Good morning, ladies and gentlemen. Welcome to our 2016 full year results conference here in Vevey. For those of you following us by webcast, welcome also. The conference will be held in English, but you can follow it in French and German using the headsets provided. Or if you're watching the webcast, you can choose the right language by clicking on the respective link on the webcast page. On the podium, we have our new CEO since January 1st, Mark Schneider, and our CFO, François-Xavier Roger. We also have in the room a few executive board members, Laurent Freixe, who is the head of Zone Americas, Marco Settembri, who is the head of Zone EMENA, as well as the heads of Nestlé Nutrition, Heiko Schipper, and Nestlé Waters, Maurizio Patarnello. I will take the safe harbor statement as read. Let's start. Mark, you have the floor.
Robin, thank you, and a warm welcome to our press conference participants this morning, both here in the room and also out on the web. We certainly do appreciate your interest in our company. As you know, this is my first press conference as CEO of Nestlé, having taken over the position January 1st this year. What I would like to do in this presentation, in addition to sharing with you some of the key metrics for 2016 and also our outlook for 2017, I'd like to talk about some of the midterm growth drivers and value drivers going forward, and describe to you in more detail what we are about to do. I'm also very pleased to be joined today by some of our executive board members, our zone heads, and the head of our Nutrition and Waters business, and also David Frick, our head of compliance.
Very happy to have them here, and if you have questions later on, then we'll be happy to answer some of your questions that refer to those areas in more detail by these executive board members. My presentation will be followed by François Roger, who will focus in particular on the 2016 financials. Then after our two presentations, we'll be happy to answer your questions. With that, let me focus here on the key messages. 2016, I think the punchline is the organic growth was certainly for our company at the higher end of industry, but it did come in, there's no beating around the bush, at the lower end of our expectations. I think there were two trends underway in the second half of 2016. One is that our volume growth in some key markets decelerated. This is an across-the-board trend.
This is not something that's specific to Nestlé. I think you're seeing this with all consumer goods companies. Second, in terms of pricing, we did hope for the second half of 2016 that pricing was going to improve, and it did, but it didn't quite come in as fast and as strong as we would have hoped, and hence, the growth at the lower end of our expectations. What we did see is a very solid operating margin improvement in this year 2016. Keep in mind that this includes restructuring expenses that are shouldered by the company. So on a reported basis, we saw a 20 basis points improvement on the operating margin. On a constant currency basis, because we're still facing some currency headwinds, it was 30 basis points.
When you look at the core food and beverage business, this is before some of our growth businesses and startup businesses, it was actually 50 basis points. So a very solid operating margin improvement, and I think it's a good sign because as you know, going back to the Investor Day last year, this is one of our key themes going forward, that we want to drive our operating margin. That brings me to 2017 or the midterm. What I will do on some of the following slides is basically give you, as a newcomer, my perspective on continuity and change in the consumer goods industry. I'll confirm to you that organic growth will remain the key long-term value driver for our company, and I'll share with you what we are doing to support organic growth going forward.
I will also reiterate our continued focus on operating efficiency and give you an update on our targets in this area. So before we do that, just a recap of some of the key 2016 performance highlights. Sales of CHF 89.5 billion, close to CHF 90 billion. Organic growth, as mentioned, 3.2%, real internal growth +2.4%. Real internal growth, I think bodes really well for the future, if and when pricing does kick in. As I said, in the second half of 2016, we've seen some promising signs, and now let's watch in 2017 as those continue in some key markets. So I think that real internal growth is the highest level we've seen in several years. I think it bodes to-- It proves solid market share gains in some key categories and regions. I think that to us shows the staying power.
It shows real promise for the future. Then on the trading operating margin, the +30 basis points in constant currency I mentioned earlier, do keep in mind that that margin improvement already includes significantly higher restructuring expense in 2016. We had restructuring expense of CHF 150 million roundabout in 2015. We doubled that to about CHF 300 million in 2016, and that's already baked into that trading operating margin improvement. Now, let's talk about continuity and change in the consumer goods industry and also my initial perspectives on Nestlé. Let me reaffirm first and foremost my personal commitment to the nutrition, health, and wellness strategy of the company. What does that mean? I think upon my appointment, there was, for my taste, too much speculation about what this means for the company. Is there a strategy change? Are we turning into a pharma company, a biotech company?
None of that applies. I think we have a very solid nutrition, health, and wellness strategy. It's been articulated years ago. We've been making good progress executing on that strategy. What it means, really, is we're continuously upgrading, in our core food and beverage business, the nutritional profile of our offerings, like salt and sugar reductions, for example. In addition to that, we're making good progress in scaling up our two new health-related ventures. That's Nestlé Health Science and Nestlé Skin Health. Those two do not contradict each other. I think we have the resources, we have the management, we have the focus to do both of these things. In fact, they're built upon each other because nutrition and health outcomes are closely related.
I think that strategy that was articulated many, many years ago, I think it's really coming to fruition right now because, as you see, good nutrition is recognized more and more as the key driver of long-term health outcomes. General knowledge about what constitutes good nutrition is spreading faster than ever before, and consumers are paying more attention to it. They're also willing to pay a premium for products that are perceived to be of high value in that regard. So I think we're right on the trend. There's no need to change that strategy. It's all about putting it in place, scaling it up, executing well. Second, I'd like to talk about our commitment to long-term value creation. That, to me, means that we need to be focused on top line and bottom line at the same time.
Let me take a step back and look at the consumer goods industry and a recent trend that we're seeing. What we're seeing is basically two extremes shaping up. There's the bottom-line guys. That could be companies under private equity ownership, it could be companies under the pressure of activist shareholders, that basically focus on the bottom line at all costs. That may be great in the short term. There's a price that most of these companies are paying when it comes to organic growth. Do keep in mind, you can save cost only once. Afterwards, you're done. Then the question is: Where's the organic growth going forward? Then at the other end of the spectrum, you're seeing lots of startup businesses.
You're seeing local companies, you're seeing venture-backed companies that basically are capturing on this recent consumer trend towards more local products that have organic appeal, local trends, short-term trends that are coming up. The other question is: How much staying power do you have? How sustainable is a trend like this? How scalable is it? Does it really make sense for a large company like us to bring up those trends and put them into the market? Now, superficially, you might say we're in the middle, but actually being in the middle in this case is a good thing. So in this particular sandwich, the most valuable part is in the middle, and that's us. Because we believe we can offer a long-term attractive combination of both bottom-line development and top-line development that really underlines our staying power.
I think by doing both, we can really deliver value in the long term, and that separates us from both of these extremes that are really more short-term oriented. Next, prudent approach to M&A. This company is certainly no stranger to M&A. In fact, when you think about our position as the world's largest food and beverage company, a lot of it goes back to fairly daring M&A moves in the past decade, in the 2000s, in the 1990s, and the 1980s. So I think this put us on the map to where we are today. Personally, I'm also no stranger to M&A. I've seen my fair share of deals. I think both the company and I have a very similar conclusion on this.
M&A can be, at the right moment, the right tool to build a strategic position, but it should not be a goal in and for itself. What you will see going forward is a prudent approach, no surprises from left field, no deal just because we haven't done a deal for the last month or so, or the last quarter, or the last year, or the last three years. It has to make strategic sense. There needs to be a good concept for how to integrate those companies. There needs to be good cultural fit. There needs to be a sound financial plan. You will see us bring that prudence to the table, and I think this is the secret to long-term value creation in M&A. Again, no surprises.
Let me confirm here and right now that we're not at the moment trying to impress the market or create headlines here with significant deals. I think right now the focus is clearly more on solid operational improvements that feed into the top line, that feed into the bottom line. Then what I would call tuck-under M&A that builds our local position or builds our position in various categories. But we're not playing here. We're not swinging for the fences. We're not trying to land a home run with some impressive deal. Let me also tell you, this is not right now, when you look at the recent valuations, this is not right now the time to pursue big-ticket M&A. Next, focus on people and leadership. I've been with this company for slightly more than five months now.
I spent a lot of time traveling, visiting various locations and facilities, meeting with our executive teams here at the center and out in the field. I have to tell you, I'm very impressed with this team. I'm very impressed with where this team can go. I can tell you together with this team, we will go places. I'm mentioning that because, again, upon the appointment last year, for my taste, there was too much speculation about will this basically signal a reorganization or someone was speculating whether I'd bring in, quote-unquote, my own team. No. This is the team. This is the organization. With this team, with this organization, we will go to these places. You will see it happen. Next, transparency with all stakeholders.
I deeply admire what Nestlé has done over the past decades when it comes to intensifying the dialogue with stakeholders at all levels, starting from local, being a good citizen in the communities where we're based, governments, regulators, NGOs, and then going all the way towards global. I'm certainly committed to continuing that. Let me also underline, this to me includes investor-friendly communication. This to me includes avoiding surprises to our investors, and that also means signing up to the company's long-term, successful, growth-oriented dividend policy. No surprises here. I'll step into that tradition. I'll be very happy to step into that tradition. Last, making choices and fast execution. Going back to those changes in the industry I described to you, this is a time of change in the consumer goods industry.
I do believe, as I mentioned, that there's a really attractive space between the two extremes that some of our competitors are pursuing, between either cost-oriented or growth-oriented. I think we have to combine both. But we need to move fast. We need to offer a more attractive combination of cost and growth. I think this goes back to what has been articulated in the past. We'll continue to work on that in the future. By offering a good combination, by offering an attractive combination of growth and margin, I believe there is a valuable space in the middle, and that'll be one for the long run. Let's go to the first side of the equation, and that is organic growth, which I said we consider key to long-term value creation. Let me cut right to the chase.
We do expect to deliver to you mid-single-digit organic growth by 2020. You will see on this slide a few of the things we're doing to get us there. The first one, investing selectively to support fast-growing categories and regions. This company is not one monolithic company. I think it breaks down into a number of different regions and different categories. When we start with regions, think about Asia-Pacific. Think about these growth markets that have shown tremendous promise. I think it is a sign of confidence in Nestlé that we have more than 40% of our sales coming from emerging markets, where, yes, the last year was subdued, but mid and long term, there's tremendous growth opportunities in those markets, and I think we are positioned well to capture them.
Asia-Pacific, when you exclude some of the issues we've had in past years, like the noodle crisis in 2015 or the Yinlu situation in China in 2016, across the board, we're seeing one success story after another. I think we'll be building on those. We'll be building on those in other fast-growing emerging market regions. By really selectively giving all of those markets everything they need to keep growing ahead of the market, I think we will help to raise the average growth profile for the company. That same applies to categories. Think about categories. Think about some of our leading growth categories, like coffee, like pet food, like water. Those are among the leaders in their fields or by far the leaders in their fields, in particular when it comes to coffee.
Here we have tremendous growth opportunities, and it's again about selectively putting our horsepower where the growth is. I think the company has been doing that already. We'll intensify those efforts and hopefully with that, over time, by strengthening those growth drivers, we will also lift the average. Let me at this point talk about coffee in particular. In all modesty, we're not only having the leading market position worldwide, we are also bringing more assets to the table. We have the most iconic brand in coffee with Nescafé. We have the most exclusive and most advanced cartridge system with Nespresso. We have a far-reaching retail system in cartridges with Nescafé Dolce Gusto. I think with our professional effort, we also have a foot in the door when it comes to out-of-home opportunities.
So it's our job now to make those four initiatives work together, make the most of that. But frankly, we bring the strongest brands, the best technologies to the table when it comes to coffee. Let's make the most of that. This is not just a matter of pride. This makes good business sense because coffee is far above the group average when it comes to growth, and it's certainly also a very profitable undertaking. So we would do more in this regard and certainly defend and build our leadership position in that space. Next, low growth businesses. I mentioned Yinlu in China. So where we have issues, we will focus and have focused aggressively on fixing those. It's one thing to be disappointed about low growth, low profit environments.
It's another thing to really step up and fix them, and I think we've been doing that aggressively, and you will see progress in this area. The next one, product and business model innovation. Let me tackle that in combination with the other one that's below, and that's embracing digital opportunities. I think in addition to product renovations and meaningful innovation, digital is really giving us new ways to rethink business models, adding service layers on top of the products we're selling or opening up a direct channel to our consumers. And I think after maybe coming a little late to the party, what you're seeing with the data from last year, and that François will describe to you in more detail, we have made significant progress now in upgrading our digital efforts. It's really showing.
Basically from about 2%-3% of our sales in 2012, we're now at about 5% of our sales coming from digital. So we're really making progress in this area, and it's showing in our top line and there's continued promise. So again, that area will see a lot of emphasis, will see a lot of effort going forward. And then last but not least, portfolio management. If something does not fit our profile any longer, if we don't see mid to long-term hopes for top and bottom line growth, then yes, we are also no stranger to parting ways or buying our way into promising growth areas in food and beverage or in some of the healthcare businesses that we're building up. But please do note, portfolio management in this list is last.
Portfolio management can be important at points in time to build up a strategic position or get out of a losing hand, but it should never be the first level. The first level as an operating company should be to do the other things I just described, and we'll stay committed to that. Then let's come to the second side of the equation, and that is driving operating efficiency. And there I wanted to give my full support and really applaud the initiatives that we have seen under Paul Bulcke's leadership and under François' leadership that were communicated to you last year as part of the Investor Day. And I wanted to fully reiterate and confirm the target that was articulated at that time. So we're expecting at least 200 basis points of structural cost savings by the year 2020.
Not all of that, as was communicated last May, will flow to the bottom line. Some of that will be reinvested again into organic growth. That's in line with our growth first mantra, and I think that's consistent with our long-term strategy. Again, when it comes to structural cost in particular, when it comes to capacity utilization, those are areas that are incredibly promising to us. Let me point out, those 200 basis points are still fully available. We used 2016 to prepare our work in that regard, but the basis point improvement in our bottom line that you've seen in 2016 is not eating into that 200 basis point promise for 2020. Again, we still have that full savings available to us.
We will get there, we will lift it, and again, we will selectively reinvest in growth, and some of that will flow to the bottom line. That takes me to the outlook for 2017 as my last slide. We are expecting organic sales growth of 2%-4%. Mind you, the midpoint of that guidance, about 3%, that's about the run rate in our organic growth that we have seen for the last three quarters. I think the midpoint is well-balanced, well centered. If you're wondering about the somewhat wide band, we are a bit at an inflection point right now. We're seeing a lot of volatility in the market. We're seeing the hope that pricing may come up and help us.
Again, when and how exactly, and how that's going to be balanced against maybe turbulence items, volatility items that are not known at the present time, that's really the big question. Hence, I think as a matter of prudence, it was good to leave us a bit of margin on both sides. We will keep you updated during the year. It's really important to me that you always know where we stand, and so we will do that as we go through the quarters. At this point, we felt it was the prudent thing to do and build confidence in the company. In terms of the profitability for this year, we expect to increase our restructuring cost again significantly. I mentioned we had CHF 150 million in 2015.
We had CHF 300 million in 2016, and now we're targeting about CHF 500 million for 2017. Even accounting for that increase, we expect to hold our trading operating margin constant. That implies in and for itself a profitability increase before restructuring cost of about 20 to 25 basis points. We're confident we can deliver that, and hence, we're committed to it. Mind you also, this is early days, so as and when we find additional accretive restructuring projects we will update you on this during the year and certainly give you a sense on how we're doing with regards to our trading operating margin, both before and after the restructuring costs. Last but not least, one thing that will not change is our commitment to underlying EPS growth and improved capital efficiency. That's my part of the presentation.
I hope it was a good way to signal to you two things. One is the sober assessment of where we are today based on 2016 results and what we can expect realistically in this year, 2017, in the middle of still some remaining deflationary trends and a highly volatile environment. Also coupled with specific actions on the growth front and the margin front that would get us to the picture I am trying to show you for the year 2020. That is a return to mid-single digit organic growth coupled with a solid progress on operating savings to the tune of 200 basis points or more. Thank you very much. Now let me hand it over to François.
Thank you, Mark. Good morning to everybody. I will walk you through our financial at a high level for the full year 2016. We ended the year 2016 on a positive note with a strong RIG at 2.4%, which clearly puts us at the higher end of the industry, and our growth stands at 3.2%. Our trading operating margin at constant currency increased by 30 basis points, which is a level which is slightly higher than what we experienced over the last couple of years. It is important, though, to mention that our trading operating margin for food and beverages, which cover 95% of our sales at constant currency, increased by 50 basis points, five, zero, which is a level that we had not experienced for some time. Our free cash flow was strong at CHF 10.1 billion.
It accounts for 11.3% of sales, which once again puts us at the higher end of the industry as far as free cash flow generation is concerned. Our underlying EPS stood at 3.4%, which is at the lower end of our expectations, and we are clearly working on it. If we look at some historical perspective over the last three years, I will start with RIG. RIG in 2016 was at the highest level of the last three years. So we saw some acceleration. RIG is important because this is about share of stomach for consumers. This is about share of shelf space in the trade. So this is about real substance for the company, and this is a good evidence, and this demonstrate our capacity to innovate, our capacity to invest in marketing and R&D as well.
Pricing was low in 2016 at 0.8%, but it accelerated during the year. We were actually at 0.4% of pricing in Q2, and we ended the year at 0.9%. We have put in place recently some new initiatives in terms of pricing. We talked last year about Brazil, but recently we have increased prices in Mexico, we have increased prices in the Philippines, in the U.K. in January, and even we are starting to put through some selective price increases in Western Europe. Moving to the breakdown of our growth between the geographic areas. The figures you have here on this chart include both our zones and globally managed businesses. So we had a healthy level of organic growth across the three region. We had an attractive level of RIG between the three regions, even with some acceleration as far as AOA is concerned during the year.
We experienced negative pricing in EMENA as a consequence of deflation, and we had negative pricing as well in AOA, mainly because of low dairy prices and historically low level of milk as a commodity. In AMS, we had a positive pricing component, which is mainly coming from Brazil. As you know, we increased significantly our prices at the end of H1 last year. If we look at our growth between developed and emerging market, we have the same level of RIG at 2.3%, 2.4% between developed and emerging market. This is good for developed market, but we see that certainly as an opportunity as far as emerging market is concerned, as we believe that we are in a position to deliver a higher level of RIG in emerging markets. We had negative pricing in developed market, mainly because of deflation in the West, in Western Europe and in Japan.
While we had positive pricing in emerging market, although we had less than in the previous years, mainly because of low dairy prices. We are really in the business of innovation, and this is one of the reason why we have one of the highest level of RIG in the industry. Innovation is absolutely critical for us. We have about a third, a little bit less than a third of our sales, which are coming from products that have been renovated or innovated over the last three years. Innovation and renovation can take different shapes and forms. We can talk of premiumization. This is what happened, for example, with Les Recettes de l'Atelier, which is a premium chocolate offering, which is now marketed in eight countries across Europe, and which grew as an example by 22% last year.
Could take another example, Coffee mate Natural Bliss, which is really surfing on a new expectation and a new trend for consumers about naturality. This is a business that has been growing last year in the United States by 42%. Innovation can have a more scientific component. This is what we are doing in infant nutrition with Wyeth and with illuma, more specifically in China. This product did not exist, illuma, a little bit more than five years ago. And last year, in China alone, we reached CHF 900 million of sales, and the product still grew by 34%. We clearly lead the super premium segment there. We do invest a lot in marketing. We invest in R&D, but we do invest a lot as well in new channels of distribution and new format of distribution, and e-commerce is one of them.
We did quite a lot of presentation during our last capital market day to showcase what we do in that space. And we are happy to report that now e-commerce sales are contributing to almost 5% of our total sales, while it was only 2.9% in 2012. Which mean that our e-commerce sales have increased by 18% last year in 2016. And even if we put aside Nespresso, which is a different business model by itself, our e-commerce sales grew by 34%. What is important to note as well is that we can measure our market share between online and offline. We can do that in about 70%, seven, zero, 70% of the sales, which is a mix of geographies and categories, where we have the information for online and offline market share.
In 57% of these sales, we have a higher market share online than offline. Which means that we are doing well in terms of e-commerce. Moving to our P&L, last year in 2016, we improved our trading operating profit by 30 basis points at constant currency. We benefited from our savings program, especially with NCE, for example, where we delivered another CHF 1.6 billion, even more than CHF 1.6 billion of savings last year, which is a higher level than what we experienced over the last couple of years.
We still had some tailwind from commodity pricing, but also less than in the previous years, and we benefited as well somewhat to a lesser extent from portfolio management, mainly with the disposal of Davigel in France at the end of 2015 and the creation of Froneri in ice cream, mainly in Europe, at the end of 2016. As a consequence of that, our gross margin improved by 80 basis points, and we reinvested a significant portion of it mainly in marketing and in restructuring as well, and to a lesser extent in R&D. The reinvestment in marketing is what we have done as well over the last couple of years so as to deliver a superior level of growth.
Looking at what we have achieved as well in terms of working capital. We did well in 2016 with another significant decrease of our working capital as a percentage of sales, which allows us to free up some cash. Our working capital as a percentage of sales almost decreased by another 2 percentage points in 2016. These data are not just the snapshot as at the end of the year. We are talking of the average of the last five quarters, which gives more strength to the value of this performance indicator. We have increased further our cash flow generation at 11.3% of sales, which puts us at the higher end of the industry clearly there. But even beyond the level that we have achieved, what is important to note is the fact that this is a sustainable cash flow generation at a high level year after year.
Moving to our priorities for 2017. Mark talked already about it, but to be maybe a little bit more specific, we clearly aim at maintaining our volume growth, which is a differentiating factor for us. We have had a high level of RIG over the last couple of years. That is something we want to maintain. We want to secure pricing as well. Pricing is one of the issues that we faced last year. Even if we started to see some acceleration, this is something that we are working actively upon. Once again, we have taken initiatives recently in countries like the Philippines, Mexico, even Western Europe or the U.K. Cost discipline is at the top of our agenda. We are going to continue what we have delivered with NCE, Nestlé Continuous Excellence, and this amount of around CHF 1.5 billion of savings a year.
We are working on these nine structural initiatives from the improvement of our asset intensity to the review of our manufacturing footprint or consolidation of activities above market as we are doing with procurement. We are actively working on this project. Capital efficiency obviously remains at the core of our daily activities. I won't repeat the guidance because Mark covered it already, I will pass on the mic back to you, Robin.
Thank you, François-Xavier. We can now take some questions. Please give your name and your organization when you ask the question, not least for the sake of the webcast. Thank you. Brian, over here.
Brian Blackstone, Wall Street Journal. Can you just clarify what the difference is between 5%-6% organic growth target and mid-single digits? Since 5%-6% seem to be mid-single digits, are you looking more 4%-6%, 3%-7%? What's the difference between what you're saying now on the target and what you've had before? Thank you.
I think mid-single digit mathematically softens this a little bit towards the low and the high end. That's the nature of it. I think, in a more turbulent environment, to narrow it specifically to 5%-6%, especially for something that you attempt to do several years out, is probably not the right thing. But the underlying message, and that's to me important, that we're not getting caught up in semantics here. The underlying message is the same, and that is there is nothing better for an organization long term than healthy organic growth. It drives opportunity inside the company. It keeps the team motivated and on their toes. It drives overhead leverage. It drives capacity utilization. It drives, therefore, cost savings and experience curve effects in manufacturing. So it does a whole lot of good things, and we're committed to that.
I wouldn't get so much hung up on, is this sort of 0.1% more or less in one direction? But the direction is the same. That's the important thing. This is what keeps the herd running west, and we will keep running west, no question.
Next question. Yeah, over there, Ueli.
Ueli Hoch. Hello?
Yeah, I think it works.
Can you hear me? Ueli Hoch , AWP Financial News, Zurich. Could you give a bit about comments on share buybacks? Is this kind of excluded in the next couple of years?
We have no announcement on that to make at the present time. I think we are committed first and foremost to a very stable and growth-oriented dividend policy as we have been in the past. Then, of course, the next item on the agenda is supporting our growth and using capital that we have available for that. If something is left over, as you've seen in the past, I think there is a good tradition of sharing that with our investors in the form of share buybacks. But again, this is not the top priority, and there's nothing to announce at the present time.
Johannes Ritter? Oh.
Good morning. Johannes Ritter, Frankfurter Allgemeine Zeitung. I've got three questions. In the past, Nestlé showed quite sleepy attitude in terms of market trends, for example, in China and in the U.S. What can you do to be more awake, to wake up, maybe, your employees to be more alert to changes in consumer behavior? Secondly, what about the L'Oréal stake? Would you be willing to sell that one if a big acquisition was in view? And thirdly, the United States with a new government, what's your position here? Will Nestlé be hit by a protectionist move going forward? And what's your personal view on the politics of Mr. Trump in view that you spent time in the U.S. and probably had other experience in this country?
Let me start with the first one. I'm not sharing the sleepy, by the way. Even implicitly, I don't want to support that. Yes, I think in a fast-changing consumer goods industry, being fairly perceptive and reactive to trends is going to be important. No matter whether that's China or North America or elsewhere, I think this whole notion of having our antennas up, picking up a trend quickly, and then capitalizing on those trends quickly, that is a priority going forward. Again, this is a time when the consumer goods industry is going through fundamental and unprecedented change, and so that's why I don't underwrite that sleepy word at all. I just need to, for the record, say that.
Going forward, however, this whole notion of speed and reacting to things quickly, that is going to be important to me, and we will certainly stress that in the organization. When it comes to L'Oréal, look, this is an asset that's worth about 10% of our total market cap and hence, this is a significant investment, and anything we would do on that would need to be done very prudently and in full accord with our board of directors. Do keep in mind that there is no short-term urgency. This asset has been delivering stellar financial returns to us in recent years, and we also consider it a strategic asset, and hence, anything we would ever want to do on that would need to be pondered very carefully. Again, nothing to announce today and at the present time. On North America, I'm asking for your understanding.
I hold back on my personal views. We're not a political organization. We're supplying food and beverages and consumer healthcare products to the people, and that already keeps us busy, so there's little time for political commentary on top of that. The good news is that in most markets, and the U.S. is no exception, we're benefiting from something that I would call the natural hedge, and that is our top line, and then our manufacturing setup are, in most markets, pretty much in sync. Compared to some other industries that have more of a hub-and-spokes model, I think we have some pretty good natural protection against protectionism. As a global company, it's easy to imagine we're more for free trade. That's basically right up our alley.
If the model changes, I think we're well prepared for that, and hence, I don't see a significant downside coming from that.
Natalie, I think you had a question.
Hi. Yeah, two questions. When you've been appointed, obviously, it brings a change to the company, and it raises questions for your employees. How do you plan to achieve this increase in restructuring costs? Is there some consequences job-wise? Is it by managing your structure differently? The second question is on M&A. You mentioned that it is not the right time to go for big-ticket purchase. Could you give us some more color as to why you believe it's not the right time?
On the first one, I think this company, in the past, has not shied away from what needs to be done to increase efficiency, but it also has a history and a culture of dealing with its employees very fairly, and I think we'll continue to do that. So the restructuring levels that I'm talking about are not unprecedented, so we've seen that in the past at various times as well. This is not bringing something to the company that has never been seen before. But at the present time, I do think it's the right moment to undertake that, and we will not deviate from our positive culture of dealing in a very fair and honest way with our employees that are affected. Mind you, not everything of that immediately has an employment consequence.
Some of that also is fixed costs of a separate nature that is not payroll related. This is not that I'm trying basically in a veiled way to announce here any significant layoffs. The large amount breaks down into a very large number of individual targeted projects. So there's not one major situation here that we're pointing to. On M&A, look, these are heady markets, and the combination of low interest rates, and certainly a lot of interest in the consumer goods area has led to fairly lofty valuations. Those things typically don't last forever. When I look at some other industries that I've been involved with in the past, take healthcare and look at that healthcare bubble between 2014 and 2015. That has come down, okay? So anyone who bought in 2014 and 2015, with few exceptions, live to regret it.
Anyone who waited now has dry powder. It is all about picking the right time, picking the right target. It does not mean that we would do no M&A because at the low- and mid-size spectrum, there is a lot of things that are not subject to full global market exposure, but you just have to be smart about it. It is, at the end of the day, a trade-off between what you want to achieve now on the strategy front and what you are willing to pay for it. We will try to be smart about that.
Thanks. I think, Ralph, you had a question.
Ralph Atkins, FT. What relevance and what use will you make of your experience at Fresenius in healthcare? Is that a direction you think you should be taking this company?
The one thing I have been always a fan of is good nutrition as a key driver of long-term medical outcomes. That is something that developed and improved in me over a long period of time with Fresenius, but also before. I think that trend, I am not alone in that. In fact, check out on your own personal lives, check out with your friends and relatives. It is easier than ever to get information on what constitutes good nutrition, and people are getting more and more conscious about it. That is only the right way to go, because at the end of the day, our health is something that we individually need to take responsibility for, and nutrition, more than anything else, is the starting point for that.
My personal interest and the background is very much in sync with what this company has been pursuing as part of its nutrition, health, and wellness strategy. As I said, upgrading in the core food and beverage business, the nutritional profile of what we offer, in addition to scaling up these two businesses that we have on the consumer health front, that is Nestlé Health Science and Nestlé Skin Health. I think that is a very consistent, credible strategy, and it ties in my opinion, quite nicely with the background that I bring to the table.
Thanks. Do we have any other questions? Yes, Angelika.
Angelika Gruber from Reuters. Just again, on the healthcare businesses, do you have a target or a vision about where they should stand in terms of sales in, let us say, 10 years or five years?
I do not, and again, it is all about being ambitious, which we are, and prudent at the same time. Between these two, every time you build something, it is basically a horse play between what I call greed and fear. You want to build on the one hand, but you also do not want to do major mistakes, and it is all about that.
Yeah, Corinne.
Hi, Corinne Gretler from Bloomberg. You mentioned a focus on not just you personally, but everyone and their families and friends, the focus on good food and healthy food, and that being part of your path towards health and wellness and nutrition company. How does frozen food and confectionery fit into that picture? I understand that confectionery can be seen as a treat, and that can go into wellness. Just how do you see that fits, especially the frozen food business?
Yeah.
Thanks.
Very happy to answer that. Actually, the answer is going to be slightly different depending on whether you talk about frozen or confectionery. For frozen first, let me give you a strong sales pitch. From a food health and safety perspective, frozen next to fresh is the best way to preserve the nutrition benefits of food. In fact, let me put this very clearly. When you look at chilled is just another form of slowing down the natural decaying process, but it doesn't stop the clock. Freezing does. So frozen in itself does not imply you're selling bad food. Frozen just means it's a form of delivery, and what you put in there is a different story. I think we've been doing significant efforts to increase the nutritional profile of our frozen food offering.
As I look at the growth rates involved, consumers do respond to that and appreciate it. So again, this whole notion, frozen, therefore bad, I'm not buying into this at all. In fact, from a food safety perspective, people should be more worried about chilled than frozen. Confectionery is a different story. Look, again, checking with your family and friends, on the one hand, we all have this interest in better nutrition. On the other hand, when we eat and when you watch your own eating habits, we are also creatures that are open to indulgence, okay? In moderation, there's nothing wrong with that. Hence, serving that to the extent that we have a huge heritage in this space, to me, is not like a flagrant contradiction.
Over here.
[inaudible] Mr. Schneider, why do you still keep the organic growth goals in the future? Why don't you abandon these goals after having missed the last three years? Second question, for better understanding, will the part of health and wellness be increased in future, or will you keep it stable? Last question, about India. Are the Maggi problems have overcome last year? Thank you.
Thanks. Let me comment on the first two, then maybe hand it over to our zone head, Wan Ling Martello, to comment on India in particular, where I think we've been making significant progress. When it comes to the growth targets, let me just be very clear. What we have out there for 2017 is a specific organic growth guidance, that's numbers, not words. Then we have an operating margin guidance, that is the one we wish to be measured by. So anyone who would say the company misses its targets for 2017 is just not getting the story, okay? The story is 2%-4% organic sales growth, and basically the trading operating profit margin, including then those restructuring items, stable.
What we're saying is that long term, we have When it comes to 2020, we have plans in place, we have work in place to basically get to mid-single-digit organic sales growth. That's roughly what the ambition was in the past. What you're seeing for the past few years is an unprecedented situation where on the one hand, you had major deflationary trends in key markets, and on the other hand, you also had significant change in the consumer goods industries. Those two coming together at a very fast pace, I think led to some changes. We're adapting to those changes. We've started that already in the past years. I think it'll start to pay off in the next few years, hence, we believe we can get back to where we were. Then your second question, sorry, was about India is the third one.
The second one
If the part of health and wellness
Oh
will be increased in future or if it will be stable?
Okay. On that one, let me just say, remember, this is a free market company, so it is not about planning, "Well, let us do more or less of that." We try to do as well as we can in each of our segments. At this point, I cannot give you a specific guidance, is food and beverage growing faster or health faster? We will try to do as well as we can in all of our segments, and then, if that segment grows faster, wonderful. If the other one grows faster, wonderful too. So we need to be agnostic about this. We will try to do as well as we can for all of these segments. We will give those segments the funding that they need, and then see what they make to it, out of it. Wan Ling, thanks.
Thank you, Mark. Good morning, everyone. Good to be here. First of all, before I address a question on India, I want to take a moment to thank my team in AOA because almost all the markets came back really strongly last year. We have a problem, obviously, in Yinlu that we are continuing to fix. So take a moment to thank Team AOA, wherever you guys are in the world right now. On India, very proud of what the team has done. We are back to 60% market share, and the trust score for the Maggi noodles dropped to, I think, 8, is now back to 90. So fantastic, and in addition to that, our Nestlé India has launched several products in 2016. It is really thanks to Suresh and the team that Nestlé India is firing on almost all cylinders at this point. Thanks.
Thanks, Wan Ling, and let me reiterate that. I think the efforts that we have seen in that market to cope with that situation, and also with some of the fairly recent issues in India, like demonetization in November and December, are just stunning. So I think a tremendous effort by the team there.
Maren Peters, I think you had a question.
Thank you. Maren Peters, Swiss Public Radio. I have a question concerning the pet food market. You mentioned it as one of the examples for still strong growth. Would you say this business unit is kind of crisis resistant? Where does this growth come from, and what are your expectations for the future? Thank you.
It comes from some long-term secular trends that are basically playing around the world. The one, especially in the more developed markets, simply being premiumization. People love their pets and like to do good for their pets. If you offer a better product, just like people spend more money on their own good nutrition, they also want to do this for their pets. Then, for developing countries, it is simply all about what we here at Nestlé call caloric conversion, and that means basically the percentage of pet animals that are not just fed anything that just lies around the house, but rather get special pet food in a packaged form that will be offered by companies like us. Those twin trends are just incredibly powerful.
Now, like any consumer segment, they are subject to the economic cycle, no question about that, but you have two strong underlying growth trends, and that helps a lot.
Yes, over here, please. Sorry.
Eric Gujer, Neue Zürcher Zeitung . Can you shed some more light on your plans with more natural food, healthier food? Is it more about creating new products or changing existing products? How about organic food? Is there a big potential for Nestlé in that field?
The answer is, to your first question, both. I think upgrading what we have today is just as important as also trying to identify new categories. We are really playing at both sides of the street in that. When it comes to organic, yeah, that is also a key opportunity. Mind you, organic is no contradiction to our delivery forms. It is basically all about the inputs that you are using, where we can, we are exploring those opportunities as well.
Thanks. We have a question from Hara-san over there.
Katsuhiko Hara from Nikkei. Regarding the volatile environment, you mentioned that you are fairly resilient toward the protectionism. What is the biggest risk that you are aware of for 2017?
I do not think it boils so much down to one major risk here that we need to watch. Think back to a year ago as we all entered 2016, and who would have guessed what happened? Probably not that many people in the room, including all the experts. We are still living in a very volatile environment where most of the uncertainties are coming from the macro or political space. I think that is not changing. Again, as we discussed earlier, when it comes to the protectionism side, I think our natural hedges and our setup in most markets will keep us protected. When it comes to volatility in terms of currencies, raw material prices, consumer sentiment, we are subject to that like anyone else. We need to make the best under those circumstances, and we are committed to that.
There's not one individual particular risk that I could point you to.
Thanks. Silke?
Silke Koltrowitz from Reuters. I wanted to come back to the portfolio management. You've elaborated on that already, but we know that the previous CEO, Mr. Bulcke, obviously already did an extensive portfolio review. I was just wondering, are you going to start all over again looking at all the different categories? Is it a possibility? You talked about frozen, you talked about confectionery, but is it an option to even exit some categories altogether? Or are you really committed to all the food and beverage categories you have in your portfolio as they stand today? Then there's a second question just on, you were a bit cautious about, you say you expect pricing to pick up this year, but at the same time, you said timing, everything's still volatile.
Can you maybe go back to that and say, really, you expect an improvement in pricing this year, or is it just too uncertain to give any outlook? Do you have any guidance on raw material prices this year?
I think when it comes to the portfolio review, this is not something that you switch on or off. I think this is an ongoing activity, just like most of us take a shower in the morning or brush our teeth. This is basically something where every day, every month, every quarter, every year, you need to look at your portfolio. You need to look at your high performers, low performers. You need to look at what you believe you can fix and improve under your own steam, and things where ultimately things may not fit anymore, the strategy or may have unfavorable prospects for the long term. Again, this is not something that was at any point in time officially on or off. It is an ongoing process, and I will continue that process and step into some of the decisions and reviews that have been done.
When it comes to 2017, look, what should give you confidence, as François pointed out, is that very strong volume growth. I think that is the bedrock, and it really underlines the fact that in some key categories and areas, we are winning market shares or defending our market shares. Then it really is all about when and to what extent does pricing kick in. These trends are notoriously hard to predict. You have seen this in the second half of 2016 where we were right on the trend, but we probably overestimated to some extent. I think leaving ourself a little bit of margin here does make a lot of sense. Do I have a specific guidance or do we have a company guidance on raw materials cost?
No, we do not other than to say that after seeing a few years of benign raw materials cost developments where they turned out to be a tailwind for us, it looks like we are at a tipping point, and they might, in some areas, turn into a slight headwind to us for 2017. Do keep in mind, for quite a few of these positions, we enjoy forward-going hedging, so it is not like immediately you have some pressure to your bottom line. But I think it looks like 2017, just like on the pricing front, maybe year of turning could also be a year of turning on the raw materials front.
Thanks. I think we have time for one last question over here.
Satoshi Ebitani from Nikkei Business Magazine. I just want to ask about this corporate sustainability because I think Nestlé has this Creating Shared Value concept. I think your former CEO and Chairman did a lot of work about this. I just want to know how are you thinking about this stance in this view?
Strong statement. I loved it ever since I heard about it, and this goes long before my joining the company. I think this Creating Shared Value approach is a very sensible approach. It's level-headed. It's not corporate philanthropy. It's not do good kind of thing. This is doing good and doing well at the same time. It goes back to how we design our business, how we tie in with local communities where we do business. Do keep in mind, in many places, very exotic countries, we tie in very closely to the agricultural community around us. A lot of livelihoods depending on us, and doing this in ways that both sides of the table are happy, I think has been part of the history of this company.
What Creating Shared Value does is it gives a framework to it and really is something that travels well and reiterates our approach that we have practiced for many years. It puts some academic rigor and some measurable aspects to it, which I like very much. I'll be very happy to step into that tradition and continue it forward.
Thanks. Mark, your concluding remarks, perhaps?
Let me just say, first and foremost, appreciate your attendance coming here and connecting with you. Looking forward to many quarters and years in the future where we will be reporting to you as we execute on this path forward. Let me also say, in closing, thank you to our more than 300,000 Nestlé employees around the world who I think in a challenging year 2016 have been shown tremendous commitment and effort and accomplishments to get us where we are and get us positioned now for the next steps forward in 2017 and beyond. On a personal note, I would like to thank that team for the warm welcome that I received ever since joining September 1 and now taking over the CEO position in January. Appreciate it and look forward to seeing you again soon. Thank you very much.
Thank you, Mark. As usual, we are happy to take up any follow-up questions via email or call us. You know the addresses. Thank you very much.