CAGNY 2019 Conference

Feb 22, 2019

Slides

Summary

2018 brought stronger growth, record cash flow and accelerating U.S. sales, supported by portfolio shifts, innovation and cost savings. Priorities included meeting 2020 growth and margin targets while investing more in U.S. growth.

So, it may be the last presentation of the week, but I think it's safe to say we've been saving the best to the end. It's my pleasure to welcome to the stage the world's biggest food and beverage company, Nestlé, who have been a regular supporter of the CAGNY Conference. Please join me in thanking Nestlé for sponsoring the coffee break today. Representing Nestlé today are François-Xavier Roger, Group CFO, and Steve Presley, Chairman and CEO of Nestlé USA. François has been CFO for almost four years. In that time, has overseen significant change in the finance function and recently has been embedding Nestlé's long-term value creation model, where there's already been a notable uptick in key metrics. Steve was appointed CEO of Nestlé USA almost a year ago, but has more than 20 years' experience at Nestlé, much of that rooted in the fast-changing U.S. market at Nestlé, including leading Nestlé US's finance function as well as the strategic transformation of the business. Welcome, gentlemen. The floor is yours. Thank you, Andrew. Good morning, everyone. I will start my presentation with the highlight on our strengths. As you know, we are the largest food and beverage company in the world. We are present in 190 countries. We actually have industrial units in 85 of them. We are operating in the fastest-growing food and beverage categories, and we have leading position in these categories, 85% of our sales, we are in number one or number two position. We have iconic brands, both globally, we mention Nescafé, Nespresso, S.Pellegrino, Perrier, Kit Kat, and many other brands. But we have local brands as well. In the U.S., for example, we have Poland Spring, we have Stouffer's, Lean Cuisine, Coffee mate, and many other brands. We have 34 billionaire brands, actually, which billionaire brands we mean, which have a value of more than $1 billion of sales at retail level. We are leading the industry as well in terms of R&D spending. We spend about CHF 1.7 billion a year. We are really in the business of innovation. We renew about a third of our products every year. We have a lot of talented managers in our company, which are highly engaged in the company and very close to consumers as well. Our strategy and value creation model is really geared for the long term. While it has been set up as well with short-term intensity, it is based on growth to start with. Growth which is coming from our high growth categories, what I described earlier, which is based on e-commerce, which is based on our strong footprint in emerging market, which I cover later on. It is very much about portfolio management as well, and we aim at being at the higher end of the industry in terms of growth. Improving margin is really at the heart of what we do as well. Much of it has to do with reducing our structural cost and leveraging on growth. I think that this combination of reducing our cost and leveraging on growth is very important. We have a significant saving program in progress, and I will cover that a little bit later. Our strategy is also to allocate capital very prudently. We have a very clear set of priorities for capital allocation, starting with investing in our business, in R&D, in marketing, in CapEx. Second order of priority is a dividend, which has been increasing in absolute value in Swiss francs, which is a currency that revalues over the last 25 years. The third priority is M&A, and the fourth one is share buyback, and I will detail there as well again. I am not going to cover the 2018 results. You saw them. We ticked all boxes from organic growth that increased by 60 basis points. Our margin, operating margin, that increased by 50 basis points. Underlying EPS, even if we exclude exceptional item, doubled. Return on invested capital at 12.1% has been increasing for the last four years. We have been very disciplined as well in M&A. Our cash flow hit a record high at CHF 10.8 billion last year, and we returned almost CHF 14 billion to our shareholders and increased in 2019 over 2017. We have a very balanced portfolio from a geographic point of view. I will not go through the details. Just as you know, AMS has been delivering the highest contribution to the growth and to the improvement of our growth last year, starting with the U.S., but Steve will cover it in his presentation. EMENA has been very resilient in the context of deflation in Western Europe mainly, and they have really been able to grow significantly through premiumization, and AOA remained with the highest growth level that we enjoy among this region. We have a good footprint in emerging market. It accounts for 42% of our sales. We are very happy with emerging markets. They grew last year three times faster than the developed markets. Not only do they contribute in terms of growth, but they contribute in terms of margin as well, given that we have a higher margin in developing market than in developed markets. Our portfolio is very well structured. We are not dependent or overly dependent on any single category. The largest category that we have is powder and liquid beverages, which is mainly made of coffee, which accounts for less than one fourth of our portfolio. You can see that all our categories as well have been increasing. Even for example, confectionery, which used to be lagging behind, even if we exclude the U.S. part that we disposed of last year, was at 3%. We still need to fix water, on which we had disappointing results last year. We were very pleased last year in 2018 to see that we revived growth in the U.S. Steve will cover it. It has happened in some categories, but I will let Steve talk about it. China has been accelerating significantly, three times faster growth last year. We were very happy with that because we knew that if we had stayed at the level where we were in 2017, it would have been difficult to reach our mid-single digit agenda for 2020. Now we have a good base, and we can certainly progress further, especially in the U.S. We were very pleased as well with the growth that we had in infant nutrition, moving from 0.9% to 3.7%. This came as a consequence of innovation. I will detail, for example, what we have done with HMOs in a few minutes, which is great. This comes as well mainly from China, where we saw significant acceleration. Some of this acceleration of the growth for infant nutrition is also the consequence of the new organization that we have adapted by decentralizing more of the management at zone or market level. We are pleased as well with the development in e-commerce. We grew by 18% last year, reaching 7.4% of sales. We were at less than 3%, five or six years ago. That's a significant progress. Even if we exclude Nespresso last year, we grew by 25%. Our market share in e-commerce is, on average, actually better than offline, which is very good as well. We are really in the business of innovation. I just wanted to share with you some examples, starting with the NAN HMO. HMO stands for human milk oligosaccharide, which makes this formula closer to breast milk. It's quite amazing, these HMO products, we launched them a little bit more than a year ago, and in the first year of trading, we reached CHF 600 million of sales in one year. Most of it cannibalized already what we had, but we brought more relevance to consumer, and this is a premium product for sure. What happens as well is that we want to accelerate the rollout of this innovation. It's quite amazing to see that we have been able to launch these products in 40 markets in the first year. In terms of innovation, I could mention the new Vertuo system that we have. We launched it in 2014. Last year, it was already at CHF 400 million of sales. It was growing at 60%, and it is already established in 14 different markets. I could mention Coffee mate as well, and the Natural Bliss, but I think Steve will talk about it, so I will not elaborate. I could have added there the new line that we are launching with Starbucks. As you know, we have just announced the launch of 24 new SKUs, which happened just less than six months after we took over the business, because we closed that transaction at the end of August. Talking about portfolio management, we have been very active. We closed CHF 14 billion of transaction value last year, both in and out, closing the U.S. Confectionery disposal, the Gerber Life Insurance disposal, acquiring Starbucks rights, Tails.com, Terrafertil, Blue Bottle and so forth. We put other assets for strategic review, mainly Nestlé Skin Health and the Herta charcuterie, which is cold cuts, that we just announced last week. So we have been very active there. Moving now into our cost management and cost discipline. We started a program a little bit more than 2 years ago where we said we would expect to save about CHF 1.8 billion of cost and take them away from our P&L by 2020. We have since then revisited the program, increased the ambition between CHF 2 billion and CHF 2.5 billion. Already 2 years into the four-year program, we have delivered CHF 1.2 billion of savings, which is roughly 50%, so we are absolutely on track with a good achievement on procurement. We expected that to happen because we had started this program early. G&A, we have delivered 50%, which is okay, and we knew that manufacturing would take a little bit more time, given that this is a little bit more complex. Just to give you more color on some of the program that we have completed. In manufacturing, we have fully completed the review of our manufacturing footprint. If we look at the number of plants that we have, we have closed or sold 24 factories over the last 2 years. I exclude from that the businesses that we disposed of or that we bought, like US Confectionery, for example. Which means that we have accelerated the restructuring. We are closing about one plant a month. If I looked at what we have achieved as well in fixed factory overheads, they declined by a little bit more than 2% last year, which is quite interesting, because since we grew by 3%, it means that we achieved about 5% productivity increase in one year. We did about the same in 2017, and we ambition to do the same over time. When we start accumulating that over a couple of years, we make very good progress. In procurement, we had an ambition to buy what we call above market, not anymore at single market. About 60% of what we buy, given that we have better terms as a consequence. We already achieved 55% after 2 years versus an objective of 60%, which means that maybe we could even go further than that. We have reduced our suppliers by 10%. We had about 150,000 suppliers. We have now, I think, 132,000. We will reduce even further. So we have less people, and we buy more from them with better terms for us. We have reduced significantly the number of print and point-of-sale agencies. We have already reduced them by 37% in 2 years, and we expect by 2020 to even reduce them over 2016 by 75%. So it's a dramatic decrease. Obviously, we extract a lot of value through that. If I look at G&A, some examples, we reduce our head office costs. This is not just about asking our market to reduce their costs. We have reduced our head office costs by 16% in 2 years in Swiss francs. When you look at it against our sales growth, which has been around 6%, this means that we have reached productivity increases of about 25% in 2 years. We consolidated our HQs in many markets, starting with the U.S., in France, in Brazil, in many other markets as well, and at the head office as well. We are consolidating massively the number of buildings we work from. Shared services, we had the ambition to reach about 50% of our services being shared above market by 2020. We were at 17% in 2016. We have already done half of it, which is pretty much in line with our expectation, reaching 35%. We have exited totally asset management for pension, which will save about CHF 120 million a year. Quite significant savings. These are just a couple of samples that could go, for example, in R&D as well. In R&D, we do expect to consolidate the number of sites we were operating from 42 to 32 by 2020 as well. All departments are really deeply involved in it. To get there, we need to spend on restructuring costs. This year, it should be around CHF 700 million. Do expect that we will continue probably around that level in the next couple of years because we are still making progress in identifying new avenues. With all of these results, we are very confident about reaching our target for 2020, both on the top line, meeting low digit, 4% to 6%, let's say, and underlying trading operating profit to increase our margin between 150 to 250 basis points in 2020 over 2016. We are confident in being able to do this. Finally, we value shareholder return. We have returned significant amounts to our shareholders. Over the last 10 years, we have returned CHF 118 billion, which is quite a significant amount, made of CHF 69 billion of dividends and CHF 49 billion of share buybacks. As you know, because of the strong cash flow generation that we had last year, we have decided to accelerate the program and reduce it by six months and complete it by the end of 2019. You can see as well that in terms of TSR, we have been doing very well against the STOXX Food & Beverage Index. All of it is comparable. It is made in euro. We have exceeded the index in all dimension, one years, three years, five year, 10 years. Even if I were looking at it yesterday night, we would have added another 5% against the index since the beginning of the year. To conclude my presentation, this is very much about improving our growth, accelerating our margin as well, which we have done 100 basis points already over the last two years, being very active in portfolio management. We did a lot, more to come as well, and we do expect to be on track for 2020 target, both on the top and bottom line, and we focus very much on delivering strong returns to our shareholder as well. Thank you very much, and I leave the floor to Steve for the U.S. Thanks, François. Last presentation of the week, I know we'll go quick and then we'll move to the Q&A. Last year for me, I came to CAGNY and actually announced on the day I presented that I was taking over as a CEO. If you remember, I'm sure you guys are riveted by what I said last year, and you remember I said we were going to return the U.S. to growth and a lot of our competitors are talking about that, but we actually did it in 2018. Going from roughly flat to 2.6% growth on a $28 billion base in this market. For us, from a margin standpoint, we've done so much work over the last few years to drive margin expansion in the U.S., and it's paid off, and our margins are roughly accretive to the 2020 group targets, so we're in good place for this. It's really around accelerating and driving growth. When you look at it, the good news for us is it's really broad-based in the U.S. All of our big platforms, if you look at our global platforms, pet, coffee, nutrition, and waters, all achieve strong growth in the U.S. Our portfolio is a little different where we have big, strong, iconic local businesses that also achieve growth. I'll talk a little bit just on a couple examples. Coffee mate, one of our billionaire brands, incredibly strong brand leadership position, grew share by over 120 basis points this year on creaming and continues to drive relevance into that brand. Almost double-digit growth on that business and really strong performance in creaming. François talked a little bit about adding Starbucks to the family. We've just got a great suite of brands to compete and really strong double-digit growth there. I'll talk a little bit about the challenges on the right, but when you talk about frozen, half of our frozen business, pizza and our Hot Pockets business are performing very well, near mid-single digit growth. Good, strong, broad-based growth as we move across. We've got two challenges that we're continuing to focus on. Repositioning our frozen meals business, and this is really on the Stouffer's and Lean Cuisine and Gerber. Both had tough years for 2018. For us, as we look at this just kind of fundamental shifts in the consumer behavior and how they eat, how they shop, how we engage with them, it's forcing everyone, including us, to change this traditional CPG model. The way we approach that is really around these very simple key priorities in the U.S. to win. It is about rewiring the organization to focus on driving long-term, sustainable, healthy growth in this business and taking a long-term approach. Everything we're doing right now, we're in a pretty good spot on the margin side. It is around driving growth in the U.S. and really doing that through creating the capabilities that an organization needs for the future to actually be able to drive that growth. For us, people and culture is a differentiator. If we do talent and culture well, it will drive market-exceeding performance. We are very focused on people and culture. I will go a little deeper into growth, and the way we talk about growth is really our hybrid growth model, and it is around three key tenets. One, reimagining the base business. You can drive growth in these large, iconic brands, and I will show you some example. Transforming our portfolio. François talked about it, but I will give you some specifics in the U.S., and then this idea around pursuing new innovation models. These are all interesting things to say, but the reality is we actually drive specific growth change targets out of each one of these and are really focused on driving this hybrid growth model. If you focus on driving relevance into the base. Look, this is not sexy. The four Ps are not sexy, but they work. If you deliver the right product at the right product with the right communication, it absolutely drives growth in the marketplace, and we see it on some of our big brands. Really focused on delivering consumer relevance, not only in your small niche brands, but in your big power brands. At the coffee break, you saw Coffee mate, whether it is oat milk or almond milk or soy-based creamers, we want to have the entire offering of those trends, not only in their own brands, but also in our power brands. We have got to be great at execution, invest smartly and innovate. I will give you some examples of some innovation that really worked for us behind some key trends in 2018. This is from our Purina team in St. Louis. They have done a great job, really capturing on the naturalization and the science-based innovation trend for our pet business. If you look, natural has been a big trend in pet for a while. We have really done well in the premium space with Merrick. What the team there has done is really taken that trend across the spectrum of consumer price points and driven naturalization all the way through the category. If you move to the other side, whether it is our Bright Mind products or our Calming Care, really elevating life-changing nutrition for your pets. It has been a great differentiator for us. The Bright Minds with cognitive health and the Calming Care really, for anybody that has a very anxious dog or high anxiety dog, this has been a life-changer for them. Garden of Life was part of the portfolio transformation that François talked about. You look at it, this really is about empowering extraordinary health. This is a brand that is number one in the health food channel and number one on e-commerce for our supplement business. It is actually larger than Centrum in the U.S. today and continues to perform very well. This is just one example of being on trend with innovation, with this collagen peptides line that really focuses on skin elasticity and hair and nail growth. We have just really started to push that into mainstream distribution and a lot of upside for Garden of Life. Premiumization is not a new trend. It's been going on for the last few years, but these are examples in categories where we've captured. It's driven growth for us in the U.S. I won't go through all of them, but if you look at premium still water with our Acqua Panna line, that's a $2 billion category today. We think it'll be a $3 billion category by 2021, and we're really well-positioned to win in that space. Sparkling continues to be a growth engine in the beverage category. With our regional spring waters and sparkling, we're doing quite well there. Ice cream has been one of those challenged businesses historically for us, and that team has really turned that business around. Mid-single-digit growth on ice cream. Häagen-Dazs is absolutely crushing share right now, almost a full share point up in that premium segment of ice cream, and it's through really focused consumer-relevant innovation, whether it's our Trio line with the layers of chocolate or our cookie bar that's been specific for clubs. So really good innovation that drives to premium price points that's driving growth. This is one, an example of where it's just around focusing on making the product better and getting the price right and getting the communication right. When we do that, we see growth. These businesses combined are near mid-single-digit growth. We're actually positive on share on Hot Pockets across the last period, and really strong performance in our pizza and snacking line that we expect to continue to push. Gerber has been a challenged business. No denying 2018 was a challenge for us, but it's really around reinventing this beloved icon, and it's about contemporizing the line. If you look at it, I think we start to see signs of health. If you look across the last 45 weeks, share has been stable on our total baby food business. If you look at some of the key subsegments like puree tub or puree pouches are actually positive in share. So good signs there, and it's really driven by contemporizing the line through more natural offering, more organic offerings, and this fresh offering. We've got a refrigerated baby food test in one of the major retailers right now that's bringing refrigeration product to the aisle, and it's actually doing quite well, and we look to expand that as the test rolls out. Of course, Lucas has been a great spokesperson for us all year. We're honored to be part of an incredible conversation of inclusion in 2018, and Lucas was a big part of that. So good signs there. Still lots of work to do on Gerber, but some good early signs by the team. Nespresso has continued to be a growth engine for us in the U.S. This will be our next billion-dollar brand in the U.S. alone, and we continue to drive growth in this. When I look at it's really around just delivering elevated consumer experiences in every single touch point, be it the online experience, the ordering experience, the product experience, the machine, every single one delivering an excellent experience for the consumer, and we're growing very fast in that. E-commerce continues to be one where we are excelling. Traditional, emerging, and direct-to-consumer are the models that everybody's focused on, and it takes different levers in each one to win. For us, we're overdeveloped in the space today. Around 9% of our total sales are in e-commerce on a $28 billion business, so it's a very large part of our business. A bit of a difference for us is we actually have a pretty large direct-to-consumer business, over $1 billion today in direct-to-consumer in the U.S. We're pleased with our e-commerce pattern. We're gaining share in that channel, and we'll continue to accelerate the investments. This is where we talk about capabilities. Some of those capabilities required to continue to win here in the future are what we're driving. Personalization, this will be the last. I'll talk about this one. Personalization will be the next big key to unlock growth, I think, in a lot of our categories. Whether it's building new business models like Just Right, which is a specific pet food designed for your pet, you get the bag with your pet's picture on it, and specifically designed for their nutrition needs. Or if it's our Ask Dotti program for new moms, that's 24-hour assistance for those moms around lactation, feeding, sleeping, any kind of questions they have, available to connect with this generation of new moms in a different way. We're excited about our program with TerraCycle, which is really around building a new business model on reusable packaging. I think you guys saw a lot of this in the Davos conference, and Häagen-Dazs is proud to be a part of that and really kind of leading that in food. For us, in terms of Nespresso, it's about owning this relationship with the consumer at such an intimate level and driving personalized communications around that, and the team's doing a nice job. That's just some examples of how we're reimagining a base business and driving growth through that first lever of the hybrid growth model. The second one is really around transforming our portfolio, and François talked about this. We've been quite active, not only globally, but in the U.S. For us, we've divested about 6% of our portfolio, the latest being obviously the Gerber Life business and the US Confectionery business. We've acquired and added around 12% to the portfolio, the biggest one of those being Starbucks. Across all of those acquisitions, they're achieving double-digit growth. We're really pleased with the performance on all of acquisitions. Transforming our portfolio is working to change the growth trajectory of this business in the U.S. I'll just kind of go a little bit deeper into coffee. Coffee's been a global platform for Nestlé forever. For us in the U.S., we really lacked that kind of power brand to let this be a power platform for us in the U.S. Starbucks allows us to do that. We're the number one U.S. coffee company now. When you look at our portfolio of brands between Starbucks, Nespresso, Nescafé, Chameleon, and Blue Bottle, we're actually growing share across all brands and continue to outperform. Starbucks, since the acquisition in December, had the highest share period ever on that business. We're pleased with our portfolio, and we think we've got a great powerhouse of brands to win across any consumer need state on coffee. Starbucks is such a strong brand. It is everywhere with consumers. That connectivity across the consumer continuum creates opportunities that we can unlock. Whether it is being a leader in channel development and reimagining what the coffee aisle of the future should look like with our suite of brands, or creating incredible out-of-home experiences with our brands as well. Or taking our existing platforms like Nespresso and launching Starbucks into those platforms to drive growth. The alliance really is accelerating growth for us in coffee, gives us a leading position where we are performing quite well against. Then the third one is this new innovation models. I won't go too deep into this, but we have really focused on building an internal incubation model. It is not about creating a separate company in some cool location like Boulder or Austin or like everybody else. It is about creating a mindset that the way you incubate is the way you have to innovate in this industry. Innovation has to go fast, you have to do it every day, and you have to do it in every part of your business. That is what we are trying to build here. We have got 20 examples of products we have built and are in market and test. Some of them have failed, that is okay. Some of them will work, and we will scale rapidly on those. But it is this idea of fast innovation, fast prototype, fast to market, and fast to scale, and that is what we are doing there. Open innovation is really around connecting with startups in an early phase. So whether it is to build your M&A pipeline or frankly to learn to think about how startups are thinking about consumer trends, and that has been quite effective. We have several different models to do that. Then the last one that I am proud of is, look, we have almost 50,000 employees in the U.S. that are consumers every day. They go make purchase decisions in food and beverage every single day, and we wanted a tool that allowed us to tap into the collective intelligence with our employee base. We have done that. We launched it in December. We went to them and said, "Look, give us your best product ideas." We had ideas from the factory floor in some of our factories, in our sanitation department, through the marketing department, finance department. We had over 600 product ideas. We selected five finalists. From December, we will launch the first product in May, and we will launch all five of these coming out of this crowdsourcing program. Our employees, this is an example of talent as a growth differentiator for us, and we will continue to leverage this, and we are excited about that as a platform. So those are the priorities to win. That is how we will continue to deliver the growth that we did in 2018 in the U.S. Obviously, a lot of that takes investment. We have built a very strong muscle in the U.S. through the last few years of taking cost out of this market and have been a big contributor to the growth targets, whether it is on structural cost or margin enhancement or ROIC. So we have got another over $600 million across the next few years to take out. We will start to balance the investment a little more towards driving growth and a little less towards bottom line. But we kind of have a rule of thumb that we follow of around 50/50 there. I will just close with, look, we do not talk about revive U.S. growth, we did it. We are excited about the future that that holds. Really by driving this hybrid growth model, we think it works. It is delivering for us across the business. We have got tremendous growth platforms, be it pet, coffee, that we will leverage to drive growth. You have heard it from me several times, I believe talent and these capabilities for that talent is a differentiator in the market, so we are very focused on that. Everybody talks about creating an agile organization, but what does that really mean? For me, it is about building an organization that has this mindset every day of performing at the same time transforming and building an intellectual curiosity that forces you to experiment. If you do those things simultaneously, that will unlock industry-leading growth in the U.S. So that is it for me. That is the conclusion. Thank you. 17 minutes. Perfect. Thank you. Hi, I've got two questions, one for François and one for Steve. For Steve, can you maybe deep dive a bit more into what's happening with Stouffer's and Lean Cuisine? I was a bit surprised to hear Mark on the conference call saying that the recovery was a bit of a one-shot wonder, and what you need to do is to hit the market more continuously with innovation. Just interested in terms of why those brands declined after a good 2017, and what you're doing to actually get sustainable recovery in those big frozen brands for you. The question for François is really about big brands. Nestlé is the portfolio of big brands, 34 brands with over 1 billion CHF of sales. How do you manage that in a world where we are seeing a big transition to smaller brands, and how does Nestlé develop small brands, startup brands, when you've got those huge brands within the portfolio? Thank you. You want to go first or I'll go first. Yeah, thanks for the question. Yeah, 2018 for us on frozen was definitely a tough year. On the meal side, remember, you got to kind of de-average our frozen business, and on the meals. Look, the reality is food changes so fast every day with consumers that you've got to build this rapid innovation pipeline in food and bring the relevant trends. They can come to your big brands. A little bit to the second part of your question. We see it when we bring relevant trends to our big brands and deliver great tasting products, they will grow. We are absolutely focused on accelerating innovation on the business, driving investment to return to the growth, and making sure we're serving across the consumer spectrum of need state. We got very focused on delivering nutrition, health, and wellness, and clean ingredients, which are important, but it's important to a sub-segment in the category. As we think about innovation in the future, we've got to bring that innovation across the entire segmentation of the category. That's really what we're focused on frozen food. Just on big brands. Big brands are not dead. Actually, as I mentioned earlier, we have 34 billionaire brands. If you look at it, their growth profile is actually better than the other brands that we have. I don't think that we can say that big brands are dead or that they are not relevant to consumers. If a brand is big and not relevant to consumer, it will disappear. If a brand is big but relevant to consumer, it will be okay. We don't have any issue whatsoever with the size of a brand. Even, if I push it even one step further, you can have a global brand that has some local personality. We have to manage the personality and the attributes of a brand and what it stands for. Let me just give you an example, which is Kit Kat. Kit Kat, when we bought it from Rowntree, it was present in 8 countries. Now it is present in 80 countries. It is the second largest confectionery brand in the world, if we include our partner in the U.S. Kit Kat is a global brand, but, I mean, we manage it locally with a lot of delegation of empowerment and local flavor. Take the example of what we have done in Japan, for example, where we have developed flavors with matcha tea, with sake and so forth. I think we have 60 different variants of Kit Kats that are available in Japan that are not available in other markets. I was in the Middle East a couple of days ago. It's exactly the same thing. We have developed a lot of variants. The brand is not the same everywhere. I think even the flavor that we have for Kit Kat in Western Europe, continental Europe, and in the U.K. is different, because people have different expectations. Once again, big brands, they have to be relevant, and we have to make them evolve, grow over time. We have to make sure that we manage their personalities, their attributes in the right way. Thanks. Two questions then. One is on the restructuring. You're saying that the CHF 700 million now will probably be for a couple of more years yet, which seems to point to maybe an additional plan post-2020. That would be my first question, if you want to comment on that. The second question, just on the whole balance sheet dividend, and you sort of went through the priorities and the dividend is number 2. I got the impression last week on the call, the dividend has actually slipped right down, and you want the flexibility for M&A and buybacks, and buybacks to mop up excess capital. But you seem to say, no, dividend is still the number 2 priority. If you could just sort of clarify that. Thank you. Restructuring, as I said earlier, we do expect to continue having a certain level of restructuring, probably around CHF 700 million. Could be even probably more. Given that we get a good return usually on this kind of investment. This is an investment for the future, actually, and we have to adapt to consumer demands, for example. We don't see necessarily as anything negative. Some of this restructuring are actually positive when we consolidate head offices and what I mentioned earlier. We want to focus first on delivering what we have to achieve for 2020. We start working on some initiatives post-2020, but our clear focus for the time being is to make sure that we deliver in two years, next year, what we have communicated. I don't want to start talking of post-2020, but be aware of the fact that for some projects, we start thinking a little bit of what we can do later on, and especially in areas where we need to have a long-term plan, like manufacturing, for example. It's more complex, as I said. We know that we have delivered relatively less so far, but more to come, and even post-2020. Regarding your question on balance sheet and dividend, no, we keep dividend payment as a second ranking and second priority on our list of capital allocation. The only thing that we have done is to reduce the payout ratio. It used to be close to 70%, now it's at 60%. We have said we are reasonably happy with that level. What you need to take into consideration as well, is that we want to make sure that we can sustain the dividend practice that we have, because we don't have a dividend policy, we have dividend practice, to increase the dividend year after year. And we have done that for the last 25 years, and we believe that it has value. But let's not forget one thing, we pay the dividend in Swiss francs, which corresponds to less than 1% of our trading currencies. So there is a significant mismatch because we are trading predominantly in dollar-link or euro-link currencies and other currencies, and there is a disconnection there. Look at what happened last year. I think we had 1.7% of negative deviation in reported sales coming from foreign exchange. If you look in the past, it was the same. Don't forget, for example, three years ago, the Swiss franc revalued against most currencies by 10% overnight. So we want to make sure that we sustain that dividend practice for the future. It is true, though, that what you said is correct, which is the fact of reducing the payout ratio gives us a little bit more flexibility. You said for M&A, but it can be for share buyback. You have seen that we have decided to accelerate the completion of the share buyback that we have in progress. Thank you. One for each of you, if I could. Steve, in U.S. pet food, it is a pretty dynamic space, as you know. A number of the competitors in the wholesome natural space have made forays, obviously, into the FDM arena. They have talked basically about how much of the share that is going to wholesome natural is really coming primarily from more the mainstream space as opposed to share trade-offs among the higher-end premium wholesome natural guys. Again, all within FDM. I am curious if that is consistent with what you are seeing as well. François, it is pretty interesting. A lot of the smaller U.S. food companies more recently that have started to see a little bit better volume growth are not seeing what we would have considered the traditional type of volume or operating leverage that comes with a better top line. I guess I am trying to get a sense of, from your vantage point, you think there is any reason that that type of a relationship has changed for the group? I guess another way of asking it is your feeling that the cost of growth has gone up in some structural way for these packaged food companies? Thank you. You want to go? Yeah, on the channel jump that happened with some of the premium brands. Clearly, to us, it looks like they have split households a lot in terms of those shoppers were existing in both of those channels previously, and so now they have multiple channels to meet their needs. They continue to grow in the space. We are happy with our development in both the pet specialty channel and food drug. We are the leader in both, and we continue to see that. For us, I think what it shows is that pet food is a great category. We see continued competitors investing, and ourselves investing in this, and we will continue to drive that as one of our global categories. The channel shift did not really give us anything we did not think it would do. We've seen that a lot of those brands have shared their consumers across more channels now, would be the general answer. Regarding the way we deliver the bottom-line improvement, if I simplify, it's relatively simple. If we grow, as we did last year, 3% or more in the future, because we expect to see our growth accelerating. If we grow 3% and if we see our structural cost, which is, roughly speaking, fixed cost, industrial distribution, and G&A, which accounts for about 18% of sales. If we see this cost declining in absolute value in Swiss francs by 1%-2% and if we grow 3%, we deliver 50 basis points of margin improvement. That's relatively simple. That's very healthy as well, given that, first of all, we are not in the business of aggressive cost-cutting. I think that in today's world, we see the limit of this type of strategies to start with. We do it, we do it with reason, we do it over time. I think to bring 50 basis points of margin improvement that way is healthy. What we try to do as well is to ring-fence and protect as much as we can marketing spend and R&D, because we are in the business of innovation. I'm quite happy to see that last year, we have increased our marketing spend by 1.2%. It's a little bit less than sales because there we don't ask them to reduce their investment, we ask them to be more efficient. I give some examples. We have reduced the amount of agencies that we work for in terms of printing and on the point-of-sale material dramatically by 75%, we will do from 2016 to 2020. I could give other examples. We are, for example, internalizing and taking in-house some content, building some content studio, media studio. We created 11 of them last year because we do produce more and more content internally. For two reasons, it's less costly. The other reason is that we can move faster. To answer your question, has the cost of growth increased? Not necessarily. At least we have to work very closely through that combination of growth and cost discipline. I'm not saying cost cutting, I'm saying cost discipline.