Nestle SA

SIX:NESN

Earnings Call Analysis

Nestle Reports Strong H1 Growth, Raises Guidance

Nestle showcased a robust first-half in 2023, reporting a solid organic growth of 8.7%. This success reflects the impact of significant input cost inflation, with pricing at 9.5%. Alongside this, the company expressed confidence in its full-year prospects by raising its organic growth guidance to a range of 7% to 8%. Nestle's outlook remains optimistic, intending to achieve the upper half or even the upper end of this new target. The company also confirmed all other guidance items for 2023, suggesting a strong financial standing for the year.

Strong Financials and Positive Outlook Amidst Normalization

The company displayed a compelling performance in the first half of 2023, marking a return to strategic and forward-looking business management after a period dominated by crisis navigation. A notable 8.7% organic growth was driven by a 9.5% increase in pricing—a result of considerable input cost inflation over the previous two years. Despite this, they managed to keep real internal growth (RIG), which signifies volume and mix, nearly flat at -0.8%. This resilience was crucial given the economic uncertainty but has been accompanied by clear expectations for RIG to turn positive in the second half of the year. As certain businesses, such as Nespresso and supplements, rebound from post-COVID slowdowns, and as marketing investments amplify and pricing actions taper off, they foresee less impact on volumes.

Organic Growth with Solid Performance in Developed and Emerging Markets

Growth was broad-based, with organic growth reaching 8% in developed markets despite negative RIG, and emerging markets showing even stronger performance at 9.6% with stable RIG. The company's pricing strategies were effective, maintaining consumer demand despite widespread price hikes. There was a slight decline in sales due to net divestitures and a more pronounced negative currency impact. Nevertheless, the company's total reported sales stood at CHF 46.3 billion, reflecting the strength of their business model in turbulent times.

Improving Margins and Cash Flow Suggest Brighter Second Half

There was a concerted effort to improve margins, with gross margin showing an increase despite ongoing cost inflation, which remains a challenge albeit at a lower level than the previous year. This improvement was partly due to better management of distribution costs and a focus on efficiency and portfolio optimization. Management expressed optimism for the gross margin to rise notably in the second half, compared to the previous year. The company's strong free cash flow, which grew from CHF 1.5 billion to CHF 3.4 billion, implies an even stronger performance in the latter part of 2023. They anticipate around CHF 10 billion in free cash flow for 2023, with expectations to reach around CHF 12 billion by 2025, underpinning their capability to self-finance dividends and share buybacks without adding to debt.

Investing in Marketing and Resilience in European Market

The company has ramped up its advertising and marketing (A&P) expenditure by 7.5% year-on-year in constant currency terms, indicating an aggressive strategy to fuel brand loyalty and product innovation. This investment reflects the company's commitment to consumer engagement and is evidenced by the expected increase of at least 100 basis points in marketing spend for the second half of 2023. While Europe saw higher elasticity and slight pressure on RIG due to tardy pricing actions, the global results show a manageable impact, manifesting resilience in consumer demand amid significant cost-induced pricing actions.

Infant Nutrition Growth and CFO Transition

The company reported strong double-digit growth in Infant Nutrition, driven by innovations such as human milk oligosaccharides (HMOs). This segment's success was widespread geographically, with notably stable growth in China. Promisingly, the margin for Infant Nutrition increased by 60 basis points and stood north of 24%. Meanwhile, the company has begun a transition in its financial leadership, with CFO Francois Roger to be succeeded by Anna Manz, though an exact date has not been confirmed.

Confectionery and Coffee: Market Trends and Challenges

Despite a slight slowdown in confectionery RIG in the second quarter due to tougher comparisons and seasonal shifts, the segment remains healthy, driven by strong brands and performance in key markets. In the coffee category, margins have been challenged due to continued high input costs, particularly for Robusta coffee beans. However, there is a clear commitment to recovering margins in this category to previous levels as the input costs begin to stabilize.

Earnings Call Transcript 2023-Q2

[Operator]

Good afternoon, and good morning to everyone. A warm welcome the Nestle First-Half 2023 Results Webcast, and thanks for joining. I'm Luca Borlini, Head of Nestle Investor Relations.

Today, I'm joined by our CEO, Mark Schneider; and our CFO, Francois Roger. Mark will begin with the key messages and discuss the full-year 2023 guidance. Francois will follow with a review of the first-half 2023 sales and profit figures. We will then open the lines for your questions. Before we begin as usual please take note of our disclaimer.

And now I hand over to Mark.

[Mark Schneider, Chief Executive Officer]

Thank you, Luca, and a warm welcome to our conference call participants today. As always, we appreciate your interest in our company. We believe that we have a strong and convincing set of results for the first-half, delivering on key metrics where we had indicated improvement earlier this year. Based on that, we look towards the second-half and the year 2024 with confidence.

Very importantly, after several years of day-to-day crisis management, we have seen signs of further normalization in our operating environment in the first-half. This allows us to be more strategic and more forward looking in the way we manage our business. We're getting back to our proven virtuous circle of managing for steady and profitable growth.

We are pleased to report strong and broad-based organic growth of 8.7% for the first-half of 2023. Pricing was 9.5%, reflecting significant input cost inflation over the last two years. As you know, we had cautioned you about expectations for the development of volume and mix in the second quarter. Against that backdrop, we were quite pleased with the resilient real internal growth, the sum of volume and mix, which came in at minus 0.8%. Given that our own voluntary portfolio optimization efforts reduced this number by 60 basis points, we managed to keep the underlying real internal growth almost flat. Not a small feat in a period with extraordinary inflation induced pricing and economic uncertainty and a period that still saw some post-COVID normalization in a few of our categories, which was a slight drag on volume growth.

In case you are concerned about a sliding global consumers sentiment, I would like to assure you that we did not see a downward trend inside the second quarter. April was rather weak in line with what some of our peers reported. Sales in May and June were quite firm. I would like to confirm our expectation that real internal growth will swing into a positive territory in the second-half of the year. Several businesses that showed signs of temporary post-COVID sales growth compression are beginning to turn around. For example, Nespresso and the vitamins, minerals and supplements segment of Nestle health science.

We are also increasing our marketing investments and will increasingly see the benefits of our portfolio optimization program kick-in. As our pricing activities moderate, we should also see less of a drag on volumes. Among the other achievements for the first-half, I would like to point out the sequential development of our gross margin, compared to the second-half of last year and our free cash flow development. The gross margin improvement is expected to continue over future quarters. The free cash flow improvement is in line with our expectations and should accelerate in the second-half of the year. More on that from Francois later.

So all in all, a solid financial picture with a strong development in constant currency underlying earnings per share growth of 11.1%. This is above the top end of the mid-term 6% to 10% corridor we had laid out to you in Barcelona last year. Our marketing spend as a percentage of sales increased, compared to the second-half of last year and is roughly unchanged from the first-half in 2022. As you know, for most of 2022, our marketing spend levels were quite muted in the face of supply chain and capacity constraints.

With a large degree of uncertainty over consumer behavior during the winter, we had started the year on very lower spending levels. As for March, the spending levels increased month-after-month with Q2 spending levels now significantly above last year's level. We will continue to invest in a very robust manner in the second-half of 2023.

Moving on to slide five in our business as a force for good section, I would like to highlight our work on sourcing deforestation free palm oil. Palm oil is a very versatile vegetable oil used in a number of our categories. It is quite efficient with regards to land use per ton produced, but of course, it needs to be responsibly formed. Nestle is committed to that. We pursue high-tech solutions like the satellite tracking system, which we adopted as the first large scale user to monitor our palm oil supply chain.

At the other end of the spectrum, we're closely involved in on the ground measures working with smallholder farmers to find sustainable and equitable solutions. We leave no stone unturned. We're now nearing 96% deforestation free sourcing for palm oil and we'll continue to disclose this number annually. Getting to deforestation free and staying there will be a constant effort, and we're committed to it in the name of avoiding deforestation around the world in protecting our climate.

This takes us to slide six and our updated outlook for the year. Based on the stronger-than-expected organic growth and real internal growth development in the first-half, we now increase our organic growth guidance for the full-year to a range of 7% to 8%. While it is prudent in volatile times to leave some downside protection, I would like to share my personal expectation that we intend to hit the upper half, if not the upper end of this new range. We fully confirm all other items of our 2023 guidance and believe that our strong first-half financials put us in a very good position to meet or exceed those.

With this, I would like to hand over to Francois. I look forward to answering your questions later.

[Francois Roger]

Thank you, Mark, and good morning or good afternoon to all. Let me start with the highlights for the first six months of 2023. Organic growth reached 8.7% with pricing of 9.5%, reflecting the impact of cost inflation received over the last two years. RIG was minus 0.8%, impacted by capacity constraints and the effect of portfolio optimization initiatives.

Overall, demand elasticity and consumer down trading remained limited in the context of pricing actions. Net divestitures decreased sales by 0.4%, largely related to the divestiture of Freshly, as well as the disposal of the Gerber Good Start infant formula brand in the United States. Foreign exchange had a negative impact of 6.7% on sales growth following the broad-based depreciation of currencies versus the Swiss franc. Total reported sales for the first six months were CHF46.3 billion.

Turning to the distribution of growth between developed and emerging Markets, organic growth in developed markets was 8%, driven by pricing with negative RIG. Growth in emerging markets was 9.6%, based on pricing with flat RIG. RIG for the first-half of 2023 was slightly negative at minus 0.8% in line with what we previously communicated. RIG was at a similar level in the first and second quarters when adjusted for the number of trading days.

We continue to be impacted by remaining capacity constraints particularly for pet care and water. RIG was also impacted by portfolio optimization actions, which had a negative effect of around 60 basis points in the first-half. This included the impact of the fast winding down of the frozen meals and pizza business in Canada in the second quarter. At the same time, we are starting to see the benefits of our portfolio optimization actions with a material and progressive improvement in service levels for high rotation products in the first-half. This improvement will support RIG development in the second-half.

We are confident that Group RIG should turn positive in the second-half, beyond the lower base of comparison, the RIG improvement should be driven by the step up in marketing investment, the net effect of portfolio optimization and the moderation of new pricing. Just as a reminder, the third quarter will have one less trading day.

Let's now shift focus to the results of our seven operating segments, beginning with on North America, where we saw 10% organic growth with inflation related pricing of 11%. RIG at minus 1% was resilient in the context of portfolio optimization actions and capacity constraints, particularly for Purina PetCare, Perrier Water and Coffee Creamers. Excluding these impacts RIG was slightly positive in North America in the first-half.

The Zone delivered broad-based growth across brands and categories, driven by favorable mix and continued momentum in e-commerce. The Zone saw market share gains in pet food, frozen meals, as well as soluble and portion coffee. By product category, the largest growth contributors was Purina PetCare, which reported growth in the mid-teens with positive RIG. The beverages category, including Starbucks products, Coffee mate and Nescafe posted high-single-digit growth.

Sales of Nestle Professional and Starbucks out-of-home products grew at a strong double-digit rate. Frozen food reported flat growth, partly impacted by portfolio optimization actions in Canada. We are seeing positive market share trends across brands, including gains for Staffers, JAKKS and California Pizza Kitchen. The Zone underlying trading operating profit margin increased by 280 basis points, mainly as a result of the divestment of a majority stake in freshly and portfolio optimization initiatives. Pricing and cost efficiencies also helped to offset significant cost inflation received over the last two years.

Next is on Europe. Organic growth was 8.9%, driven by pricing linked to significant input cost inflation received over the last two years. RIG was minus 2.4%, following a high base of comparison and portfolio optimization actions. It is worth remembering that over the last two years, RIG increased by more than 6% for the first-half. Growth in Zone Europe was supported by strong sales development for e-commerce and continued momentum for out-of-home channels. The Zone saw market share gains in Pet Food, Confectionery and Infant Nutrition.

By geography, the U.K., Turkiye, as well as Central And Eastern Europe, were the lead contributors to growth. By product category, the key growth drivers was Purina PetCare, fueled by premium brands, Felix, Gourmet and ONE. Growth for Pet Care was strong across all channels, particularly in e-commerce. Confectionery reported high-single-digit growth with strong demand for KitKat. Nestle Professional recorded double-digit growth. Coffee saw mid-single-digit growth with particular strength for Nescafe soluble coffee and Starbucks products. The Zone's underlying trading operating profit margin decreased by 70 basis points as significant cost inflation outweighed pricing and cost efficiencies.

Moving to Zone AOA. The Zone reported high-single-digit organic growth. Pricing was 9.2%, reflecting the impact of input cost inflation and currency depreciation. RIG was slightly positive. Growth was driven by pricing, continued momentum of out-of-home channels and innovation. The Zone saw market share gains in Coffee, Culinary and Confectionery. By geography, all regions posted positive growth. South Asia was a key growth contributor, supported by distribution expansion and e-commerce momentum.

The Middle East and Africa also saw strong growth based on robust demand for affordable offerings. Growth in Southeast Asia was driven by the Philippines and Malaysia, Singapore. By product category¸ Infant Nutrition was the largest growth contributor led by Lactogen, NAN and Cerelac. Sales in Culinary grew at a double-digit rate, led by Maggi and fueled by new product launches.

Coffee posted high-single-digit growth with continued robust demand for Nescafe and Starbucks Products. Sales for Nestle Professional grew at a strong double-digit rate across most categories and geographies supported by channel penetration and customer acquisition. The Zones' underlying trading operating profit margin decreased by 70 basis points. The impact of input cost inflation and currency depreciation more than offset pricing and discipline cost control.

Next is Zone Latin America, which reported double-digit growth for the third consecutive year, led by pricing of 12.5%, regrowth minus 0.9%. The zone saw sustained broad-based growth across all geographies and product categories, supported by strong operational execution and continued momentum of out-of-home channels. The Zone saw market share gains in Pet Food, Infant Nutrition and Culinary.

By geography, growth was led by Brazil, Mexico and the Plata region, which all reported double-digit growth. By product category, confectionery was the largest growth contributor based on strong demand for KitKat and key local brands. Dairy posted double-digit growth supported by 45 milks and dairy culinary solutions. Infant Nutrition saw double-digit growth, built on solid momentum for NAN and Nido growing-up milks.

Coffee reported broad-based double-digit growth supported by Nescafe's soluble coffee. The Zone's underlying trading operating profit margin decreased by 130 basis points as one-off items in the prior year and cost inflation more than offset pricing and cost efficiencies.

Turning to Zone Greater China. Organic growth was 4.7% with pricing of 3.4% and RIG of 1.3%. Growth was supported by e-commerce momentum and the recovery of out-of-home channels. The Zone saw markets share gains in pet food and confectionery. By product category, Nestle Professional was the largest growth contributor, supported by innovation and distribution expansion.

In Infant Nutrition saw mid-single-digit growth led by NAN specialty offerings and illuma. Confectionery reported high-single-digit growth, led by Hsu Fu Chi and Shark wafer. The Zones’ underlying trading operating profit margin increased by 160 basis points as favorable mix and discipline cost control more than offset cost inflation.

Turning next to Nestle Health Science, the business posted mid-single-digit growth with pricing of 5.3% and RIG of minus 1.9%, following extraordinary growth over the last three years during the pandemic. Our three-year re-average for the first-half was 5.3%. E-commerce momentum, continued geographic expansion, and market share gains supported growth. Consumer care reported a sales decrease with a return to positive growth in the second quarter. Active nutrition saw low-single-digit growth driven by healthy-aging products, Vital Proteins and Orgain.

Vitamins, minerals and supplements saw a sales decrease in the first-half, turning positive in the second quarter based on robust growth for Garden of Life and Pure Encapsulations. The VMS category is showing signs of returning to growth, and we expect it to increase further in the second-half. Medical nutrition reported double-digit growth with strong sales developments for acute medical care, pediatric and allergy products.

The underlying trading operating profit margin of Nestle Health Science decreased by 70 basis points as cost inflation more than offset pricing and acquisition synergies. Finally, Nespresso, which reported mid-single-digit organic growth, driven by pricing. RIG was 0.8% with a return to positive growth across most segments and geographies in the second quarter. Growth was led by broad-based momentum for the virtual system. Growth in out-of-home channels was also strong, supported by the continued expansion of the Momento system particularly in the office segment.

Innovation continued to resonate with consumers, including the launch of virtual milk machines, new Barista ice coffee creations such as juicy watermelon over ice, as well as the launch of home compostable coffee capsules in France in June. By geography, North America posted double-digit growth with continued market share gains. Europe reported slightly positive growth.

Other regions combined reported low-single-digit growth. The underlying trading operating profit margin of Nespresso decreased by 260 basis points, significant coffee cost inflation and the appreciation of the Swiss franc more than offset pricing actions. The business continued to invest in the rollout of the virtual system, as well as in media advertising, including the new campaign featuring George Clooney, Simone Ashley and Julia Garner.

Let's now look at product categories. Organic growth was broad-based supported by pricing across all categories. At-of-home consumption post-COVID has now normalized while out-of-home channels continue to see strong growth momentum with an organic growth rate twice as fast as a group average at 17.1%. Within powdered and liquid beverages, coffee saw high-single-digit growth. Growth was broad-based across brands, segments and geographies, and led by continued momentum for out-of-home channels, which grew at a strong-double-digit rate.

Starbucks products grew by 9.4%, supported by a strong recovery of out-of-home channels in the United States. Cocoa and mall beverages reported mid-single-digit growth, with strong contribution from Nesquik and Milo. Pet Care posted continued strong double-digit growth for the third year in a row despite capacity constraints. Science-based premium and veterinary products saw strong sales development. Growth was also supported by pricing, continued e-commerce momentum and innovation.

Nutrition and Health Science posted 7.4% growth, Infant Nutrition reported 10.4% organic growth with broad-based contributions across geographies, segments and key brands. Sales of human milk oligosaccharides products grew at a mid-teen rate, reaching around CHF700 million in the first-half. We have already discussed Nestle Health Science.

Prepared dishes and Cooking aids saw 5.8% growth, driven by Maggi, which reported close to double-digit growth. Plant-based food posted low-single-digit growth following the impact of portfolio optimization. While there has been some growth moderation for plant-based products recently, we see that as temporary. We remain positive on long-term category trends and expect the plant-based market to evolve and rebound.

Milk products and Ice Cream recorded 7.5% growth, the key contributors to growth were coffee creamers, affordable fortified milks and dairy culinary solution. Ice Cream grew at a mid-single-digit rate, led by agendas in Canada and KitKat Ice Cream sticks in Southeast Asia.

Growth in confectionery was 10.8%, reflecting strong broad-based demand for KitKat and positive sales development for key local brands, including Garoto in Brazil, Munch in South Asia and Shark Wafer in China. Sales in water grew by 4.2%, despite temporary capacity constraints and a high base of comparison in 2022. San Pellegrino and Acqua Panna saw strong demand, particularly for out-of-home channels. We continue our modernization efforts at our Perrier site and expect normalization of supply by the end of the year.

Moving now to profit margin by product category. Most categories saw a margin improvement as pricing, cost efficiencies, and portfolio optimization helped to offset input cost inflation received over the last two years. Margins within the powdered and liquid beverages category decreased by 250 basis points, mainly due to significant cost inflation in coffee. Pet care margins increased by 190 basis points, driven by gross leverage, lower distribution costs and improved mix, which more than offset increased advertising and marketing expenses.

Margin increases in Milk Products and Ice Cream, as well as food were supported by pricing, portfolio optimization and structural cost reduction. Confectionery saw a margin increase of 70 basis points based on gross leverage, pricing and structural cost reduction. Within Nutrition and Health Science, Infant Nutrition saw a margin increase of 70 basis points as a result of gross leverage, structural cost reduction and lower distribution cost.

Next is underlying trading operating profit, which increased by 2.9% to CHF7.9 billion. The underlying trading operating profit margin reached 17.1%, an increase of 20 basis points on a reported basis, and 30 basis points in constant currency. Gross margin decreased by 40 basis points to 45.6% as a result of continued input cost inflation that I will detail on my next slide.

Distribution cost as a percentage of sales decreased by 50 basis points to 8.6% of sales, mainly as a result of lower freight and energy costs. Marketing and administration expenses as a percentage of sales were unchanged versus the prior year.

Going into more details on gross margin. Our gross margin decreased by 40 basis points year-on-year to 45.6%. When including distribution costs, as some other companies do, our gross margin increased by 10 basis points. Pricing, cost efficiencies and portfolio optimization only partly offset the impact of cost inflation, which is still significant despite being lower than in the prior year. While costs have decreased versus a peak for some items, many price levels for commodities and labor are still trending materially above their 2022 average, and some items have seen increases.

For example, Robusta coffee spot prices are nearly 30% above their 2022 average and almost 50% above their last 10-year average. Similarly, sugar and cocoa are 25% above their 2022 peak, and more than 35% higher than their 2022 average. We are starting to rest our gross margin and when compared to the second-half of 2022, we can see a material improvement of 110 basis points. We expect our gross margin to be up materially in the second-half versus the corresponding period in 2022.

Turning to advertising and marketing expenses. We value consumer facing marketing investment as a key growth driver supporting our brands and innovation. In the spirit of greater transparency, we are now disclosing the group advertising and marketing expenses.

In 2022, we temporarily reduced our investment levels as we limited advertising and marketing activities in the context of supply chain constraints. We look at marketing and trade spend jointly, because we often arbitrate between these two lines of the P&L. In the second-half of 2022, we increased our trade spend in Swiss francs versus the first-half, as we focused on increasing accessibility and affordability of our products in the context of unprecedented pricing to compensate for significant inflation.

In the first-half of 2023, our advertising and marketing spend increased by 7.5% in constant currency versus the same period of the prior year. As a percentage of sales, it was 7.1%, representing a 50 basis points increase over the second-half of 2022. In the second-half of 2023, we expect to further increase our marketing investments.

Moving on to the P&L items from underlying trading operating profit down to net profit, restructuring expenses increased to CHF262 million in the first-half of 2023 from CHF87 million in the prior year. Impairment of assets decreased by 130 basis points year-on-year. Trading operating profit margin was 15.9%, an increase of 120 basis points on a reported basis. Net financial expenses in increased to CHF697 million. The average cost of net debt was 2.6%, compared to 1.9% in the first-half of 2022.

As a result of these movements, the net profit margin increased by 70 points to 12.2%. In Swiss francs terms, free cash flow increased from CHF1.5 billion to CHF3.4 billion and as a percentage of sales from 3.2% to 7.4%. The increase was due to working capital movements, and the sale of our stake in Prometheus Biosciences. These two elements more than offset temporarily higher capital expenditure for the period.

Even after stripping out a positive inflow of CHF643 million linked to the Prometheus disposal, the free cash flow increase of CHF1.3 billion were significant. A key driver of our working capital improvement was a lower level of inventories. At a time of significant inflation, it is relevant to look at the evolution of inventories as a percentage of sales rather than in absolute value terms. Inventory levels are starting to normalize following a temporary increase in the prior year linked to supply chain constraints. We expect this level to decrease at a faster pace in the second-half of the year.

Moving to underlying earnings per share, which increased by 11.1% in constant currency and by 4.1% on a reported basis, to CHF2.43. The improvement was driven by strong organic growth and an increase of the underlying trading profit margin. Nestle's share buyback program also contributed 1.4% net of finance costs. These increases were partly offset by the negative effect of exchange rates and higher financing costs.

Let me now hand over to Luca, who will manage the Q&A.

[Luca Borlini, Head, Investor Relations]

Thank you, Francois. With that, we move to the Q&A session. We open the lines for questions from financial analysts. [Operator Instructions] The first question is coming from Warren Ackerman at Barclays. Please go ahead, Warren.

[Warren Ackerman, Barclays]

Yes. Hi, everybody. It's Warren here at Barclays. The first one is just around margins. I think Francois you said gross margin, it will be materially up in H2. Can you define materially and maybe the moving parts? And within that, what was the COGS inflation in H1 and your expectations for H2? And maybe any comments around wage inflation as well just for us to understand, kind of, you know, the kind of the scope of the gross margin, which you need to be able to fund the reinvestment? That's the first one.

And then the second one is just a bit more on coffee really, because I guess coffee was the only -- one of the only categories where margins were down. So I'm just interested to know what your expectations are in the back half around margin? And then in terms of the operating dynamics, are you able to maybe just help us on a few of the elements in coffee? What was the Starbucks growth? And maybe a little bit on what's happening to the Nespresso compatible capsule market in terms of competition and your market share? Thank you.

[Francois Roger]

Thank you, Warren, and good afternoon. A lot of questions there. Let me start with the margin one. So indeed, we are very positive about the fact that our gross margin will continue to grow in the second-half of the year. I can't give you a specific number for the second-half, but you saw already that we improved our gross margin by 110 basis points from Q2 last year to Q1 this year. It will continue especially so that we continue benefiting to a certain extent from the pricing that we have done, including we have done some pricing at the end of Q1, while we see a moderation in input cost inflation. Input cost inflation remains high, if we look at the first-half of 2023, it is almost 10% increase. So it's not zero and we're continuing seeing some items increasing, I mentioned earlier, the robust price increases of sugar or cocoa, for example, but we see obviously some more softness in some other items like energy or transportation.

So, the fact of having still the benefit of pricing that we have implemented at the end of last year and at the beginning of this year to catch up with inflation over the past two years combined with a moderation of input cost inflation will help us to grow the gross margin. I'm confirming, by the way, the fact that we expect to recover our gross margin to the level where it was before around 50%. I can't give you an exact timing for that. It will take some time, but the timing will depend on some external factors as well, but we are fully committed to that.

Wage inflation was high this year, because it comes usually with a one-year delay. So we had to reflect that and pass it on to our employees largely at the beginning of the year, but it is a local decision it has to be seen in a local context.

On your second question of -- on coffee. Coffee is actually as you could see the only category where we have seen a margin decline in the first-half of the year. This is largely linked to the fact that, this is one of the area where we have seen the highest level of increase in terms of input cost inflation with, as I mentioned earlier, Robusta increasing still in the beginning of the year by another 30% against the ‘22 average, and it is 50% higher than the last 10-year average. So it continues to be high.

The inflation is not -- this inflation is not only for us, so I think that it's a relatively plain field competitive environment, and most of our competitors have passed on pricing. We do expect our margin to over time in coffee to increase, especially when we expect to see at a given point of time there is still a lot of volatility, but we expect to see the price of coffee bean prices stabilizing and then this will be certainly an opportunity to see our margin increasing again in coffee, we are very much committed to that. Not necessarily in H2, but in the short to medium term -- in the medium term.

[Warren Ackerman, Barclays]

And on Starbucks and Nespresso thing?

[Francois Roger]

Starbucks, so we continue to see strong growth on Starbucks. So the growth was almost double-digit with a strong momentum in out-of-home channels and positive growth as well in retail channels, both North America and International saw high-single-digit growth. And within retail for Starbucks, we have seen a strong development and strong momentum for coffee creamers and ready to drink formats as well.

And Nespresso, as we were very pleased to see what we knew would happen eventually to see the RIG back into positive territories that happened in Q2 and it will continue for the remaining part of the year. We knew that the pressure that we had over the last couple of quarters was largely linked to the post-pandemic lending. And so what we saw happening in Q2 is exactly in line with what we expected.

[Mark Schneider, Chief Executive Officer]

Warren, let me just -- this is Mark afternoon. Let me just chime in on that. When you and I had the fireside chat in early May, that was exactly what we talked about. We expressed confidence that at some point this spring or early summer Nespresso would turn the corner after this post-COVID normalization and that's exactly what happened. And so very pleased that it came in exactly in line with our expectations.

[Luca Borlini, Head, Investor Relations]

Next question is from Jon Cox at Kepler. Please go ahead, Jon.

[Jon Cox, Kepler Cheuvreux]

Yes. Thanks very much. Good afternoon, guys. A couple of questions from my side. Mark, in your, sort of, preamble you appear to say that you expected organic sales growth to be in the top half if not at the top of the new 7% to 8% range. You also seem to say that you're in a position to meet if not beat your margin and EPS growth goals? And just a point of clarification there, if you could clarify that?

And then the second question just on the fact that there are quite a few commodities. New Cocoa, Sugar, Coffee, still quite inflationary. Just wondering, should we still expect potentially mid-single-digit price next year? Like, we'll see a deceleration from the 10, of course. Do you think it'd still be around 4% or 5% next year? Thank you.

[Mark Schneider, Chief Executive Officer]

Thanks, Jon. So clearly, I was expressing confidence on the organic growth. While at the same time when it comes to official guidance, I hope everyone understands in a highly fluid global environment. I think it's good to leave some downside protection. But I hope the underlying confidence on our top line shown through. And on our other aspects of our guidance fully confirmed what we said early in the year, so very stable financial picture as we cruise through the year. And I hope everyone appreciates pretty much all the items that we talked about that would start to turn middle of the year have started to turn in our favor. And I think that underlying stability and also the control of the business is appreciated.

Now when it comes to pricing, I think it's too early here to speculate on ‘24. Of course, everything is now all eyes on second-half of ’23 making good on our plans with a high degree of precision. ‘24 obviously, I mean, it's safe to say that pricing will not reach the same levels as we've seen in the first-half of ’23 so far. But it's also clear that when it comes to the overall macro environment that pricing on a selective basis where appropriate will still apply and will still be needed. You saw some of the commodities that Francois had highlighted where inflation still persists. Then obviously in categories that relate to these commodities, we still need to take the liberty to price when needed.

[Luca Borlini, Head, Investor Relations]

Next question is from Celine Pannuti at JPMorgan. Please go ahead, Celine.

[Celine Pannuti, JPMorgan]

Yes. Thank you and good afternoon, Mark, Francois Roger and Luca. My first question is on the RIG. So you said that the RIG will bounce back some time in the second-half. I think 0.6% hit from your SKU reduction should you sell be more than offset in the second-half. So I just want to try to gauge whether effectively RIG for the year will be a positive given we already have some tailwind from the SKU reduction, as well as the benefit of the comparative? And just on that, I'm also surprised you didn't put capacity constraint easing as one of the reasons for RIG to improve as well in the second-half?

And my second question is on -- I'm trying to understand what you're seeing on the margin for H2. So gross margin up materially, I would think that distribution cost still is positive against that you are going to invest behind the business. So I would still think that you could see quite a nice step up in margin. So I'm not sure why margin should not be at the top end of your range for the year? Thank you.

[Mark Schneider, Chief Executive Officer]

Thanks, Celine. This is Mark. I'll try to cover your first question and then hand it to Francois for the second question. So your first one is a really important one and I think gives us a chance to clarify a few points. As you know, earlier this year, while we had always said that rate would turn positive in the second-half, we had stayed away from speculating whether it was going to be strong enough to make up for the negative RIG in the first-half or not. We're clearly working on that and so clearly we ambition and the goal is here to make it strong enough so that we will have a positive break on the full-year.

However, it's too early to confirm that and this is something that obviously will work very hard on. There is a swing factor here and that relates to our SKU rationalization program and portfolio optimization. You may recall one of the major items in this portfolio optimization program was the retreat from the Canadian market for frozen pizza and frozen meals. That's a massive business. That's the single largest item in this program. And that retreat has started in Q2, it is going extremely well. In fact, our retail partners were very receptive to this. And so it’s going faster than anticipated. As you know, we had planned to layer that in over several quarters stretching into ‘24 at the moment is going faster than anticipated, which I think is a good thing.

But that of course then has some impact on what the growth rate is for RIG in the second-half of the year and hence also for the full-year ‘23. So that's where I suggest stay tuned. We'll try to give you a good update here as part of our Q3 reporting. But clearly, I want everyone to understand we're working very hard to potentially come out with a positive RIG for the full-year ‘23.

And on the Canadian program itself, I hope also everyone understands the logic of what we're doing there and that positions us in a much better way than going faster here for continuous growth in ‘24. And the SKU program overall is certainly delivering very well. It's also helping us to focus to much larger degree on high rotation items. We've seen service levels for those come up. So everything about that program still holds true. The one thing that has changed is that the pizza and frozen meals, which we think in Canada is going faster than we originally anticipated.

[Francois Roger]

Good afternoon, Celine. You're absolutely right that, as I said earlier, so gross margin will increase materially in the second-half again. That being said, don't forget as well that we put ourselves in an investment position to support growth and not everything that we will generate in terms of additional gross margin will flow to the bottom line, mainly because we invest to start with in marketing. So marketing, as a percentage of sales, was flat in H1, although it increased in local currency by more than 7%, but it was flat year-on-year.

In the second-half of the year, we plan that it will increase by probably 100 basis points or more versus the same period of last year in H2. So in addition to that, we still continue to invest in sustainability in digitalization, in CapEx, and so forth. And in addition to that, there are still a little bit of uncertainties as well on the input cost evolution, as we mentioned earlier. So we want to make sure that we keep some downward protection. And as a consequence, we maintain our guidance for 17% to 17.5% for future for the full-year.

[Luca Borlini, Head, Investor Relations]

Next question is from Patrik Schwendimann at Zurcher Kantonalbank. Please go ahead, Patrick.

[Patrik Schwendimann, Zurcher Kantonalbank]

Yes, Patrik Schwendimann from Kantonalbank. Thank you, Luca. Hi, Mark. Hi, Francois. I have a question regarding the cash flow, there was a substantial negative impact from payables in H1. Does this revert in the full-year? Or what is your best guess assumption for the net working capital movement for the full-year? Can you expect here already a lower net working capital year-on-year for the full-year?

Then second question, again, on the gross margin, we have seen a very nice improvement since the second-half of last year, but we are still far away from the level we have seen back in 2021 and 2020. Do you see a chance to get already quite close next year to the ’21 level? Thank you.

[Francois Roger]

Patrick, question.

[Luca Borlini, Head, Investor Relations]

The first question was on the higher level of payables, right?

[Francois Roger]

Yes. Okay. So Patrick, good afternoon, Francois speaking. On the payables, it is really over the course -- over the year short-term, the impact that we saw. Given that, as you know, we decided to bring our inventory back to the level where we were before, because last year we increased our inventory in the context of supply chain disruption, which was a voluntary decision. I think it was a good decision, but we knew that we would have to address it, and it has started already in H1, and we are very positive about it.

Obviously, to do that, we need to buy less raw material, less packaging material. And in the very short-term, it has a negative impact on payables. So we are absolutely comfortable with that. And it should start to disappear anyway in H2 as we resume normal level of buying.

On the gross margin, as I said earlier, we are fully committed to be back to where we were around 50% over time. But the timing of it, I mean, I don't want to comment on anything at this stage. I think that if you start thinking of ‘24 might be a little bit early in my opinion, but much depend on external factors as well what will happen as far as inflation is concerned, input cost inflation. So it's very difficult for me to give you a timing for the time being. But directionally, we are moving in the right direction.

[Patrik Schwendimann, Zurcher Kantonalbank]

Thank you, Francois.

[Luca Borlini, Head, Investor Relations]

So next question is from Guillaume Delmas at UBS. Please go ahead, Guillaume.

[Guillaume Delmas, UBS]

Thank you very much, Luca. Good afternoon, Mark and Francois. Two questions for me, please. The first one on Europe, Zone Europe, because your RIG was a bit soft in the second quarter, I think around minus 4%, which would probably mean a volume decline of mid to high-single-digit. So appreciate this includes some portfolio optimization actions, Perrier constraints. But this was already the case in previous quarters and RIG proved more resilient. So maybe could you shed some light on what you saw in Zone Europe and if this weakness is evidence of growing price elasticity, maybe some share losses maybe in coffee, overall a deteriorating consumer environment?

And then my second question is on Nestle Health Science, operating margin contracted by 70 basis points to 13% in the first-half. But back in November in Barcelona, you were guiding for an operating margin in excess of 18% by 2025. So even assuming a marked improvement in the second-half of this year, I mean, that leaves quite a lot for 2024 and 2025. So my question here would be, do you still feel confident about this 18% plus by 2025 target? And is it predicated on the cost synergies, gross margin recovery or do you also require a nice pickup in category growth? Thank you.

[Francois Roger]

Thank you, Guillaume. Let me take the first question. I think Mark will take the second one. On Europe, you're right that we have seen negative RIG development in the second quarter, which we expected, because as you know, we have relatively limited window in terms of pricing in Europe. And so we had to do it at the end of Q1. And we mentioned that by the way in the call in Q1 that we expected a little bit of pressure as a consequence of that in the second quarter, because it has been relatively significant. We were catching up to a large extent with inflation that we received over the last two years.

So elasticity was limited at group level. It was probably a bit higher in the European context. We are also a little bit. We have always been a little bit more cautious about the consumer sentiment in Europe. At the beginning of the year, it was more about energy crisis, which did not really crystallize. But we see that anyway, this is certainly Europe, the area where we are a little bit more cautious in terms of consumer sentiment with a little bit of elasticity, which is more Q2 event, I think that this largely explained -- explain it. Don't forget either that there was one less trading day in Q2 versus Q1 as well which did put a little bit of pressure on Q2 RIG as well.

[Mark Schneider, Chief Executive Officer]

And Guillaume, let me comment on your second question regarding Nestle Health Science. And look the short answer is yes, we're confirming everything that was said in Barcelona with regards to the target levels for 2025 on margin. But then also what was said about the recovery in organic growth in the second-half of this year. So this is important to me. When you look at the first-half, this is clearly the worst moment in time for a number of reasons. It's one of the businesses that I mentioned earlier, but it still gets impacted in the VMS area by this post-COVID compression. I mentioned that it just started to turn the corner now in May and June. And so I think that track on growth will fall away. And clearly then we're poised for much better growth in the second-half as was outlined by Greg Behar even way back then, because we saw it coming. We always had it in our models.

Second thing is that we had planned for a long time to reap the full synergies from our various Northern American acquisitions by putting it all together on one operational backbone in the first-half of this year. This has happened according to schedule. And so now the synergy delivery when it comes to the cost side that really starts now to kick-in in the second-half and that will be one key driver not the only one, but one key driver when it comes to the operating margin.

The other one to keep in mind if you're wondering about the building blocks and how to get to the 2025 margin level is clearly that over time the cost of maintaining Palforzia in the market will fall away. So clearly, there's a number of infrastructure costs related to maintaining that. Think about pharmacovigilance and search in the specialized sales force that will be adjusted. And so clearly, the decision and the consequence of getting out of this, if we do this over time, then we'll lead to reduce the cost burden. And then obviously as you mentioned in your question, organic growth does help a lot.

[Luca Borlini, Head, Investor Relations]

Next question is from Bruno Monteyne at Bernstein. Please go ahead, Bruno.

[Bruno Monteyne, Bernstein]

Hi, Mark, Francois and Luca. Thanks for your extra attention to palm oil in the results today and obviously makes sort of highlight the focus of all the additional European Union Legislation, whether it's corporate sustainability, due diligence directive and they're busily legislating for more. I acknowledge that you tend to lead in many areas of sustainability, but all the actual legislation tends to raise the bar even for good companies like yourselves. So given the latest EU legislation, So given the latest EU legislations, what are the ad is where you expect you'll have to make further improvement to be in line with this late legislation? Are you still able to stay within the cost that you identified, I think, one or two years ago when you talked about the cost of net zero, is that cost going up because of the legislation.

The second one is around free cash flow. I mean even despite the improvement free cash flow is sort of back at the old levels, but I'm trying to be optimistic, I get to about CHF9 billion to CHF10 billion free cash flow for Nestle, but you're paying out nearly CHF8 billion of dividends, which only leaves by CHF1 billion to CHF2 billion for buybacks. We're buying back a lot more than that and your leverage is already a bit high. The cost of debt is getting ever higher. So my question is really is the level of buybacks that you're currently doing given the level of free cash flow isn't it too high? And shouldn't you start in to moderate that level of buybacks going forward given the higher cost of financing. Thank you.

[Mark Schneider, Chief Executive Officer]

Bruno, thank you. Let me cover the first question and then hand it to Francois for the free cash flow question. So clearly, on palm oil, I see ourselves very well equipped for the oncoming EU legislation. Remember, the numbers we were quoting you here the 96% is a global number. And so within that envelope of 96%, we can easily then direct deforestation-free palm oil to anything that gets sold in the EU perimeter.

On palm oil overall, let me also comment on your research note from today. Obviously, the question wouldn't avoidance be better shows you that there is no silver bullet in sustainability. We believe just walking away from it would not be the solution. I think some other outside organization such as WWF also recognize that simply walking away from it is not the best solution. So we believe engaging with the industry and then getting to practices that are deforestation-free is the harder, but probably the better way to go.

And we outlined some of the ways in which we're doing this in our press release. And obviously, it's a very detailed work on the ground. When it comes to the palm oil side itself, I think the cost of that is pretty much in line with our original estimates. As you know, we've been at this for over a decade.

Otherwise, we wouldn't be that close to 100%. So not a major amount of surprises there. When it comes to the net zero side of things, they are obviously getting to the 2025 target levels and then also making it to the next segment in 2030. That is a major effort, and that's where, over time, obviously, the easy pickings will be had. And then each additional level of progress will come at a larger cost. But this is also one where as you look at the climate situation around the world, I think the companies that are making a good contribution to it and that are improving their greenhouse gas footprint will, I think, increasingly find consumer acceptance.

[Francois Roger]

Francois speaking. On the free cash flow, so as indicated in Barcelona, we expect this year to be around CHF10 billion of free cash flow. Last year was a little bit unusual, because of the high level of CapEx and because of our decision to increase temporarily our inventories. So this year, certainly around CHF10 billion. And I think that very quickly by 2025 at the latest, we should be around CHF12 billion, which means that we are well positioned in order to self-finance without any impact on our debt level both our dividend even going forward as well as share buyback.

The current share buyback program, we have already completed two-third of it, and it's much more moderate at the level that is left for this year and next year. It will be probably less than CHF2 billion for this year left and about CHF5 billion next year as well. In terms of leverage, we were at 2.5 times net debt-to-EBITDA last year. which is in the middle of the range that we set for ourselves between two and three, which is reasonable, especially taking into consideration some potential assets that we have in our balance sheet as well.

[Bruno Monteyne, Bernstein]

Thank you.

[Luca Borlini, Head, Investor Relations]

Next question is from Tom Sykes at Deutsche Bank. Please go ahead, Tom.

[Tom Sykes, Deutsche Bank]

Yes, thank you. Good afternoon, everybody. Firstly, just going back to rig. Are you able to give a view on how wide the gap is between volume and mix in RIG at the moment and maybe versus in Q2 versus where you were in Q1, and you flagged the lower working days in Canada. But is it definitely too early to see a positive RIG in Q3? Or is that a possibility?

And you picked out also infant nutrition in LatAm, Africa and China. And maybe you could talk about the drivers of growth for you overall in Infant Nutrition, I appreciate the different geographies. But to what extent is there an improvement in birth rates at all post-pandemic, and are there any transactional effects impacts for you on that business that maybe get a bit better or not in the second-half. So should we see more margin improvement out of the Infant Nutrition, please?

[Francois Roger]

Tom, Francois Roger speaking. On the RIG, so we don't provide the breakdown between volume and mix for each and every single quarter. We usually do that once a year. But let me help you there. Volume is still negative as we speak, and it was negative in H1. No surprise, once again impacted as well by our portfolio actions as well there.

No real difference when adjusted for the number of days of trading days between Q1 and Q2, so no major issues there. Mix remains positive and has even a tendency to improve, which is and we always, as you know, value mix as well because it's a good reflection of our capacity to innovate and to premiumize. So the fact of having seen our mix progressing, I would say, almost quarter-after-quarter over the last couple of years is something really positive. I don't want to provide the guidance by quarter as far as RIG is concerned for Q3 don't forget what I mentioned earlier as well that Q3 has one less trading day. So I would be a little bit more cautious for Q3.

On the drivers of Infant Nutrition, first of all, very pleased to see that we have grown double-digit again, in the first-half of 2023 in Infant Nutrition. The clear main driver is HMOs, human milk oligosaccharide. I mean we did CHF700 million of more than CHF700 million of sales in the first semester. And this growth that we have seen in Infant Nutrition in the first that was led both by pricing and resilient RIG. So RIG was positive 0.6%, which was very good. We saw market share gains across most markets. And by geography, growth was actually broad-based. In China, it was mid-single-digit, the growth, particularly for NAN specialty offering on illuma.

And by segment, we had three growth drivers, as I mentioned, premium value-added infant formula like HMO. Infant cereals is also a good growth driver for us with robust sales development, mainly in North America, as well as in other geographies. The birth rate is not really improving dramatically. We don't have any signs of it, so which is the reason why our strategy to premiumize and to make a difference in our offering is already paying off.

[Mark Schneider, Chief Executive Officer]

And Tom, if I could just build on that. I think the last point that Francois made is a very important point. So we're still seeing fairly low birth rates pretty much around the world. And so there's a very clear consensus inside of the business that this will be not so much a birth rate driven growth going forward, but growth is driven by market shares, and market shares boils down to meaningful innovation and then also a superb on-the-ground execution. And I think you've seen a good example of that in the China turnaround. And then obviously, as Francois was said, the HMOs are a good example of meaningful innovation that is now showing good growth around the world in markets where we're present that.

[Francois Roger]

And Tom on the margin side for Infant Nutrition, so it was north of 24% with an increase of 60 basis points in H1, so which is obviously very positive.

[Luca Borlini, Head, Investor Relations]

So next question is from Jeremy Fialko at HSBC. Please go ahead, Jeremy.

[Jeremy Fialko, HSBC]

Hi, there. Thanks for taking the question. Couple from me. First one is on your A&P. So you've indicated for H2 that it's going to be up by at least 100 basis points. So I guess it will be the high-7s approaching 8%, would that be what you'd regard as a kind of a normalized level of marketing spend for the business given this is the first time that you disclosed this numbers? Or would you actually see it higher more in like the 8.5%, 9% range is where you would ideally be getting back to?

And then secondly, just on the margins and currencies, that was a 10 basis point negative for you in H1. Is that likely to be a bit greater in the second-half given how strong the Swiss franc has been recently? Thanks.

[Francois Roger]

Jeremy, Francois speaking. So you said it, I mean, it will bring us probably to around 8% in terms of level in the second-half. Is it going to continue increasing that intention, indeed. I mean, we value the fact of investing behind our brands. And so the -- I can't give you a normalized level, because it's difficult to define especially so that I mean we get quite a lot of efficiencies through these programs as well.

But clearly, so the idea is to increase the level of spend by 100 basis points or more in H2 and then to continue increasing, certainly in the coming years as we see that as a good driver of growth and especially so after we expect to get less supply chain constraints, which was a limitation in our marketing spend last year.

The currency development is always difficult to forecast. We had quite a lot of negative developments in H1. We are entering into a period later in the year 2023, where I can say so the comps are a little bit more favorable. So if foreign exchange rates on average were staying where they are today, we would not see a further deterioration of the negative contribution from ForEx for the latter part of the year. But once again, I don't want to speculate because it's very difficult to forecast, and this is something that we do not control.

[Luca Borlini, Head, Investor Relations]

Next question is from Jeff Stent at Exane. Please go ahead, Jeff.

[Jeff Stent]

Good afternoon. Just one question, and perhaps this has been disclosed somewhere but I missed it. But when will the new CFO will be joining.

[Mark Schneider, Chief Executive Officer]

Yes, Jeff. This is Mark. And so when we made the announcement in late May, early June, we said that there was going to be a customary 12-month notice period for the new CFO. So that would make June 1st, the latest potential join date. Obviously, we're very, very interested in having her join much sooner than that. And while I understand that, of course, we have to respect notice periods we have some hope that the [Indiscernible] Stock Exchange would follow standard industry practice and potentially earlier.

I think we have the good fortune of having Francois fully committed and engaged in also wanted to take this opportunity to thank Francois for his significant contributions that is ongoing, as you see from how engaged is in this call today. Francois has been not only making wonderful contributions to the FMC function, but also he was and is a very strong thought partner to me and worked side by side with me now for more than six years as we improve growth and profitability of the company go through significant portfolio transformation.

And so very grateful for that, very grateful for his flexibility, but also would like to underscore that I'm very much looking forward to working with Anna Manz our new CFO. And this has been a very thorough search process and have many in-depth conversations with her and came away thinking that here is someone that has superb financial credentials, very deep consumer goods knowledge, and also a very strong operational and strategic focus.

[Luca Borlini, Head, Investor Relations]

So the last question is from Pascal Boll at Stifel. Please go ahead, Pascal.

[Pascal Boll, Stifel]

Yes. Good afternoon, everyone. Two questions for me. First one would be on coffee and potential aluminum band for Nespresso capsule? Is there any update on what kind of or how intense do you see the risk for that your business?

And then my second question on confectionary when I was looking at the numbers, I was a little bit astonished by the slowdown in RIG in against a similar base as Q1 last year. However, RIG was or seems to be down in Q2. What are the reasons for that?

[Mark Schneider, Chief Executive Officer]

Yes. So let me try and address -- this is Mark. Let me address the EU first. I think it's too early to speculate here on the final outcome of the proposed legislation, and we fully support the objectives of the European Commission’s Packaging Waste Regulation proposal, and now of course we need to see that all of this gets done in a productive way that allows good choices and for whatever the choices are sufficient adjustment times. And as you know, we also made sufficient investments here in technologies that will allow us to comply with the future rules going forward.

[Francois Roger]

And Pascal, on the confectionery, the slowdown in Q2 was related to a more challenging base of comparison. And there was some calendar impact as well in Q1 [2023] (ph) linked to an earlier Easter, particularly in Brazil. So but if we look at it, the business is very healthy. We had 10.8% organic growth, 2.6% RIG, 8.2% pricing, we gained market share. Growth was driven by Kitkat, key local brands, including Garoto in Brazil, Munch in South Asia, [Indiscernible] in China. And by geography, it was really led by Latin America and South Asia, but no concern whatsoever. Don't read Q2 for what it doesn't mean and the trend continues to be very positive.

[Luca Borlini, Head, Investor Relations]

Okay. Thank you. We have no further questions, so we come to an end of our session today. So we thank you very much for your interest in Nestle. As usual, if you have further questions, do not hesitate to reach out to our IR team. We thank you, and we wish you a very pleasant today. Stay safe and healthy.