Nestlé S.A. (NESN) Earnings Call Transcript & Summary

Hello everybody, welcome to the Barclays Global Consumer Staples Conference. I'm Warren Ackerman, Head of the EU Consumer Staples team. I'm delighted to welcome Nestlé today. We have CFO, François-Xavier Roger; and the Head of Zone Americas, Laurent Freixe. Welcome gentlemen. And the format will be a fireside chat. We will have about 30, 35 minutes, and I will be hosting that. So with that, let's get cracking.

So first one to François, I want to kick off with margins. You slightly lowered your margin guidance this year to around 17.5%, mainly due to input cost inflation where you talked about a 4% COGS inflation in 2021. But you've also said that the margin reduction in the second half is transitory and you expect next year to be back showing progress. Can I ask as we stand at the moment, I know it's difficult with volatility in commodities, where -- what do you think COGS inflation might do in 2022? And how do we think about kind of higher climate costs and the fact that you're having to re-hedge at higher rates and the fact that also you want to improve the margins? How do we square that circle? And what kind of offsetting positive factors might there be?

Thank you, Warren. It's a good question to start with. Good morning and good afternoon to all. So if we talk of 2022, we see, with what we know at the moment, that it is likely that the input cost inflation will be higher next year than it is this year. Still early to do a final call because I mean, 2 of the 3 items that are really contributing to the input cost inflation, and more specifically transportation costs and packaging material, we can't hedge. So we don't know to a certain extent till we enter into 2022. But with what we see today and what we know today, it is likely that the input cost inflation next year will be higher than what we're experiencing this year. We don't know if this is going to be permanent. We don't know if this will go even further into 2023. We will have a fairly pragmatic approach and anyway, you know what our strategy is which is to offset anything that we receive through pricing. So the idea is really to pass it on to the trade and to consumers whenever we receive it. There will be a time delay which applies more for H2 2022. And it's more specific to some zones and regions, by the way, more specifically Europe, because we are locked with 1-year pricing agreement. But -- so still difficult to know exactly what it means, but most -- more likely than anything to be higher next year.

And maybe digging into a couple of the commodities specifically, coffee has been in the news recently. There's been a big increase, particularly in the kind of Arabica -- more Arabica varieties because of the frost in Brazil. We've seen big increases in dairy in emerging markets, which was already one reason why your Nutrition margins were down in the first half. Which actual commodities are you most concerned about? And it's hard to say -- you said already, what's structural, what's temporary. But what's the kind of reading on the ground from your guys in terms of what they're telling you about that?

It's a little bit difficult because I mean, there are still a lot of moving parts there. So if we look at 2021, it was certainly much more about dairy and meat and grains. Next year, it will be more about coffee as well. But once again, the large part is -- cannot be hedged, which has to do with transportation, which has to do with packaging material. So it's a little bit difficult. We have to adapt to a very different situation. By the way, it can even differ from one market, one region to the other, given that it is highly influenced by our portfolio as well in specific markets and specific regions. So we are very pragmatic in terms of approach. We can handle it with really the strategy of neutralizing it as quickly as we can.

Okay. And just in terms of prices, pricing did step up a bit in the second quarter versus the first quarter. How much more pricing do you think you might need in the second half? And is it the case that in Europe, there is a lag because of the way the contracts are structured in Europe? I'm just trying to understand the pricing dynamic versus kind of mix. So you also said you're going to roll out strategic revenue management tools as well as another weapon that you've got. But pricing, over the last 10 years in the sector has been quite low, but suddenly we're going to see it kind of step up. How do we sort of think about that? And are you worried that there will be some volume reaction as you do take the pricing?

So do expect to see pricing ramping up. It's a reality already because if you look at it last year in its totality, we were at 0.5% of pricing, but already in Q4 we were at 0.9%. We were at 1.3% in H1 this year. Do expect that it will move up, and it will move up most probably with what I said earlier, even further in 2022 as well. So we -- still difficult to say exactly where it will apply and so forth. So we are very confident about our pricing power as well. We don't see any specific issue there. It has to be looked at by category, by market and so forth. It's very much a function of our brand equity, very much a function of market position as well. But as you know, we have in 80% to 85% of the cases we have leading position #1, #2 in our markets. So we are not necessarily worried about it. We have strong brands as well. We have 33 billionaire brands as well. So we believe that we are really in a strong position to pass on pricing. It depends as well on competitive forces, by market, by SKU. So pricing is a local decision, by the way, this is not something that we decide centrally. This is something that is really decided locally, in the local context.

Okay. And maybe moving to organic growth, it’s been a remarkable period for Nestlé. I mean 8% organic growth in the first half with the portfolio winning share -- holding or winning share in about 60%. Can you discuss a little bit about how you measure market share because it's been a topic for some other companies in the sector? And then maybe dig into some of the cells, the other 40% where you're not winning share and what your plans are to address that share loss?

Actually, we have been quite happy to see our market share increasing over the last 2 years, and they continue to improve as we speak. So we measure market share at operating level, by market, by category, by channel. So we have a good level of granularity there. For the purpose of providing a global view after that, we look at the number of business sales gaining or holding share. A business sale is a combination of the market, a category or a channel view. If we look at H1 2021, more specifically, in more than 60% of the business sales, we were gaining or holding shares. And this is a level that was similar to what we saw at the end of March. And this is, by the way, close to the highest level that we have seen over the last couple of years in 2013. To be more specific and answer to your question, in terms of market share gains, I could speak more specifically of EMENA, for example, where we are really gaining market share in coffee, in pet food, with vegetarian and plant-based products, with water. In AMS, we are really gaining market share in pet food, in coffee, in plant-based food as well in water and infant nutrition. In AOA, in most categories particularly pet food, coffee, confectionery and culinary with one exception, which is infant nutrition in China, I'll come back to that. If I look at it by category, so this is again, I mean, the same as what I just said, which is in coffee, in pet care, in water, in dairy, in ice cream and with Nestlé Health Science wherever we can measure our market share. If I look at it by channel, so this is -- we are growing slightly ahead of the category anywhere across categories. Just to be specific as well in terms of market share losses, we are losing market share in very few instances now. And we are losing -- the other interesting thing is that we are losing less than in the past wherever we lose market share. So where we lose market share is, as I just said, infant nutrition in China. So we have a turnaround plan in place. And in frozen pizza, but this is mainly due to supply chain constraints and a little bit in confectionery as well.

Okay. And just in terms of channel shift, there's a lot of moving parts in channel. I mean on e-commerce, it's still growing 20%, but it has slowed, I guess, it's a comp issue. But on the other side, we've seen the retail sales elevated but slowing a little bit, but then we're now seeing out-of-home growing sort of 20%. I know it's difficult given the kind of comp effects, but what is your kind of outlook for those 3 channels going forward into the second half and into next year?

No. Yes, I can give you a little bit more data points there on the development by quarter. If you look at retail, for example, we were at 9% in Q1, growing at 9% in Q1 and 5% in Q2. But exactly as you said I would take that with a grain of salt because it depends on the comps. But we start seeing a little bit of a slowdown somewhat in retail, but it remains at a very attractive level. And we do not expect to lose whatever we could have benefited from during the COVID time because some of the underlying consumer trends that we benefited from during the COVID like working from home, pet adoption, like search for immunity and health benefit, we don't think that everything will go. As you just said before we started the conference when we were discussing, you guys, for example, in your organization, you are working in between with a model in between working from home and working from the office. So it will be probably a hybrid model. So we will continue benefiting from some of these trends. So once again, in retail from 9% in Q1 to 5% in Q2. In out-of-home you said it, big turnaround. We were still negative in Q1, which is minus 12%, and we went at plus 84% in Q2 but still at a lower level than where we were in 2019. So the percentages quarter-by-quarter do not necessarily mean much. And the same applies to e-commerce, still growing 40%, 4-0, in Q1, and we were at 4%, I would say, only in Q2, but over a growth of 70% last year. So let's be very careful when reading those data. What is important, though, is that whenever the situation normalizes, we can expect still a good level of growth in retail as I said before because we won't lose everything that we benefited from. We will see certainly a higher growth of out-of-home because it will come back and because we are under-indexed in that channel and investing in that channel. And even the highest growth, we will probably continue seeing it in e-commerce as it was the case before the pandemic. In e-commerce before the pandemic, we were growing at 30%.

Okay. Very helpful. We're going to switch gears and then I've got a couple of questions for Laurent. Laurent, a question on Zone Americas, specifically North America, that's been a key part of the Nestlé investment case. It's been very impressive the recovery, the renaissance, maybe we can call it, in the last few years. I think I'm right in saying up to 50% of the portfolio in the U.S. has been rotated, correct me if I'm wrong. But what are your priorities going forward in the U.S. given the success you've already had? How do you go about sustaining that success? And what do you think is the sustainable growth looking out, I don't know, 2, 3 years for Nestlé U.S.A?

So you're absolutely right, Warren, about all your points. North America is doing extremely well and extremely well in all its components. It's Nestlé U.S., it's Purina North America. It's Nestlé Canada, and we could put on top Nestlé Health Science and Nespresso. So all components are growing strongly. You're also right about the portfolio transformation. It's about 50% of rotation. And as a result of this, we have increased our exposure to high-growth categories. So this is what makes us confident for the future of the business. But I just would like to highlight that the depth of the transformation goes way beyond the transformation of the portfolio. We changed our head office. We changed distribution model for frozen food. We improved our culture to have it more open connected and agile. So transformation has really taken place across the board. Now to your question, what are the priorities that the growth is back. The priority is clearly to support the growth, to enable the growth, to fuel the growth, and that implies investments. There is no growth without investments, investment in innovation, investment in manufacturing. One of our limitations short term is the tightness of our capacity in some areas. So we have big CapEx investment plans underway. But also investment in technology, the shift to e-commerce, which we want to embrace fully, just a data point that our #2, #3 customers for PetCare are pure players e-commerce, so that shows the importance of the e-commerce channel. And we want to be able to embrace all of that being connected end-to-end from farm to fork. So that implies putting in place supply chain control towers, planning control towers, transportation control towers and so on and so forth, so that we are capable to manage in real time. And last, to your question on what is the potential of the region. Every region has to contribute to the Nestlé's growth ambition. But clearly, I see North America as capable to deliver sustainably the mid-single-digit growth that we ambition for the group.

Okay. That's very helpful. And maybe digging into a couple of the key businesses within the U.S. I mean we could talk about lots of them, but the 3 I'd maybe call out would be PetCare, given the size of PetCare for you in the U.S.; frozen food is a key category; and coffee as well. Could you maybe just elaborate a little bit just on the trends that you're seeing in those 3, specifically? And then related to that for those 3 specific categories, how you are dealing with those cost challenges on the ground. We do hear it's pretty acute in the U.S. around distribution and logistics issues. It must be quite a big headache for you day-to-day given you can't hedge those costs as well. So some color on those 3 categories and specifically related to those cost challenges that you're seeing on the ground in the U.S. would be really helpful.

Yes. You're absolutely right to highlight those 3 categories because they are the 3 largest. And there are a number of common points. Of course, there are different dynamics. But common point is that we command clear leadership positions in all 3. We got a unique portfolio of brands in all 3. We got R&D capabilities in North America in all 3 of them. So there is a real ability to win in all 3 categories, and we got also a very good margin structure. So the foundations are extremely solid for the 3 categories. On pet food, PetCare, which is the single largest one, of course. There are a number of things that are really favorable to the category. Number one, pet adoption, as I mentioned earlier, by François, but I would highlight as well the elevated role of the pet in the family, which we have seen kind of enhanced in the pandemic. So dynamic is good, and we've got a leading market share. We are gaining market share. So again, what are the -- what is the biggest issue beyond the cost? I will talk about the cost to date. Our biggest issue, my single biggest issue with PetCare in the U.S. is just to be able to supply the demand. The demand is so strong and we have a network with such a level of capacity utilization that we have to make wonders on a day-to-day basis to be able to supply the demand. So the big priorities, and I referred to our CapEx programs is to accelerate our capacity expansions and our investments across the network. We've got 2 new factories underway, one in Ohio and one in North Carolina to complement our dry network. We are expanding our footprint in wet and in pet litter. So big investments happening to adjust -- expand capacity as the demand is so strong. And this is a single biggest issue, honestly, I and my team have to deal with at the moment. We are also investing in technology, e-commerce. I refer to the 2 pure players that are #2, #3 customers and growing very, very fast. Investing in our ecosystem as well. So big investments taking place to again support the growth and enable the growth. Now you're right about the cost environment and the comment I will make is valid across the 3 categories with maybe PetCare even more impacted. So we have seen commodities. We have seen distribution and transport. We see labor. There are labor shortages as everyone can see and feel operating in the U.S. So there are pressure points everywhere. The positive is that we can price in many, many ways. We can price innovation, renovation. And this is a category which is really prone to premiumization. And our super premium, ultra premium brands are actually the most dynamic in the portfolio. So that's helpful to create value, enhance value and offset the cost pressures. We are leveraging also strategic revenue management, price pack architecture, our promotional policies among others and price list as the pressure is so visible that we got as well to increase our prices. And then once you have put in place or sent your price list, you need to realize your price increase. And on all 3 fronts, I think we are on track. So it's, of course, a challenging environment as we speak, but I'm happy to see pricing developments in the category. On coffee -- yes, sorry.

No. Sorry. Please carry on.

On coffee, we got also a unique portfolio of brands, the best in the industry without any doubt between Nescafé, Starbucks, Nespresso, and we should not forget Coffee-mate. So there are ample opportunities to grow through innovation, renovations through channel development, through e-commerce. So there as well, this is to support the growth, invest in innovation, invest in the network and in new capabilities. And on frozen, which has been a category discussed many, many times, where we can see in a pandemic that having a great portfolio of brands and brands that can resonate with various meal occasions at home is extremely relevant, and we are clearly leveraging that opportunity in full. Category is good, it's dynamic, it's growing. Shares are growing in most parts. We relaunched successfully Lean Cuisine, Life Cuisine. We implemented successfully our new distribution model for pizza, which is giving us a much better margin structure, and we are leveraging the category to its full potential. Hot Pockets also is to be mentioned as a great opportunity going forward in the snacking area. So they are the same as regards the cost environment. Yes, there is inflation in all the dimensions, raw material, packaging material, distribution, labor. But we are embracing this with a view to both protect our margins and pass the cost pressure and at the same time, protect our market shares.

Okay. That's super. The other big part of the zone is Latin America. That grew -- I think I'm right in saying double digit in the first half. Can you say how much of that growth was shared gains versus kind of elevated category growth? Because I remember a year ago, there was a lot of nervousness about macro in Lat Am, particularly Brazil, about tapering of checks being paid by the government in Brazil plus COVID as well, high COVID numbers. Why has Lat Am bucked those concerns? Why has it been stronger this year than what we were thinking back end of last year? And what is your outlook for the region?

Yes. That's a very good question, Warren. And I would not add you that Lat Am has the same strength as North America. It is very clear that there is less ability on the public side to support the economy. Economy is less diversified as well. So much more fragile, and there are parts of the continent that is really under pressure. What has happened? There are 2 points that have been and that will be positive and supportive to the Lat Am economies. Number one, if there is commodity cost inflation, which is somewhat of a challenge for the business. This is a positive for those countries that are highly dependent on commodity costs. If you remember well, 10 years ago, Latin America was flying at the time of the commodity boom, the commodity cycle and went into difficulties, the moment when commodities went down. We got petrol up. We got minerals rising and especially the copper, which is so relevant to Chile and Peru, for instance. And we got also agricultural raw material on the rise soybean with coffee, cocoa, you name it, dairy. So this is very positive factor for those economies as it gives them money flowing in and capacity to support the economic agenda. The second positive is the remittances coming from the U.S. The fact that so much money has been flowing in, in the U.S. Some of it has found its way to Latin America through the Latino population. And just to give you a flavor, the level of the remittances in Mexico has passed the CHF 40, 4-0, billion mark. This is a very significant increase compared to just a few years ago. And all of this is going into consumption. So this is also supporting those economies. So generally speaking, the consumption has been supported in most parts, maybe not everywhere, but especially in the larger countries for us like Brazil, Mexico or Chile. And in that context, where we enjoy also such a strong footprint and where we have kept investing in the brands, in innovation, we have indeed been gaining market share. So gaining market share in growing categories gives that kind of result. And we have taken also price increases relatively early on because on top of commodity inflation and input cost inflation, we got also to cover for the ForEx depreciation that has been significant in the last year. So we are in a very good place when it comes to Latin America. And the prospects are also -- outlook is positive. And I can confirm also that Lat Am will be capable sustainably to contribute to the Nestlé agenda when it comes to the organic growth ambition.

And François, a question for you. Just back on to kind of Nestlé Health Sciences. I'm just interested on 2 things really. One, on Aimmune, you've talked about it being a CHF 1 billion brand in time. Can you tell us maybe what your assumptions are behind that? How do we get to that kind of number? And secondly, just on Bountiful, it kind of takes your pro forma sales to CHF 6 billion. It's mainly a U.S. business with the exception of Solgar, which is more international. But what are your plans to try and take it international? So 2 parts, one on Aimmune and one on Bountiful expansion.

Okay. Warren, I think it's a very good question. Let me give you a little bit of the global picture as far as Nestlé Health Science is concerned. As you know, we subgroup there. We have what we call consumer care, which is essentially down covered with VMS, vitamins, minerals and supplement. We have medical nutrition and then we have Novel Therapeutic Nutrition. Novel Therapeutic Nutrition is where Palforzia sits, and I'll come back to that. Let me start very quickly with consumer care and VMS, vitamin, minerals and supplement, with the Bountiful acquisition. And let me tell you a little bit the way we see things there. Because we had already some assets in that business -- in that category before like Boost, for example, in the U.S. or Carnation Breakfast Essentials and doing very well. Then we did 4 years ago, the acquisition of Atrium Innovation, which is positioned in the premium segment. By the way, we sell this vitamin, minerals and supplement on average at 2x the price of average VMS in -- multivitamins in the U.S. And we are #1 by the way in the U.S. in multivitamins. So it's a premium brand distributed exclusively through specialized distribution channels and e-commerce. So it's a little bit like if I can make an analogy the Nespresso of coffee because in Nespresso, we have super premium brand, specialized -- with specialized distribution network, our own e-commerce platform, our own boutiques. We needed something to complement it with what we call everyday premium. If you want even mainstream -- And the Bountiful Company is a very good complement from that point of view. Why? Because they are precisely in this everyday premium channel, everyday premium positioning. So very complementary to what we have with Atrium. And they are in the mainstream retail channel. So this is very -- this is a very good addition. If you want, once again, with this analogy that I gave you earlier, the Bountiful Company is a little bit the Nescafé of VMS. So very complementary both in terms of brand architecture and positioning and very good complementarity as well in terms of differentiated channel. So we are very excited about it. The other benefit that we have with the Bountiful Company that this company comes with 7 industrial units. And we did not have such a strong industrial base with Atrium Innovation. So -- and they are very efficient from an industrial point of view and a cost point of view. So we will certainly benefit from what they are contributing there. And in addition, as you mentioned, with a bountiful company, we can expand internationally. They have about 20% of their business, which is outside of the U.S. today, but we clearly have the intention to leverage on our Nestlé Health Science global footprint and even further than that, on our Nestlé global footprint to leverage and globalize abroad. As you said, some of their brands have already traveled like Solgar, but it goes beyond that. Take Nature's Bounty, it's a brand that is already well established internationally. But clearly, the intention is to push there and leverage on our assets like, once again, in order to do an analogy with coffee, what we have done extremely well with Starbucks. Moving with Aimmune and Palforzia, this peanut allergy product, which is in the third category, which is what we call Novel Therapeutic Nutrition, which is more pharma anywhere. And even Palforzia is a drug that is registered with the FDA. As you mentioned, we expect to be -- to make this product a $1 billion product over time, and we are really investing. In terms of assumption behind this ambition, we have made conservative assumptions, which are essentially around an enrollment rate of children aged 2 to 17 years old, and that are suffering from peanut allergy. So we have been very conservative in the assumption of enrollment of these children. After that, price-wise, we don't need even to make an assumption because the price is already set is already approved by insurance companies in the U.S. So there is no surprise there. There is no uncertainty. The only unknown, obviously, is that if we will reach to -- managed to reach our enrollment assumption, but we are very positive about it. So that's what I wanted to mention. So obviously, with Nestlé Health Science today days this year, we should reach about CHF 4 billion of sales. We are on the run rate with the full year impact of the acquisition of the Bountiful Company, that is around CHF 6 billion, so obviously, and we expect to continue growing organically, potentially inorganically as well. So we are not going to stop there.

And François, I've got to ask you about China infant nutrition because it's been a big topic for people in the last year. You're talking about turnaround initiatives, things are improving a little bit. Can you maybe share a bit of an update on those initiatives. I'm quite interested in the Belsol launch in super premium. I know it's not -- it's one of the drivers. But you're also pushing more aggressively into lower-tier cities and building up your sales force. Could you maybe just update us on that?

Absolutely. So infant nutrition is the only category where we have seen some declining sales since the beginning of the year. If we look at it outside of China, this is largely coming from the fact that we have seen across geographies as a consequence of the pandemic, a declining birth rate everywhere in the world, including in China. So -- but in addition to that, in China, we have had some self-inflicted issues that we have started to address last year. So the plan was very clear. It's around innovation. So we launched, for example, A2 milk formulas. We launched organic and natural formulas. We launched Belsol, which is a product which is specifically designed for Chinese babies, which is manufactured locally, and we expanded geographically within China moving into Tier 3, Tier 4 cities. We put more feet on the ground as well in terms of sales force. Everything that we set, including Belsol that you mentioned, is working more or less as per the plan. So we are quite happy with that. But it is still not sufficient to offset the decline of our main business and more specifically, illuma within the Wyeth range. So we need to do more. So we are really working even further on that because we want to address it. We won't get back to growth in 2021 for sure. So we are really working very, very hard to address the issues and go even further with a full commitment to the category infant nutrition and a full commitment to China.

Okay. And a question maybe for both of you, just on plant-based food. You made a big push, plant-based meat initially, much more on plant-based dairy more recently. I'm interested, Laurent, if you could share what you're seeing in terms of trends in both plant-based meat and dairy. And obviously, quite a few high-profile launches that you've been talking around PE protein, for example, being a big thing for you. I'm sure all the listeners will be very interested to hear your thoughts on this key category.

Yes. It's topical item, but it's there to stay for the long run. The trends are very clear, very obvious. There is more and more interest in plant-based solution for dietary reasons. And increasingly, there will be also the sustainability concerns. So I see -- and we see powerful trends behind the category. We have a unique play there because of our portfolio because the breadth of portfolio that we can both play the pure play game with our pure-play brands like Sweet Earth in the Americas, we got Garden Gourmet in Europe or NATURE'S HEART in Latin America and more broadly. So we see great opportunities on all fronts, actually, both meal replacement -- meat replacement or plant-based beverages and the categories are dynamic, and we are seeing strong developments. But we'll see a second play as well, which is to integrate those plant-based ingredients into our offering, both for at-home and out-of-home consumption. So if you look at it that way, you will see that the opportunity is really broad as we can leverage through our entire portfolio those plant-based arguments. And I could mention DiGiorno, of course, Stouffer's but I could mention also Coffee-mate, Nido, you name it. So we see those 2 opportunities, and we will invest and we are investing behind those 2 opportunities, the pure-play game, but also integrating ingredients across our brands and our ranges, and we see strong double-digit growth for the years to come in these focus areas.

Warren, to complement what Laurent is saying, just to give you the picture at group level. So this total plant-based category for us is accounting for about -- for north of CHF 700 million of sales, so we are not small in that category. So we have been there for long, more specifically in Europe, but with a lot of success. So it's more than CHF 700 million of sales probably this year, growing double digit. And within that category, we have obviously the meat alternative, which accounts for about CHF 200 million plus, which is growing very strongly and more specifically in Europe. But we are not limiting ourselves to the meat category, as Laurent said. So we expect really through the significant investment that we do in plant protein, this is 10% of our total R&D investment today. But we want to go beyond meat. By the way, meat alternative could be possibly relatively commoditized going forward. So we are a little bit more careful in that category. So we are moving further than that into a chicken alternative and shrimp alternative and fish alternative, you name it, because all of these product makes sense, and we believe that we have both the route to market, we have the R&D, we have the brands, and -- across the world, by the way, it's -- we have them in the Americas, in Europe, in Asia and also this is really an area where we invest a lot. Just one word on margin. For the time being, this is margin dilutive, but not an issue at all. I mean we are clearly in an investment position in that business. So this is -- we have to invest in R&D. We have to invest in marketing, building brands and so forth because we are certainly more interested in the retail part of the category.

Okay. And we're running a bit short time. So I've just got a couple more for you. One for François. Just on the ROIC, that's been a question from investors. It's improved from 10%, almost to 15%. But you also kind of said that most of the disposals are done, so you're going to be looking at more net acquisitions. But given acquisitions are quite expensive, are we starting to see the ROIC peaking? Or do you still see upside beyond 15%? And if so, where will that come from?

So I think we have done well over the last couple of years because we were around 10% in ROIC back into 2015. We were at almost 15% last year. And we used all levers. So we accelerated our growth. We improved our margin. We reduced our working capital very significantly. We reduced our underlying tax rate. We have been much more efficient in managing our CapEx as well. And we have been very disciplined in M&A because even we managed to do that while making acquisitions as well. So it's not only disposals, but we did acquisitions, we made acquisitions like Starbucks, like Atrium, like -- and others as well. It is true what you said that it's very difficult for us to give a guidance on that one because it is largely influenced as well by M&A. What I can assure you is that we will remain very, very disciplined on M&A and ROIC is one of the KPI that we are looking at when we built a business plan by how long will it take us in order to have the return on invested capital of that specific acquisition, exceeding the work of that specific acquisition. We are targeting for mature businesses, not for start-ups at around 5 to 7 years to exceed the WACC in terms of ROIC for that specific acquisition. I can tell you, for the first 2 large acquisition that we did 5 years ago, namely Atrium and Starbucks, we may even reach that level even before the 5 years, which is actually good. So we will remain disciplined.

Okay. And the final question, since Mark Schneider became CEO, the aim was always to get to mid-single-digit organic growth. Although the battle's not completely won, it sounds like you're pretty confident in delivering that target sustainably. So I guess my question is, with that now discounted by the market, what will be the investment case on your side for the next 3 to 5 years? And of course, the question around L'Oréal keeps coming up and the portfolio has been addressed. Is it right to think about it as acquisition currency, if something transformational comes up on the horizon?

So in terms of investment case, we are looking for a balanced pursuit of growth and margin, but maybe with a slight difference versus what we have done over the last couple of years. If you look over the last 4 to 5 years, we grew around 3%, and we improved our margin by about 50 basis points, operating margin by about 50 basis points a year. Going forward, we expect to see our growth accelerating in the mid-single digit space, let's say, for the sake of the example, around 5%, and our margin will increase at a moderate level. Why? Because we have significant investment to do in sustainability, and we will invest as well to support our top line growth. So it's the same strategy, but with slightly different output and outcome. We will continue to invest -- we will invest significantly in ESG. We will continue to be active in portfolio. We have been. We rotated 18% of our portfolio over the last 4 years. We will continue to be active, probably more on the acquisition side. We will continue innovating as well. And just on the financial side, we will use share buyback as a value-creation lever whenever appropriate. On the L'Oréal question, there is not much to add there. I cannot comment on one specific option regarding our loyal investment. What we have done is that we have created significant value for Nestlé shareholders through our investments in L'Oréal, and we are very happy with that. The Board has a fiduciary duty and does it along with the management to revisit all options, and we want to keep all options open, but we don't want to comment specifically on any option at this stage.

Okay. Well, listen, with that, we're going to have to wrap it up. So thank you, François. Thank you, Laurent. It's been a very informative session. Thanks for participating in the Barclays Global Consumer Conference. And I hope to see you in person as soon as possible. Take care.

Thank you.

Looking forward. Take care.