Global Consumer Staples Virtual Conference

Sep 9, 2020

Summary

H1 organic growth was 2.8%, with conservative FY guidance of 2%-3% amid uncertainty and a gradual out-of-home recovery. Growth priorities included U.S. portfolio renewal and e-commerce, continued cost efficiencies, selective acquisitions and sustainability investment.

Hello, everybody. Welcome to the Barclays Consumer Conference. I'm Warren Ackerman, Head of European Consumer Staples Research team and a long time follower of Nestlé. It's my pleasure to welcome François-Xavier Roger, Nestlé's CFO, and Steve Presley, Chairman and CEO of Nestlé USA. We appreciate your support and hope to see you in person in Boston in 2021. The format today will be a fireside chat for about 30 minutes, maybe a little bit longer if we run over, where I'll be posing the questions. With that brief intro, let's get into the session. First question for François, and it's just really around the numbers. You delivered 2.8% organic growth in H1. Your guidance is 2%-3% for the year. Clearly a lot of volatility due to COVID. But maybe, François, could you just walk us through the swing factors for H2 by geography and by category, please? Okay. Good afternoon, Warren, and hello, everyone. Before we go there, I want to just make sure that everybody understand that we wanted to maintain the practice of providing a guidance, because many companies in our industry did not do so. But we wanted to maintain the practice of providing a guidance. Given the lack of visibility that we have, especially on what can happen in H2, we decided to go for a conservative guidance between 2% and 3%. So have a look at it with a conservative view. Especially so as we were at 2.8% of organic growth already in H1, you can understand that we were already at the upper end of the range. Rather than providing you some highlight of what could happen potentially by category and by geography in H2, I would rather focus on the channels, because actually what does make a difference in H1, but we continue to see a solid momentum there while we see a sequential improvement since the month of April, which was the worst month since the beginning of the year as far as the out-of-home business is concerned, which accounts for about 15% of total sales. And in H1, we were at -35%. Just for the out-of-home channel, which includes as well the on-the-go consumption and so forth, we don't expect to be back to where we were in 2019, neither this year, probably not next year either, but we start seeing a gradual recovery month after month. Okay. Looking a bit more deeply into the zones, it does seem to me that zone AOA is a region where to get to the mid-single digit, you need to get zone AOA firing a bit more. Is the issue in AOA portfolio? Is it execution? Is it some combination? How do we get AOA back to the mid-single digit or even above the average that you need for the medium term? No, clearly, AOA deserves to be at the level of mid-single digit growth, and we should go there anyway. I would not draw any conclusion from the level where we were in H1, and especially in Q1, because we had some calendar events to start with. With the timing of Chinese New Year, we lost about three weeks of pre-season shipments this year versus last year. Yeah. As you can guess, three weeks out of 13 weeks in Q1 does make a big difference, which is the reason why, as far as China is concerned, we were at -27% in Q1. We did start to recover fairly well in Q2 already, and AOA was actually positive in Q2, but you are absolutely right, we should be in the mid-single digit space in AOA. We were already outside of China in the mid-single digit space, clearly in H1 2020. Okay. Maybe moving to you, Steve. The renaissance in growth in the U.S. in the last few years under your leadership has been really impressive. I am sure you have had this question often, but it would be great just to get your color on the one or two things that have really been pivotal to that strong turnaround. Yeah, thanks, Warren. Thanks for having me. For us, as we look at turning around growth in the U.S., it's really been centered around what we call this hybrid growth model. It's been a renaissance behind our big brands. Really for us, when we think about how you grow in this market, no matter how great your innovation is or how strong some of the other things are that we'll come to, you've got to have healthy base business and reimagining and reinvigorating our big businesses is what we've really focused on. That's including driving product quality into the product, really focusing on consumer-obsessed innovation that's driving big wins in some of our big categories, and absolutely just being relentless around this pursuit of what does a consumer need, how do we get it quickly, and how do we bring it to our big brands with speed? That's really been the focus in the base part of the business. The other part that's been big is portfolio transformation. The second tenet of our growth model is around portfolio transformation. We've been aggressive in the U.S. If you look at our core food and beverage business, we've actually rotated almost half of that portfolio through portfolio transformation, and we continue to be aggressive in that space. I think you saw the Froneri transaction last year in ice cream and recently completed our pasta business on Buitoni. Yeah. We'll continue to look at that. We'll continue to look to add in this portfolio, and that's been strong. The last piece for us is really these new innovation models. How do we find a way to incubate and develop innovation in a different way through open sourcing, tapping into the 40,000 consumers that work for us every day and are passionate about this company? That's actually brought a good lever of growth for us. We've really been focused on that. Just tapping into U.S. pet food, it's by far your biggest piece. I think it's about 30%, just under, of your U.S. business. The growth there has been phenomenal. I remember a few years back, you were struggling for growth, you were underweight in e-com, we were worried about Blue Buffalo and General Mills, and here we are with stellar growth. What's driving that, and how sustainable is that? Well, we believe it's absolutely sustainable. When you look at the category, it's a really structurally attractive category with a lot of things leading towards long-term growth. Even pre-COVID, this category was very strong going into the crisis. It stayed strong through the crisis. And I think with the increase in pet adoptions through the crisis, that actually bodes well for the future, as we move ahead on pet care. When you look at it, we've really been focused around these tenets of premiumization, personalization, and innovation. Innovation like the Purina Pro Plan LiveClear, which is the allergen-reducing pet food, which has really been a breakthrough for us. As we think about it, that's driven this just really strong growth in the category to push pet food forward. The second piece is, for us, e-commerce has exploded. We've really invested into building our capabilities, changing the things necessary we need for our brands, and we continue to be near triple-digit growth in e-com on pet food. Wow. Amazing. Maybe moving back to François, and talking a bit about margins. You've been pretty clear with us that underlying margins will be up this year. But beyond that, I'm interested in how much has been done on structural costs. A few years ago, you talked about all these different structural buckets that you had. It'll be interesting to know where we are at in terms of improving the asset intensity of the portfolio, and what's left, not just on the EBIT margin, but also on the gross margin, looking forward. Okay. So we have basically done what we expected to do back in 2017. You remember that we established a saving program to take about CHF 1.7 billion, CHF 1.8 billion initially out of our P&L. We even raised it to CHF 2.5 billion. By now, we have done most of it. Which is really what we addressed as well as in terms of structural cost, which is the non-consumer facing activities, which is made of fixed industrial cost, fixed distribution cost, and G&A, which is a bucket of about CHF 17 billion. The objective was relatively simple, to reduce this cost in absolute value in Swiss francs each and every single year. Yeah. We managed to do it over the last three years. We will do it again this year. When you take that against the operational leverage with a growth of 3.5%, we managed to get, as a consequence of that, 50 to 60 basis points of margin improvement each and every single year, over the last three years. Yeah. We will continue to get these efficiencies. We will continue to reduce our structural cost. This is not over as a program. Yeah. We found new ways to get there, and we are confident that the program can continue for a couple more years. Which mean that in theory, we should be able to generate 50 to 60 basis points of margin improvement, except that there is a big difference in the future. In the past, we let that flow entirely to the bottom line, which is the reason why we increase our margin by 50 to 60 basis points. In the future, there will be some margin improvement, but not to the same extent. Because part of the savings, part of the cost efficiencies, we will use them to support our growth, which means essentially potentially marketing spend. We will use a significant portion as well to finance the sustainability cost, which is going to rise in the future. Okay, very clear. Just turning to the question on everybody's minds on M&A. Obviously, we had the news yesterday on the NHSc acquisition. We will come to that in a moment. But before that, there has been a lot of disposals on the ledger, not many acquisitions. I think Mark Schneider said in the past there has been concerns around valuation levels. You have looked at lots of things, but turned down lots of things. I guess, is it valuation? Why haven't we seen you transacting more? Is it because the very WACC crossover is tough to reach? Any kind of thoughts around that? Because people are a bit worried the actual reported revenue number is going down in CHF. Absolutely. First of all, we do not want to deleverage the company, and we don't want to reduce our scale either. So clearly, which is the reason why Mark Schneider said it, during our call at the end of July, and he said it at the beginning of the year as well, we want to be much more on the acquisitive side now. Yeah. Especially so that over the last 18 months, we have clearly disposed of more assets than we have bought assets. That being said, it's not just about going shopping because we have a strong balance sheet or we have a credit card or whatever. We want to be disciplined in what we do as well. We want to make sure that when we go for acquisition, they meet our three main criteria, strategic fit with what we want to do, which is essentially around nutrition, health, and wellness, or high growth categories, but not on an exclusive basis. We can invest even outside of this high growth categories if we find the right opportunities. Then cultural fit. We want to feel like managing these assets. We want to feel to share the same values as well with these businesses. And the third one is we want to make sure that we get a proper financial return, which one of the KPI is exactly what you said, which is make sure that over time, which we define as five to seven years, we can get a return on invested capital, ROIC, superior to the WACC. Not necessarily the WACC of Nestlé, by the way. Yeah. The WACC of this specific acquisition. This has been a limitation somewhat for some of the assets, but looking backwards at what we did not take over the last couple of years, I'm quite happy we didn't go there. Right. I think we have been very disciplined. That did not prevent us from doing sizable acquisition. Starbucks rights, Atrium, now Aimmune, then there will be probably more in the future as well, because we really want to go there. I can tell you for these three assets, for example, we will reach a return on invested capital above the WACC probably before 5 years. Yeah. This is absolutely feasible, but we need to be selective and disciplined in what we do. What WACC should we be thinking about for Nestlé? Well, for Nestlé, it's around 7%, 6.5% to 7%, but it depends. If it is a WACC in an emerging market, if it is an acquisition in an emerging market, obviously the WACC is higher. Yeah. It depends very much on it, because we apply the specific WACC for this specific asset. If it is in a different industry, in a different category, we are applying the specific WACC of a given asset. As you mentioned the 15% ROIC target, going back a few years, it seemed like Nestlé's ROIC was going down every year, and you put this measure in place to try and move it the other way. What I like about that is it's a fully loaded number, including M&A. I think the number today is around 12.5%, 13%. It was slightly impacted by some write-downs. Just interested in when we might achieve that 15% and how much are you baking in for dilution from goodwill. How much underlying ROIC improvement do you see midterm? Indeed, we have made some significant improvement because we were around 10% in 2014. Last year, underlying, we were already at 13.5%, and there will be some further improvement this year. You know we are clearly on the journey to 15%. We didn't want to provide a specific timeline for the 15% because it depends precisely on what we will do in terms of M&A. Obviously, any acquisition that we do, even an especially medium-sized acquisition, that will be dilutive at the beginning because we expect to reach the WACC around probably 5-7 years or even before in most of these instances. In the meantime, we are using all levers in the base business to really increase the ROIC. Accelerated growth in terms of organic growth. Accelerated margin, we talked about it, 50-60 basis points of margin improvement over the last couple of years. Reduction of working capital. Better management of our asset base as well. We reduced our tax rates. We incentivize as well in the soft part of it. We incentivize the top management on return on invested capital for the long-term incentive plan as well. We really used all levers with a lot of success and, in addition to that, as I mentioned earlier, we have been very disciplined in terms of acquisitions as well. Okay. Thank you, François. Moving back to you, Steve. Again, you mentioned the portfolio change in the U.S. as a driver for the accelerated growth. Just interested, given what's going on with your distribution, particularly the move on DSD to third party, the decision to exit U.S. Water. I know that's moved. You've gone from a globally managed business to a regionally managed business, and now you're looking to sell that. Could you maybe give some of the background behind that? U.S. Frozen, people ask me all the time, could that be next? Given you've changed your distribution, you've got more optionality around that, or what does that need to do to remain in the portfolio? I'd be interested in your color on that. No, thanks. I'll take them in buckets, but if you look at any of the moves we make, it's really around this portfolio transformation that sets us up for future wins in the marketplace. As we look at water specifically, I think the opportunity for us to become more focused in the premium space in water with premium mineralized and functional water is a far more structurally attractive space. The base water business is an attractive category, but as we look across the investments required and our ability to win there, and really the organization's focus and prioritization across the portfolio, it pushes us into this much more sharpened focus on the premium space in waters. That's what led to the decision to exit the mainstream portion of the business in the regional spring. Yeah. As we look at that, the review is going very well. I think we're well underway. I think we hope to have it completed early 2021. That will allow us to really focus in that space. If I shift to frozen. The exit on DSD was really around going after efficiencies in the business to simplify the business, really get focused on what's important to the consumer, unlock resources in the business that then you can turn around and drive growth with on those businesses. The DSD was a very expensive path to market, was a difficult, complex project to unravel, but we did it successfully. We did it six months early, unlocked the margin creation from that move, and invested that in growth on those businesses. You see both frozen and our pizza business and our ice cream business have performed quite well through the transition and now after the transition. As we look at frozen food or the idea of would it be next in the portfolio transformation, frozen is actually a structurally attractive category. High cash flows, high ROIC, and really strong growth. As you think about frozen, it's important that you break it into buckets. There's no such thing as a monolithic frozen category. Stouffer's, which is a very big business for us in the U.S., has been growing for multiple years now, delivering strong margin accretion and winning share actually on that part of the business. You think of it in meals, you think of it in pizza. I think the DSD was a critical move to unlock the growth and the potential of that business. Pizza, I think is on a very good path. Then you go to our snacking portion of the business, which is primarily Hot Pockets, and that one actually has been a growing business and growing share prior to the crisis on COVID. We've really been focused on the turnaround in the nutritional meal segment, which is our Lean Cuisine business, where we've struggled on the personalized meals. We just reimagined that business, relaunched Life Cuisine, which is underneath Lean Cuisine. That business shows really good early signs that we'll be able to turn that business around as well. For us, it is a structurally attractive space. It is consumer focused. Consumers actually have come back to the category in a big way, pre-COVID, through COVID, and we think post-COVID. It offers a convenience and a taste that and a value that can't be beat in their meal offerings. We feel really strong about our frozen portfolio right now. Still work to do. We always have work to do in the space in all of our businesses, but it's an attractive business for us. Okay. Back to François, on a question on coffee and specifically Starbucks. When you bought it, about $3 billion of revenues, you've rolled it out incredibly quickly. What is the real potential for this brand? Steve, maybe you can touch on it in the U.S. as well, which is its heartland. François, also when I look at the availability now in the U.K., you can see it everywhere. You're starting to capture some of that Nespresso compatible market yourself. Compared to the acquisition criteria you set out, are we ahead of that? Could this be a bigger brand than Nespresso in time? First of all, we are very happy with this acquisition. It was not CHF 3 billion in size when we bought it was CHF 2 billion. But last year, we have added another CHF 300 million of sales, which is very good. This year, we are very happy we are growing at a strong double-digit level for Starbucks. Yeah. And we gained about already around 10% of the Nespresso compatible capsules in Europe in one year. So very, very happy with what we have seen so far. On the other hand, Nespresso, don't forget Nespresso is more than two times bigger than Starbucks, and it continues to grow. It's amazing to see that 34 years after the launch, with a limited patent protection, in spite of compatibles and so forth, we still grow double digit. And we don't have any such objective for Starbucks to exceed in sales, for example, Nespresso. I think that they both complement and help and support each other as a brand. So it's much more about a complementarity of the different brands with a different architecture, with their own personality, their own positioning. Might be a little bit of cannibalization here or there, but very limited. So between our three brands, Nescafé, Nespresso, and Starbucks, excellent complementarity. So with no objective necessarily for one to exceed the other one in terms of sales. Okay. And Steve, Nespresso in the U.S.? Yeah. So for us, I couldn't agree more with François. I think the stratification of the category in terms of consumption occasions- Yeah is really important to understand. The ability for Nespresso, Starbucks, and Nescafé to play really complementary with each other across that stratification is a core driver for growth. Your ability to win in all of the segments of the category with leading brands is powerful. For us in Starbucks, the business has done really, really well. We have transitioned it over, actually have been able to significantly accelerate the growth rate pre-deal in the traditional CPG business, the traditional grocery part of the business. COVID has hurt the out of home portion of the business that came to us some, but it is a much smaller piece of the part of the business that we acquired. That business continues to accelerate. What we have really been pleased with in the U.S. is the ability to extend it into Starbucks by Nespresso. We launched Nespresso compatible pods under the Starbucks name, and we have also launched a Starbucks creamer. We have got a really strong leading position in creaming in the U.S., and we are able to extend, again, stratify that category, find a new opportunity through SRM and stratification that allows us to find new growth levers by bringing Starbucks to the creamer category and work in complementary with our other creamer brands to further grow our share in that space. So that has been a really, really big success in the U.S., for the Starbucks acquisition. The business continues to perform well. We acquired a great brand, obviously, but also a really strong team that executes well for us in the market. Okay. Maybe shifting gears to the Froneri JV. It has obviously gone very well in Europe, but you have now folded the U.S. ice cream business into Froneri. Can you talk about the potential for you, François, not just the potential in terms of market share and closing the gap versus Unilever, but also the financial improvements you have seen in the business and what the end game might be for Froneri? What options do you have on the table? Froneri, first of all, I think it is an interesting setup because we show through that, portfolio management is not just about selling and buying assets. It can be with different configuration. Actually, to partner with a private equity showed that we can be quite creative and think a little bit out of the box as well. There have been two parts to it. The first part was the European phase, whereby it was much more about synergies because we combine our existing essentially European business with that of PAI, called R&R at that time, with a very good set of complementarity between geographies and activities within Europe. So it was much more about synergies within- Yeah a European context. We did extremely well. We were extremely happy with that. It has not just been about cost-cutting because we drove sales as well, and we gained significant market share as well. So very, very successful. By the way, to work with private equity is not bad at all because these guys bring some skills as well and some know-how that we do not necessarily have. Yeah. The second phase, which is the one that we just did at the beginning of the year in the U.S., is a totally different one because PAI doesn't have any business in the U.S. So this is about creating a global player worldwide. Yeah. By the way, Steve and the team restructured the business, exiting DSD before as well, which has been very successful as well. So we now have a global footprint with this setup. What we like as well with the partnership with PAI, we share values, and we have done very well together, but it does offer us some optionality. Yeah. Because we get married with a financial partner. We know that these guys eventually, most probably, they will leave at a given time, which gives us optionality that we will need to discuss with them over time. In the meantime, we are very happy to see that we have done well on the top line. We have done very well in market share, both in the U.S., even before we contributed our business, as well as in Europe. We have done much, much better than we used to in the bottom line, and very happy with what we have achieved over there. Just moving again to a bit more the macro. Obviously, the macro is weakening, global recession's with us. Can you talk a little bit about, this is one for François-Xavier Roger again, entry-level products with PPPs? We haven't heard much about them for a few years. I think they're up to about 12% of your group sales. Forgive me if it's a slightly different number. But given the recession, how much resource is going into the PPPs right now, and how big could they become? Are they back into kind of double-digit growth? Are you seeing trading down already in some parts of the world? To be totally transparent, we have and we admit the fact that we did not do as good a job in PPP, what we call popularly positioned products or affordability, as we did with premium. You know that in premium, we did extremely well over the last couple of years. Yeah. We did not do that well in PPP, which is the reason why we started to address the issue about 18 months ago by refocusing PPP on emerging markets and on nutrition. It's about affordable nutrition in emerging market. As a consequence of that, by the way, the definition that we have is more restrictive. It used to be 12% of sales, and now with this new definition, it's only 6%. Okay. But we are starting to do really well, and we have very good examples. I will just mention two. For example, Bear Brand in the Philippines in dairy. Yeah. This is clearly about affordable nutrition because it is in dairy, and we are really in affordability doing very, very well. I would give you another example, which is nutrition as well, which is Maggi bouillon cubes in Nigeria, for example. Just to give you a little bit of flavor on this product, you have about 200 million inhabitants in Nigeria. We sell 80, 8-0, 80 million bouillon cubes a day. Wow. It gives you an idea of the depth that we have. By the way, in affordability, you need to have scale, which we have, and we need to have cost competitiveness. We are very happy with what we have done since we have started to redefine the scope and put more resources on it. Since the beginning of the year, we started to grow again in affordability, which didn't happen over the last couple of years. We're very happy. I think the timing is absolutely right because we do expect, as you said, as a consequence of the coming economic crisis, we do believe that PPP is going to be even more relevant in emerging markets and for nutritional needs of the population over there. Okay, thank you. François, I need to ask you about this acquisition yesterday, the Aimmune acquisition. It's quite a big deal for Nestlé Health Science. You've been involved with it for four years. I guess the question, why now? Is it a big price, or could this be a real blockbuster? I've seen numbers out there. This could be $1 billion of revenue in the peanut allergy area. If you can just maybe quickly walk through why now and the justification of the price. Why now? First of all, the project has been registered with the FDA in the U.S. relatively recently. We needed a triggering event there as well. Okay. We have certainty on the product. The product is currently marketed in the U.S. It has been a little bit delayed because of COVID-19, but they really started in July and August. This is clearly a product that has the potential to be a blockbuster, which means more than $1 billion in sales over time. Clearly, why? Because this is the only product available for children between the age of two and 17 or three and 17. Yeah. We clearly talk of unmet medical needs. We will be in a position to help some kids to live a normal life, which they could not really live before. We do believe in the product. This is the right time as well because, as you said, we had been in that company through a minority investment, through a seat on the board as well. Greg Behar, the CEO of Nestlé Health Science, was sitting on the board of this company for the last four years. We had the partnership with them. We looked at the way that they were working. We looked at their development, and we learned how to work with them as well. We believe that this is the right time now, that just started the marketing in the U.S., and we expect as well to get the registration in other markets, starting with Europe soon. Okay. Time is running a little bit short, so I am going to ask you a few quick-fire questions. Lots of questions for you. If you can try and keep the answers relatively brief, that would be great. I have got a couple for Steve now. Just about e-commerce in the U.S., Steve. Everybody is talking about an explosion in e-commerce and leaning into that growth. Could you maybe just outline what kind of growth you are seeing in the U.S. in e-com, that channel, and how are you trying to maximize your growth, your potential in that key channel? Yeah. Look, pre-COVID, the household penetration was around 3%-4%. It clearly doubled. We think that is here to stay. Yeah. It has accelerated. We were winning share pre-COVID, and we are winning share through COVID on e-commerce. You look at our businesses, I talked about pet food growing nearly 70% in e-com. If you look at our core food and beverage businesses, you take coffee, triple digit, creamers triple digit, and baking, there has been this re-engagement on our baking business in the U.S. where we have had over 300% growth in e-com. Really, really strong growth. We believe it is here to stay, and it is really focused around making sure you win across all the e-commerce channels because there is really click and collect, and that is a very distinct need and growing very fast in the U.S. as the traditional retailers become more and more sophisticated in that space. The pure play guys where they are absolutely growing fast in pure play through the Amazon and Instacart of the world. The last one is direct to consumer. I think whether it is Nespresso or our investment in Freshly or our tails.com, there is a lot of space in the direct to consumer that we continue to go. The thing that is not going to change is, look, the consumer is omni-channel or however you want to describe it, because that is how they live their life. There is no such thing as channel separation in a consumer's mind. So your organization has to think omni-channel and be able to win across every single channel. That has strong ripple effects all the way through the organization. Another channel that is really challenged at the moment is food service. I mean, how big is food service within your U.S. business, and what is your kind of base case on the speed of recovery? I know there is lots of variables, but I would love to hear your view. Yeah. I mean, look, for the U.S., it is less than 10% of our sales, and clearly it was impacted like the rest of the category across the country, and I think as we went into lockdown. For us, the recovery, François said at a global level, I would say the same thing. Really, we do not expect to return to pre-COVID levels all the way through 2019- Yeah in those businesses. I think we have seen a steady progression of improvement ever since the initial declines, where we were minus 60, minus 65, to every month gets better month-over-month. We are really happy with the progression. There are so many variables, the speed of schools opening, the speed of college campuses opening, the speed of offices actually coming back to capacity. All those have influence. The interesting thing is it created unique opportunities for us that we are really focused on capturing for future growth. The first one is, look, I think out of home dollars have so much of the food and beverage dollars have been shifting out of home for the last few years, that it creates this opportunity space for everybody to what is the reimagine out of home going to look like? Where are those food and beverage dollars going to go, and how do we capture them? Yeah. And so that is a unique opportunity for us as we look ahead. The second one is, look, I think the people that have strength and have really strong capabilities that can weather the crisis will come out of this stronger. We know there will be a consolidation in this space. We know there will be fewer stronger players, but we feel really well positioned to come out of this stronger in the food service space than we went in. Okay. Just to finish off, I have two questions, two joint questions for you. The first one is, Mark Schneider, your boss, has been CEO since 2017. A lot has changed. If you had to pinpoint what has changed most in that time, I would love to hear both your perspectives on that. Maybe François can start. I will start, maybe Warren. First of all, I think that we went, over the last couple of years, through an evolution. Nestlé has been successful for 154 years. Yeah. Under the leadership of Mark with the executive team and the support of the board, I think that there has been an acceleration of the pace. First of all, because we saw a very fast changing environment as well. Yeah. Look at what we have experienced over the last five years. I could mention some of them like ZBB and the development of e-com and digital and the development of startups, the acceleration of innovation in our industry. You have sustainability concern, which are mounting for consumers and so forth. I think that we had to accelerate as well the pace of changes, and I would mention a few of them. First of all, we increased our growth clearly with the focus on our high-growth categories. We accelerated our portfolio management quite significantly. We have a different organization largely today, which is much more focused on the zones. We have put much more emphasis on cost management. We have a different capital structure today than we had before. Digital is much more important, and I would mention, for example, both in terms of e-commerce, you saw in H1, 12.5% of our sales, as well as the digital spending that we have on our advertising and on publicity as well. We have accelerated the pace of innovation with really reducing time to market, and we have made some progress as well to make Nestlé one of the leading organization in terms of force for good as well, on sustainability. Steve? I think from a market perspective, the biggest thing is speed. We were always functioning at the pace we needed to function, but the world has picked up the cadence at such a pace in the three years since 2017. Our ability to make decision and the empowerment at a market level where, look, the reality is with a company of Nestlé's scale, you have to win market by market, category by category, and you have to have boots on the ground that can operate with this intensity to win. That empowerment and push to the markets to drive winning strategies and not just have the strategies, but hold them accountable for the execution, has been really strong under Mark. Then the speed with portfolio transformation and the efforts to drive those through the organization to set ourselves up for a better future has been really quick. And we've moved through those actually quite rapidly and are better positioned for the future. Final question for both of you on ESG. Clearly, COVID could be changing the consumer's attitude around things like plastic and the safety. Steve, in terms of the U.S. consumer, how do you think the attitude has changed or is changing? Then for François, you've got a lot of cost investment to make to transform the packaging. Are you confident that you are able to hit your 2025 commitments, and is it going to cost more to do that? Steve, I let you answer first. Yeah. Clearly, COVID changed prioritization in consumers' mind. I think many of them are concerned with employment coming out of this post-recession. I think there's a concern around the election and potential changes from the election. So it slipped down in the mindset of consumers, but it doesn't change the fact it is important to them today. It will become more and more important over time. So for us, and a lot of these solutions to achieve the 2025 commitments for the U.S., where we have fully recyclable or reusable packaging, you got to get ahead of them now. They are difficult technical solutions and it's a multi-prong approach to make sure that happens. So I think it's in their mindset today, becoming more important. Is it a primary purchase driver? No. Will it be in some categories in the future? Yeah, we believe so. That's why we've got to get ahead of it now to achieve those 2025 commitments. Okay, François? On the sustainability side, first of all, it is on the very top of our agenda. Yeah. I mean, for the executive team, it's really a top priority for us. The cost is material, and there are two main components to it. One of them is packaging, which is more probably for the short term, over the next couple of years. The other one is carbon neutrality, which is, the cost is actually larger for carbon neutrality. But the space, the timeframe, is much longer as well because we are talking of a commitment that we have made till 2050. Although we are starting to do it now. First of all, to be able to finance that, we need to be at the top in terms of our industry, in terms of both commercial and financial performance. The best way to finance it is really to be performing very well commercially and financially speaking. The other thing is that consumers are not going to pay for it. We can't expect that we will charge it to consumer, then they will pay for it. Investors and shareholders are not going to pay for it either. We don't expect to reduce our margin as a consequence either. What we have to do is really to find efficiencies in our supply chain, efficiencies across the organization in order to be able to finance it. In the same way, by the way, even if the analogy is not maybe perfect, but over the last couple of years, over the last couple of decades, we have been able to reduce massively the content of sugar, salt, fat in our products at a cost. We have been able to do that, not passing it to consumers and to the trade, not passing it to our shareholders either, but through efficiencies in our supply chain. This is not small. Take sugar, for example. We have reduced our sugar, the content of sugar in our products by 37% over the last 15 years. It came at a cost as well. We expect to do the same for sustainability costs. Okay. Well, listen, thank you for your time. We're being beaten by time, sadly. It's been very, very interesting, very informative as always. I do really appreciate it and-