Good morning, everyone, and thanks for attending our conference call at such short notice. Particularly, thank you, as following last Friday's Q1 sales conference call, you are being rather more demanding of your time than normal. As always, there will be a presentation to start, and your phones will be on mute during this. If you need help, please dial star zero for the operator. If you want to be put on the list for a question, please key star one. The call is being webcast and recorded to be available on replay later. This morning, you will hear from Paul Bulcke on the strategic perspective, Kurt Schmidt, the Head of Nestlé Nutrition, on the business fit, and Wan Ling Martello on the financials, with Paul then wrapping up and opening for questions. I will now pass the call to Paul Bulcke.
Thanks, Paul.
Now, thank you. Really good morning, everybody, and thanks for listening in so early on Monday morning for indeed what I would call important news for Nestlé. Important because with this acquisition of Pfizer Nutrition, we will really enhance our position in the global infant nutrition world. I'm really excited to be here today to introduce this strategic move that will bring our origins as Nestlé together with exciting new opportunities around the world. I would like to briefly describe how indeed this transaction is building on what I would say more than 140 years of tradition of commitment to nutrition as a company, commitment to nutrition, health, and wellness, and within that, to one specific category in particular.
I want to remind you that our strategic direction has been expressed in the last years always as nutrition, health, and wellness, and we have been shaping that and also giving that more and more content. Actually, in that agenda of nutrition, health, and wellness, we give special, have always been giving special attention to the, I would say, the first thousand days of life. Let me go to our history, our origins as a company. As you know, our business was created with Henri Nestlé. When he invented here in Vevey, where our headquarters still are, in Switzerland here, the Cereal Milk Drink, it was an infant nutrition product that saved the life of a child. Ever since, we have been all about nutrition. It has been at the center of what this company stands for, of what this company is all about.
Specifically, infant nutrition, that is definitely part of our DNA. Nutrition, health, and wellness has been ever since our strategic direction, guiding all the actions we have. Our nutrition, health, and wellness strategy is founded on the belief that to be a leader in nutrition, health, and wellness, you need to play meaningfully in people's lives in an extended way. Meaningfully in being part of people's life from birth to even from conception to later stage in his life. Meaningful also by touching people at different eating occasions during the whole day. It is because by being relevant, by being meaningful in people's lives, that we can touch consumers deeply, be it through R&D, be it through products, be it through brands, be it through communication, and thereby enhance their lives with good food and beverages everywhere.
That's why actually Nestlé is present in different categories that are complementary in this journey of allowing the consumer healthier and nutritional choices. Infant nutrition is a very, very special place in this whole agenda. It is actually what we say Nestlé is all about. Let me go to our strategic roadmap and show to you how this totally is aligned with our global strategic roadmap. You know this roadmap. We have been sharing that with you on several occasions. It says what we want to be as a company. It says what we want to leverage as a competitive advantage to be successful over time. It says where we look for growth, the growth drivers, and also how we have to organize that efficiently and effectively. Pfizer Nutrition's alignment with this roadmap goes just beyond this specific aspect of nutrition.
It is aligned with our growth drivers as the emerging markets, emerging consumers, and premiumization is definitely part of Pfizer's Nutrition. It has a very strong brand portfolio. It has very good R&D capabilities. It has a very good geographical presence. It actually helps to enhance our competitive advantages. We have also been very much impressed by the people, by their culture, by their operations, by their factories, their marketing capabilities. These are areas where, as you know, we want to build gaps, where we want to excel. As such, I would say Pfizer Nutrition has a very natural fit. It has a strategic fit, but also a very natural fit. That is very important for us always when we do acquisitions.
As I said, today's news goes back to Nestlé origins, whilst at the same time enhancing our objective to be the recognized, trusted leader in nutrition, health, and wellness. Our vision, our strategy is clear, and we have been executing and bringing it to life permanently in various complementary initiatives, actions, and building blocks that converge to that agenda. You see a few of them here. A very important one is 60/40 +, how we drive nutrition arguments to our whole portfolio. It is linked with our increased investment in R&D capabilities and how we leverage the R&D platform over all these different categories that touch all aspects of our business and do have scale effects. We are doing a special focus on special needs days of consumers, special areas and segments by having established Nestlé Nutrition, which we are going to talk a little bit later in more detail.
We have gone about that agenda with the creation of Nestlé Health Science and the Institute of Nestlé Health Sciences to go for personal science-driven nutritional solutions of specific medical conditions. We have, and we're touching, exploring new boundaries of nutrition and new applicated sciences linked with it through venture funds. Of course, now what we are talking about today, which is the announcements where we need to see a good strategic fit, we see that. It's very important. It has a very good cultural fit. It is answering very well and very clearly the financial criteria that we set forward for all these kinds of fields. It creates definitely value for the shareholders. The third aspect I mentioned before is this special bond, the special commitment that we have for the early stages of life for infant nutrition. Call it the first thousand days.
We know that the first thousand days from even before birth, from conception and onwards, really set the foundation, set the base for healthy life in later stage and later life. This is why infant nutrition as a category and as a product is so important for us all here at Nestlé. That is why we see it as the core of the Nestlé business. That's why we have this agenda of start healthy, stay healthy, move then into good food, good life as an overall overarching team. I will now hand over to Kurt Schmidt to go into the strategic and cultural aspect of the news of today. Later, Wan Ling Martello will walk you through some facts of Kurt's.
Thank you, Paul. Hello, everybody. Good morning. My name is Kurt Schmidt. Just to give you a bit of background on me, I'm the Global Head of Nutrition. Previously, I was the President and CEO of Gerber. I think I therefore have a unique perspective, having been part of a successful Gerber acquisition by Nestlé in 2007. I've experienced firsthand the success that comes from bringing two great companies together. That's why I'm convinced that this is another successful, important step on our journey to the world's leading nutrition, health, and wellness company. The mission of the Nestlé Maternal and Infant Nutrition is to be the recognized leader in maternal and infant nutrition by being the parent's trusted partner, helping build a happy, healthier generation, literally one baby at a time.
As a leader for over 140 years in scientific research and development, Nestlé knows that the nutrition a baby gets in the first thousand days from conception sets the foundation for better health and later in life. This is the cornerstone of the Nestlé Start Healthy, Stay Healthy program, offering science-based education, services, and support for carers to make the right nutritional choices for the best start to the first thousand days of life for better health throughout life. We strongly advocate breastfeeding as the best form of nutrition a baby can receive in the first six months of life. Start Healthy, Stay Healthy is the right start of a consumer journey with Nestlé. Why Pfizer Nutrition? It was a unique opportunity to strengthen our leadership position.
It is a great fit with Nestlé and Nestlé Nutrition, strategically with high degrees of complementary geography and from an R&D and benefit platform perspective. Culturally, we found our core values, leadership, and management principles, and the approach to the category well aligned during due diligence. Financially, this is a very attractive and accretive acquisition to Nestlé. Ultimately, and most importantly, it best positions us for future growth in this attractive category by gaining and enhancing leadership where the births are. This acquisition is the start of a new journey, Nestlé Nutrition and Pfizer Nutrition together, nurturing a healthier generation and building a strong future based on our core passion and roots, infant nutrition. It is another milestone in our nutrition, health, and wellness journey. Together with Pfizer Nutrition, we can further develop our Start Healthy, Stay Healthy promise through very complementary expertise and capabilities.
Infant nutrition is very attractive because it is a high value, high growth category. We at Nestlé are proud to be the pioneers of this category, starting with Henri Nestlé developing the first infant cereal. With Pfizer Nutrition, we're adding a dynamic and valuable business, which is particularly attractive for three reasons. First, Pfizer Nutrition has focused on growth markets and has a strong market position in China and other Asian markets, which is where the births are and therefore the future growth. Second, Pfizer Nutrition is strong in premium products. Third, Pfizer Nutrition has strong equity with healthcare providers who advise consumers, offering them a wider choice of nutritious food to ensure their children make a healthy start to a healthy life. Nestlé and Pfizer is a strong fit, strategically, culturally, and financially. Overall, Nestlé and Pfizer Nutrition is a winning combination and strengthens our leadership.
As mentioned, infant nutrition is a very attractive category, particularly infant formula. Infant formula is nearly a $30 billion market growing at 10%. What makes this even more attractive is that 73% of the infant formula market is in emerging markets, and it's growing at 13%. This is driven by increasing births, increasing affluence and access, and increasing awareness of the importance of the right infant nutrition with a clear move towards significant functional benefits, enhancing health and wellness, especially in the early stages of life. Lastly, premiumization and broad product ranges are a result of the above. If we look at the geographic spread, I'd like to emphasize that infant nutrition is a highly dynamic market. As you can see here, China and Asia are the largest components of the global market and the highest growth rates.
In addition, the other emerging markets in Latin America, Middle East, and Africa show high growth rates. This is consistent with where the births are. Pfizer Nutrition's strength in China and Asia complements nicely with Nestlé's strong positions in Latin America, Middle East, and Africa, all high growth regions and giving the combined businesses a strong position where the future growth is. Pfizer Nutrition is a dynamic player, very well positioned for future growth. 85% of its sales are in emerging markets, particularly China, Philippines, Thailand, Indonesia, Middle East, and Mexico. Pfizer Nutrition has a strong reputation and equity with healthcare providers. It has a high-quality brand portfolio with brands such as S26, S26 Gold, Illuma, and SMA. It has a strong leadership team with a proven track record, a good and consistent financial performance, and a skilled, motivated workforce and attractive assets in production and R&D.
Overall, I believe strong and dynamic business that has a lot to offer. Let me also emphasize that with the addition of the Pfizer Nutrition business, we're building on a very strong base. With Nestlé Infant Nutrition today, we have global leadership with broad geographic reach. We have the world's leading R&D network in nutrition and food, leveraging, for example, the world's largest nutrition research center close by in Lausanne. We also benefit from many strong medical and scientific partnerships. We are very focused on science-based innovation and have driven many of the category innovations over the last decade, offering consumers meaningful benefits. For example, we have the only qualified health claim ever issued by the USDA FDA for U.S. infant formula. That was related to the reduction of allergy risk using our unique hypoallergenic formulation.
Last and not least, Nestlé Infant Nutrition is a focused standalone organization, but one that benefits from Nestlé's scale and strength in the markets. This combination of focus with global scale and local strength is unique among infant nutrition companies. As I've mentioned, strategically, this is a great fit, especially from a geographic perspective. The acquisition gives us a pole position for future growth by being well placed to benefit from demographic and market trends. In our combined top 10 markets by sales, we are in a leading position in seven of the 10 markets, and nine of them are in the world's top 10 markets for population growth. Importantly, we estimate that more than 45% of the next five years' category growth will come from China. Our sales in infant formula increases from over $5 billion today to over $7 billion in the combined group.
Our overall exposure to emerging markets increases to 85%, with leading positions in three quarters of all markets where we are present. Our presence in AOA, the region with the highest population growth, is enhanced from 45% presently to 55% of our combined sales. I've also mentioned what a great strategic fit Pfizer Nutrition is from a benefit and platform perspective. The combination gives us strength from entry-level to super premium products in all benefit platforms. Pfizer Nutrition fills a couple of gaps we had, and the enlarged combined business will have a leading presence in all key benefit platforms, with a strong presence in premium and super premium products globally. Of course, in line with our commitment to the first thousand days and Start Healthy, Stay Healthy, these benefit platforms will complement our increased focus on maternal nutrition.
During due diligence, it became very clear that this is a strong cultural fit between the teams, but also the way Nestlé Nutrition and Pfizer Nutrition approach its category has a very high level of affinity. Both management teams have a sustained successful track record in the category. We are both very focused on meaningful science-based innovation that provides real benefits to consumers and meets their needs. We both understand that safety and compliance are non-negotiable and have a strong commitment to quality. Both companies are fully committed to supporting breastfeeding being the best start in life for a child. Moreover, we found a strong affinity with our approach to ethical marketing in infant formula. Compliance is of utmost importance to Nestlé, and in that sense, we highly value our inclusion in the FTSE for Good Index. Let me sum up.
We believe we will create significant value from a high-quality business. We will enhance a strong Nestlé business with a successful Pfizer Nutrition growth model. It will best position us to benefit from population growth. It will expand our portfolio of higher value products. It will allow us to leverage R&D both ways. It will combine strong management teams. It will allow us to benefit from Nestlé's in the market scales, capabilities, and systems, and at the same time, allow us to contribute to it. Overall, it is a great fit, and it gives us the capabilities and presence to win. Finally, it's consistent with and accretive to the Nestlé model. With that, I would like to turn it over to Wan Ling Martello, our Chief Financial Officer, who will take you through some of the financials.
Thank you, Kurt. Good morning, everyone. By now, I'm sure you would have sensed the level of excitement we have for this opportunity. Now, let me talk to you on why this will create shareholder value over time. Pfizer Nutrition is a high-quality business. It is accretive to the Nestlé model, and this transaction is fully in line with our acquisition strategy. It's a high-quality business with a track record of growth. As you can see on the slide, revenue grew at CAGR of about 13% from 2009- 2012. In Asia, over the same period of time, CAGR was over 16%. China, in particular, 20%. Middle East and Africa, 26%. Equally important to us, the last three years, new product launches and product improvements, our equivalent of innovation and renovation, represent a third of the revenue in 2011.
Some examples of this would be their upgrade of flagship Gold product line, their launch of super premium Illuma brand in China, and the introduction and expansion of the Picky Eater line. Equally, it's a high-quality business with a very healthy level of profitability. A recurring level of profitability over the last four years. Margin has been maintained despite the very strong top line growth. Clearly, higher margins in emerging markets than in mature markets. The profitability of the Pfizer Nutrition business enhances the profitability of our own nutrition business. Key transaction terms, the acquisition price is $11.85 billion on a cash-free, debt-free basis. This represents a 19.8x on our estimated 2012 EBITDA. Full-year cost synergies are estimated at $160 million. We expect synergies to reach their run rate level in three to four years after completing the transaction.
Implementation costs are estimated at roughly two times full-year synergies spread over four years. Financing will be a combination of cash and additional debt, maintaining strong balance sheet. The transaction, as always, is subject to regulatory approvals. No surprise, this acquisition is accretive to the Nestlé model. Pfizer Nutrition contributes organic growth significantly higher than the Nestlé model, it's double digits. The margin levels are accretive to our Nestlé model from day one. The acquisition is also earnings accretive to our shareholders the first full year of consolidation. This is both before and after synergies and implementation costs. Last but not least, return on invested capital should exceed our cost of capital in year two to four. Let me reiterate the three criteria every M&A transaction has to fulfill. First, there has to be a strong, compelling strategic rationale. Kurt touched on this.
It's strong growth in value-added category, high-quality brands, and strong market position. A very good cultural fit from a people perspective, which is critical for a successful integration. It makes sense, good financial sense, accretive to the Nestlé model, top line, bottom line, and cash flow accretive. Of course, still maintaining strong credit ratings and financial flexibilities. This transaction needs not one, not two, but all three of the criteria.
Okay, thank you, Wan Ling. I think, first of all, we have positioned this acquisition in the global strategy of our company and how it is logical. It is a logical extension. To show the strategic interest, Kurt made a compelling case of this acquisition from a strategic perspective and specifically on the infant nutrition business we have and how it complements ideally and builds on Nestlé's strong business already. It enhances it by being an exciting, fast-growing, high-value business. I think also, Wan Ling walked you through financials and Pfizer Nutrition has strong financials. It has great exposure to fast-growing markets, particularly in Asia. As such, it is enhancing what we call the Nestlé model. It meets also these acquisition criteria that we have shared with you on several occasions. In conclusion, Pfizer Nutrition is an exciting, winning combination for Nestlé.
We're measured on the strategy, we're measured on culture. That's important to us that we have a natural fit too because that's where the value stays then. It is also a winning combination when measured on the financials. Now, with that, I would like now to invite for another discussion. Rodi, could you walk us through that?
Yeah, thanks, Paul. We're now going to the questions. If you want to ask a question, please key star one. Please introduce yourselves and, as usual, restrict yourselves to two questions only. Hopefully, everybody will get a chance to ask a question. Thanks very much. Over to the operator. Operator, if you could organize the questions, please.
Thank you, sir. Let me just again remind the participants, if you would like to ask a question, please press star one on your touchstone phone. If you would like to withdraw your question, please key in star two. Our first question comes from Mr. David Hayes. Your line is now open.
Morning, David Hayes from the world. Thank you very much. Just my two questions then. In terms of the cost of capital on the transaction, you talk about return on invested capital passing cost of capital. I just wonder whether you can tell us what you've used as the cost of capital on the transaction. Secondly, obviously, you made the point about regulatory approvals. I just wonder whether there's any markets in particular which you're acquiring, which you know or may be aware of issues in terms of market share, and whether there are any disposal potentials, whether you've already got a partner on a back-to-back agreement to take those, or whether that's something you look to address as a separate phase through the process the next few months. Thank you very much.
Thank you, David. Wan Ling, could you walk us through this cost of capital?
Yeah, our cost of capital is around 7%. Do you want to answer that, the regulatory?
Like all deals, it's subject to regulatory approval. I don't think it's the right time now to start talking in detail about these antitrust or regulatory issues. We will work through them with the various regulatory authorities at the time, especially in the countries where that may occur. I feel it's actually premature to come in further in much more detail on this. That's what we're going to have to do in the next months to come.
Okay.
Thanks. Next question, please.
Sorry.
Let's go to the next question, please.
Thank you. Our next question comes from Mr. John Cox. Your line is now open.
Yeah, good morning, guys. Congratulations to you. A couple of questions from my side. Sorry, Wan Ling, can you just repeat what you said about the synergies? Did you say year four is basically what I heard from that $160 million? Was it two times that amount? That's just a sort of a clarification. Just wondering when you'd actually expect the deal to be cleared. I'm just wondering on the management of the business. Typically, Nestlé tends to acquire businesses and then let the sort of acquired management team run their own existing business. This is obviously slightly different from what you've done in the past. Would it be a case if you look at different management in different regions and then decide which ones will be sort of running the show? Thank you.
Let me answer the question in terms of synergies. I said run rate synergy level would be about $160 million a year. The cost of implementation total is about $300 million spread over four years. In terms of closing the transaction, at best, it would be six months. The maximum we're anticipating is probably mid-year next year, so about 12 months.
John, on the management, it is indeed so that, and actually, Kurt Schmidt here sitting beside me here is a good example of that. When you buy a business, you buy it for its value. The value is given and driven by the people. We give a lot of value to the people behind the businesses we acquire and people essential to us. It is clear they have a very, very strong team over there, very professional. We have the same here. The first intention is not to start integrating these businesses straight away. They have their own strengths and all that. They are going to have to be aligned on the same things. With that, I would say we're going to go through these thinkings now and really embrace the good talent they have and build them into our business.
You have to remember, this is not a synergy acquisition. This is basically a growth acquisition. We are going to need people. I would leave it now and give it to Kurt. Kurt, can you comment on a few of your ideas?
Yeah, I think Paul summed that up very well. This is a growth-driven acquisition. It's a little too early to talk about what or when it happened through the integration process. Coming from Gerber, the great strength of Nestlé, I think, on all these acquisitions is it takes the best of what we acquire and brings the best of Nestlé and makes something even greater of the parts. That is our view on this one. It's fundamentally a growth-driven acquisition, and that's going to be our approach. We've had time to spend with the management team, and we have been impressed with them.
Okay, thanks.
Next question, please.
Thank you. Our next question comes from Simon Marshall-Lockyer. Your line is now open.
Yes, good morning, everybody, and congratulations on this transaction. I just wanted to ask Wan Ling, in terms of the China position and the recent acquisitions that you made there, could you give us a little bit more in terms of the way you see this development in China, which is very critical in terms of recovering some of the position in infant that you'd lost or where you'd be challenged over the last few years? Maybe you could add a little bit there at this stage. Secondly, maybe for Kurt, in terms of the experience of the integration of Gerber for Nestlé, I seem to remember just two or three years ago, the goal for nutrition was to reach, if my memory is correct, over 18% EBIT margin. Your goal was a double-digit growth rate overall for nutrition.
The first goal you've achieved, the second goal has been more challenging for you. This deal will get you closer there. Would Paul Bulcke be happy to reiterate the goal of achieving this double-digit growth rate for nutrition overall in time? Thank you.
I'm not wondering. Let me answer this, the China, your question. Thank you first for the congratulations. We like that. Let me walk you through a little bit of the China without going into too many details, though. You have actually, we speak about deals that are totally dislinked per se. I would not mix it and link it all up. Also, China is a fascinating place with a lot of growth, and it's a huge country. I wouldn't link all these deals up into one bucket. We're going to see. We're going to walk a day at a time. That is going to be our work for the next months to come on the acquisitions. We are commenting on them when we spoke about our results and all that. They are first-quarter results.
The two partnerships we have there, because these are partnerships, are working well and up to expectations. These are very, very interesting, compelling businesses. I want to give a note to Kurt with the Gerber and the objectives we had and all that. Growth, and you have to see also the last three, four years have not been easy years in general as a global, I would say, scene of economical development and all that. Anyhow, Kurt, he has his objective, and he has his ambitions. Kurt, can you share that with us?
I think let me say, first of all, that when we talk about infant formula, the growth is higher than the rest. Clearly, we're made up of different pieces of the business in there, including Nestlé Nutrition with other types of businesses. That is growing at double-digit growth, and we seek to grow above the market. Infant formula is growing double-digit, and infant formula margins are in the high teens. This is accretive, and this is the approach. This is the right portfolio for us to have, and we're confident that we're going to achieve those kinds of goals.
You also had a question about integration from Gerber, your experience.
Oh, from my Gerber integration? If I get asked this, what stands out for me for the Gerber integration? That was Nestlé's capabilities, I said earlier, to take both the best worlds. I'll give you just two examples. We at Gerber long, long wanted to build a dairy component. It's an important part of nutrition for toddlers and didn't have the capability. Within the first six months, we launched a line of toddler yogurts, nutritionally enhanced toddler yogurts, which has turned out to be one of the biggest new product launches they've had in the U.S. I've talked a lot about Start Healthy, Stay Healthy, and that was originated in Gerber. It shows Nestlé's propensity to steal the best idea and to leverage it across the vast scale that Nestlé has. To me, that's what makes Nestlé such a good acquirer.
I would say thirdly, it is Kurt Schmidt managing the Nestlé Nutrition business worldwide. That's another good example of how we go about integration.
Okay. Who wants the next question, please? Can we get the next question, please?
Thank you. Our next question comes from Alex Molloy. Your line is now open.
Good morning. Two questions, please. The first one on the synergies, could you highlight what sort of areas you are targeting for those synergies? The second question is, given the potential antitrust issues, are these likely to impact either the acquisition multiple or the synergies, in your opinion?
On the synergies, I think it's going to be basically on the back office and all because, again, the whole setting of this is a growth business that we're buying. We definitely want to outgrow our structures, but that's going to be.
It is broad-based. You know it's, and even in our model calculations, they'll have some headroom from a synergy opportunity. From a regulatory, do you want to comment on that?
Yeah, but also on the synergies, you have to combine things. You have R&D, you have back office. We have to see these things, but we're going to see that when we walk through it in more detail. Again, the whole thing is that when you buy such a growth business, just by containing or staying on your structural dimensions, you build in synergies because you can build upon growth on the synergies. That's where it goes. On the antitrust issues, I would say, again, what I said before is that we're going to see that. We're going to have to give time to time. I don't want to go into more specifics because we know, but we don't have now, I would say, the position to really go into more details. I really want to give time to time there, and yet without losing time.
We're going to work intensively with the various regulatory authorities, and I would say this is still premature.
Thank you.
Okay, next question, please.
Thank you, sir. Our next question comes from Mr. Xavier Cloquet. Your line is now open.
Good morning to all. I have two questions. One on a little bit of accounting things. The EBITDA margin is 25%. Could you help us on the operating margin as well as on the tax you use when you say that you will be meeting WOC at the deadline you give us? A small add-on on the type of growth you give us by regions. Could you give us a little bit of flavor on the growth in LATAM? That's the first bit. The second bit is a general comment. If it comes to disposal of some countries without making specific calls on where and when, how do you see the ownership of the brands that you just acquired? There are some brands which are in countries that you will probably retain without any problems and areas where you might.
Do you enter the disposal discussions on the basis that you will over time retain global ownership of the brands and that it means that the acquirer will have to make a brand migration? Would you be more flexible and leave some countries branded with a competitor owning a brand in one country that you normally own globally? Thank you.
Thanks, Xavier. Just to try and close down one aspect of these questions, we are not willing to discuss operational nitty-gritty that may or may not be influenced by a regulatory process. We have an obligation to respect the regulatory process. We'll be very happy to talk to you about those sort of issues once we've been through that process. To do it today would be premature and disrespectful of those authorities. We're not going to do it. Now back to Paul.
On the EBITDA there.
Yeah.
Wan Ling, maybe.
Yeah, let me add a question on underlying tax. It's about 27%. If you, you know, without going into the details of the operating margin, I can give you a sense that the CapEx intensity of the Pfizer Nutrition business is lower than the Nestlé level. That would give you some sense.
Okay, thank you.
You asked also about regional that. I don't, I'm going to give the word then to Kurt, but I wouldn't like to go in all the details again, in line with what Rodi just told us. Kurt, anyhow, comment some.
Yeah, when it comes to Latin America, Pfizer Nutrition is in single-digit growth. Of course, Nestlé, that is one of our strongest areas, as I said before, where we're a double-digit grower, a consistent double-digit grower in LATAM.
In other words, the single digit is because the double digit we have, basically. That's the strength again. We combine very well together.
Many thanks.
Yeah, thank you, Xavier.
Okay, I think you can assume that there's around 3% difference between EBITDA and the EBIT.
Yes.
Roughly around 3% difference.
Okay, next question, please.
Thank you. Our next question comes from Patrick Schwendeman. Your line is now open.
Good morning, everybody. I have a question for slide 18. You gave us some numbers for the infant formula businesses and growing up milk. Could you also give us a number just for the infant formula business? How big is this currently for Nestlé itself? If it's really more or less 100% of Pfizer Nutrition, that's my first question. Secondly, you were mentioning in the first year positive EPS effect. What financial costs do we have underlined for this? I guess you will finance it in U.S. dollars. What financial costs do we have there? Thirdly, regarding the acquisition price of $11.85 billion, could you give us an idea of the rough split of how much is tangible assets, how much is goodwill, and how much is other intangibles? Thank you.
Could you repeat your first question? Because I actually didn't grasp the specific part of your question. You speak about.
Right.
Because I didn't get my chart on time to follow your question. You spoke about 18.
Right. On slide 18, you gave us the number for the Nestlé infant formula and growing up milk, which is $5 billion. My question is, how much of this $5 billion is just infant formula? Also, the same question for the Pfizer Nutrition business. Is all or most of the business just infant formula?
No, it's a combination. No, Kurt, you can answer that.
Yeah. The short answer is we don't use the split because we just look at the infant formula as one category that includes the age-appropriate levels that go up to extending the grow-up milk. The $5 billion is the way to look at this thing. The infant formula is $5 billion, growing to $7 billion post the combined organization.
All right. You have a question.
For the market information you gave us, that's for infant formula. Is that correct? Or is that also including the growing-up milk?
Yes, yes.
Yeah, that's included as well.
Yeah.
We look at it as one segment.
In general, I can say the infant formula business is higher value than growing up. That is also value, but it's a different, slightly higher value. It has to be seen that infant formula is slightly higher than growing up. Growing up is growing very well too.
That's my ethos, this question.
There are different growth dynamics, but very well the two of them. On EPS, do you have one thing?
There was a question on purchase price allocation.
There was a third question too, if you want.
Yeah, we'll be doing that within the first 12 months after we close the transaction, so we don't have all the details at this time.
The third question was on the financial costs.
Oh, it's.
Basically, it's.
It's low single digits.
Like it.
Yeah, it's a low single digits. It's what we have. Okay.
3%- 4%.
Low single digits?
Yeah, low single digits.
Okay, thank you.
Next question, please.
Thank you. Our next question comes from Mr. Jeff Stent. Your line is now open.
Good morning. Just one quick question. Regarding the funding, are you intending to use the $7.2 billion of non-current financial assets you've got on the balance sheet to fund the acquisition? Thanks.
It will be a combination of our cash resources that we have and a combination of that plus debt.
Okay, thank you.
All right, Jeff.
Next question, please.
Thank you. Our next question comes from Mr. Jeremy Fialko. Your line is now open.
Morning, Jeremy Fialko, Redburn here. A couple of questions for you. First one is just a bit of perspective on the Chinese market. We've heard from some of the other players in the market that the kind of the premium tier, which has been kind of sustaining a lot of the growth in that market, is now slowing. Just what your perspective on that might be. The second question is on revenue synergies. That's not something that you've mentioned in the presentation, but can you tell us what potential for those there might be following the deal? Thank you.
On the China, Kurt, can you give us?
Yeah, on the Chinese one, we still see premium on the premium market. It's still growing at double digits. You know we continue to see high rates of growth rate in China.
In general, I would not. China definitely is a market that's just starting to develop these markets. They do have a very good growth potential over time. We have to also say that we always ping growth on growth on growth. You have to see what the absolute growth is and relative growth and all that too. We definitely are very big on growth in China. Actually, in whole Asia, we are focusing on China. China is important, but whole Asia has the same dynamics.
In terms of revenue synergies, it's not significant that's been built into the model. Although we are clearly expecting to deliver that, mainly driven from both cross-selling and improved Salesforce impact at a country level, it is not a significant part. Our synergies that I've alluded to, the $160 million is mostly costs. All of it is cost synergies, actually, the $160 million.
Welcome to the conference call.
Thank you for calling me out of Basco, please. Thank you. Your first and last name is spelling? Pat Smith. I'll join you in the room in the conference now in progress. You'll be on this end only.
The cost of implementation. I just want to confirm, is the $160 million in synergies net of those costs, and will you absorb them within the ongoing P&L? Are the $160 million also net of potential reinvestment that you have to do back in the portfolio? Thank you very much.
Let me start. I'll give it over to Kurt afterwards. We do have global brands. We do have local brands. We do have local brands. We don't have global positions on these things. At the end of the day, the consumer owns the brand. We have said that there's complementarity. There's not overlaps. There are some overlap, gray areas. We're going to see, but we have that sensitivity as a company to combine localness with globalness in a meaningful way. We also have the wisdom, I hope, to give perspective to that with time. We have to go into business, see, sense. We can rationalize. It's one thing. I want my people then also to know and feel and see. At the end of the day, the consumer owns the brand. Kurt, can you go in more specific?
Yeah, I think, Paul, you said some key things there. One of them is distinct consumer segments that they've built. We want to continue that. Also, a lot of the development in the brand portfolios, as I said in the charts, number 19, is around benefits and platforms. This is where we get this mutuality between the two brands. We have worked out, and we feel very comfortable with the way we're setting up our pre-thinking on this on the portfolio. Again, this is back to a growth story, and that includes the brands.
Yeah, on the question of synergies and costs, the $160 million cost synergies, that's an annual number that we, like I said earlier, should get there in three to four years. The $300 million implementation cost, that's total cost spread over four years and obviously front-end loaded. That's one-off, obviously.
Just to confirm, the $160 million is not net of those total of the implementation costs. It's growth.
Correct.
Thank you.
Thank you.
Next question, please.
Thank you. Our next question comes from Charlie Mills. Your line is now open.
Morning. I wonder if you could give us a bit more, given us some detail on the geographic breakdown of the wire business. I wonder if you could maybe expand a bit on that.
Yeah, I think I can tell you generally, 60% of the business is in Asia. Of that, about 47% is China. They have roughly another 15% in the Middle East, 12% in Europe, and about 10% in LATAM.
Thanks, Charlie. Next question, please.
Okay, sir, we don't have any further questions. Let me hand the call back to you, sir.
Thank you very much again for being part of this and sharing with us our enthusiasm for a very inviting growth future. We are excited about today's news and look forward to coming back to you in due course once the deal is closed to talk to you about more details. There were some details that we didn't want to answer yet because we have to give time to time. We're going to give definitely that openness when the time is there. Thank you for your interest in Nestlé. Thank you for sharing this good news with us. Goodbye to the next time.
Thank you very much. Goodbye.
Bye-bye.