Molson Coors Beverage Company (TAP) Earnings Call Transcript & Summary

All right. Okay. Welcome back. I hope everybody had a good lunch. For our next session, I am thrilled to welcome Molson Coors Beverage Company to the stage. Gavin Hattersley, CEO; and Tracey Joubert, CFO, welcome to the conference. Thank you for attending, and it's great to see you in person in Paris. So thrilled to have you here. We're going to have the session run as interactive Q&A. And so we'll try to balance between short-term and longer-term issues. Let's just open up and very generally at a high level, there's -- needless to say, there's been a tremendous amount of turmoil and change that you have managed through the last couple of years. There's also been a lot of change inside your company in the last couple of years. Let's just start with a kind of lay of the land as you see it and some of the key strategic initiatives that you've put in place that you think will carry forward through what might -- may yet be more turmoil to come from an economic perspective.

Okay. So you didn't start with the inflation or pricing question.

No. We'll get there. I'm pretty confident we'll get to inflation, pricing, supply chain, et cetera.

Yes. Look, when this management team came together in 2019, we laid out our revitalization plan. And we -- it's got 5 legs to it. The fifth leg we're pretty much done with, which is the cost savings side of it, taking the cost out to fund the first 4. And when you stand back and look at where I think we are on the revitalization plan trajectory, particularly when you take into account the context of the environment in which we've operated in, I think we've made fantastic progress. Our core brands are as strong as they've been in a very long time. They're gaining share. They grew revenue for the first time collectively last year and who knows how long they grew in the first quarter again. And collectively, those 2 brands, we are now investing at the level we would like to be investing at. And then the second and third legs of our revitalization plan, which is above premium and beyond beer, we've made more progress than I could have imagined at the start of the revitalization plan. We started in -- beyond beer from a standing start with seltzers. And we've grown market share from essentially 0 to, in the shorter term reads, touching upon 9%, 9.5% share. In the longer 13-week reads, a little under 9%. So we've made tremendous progress with the 2 brands there, which we didn't have at the start of the revitalization plan. We've gone into areas that we were not in before in the emerging growth division with non-alc, where we've launched ZOA, the energy drink, and entered into a $16 billion category, which obviously, we came off on a standing start from. And then in above premium, we've got Blue Moon, which is now that the on-premise is back open again, is growing share nicely. We've hit a record share from above premium share point of view at 26%. And we only see upward runway from that level. And then the fourth leg is our capability building. And there is probably the only silver lining that can come out of the pandemic is the fact that, that forced us to move actually quicker from a capability point of view, particularly in the digital space than we were perhaps intending to. And I think now where we are now, 3, 4 years ago, we were spending less than 10% of our marketing dollars in the digital space, it's now well north of 50%, which brings a whole lot of benefits for us. So when I stand back and look at where we were 3.5 years ago and where we are now, I'm very pleased. I mean our balance sheet, Tracey and the team have done an amazing job tiding that up. And our debt is down billions from -- I think we're down about $5 billion from its peak after the acquisition, which gives us a whole lot of flexibility. So I think all in all, we're in a good space.

Great. Core brands, like Coors and Miller in the U.S. or Carling in the U.K., how important are they to the enablement of everything else you're trying to do, number one. Number two, as you stand here today and they're in a better situation, what's their ability to weather and maybe they benefit from a market share perspective. But what's their ability to weather more -- if we go into a recession of some magnitude, how are they positioned relative to the rest of the competitive landscape?

Very important. That's why that's the #1 leg of our revitalization plan. In the U.S., there are about 2/3 of our profitability, 2/3 of our volume. Carling is a big chunk of U.K. profitability, although less than in the U.S. because above premium is much further advanced in the U.K. than it is in the U.S. So they're important brands for us. In terms of what is the state of those 3 brands as we head into a potential recession is they're as healthy as they've been in a long time. And so certainly, if there is trade down, which we haven't seen yet, but if there is trade down, then Miller Lite and Coors Light are as healthy as they've been to take those consumers. They've got really nice positionings. They've differentiated from each other. They've been very consistent for the last 3.5 years, which, frankly, you couldn't have said 5 years ago, was bouncing from one campaign to another, consumers understand what the 2 brands stand for, they understand what Carling stands for. And let's put them in a really good place.

Yes. And it seems to me like they're positioned to gain share on-premise coming out of the pandemic for the reasons both of their own strength and simplification in that channel. How does -- how do you balance that against the prospects of on-premise motoring ahead the way that you hoped it would into an economic recession because we're coming off the pandemic. That's good for mobility and good for on-premise recovery. On the other hand, now we're facing a potential friction from a macroeconomic perspective. How do you balance those 2 forces?

Firstly, we haven't actually seen any impact. I mean the propensity for consumers to get out there and be normal in inverted commas is very strong, whether that's in the U.K. or whether that's in the U.S., it's same in the world over. Folks wanted to get out there and be normal. So you rightly say that that's beneficial for us because Miller Lite and Coors Light from our portfolio point of view, over indexed from an on-premise point of view. We don't really have economy in the on-premise. We haven't met a high life there, but the other brands are pretty much nonexistent in the on-premise. So from a mix point of view, given the above premium shape of the on-premise for us, it's very positive. And it's well known that 3/4 of our volume and profit in the U.K. comes from the on-premise, and that does skew above premium as well as also very positive for us. Having said all that, the caution that the on-premise operators, most of them are taking in terms of reducing the number of [ tap ] handles, making sure that they stick to the tried and trusted has certainly benefited our brands.

Is there -- how -- on your -- on some kind of scale, how concerned are you about that on-premise momentum slowing at some point in the future. I think you're right that -- I mean speaking personally, you want to get out, you want to be mobile, you want to go -- and I think that carries us through a pretty robust summer, at least early summer. But as you go further into the year, beyond the summer, if economic headwinds continue to amount, is there a risk that on-premise starts to slow relative to the momentum we're seeing now? If so, how big a concern is that for you as you scenario model the future?

I think if there's -- the other way you're asking that question is a recession, right? And I think our portfolio is ideally positioned for a recession. It has been our Achilles heel, some of the overweight to economy that we've got. Now we have rightsized that to a degree in the SKU rationalization last year. But we've still got very strong brands at the economy level, which is waiting if trade down. And then as I said, we've got a really strong core brands, whether it's Miller Lite or Coors Light or Carling or Ozujsko or Staropramen in the Czech Republic. I think we benefit relative to many of our competitors who operate only in the above premium space, if there is a trade down. From a channel point of view, obviously, the on-premise is more important in the U.K. than it is anywhere else because we skew so heavily towards that channel. And certainly, we're not seeing any issue from that perspective, up until now. And given the comps, which are coming in the fourth quarter in the U.K., we're unlikely to see it again this year. That would be a more of a longer-term issue if it did transpire.

Okay. In terms of above premium and beyond beer, in the near term, again, we're not seeing it today. You've got a lot of initiatives in motion in both those categories, Simply Spiked and the like coming or, I guess, building as we speak. In a recessionary scenario, do those parts of the business face more pressure, less pressure? How do you think about the pivot you've made in that direction and the resilience of those new target categories as we go forward?

No, I think that's why [ both end ] is so important for us, right, focusing both on the core and on the above premium at the same time, making sure we've got the right investment behind both sides. And I think we've achieved that balance. I think one of the advantages that we've got, again, which is partly rectifying mistakes in the past is we're under-indexed in seltzer quite meaningfully. And we're heading towards, as I said, a 10% share in the shorter term. But that means there's 90% of a very big category out there for us. We've got the 2 fastest-growing brands at the moment in that space, big company brands. We were the sixth largest seltzer supplier in the country 3 years ago. We're now bumping up against the third largest. We're not that far away from Anheuser-Busch. And given the strength of Topo Chico, as we do its national rollout, I would see our share trends continuing to improve. So I guess having a slightly lower base is a big advantage for us as we head into this time period. If you're right, and on-premise does slow down and go back to the off-premise part, that's hugely positive for seltzers. And given our differentiated brands and how well they're doing, that will probably be positive for us.

Maybe it's worth pausing and just talking about Topo Chico as well as the layering on of Simply, I think that launched a couple of weeks ago.

Since Last week.

Last week. Sort of I guess, especially on Topo Chico, as more developed sort of the size of the prize that you see for that brand, given this momentum in the markets where it has, I think, over-delivered expectations so far. And then also early days, obviously. But how you're thinking about the contributions of Simply Spiked and where that brand could go to and what role it plays in the portfolio?

Well, they're both relatively new to our portfolio as a whole, right? And any of our innovations, with perhaps one exception, any of our innovations do take time to contribute from a bottom line point of view as you build capacity, you build capability, you build critical mass and you invest behind brand awareness. Now Thankfully, with both Topo Chico and Simply, we don't have a lot of heavy lifting to do from a brand awareness point of view for the brand names themselves. Obviously, we have to create awareness for the fact that there is now a hard version. But I think sky is a limit for those 2 brands. I mean Simply has been in the market for a week. And I'm not going to declare victory after a week. But certainly, the consumer reaction to the retailer reaction, the distributor reaction is off the charts, good. I was excited about Topo Chico. I'm even more excited about what Simply can bring for us. Simply is just in a totally different category as well. It's not playing in the seltzer space at all. It's a more full flavored, slightly higher calories, fair and square into the flavored alcohol beverage space. So in that space, we've got very limited exposure. And so we think we can take meaningful market share with Simply.

Okay. Competition with spirits. There's a lot of activity, positive momentum in spirits, which has been a challenge for beer broadly for some time. As you think about initiatives you see on the spirit side versus what you have going on against the backdrop of macroeconomic question marks and to some extent, regulatory question marks in terms of distributor, the distribution regulation changes that could or could not manifest. How do you see the not just the next 6 months, but the next 3 to 5 years in terms of your positioning going forward in beer, beyond beer versus where spirits and sort of spirit extensions are going?

Yes, that's -- I mean Wine & Spirits is another extension in our emerging growth section under Pete's leadership. And it's an area we're probably a little bit further behind than in our non-alc space and some of the other areas that we're focusing on in emerging. We've dipped our toe into the whiskey space, which is really interesting and exciting for us, certainly from a margin point of view, while margins there are good. In terms of spirits, dipping its toe into the RTD space, I think anything that brings new innovation, new excitement around the beer category or the near beer categories, and I think it's positive overall for the category and therefore, positive for ourselves. It gives us opportunities to compete in that space as well. And whilst we don't have anything now, that doesn't mean we won't have anything in the future from an innovation point of view. So I think from that perspective, it's positive. From a regulatory point of view, I think the industry, the beer industry has done a nice job setting the stage for why differentiation is important from a consumer point of view. And most of those regulatory battles were won in 2022, and we're not going to take our foot off that accelerator.

Okay. Good. Okay. Let's -- let's talk about cost and pricing and that kind of thing because you knew we would eventually. Tracey, maybe just first, just to level set on the current cost backdrop that you all are facing and the cost outlook that you're starting to piece together for the remainder of the year in this '23 set against some lingering supply bottlenecks. I think most of those are in your rearview mirror, but just how you're thinking about the supply chain environment, both inbound, outbound costs? And what degree of -- let's start with what degree of headwind that presents to you as we go forward, and then we'll talk about mitigating factors.

Okay. Good. Yes. So obviously, we're seeing inflation, like everyone else. Now we have a number of levers that we use to mitigate the inflation we see. So the first thing is the pricing and we can talk a little bit more about that later. The second thing is the premiumization. So one of the levers, as Gavin was discussing, was premiumizing our portfolio. And with premiumization comes higher margins. It does bring higher COGS because generally, our above premium brands are at a slightly higher COGS, but margin is accretive. We have our cost savings program, which we launched at the beginning of the revitalization. We are in year 3 of that program, roughly to deliver about $600 million over the 3 years. We've already delivered $490 million. Now part of that cost savings was to invest behind our brands. But the other was to mitigate really the inflation that we see. And then our sort of fourth lever is our hedging strategy. And our hedging strategy is a little bit different. We believe than some of our competitors, it's not programmatic. It's not systematic. So we don't, every month just lay on [ 1/12 or ] whatever. We hedge all the commodities that we can hedge, and we work within guardrail. So we never are 100% hedged on any commodity, but we're also never 0% hedged. So we are able to participate when we see dips in the market. But we also don't have to buy when prices increase. So a perfect example was when Russia invaded Ukraine, and we saw the aluminum price go above $4,000 a metric ton, we didn't have to layer on coverage. We were able to set it out. Now we're seeing aluminum prices are lower than coming into a year. So we're able to really be opportunistic when we see dips and highs in the market. Typically, we have more coverage in year 1, less in year 2 and less in year 3, but it does give us the capability to wait out the market or participate if we think that's right. So from a COGS point of view, I mean, we haven't given COGS guidance, but we have given the guidance around our bottom line and high single-digit growth, which obviously takes the COGS into account. From a supply point of view, during the pandemic, we did a lot of work to ensure continuity of supply. As we saw with COVID, as we saw on-premise shutdown and people moving to the off-premise, I mean, you know about the can shortage around the world, well, we went and procured cans from around the world. I think almost every single continent. And we've built relationships with suppliers. We now have a diversity of supply, which we didn't have before. So in a way, if there's something that's good that came out of the pandemic, it was really having a look at our supplier base. As we built our inventories and our input materials over the last couple of months, we're going into the summer selling season with really healthy inventory. Our out-of-stocks are same as pre-pandemic, if not maybe a little bit lower. We've got supply of all of our major SKUs, and we're not seeing an input material supply issue either. So we feel really good with the position that we're sitting in today with both our input suppliers and our production supplies.

So on the pricing side, so far, I think the pricing -- I think pricing has gone well. Elasticity has been very de minimis, not just for you, but for broadly and broadly within the category. As you go forward, as you said, you haven't given COGS guidance, you haven't given -- certainly haven't given anything for '23 and I'm not asking for it. But it feels to me like the cost is not going to go away. The cost burden is going to continue and probably continue into '23. How are you assessing the ability to continue to price, if need be, especially against potential recessionary backdrop as we're talking about the gap?

Yes. So I'll let Gavin jump in here as well. But over the last several years as well, we've built really strong revenue management capabilities. So we've got revenue managers that sit in the local markets, and we really assess our pricing on a market-by-market basis. So we do look at what our competitors are doing. We look at wine, spirits, other beer. So we look at all of that. We also look at what the consumer is willing to accept in terms of increases. And then we look at the health of our brands in various markets. So in some markets, I mean, we would lead pricing because our brands are healthy, and we've got strong brands. So for example, in Chicago, we may lead pricing. But it's done by taking a lot of things into account and not just COGS, not just inflation, but really what everyone else around us is doing our brands and our consumers. Add anything else?

Yes. I mean the only thing I'd add is, as you know, we put a 4% to 5% price increase into the market. We've put it in a little bit earlier than we would normally do certainly. And you're right, the elasticities haven't showed -- haven't proven to be what we would have expected them to be. They're somewhat better. And the consumers haven't reacted negatively to it. You can hypothesize why, I mean, 4% to 5% price increase is actually quite restrained when you compare it with what the consumers are facing.

Deflationary.

With dairy and with -- it is somewhat deflationary. And so we'll obviously assess whether our brands can tolerate more. But we're not at that point.

Okay. What about productivity -- you've line of sight for sure to the [indiscernible] is already in place. But your ability to go back to that well and fine tune even further, if need be.

I think some of the actions we took last year on our economy SKU rationalization, it certainly helped. That has taken a lot of complexity out of our breweries, making our breweries more efficient. We don't have all the [ line ] changes. We've got a lot more focus on the brands that we have kept. So from a productivity point of view, that has certainly helped. And then just a lot of the stuff that we have done over the last couple of years is going to deliver some productivity. So a good example of the 2 new breweries that we built up in Canada. The one in Chilliwack came online I think, I want to say 2, 2.5 years ago. It's a modern, automated, flexible brewery. The one that we just opened in Longueuil, in Montreal, same thing, new, modern, flexible, lower manpower, headcount required. So those things like that are going to -- that we spent capital on the last couple of years are going to start delivering productivity, cost savings, efficiencies, but we continue to look at everything in our breweries. We embarked on a world-class supply chain program a couple of years ago, and that's all about upskilling the labor in your breweries as well as making sure you're reducing waste. Sustainability is a big thing because that actually drives cost savings as well. So we've put a lot of CapEx in that's going to help from a sustainability point of view, but also help from a waste and a cost savings point of view. So it's just a way of life at Molson Coors. We'll continue to look at productivity and cost savings.

Yes. And so we talked about some of the risks, potential risks to the top line and as things get tougher going forward. With the cost inflation against that backdrop and the pricing and productivity levers you have as offsets, is there enough leftover at the end to continue to invest back against some of the strategic initiatives, the brand building on the core, above premium, beyond beer, the capabilities investments? Do you have enough left in the tank, so to speak, to continue to reinvest to generate the positive flywheel you've got going on without compromising bottom line economics?

Yes. So I think you may be asking, are we going to cut marketing or investment behind the brands...

Yes. One way...

No. I mean -- and part of the revitalization plan, one of the pillars was to really take the cost savings that we delivered. There was $150 million that we deliver out of G&A and really put that behind our brands. We've changed some of how we go to market with our marketing dollars. Definitely, our working-to-nonworking dollars is much higher than it was maybe a few years ago. And I think Gavin would mention the sort of digital, from being around about a 10% investment -- marketing investment in digital, we're now in excess of 50%. Our marketing dollars goes to digital, which is more efficient, more flexible, easier to turn on and off. So for this year, I mean, we've said we're planning on spending more in marketing dollars than we did the year before. And I think if you see in the first 6 months, and we gave a bit of outlook for Q2, a lot of that is being driven by marketing. I mean in the first half of this year, we are spending a lot more in marketing because of some of the launches, like Simply, Topo Chico going national, et cetera. So we have -- and we will make sure that we've got enough [ management ] behind our brands.

Yes. And I was thinking about marketing. I was also thinking about some of the capabilities in investments like digital because you tell me, but I don't know what inning you're in that ballgame or where you are in the journey. But to me, it's -- I don't think it's done. I think it's an ongoing process. So that will be another area that, I guess, if I'm playing the role of pessimists that I'd be concerned about you cutting and not setting up for the future. So where are you with that? And does that -- do those investments also persevere?

Yes. Look, I mean, you're right. I don't think the journey ever ends, quite frankly. I think we're further along that journey in some areas than others. We've made tremendous strides from a B2B and B2C point of view. We've built a really nice in-house agency on the digital side. I think Tracey mentioned some of the big investments that we've made in new breweries. Well, as those roll off, so that will give us the capacity from a capital point of view to keep investing behind IT and systems. So I would not expect us to be cutting back that investments. We've made investments in people, hard resources. And we're investing behind the IT side of it as well. And as far along as we've come over the last few years, I think this is just ever evolving space. And we spent a lot of time cleaning up our brands. We're showing up in the digital space with all the traditional brick-and-mortar, click-and-collect sites that, that folks had moved to and digital spaces like Drizly. And so I think we've got a really nice foundation now, and now it's leveraging that.

You talked a little bit about beyond beer, but maybe worth going back to that. I guess -- well, first off, let's just -- how on a scorecard basis, how happy are you with the efforts you've made in beyond beer so far relative to when you sort of laid out that venture, what your aspirations were?

Speaks performance review publicly. I think we've -- I mean I think it varies, right? On the non-alc space, I think we're closer to a 10 than we are to a 0. I think we've got work to do on the Wine & Spirits space. But you can't do everything at once, and we chose to put our efforts behind non-alc. I think in the cannabis-infused beverages up in Canada, we've made tremendous strides, and we've got a dominant market share there. We've got 5 of the, I think, top 10 brands up in Canada. So I checked that [ office ] is doing really, really well. So compared to where we were 3.5 years ago to where we are now, probably 6 or 7 out of 10. And the beauty of this is it's now signed to gain momentum. We're starting to build a little bit of economic scale with some of the ventures that have been fairly niche and small for us over the last 3.5 years. I mean ZOA is starting to become a meaningful part of our revenue, and it's something we can really start to put more effort behind.

Okay. What's the process internally, as a big CPG company with big anchor brands, the challenge is always, you have an incremental dollar to spend, and it goes to the core, right? Or it goes to things with tangible momentum, like a Topo Chico, or prospects, like a Simply. The beyond beer portion of the strategy seems a bit more experimental. So how do you ensure there's a process in place to give -- to be patient enough to give some of those ventures time and also ensure that they have the capital to achieve their potential?

Well, we've housed it separately, just for starters. So it's under separate leadership within our organization, and we've done that for a couple of reasons. A, to make sure that we -- that it does get the right level of investment, and B, that we don't distract the core business from the core business. I think that -- I think the team does a really nice job of making sure that we fund the both end because we need to keep funding the core, but we need to elevate the spend in beyond beer. And certainly, most of our additional marketing spend is going in the above premium and beyond beer space as we try and shift our portfolio mix in that direction.

Okay. On ZOA, the distribution, clearly, getting distribution, it's growing in aggregate. Some of the velocity numbers arguably are -- seem to be slowing. How do you guys look at that data? And where does the velocity stand relative to your expectations? And just because, to the extent that's a prelude to the brand's longevity, that's a number that I think many people are watching.

Yes. Sure. Look, we missed the [ chain since ] last year. We're getting them this year. So you'll see us showing up in chains in a much more meaningful way this year than you did last year. And candidly, we made -- we've gone up a learning curve with ZOA. And collectively, we made one mistake, and we put more effort behind the sort of full sugar version of ZOA than we should have. Consumers, frankly, just not interested in the full sugar version. They want the 0 sugar version. And so getting that out of the marketplace and pivoting the whole of the ZOA franchise to sugar-free has taken some time. And some of that has caused the velocities to fall off as we deal with this issue. We're getting through that issue, and you should see quite a strong pickup now as all of our flavors, everything is focused on 0 sugar and full sugar should be out soon.

Okay. So in those chains resets, those -- it's a 0 sugar.

0 sugar, yes, totally.

Okay. And is the -- there've been a lot of talk about pricing in the energy drink market, where there hadn't been that was one area of CPG of beverages where the pricing had lagged, but that definitely seems like we're going to get pretty material pricing when we exit Labor Day. Are there plans for ZOA to participate in that or no? -- That had been talked about...

We haven't announced any price increases on ZOA yet.

Okay. Yes. Nice, so you're watching. Okay. What about La Colombe? Just where does that stand? That was that -- we were very excited about that before. Does that -- is that still a brand of priority for you? Or has that more or less achieved a nice steady run rate for the portfolio?

It is still a priority brand for us. We had a different approach with La Colombe. So we started off in convenience channels. And I deal with La Colombe, had us get to certain distribution levels in the convenience channel before that opened up grocery and supermarket and so on. And so we hit those distribution levels a little bit earlier than contractually late last year. And now you -- and that's unlocked grocery and supermarkets for us, which we weren't in last year. And so that -- those placements are happening now. So this is -- I'm still -- we are still excited about it. We are still bullish about it. It's just following a different more deliberate rollout process than perhaps something like ZOA or Topo Chico or Simply is following.

Okay. Great. I got a few minutes left. Maybe it's worth just talking about progress on ESG initiatives, sustainability, diversity, inclusion. It's obviously important to the company. Maybe this is as simple as saying, just give us an update on how you're thinking about those and how you measure and view your own progress against those initiatives?

Yes. Sure. Look, we're looking at it from 2 -- we focus on ESG in totality, right? But our primary focus is on people and planet, so the E and the S side of it. From a [ DEI ] point of view, we put in place targets a couple of years ago to improve our representation by 25% by the end of 2023 next year. And so we've got scorecards, which show that we're making quite deliberate progress against that goal. We've got a very strong ERG program. We've got a strong development program for diverse candidates and people of color candidates. So I would say on balance, well, we are significantly further along than where we were a few years ago. But just like every other company, we've got lots of work to do. Our Board is more diverse fundamentally than it was 2.5 years ago, and that trickles down through the whole leadership of the organization. From a planet point of view, we're focused on different things in different parts of the world, depending on what's really important. I mean water is not necessarily important in some plentiful countries, but it's very important for us in the U.S. And so we've got very strong order goals. We've got goal to get to 100% 0 waste to landfill, which almost all of our breweries have hit. Plastic is an important part. We announced recently Coors Light is actually leading it for us. We've made an $80-odd million investment to remove single trip plastics from all of our Coors Light packaging. And then once we've done that, it will roll to all the other packaging. We're eliminating plastics in the U.K. We've actually got a really nice sustainability report on our website, which gets into things in a great deal of detail. It's a journey for us. I mean I forgot to mention CO2 emissions, right? I mean I think we've made really good progress on Tier 1 and Tier 2. And obviously, Tier 3 is going to be more challenging because that's a lot of upstream supplier for us. And that's where 80% of our carbon emissions actually comes from. And so we've got a lot of work to do from that perspective. But again, the goals that we set, there were 10-year goal set to expand in 2025. We've already hit many of them, and we have a clear plan to get to the rest by 2025 and currently working on what's next.

To what extent are those people and planet objectives, have they made their way into compensation schemes and to what extent?

So we've started off by putting them into the sort of, I'll call it, the top 100. So the whole leadership team plus direct reports of the leadership team, so roughly [ 80 to 100 ]. So that's where we started. So our incentive compensation plans have an ESG component to it, focused on people and planet, not so much on the governance side, that's less in control of that group of people. And the plan is to -- once we've established what works, what doesn't work and to roll that down further in the organization. So that will likely take place next year.

Okay. Great. One minute left. Capital allocation, I think your stance on capital allocation is pretty consistent. But if we were in a recessionary scenario, if things get tougher, tighter, does it change at all? And if so, how?

I mean I think the foundation that we've laid and we've worked on the last couple of years, strengthening the balance sheet, having a leverage ratio. But this year, we guided to below 3x and being able to maintain that investment grade and over time improve it. I think it does give us a lot of opportunities for other types of capital allocation. The focus was on reducing debt and also investing behind our business. So the brands, the capabilities that we've spoken about. And again, I think we've laid a really good foundation. When we reinstated the dividend, the Board agreed to reinstate the dividend, but said it has to be sustainable and increase over time as the performance increased. And I feel we've really got a good foundation that we can build on that. So at this stage, with everything that we know, I mean, this should not be a significant change in return of cash and further returns to our shareholders than what we have today.

Great. With that, I think we're out of time. So Gavin and Tracey, thank you very much. Really appreciate it, and thank you all for tuning in.

Thank you.

Thank you.