Nestlé S.A. (NESN.SW), the world's largest food and beverage company, has reported its half-year 2024 financial results, revealing a mix of growth in key categories and challenges in the pricing environment. CEO Mark Schneider highlighted the company's success in the coffee and PetCare segments, as well as significant progress in its Health Science business.
Despite these advances, a more competitive pricing landscape has prompted Nestlé to adjust its full-year 2024 outlook, now expecting at least 3% organic sales growth and mid-single-digit growth in underlying earnings per share.
Key Takeaways
- Nestlé saw a rebound in growth during the second quarter, driven by strong performance in coffee and PetCare.
- Market shares improved, especially in fast-growing channels such as e-commerce and specialty stores.
- The Health Science business is nearing pre-supply constraint sales levels with market share gains.
- Zone Greater China achieved low single-digit real internal growth, bolstered by new product launches and increased marketing investment.
- Nespresso and Vertuo experienced positive growth, tapping into new consumer bases with cold formats and partnerships.
- The pricing environment has become more challenging, leading to revised full-year guidance for organic sales growth and earnings per share.
- Non-tracked channels are outperforming traditional retail channels, reflecting changing consumer shopping habits.
- Nestlé is focused on demand generation, winning back shelf space, and investing in marketing and promotional activities to support new launches.
Company Outlook
- Revised full-year guidance anticipates organic sales growth of at least 3%.
- Mid-single-digit growth in underlying earnings per share is expected.
- The company maintains its margin target of 17.5% to 18.5% by 2025 despite cost inflation.
- Annual guidance for 2025 will be provided in February of the next year.
Bearish Highlights
- The challenging pricing environment has put pressure on the company to maintain competitive pricing.
- Traditional retail channels are facing increased challenges compared to non-traditional channels.
- Gross margin may be under pressure in the second half of the year, though year-on-year improvement is expected.
Bullish Highlights
- Continued RIG growth, mix benefits, and ongoing cost management contribute to confidence in margin guidance.
- Positive pricing is expected in the second half of the year, especially in coffee and confectionery.
- The company is actively investing in markets like China and India to capture significant growth opportunities.
Misses
- Organic growth target revised down to at least 3% due to stronger promotional intensity.
- Overall input costs are flat year-on-year, impacting cost of goods sold.
Q&A Highlights
- Growth potential in coffee in India and China remains significant, though exact timing for material impact is uncertain.
- Prebuying is not considered a significant factor in performance.
- Incremental productivity savings are prioritized over significant restructurings for harmonious growth.
- Further communication on specific issues is available through Nestlé's Investor Relations team.
Nestlé's earnings call underscored the company's resilience in a challenging market, with a strategic focus on innovation, market share gains, and channel optimization. While the company navigates headwinds in pricing and competition, its commitment to productivity and targeted investment positions it to continue its growth trajectory in the coming years.
InvestingPro Insights
Nestlé S.A. (NSRGY (OTC:NSRGY)) has demonstrated a commendable track record, raising its dividend for an impressive 33 consecutive years, which signals a strong commitment to shareholder returns. This consistency is a testament to the company's financial health and management's confidence in its business model. Moreover, the company's stock is currently trading at a low P/E ratio relative to near-term earnings growth, suggesting a potentially undervalued opportunity for investors looking at the fundamentals.
From the data front, Nestlé's market capitalization stands at a robust $261.17 billion, reflecting its significant presence in the global market. Its P/E ratio, as of the last twelve months ending Q4 2023, is 18.59, which is lower than the industry average, indicating that the stock may be undervalued compared to its earnings capacity. Additionally, the PEG ratio during the same period is 0.88, hinting at the potential for growth at a reasonable price when considering the company's earnings growth projections.
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Full transcript - Nestle SA (SIX:NESN) PK (NSRGY) Q2 2024:
Luca Borlini: Good morning to everyone. This is Luca Borlini, Head of Nestlé Investor Relations. Thank you for listening to Nestlé's half-year 2024 results prepared remarks. Joining me today are Nestlé CEO, Mark Schneider, and CFO, Anna Manz. In keeping with our new practice, we have made management’s prepared remarks and the investor presentation available at the same time as our press release. Later today, at 2:00 p.m. Central European Time, we will hold a live question-and-answer session, which you will be able to follow via webcast on our Investor Relations website. Before we begin, I would ask that you please take careful note of the disclaimer on page two of our presentation. And with that, I turn to Mark.
Mark Schneider: Thank you, Luca. And a warm welcome to all of you. As always, we appreciate your interest in our company. Let me start by putting our results in context. In line with what we said on the first quarter call, the business returned to RIG-led growth in the second quarter. This rebound was broad-based across Zones and categories, as we prioritized driving volume, mix and market share. Growth was driven by coffee and PetCare. In addition, the swing in RIG from the first to the second quarter reflected our delivering on the areas that we had highlighted for turnaround. These include North America in general, frozen food in particular and Nestlé Health Science. Gross profit margins in the first half were up, providing fuel to invest in our return to volume and mix-led growth. At the same time, we continued to make progress on market shares, which have improved since the start of the year, with significant gains in fast-growing untracked channels such as e-commerce and specialty stores. Looking ahead, as the pricing environment is more challenging, we have decided to take a more cautious view and amend our guidance for the full year 2024. I will come back to these later in our prepared remarks. Every Zone and category delivered a solid RIG rebound in the second quarter. The quarter-on-quarter step up in RIG illustrates the strength of our execution. Execution excellence is key to getting back to consistent growth delivery. The improvement was broad-based and driven by a combination of accelerated innovation and renovation, as well as focused growth investments. These are the levers we directly control, even in a challenging environment. As mentioned in the first quarter call, we continue to focus investment behind our billionaire brands, which account for 70% of sales. We substantially increased marketing investment for billionaire brands versus the first half of 2023, ahead of the Group overall. Billionaire brands delivered organic growth of 3.2% for the first half, 110 basis points ahead of the Group. In terms of percentage of business cells where we are gaining or holding share, we are seeing clear progress. We have seen an improvement of around 400 basis points in this metric since the end of 2023, moving us further into the mid-50s. We are confident that these brands provide the fastest route to growth, and we have a full pipeline of product launches planned for the second half of the year. I am pleased to say that our executional focus means that we are also seeing market share improvement across the rest of the portfolio. In the first half of 2024, we significantly increased our product launch intensity. We have deep innovation pipelines across all categories and segments and our innovation engine is returning to center-stage in supporting our pivot back to RIG-led growth. Some of that innovation roster has already started to hit the shelves in the first half, such as Maison Perrier and cold-concentrate coffee for Nescafé. These launches reinforce brand and product differentiation, drive incremental sales for the Group, and offer retail partners broader consumer value propositions. So far this year, we have completed around 15% more innovation and renovation launches than in 2023, with a total planned increase to 20% by year-end. Our approach to product launches is not just about quantity but about precision and focus. We are clear on what we can scale, which segments and brands to build up, and where we seed new growth opportunities to maximize impact. Innovation fuels mix growth and premiumization. Each of our categories defines priority launches, the products you can see at the bottom of this slide are examples. We track these launches closely to optimize support and have a good view of what is gaining traction with the consumer. Take Maison Perrier or Nescafé Ice Roast Coffee, for example. Since the start of this year, these multi-market launches have already started to generate significant sales momentum. I told you that we are focused on execution excellence, and this is the message that is resonating across the business. Nowhere is this clearer than with Nestlé Health Science. The team made an enormous leap forward to put our vitamins, minerals and supplements business back on track. They are now at a stage of moving from supply recovery to demand generation and winning back consumers. As you can see in the slide, the second quarter marks a step change in our vitamins, minerals and supplements sales. To put that increase in context, sales are almost back to pre-supply constraint levels, and we are starting to retake market share, particularly in e-commerce channels. At the same time, category growth in all channels, tracked and untracked, is now moving at a high single-digit pace. Our ambition is for Nestlé Health Science to continue to be a core growth platform for the Group. With consumers increasingly aware of the role that nutrition and food plays in living healthier, higher-quality lives, demand for products that offer simple and convenient ways to supplement nutritional intake continues to grow. Vitamins, minerals and supplements are also expected to become increasingly relevant as the use of GLP-1 drugs expands. Our Health Science business offers us a platform, built through science-based brands, to address the full range of consumer nutritional needs while leveraging synergies within Nestlé. There is a lot of work still to be done, but we are delivering what we promised and are confident about the long term. We look forward to laying out our Nestlé Health Science strategy during the Capital Markets Day in November. Let me now hand over to Anna.
Anna Manz: Thank you Mark, and hello everyone. Let me begin with the highlights for our first half sales. We delivered 2.1% organic growth with 0.1% RIG and 2.0% pricing. Net divestitures reduced sales by 0.4%, largely related to the joint venture for Nestlé’s frozen pizza business in Europe. Foreign exchange impacted sales by 4.4%, reflecting the strength of the Swiss Franc. Factoring all these elements together, total reported sales for the half-year were CHF45 billion. This slide demonstrates the cross-over from price to RIG-led growth. Now, Mark has already talked about the acceleration in RIG, so let me focus on the deceleration of pricing. There’s three reasons for this. First, the high base of comparison in the prior year, which everyone is aware of. Second, in a busy promotional environment, we selectively dialed up promotional intensity in a number of categories, including our coffee creamers business. And thirdly, in the second quarter, we made some specific investments including innovation listing fees in the US and investments in Nestlé Health Science as we return to shelf. We said North America would see a RIG improvement in the second quarter, and the Zone delivered that. The RIG swing from negative 5.8% in the first quarter to positive 2.8% in the second was significant. The second quarter RIG benefitted from larger-than-usual orders from some retailers ahead of key July promotional campaigns. This phasing impact means that the Zone’s continued RIG improvement won’t be linear in the second half. Growth was driven by PetCare and coffee. Purina PetCare continues to be the largest growth contributor, gaining RIG momentum and market share despite ongoing category normalization post COVID and the recent inflation spikes. In addition, Zone North America progressed on the turnaround of frozen food, which swung from negative growth in first quarter to positive in second quarter. New product launches in this business included expanded offerings for DiGiorno’s Ultra-Thin Crust pizzas and Stouffers Classic Single Serve. These innovations are aimed at catching those consumers who are seeking more affordable price points. Overall in Zone North America, we are seeing improving market share trends, largely driven by high-growth channels that are not widely tracked by third-party providers. I want to take a minute on this point as I know it is an area of focus for some of you and is a dynamic which will increase in significance. 80% of the Zone’s sales growth in the second quarter was driven through e-commerce, club and pet specialty stores. These channels are not tracked. And across these channels our growth was double digits in the quarter. Zone Europe has delivered the highest organic growth for the Group. The growth was broad based, with positive contribution and improving market share trends from almost all categories, geographies and brands. That improvement also reflects focused mix management with the contribution from premium products increasing. Nestle’s growth engines, PetCare and coffee, continue to deliver. An important feature of their growth is the strength of the brand and product portfolio, which cover multiple price points and provides us with a durable platform to sustain growth. Our confectionery business is also performing strongly, growing high single-digits, with KitKat posting double-digit growth. In Zone AOA, we achieved resilient growth in the first half against the backdrop of two significant headwinds. The first challenge was substantial currency devaluations in a number of markets, which triggered corresponding inflation. This required responsible pricing actions in those markets, taking into account local competitive conditions. The second challenge was ongoing pressure on global consumer brands in some markets linked to geopolitical tensions. Despite these challenges, Zone AOA delivered solid organic sales growth, with strong contributions from e-commerce and out-of-home channels, as well as continued momentum in affordable offerings, which grew at a high single-digit rate. Zone Latin America continues to face a post-pandemic environment with high cumulative inflation. While Brazil, Mexico, and Central America have more favorable growth environments, markets like Argentina, Colombia, and Bolivia face tougher economic conditions. Our focus is to offer products that appeal to consumers on all dimensions, including taste, packaging and price. Our confectionery business continues to grow from strength to strength, driven not only by KitKat but also local jewels like Garoto, which is growing in double-digits. And I want to highlight the success of our Nestlé Professional out-of-home business in the Zone, where sales have continued to grow in double-digits and are now 50% higher than they were in 2019. This growth reflects our consistent focus on execution excellence supported by investments behind the rollout of new coffee systems. While AOA and Latin America are experiencing high inflation, Zone Greater China saw deflation, in particular in the second quarter. In this environment we are also seeing demand weaken and intensifying competition creating pricing pressure across much of the food and beverage industry. Against this backdrop, Zone Greater China delivered low single-digit RIG. This growth was driven by most of the Zone’s main categories, supported by new product launches and increased marketing investment, and with solid growth for out-of-home and e-commerce channels. Coffee was one of the key growth drivers in the first half. It achieved high single-digit growth, driven by new offerings in our ready-to-drink range delivering convenience to younger consumers, and expanded distribution at the core. Turning next to Nestlé Health Science, we saw growth move into positive territory during the second quarter, with increased sales momentum in most segments. The performance of the VMS business reflects the supply issues we have talked about previously. The business has continued to make excellent progress in its recovery plan. And our factories are back to producing at the same level as before the supply challenges, and as Mark said, we are starting to retake market share. We are now focused on demand generation and winning back shelf space and see the business as well set to deliver double-digit growth in the second half. Our active nutrition business also saw improved growth trends, with Orgain generating strong sales momentum. And finally, medical nutrition delivered high single-digit growth for the half. This is a business that goes from strength to strength and continues to gain market share across most geographies. In terms of profit, we have seen solid progress in rebuilding margins due to portfolio optimization and cost efficiencies, and there is more to come going forward. Nespresso delivered positive growth for the half, with a significant RIG improvement in the second quarter. Vertuo continues to be the key growth driver. Vertuo is attracting new consumers to the segment and retaining them, and we are doing this through cold formats, which resonate well with younger consumers, as well as limited editions and exciting collaborations such as our recent one with Pantone. Once consumers enter the franchise, it is the range and new news which keep them engaged. Next, let me turn to our growth by category. Starting with powdered and liquid beverages. Coffee sales grew by 3.7%, which illustrates how attractive the category is and the strength of our brand portfolio. Across most segments we have seen a clear improvement in market share trends. PetCare saw mid-single-digit growth, driven by continued momentum for science-based premium brands. The category is seeing some deceleration after exceptional growth over the last four years. This is driven by slowing contribution from pricing and some softening of category volume growth as consumers spend less time at home. We see this as a transitory phase. Overall, pet populations are still growing, the pet-human bond continues to strengthen, and therefore the category fundamentals are strong. We continue to outperform the category with market share gains. Nutrition and Health Science delivered positive growth. We have already covered Health Science and our infant nutrition business reported growth of 1.3%. This growth was supported by continued momentum for NAN and human milk oligosaccharide products. Prepared dishes and cooking aids reported negative growth. Within the category, we saw robust growth for Maggi, which was more than offset by the first-half sales decline for frozen food in North America, which I covered earlier. Milk products and ice cream delivered close to flat growth, as a robust performance for dairy culinary solutions was offset by a sales decline in coffee creamers and ambient dairy. Growth in Confectionery was high single-digit with sustained broad-based growth for KitKat and key local brands. And finally, sales in Water delivered mid-single-digit growth, underpinned by continued momentum for S. Pellegrino and a rebound in Perrier helped by the rollout of Maison Perrier. Moving now to profit margin by product category. I will talk to the categories with the most relevant movements. Margins within the powdered & liquid beverages and confectionery categories were slightly lower due to increased advertising and marketing investments and cost inflation in coffee and cocoa. PetCare margins increased by 120 basis points, driven by improved gross margin, which helped to fund increased advertising and marketing investment and new product launches. The margin increase in prepared dishes and cooking aids was supported by improved gross margins and portfolio optimization, again with increased advertising and marketing investments. Our water business saw lower margin as we prioritized increased brand-building investment and new product launches. Turning to the Group’s underlying trading operating profit margin, which reached 17.4% for the first half. As you can see on the slide, the year-on-year change translates to an increase of 30 basis points on a reported basis and 40 basis points in constant currency. A key driver of the improvement was gross profit margin, which increased by 160 basis points. This higher margin gives us room to fund growth initiatives as we switch gears from price to RIG-led growth. I will discuss gross margin and marketing in the following slides. The increase in administrative expenses does not reflect a change in our underlying cost base and is largely related to the appreciation of the Swiss Franc and one-off items. Our R&D expenses reflect increased investments to support product innovation. The year-on-year increase of 160 basis points represents solid progress on gross profit margin restoration. That progress comes from a combination of pricing, lower input costs and portfolio optimization. In the first half, the environment improved for most of our commodity basket, however coffee and cocoa prices continued to rise significantly. Favorable hedging cover meant we benefited from lower input cost pressure overall. For the second half, we see a less favorable impact from hedging and expect increased input cost inflation for coffee and cocoa. Overall, gross margin is expected to improve for the full year against 2023. The underlying trading operating profit margin bridge showed a considerable step up in advertising and marketing expenses, which increased by 100 basis points to 8.1% of Group sales. Growth investment is a key focus for each of our Zones, as we have been stepping up support for brand building and new product launches for a number of quarters now. As you can see on the slide, there was a big increase in the second half of 2023, largely related to the easing of supply constraints, particularly for PetCare. In practical terms, that means we won’t see the same level of increase in the second half of the year that we saw in the first half. We have already discussed our underlying trading operating profit margin. Trading operating profit saw an increase of 50 basis points to 16.4%. This increase was largely driven by the timing of restructuring expenses. For the full year 2024 we expect restructuring costs of around CHF700 million, in line with the previous year. In terms of net profit, we saw an increase of 30 basis points, reflecting changes in reported taxes and net financing costs. In the first half of 2024, our underlying tax rate increased by 150 basis points to 22.1%, mainly due to higher tax rates in some geographies related to the implementation of OECD Pillar Two. For the full year, we expect our underlying tax rate to remain at a similar level. This continues to be an area of focus going forward. Net financial expenses increased by 10 basis points. In Swiss franc terms, the increase was CHF47 million, taking our net finance expenses to CHF744 million due to a higher level of average net debt. For the full year, we expect net financial expenses to be at least CHF1.6 billion. Free cash flow increased to CHF4 billion from CHF3.4 billion. In the first half of 2023, we benefited from the CHF600 million disposal of the Prometheus Biosciences stake. Excluding this, the increase in free cash flow in the half was CHF1.2 billion. This improvement was driven by working capital movements. We are making good progress on improving working capital. That progress started in the second half of last year, so you will see a less marked working capital benefit in the second half of 2024. In constant currency, underlying earnings per share increased by 3.3% to CHF2.51. The increase was mainly the result of positive organic growth and improved underlying trading operating profit margin. On a reported basis, underlying earnings per share decreased by 1 percentage point to CHF2.40, largely due to the impact of exchange rates. Nestlé’s share buyback program contributed 1% to the underlying earnings per share increase, net of finance costs. Let me recap some of the key financial results. As we said we would, we accelerated our RIG across Zones and categories in the second quarter. Pricing decelerated following a high base of comparison and increased growth investments. At the same time, the benefit from gross profit margin improvement enabled us to increase investment behind growth initiatives and increase our underlying trading operating profit margin. Underlying earnings per share and free cash flow increased. So, all in all, a solid financial performance for the first half. And with that, back to Mark.
Mark Schneider: Thanks, Anna. As we enter the second half of the year, we remain confident of our RIG momentum, but the pricing environment has become more challenging. The general context is that consumers are under pressure, driving higher price elasticity, particularly in the US market. Increasingly, this has contributed to pressure on pricing as consumers seek value. The swing factor lately is increasing competitive intensity to address this environment. Retailers are competing for their share of a tighter consumer budget. Food and beverage companies, in turn, are responding with a whole new level of promotional intensity across categories. We have seen pricing coming down faster and are now reflecting it in our outlook. Given how the environment has unfolded, we consider it prudent to amend our guidance for the full year. We now expect organic sales growth of at least 3% and the underlying earnings per share in constant currency to increase at a mid-single-digit rate, in line with consensus. We are keeping our underlying trading operating profit margin guidance unchanged, with a moderate increase expected. We always said that 2024 was the transition back to RIG-led growth, and that is exactly what is happening. We have one of the most attractive portfolios in the global food and beverage industry. It is positioned to perform in any environment. Our RIG-led growth strategy continues to be the right one for these times and it is working. In the second quarter, we delivered what we said we would. We returned to RIG-led growth across nearly all parts of the business. We fixed the businesses in need of a turnaround. We improved market shares across our portfolio, particularly in billionaire brands. We generated the strong gross margins that are fueling increased brand support and a robust pipeline of innovations that are continuing to flow into the market in the second half. And our Nestlé Health Science business is primed to play its role as a platform for future growth. We expect consistent positive RIG performance to continue in the second half and beyond. This is the Nestlé way. Manage the short-term while building the long-term to secure sustainable and profitable growth. This brings our prepared remarks to a close. We thank you for your time and look forward to talking with you in our Q&A session later today.
Operator: Good afternoon and good morning to everyone. This is Luca Borlini, Head of Nestlé Invest Relations. Thank you for joining the Q&A session for Nestlé's first half 2024 sales. With me today are Nestlé CEO, Mark Schneider, and CFO, Anna Manz. We have made available our prepared marks at 7 a.m. Central European Time, together with our first press release and presentation on the Nestlé Invest Relations website. I trust you have had all the time to review these materials and listen to the recording. Therefore, we can go straight to the question-and-answer session. Before we begin, please take note of our usual disclaimer. With that reminder given, let us begin the session. The line for questions from financial analysts is now open. Please remember to limit yourselves to no more than two questions. And the first question is from Jon Cox at Kepler. Maybe before going into the question, Mark would like to start with a short introductory remarks.
Mark Schneider: Luca, thank you, and a warm welcome to our conference call participants. Let me just start you off with a very brief set of remarks. We want to allow maximum time for questions-and-answer. And really just want to reiterate that we delivered a strong real internal growth recovery based on strong execution and in line with what we said in Q1. As you know, real internal growth, the sum of volume and mix is a very important metric to us. We call it the growth that is earned. It comes as a result of market share gains, volume growth, and also mix improvement due to premiumization, innovation, so all the things that are very important to us and I think we delivered along those lines. That increase in real internal growth was broad-based across all zones and categories. We continue to improve our market share, in particular, for billionaire brands, and in e-commerce where we're generating strong growth momentum and gaining share. And we're managing price, obviously, in what is a tough consumer environment. We've made good progress in our Nestlé Health Science business. That swing was very important to us and sets us up for a strong second half in this business where we're seeing now good category growth. And in essence what we're doing here is delivering for consumers, which is key, and that is what we remain focused on. That's the Nestlé way. We manage the short-term while building for the long-term for sustained growth and sustained and profitable growth. So just want to remind everyone of those key messages that hopefully came through in the recorded prepared remarks this morning and with that, very much looking forward to your questions.
A - Luca Borlini: Thank you, Mark. So, Jon, please go ahead with your questions.
Jon Cox: Yes, thank you very much. Jon Cox with Kepler. A question on the -- this -- the whole equation, the price and the volume mix or the RIG. It appears to some people at least that you've given up price to retailers in order to get volume, but you don't seem to be getting a lot of volume for what you've giving up in terms of the price. And obviously, it's a bit difficult for us to pass out what you're actually giving to the retailers and what is actually just that normalized pricing as the overall commodity costs have come down. So, anything you can give us on that to reassure us that as we go through the year, you just won't be cutting prices to drive volume and get maybe then into a vicious circle where organic cells are really struggling to get back into your 4% to 6% range because you're getting into this pretty tricky environment where you've given up pricing to drive the volume mix? That's the first question. The second question, your profitability clearly better than expected. I just want to know what your thoughts are on the gross margin for the year, given the fact that some of those commodity costs are coming back, coffee and cocoa? Thank you.
Mark Schneider: Thanks, John. And I suggest I share the answer to the first question with Anna and then let Anna handle the second one. So, look, it's very important that we do not over-interpret this snapshot here of Q2 2024 and now see that as the movie unfolding going forward. This is a very particular moment in time with some tricky year-over-year comparisons since we had taken price in some categories and geographies in Q2 last year. Also a moment in time where we're still seeing significant value-seeking behavior on the part of the consumer. There is stress, in particular, at the low end of the income scale in North America, but also in select other geographies. And so people are value-seeking, and hence, promotional intensity has been particularly strong. As you know from past quarters, we were very much focused on getting the RIG flywheel running again. And I think that's very important for continued and sustained success, but we’re in no mood here to buy a RIG going forward. So clearly, RIG needs to be earned through compelling product and brand propositions going forward. So it's important that this particular moment in time doesn't get over-interpreted. Some of the promotional intensity is time limited. A good example is Nestlé Health Science, where we had to promote more strongly as we're making product now increasingly available again as we're trying to find our way back to shelf. This is an activity that's very much focused on Q2 and Q3 and will taper off afterwards. And for North America overall, for food and beverage, you've seen a lot of listing fees that go against pricing as part of the innovation that we did roll out. So it's kind of the corollary to the innovation that we bring to the marketplace. It's a good investment for future growth. So that's why if you see it a straight price to buy rig, it is an oversimplified picture and doesn't do justice to the true situation.
Anna Manz: And two very small builds. The way we think about pricing in a high promotional environment, is that we manage our price gaps to our competitive set so that we stay competitive versus our competitive set. Secondly, as commodity prices move, we will look to take price if commodity prices go up. So that's on pricing. Maybe if I just turn to your question on gross margin. So yes, we have had a benefit in the first half as we've seen some favorable input cost prices. As we look out to the full year, that favorability will not continue quite as starkly as we've seen it in the first half as we've got pressure on input costs from both coffee and cocoa that will come through in the second half. So margin will be lower in the second half. The way I'd think about it is, as we sit today, consensus is largely in the right place for the group as a whole for the year.
Luca Borlini: So next question is from Guillaume Delmas at UBS. Please go ahead, Guillaume.
Guillaume Delmas: Thank you very much, Luca. And good afternoon, Mark and Anna, I have two questions. The first one is on the four businesses that in the past have been Nestle's key growth engines, I mean, for both top line and bottom line. So PetCare, Coffee, Nutrition and Nestlé Health Science. Because even going back many years, I don't recall seeing such a low organic sales growth for the four businesses combined in one half, with I think none of them being in the 4% to 6% range. So my question here is above and beyond the easy basis of comparison for Nestlé Health Science in the second half, do you see a clear path for your growth engines to quickly return to that 4% to 6% range and ideally the top end of the range because it will be difficult otherwise for Nestlé Group to return to that 4% to 6%. So particularly on Coffee and Pet, if you see some green shoots, that would be interesting. And then my second question is on your decision to step up your new product launch intensity. How do you ensure that this doesn't lead to some SKU proliferation, heightened supply chain complexity? Because here again, you implemented the Tasty program a few years ago to reduce the number of SKUs, reduce complexity. So how to make sure that you don't erase all the benefits from Tasty by accelerating now the pace of new product introductions? Any color on that would be great. Thank you.
Mark Schneider: Guillaume, thank you. And let me take a crack at both of these questions and maybe, in particular, spend some time on the first one, because I think there's also a wider strategic context. And let me start with the big picture, and that is we continue to believe, and we will lay out in more detail to you during the Capital Market Day in November, that our portfolio in a normalized state at the present time without much surgery by M&A is capable of delivering mid-single-digit growth. And so whatever distortions you are seeing and have seen over the last two to three years to the up or down were distortions that had to do with this historic inflation spike and then some special situations like, for example, our self-induced integration problem at Nestlé Health Science and other situations. But as we're putting those behind us, and there's the inflation situation now is rapidly normalizing, you should have confidence that the portfolio overall is capable of delivering that mid-single-digit range and it's a matter now of really putting these issues behind us. And then in a not fully normalized year, we have confidence. And again, we will try to make that case and lay it out in greater detail in the Capital Market Day in November. The four businesses, in particular, remember, several of them now are affected by special situations. One is on Nestlé Health Science, clearly, the first half, we indicated to you, it was going to be impacted by the VMS integration issue. You've seen now great progress in the second quarter, and we're slated for a strong second half. And then obviously, the proof point to you will be that on a clean year '25, we're delivering continued solid growth there. Nutrition, as you know, that one originally in 2017, I had called out as one of the growth drivers. It's certainly one that's very important to us from a mission and purpose point of view. But in recent years, as you know, with lower birth rates, this was not a business that was so much a growth contributor. It's still a very important one from a value perspective and certainly a very important one when it comes to the nutritionally best start in life where breastfeeding is not possible. And hence, we're deeply committed to it. We do believe that in a fully normalized state, especially with some of the market share gains we're working on, that business can do better than what we've seen in the first half. But I also believe that the first half because of these special circumstances was not the best yardstick. Pet food, we did indicate that after four years of consecutive double-digit growth, normalization was in place. So when you're taking out the first half, you are basically looking at a normalizing business. I think the true longer-term midterm point of view would be to take an average of several years that are above and below performance. So I think the snapshot from the first half doesn't do it full justice. And coffee, I think, is one of our strong growth categories. You're seeing very good success, for example, close to 6% organic growth in the first half on Nescafé. So clearly, I think the coffee category in the segments we're in is doing well for us. So I think in summary, you do have very specialized situations you're applying to three out of four of these growth categories. But the more important wider picture is that the portfolio overall can definitely deliver the mid-single-digit growth in a fully normalized state that is not impacted by serious significant one-offs and is not impacted by the distortions we've seen through inflation over the last two years. Now on your second question, obviously, when we did the Tasty SKU rationalization, we didn't just rationalize, but we also put procedures in that make sure that for new SKUs, which get launched over time, we also have ongoing review processes that make sure that older ones do not pile up. I think at the time when we outlined Tasty, we told you that this piling up has essentially occurred in the second half of the last decade when -- because of the strong focus on organic growth and RIG, people were reluctant to let certain products go. I think now we have better processes in there to identify these products and then cut them out if they don't meet certain performance criteria so that the ongoing new launch doesn't add to product proliferation. Do keep in mind that while the launch intensity is up 15%, for example, for the first half of this year and we're targeting 20% for the entire year, what we're doing here is not going to new and unprecedented levels, but rather we are restoring a large intensity that we had seen prior to the year 2022. So these launch intensities are not unknown to us, and they don't create a new high watermark.
Luca Borlini: Thanks, Guillaume. Next question is from Bruno Monteyne at Bernstein. Please go ahead, Bruno.
Bruno Monteyne: Hi, Mark and Anna, just the first one is, there's a few times that you’ve mentioned that the tracked channels, particularly in the US are performing worse than the non-tracked channels now. Could you just sort of elaborate a little bit more on that? Is there a change that the pressures you're seeing in the tracked channels just takes a bit of time before we see the same in the other channels? So, could there be delayed pain? Or is there any structural reasons why you think the non-tracked channels will be performing better for you and also going forward? The second thing is, you've mentioned a few times in the past, the growth potential you see in the longer term for coffee in India and in China, and these countries becoming coffee markets. It's clearly that the potential could be huge for that. But I'm trying to get a bit of a stat for what is the time frame of which new growth engines for Nestlé could become material? Is that kind of a three to five year time frame before it becomes a major topic of analyst call like this? Is it faster? Is it slower? Thank you.
Mark Schneider: Thanks, Bruno. Let me take a crack at the second one and then Anna can take the lead on the first one, and I chime in when needed. So look, I think Coffee China is happening as we speak. And I think we're seeing good success there for the first half tempered by the general economic caution that we're seeing in China, in particular, in the second quarter. So that was also something that we witnessed that in the second quarter compared to the optimism that people had at the beginning of the year. Clearly, the general economic growth and consumer sentiment was a bit of a disappointment that led to more consumer hesitation and more intense price competition. But aside from these short-term sentiment moves, I think the success of coffee in China is something that is scaling up now, and we are one of the lead competitors in that market. India, I think, is also discovering coffee at a fast pace. The pattern is the same as in China. First, you see the growth in coffee shops because for someone who is new to the category, that is the lowest risk way to simply try it one cup at a time. And then when people feel confident that this is something they're sticking with longer term, the retail growth takes off. People then may buy a coffee machine or they may stock up on soluble coffee and then it kind of captures the retail channel. So India is a bit behind in -- to China in that regard, but we're seeing the same trends unfold. And so -- that one, I think, is also having a positive future on a several year time frame.
Anna Manz: So to answer the first one, so in the US, the big untracked channels for us are e-commerce, vet specialty -- pet specialty and club. So those are the big ones. And collectively, we're seeing double-digit growth there. So we're growing at a little over 10%. Now, why are those channels growing fast? Well, a lot of this goes right to the heart of the consumer. There is a greater move globally to shop online and to shop in more specialty places than go to the more traditional bricks-and-mortar outlets. So I think these channels are fundamentally less under pressure. And that's why they're great places to be winning. So that's the sort of channel context. I think the important point is we're gaining share in all of those channels, and that's because we are very focused on our execution and making sure that particularly we have a digital share of shelf exactly right. And actually, more generally globally on e-commerce, we're gaining share in every zone. I think we're holding in Europe and gaining everywhere else, and gaining at quite a nice rate, and that's important because as we look at where the world is going, ensuring that we've got the executional capability to win as channel shift is obviously a big area of focus for us.
Mark Schneider: And, Bruno, let me build on that. So fully in agreement here, we have a very simple mantra when it comes to channels, and that is win with the winners. And so as Anna explained in, I think, very good detail here, I mean we recognize those as superior performers, and we bet on them early on and now we are seeing the benefits. If that picture is changing over time, I would expect us to recognize that as well and then basically put our emphasis on where we see the greatest consumer relevance and hence, the greatest growth opportunity.
Luca Borlini: Next question is from Jeremy Fialko at HSBC. Please go ahead, Jeremy.
Jeremy Fialko: Hi, good afternoon. A couple of questions for me. The first one is, could you talk about what's going on in AOA in terms of some of the sort of boycotts of Western brands? I see that some of your Malaysian sales were down quite a lot in the quarter. So which markets you're seeing it, where the situation is getting kind of worse and what sort of the drag that it might be having on your business? And then the second one is, I guess, a bit of a follow-up on Guillaume's question from earlier. If we focus on Nespresso in particular, again, a relatively slow period for Nespresso. I thought that we were through this kind of post-pandemic normalization. So could you sort of talk about what the path to that business back to mid-single-digit growth is or whether indeed you think it is a mid-single-digit growth business going forward or whether now because the penetration of the systems or whatever is so high, we do need to have a more kind of gradual type of growth rate from Nespresso going forward? I'm talking here, particularly about the standalone business rather than the Starbucks (NASDAQ:SBUX) stuff that you're selling in retail. Thanks.
Mark Schneider: Jeremy, thank you. Let me try and take a crack at both. So in AOA, you're right, we're seeing continued consumer hesitancy in some select markets as a result of the Middle East and political situation, and that is ongoing. It has not improved very much since the beginning of the year, but I also don't see it turning worse at this point. We've stayed away from more targeting. I don't see us as a company particularly pointed out. I think it's a general hesitancy with regards to global consumer brands. Regarding Nespresso, it is important that, of course, we report this business to you as a globally managed businesses -- business. But you have to see the wider reality of Nespresso, plus the portioned coffee that runs on its machines. So that will be then our Starbucks capsules and also Nescafé Farmers Origins. And so between those three brands, we're covering different price points, and we're also covering different channels. And so I think, overall, we're doing quite well when it comes to what we call the Nespresso system sales. And then Nespresso, depending on what year you -- what quarter you look at it, the performance may not tell you the full story. So in particular now when it comes to the first half, for example, and pricing opportunities, do keep in mind, Nespresso when it comes to its coffee mixes, it relies to a larger degree than some of the other brands on Arabica. And hence, the pricing opportunity and the pricing need was less pronounced in this area. So there's always some special factors that apply. And hence, you may not have seen sort of the organic growth for this particular period in time that you had in mind. But on a longer-term basis, still very bullish here on the opportunity with Nespresso and the two formats, both the original line and the virtual line.
Luca Borlini: So next question is from Celine Pannuti at JPMorgan (NYSE:JPM). Please go ahead, Celine.
Celine Pannuti: Thank you for taking my question. Good afternoon. Maybe before taking my question, I want to thank you, Luca, for your help and your dedication while at the IR of Nestlé. So a warm thank you and congratulations for your next move. My first question is on the pricing. So Mark, you said that pricing, we see that pricing decelerating to 0.6% in the second quarter. Can you help us understand the level of pricing that we should be expecting into the second half? Will there be already places, like in coffee and confectionary where you will see new pricing that will accelerate? Or do we see that 0.6% as a level where you would see less pricing even than that in the second half? My second question, probably a follow-up as well on that pricing point. But given what you said, Anna, gross margin would be negative in the second half of the year. And so I wonder, as we look into 2025 and into the range of 17.5% to 18.5%, which is your margin target, how comfortable are you that an environment where you will have to face the higher cost inflation because that would be as well the case for 2025? What measures are in place for you to deliver on that, given H2 margin will be under pressure? Thank you.
Anna Manz: Shall I have a go at the first one? So how to think about pricing? So as I look forward, I would presume that the level of promotional intensity that we're seeing currently continues. With respect specifically to Nestlé Health Science, there, we are investing specifically to get our products back on shelf and really get that business going again. And that's quite a time-bound thing, so that should be done by the end of Q3. And then as I look out across the half, we will see commodity prices continue to go up in coffee and cocoa. And there, we will be taking pricing. So if you wrap all of that together, yes, I expect to see positive price in the second half and for the year. And we'll take every opportunity that is appropriate, whilst maintaining the right competitive price gapping for our brands for consumers.
Mark Schneider: And, Celine, maybe if I can build on that. While I know you were asking sort of with a view towards the second half, also to give a bit more color on where we saw the situation now for the first half and, in particular, the second quarter, I think you've seen probably less surprising than expected in North America, where, on the one hand, is this promotional intensity coming from the value-seeking consumer that Anna talked about. But on the other hand, I also wanted to point out some of the proactive moves we've done, in particular around getting product -- new product on shelf and paying the listing fees. And then the other area I wanted to point out from a geography point of view is China where I think, compared to the expectations beginning of the year, Q2 from an overall economic point of view and consumer sentiment point of view, clearly was weaker than anyone expected. And hence, that led to more intense price competition in a more hesitant consumer. In terms of category, clearly, the one stand -- that does stand out is a Pet where, I think, in line with some of the input cost inflation reduction, you've also seen now a certain price normalization. As you know, price was the main reason why in '23 and '22, we had seen double-digit organic growth for Pet. And now is that normalized, of course, we want to be sure that our price gaps to where the market level is do not get out of hand. So hopefully, that gives a bit of color on where we saw things go in the first half and the second quarter.
Anna Manz: And with respect to margin, as I just said and answered, I can't remember whose question it was now, year-on-year, our gross margin will improve. So the issue is more that there's a phasing difference between H1 and H2. But we're seeing that gross margin improvement over the year as a whole. And we will continue to see rebuilding of our gross margin over time as we work through. But it's been a really unusual period. With respect to UTOP margin, gross margin is just a piece of it, as you know. We also have the leverage benefit of the extra volume. We have the mix benefits that go through. And so you put all of that together with the work that we continue to do on structural costs and that leaves us confident of where we stand on UTOP margin.
Mark Schneider: And if I could just build on that, that's why it was so important for us to also get that real internal growth flywheel running again because, as you know, as inflation peaked and came down, there was a period of six to seven quarters with kind of weak RIG development and at times negative volumes. And clearly, what you don't get then for the business is operational leverage. And so, getting the flywheel running again, having now a convincing RIG performance for Q2 and also continued positive RIG outlook for the business is important because it gets the operational leverage going again that Anna is referring to.
Luca Borlini: Celine, thanks for your kind words. So it has been a pleasure to work with you and all the investor community over these years. Next question is from David Hayes at Jefferies. Please go ahead, David.
David Hayes: Thanks, Luca. And good afternoon, everyone. Just a quick follow-up on that question just to clarify. So I'm just -- I'm not quite clear, on the second half, gross margin is still going to be up, but just not as much as the first half. That's what I understood. Or is it down year-on-year? You said specifically, maybe I missed that, but for the full year, it will still be up. Just to clarify that one more time. And then I guess, just in terms of the two questions and staying with margin and that question, I guess. If you think about the pricing, you kind of talked about it being more promotional, more pressure downward than you expected. A&P demand seems to be maybe a little bit higher as well than you expected. And then you've got the cocoa and the coffee prices going up through the year, which you've talked about as well, but you're still happy with the same guidance on margin and consensus being up around 20 basis points to your point earlier. So just to understand, what's the offset to that margin not having to change given all of those moving parts that seem a little bit less contributory than you thought at the beginning of the year? And I guess, are those trends likely to continue, which means that we should be thinking the lower end of the 17.5%, 18.5% now for next year? Or is there a lot of things that, again, will shift, that means that you can get well into that range? And then the second question just in terms of the US orders into the 4th of July promotion. Can you quantify that at all for the US business? We got a bit more of an idea of that ongoing trend into the second half. And were there any other promotional activities that took place in other markets as you try to be more competitive that just weren't significant as that particular one, but that you'd again maybe flag into the third quarter to take account of? Thank you so much.
Anna Manz: So, let me see if I've got all of those. So on margins, just to be super clear, over the full year, we expect a gross margin improvement, and a consensus is there or thereabouts. The first half, we saw a big improvement in margins. The second half may be slightly below the prior year, if you work the math of that through. So that was the first question. The second question, I think, was why are we confident of our full year margin guidance overall. And I think a number of things. I think we've laid out for you how we're thinking about continued RIG growth, and that gives us some leverage. Of course, we're going to see some mix benefits in that as well. And we'll get some leverage benefits from that. I won't talk more about pricing because I think we've done that one to death. In terms of A&P investment, we've had a big step-up in the first half of the year, and we will continue to grow our A&P investment. And I think you said that was higher than expected. I don't think that's the case. This is the right level of investment to grow our business. This is the investment that drives future growth. And we think it's really important. And that's the execution that we're delivering that delivers the RIG growth. But as you look at the second half, we're lapping a much higher level of investment in the second half of last year. So while it will continue to increase, there won't be such a big step-up half on half. And yes, we've talked about cost inflation coming through, and we continue to manage our structural costs. So if you wrap all of that together, we're comfortable with our margin. And then I think the next one is the US phasing. Now, maybe just to step back a minute, the RIG swing that we've seen in the US has been substantial. So it was 860 basis points, from a minus 5.8% in the first quarter to a 2.8% growth in the second quarter. And that is a real turnaround. The impact of the phasing of orders in Zone North America in Q2 was about 100 basis points of that 860 basis point swing. So it's not material from a group perspective. The reason we're calling it out is just so that you can understand the phasing of RIG performance won't be linear in North America over the next couple of quarters. That's all. And are there any other promotional activities there elsewhere? No, only this one.
Luca Borlini: Next question is from Sarah Simon at Morgan Stanley (NYSE:MS). Please go ahead, Sarah.
Sarah Simon: Yes. Afternoon. I've got two, if I may. Just to come back on this point about marketing and pricing. If you're stepping up materially the level of innovation, so if it was 15% more new launches in H1 and it's going to be 20% for the full year, that obviously is a big step-up again in H2 to get there. Does that not entail the need for more marketing again and also maybe more paying fees to get on to shelves? That was the first thing. Second question was just on this 100 basis points. Can you call out any specific categories where -- which benefited, just so we can think about it from a category perspective rather than a geographic perspective? Thanks.
Anna Manz: So, with respect to innovation, we've got a wide range of innovations coming out. And what we're consistently doing is really using forward-looking executional metrics to make sure that we're taking our innovations more broadly across more countries in a more effective way. And actually, you see that in our billionaire brands. You see that sort of focus that we're bringing in our advertising to really focus it in the areas where it can make the biggest impact. And we're seeing the benefit of that in terms of the market share gains that we're seeing. So as we look at the innovation we're bringing forward, it's often variants of existing brands. And so as we launch them into market, it's not like they need a whole new set of brand building. It's about delivering on a specific consumer need in a market. So look at, for example, NESCAFÉ Ice Roast, which is the cold soluble Nescafé. It comes out under the Nescafé brand halo, but it really delivers on a specific young consumer need. So yes, there is a step-up in advertising and promotional investment half-on-half, and we think we've got the right focus and targeting for the innovation we're bringing to market. And yes, in the US specifically, where we're launching new brands, there will be listing fees. But that's a US specific issue. And then with your question on the North American phasing, across most categories, a slight weighting to frozen, but not big in the scheme of things.
Luca Borlini: Next question is from Jeff Stent at Exane. Please go ahead, Jeff.
Jeff Stent: Thank you, Luca. And just to echo Celine's comments, I'll miss you, Luca. Thank you. But to my question, at the start of the year, you said you intended to achieve mid-single-digit growth in '25. I assume that guidance remains in place. Does it?
Mark Schneider: And Jeff, that's your only question? Or do you have a second one?
Jeff Stent: No. Sorry, that was my only question. Yeah. I realized I should ask two or three, but I'm asking one. Yeah, my apologies.
Mark Schneider: So, look, I mean, as you know, going back to the Capital Market Day in Barcelona, this whole notion of reestablishing mid-single-digit '25 is a midterm goal of ours and remains that. Specifically for '25, given how choppy the environment is and how unforeseen some of the macro and geopolitical events are, I'd like to reserve basically that to the moment in time when we give the annual guidance, and that is February next year.
Luca Borlini: Thanks, Jeff. So next question is from Victoria Petrova at Bank of America (NYSE:BAC). Please go ahead, Victoria.
Victoria Petrova: Thank you very much. I have two clarification questions. First, my understanding is your cost of goods sold in 2024 will be up because of cocoa and coffee costs primarily. Are you hedged on cocoa till the year-end? How should we think about that? And my second question, in the beginning of the year, when you talked about the potential 4% growth -- organic growth target, it was around 1% volume and price and around 2% mix. Now, you're moving to 3% -- more than 3%. What has changed within this equation? What has been surprising in 2024 mostly? Is it price? Or is it mix? Again, we have very different performance in Q1 and Q2 when we look at RIG, so it would be interesting to understand how you think about it. Thank you so much.
Mark Schneider: Victoria, let me take the second one and then hand it to Anna for the first one. So look, when we said around 4%, we did not provide at the time a detailed breakdown into pricing and RIG, and that's just in line with our longstanding practice. But it's very clear that as we went through the first half, we've done, especially in the second quarter, everything we said we were going to do on RIG. And that's important to me from an execution point of view. We did see finally the lift-off from the stronger brand support, the focus on the billionaire brands, betting on these fast-growing channels that Anna described, and then also getting better innovation out there that so far has seen good success. So all of these good drivers across the board, and I think that's why this slide in the presentation is so important, this is not a one-trick pony. This is something that applies to all five zones and applies to all categories. I think that was, in my opinion, the key turning point, and that one were just as foreseen. The part, as we went deeper into Q2 that we had to realize, is that overall, in addition to some of the special circumstances we pointed out to you, like the listing fees and reestablishing Nestlé Health Science, VMS products back on shelf and so forth, that there is a bit of a stronger promotional intensity environment out there than we had foreseen. Hence, pricing was going to get lower for the full year. And that's why in this equation now, we felt that it's more appropriate, rather than guiding around 4%, to guide at least 3%. You may remember in the full year and the first quarter call, I mentioned to you that when we were saying around 4%, we didn't mean a backdoor 3% to 5%. That was important to us. So we bracketed the target range more closely around 4%. And now we're staying true to that. And we are basically indicating to you that greater than 3%, at least 3% is the better descriptor of what we have to expect than in around 4%. But you also see that this is just literally a few basis points apart, and it's not too far away from where consensus is anyways. So overall, pricing has come down. The pricing expectation has come down a little bit from what we expected at the beginning of the year and in Q1.
Anna Manz: Maybe just to cover that first question. You talked about our input costs going up. They're not actually in aggregate. Coffee and cocoa are definite upward pressure, but we've got benefit elsewhere. So in aggregate where we sit today, our input costs are broadly flat year-on-year.
Luca Borlini: So next question is from James Edwardes Jones at RBC (TSX:RY). Please go ahead, James.
James Edwardes Jones: Thank you, Luca. Mark, you said that you should -- I'm paraphrasing, but you should do mid-single-digit revenue growth without one-offs. On one-offs, what always or normally happens in big diversified consumer staples companies like Nestlé, so I could point to Unilever (LON:ULVR) with ice cream or Danone with its struggles in plant-based. Wouldn't it make sense for these one-offs to somehow be reflected in your medium-term expectations?
Mark Schneider: Yeah, James, important question. And what I should have said really is material significant one-offs. And those, typically, you don't have every quarter, every year. So yes, of course, I mean, there's always a number of one-off situations that you're dealing with. But I think you've also seen many years, which we had reported that didn't have any of those or that have positive ones to equal out than some of the negatives. So clearly, what I was trying to intend to say is something that we very much called out to you in the middle of the COVID crisis that with that last major portfolio move at the time, which was the divestiture of Nestlé Waters (NYSE:WAT) US and that deal closed and out of the system, we felt we had a portfolio. And that feeling still applies today. We had a portfolio, we have a portfolio that can, in a normalized state, deliver mid-single-digit growth defined as 4% to 6%. That statement still applies. What you've seen since we made that statement in 2020 is you've seen some years where, due to COVID and due to inflation, we've been significantly north of that. And now as we're coming out from that significant inflation spike, you're seeing a year with an at least 3% organic growth guidance. We're going to be slightly under it. But that the portfolio overall is capable of delivering that. We have confidence. And again, we'll lay this out in greater detail in November.
Luca Borlini: So next question is from Tom Sykes at Deutsche Bank (ETR:DBKGn). Please go ahead, Tom.
Tom Sykes: Thank you. Are you able, given all the puts and takes on the RIG number, just to commit to whether the RIG will accelerate Q3 versus Q2? In Coffee and cocoa exposed categories, do you at all get any prebuying ahead of price increases? Or have you had any prebuying, how early can people do it given the expected high price increases that likely -- or the price increases are likely to come through? And then just on productivity, you've historically generated 60, 70 basis points or so of the productivity. I wondered, and in your time there now, is that something that can be relied upon? Or would you see any possibility that, that level could increase at all, please?
Anna Manz: [Can I get] (ph) some of those? So with respect to RIG quarter-on-quarter, I'm not going to give you quarterly guidance on RIG, but we are back to positive RIG growth. And we feel like we've got that momentum in the business. And the things that we have done around really driving execution, investing and innovating is working, which is what gives us that confidence. In terms of coffee and cocoa and prebuying, I think the way to think about this is, is we're in 170 countries and we are taking price with different customers in different channels at different times. In some cases, there's a small level of prebuy. But when you look across the group as a whole, that's not something that is distorting our overall performance. So it's not an area I would focus on much. And in terms of productivity, I'm learning my way across Nestlé and enjoying it very much. And I would say there is great focus on productivity on an ongoing basis. And I think that's really important for a business like us. And I think it's something that we'll be continuing to focus on and use metrics to focus on. So I'm confident that we can continue to drive incremental productivity savings.
Mark Schneider: Tom, let me build on that last point. And as you followed us over the years, I think we are very, very much beholden to this continuous improvement mindset. There was a brief pause and that was due on the depth of COVID because we felt at that moment to go ahead with significant restructurings. Even at a single location, it would have been the wrong thing to do. But the minute that COVID normalized, we started identifying projects again that gave us good efficiency, improvements going forward. You see that, by the way, in our -- reflected in our '23 and first half difference between underlying trading operating profit margin and trading operating profit margin. So this is where some of the restructuring work can be seen. And so I think that ongoing improvement way is the best way to seek a business that in a harmonious way kind of builds on its growth. As you know, we're not interested in significant slash and burn style restructurings. We believe that those tend to be disruptive to growth. We believe that this continuous pathway is the right one to go. You've seen, in my opinion, an exemplary period between 2017 and 2019, where we had that flywheel on the improvements going and we had the flywheel going on RIG and organic growth. And basically, after these twin distortions now of COVID, and the historic inflation spike, what we're trying to get back to is exactly that dual flywheel kind of approach that funds future growth.
Luca Borlini: So we have no further questions. We have come to an end to our session today. We all thank you for your interest in Nestlé. As usual, if you have any further questions, don't hesitate to reach out to our IR team. And with that, we wish you all a very good day.
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