CAGNY 2020 Conference

Feb 21, 2020

Summary

2019 organic growth reached 3.5%, with premiumization and portfolio actions supporting results. Mid-single-digit organic growth is targeted sustainably in 2021 or possibly 2022, while 2020 M&A activity was expected to be busy.

It's my pleasure to welcome back to stage Nestlé, the leading global food and beverage company, and a longtime supporter of CAGNY. Over the last three years, Nestlé has improved both the top and bottom line with consistency across key metrics. It's been almost five years since CFO François Roger joined Nestlé, and since then, Nestlé has improved both the top and bottom line results. Consistency has been broad-based, and cash generation and ROIC metrics have improved. Portfolio transformation has been a key driver over the past three years, as 12% of the portfolio has changed. Nestlé continues to strive for best-in-class consistent results and continues to be active in portfolio transformation over the coming years. With us today to tell us about the strategy are CFO François Roger and Head of Strategy and Business Development, Sanjay Bahadur. Thank you, Janet. Good morning, everyone. It's a pleasure to be with you today. Let me start my presentation. I'll take the disclaimer as read. I'm sure that you all know Nestlé, so I'm not going to go into too much details, but I just want to do a quick reminder of who we are and what we do, and I'll highlight a couple of points which are relatively new. Nestlé, largest food and beverage company in the world. Sales of almost CHF 93 billion last year. We are operating in 190 countries. Very strong presence in the Americas, which accounts for almost half of our sales. We have a well-diversified portfolio of categories, and the three largest categories, beverages, which includes coffee, nutrition and health science, and pet care account for more than half of our sales. Just want to point out something which has evolved over the last couple of years. If you look at the number of employees we have, we have less than 300,000 today. We used to have 340,000 or 350,000 four to five years ago. The same applies, by the way, to our manufacturing footprint. If you look at it, four or five years ago, we had around 450 plants, and even if we kept investing with newer units, especially for businesses like pet care, for Nespresso coffee at large, we are left now with a little bit more than 403 plants. Which means that our business is far less labor and capital intensive than it used to be a few years back, in spite of the fact that we have a higher level of sales. Just as a reminder as well, we are the largest spender in terms of R&D in the industry with CHF 1.7 billion a year. You know we have a lot of brands. We actually have 33 or 34 billionaire brands, which are brands which have more than a billion dollar of sales value. We keep on adding brands to the list. Actually, if you look at, illuma became a billionaire brand last year. Quite amazing. I often have the question, but do you manage to develop new brands? That's a good example. illuma did not exist seven years ago, and it's a brand that we have been able to develop to more than a billion in seven years, in China alone, which shows you the power of what we can do. We increased the list as well with Felix, which came to the list as well last year. We have a mix of a lot of local brands as well. You see Coffee mate there, which is obviously very strong in the U.S. 2019 was another strong year with a good set of results. Our organic growth increased to 3.5%. Our operating margin increased by 60 basis points to 17.6%, and we reached our 2020 margin guidance one year ahead of time. Our underlying EPS grew for the second year in a row at double-digit level to CHF 441. Our return on invested capital, we had five years of consecutive improvement in ROIC. Even the underlying return on invested capital last year was at 13.5% if we exclude the impairment that we did at Yinlu and to a lesser extent, at Hsu Fu Chi, which leaves us confident that we will be able to be at 15% going forward. Free cash flow was at CHF 11.9 billion, or 12.9% of sales. Quite amazing to see that we have been able to deliver free cash flow consistently around 12% around the last couple of years, and we expect to be able to deliver the same amount cash flow going forward. We return as well, almost CHF 17 billion to our shareholders in the form of share buyback and dividend. This is a record amount that we ever did. You might have noticed as well that we increased our dividend last year by 25 centime, which is more than what we did in the last couple of years. We don't have a dividend policy per se, but we have a dividend practice of increasing our dividend year after year in Swiss francs, which we did over the last 25 years. If we look just quickly at our key growth platform, the U.S., our largest market by far, quite amazing to see that we reached 4.1% last year. We were at 0% growth two years ago. It shows the capabilities that we have to turn around businesses, improve, and deliver growth over time. This comes as a result of portfolio management. We disposed of, for example, U.S. Confectionery. We bought Atrium Innovations. We bought the Starbucks rights. It's very much the result as well of innovation and the drive that we had in e-commerce. Pet care had an amazing year, 7% growth. Very happy with that figure. It happened across geographies, across brands, and across product segments as well. Largely as a result of innovation in that case. E-commerce grew 18.5% and reached 8.5% of our total sales. Very happy with that as well. Premium products, I'll come back to that a little bit later, grew by 7.4% last year. We value shareholder return. We have returned to our shareholders almost CHF 110 billion, and it is in Swiss francs, currency that tends to revalue against most currencies. We returned that amount over the last 10 years as a combination of dividend and share buyback. Dividend accounted for about 60% of it, and share buyback 40% of it. The share buyback, as you know, we completed the CHF 20 billion share buyback program last year in December, and we started a new one for the same amount at the beginning of this year. Net-net, with all these financial results for the year 2019, we had strong TSR under any timeframe, one year, three year, five year, 10 years, we exceeded the STOXX Food & Beverage index significantly. Looking forward, we expect to see organic growth gaining some further momentum in 2021, 2022, so as to reach a mid-single digit level on a sustainable basis, which is what we are targeting. We are a little bit late versus our original target for 2020, given that we may not necessarily reach the mid-single digit level in 2020, but we expect to reach it a little bit later, as more a function of time. Underlying trading operating profit, as I said earlier, we reached the 2020 target one year ahead of time, and we expect to see our operating margin to continue to increase. For the rest of my presentation and Sanjay's presentation, we wanted to walk you through the way we create value through portfolio management. I will cover only the part that has to do with our current portfolio and the way we manage our current assets, while Sanjay will show you how we create value through portfolio management externally, essentially through M&A. You know that our portfolio is essentially geared towards growth, which didn't happen by chance, it happened by choice and by design. If we look at our high growth categories, pet care, water, infant nutrition, coffee, and consumer healthcare, they account for 57% of our sales, and they grew faster than the group average, in spite of the fact that we were underperforming clearly in water last year because we were flat with water. Without water, actually, we are already at 5% there. Emerging markets, which accounts for 42% of our sales, grew by 4.7% last year, and premium products, which account for 26% of our sales, grew by 7.4%, two times faster than the average of the group. The beauty of the exercise is that all of these growth drivers, individually and combined, have a better margin, which is above 18.5% to be compared with the average margin of 17.6%, which mean that not only do they drive the top line, but they drive the bottom line as well through a mix impact. Beyond the number in terms of growth, what matters is the quality and the sustainability of the growth. You know that we report our growth with RIG and OG, the difference between pricing, and I know that there was some interest and some appetite from many investors and many analysts to better understand what RIG is about, so as a combination of mix and volume. I am happy to share this analysis, which covers 90% of our business, which shows that over the last three years, actually two-thirds of our growth came from mix, which is quite interesting. This is really where we create value. Let me take you through each and every component individually. Pricing is relatively limited at a time when we see commodity pricing at a relatively low level in terms of cycle to start with, at a time when we see deflation or no inflation in most of the world, pricing does not really exist anymore. Pricing is limited to the passing through of commodity and packaging cost inflation, as well as the impact of foreign exchange. If you look at it last year, for example, we had an input cost increase for commodity and packaging material in the range of CHF 350 million, and we increased our prices by about CHF 500 million to CHF 600 million. So we did a little bit more than what we had, but we do not expect a lot in terms of pricing, even if we could probably do a little bit more. Volume matters. Volume is important. Last year, it was about one percentage point of growth out of the 3.5% that we had. Volume matters because this is about share of stomach, this is about share of shelf space, in the trade, online, offline, in consumer care also. We value a lot volume, and we had a positive contribution from volume. Mix is actually, as I said, two-thirds of our growth over the last three years on average. Within mix, we can itemize category and geography mix, which is a mix of our geographies and the mix of our categories, which is slightly positive in both cases. But the bulk, the very vast majority of this mix is actually coming from product mix, which is clearly about premiumization, and we are very, very happy with that. If we look at it even over the last three years, we see that volume has increased year after year, which we are pleased by. We see that pricing is relatively flat to slightly declining, reflecting, once again, commodity cycle and the global deflationary or non-inflationary environment. We see that mix contribution is increasing year after year. Once again, this is a result of what we do in terms of premiumization overall. As a consequence of that, our premium products now account for 26% of our total sales, while it was 11% in 2012. So we are, there again, very happy with it. Premium products bring growth, as I showed earlier. It brings profits. On average, with premium products, we have about four percentage points higher margin overall. We are walking away from commoditization, and we are really building brand equity. Premiumization as well works across categories, across geographies, without any problem whatsoever. If you take coffee, you have the example there of Blue Bottle, I could mention Nespresso, I could mention Starbucks, which are really premium products. If we take illuma in infant nutrition, we take KitKat in confectionery. Even in categories where we have been disappointed by the results or geographies, like take water. Water, we were flat last year, but premium products, more specifically, the three beverages that we have, S.Pellegrino, Perrier, and Acqua Panna, they grew between 8% and 9% last year worldwide. The mainstream offering that we had in water was actually declining. If you take even China, we had a disappointing year in China. No dramas, where we grew by 1.5% last year, which is pretty much in line with the food and beverage market growth last year. So 1.5% is lower than where we were the year before. We were at 5%. But if we look more specifically at our premium offering within China, I am talking of Nespresso, I am talking of pet care, I am talking of illuma, even on a large base, illuma, it is a $1 billion base. All of these products grew double digits. Most, not all, but most of our mainstream offerings in China were flat to declining. So it works really across categories and markets, and countries. Just to give you a little bit of flavor to finish my presentation on what premiumization means, we are really leveraging on two trends. One of them is key consumer trends. So there we are pushing hard with consumer demand. There is a pent-up demand for natural products. Naturalization is something which is important. Take the example of Coffee mate, it is a $1.7 billion business here in the U.S. We started with a mainstream offering, moved into natural, even developing a new brand, a sub-brand, which is called Natural Bliss, moved into plant protein-based products, into premium artisan products. Take the example of vegan and plant-based food, where there is a pent-up demand for these products. We have been in that business for quite some time already. We already have about EUR 200 million of sales growing double digit. Take organic, very strong momentum. I just took the example of Garden of Life, which we bought, which is part of Atrium. Very differentiated products in the VMS space. Differentiated in terms of offering organic, GMO-free, different distribution channel as well, growing double digit. And sustainability is something that the consumers are demanding very strongly as well. So we are moving with less plastic, more carton, more paper, different ways of distributing our products as well. So we are really accelerating on key consumer trends. The other way to drive premiumization is through differentiation. What we do is to push as much as we can as well in direct to consumer, DTC. That is what we do obviously with Nespresso, but we go beyond that. That is what we do here in the U.S., for example, with ReadyRefresh, which is growing very nicely. We move as much as we can, not only for pet care, but for food as well, in the business of solution beyond the mere supply of food. If you take the example of pet care, we need to bring solutions to pet parents or pet owners, which is, for example, aging for dogs, which is obesity for dogs and cats, which are issues. Or dogs are barking too much because they are stressed, for example. So we developed a product called Calming Care, which reduces barking for dogs, which is not a sleeping pill, but it is a probiotic that reduces their stress level. These are example. Research and development, as I said earlier, we spend about CHF 1.7 billion a year in R&D. That does make a difference, especially in some categories like infant nutrition. You heard about what we have done in HMOs, reaching CHF 850 million of sales in year two. I could mention as well this hypoallergenic infant formula that we developed, which is a sizable business as well with high single-digit growth. Personalization is another way to drive premiumization. That conclude the part of my presentation. Really, I would say to summarize, a good year 2019, but beyond the number, what is important is the quality of what we do and the sustainability of what we do. I wanted to show you through the example of the breakdown of our RIG, the breakdown of our growth, and through the premiumization effort that we embarked upon, that we are really creating value beyond the raw number. Thank you very much. I pass on the mic to Sanjay. Sanjay is a newly appointed member of the Executive Board in charge of M&A partnership as well as strategy. Thank you. François, thank you very much. Good morning. As you know, my name is Sanjay Bahadur. I am the Head of Group Strategy and Business Development at Nestlé. I am a longtime Nestlé employee, been with the company more than 37 years. I would like to take this opportunity to talk to you a little bit about the role that portfolio management plays in our value creation strategy, how portfolio management has been used to drive growth at Nestlé, and to give you some insights into our processes and our strategy. Portfolio management is a very important driver of our growth. Growth is what motivates Nestlé employees, and of course, it is very good for our shareholders as well. A few years ago, we realized that growth was not meeting the expectation level that we had set for ourselves, and we decided to focus on three key pillars. One of them being fixing underperforming businesses, portfolio management, and investment in our high growth categories. As you will see from the attached chart, growth increased from about 3% in 2018 to 3.5% in 2019, which is an improvement of 50 basis points. Of that, 35 basis points or 70% came from portfolio management. So you can see that portfolio management is indeed contributing to growth at Nestlé. There has also been a step change in the level of activity that we have at Nestlé. 2018 and 2019 were very busy years for us as we worked hard to reshape our portfolio. We recently announced divestitures of our Nestlé Skin Health business, of our Herta charcuterie business in Europe, and also our U.S. ice cream business. Recent activity has been biased towards divestitures, which is really in 2019. For 2020, we would like to bring the focus back onto acquisitions and to have a better balance between divestitures and acquisitions. The start in 2020 has been good. We acquired a business called Zenpep. Zenpep is actually a series of or a combination of enzymes. It is classified as a drug, but it is really just enzymes, and this is to help people to digest their food better. It is really a very good supplement and a very good complement for our Nestlé Health Science business. We have completed more than 50 transactions since 2017, which seems like a very large number, and in fact, it has helped to contribute to change about 12% of our portfolio. If 12% does not sound large, think of this in absolutes, that is more than CHF 10 billion in sales. Most of these transactions have been more small and mid-sized, which is really the sweet spot for Nestlé. We do see more transactions coming up in 2020 as we progress. We divested businesses which were non-core to Nestlé, such as Gerber Life Insurance business and our Nestlé Skin Health business, Herta charcuterie. At the same time, we focused on acquiring businesses in our high growth categories. As François mentioned, these are coffee, pet care, Nestlé Health Science, infant nutrition, and waters. We also obtained access to new trends in the market and new areas such as personalization. At Nestlé, we have three main criteria when we look at acquisitions. The first, not very surprisingly, is the strategic fit with our company. We really want to sharpen our focus on nutrition, health, and wellness and focus on the food and beverage business. We want to access new consumer trends and to build capabilities in areas that we are there. In general, what we want to do is to invest in categories where we benefit from tailwinds, whether it is a category, a geography, or a channel. Second criteria, also not very surprisingly, is financial return. We would like businesses to be both margin accretive and growth accretive. Not very easy always, but that is certainly our objective. In terms of financial return, we would like the businesses to achieve a ROIC, return on invested capital, in excess of our WACC in about five to seven years. The third criteria is something that people often underestimate, which is the cultural fit. Assessing the people who would join our organization, their mindset and their thinking is very important part of our acquisition process because this is what leads to a successful integration within Nestlé. Assets have been very expensive in our core categories, our high growth categories. As you can see from the chart, the multiples have been very high, and some of them have been at levels which we did not think is meaningful for us, and we walked away from some of these transactions. The transaction that we did do in this space was our major transaction with Starbucks. A $7 billion transaction where we paid a multiple of 15x. Given the business that we acquired, we are very confident that we will earn a very good return for our shareholders for this transaction. Once again, this also points out that we focus more on mid-sized acquisitions rather than on very large ones. Disciplined M&A, as François also pointed out, is very important for us to protect our return on invested capital. We've improved our return on invested capital every year for the last five years, and we have no intention of changing this, and our medium-term goal remains to get to about 15%. ROIC is now in the management incentives of our senior management, and this obviously also helps to drive our ROIC agenda. Given that prices are very high, we've also focused on innovative business models and creative transactions to help us to create value and to accelerate growth. I'll talk about Froneri and Starbucks separately in a minute, but I'd like to mention two other transactions that we've done in recent times. One was the acquisition of Atrium, which took us into a new space for Nestlé, which is vitamin, minerals, and supplements. This is not the generic or the commoditized space, but this is really the high-end value-added VMS space, which also enabled us to access new channels in the healthcare channel and healthcare stores. We've found that to be a very good acquisition so far. We also invested in Persona, which is a relatively small acquisition, but is opening up the window towards personalized nutrition. I'd also like to mention a minority stake that we took with the IVC Group. The IVC Group is the largest vet clinics business in Europe, with more than 1,100 veterinary clinics all across Europe. This is part of building an ecosystem for our pet food business, where we get access to information which we would normally not be able to get. In this case, we have access to all the veterinary clinics, the advisory panels of these vet clinics all over Europe. This is really helping us to work on our product portfolio, making it more therapeutic, more value added, and more premium, which we can see the benefits in our pet care business in Europe already. Moving on to Froneri. Froneri presented a unique opportunity for Nestlé in 2016. It was created by the combination of our branded European ice cream business with the largely private label business of a company called R&R. It's a unique ownership structure with a 50% ownership by Nestlé and 50% by our partners, which is PAI Partners based in Paris. Froneri itself has a very unique product portfolio. They have their own brands. They have licensed brands, largely Nestlé, but also Mondelez, Disney, and other companies. They have also private label contracts with many of the key customers. This has enabled them really to be category captains and become leaders in the ice cream space. They have an amazing management team, agile, nimble, entrepreneurial, which have moved really, really fast with their specific category knowledge to transform the business and to create value for us and also for our partners. If you look, track record has been really strong over the last couple of years. The business has grown by 6% CAGR in the last couple of years. The EBITDA margins have increased very significantly by almost 600 basis points, or in absolute terms, more than EUR 200 million. We have gained market share against the competition by about 130 basis points in the markets where we compete with each other. The additional profit has, of course, significantly increased the value of the Nestlé stake during this period. Froneri now has moved on to the next stage in its journey, where Nestlé has contributed or divested its U.S. ice cream business to Froneri. We call it Froneri 2.0, and this will take the business and the turnover of Froneri from something like EUR 2.8 billion to EUR 4.3 billion, and the margins from around EUR 500 million to close to EUR 800 million on a pro forma basis. This gives Froneri real scale, geographic diversification, and the ability for the management team to once again execute and to bring value for us in terms of accelerated growth, procurement synergies, and also manufacturing synergies. Moving on, I wanted to also mention our transaction with Starbucks, which has attracted quite a lot of attention over a period of time. This deal was done in 2018. We acquired Starbucks' very, very successful North American CPG business, and at the same time, we entered into a global and perpetual license for the brands in the CPG channel all over the world. This led to the creation of the Global Coffee Alliance between Nestlé and Starbucks. With this transaction, Nestlé now markets the three most iconic coffee brands in the world, which is Nescafé, Nespresso, and of course, Starbucks. The initial prognosis and execution has been very good. We started to launch products six months after completion, which is really very quick, and by the end of 2019, we had launched products in 40 countries all over the globe. This includes countries in Europe, in Latin America, and also in Asia. We had 300 million incremental sales delivered in 2019, and we expect and hope that this trend will continue and even accelerate in 2020. Staying with the theme of innovation, but in a different way, Nestlé has also been investing in venture funds in the last couple of years. The first investment that we made was in a fund called Flagship. Flagship is a Boston-based biotech fund, and they're investing in companies with breakthrough technologies in the area of nutrition and nutrition science. This is a very, very good fit with our nutrition, with our Nestlé Health Science business. We also took a stake in a fund called Five Seasons, which is a European fund, and it focuses on nutrition science, food, and food tech as well. Just recently, we also took a stake in the U.S. in a fund called PowerPlant Ventures. PowerPlant Ventures, as its name suggests, only invests in plant-based food beverage companies. This brings us access to all the innovation, the deal flow that's happening in this space. As you know, it's a very high growth area, and we are very pleased with this initial investment. We also believe at Nestlé that business is a force for good. Our CEO recently announced that we would spend up to CHF 1.5 billion in creating a market for food grade recycled plastics. There's quite a lot of recycled plastics going around, but very little of the food grade quality. So by paying above market prices, we intend to create a market and to ensure that there is enough supply and make our contribution to a better planet. Similarly, we also announced an initiative to invest CHF 250 million in venture fund in the sustainable packaging area, which will focus on two aspects. First, to invest in companies which provide innovative technologies for packaging and recycling, and secondly, in larger enterprises, which will actually help us to get better supply of food grade plastics and materials. In summary, just a few key takeaways for you. Nestlé has sharpened its focus on food, beverage, and nutrition health products to help to accelerate our journey towards a more nutrition, health, and wellness company. M&A and portfolio management has been an important part of strengthening our portfolio, creating value, and accelerating growth. We have three main criteria when assessing acquisitions, which is the strategic fit, financial return, and the cultural fit. We have been disciplined in the price that we have paid. We do not intend to change this, but at the same time, we remain very open to innovative business models and creative deal structures wherever it can create value for Nestlé. We've improved our governance for acquisitions, put solid acquisitions plans in place with a greater follow-up to make sure that the deals that we do are successful and create value for our shareholders. M&A will continue to be an important part of our value creation model. 2020 has started well, and we expect that this will be another busy year for us, with both acquisitions and divestitures coming up. Thank you. Thank you, Sanjay. Can we move to the Q&A? Q&A? Thank you, Sanjay. We can move to the Q&A session now. Hi, thank you. You mentioned potentially another busy year for acquisitions and divestitures. Can you talk a little bit more about, give some color on your perspective on where the market is for valuations, both in terms of buying emerging growth businesses, where it just seems like valuations are pretty high, and then how that stands relative to the market for divestitures, because what's transacted in, at least in the food industry, in terms of divestitures of non-core assets, the valuations have been relatively low. Just how you think about those two things in context of the value model you have in terms of assessing M&A. You're right, the market is indeed in a kind of dichotomy kind of situation. The market for good quality assets with good brands, good business models, and good management teams remains very solid in the low interest rate environment. This actually helps us in divestitures because we've been achieving very good prices, such as, for example, for our Nestlé Skin Health business and U.S. Confectionery and others. On the other hand, it is more challenging when we are buying assets, and when valuations exceed the level which we think will create value for our shareholders based on our criteria, we would walk away from those acquisitions. We've done that in the past, and we'll continue to do that in the future. At the same time, this also enables us to be creative, and that's why I pointed out the example of Froneri and Starbucks, where we think we did very creative transactions, which helped to create a lot of shareholder value without basically risking our return on invested capital. Thank you. As you've noted, you've been very successful in coming up with creative ways to do either M&A or partnerships and JVs and such. As we know, those can also come with pretty significant challenges if they're not structured right or if both parties don't go in on the same page and what have you. We've seen plenty of examples of that over time. I'm curious, how you ensure, as you go into some of these more creative partnerships, and I assume you'll look to do more, that everyone is on the same page. What are those key factors that you take into account before you can really feel good about that type of structure? Thank you. Yeah, I think that's a very good question and a very important one. That again, goes to the cultural fit that I talked about when we looked at acquisitions. For example, when we did the transaction with Froneri, this is with PAI Partners. It's a private equity company, quite different in outlook from Nestlé, more short-term oriented. We are more long-term oriented. Before we actually signed up, we spent two days with the board. It's a joint board between Nestlé and PAI, and also the CEO. We spent two full days before we signed up, deciding what we're going to do, what we're going to agree to do, and what we, more importantly, agree not to do. Similarly, when we've done the transaction now recently with Herta, with a very distinguished Spanish family in the charcuterie business, we spent a lot of time with the family. I myself spent days with them deciding what we should do together, and once again, what we should not do. We haven't had bust-ups or blow-ups, and that's because we invested a lot on the cultural side of these acquisitions. If we felt the partnership was not good, we wouldn't do it. Hello. Yeah, thank you. I'd like to come back to the water category. You decided to integrate them in the water category into the existing geographic businesses, business units you've got. The challenge being that, you've got on one hand a premium sparkling or premium water that's doing very well, but the mainstream business is challenged by private label, by lower price. Should we think about this business also, a temptation to divest from the mainstream business? Or could you expand more rather than just the organizational change, what you are planning to do with the water category? Thank you. I cannot tell you too much at this stage because we said that we will come back to the market in the next six months with more color on our intention. We are fully aware of the fact that we have a problem with water, given that water, which is classified for us as a high growth category, is not delivering up to the expectation. We were at 0% last year. If we look at it, first of all, the dimension that I shared earlier is the fact that within water, we have some extremely attractive assets or premium assets, and we have some assets which are more challenged, and especially on the mainstream category. We like the category to start with. First of all, we did not want to divest of the category. We would have done it last year rather than merging the business in the three zones if we had wanted to do that. The category remains an attractive one, which is largely leveraging on two strong consumer trends, which is healthy drinking in the developed world, and safe drinking in the emerging markets. We have an attractive position as well, because we are number one in that category worldwide. That being said, we are overly dependent to start with, if I can say so, from the U.S. It's 55% of our market. By the way, the growth is more attractive probably in emerging markets, where we are underweight. The second thing is that within the U.S., and to a certain extent within Europe, we are clearly overweight in the mainstream segment. There, it ends up very quickly with price war against private label. This is where we are struggling. We will come back to you with a certain number of solutions within the next six months. Part of it might be, I don't want to pre-conclude, portfolio management. Portfolio management might be in and out, by the way, not necessarily only one way. Part of it can have to do with premiumization, as I explained earlier, especially in the water category. We have been able to premiumize very well some of our brands. It goes beyond S.Pellegrino, Perrier, and Acqua Panna. We have some local brands which have done reasonably well within the premium segment as well. Not all brands are eligible for premiumization though. Through their brand attribute and through their brand essence, through their own history. Thank you. I wonder if you can just give us a bit of color on the coffee category overall and what you're doing there. Because if you actually look at the organic sales figures for last year, you don't really seem to see that 300 million incremental sales. Maybe you could just explain that. I know you've mentioned that maybe some other parts like Milo and Nesquik won't grow that quickly. Just generally, what you see in Europe at the moment, with the launch of Starbucks capsules, how you're doing in terms of market share. What your plans are for the Starbucks brands, maybe into China specifically, because it's really a cafe culture type coffee market rather than a supermarket or retail culture. Just wonder what your plans are for Starbucks in China. Thank you. There are many question within your questions, but I'll try to address most of them. First of all, we are happy with the coffee category. Indeed, when you look at the beverage categories that we report, the growth is relatively low and lower than it used to be. But within that, coffee is actually very close to the mid-single digit level. So we are overall very happy with what we have done last year. It's a little bit under pressure somewhat because of the pricing of the raw material, green coffee prices, that went down by almost 25% last year. We had, in a certain number of geographies and starting with Western Europe, to pass on to the trade and to consumers some of these price increases. We recovered most of it by volume, but not entirely there. It is more a function of a commodity cycle rather than anything else. If you take even the context of Western Europe, we actually gained market share last year in coffee, which we are very pleased with. So did we, by the way, in the U.S. as well. Overall, we are very happy. Talking more specifically about the Starbucks product line, we are extremely happy. We added, as you know, 300 million CHF of additional sales, which is a combination of mid-single digit growth here in the U.S., as well as a strong development outside of the U.S., where we entered into 40 countries in the course of last year. With originally 24 SKUs that we have expanded after that, including in coffee creamers and so forth. Very happy with that. The Chinese market is an interesting market. It is like some other market in the past, like the U.K., for example, or Japan, which were traditionally tea markets, which are steadily converting into coffee markets. Nestlé has been instrumental over the last couple of decades to make Japan and the U.K., to move them from traditional tea markets into coffee markets. We are relatively confident that we will manage to do that with other parties. At the end of the day, it is even better to have other parties joining it and doing more buzz about the category. We remain extremely positive. We have an interesting franchise in China with Nescafé. We have one as well with Nescafé Ready to Drink as well, which is part of Yinlu, which is the reason why we should not consider that everything within Yinlu is negative. With Yinlu, which is a beverage company, we have been able to develop an interesting franchise in Ready to Drink and to have the number one position in Ready to Drink coffee in China. You are right as well, I mentioned it during our call last week, that the beverage category is a little bit depressed as well because of other business lines that are there. I talked about Nesquik, which is under pressure for a certain number of reason, and Milo is doing well, but we had some specific issues which are more one-off issues in some countries, which put pressure on the category last year, but no specific concern. Could you talk about your sourcing of the water? There has been some issues arising around removing the water from the earth. Is that a real concern? If so, what are you going to do about it? If not, why not? It's always a concern when there is background noise about some of our business. We are very much on the top of it. What I can assure you is that we are not overusing natural resources. Obviously, we always take the water, but making sure that we don't take more than what can be replenished naturally. There is a lot of noise, which is not always rational, by the way, but which is something that we need to take into account. There are places, for example, around the world where we have been accused of being at the source of the issue, when actually what we use is something like, I don't know, 0.001% of the water. You may have in that specific area, for example, 10% of the water, which is used for golf courses. Which means that it's not always rational, but this is something that we have to take into consideration. We are working very actively with local players to make sure that everybody understand what we do and understand that we are not overly using natural resources. We act as a responsible citizen. Thank you. You mentioned being a couple of years behind on hitting that sales growth target of 4% plus, let's call it. You've kind of mentioned a couple of items that perhaps have let you down. Waters, you've mentioned pricing, I guess to some extent, perhaps was less than you anticipated. Are there any other specific areas that have not delivered that you would highlight as you would have expected to deliver? I guess related to that, going back to the portfolio management, is part of the shortfall that getting deals done and changing the shape of the business has taken longer than you expected and you're kind of running behind in that area by a couple of years as well? Thanks. In 2017, we gave two guidance for 2020, one on the top line, one on the bottom line. The bottom line one we achieved one year ahead of time, so we're happy with that. The top line one, we are likely to achieve it maybe with one year or so late. We do not totally discount the fact of getting there this year, but it is unlikely. What is important for us is rather than the timing of it, is to make it sustainable. If it is in 2020 or 2021, matters less than the sustainability of it. The root cause of it is not pricing, actually. I did not mention pricing as a reason. The weak performance of water certainly has contributed to it as well to a certain extent. Beyond that, portfolio management, you're right, the timing of portfolio management didn't help. In the same way as the portfolio management action did help us in the last two years, it does not help us in 2020 due to the fact that we have sold Nestlé Skin Health, that we have sold Herta ice cream as well, which doesn't help. Mark Schneider, our CEO, mentioned it during the call last week. We could have decided, for example, to sell Nestlé Skin Health one year later or Herta one year later, and we would have got to the 4%. We didn't want to do that because we saw that it was the right thing to dispose of this asset at the right time. So once again, what is important for us is to reach the mid-single digit level in terms of organic growth on a sustainable basis. Maybe not in 2020, but probably in 2021 or possibly 2022. With that, we'll move over to the breakout session to extend the Q&A. Thank you, Nestlé.