And our interim formulas, definitely we have a major innovation that is now being played that is going to give also this impetus to our products. We have been in spite of the figures you have, we have actually been gaining market shares in many areas, be it in infant formulas or cereals, infant cereals, etcetera. So I do see the whole category with all the players seeing more growth in the future. The milk prices is going to be also pricing. We had some pricing.
That should now also play and help us to give a little bit more organic growth, but I do also see potential volume growth. With Nespresso and VertuLine in U. S. A. And U.
S. A, we have good growth. It's double digit growth in Nespresso and Espresso. And I must say, U. S.
A. Is by now far also the 2nd biggest market we have in espresso. You may remember, we were slightly underrepresented there, and that was a little bit hurting us. But no, espresso is having very good traction and virtual line is really playing into how U. S.
A. Is seeing a good cup of coffee. It's playing into what they expect from it. It is another different kind of coffee. The virtual line.
And hence, that's also why it complements very nicely what we have as an espresso, this short espresso like coffee. That's why we also are launching it now in Europe through France. Are we extending that later on? I think yes, because it has a complementary projection to our offerings. And you know that coffee is overall.
We have that fantastic brand, Nespresso, to cover the different areas there too in the characteristics in the personality of Nespresso is what Vertgeline does. And then we have also the Nescafe because that's how we see coffee. We have 2 fantastic brands arming this market very well and complementing the different angles to this market. So we see an espresso with VertuLine that complements the offerings we had so far as having continuous growth for the future as it has in the past.
Just to add some color on VertuLine in France. As you know, VertuLine is addressing the need for long coffees. Is interesting is France is our largest market as far as espresso is concerned, but we cover only 38% of the home consumption given that short coffees or espressos are only 38% of home consumption of coffee in France. So we are now with VertruLine addressing the other 62%. So it's quite an interesting proposition from that point of view.
And just coming back to Nutrition in China, it's difficult to read what the future will be made of. There are some positives. There is a second child policy, for example, which might impact positively the market. The fact that milk prices internationally have increased significantly recently, the fact that the gray market is somewhat stabilizing or getting reduced significantly, all of this is moving in the positive direction. That being said, we still expect some, not turbulences, but a little bit difficult time maybe in the short term given that there is a fairly large level of inventory in the trade, not necessarily for us, but overall for the industry.
So there is a risk that, ahead of the legislation, some traders might be tempted to dump product or to reduce prices in the short term. So we remain quite cautious still as far as China is concerned for
And the next question from the call is from Mitch Collett of Goldman Sachs. Mitch, you have the floor.
Hi there. You talked about stepping up marketing spend, and we can see that marketing and admin has increased as a percentage of sales pretty consistently since 2012, but you're about to report your 5th straight year of organic growth slowdown. Do you think you're getting an adequate return on your marketing spend? And I guess, what would it look like if you hadn't kept increasing? And then secondly, I just wanted to ask on the pricing environment in the U.
S. Why do you think that has deteriorated given that soft commodities are generally starting to rise? And did that mean that your organic sales growth in the U. S. Was in decline this quarter?
Did you get the second part, more or less?
We had a very bad connection, so I'll have the second part. Now let me first go to the PFME has gone up. And you say how do you compare that with an organic growth that's slowing down? Well, part of that slowing down of the organic growth is linked with very, very low prices. So for me, our marketing spend is not to justify prices.
It's to create value, to explore new venues, new offerings to the consumer, etcetera. So order PME goes up. And you have always to challenge is it wisely spend and that is something that also digital helps us to do even better to focus and even better these investments. But I think it is intrinsic to our strategy that I see the support behind our brands, the connection with consumers, the personalization of offerings is like inducing a higher support behind our portfolios and behind our brands. I think also the new venues that we are exploring are definitely more added value.
So more, I would say, benefits built into the our products and brands. Millenniums, call it the Millennium phenomena, as a consumer, that the relationship with that kind of consumer is more intense, hence also more P4ME. So I think it is the P4ME is linked also with the business models and the business offerings we have. It's not just to force growth per se, but as a consequence of the deeper engagements, as a consequence of that more intense innovation with more brand support, yes indeed, it should flourish back into more growth. Volume growth we have already, I repeat again, at the higher end of the industry.
That's the effect of having continued investing in our brands. The
line was not very good, but I think you were talking about the pricing in the U. S. We are clearly, as far as the food and beverage industry is concerned, in a negative with a negative trend from pricing. So clearly, deflation in the U. S.
Volume is not that great either. I think the market food and beverage market even declined by volume last year, which is probably the first time it happened in the U. S. History. So in that context, we are quite happy actually to still grow in the U.
S. And we are gaining market share overall in the U. S. As a combination of both positive volume and some negative pricing as well. But overall, we are gaining market share in the U.
S. But
I think you ask if you think that we are softening and even going down in pricing in the United States. Well, it is at the same vein and the same level as the first half. In that sense, there is no softening or losing, but it's on a low level. And actually, in certain categories, we're going to see how that's going to play out in mix. We have some price increases like in Nestle Skin Health, etcetera, that's going to start playing out more positively.
Thanks. And the next question from the call is from Celine Panuti of JPMorgan. Celine, you have the floor.
Yes. Good morning. First question is on the volume growth in your categories. Is it possible for you to tell us what you think is right now the volume demand in your categories across the globe? You mentioned that you have a better rig and volume performance than peers.
I just was wondering whether we also see the risk of further decline as you are going to face tougher comp on AOA from next year and overall whether effectively you are going to feel the pressure of lower demand? That's number 1. And number 2, could you share with us the performance in China? What has growth rate done in the quarter? And Yinlu seems to have deteriorated.
So what exactly I mean, I think that they were effectively relaunched. You did say that it will take time, but what is now the further step down in that performance? Thank you.
The first question was?
The first question you asked about the volume growth by category. We operate in quite a large number of categories, so it's difficult to cover all of them. Overall, the market, the food and beverage market by volume is close to 0, slightly positive. And we are doing better than the market, actually. We have the highest, I think, the highest or one of the highest growth by volume in the industry, which we clearly see.
And we see that in all our categories, with one exception though, which is confectionery.
For what is China, actually, it's a little bit frustrating because there is indeed quite a lot of good stuff and growth happening in various different categories we have. I think about coffee. Nescafe, for example, is growing very handsomely. We have also our biscuit confectionery is very is growing very well. We have actually on the platform of Inlu, the platform of the company Inlu, very good things happening like our Nescafe RTD is growing double digit.
We launched Chekizmo. That is going and having a good very good take off. We have a Milo RTD on that platform that is very going well. It is this specific peanut milk that was wrong and is still wrong, food that we have, cleaned the label, etcetera. And it is, in proportion, big.
So that is why it overshadows a lot of what's happening in China. And that we have to tackle. And we are in the process. We have reformulated. We are differentiating the positioning.
So it's a little bit the whole marketing mix again, and it takes time. That combined with actually a food and beverage industry in China that is, give and take, flat. That is what hurts us in China. That, combined with the size we have there, is overshadowing so much. That's actually the story of now China is a fantastic place to be.
Food and beverage in general is a dimension that has project of growth. We see soft pricing now here, etcetera, too, deflationary environment in China. Can you imagine? So but that's going to take us back. And so we have very good elements of growth in China, but overshadowed somewhere by that specific issue.
That is also linked with what you actually see in China. There's a whole resetting that goes much deeper than just destocking, what we have had in the last 2 years. That's linked with the slow growth. There's a whole resetting, redefining of distribution. We have mentioned that, that we had quite a lot of stocks in the multilayered distributor structure that we had.
We had something like 3, 4 layers sometimes of distributors to get to the small shops. And in the past, to a certain extent, it was distribution growth when you're in an upswing was done by many players and partly also by us, by actually call it land grabbing. It's going and engaging with a new distributor, going to a city from 1 to 2, city 4 and lower and smaller villages by engaging new distributors. Now what's happening is with this slow growth and more fragile distributors with less financial, etcetera, are going out of business. So there's a de engaging of quite a lot of dimensions of distribution.
That combined with the march of e commerce, and e commerce is important to us there too. So it is growing very handsomely for us. It's already way above 10% of our business in China. In certain businesses, it's touching 50%. Pet Care is 25%, for example, and growing very fast.
But that's resetting a whole, I would say, road to market or getting connection physically to products to the market. So it entails opportunities, but there is correction. And I think also what we learned there in China is going to be reverse inspiration for many things we're going to see happening in the other parts of the world. So I see this as a huge opportunity, but we have to, yes, indeed, try to get out of that overshadowing dimension of Hyundai and that's what we're doing. It lasts longer, it's deeper because it combines with other negatives that are a little bit out of our reach, but that we live in.
And the next question from the call is from Patrick Schwindeman of ZKB. Patrick, you have the floor.
Good morning, Paul. Good morning, Francois. What's your best guess expectation for the environment for 20 17 for the emerging markets, e. G. China, Brazil and Africa?
And for the developed markets, e. G. U. S. And Europe?
That's my first question. And secondly, what does this mean for organic growth for 2017 and similar growth to 2016 or better?
We're not even finishing 2016, and you're asking me already for 2017 and etcetera. Look, worldwide growth is projected to be about 3%, slightly over 3%, which is not. And we all feel depressed and saying, look, this is bad. And I just want to remember that before this, I would say these easier golden years that we had before the crisis this crisis already 8 years ago, That was golden age, but it was growth of worldwide growth of 4. Something percent and all that.
But before that, 20 years average, 3.5 percent max. So to a certain extent, we get used to growth figures that sometimes in the past we didn't have and we forget it. Now 3% -plus, again, we should be able to grow above that. But that's a projection. On the emerging and developed markets, it is known and it's projected.
And that's why we have always said we're an ant company. That's why we never disengage from the Europes of this world. And that's why we always have always grown in these markets. Through the whole crisis, we never had 1 year of no growth in Europe, Western Europe. I do and it is projected that worldwide growth, value growth, in spite of emerging markets catching up, worldwide growth, 50% of the world's worldwide GDP growth is going to come from developed markets.
So that's why we don't disengage from there. It's going to be different. It's going to be different venues or different offerings. Foods, I do feel food, diet is going to gain so I speak longer term now. But that's why I think there's no such thing as, well, growth is going to be in the emerging markets more than the developed markets.
I don't think that. We have to maintain that and dimension in the offering. The emerging markets is going to be, again, a painting of different colors. We all say about China, China, but China as a country is growing, and it is growing on a much bigger base. We have the food and beverage in a resetting somewhere, but the country as such is growing Softer pace but on a bigger base.
Russia, challenge. We are growing very handsomely in Russia this year, and there's some pricing too, but we have volume growth. So I think, again, that's the resilience of our industry. That combined with innovation, there I go again. Brazil.
Brazil is in turbulent times. There is instability and all. But again, we have this local savoir faire of understanding the interest increase. People there. But then again, the Mexicos of this world growing very well.
And then you have because we always India, growth projections, and we're going out of our travels there very handsomely, too. So but we speak about these big blocks. And then you add the many smaller ones, and they have very good dynamics: the Philippines, Indonesia for us, Vietnam for that matter. You go to Africa in what we call sea war, Central West Africa region. And there's turbulence in there too, but that was always part of the world in certain places and growing there very, very good.
So I'm going to stop here because you're going to say I'm too optimistic, but I don't project any figures. I don't think it's all of a sudden a flip flop and we're going to get into an environment of gain. No, I'm cautious and we will be cautious. But I do believe there is opportunity, and it is exactly that's why we're investing.
And the next question from the call is from Martin Dubu of Jefferies. Martin, you have the floor.
Thank you very much. Two quick questions. I'd like to come back to John Cox's question on the margin outlook. Francois Xavier, being very clear that there's going to be an increased restructuring burden on the trading margin in H2. But my question is what about underlying margin?
Pricing is sequentially improving. You're not yet seeing the worst of commodity inflation. I don't know what's happening to marketing. What would we expect to see in terms of the underlying margin outlook in H2? And the second one is just really a very simple question, leaving aside your hedging and forward buying, just how is your commodity basket moving at the moment at spot prices?
Okay. On the margin side, indeed, I think you're right that we will have to look probably in the next couple of quarters at the margin before restructuring because we will have more restructuring costs in the second half of twenty sixteen, and we will have some significant amount again in twenty seventeen. We'll come back to you on due time with amounts because we are still working on a certain number of project and finalizing it. You could see that our margin before restructuring had increased by 30 basis points in June. All that being said, we don't give any forward looking statement as far as margin is concerned beyond the fact that we will increase our trading operating margin.
You have seen as well that our gross margin has increased significantly, 380 basis points, I think, over the last 4 years. This is something that we continue working upon in order to continue improving our margin as a consequence of pricing and as a consequence of cost efficiency. So that will remain and will allow us to continue as well investing further in marketing, as Paul said, and investing further as well in R and D. Talking about commodities. We have seen some increase in commodity pricing in terms of our basket of commodity pricing over the last 2 to 3 quarters.
I can talk about milk and coffee and cocoa or even palm oil. It was a little bit less of use, I would say, the increase maybe over the last quarter. But still, we believe that we have hit probably the bottom probably 2 quarters ago and might have reached an inflection point. I could mention oil as well because oil impacts, for example, our water business through PET. So we are as you know and as I mentioned earlier, we have hedging policies in place, so which means that we don't necessarily need to reflect it in our pricing in the very short term.
But there might be a time when we have to reflect it. Price increases is not always the answer that we have. I'm just reflecting back again on the U. K. Situation.
Whenever we have an increase in input cost, the first thing that we do is really to work at cost efficiencies because, I mean, obviously, price increases is the easy part, but it is largely linked to competitive forces in a given market. So the first answer is immediately to look at cost efficiencies in order to be able to remain as competitive as we can.
But we see some pickup there. And Francois mentioned, milk was on a historical low, and then it is not healthy to have extremely low commodity prices. It's a very unstabilizing factor. I think also for an economy to have a slight low inflation is like a stabilizer. And that deflationary environment, remember, that is a very difficult thing once you get really into it to get out.
So but also low commodity prices is not good because it conditions the lives of so many people in the world. And so we see some color coming back in the broader format, much softer and slower than we thought. And that is reflecting also why we revisiting some figures, but much softer than we thought, if you see historically, etcetera. So that reflects again the softer trading environment and you go on. But I think once we get a little bit of that momentum back, I hope that there will be on a moderated pace but firm and not like we had this dramatic, dramatic low raw material prices.
And that's a false impression that helps us. Well, at the end of the day, it doesn't help. So it's softer than we thought, but it's at least coming back some colors specifically in base and raw materials, cocoa, over time, again, cocoa, coffee and milk for us. And then we see the impact of oil prices. We have to wait to see what's happening there.
They had some how firm is that? And that affects them also. So quite, quite definitely quite importantly, Agricultural Materials.
And the next question from the call is from Jeff Stent of Exane. Jeff, you have the floor.
Good morning. Just one quick question. I think I'm correct in saying it's the last time that Paul will be addressing this audience as CEO. And reflecting on your last 8 years, Paul, if you were to see what your one biggest achievement has been and your one biggest regret, what would they be?
I don't like well, still sitting here is a good thing, right? I never speak about legacies, about this, etcetera. But at the end of the day, we and that's all the people who have been part of this journey also, These were not easy years. These were actually 8 years with the crisis and you go on in turbulences. A combination of macroeconomics but also societal, political, also technologies.
This and I call it as an inflection point. I think it's fascinating, the opportunities it gives. But at the same time, I think we went steady relatively steady through all that. And that is somewhere a point that we all can proud of because these were turbulent times. We didn't weave through these holes all these years and have been delivering, as I mentioned, also in the developed markets, growth and maintained our agenda.
And yes, we have to reset certain dimensions and all that and a good, I would say, reaction on realism and pragmatically. But at the end of the day, being able to do that and investing for the future, I think that's important. Having done, in my eyes, the right things and balancing the short term turbulences, etcetera, and yet doing what it needs to get stronger. I think this company is definitely stronger. And when then some more environmental tailwind is going to come, that's going to be much more visible.
But that, I would say, is something that we're proud of. And so that's basically was there another part of the question? Congrats.
Congrats. Congrats. Congrats.
That it was so fast, going over and by. I mean, 8 years indeed, and it is very fast. That's what we get, that it goes fast. And somewhere doesn't end, I'm so happy I'm still going to be part of it from another angle and that I can still serve this company that I have dedicated my we have 37 years not bad so far. That's maybe a regret.
The next question is from Alain Oberhuber of MainFirst. Alain, you have the floor.
Thank you very much. Good morning, everybody. Two questions. Just regarding the growth again. Do I understand it right that we expect now similar pricing but an acceleration in the organic growth, particularly in the rig?
And then for next year, there's obviously high base in H1. Could we expect that the organic growth next year is more geared and skewed to the second half? And my second question is regarding U. S. Frozen dish business.
Could you give us a little bit more insight about the development of Stauffer's Pizza as a head pocket, please?
Maybe you'll ask the first part. On Staufers and Lean Cuisine, as I say, we continue gaining market share. Last year, we had a good, I would say, a resetting, good very good growth. That growth is a little bit less now on better growth of last year, and that's going to but still growth and gaining market share. So I think we're doing the right thing.
What we should not do is falling in the trap again of we already relaunched and that's why we have a permanent revamping the category and our portfolio now. And it has and it continues to give us a good promise of growth for the future. And that in Lean Cuisine and in Stouffer's and in Hot Pockets. So it is really quite motivating. On this balancing, I On the
balancing, as Paul said earlier, let us finish our 2017 budget first before we talk about the phasing. I think it's too early to talk about the phasing between H1 and H2. On the question on pricing acceleration, as I mentioned earlier, we don't expect any pricing at this stage, at least in the short term in the Western countries. We are still in a deflationary environment, and there is no evidence of a turnaround there. It could happen later, maybe in 2017, once again, if commodity pricing was really picking up.
But once again, there is a delay between market prices and what we reflect to the market. And in developing markets, that could be in emerging markets, there could be a little bit more pricing. For example, what we did in Brazil is largely linked to foreign exchange pressure, which translate into additional input cost. There might be a little bit more of it in Latin America or in Eastern Europe, probably in the later part of 2017 again.
And the final question is from David Edward Jones of RBC. James, you have the floor.
Yes. Francois, you mentioned that there'd be a need to look at margins before restructuring costs. Can I just confirm that your outlook for the year for margin growth refers to margins after restructuring costs?
Yes. So we will increase our trading operating margin after restructuring costs while increasing the restructuring amount in 2016 over 2015. I can't give you the amount of restructuring because we are still finalizing it. It depends I mean, the cutoff debt has a significant influence on the amount that we could book. But we know already that even while increasing restructuring cost in 2016, we will improve our trading operating margin.
This is once again part of our model and part of our guidance.
Because we commit to a figure of margin improvement covering that additional more intense restructuring. And I think it's, again, balancing things out, not resetting or asking for a moratorium. I think that's the quality of what we promised.
You're closing a lot?
Well, no. Look, these are soft trading environments, etcetera, etcetera. But I just want this balancing of short term but also having quality in our sales, which I see in that dimension of volume, which is not volume for volume. It represents something that is leading in many categories that we own also towards the category to ourselves to drive categories. And I think there wasn't quite a few years of accelerated changes in all these categories.
We are engaging, reengaging, connecting, reconnecting, etcetera, but the growth was always there. And that is what I see the quality to be in the higher end of the industry, we say. But because we also lean in quite a few categories. And yes, I'm indeed building the capabilities of compete. To be competitive is to be able to compete, and that is what we're investing in.
At the same time, there's more longer term. It's this innovation. I cannot stress enough the importance of keeping a mindset but also an engagement and resources behind innovation. And that is linked again with science, it's knowledge, but it's engaging in different models. It is also maintaining.
And in a company like ours, it is a sizable company with a lot of, I would say, also traditional history and all, which is a strength could be a liability. Not to make it and I will allow it to be a liability as reinventing ourselves. Hence, I use the word NBE. It is to really restructure and reassess and be more efficient than me and be much more effective. That is in the process we are in.