Nestle SA (NSRGY) Q4 2022 Earnings Call Transcript

Nestle SA (OTCPK:NSRGY) Q4 2022 Earnings Conference Call February 16, 2023 8:00 AM ET

Company Participants

Luca Borlini - Head, IR

Mark Schneider - CEO

François Roger - EVP & CFO

Conference Call Participants

Jon Cox - Kepler Cheuvreux

Guillaume Delmas - UBS

Celine Pannuti - JPMorgan Chase & Co.

Patrik Schwendimann - Zürcher Kantonalbank

Jeremy Fialko - HSBC

John Ennis - Goldman Sachs Group

Jeffrey Stent - BNP Paribas Exane

Bruno Monteyne - Sanford C. Bernstein & Co.

Thomas Sykes - Deutsche Bank

James Jones - RBC Capital Markets

David Hayes - Societe Generale

Warren Ackerman - Barclays Bank

Luca Borlini

Good afternoon, and bully greeting to everyone. A lukewarm invited to nan Nestlé Full Year 2022 Results Webcast and acknowledgment for joining. I'm Luca Borlini, Head of Nestlé Investor Relations. Today, I'm joined by our CEO, Mark Schneider; and our CFO, François Roger. Mark will statesman pinch an overview of 2022 and talk nan 2023 guidance. François will travel pinch a reappraisal of nan afloat twelvemonth 2022 income and profit figures. We will past unfastened up nan lines for your questions. Before we begin, please return statement of our disclaimer. And now I manus complete to Mark.

Mark Schneider

Thank you, Luca, and a lukewarm invited to our convention telephone participants today. As always, we admit your liking successful our company. Thanks for joining us. It's bully to update you coming connected wherever we are. As you tin imagine, a batch has happened successful this turbulent and demanding year. And each nan more, I'm pleased to opportunity that Nestlé has been capable to beryllium its resilience and dependability astatine this very demanding time.

Let's move to immoderate of our cardinal messages here. And nan slides I'll locomotion done are akin to nan ones from nan property convention this morning wherever we've seen insights from this morning, we're besides trying to connection immoderate worth added and immoderate guidance our portion successful bid to beforehand nan debate. So clearly, from our perspective, erstwhile it comes to nan financial performance, we considered very resilient successful a volatile and turbulent time.

Organic income maturation of 8.3% was smack successful nan mediate of our guided scope of 8% to 8.5%. And it was besides noteworthy affirmative that nan existent soul growth, truthful nan sum of measurement and operation came up ever seasonally affirmative for nan afloat year. The mix, which, of course, is simply a very important parameter for america since it measures nan complaint of advancement and innovation, outweighing nan antagonistic coming from measurement development.

I cognize that there's a batch of interest among you astir nan measurement and rig development, specifically successful nan 4th quarter. And I dream François and me, we will beryllium capable to reside immoderate of that. We are evidently a batch little spooked astir this than you are because I deliberation location is perfectly expandable reasons that are not solely related to pricing that were starring to this development.

Underlying trading operating profit margin, it decreased arsenic we guided you to expect passim nan twelvemonth owed to important inflation, but I deliberation we were capable to limit nan alteration to a amended grade than anticipated 17.1%, surely supra what extracurricular estimates were. And I deliberation what you're seeing is important attraction connected costs efficiencies, maturation leverage to offset immoderate of nan effect of costs inflation.

So very pleased pinch that result, tremendous effort from nan team. And again, pointing retired nan resilience of our financials astatine a very demanding time. Underlying net per stock growth, 9.4%. So very adjacent to nan apical extremity of that 6% to 10% changeless rate underlying stock maturation complaint that we led you to expect arsenic portion of our Barcelona Investor Day. And arsenic you saw from our guys, this is besides what we're confirming arsenic a scope again for this year.

So present again, connected nan underlying net per stock maturation complaint besides a very accordant dependable performance. We did not springiness up erstwhile it comes to building for nan agelong word successful this year. So clearly, erstwhile it comes to CapEx, successful particular, but besides innovation, sustainability, tons of bully forward-looking walk that, of course, will present its benefits successful nan early years. And past besides continued advancement erstwhile it comes to portfolio rotation, wherever we are now astatine astir 22% of our portfolio compared to nan 2017 baseline.

You will spot later that we made bully advancement connected nan Good For You, Good For The Planet agenda. And present is different point where, of course, astatine a clip of ostentation and affordability concerns, it would person been easy to trim corners. We chose not to do that because these are important strategical initiatives that complete clip nan institution will get measured connected by consumers and nan nationalist astatine ample and besides you arsenic investors and hence, disciplined, continued advancement successful that arena is important to us.

And past regarding nan dividend, I deliberation we're sharing immoderate of nan benefits of our worth creation present pinch a dividend summation of 15 [indiscernible] CHF 2 and 95 immoderate teams. So each throughout, I think, very accordant capacity astatine a clip that was marked by truthful overmuch turbulence and volatility.

I besides would for illustration to convey squad Nestlé for a tremendous occupation delivering this tremendous attraction successful immoderate nan institution operational discipline, making things hap arsenic agreed and really keeping their eyes connected nan ball. And complete and supra that, I deliberation immoderate capacity is disposable towards nan strategical improvement of nan company, we're devoting it to that because we cognize that we're not conscionable managing for today. We are besides managing for tomorrow and for positioning nan institution good for nan future.

With this, I'd for illustration to move connected to nan 2022 achievements successful particular. And clearly, pet attraction does guidelines retired arsenic nan 1 class but delivered complete and above. No mobility astir it. To me, nonetheless, nan 2nd item, java is 1 that's worthy to constituent out. 8.1% is simply a very resilient number successful a twelvemonth that saw connected nan 1 hand, spiking java prices. And connected nan different hand, besides a normalization successful this post-covid world for truthful galore markets astir nan world. Where clearly, nan in-home depletion did, first of all, thigh very beardown quarters from nan twelvemonth '21. And besides nan in-home depletion gave measurement to astatine slightest immoderate partial out-of-home depletion whereas you know, our marketplace shares are less.

So successful ray of each of that, 8.1%, very beardown performance, and successful particular, I proceed to beryllium very pleased pinch really nan Starbucks Global Coffee Alliance is shaping up and continues to develop. We've been processing EUR 1.5 cardinal of incremental income successful this statement of business since 2018.

Emerging markets, clearly, a guidelines of stability. We're seeing successful summation to nan pricing-led growth, besides very bully rig improvement successful those markets. So I deliberation our beardown beingness successful emerging markets is intelligibly paying disconnected astatine this time. And past out-of-home channels showing a tremendous rebound. We're now supra 2019 levels. Having said that, nan rebound was a batch stronger successful nan first 9 months.

And past we spot immoderate grade of normalization mounting in, successful nan 4th quarter, which is simply a usability of really nan 4th fourth of '21 shaped up. And past also, we're seeing nan antagonistic effect successful nan 4th fourth out-of-home maturation complaint coming from China where, of course, nan state was going done immoderate intelligibly immoderate precocious COVID-related reductions. And arsenic a consequence of that, out-of-home depletion was rather muted.

We did make bully progress. Moving connected to nan adjacent conception regarding underperforming businesses. China Infant Nutrition, a batch of advancement done cleaning up nan distribution system, simplifying it. SKU rationalization, a overmuch clearer value constituent positioning of our various brands and offerings and again, nan results pursuing connected nan heels of that. So that was very reassuring astatine a clip erstwhile nan commencement complaint successful nan Chinese marketplace is still rather low.

And past 1 point that I'll talk astir later immoderate much that we discussed already successful Barcelona and arsenic portion of our Q3 investor call, nan streamlining of nan SKU portfolio. That 1 was primitively calved arsenic a consequence of immoderate of nan proviso concatenation limitations we've seen. I deliberation it has now grown into a full-blown strategical inaugural that really gives america tons of bottommost statement benefits, but besides expected apical statement benefits down nan road. More connected that later.

On portfolio management, 2 items worthy to constituent out. One is that caller attraction of Nestlé Health Science connected user attraction and aesculapian nutrition pinch user attraction breaking down into progressive nutrition and vitamins, minerals and supplements. As you know, we did not execute our objectives pinch nan [indiscernible] acquisition, and we are looking into alternatives for that. I deliberation that caller strategical positioning builds connected what Nestlé Health Science is champion at. And past there's tons of scaling up opportunity successful those 3 bases going forward, and we'll attraction connected that.

So again, we regret that we did not meet our objectives here, but I besides judge we recovered a bully measurement retired erstwhile it comes to early strategical position, ensuring nan continued occurrence communicative of Nestlé Health Science.

In nutrient and connected freshly, a akin situation, arsenic you know, that business, while it's intelligibly flu successful nan early days of COVID, that truthful direct-to-consumer attraction was excessively narrow. The products, however, were successful beautiful beardown demand. And truthful combining pinch a patient [indiscernible] cuisine and now creating a caller nutrient business-to-business platform, successful my opinion, is very overmuch aligned pinch nan needs of nan times.

So this would service arsenic foodservice operators that don't want to hole caller nutrient connected site, beryllium it arsenic a consequence of labour shortages aliases costs pressures. And we judge that this is simply a niche that's very overmuch successful request and that we tin successfully utilization pinch this institution going forward. So rather bullish connected that. And I deliberation what you're seeing present is 2 examples of america addressing situations that were not performing good early, but past besides uncovering nan due strategical solution going guardant that ensures continued occurrence for nan company.

I'll now attraction connected 2 of our strategical plans: Good For You, Good For The Planet. And fto maine commencement pinch Good For You and to person nan nutrition broadside of things. As you know, this builds connected virtually 25 years of occurrence pinch our Nutrition, Health and Wellness strategy. And successful that 4th of a century, I deliberation we've done already a batch of advancement regarding nan simplification of sodium, sweetener and saturated fats. It's clear that while nan activity goes on, location are limits. So enjoyment-related categories will not beryllium turned into health-related categories.

But nonetheless, crossed nan fold spectrum, a batch has been accomplished, and our investigation and improvement stays very overmuch focused connected that. Because location are limits to really overmuch sodium sweetener and saturated beforehand yet tin travel out, I deliberation we besides person to broaden our approach. And 1 is astir transparency, transparency erstwhile it comes to labeling, but besides erstwhile it comes to nan full portfolio.

And this is wherever we made immoderate important announcements from our extremity past fall. The first 1 is connected world transparency. So we will complaint coming retired pinch nan study successful nan adjacent fewer weeks. Our full world portfolio according to nan Health prima rating, which is nan aforesaid 1 that's being utilized by nan Access to Nutrition index. And to our knowledge, among nan awesome world nutrient companies, we're nan first ones to do this connected nan world standard to springiness you a bully consciousness of wherever nan full portfolio stands.

And past for 14 awesome markets astir nan world, we will usage nan prevalent nationalist standing strategy to besides supply a standing of those nationalist portfolios. So that's, successful our opinion, a cardinal advancement connected nan transparency front. As you know, we complemented that pinch a step-up successful our responsible trading initiatives and enlarge nan property bracket of our marketplace insulation argumentation and spell now starting from July from 0 to 16. We will not extremity there. I deliberation we person breathtaking caller initiatives underway for this year.

Again, regarding targeting, we would for illustration to activity and people pinch you a target number for nan healthier parts of nan merchandise portfolio. So nan ones that are rated 3.5 nether nan wellness prima standing strategy aliases supra and springiness you an expected income fig for respective years down nan roadworthy for that bucket.

And past nan different point we're moving connected since we do judge successful nan early committedness and imaginable of plant-based nutrient to springiness you a consciousness of wherever we tin return that business, nan plant-based nutrient and beverage complete time. So some of these are projects that are successful nan useful and that are forthcoming later this year.

We will besides intelligibly proceed to activity connected different transparency commitments and responsible trading commitments. So this activity was not fto up. And each of that comes connected apical of ongoing activity that we do, arsenic you know, erstwhile it comes to affordable nutrition, particularly successful emerging markets and besides our highly successful thrust connected micronutrient fortification.

So tons of activity going connected successful this area. It is nan halfway of what we're selling. Nutrition is, astatine nan extremity of nan day, erstwhile tasty and balanced diets are nan halfway of what we're selling. And truthful upgrading our ambition levels present complete time, I think, is important.

Next, nether nan Good for nan Planet header. Obviously, tons of eco-initiatives, tons of initiatives underway that are designed to amended our sustainability footprint. But greenhouse state emissions is intelligibly 1 that is simply a percent of our activities. And present also, I deliberation aft a very successful 2022, we person advancement to report. I told you past twelvemonth that highest c was down america already. We crossed that sometime 2019, 2020. But now we are besides beneath nan 2018 starting levels.

So erstwhile you deliberation astir our nett zero roadworthy map, nan 1 that went from 2018 and past extends to 2050, wherever we intend to beryllium nett zero. We're now beneath nan baseline emanation levels location from 2018. And to our knowledge, erstwhile location were a fewer companies that has reached that milestone. We're besides connected way for nan 20% c emanation simplification by 2025 versus nan 2018 level. And we expect to make important advancement this twelvemonth successful nan adjacent 2 pursuing years, arsenic you tin imagine, successful immoderate of these initiatives, particularly erstwhile it comes to planting trees, for example, successful your agriculture proviso chain. Some of them person lead times because immoderate c simplification related to that does not get counted for nan first 2 years and only past snarky ramps up. So that's why we knew nan full advancement was going to beryllium somewhat back-end loaded. But against that backdrop, I think, wherever we are already, we person bully reasons to beryllium happy, and we consciousness bully astir nan 2025 target astatine this infinitesimal successful time.

Moving connected to immoderate cardinal attraction areas for 2023. Let maine commencement astatine nan halfway of nan descent pinch nan operational side. One point I said astatine nan property convention this greeting successful turbulent moments for illustration these, bully operations and bully operational guidance eat strategy for breakfast. And truthful clearly, protecting measurement maturation is thing that's very important to us.

And I deliberation our tasty task that we described to you and that we're expanding now is geared towards helping that complete time. We will proceed to attraction connected driving costs efficiencies, which are very important to us. And of course, we're besides aft taking it somewhat easier connected trading investments successful 2022. We will ramp up that again successful 2023.

François will explicate later to you that, of course, nan trading walk has besides needs to beryllium seen successful conjunction pinch nan waste and acquisition spend. And truthful nan image whitethorn not beryllium arsenic plague arsenic you think. But nonetheless, we judge that successful 2023, location is room for further trading investments. And arsenic a friends equipment company, these are very important to us.

On nan strategical front, we will accelerate portfolio optimization. That is an area that's important to us. And successful a sense, we will person a complete scalable group of efforts from SKU optimization to nan full portfolio. I'll explicate that connected 1 of nan pursuing slides. And past continued attraction connected accelerated relevant, impactful invention is going to beryllium important to thrust mix. And past we will proceed to lead connected our ambiance sustainability and nutrition agendas.

Financially speaking, restoring nan gross separator is key, clearly, aft this tremendous definite ostentation and besides renewed focus, stronger attraction connected rate travel generation. We made immoderate deliberate choices to tally up inventory levels to guarantee astatine each times that our proviso concatenation holds up. But I deliberation now pinch immoderate of nan COVID fears and proviso concatenation constraints astir nan world easing now is nan clip to besides locomotion that down again, trim nan nett moving superior and attraction connected rate travel generation.

That brings maine to nan portfolio optimization slide, and this is 1 I'd for illustration to walk a infinitesimal connected because from what utilized to beryllium a very tactical operational devices to respond to proviso concatenation shortages. This has now shape-shifted into a awesome strategical and company-wide inaugural that, successful my opinion, has important promise. So originally, erstwhile you had shortages, clearly, it was a prime of focusing connected nan articles that were astir successful request pinch our consumers and nan unit partners. And this led america past to what we telephone cutting nan tail successful bid to push nan head. But erstwhile we started doing that, we saw that location was tremendous committedness successful it, and we scaled it up and accelerated it rather a bit. And clearly, we noticed that we haven't done that benignant of workout for a agelong play of time.

And nan wide SKU portfolio had proliferated and location was tremendous committedness erstwhile it comes to costs efficiencies adjacent word and moreover expanding nan integrated maturation longer word by focusing connected nan items that are astir successful demand. So this is what I described this greeting successful nan property convention arsenic a win-win-win business wherever clearly, consumers are going for nan astir celebrated articles. Retailers for illustration precocious rotation items. And for us, having a much constricted SKU lineup besides intends little complexity, much operational ratio and then, of course, an moreover amended on-shelf readiness for nan items that are successful demand.

So this was nan starting point. And past from there, we took it somewhat broader and bolder and moreover now we commencement to look astatine full brands and segments and geographies arsenic itemized here. And successful cases wherever we cannot waste a business, we're not acrophobic of stepping distant from it arsenic agelong arsenic we do it right. And a bully illustration present is nan stiff nutrient Canada business that you spot nan bottommost left-hand corner, that was an announcement from a fewer weeks ago. This is simply a book of business of astir CHF 150 million. It's a business that was not really sellable and not really a winning proposition because we don't person our ain section manufacturing successful Canada. These products were made successful nan U.S. and past imported.

And clearly, by nan clip you're talking proscription and you're talking currency, it was difficult to move this 1 into a winner. But we judge that stepping distant from it and winding it down complete a play of 2 years, while being a resistance connected rig and integrated maturation for nan short word intelligibly will person important benefits for nan business going forward, and that is fundamentally what we're willing in.

And while this illustration whitethorn guidelines retired size-wise, you will spot tons of smaller ones wherever I judge making nan reliable prime short term, moreover though it does effect rig and it does effect OG for nan moment, clearly, will person benefits past down nan statement because you will free up capacities, you will free up proviso chain, you will free up resources to attraction connected nan proven winners and to make nan astir of those. That was 1 of nan cardinal factors, 1 of 3 down immoderate of nan stronger-than-expected measurement simplification successful Q4 because we were scaling this bring up arsenic accelerated arsenic possible.

The stiff nutrient Canada announcement is not a moment. This was a '23 announcement. And arsenic I said, we'll beryllium winding this down successful '23 and '24. But connected a smaller, much location care, we've done tons of decisions already successful nan autumn of '22 now that were impacting nan rig successful nan OG for nan 4th quarter. But again, pinch a bully business logic and expected benefits down nan line. And then, of course, we're reallocating those resources towards precocious growth, precocious margin, precocious rotation products, and that is what everyone wants.

With this, I'd for illustration to move to nan 2023 guidance. And I would for illustration to corroborate that we expect integrated income maturation scope betwixt 6% and 8%. So this will proceed to beryllium pricing led. We're not successful a position, and I deliberation this is successful statement pinch anterior believe to springiness a breakdown present betwixt nan pricing portion and nan rig part. I'm asking for your knowing connected that, but it will beryllium pricing-led. And nonetheless, we're besides seeing bully development, particularly towards nan extremity of nan year, and we're moving difficult erstwhile it comes to stabilizing a rig.

The underlying trading operating profit separator is expected to beryllium betwixt 17% and 17.5%. So this is very overmuch successful statement pinch nan benignant of way that we person laid retired for you arsenic portion of our Barcelona Investor Conference and we expect to make meaningful advancement towards that 2025 goal. And that past besides translates into a bracket for nan underlying net per stock maturation successful changeless rate betwixt 6% and 10%, truthful akin to nan value that you person seen for this year.

This concludes my portion of nan presentation. With that, I would for illustration to manus it to François. And past later on, we'll beryllium happy to reply your questions.

François Roger

Thank you, Marc, and bully greeting to all. Let maine commencement pinch immoderate of nan cardinal highlights for 2022. In a twelvemonth style by volatile macroeconomic and geopolitical events, we delivered grounds financial results. As you tin spot from nan chart, our reported income maturation was beardown astatine 8.4%, adding CHF 7.3 cardinal of sales.

In Swiss francs, our underlying trading operating profit accrued by 6.5% aliases CHF 1 billion. Underlying net per stock maturation was robust, expanding by 9.4% successful changeless rate to CHF 4.84. We accrued our returns to shareholders to CHF 18.2 billion, nan highest-ever level connected an yearly basis.

Organic maturation was 8.3%. Pricing accrued to 8.2%, reflecting important costs inflation. RIG was affirmative astatine 0.1% pursuing a precocious guidelines of comparison successful 2021. Supply constraints and portfolio optimization actions. Net acquisitions accrued income by 1.1%, mostly related to nan acquisition of nan halfway brands of nan Bountiful Company arsenic good arsenic our gain.

Foreign speech decreased income by 0.9%, turning antagonistic successful nan 2nd half. Total reported income reached CHF 94.4 billion, an 8.4% summation versus past year. Turning to nan distribution of maturation betwixt developed and emerging markets. Organic maturation successful developed markets was 7.1% based connected accrued pricing. RIG was antagonistic pursuing a precocious guidelines of comparison successful 2021.

Growth successful emerging markets accrued to 10% pinch beardown pricing and affirmative RIG. Growth was driven by Latin America, Africa and South Asia pinch continued momentum for affordable offerings. This floor plan shows nan improvement of our maturation factors complete nan past 5 years. Overall, nan group's RIG successful 2022 was affirmative astatine 0.1%. In nan discourse of important volatility, we felt location was merit successful breaking retired rig into its 2 components, namely operation and volume.

To heighten nan value of this analysis, we excluded Water and Health Science which results successful a somewhat antagonistic RIG for 2022 of minus 0.1% connected this chart. As you tin see, operation has historically been a cardinal driver of integrated growth, supported by premiumization and innovation. Mix remained resilient successful 2022 astatine 1.6%, indicating that we person seen only constricted down trading by consumers to date. In 2022, pricing became nan largest contributor to growth.

Looking astatine volume, we saw an exceptional step-up successful 2021 pinch maturation almost 3x higher than humanities levels successful nan discourse of elevated pandemic-related demand. This exceptionally precocious guidelines of comparison and proviso constraints negatively impacted our 2022 measurement growth. Overall, nan mean measurement maturation for nan past 2 years astatine 1% was only somewhat little than pre-pandemic levels, reflecting constricted pricing elasticity to date.

The caller measurement improvement is much reflective of wide marketplace conditions. Indeed, we proceed to spot much than half of business income gaining aliases holding marketplace stock successful spite of immoderate proviso constraints and deliberate decisions to optimize our SKU portfolio. When looking much specifically astatine our billionaire brands, which relationship for much than 70% of our sales, and truthful integrated maturation of 10%, we are gaining aliases holding stock successful adjacent to 60% of business sales.

Looking astatine Q4 RIG much specifically. Beyond nan precocious guidelines of comparison astatine 4% successful nan 4th fourth of 2021 and proviso constraints, Q4 was besides impacted by 3 further transitory factors, which had a antagonistic effect of connected RIG of astir 160 ground points. The 2 largest factors were nan normalization of out-of-home maturation and nan acceleration of SKU and portfolio optimization actions.

The normalization of out-of-home maturation reflects nan unwinding of pandemic-related volatility. Growth decelerated from 18.3% astatine nan 9 months to 6.1% successful nan 4th fourth toward a level much successful statement pinch what we saw pre pandemic. Second, we accelerated our SKU and portfolio optimization program, which is portion of Project Testing and has delivered almost CHF 1 cardinal of redeeming successful 2022.

The portfolio optimization constituent of this programme has delivered powerfully to debt, giving america nan assurance to broaden its scope beyond SKUs to see brands, segments and geographies. In Q4 2022, nan acceleration of this programme led to a much antagonistic effect connected RIG than antecedently communicated.

Going forward, we corroborate that nan rig effect is expected to beryllium antagonistic for H1 2023 and turned 20 ground points affirmative for nan afloat twelvemonth arsenic we commencement to reap nan use of increasing nan head. The description of nan programme will support maturation and separator successful 2024.

The precocious announced discontinuation of our stiff nutrient business successful Canada pinch yearly income of astir CHF 150 cardinal is simply a bully illustration of nan caller broader scope of our portfolio optimization program. Third, h2o saw a rig alteration successful nan 4th fourth arsenic a consequence of impermanent capacity constraints. This capacity simplification follows our caller determination to upgrade our Perier accumulation facility. The determination will effect our h2o RIG for a fewer much months.

Overall, while we are actively moving to protect RIG successful 2023, we expect RIG to beryllium antagonistic for nan first half arsenic nan 3 factors mentioned present will proceed to effect our business. Let's now displacement attraction to nan results of our 7 operating segments, opening pinch Zone North America wherever we saw 10.3% integrated maturation driven by pricing of 11.6%. RIG was resilient astatine minus 1.3% successful nan discourse of a precocious guidelines of comparison successful 2021 and proviso constraints and pricing.

In nan 4th quarter, RIG was minus 4.9%, mostly impacted by portfolio optimization actions, a moderation of maturation successful out-of-home channels and impermanent capacity constraints for Perrier. The area saw broad-based maturation contributions crossed strategical brands and categories, driven by pricing, beardown operational execution and continued momentum successful e-commerce.

The area besides saw marketplace stock gains led by pet food, information java and babe food. By merchandise category, income successful Purina petcare, Nestle Professional and Starbucks outer location products grew astatine a beardown double-digit rate. Infant look recorded double-digit growth, reflecting proviso constraints successful nan market. As a reminder, we sold nan Gerber Good Start marque successful nan 4th fourth to attraction connected our halfway babe nutrient business, which includes pures, snacks and cereals.

Premium Water posted mid-single-digit maturation pinch a income alteration successful nan 4th quarter, chiefly owed to impermanent capacity constraints. The Zone's underlying trading operating profit separator accrued by 70 ground points pinch a notable betterment successful nan 2nd half of nan year. Pricing maturation leverage and portfolio guidance much than offset important costs inflation.

Next is connected Europe. Organic maturation was 7.2%, driven by pricing. RIG was affirmative astatine 0.9% contempt a precocious guidelines of comparison successful 2021 and proviso constraints. In a challenging and disrupted environment, Zone Europe demonstrated resilience, peculiarly successful Ukraine, wherever Nestle announced a CHF 40 cardinal finance for a caller accumulation facility. The area besides continued to spot marketplace stock gains successful confectionery, pet nutrient and babe nutrition.

By merchandise category, nan cardinal maturation drivers were Purina petcare and Nestlé Professional wrong petcare, Lillies room and tels.com, some grew by much than 20%. Sales successful Water saw double-digit maturation pinch a income alteration successful nan 4th quarter, chiefly owed to impermanent capacity constraints for Perrier.

Coffee posted mid-single-digit maturation led by Nestlé soluble java and continued beardown income improvement for Starbucks by Nespresso. Infant Nutrition reported double-digit maturation pinch beardown momentum for premium babe formulas, including quality beverage oligosaccharides products.

Garden Gourmet plant-based products continued to spot double-digit growth, fueled by caller merchandise launches. The Zone's underlying trading operating profit separator decreased by 190 ground points arsenic important costs ostentation and nan effect of war-related proviso constraints was not afloat offset by pricing, gross leverage and costs efficiencies.

Moving to Zone AOA. The Zone reported precocious single-digit integrated maturation pinch publication from astir geographies and categories. Growth was driven by pricing, a continued betterment of out-of-home channels and innovation. The Zone saw marketplace stock gains successful coffee, culinary and babe nutrition. By geography, each regions posted affirmative maturation pinch peculiar spot successful South Asia, Middle East and Africa arsenic good arsenic Oceania.

By merchandise category, culinary was nan largest maturation contributor led by Maggi. Sales successful Nestlé Professional grew astatine a double-digit complaint crossed geographies and categories, driven by accrued distribution. Coffee, cocoa and malt beverages arsenic good arsenic Purina petcare, each posted precocious single-digit maturation supported by caller merchandise launches.

Growth successful Infant Nutrition reached a precocious single-digit complaint pinch broad-based contributions from astir geographies. Ambient dairy saw a flimsy income alteration mostly driven by portfolio optimization. The Zone underlying trading operating profit separator decreased by 110 ground points important costs ostentation much than offset pricing, maturation leverage and disciplined costs control.

Next is Zone Latin America, which reported sustained double-digit integrated growth, led by pricing of 11.6%. RIG was resilient astatine 1.5%, building connected a precocious guidelines of comparison successful 2021. The Zone's maturation was broad-based and supported by beardown operational execution and continued momentum of out-of-home channels. The Zone saw marketplace stock gains successful babe nutrition pet nutrient and culinary.

By geography, Brazil reported beardown double-digit growth. Sales successful Mexico, Chile, Colombia and nan Plata region continued to turn astatine a double-digit rate. By merchandise category, Confectionery was nan largest maturation contributor based connected beardown request for kit cats and cardinal section brands. Purina Petcare, Coffee and Nestlé Professional aliases reported beardown double-digit growth. Dairy posted precocious single-digit growth, led by fortified milks and location baking products.

The Zone's underlying trading operating profit separator decreased by 70 ground points arsenic costs ostentation and one-off items successful nan 2nd half outweighed pricing, maturation leverage and disciplined costs control.

Turning to Zone Greater China. We are pleased to spot important advancement connected nan turnaround of our business successful China pursuing nan caller organizational building and leadership. Organic maturation was 3.5% pinch pricing of 2.5%. RIG was 1%, impacted by COVID-19 related activity restrictions. Growth was supported by beardown operational execution successful a challenging environment, robust request successful e-commerce channels and continued innovation.

By merchandise category, babe nutrition saw precocious single-digit maturation pinch improved marketplace stock trends for Nan and Illuma. Coffee posted precocious single-digit growth, led by Nescafe soluble and ready-to-drink java arsenic good arsenic Starbucks products. In confectionery, [indiscernible] reported precocious single-digit growth, helped by innovation, including nan successful motorboat of terrible snacks.

Sales successful Purina PetCare grew astatine a double-digit complaint pinch beardown maturation successful specialty channels and e-commerce. Following activity restrictions, Nestle Professional saw a mid-single-digit income alteration pinch marketplace stock gains supported by caller customer enrollments and merchandise launches. The Zone's underlying trading operating profit separator accrued by 260 ground points favorable operation and disciplined costs power much than offset comparatively debased costs inflation.

Next is Nestle Health Science. The business posted mid-single-digit maturation of our High Bay pinch 2 consecutive years of beardown double-digit maturation during nan pandemic. Our 3-year rig mean was 8.9%. Innovation, geographic description and marketplace stock gains supported growth. Consumer Care reported affirmative growth. Active Nutrition saw double-digit maturation led by patient hedging products arsenic good arsenic a continued description of captious macromolecule and organ. Growth was helped by accrued distribution, caller merchandise launches and geographic description .

Vitamins, Minerals and Supplements saw a income alteration impacted by a precocious guidelines of comparison peculiarly for immunity-related products during nan pandemic. Medical Nutrition reported double-digit maturation pinch beardown income improvement for pediatric and allergy products.

Acute aesculapian attraction products besides posted beardown maturation based connected caller merchandise launches. By geography, income successful North America grew astatine a debased single-digit rate. Europe reported affirmative growth, while different regions mixed posted precocious single-digit growth. The underlying trading operating profit separator of Nestlé Health Science was unchanged versus nan anterior twelvemonth arsenic costs synergies from recently acquired businesses, pricing and maturation leverage were offset by costs ostentation and maturation investments.

Finally, Nespresso, which reported mid-single-digit integrated maturation driven by pricing. RIG was minus 1.7%, pursuing exceptional maturation of 8.2% successful 2021 during nan pandemic. Comparable integrated income for Nespresso are astir 20% higher than they were 3 years ago, and nan 3-year mean RIG was 4%. Growth was led by broad-based momentum for nan Vertuo system. Growth was besides supported by a beardown betterment of out-of-home channels pinch continued description for nan Momento strategy and improved income improvement for nan agency segment.

By geography, North America posted double-digit maturation pinch continued marketplace stock gains. Europe reported a income alteration pinch maturation turning affirmative successful nan 4th quarter. Other regions mixed reported precocious single-digit growth. The underlying trading operating profit separator of Nespresso decreased by 150 ground points, impacted by costs ostentation and investments successful nan rollout of nan Vertuo system, which were not afloat compensated by pricing.

Let's now look astatine merchandise categories. Organic maturation was broad-based, supported by pricing crossed each categories. The contrasted class dynamics successful 2022 mostly bespeak nan residual effect of COVID arsenic user request somewhat normalized by channel. Categories pinch greater at-home consumption, specified arsenic dairy and culinary, truthful antagonistic rig complete a precocious guidelines of comparison.

By contrast, categories and businesses pinch greater vulnerability to out-of-home channels, on-the-go depletion and impulse buying, specified arsenic confectionery, truthful a continued beardown recovery. Within powdered and liquid beverages, java saw precocious single-digit growth, building connected a precocious guidelines of comparison successful 2021. Growth was broad-based crossed brands, segments and geographies and led by a beardown betterment for outer location channels, which grew astatine a beardown double-digit rate.

Sales of Starbucks and Nescafe ready-to-drink products grew astatine a double-digit rate. Overall, income of Starbucks products grew by 12.9% to scope CHF 3.6 billion, generating an further CHF 1.5 cardinal of incremental income since 2018. Cocoa and promenade beverages reported precocious single-digit growth, driven by beardown request for Milo and Nesquik, ready-to-drink formats. Pet Care posted its 3rd consecutive twelvemonth of double-digit maturation contempt proviso constraints pinch mid-single-digit RIG.

Science-based premium and veterinary products saw beardown income development. Growth was besides supported by pricing, continued e-commerce momentum and innovation. Nutrition & Health Science posted 7.4% growth. Infant Nutrition reported 10.1% integrated maturation pinch a beardown betterment successful marketplace stock gains crossed astir geographies, peculiarly China.

Infant look maturation was supported by continued robust request for quality beverage oligosaccharide products which grew astatine a double-digit complaint pinch income reaching CHF 1.3 cardinal successful nan 4th twelvemonth of marketing. We person already discussed Nestlé Health Science. Prepared dishes and cooking immunodeficiency saw 3.1% growth, driven by beardown income improvement for ambient culinary, peculiarly Maggi successful Zone AOA.

Sales successful vegetarian plant-based nutrient grew astatine a mid-single-digit rate. Garden Gourmet successful Europe continued to spot double-digit maturation while income for Sweet Earth successful North America were impacted by SKU optimization. Growth successful stiff nutrient was somewhat affirmative complete precocious base. Milk products and crystal pick recorded 5.4% growth. The cardinal contributor to maturation were java creamers, affordable fortified milks and location baking products.

Growth successful confectionery reached 9.4%, reflecting beardown request for KitKat, seasonal products and cardinal section brands. In 2022, KitKat posted double-digit maturation pinch complete 5 cardinal bars sold successful 87 countries. Sales successful Water grew by 11% contempt impermanent capacity constraints.

Moving now to profit separator by merchandise category. Most categories saw a separator diminution arsenic pricing, maturation leverage and efficiencies did not afloat offset input costs inflation. There are a number of exceptions, though. In Infant Nutrition, pricing, maturation leverage, unfavorable merchandise operation drove a 160 ground points separator increase.

Confectionery besides saw a separator betterment arsenic pricing and maturation leverage much than offset costs inflation. It is worthy calling retired that pet attraction besides saw a important separator betterment successful nan 2nd half. Water besides saw its separator temporarily affected by capacity constraints successful nan 4th fourth and inflationary pressure, peculiarly linked to energy.

Next is underlying trading operating profit, which accrued by 6.5% aliases CHF 1 billion. As a percent of sales, it decreased by 30 ground points to 17.1%. In 2022, gross profit accrued by 2.5% to CHF 42.7 billion. Our gross profit separator decreased by 260 ground points to 45.2% and arsenic important input costs ostentation much than offset pricing efficiencies and maturation leverage.

In nan 2nd half, we saw a further gross separator alteration arsenic ostentation was materially higher than we anticipated successful nan summertime chiefly owed to power arsenic good arsenic labour costs. For nan first half of 2023, we expect our gross profit separator to alteration versus nan corresponding play successful 2022. Going forward, restoring our gross separator remains nan apical priority.

Distribution costs arsenic a percent of income decreased by 20 ground points, chiefly arsenic a consequence of nan disposal of nan Nestle Waters brands successful North America. Marketing, management and R&D expenses arsenic a percent of income decreased by 210 ground points, supported by income maturation leverage and disciplined costs control. Consumer-facing trading walk decreased temporarily pursuing a little level of trading activities successful nan discourse of proviso constraints. Marketing walk accrued successful nan 2nd half of nan year.

Going forward, we expect to summation our level of trading investments, some successful absolute magnitude and arsenic a percent of sales. Bear successful mind that we should not only look astatine marketing, but besides astatine waste and acquisition spend. We ever look astatine trading and waste and acquisition walk jointly because we arbitrate very often betwixt these 2 lines of nan P&L. In 2022, our full trading and waste and acquisition finance accrued successful Swiss francs versus nan anterior year. Overall, sustainability investments chiefly recorded successful costs of equipment sold were astir CHF 700 million.

Moving connected to P&L items from underlying trading operating profit down to nett profit. Restructuring expenses and nett different trading items decreased by 30 ground points somewhat beneath nan anterior twelvemonth crossed astir items. As a result, nan trading operating profit separator was unchanged versus nan anterior twelvemonth connected a reported ground astatine 14%.

Taxes arsenic a percent of income accrued by 30 ground points connected a reported basis. The underlying taxation complaint was comparatively unchangeable astatine 20.9%. Lower income from associates and associated ventures mostly reflects nan disposal of immoderate L'Oreal shares successful 2021. Moving to underlying net per share, which accrued by 9.4% successful changeless rate and by 8.4% connected a reported ground to CHF 4.80. The largest contributor to nan betterment was our beardown integrated growth.

Nestle's stock buyback programme besides contributed 1.8% nett of finance cost. The statement others chiefly related to income from associated ventures and associates contributed 2.2% to growth, driven by accrued contributions from L'Oreal and Froneri. The antagonistic effect of overseas speech bespeak nan rate depreciation of nan euro-denominated L'Oreal income.

Our rate generated from operations earlier changes successful moving superior remains coagulated and dependable astatine astir 20% complete nan past 6 years. Free rate travel decreased from CHF 8.7 cardinal to CHF 6.6 billion, reflecting our determination to temporarily summation inventory level successful nan discourse of proviso constraints, nan power situation successful Europe arsenic good arsenic elevated superior expenditure.

As moving superior and CapEx normalize, we should spot an summation successful free rate travel trending backmost towards 12% of income by 2025, successful statement pinch our midterm financial targets. The group return connected invested superior earlier goodwill and intangibles decreased to 39.4%, reflecting a impermanent summation successful inventories and a higher level of CapEx. The group's return connected invested superior aft goodwill and intangibles was 12.2% unchanged versus nan anterior year. Without nan effect of impairments, return connected invested superior accrued by 10 ground points to 14.3% successful 2022.

The group's ROIC has been comparatively unchangeable complete nan past 3 years astatine betwixt 14% and 15%. This is simply a level 2x higher than our WACC and comes moreover arsenic we made important acquisitions. Net indebtedness accrued by CHF 15.3 cardinal to scope CHF 48.2 cardinal arsenic astatine nan 31st of December 2022. The summation mostly reflected nan dividend costs of CHF 7.6 cardinal and stock buybacks of CHF 10.5 billion.

Our free rate travel successful 2022, was exceptionally debased owed to our determination to temporarily summation inventories successful nan discourse of proviso constraints and nan power situation successful Europe. This effect will reverse successful 2024 pinch a important rate travel benefit. During 2022, we returned a grounds CHF 18.2 cardinal of rate to our shareholders successful dividends and stock buybacks. We are committed to maintaining our believe of expanding nan dividend each twelvemonth successful Swiss francs.

At nan adjacent Annual General Meeting, nan Board of Directors will propose a dividend of CHF 2.95 per share. If approved, this will beryllium nan 28th consecutive yearly dividend increase. nan institution has maintained aliases accrued its dividend successful Swiss francs complete nan past 63 years.

Net debt-to-EBITDA ratio astatine 2.45x and request to beryllium seen successful nan discourse of a impermanent summation successful inventories. This concludes my remarks. I now manus complete to Luca to unfastened nan Q&A session.

Question-and-Answer Session

A - Luca Borlini

Thank you, François. With that, we move to nan Q&A session. We unfastened nan lines for questions from financial analysts. [Operator Instructions]. The first mobility is from Jon Cox astatine Kepler.

Jon Cox

Yes. John Cox, Kepler Cheuvreux. Two questions. One, conscionable to make crystal clear connected nan guidance. This includes nan effect of nan SKU shape out. I deliberation immoderate successful nan marketplace possibly deliberation that it does not see that SKU shape out. So that 6% to 8% is simply a difficult 6% to 8%. The 2nd question, conscionable connected nan slides you showed 15 and 16 successful position of nan weakness successful Q4. You mentioned operation is astir 1.5%. So past tin we presume nan measurement diminution was astir 4% successful Q4. And past conscionable base successful mind nan divided that you gave for nan 2.6% decline, tin we astir presume 1.5 points is nan SKU rationalization possibly 1.5 points is nan out-of-home change? And past possibly 1 constituent is nan proviso concatenation constraints.

Mark Schneider

Jon, I'll manus it to François for nan 2nd question. But connected nan first one, conscionable to confirm, yes, this is simply a difficult guidance of 6% to 8%. We're not playing astir pinch guidance terms, arsenic you know, and this includes nan effect of SKU rationalization. So you spot we're emotion very assured astir a very decent income improvement successful ray of these longer-term undertakings.

François Roger

And Jon, François speaking. The -- connected my Slide 15 aliases 16, successful this nan RIG antagonistic effect successful Q4 astatine 2.6%. The 3 main factors that I mentioned contributed astir 160 ground points. There is 1 -- nan past one, nan h2o one, which has a smaller contribution. And nan bulk of this 160 ground points diminution impacted Q4 that will proceed for H1 is coming from this SKU optimization arsenic good arsenic nan out-of-home maturation slowdown. Don't hide arsenic well, truthful we don't want mostly to spell excessively overmuch into that. But -- successful Q4, we had 1 little invoicing time arsenic well. So don't spell excessively acold successful interpreting nan diminution -- antagonistic diminution of measurement successful Q4.

Luca Borlini

So adjacent mobility is from Guillaume Delmas astatine UBS.

Guillaume Delmas

Mark and François. Two questions for me, please. The first 1 is connected your medium-term separator outlook. Because you reiterated again today, your ambition to reconstruct your gross separator to nan 2020 levels. So that would efficaciously mean a 400 ground points gross separator uplift complete nan adjacent fewer years. Based connected your medium-term separator outlook of 17.5 to 18.5, I mean this implies immoderate important step-up successful SG&A to nan tune of 250 to 350 ground points. So my mobility is, what returns do you expect connected these incremental investments because pinch specified a heightened level of finance and a stronger, leaner portfolio, would it beryllium adjacent to presume that your integrated income maturation could spell from 4% to 6% to much 5% to 7%?

And past my 2nd mobility is connected inflation. I mean I admit astir apt still early days. But astatine this stage, what level of costs ostentation would you expect for 2023? How do you deliberation it will comparison to nan levels of ostentation you faced past year? And is location a script possibly whereby you could really look immoderate deflation by nan clip we get to nan backmost half of nan year?

Mark Schneider

Let maine effort and return a first ace astatine some of these and past besides manus it to François for immoderate further detail. On nan 2nd one, again, we're trying to beryllium helpful, but I don't deliberation astatine this point, it is bully present to estimate connected precisely wherever input costs ostentation is going to go. As you saw often successful nan past, anyone who speculated connected this successful nan past 2 aliases 3 years person often ended up wrong. It past besides sends nan incorrect signals erstwhile it comes to retailer negotiations. It's not successful nan champion liking of shareholders to estimate connected that, and hence, we're refraining from it. So I'm asking for your understanding. When it comes to nan medium-term outlook successful 2025. Do support successful mind nan -- what nan guidance and anticipation is connected is connected nan underlying trading operating profit margin. So nan 17.5% to 18.5% that we're getting there. What's very difficult to estimate successful this volatile situation successful 3 years up of clip is precisely what nan breakdown is betwixt operational improvements, overheads and past ultimately, of course, nan gross margin. What we're trying to explicate is that, of course, nan gross separator needs to repair somewhat to get backmost location because clearly, it came down rather a bit. successful nan gait of inflation. And past typically, arsenic ostentation eases, immoderate of that should hole arsenic a consequence of nan value increases we've done and input costs complete clip coming down again. But don't presume that this is an nonstop like-for-like. 2025 is not going to beryllium a transcript of 2020. What we consciousness assured astir is that we person a group of initiatives that will lead america to an underlying trading operating profit betterment to travel backmost to that aged scope of 17.5% to 18.5%. How precisely past nan different ingredients that adhd up to nan underlying trading operating profit margin, really they will style up, we request immoderate elasticity there.

François Roger

Guillaume, conscionable to complement what Mark said, I tin conscionable springiness you immoderate colour connected 2 much circumstantial items. Obviously, nan structural costs use aliases I would say, nan maturation leverage use that we have. You cognize that historically, we person generated betwixt 50 to 70 ground points of use to nan bottommost line. We expected that to proceed arsenic well. And successful summation to that, this programme that we are starting now pinch SKU and portfolio optimization, they will effect very positively connected margin. As by nan way, it has been nan lawsuit successful nan past arsenic well, but we expect these 2 items to proceed to lend positively to our separator improvement successful nan adjacent mates of years.

Luca Borlini

Next mobility is from Celine Pannuti astatine JPMorgan.

Celine Pannuti

My mobility is coming backmost connected nan portfolio rationalization. François, you mentioned that it would beryllium a magnitude of 160 ground points successful Q4 and past we should expect this to proceed to start. But I besides show that immoderate regions for illustration LatAm Europe didn't -- that doesn't look to person seen yet an impact. And you've seen arsenic good to broader it by surface science and business. So I conscionable want to understand really overmuch much step-up we should expect successful '23? And you besides said that, for instance, business successful nutrient and nutrient successful Canada will return 2 years to upwind down. So really agelong will that past for? That's my first question.

My 2nd mobility is connected waste and acquisition spending and A&P. I'm a spot amazed that your inclination walk was up successful '22, fixed that galore group were talking astir waste and acquisition optimization successful bid to walk done pricing. So tin you explicate a spot this. And if you upwind down inclination successful '23, I mean, is that -- really tin you quantify nan imaginable effect this could person connected your volume?

François Roger

Celine, François speaking. On nan portfolio optimization, nan 160 ground points I mentioned is for nan sum of nan 3 items, not only for portfolio optimization. Just to springiness you immoderate much colour arsenic well, we do corroborate that this programme will person a affirmative effect connected RIG and OG for nan afloat twelvemonth 2023, but it will person a antagonistic effect successful nan first portion of nan year. As you know, we person -- location are 2 parts to it. There is nan cutting nan tail, nan classical one, which we are somewhat suffering from a small spot presently and successful nan past 4th of 2022, for example. But arsenic we advancement complete time, we expect to really get nan use of pushing nan head, which is nan logic why nett for nan afloat year, we expect to person a affirmative effect there. On nan waste and acquisition spend, truthful what is important is to look, arsenic I mentioned successful our Barcelona conference, not only to look astatine trading spend, which did alteration past twelvemonth for america successful nan discourse of proviso concatenation disruption arsenic well. Take nan illustration of pet care, for example, since we did not person capable products to sell. There was nary constituent successful a definite number of instances to put successful advertizing and publicity. But if we look astatine nan full amount, which I mentioned arsenic CHF 28 cardinal past twelvemonth during nan Barcelona conference, what this magnitude successful its entirety for nan 2 components did summation successful absolute worth past year. Within that, we consciousness that it's applicable successful a definite number of cases to arbitrate betwixt these 2 amounts. And it is existent that waste and acquisition walk has accrued successful absolute worth past year. We thought that it was due successful a definite number of cases, to make judge that our products stay affordable astatine a clip erstwhile we went for important value increases. It seems to person paid disconnected because erstwhile we look astatine our marketplace share, it has been resilient. And if you look astatine much specifically astatine our marketplace stock for billionaire brands, successful almost 60% of nan cases, it did summation aliases stabilize. So we deliberation that it has worked reasonably good successful nan people of 2022.

Luca Borlini

So adjacent mobility is from Patrik Schwendimann astatine Zürcher Kantonalbank.

Patrik Schwendimann

Patrik Schwendiman, Zürcher Kantonalbank. You person mentioned Mark that you are assured to scope nan 6% to 8% integrated maturation guidance for nan existent year. In position of merchandise categories, what will beryllium nan the main maturation drivers down this one? And 2nd question, you besides person mentioned that you will would for illustration to accelerate portfolio optimization. You conscionable person mentioned, nan stiff nutrient business successful Canada. Are location besides ample divestments imaginable successful nan existent year?

Mark Schneider

Thanks, Patrick. So I person nary peculiar announcement astatine this constituent erstwhile it comes to categories. I expect it to beryllium precocious broad-based, which I deliberation is 1 of nan Nestlé's strengths. And -- truthful clearly, immoderate of nan high-performing categories erstwhile it comes to integrated growth. So I deliberation pet care, I deliberation will proceed to do well. But different than that, I don't person a batch much item astatine this constituent that I would for illustration to share.

On nan portfolio, fto maine walk a infinitesimal connected that because clearly, what we are showing pinch this? And astatine nan consequence of beating nan Canada illustration to death, I mean we're showing you that we're consenting to locomotion distant from a book of business, return nan deed connected RIG, return nan deed connected nan underlying measurement and integrated maturation and fundamentally simplify nan company, attraction nan maturation walk and really usage those resources to beforehand nan winners. It doesn't mean we're eager to locomotion away. And truthful if we tin waste something, we will waste it. But we are fresh to locomotion away. And I deliberation this builds connected a play erstwhile you deliberation backmost to nan clip earlier COVID, location was a play of 4, 5 years erstwhile america included everyone successful nan manufacture was really striving for integrated growth.

And I deliberation astatine that time, successful hindsight, it's clear to maine that we will astir apt return a small easy connected this imperishable process of SKU rationalization that should beryllium going connected successful institution for illustration america that has specified a ample number. We were astir apt astatine nan time, a spot much reluctant to return these hits connected measurement rig and integrated growth. And arsenic a consequence of that, nan merchandise programme arsenic good a small bit, particularly since we were cranking up invention a batch and had a bully caller watercourse of innovative products coming to market. And arsenic I explained successful nan prepared remarks, what sewage our attraction initially was nan proviso concatenation constraints.

And there, we had to make choices for illustration really do you usage constricted resources to make either 1 merchandise aliases another. But past erstwhile we saw nan tremendous benefits from that, we saw that location is simply a important opportunity present to do much and really played a triumph arsenic opposed to conscionable play to person different SKU connected nan support and attraction profitable growth. That's fundamentally what we're after. So that will see immoderate further SKU items but that will besides see immoderate divestitures complete clip truthful that we are moreover much focused. We will proceed arsenic a multi-category diversified nutrient and beverage company, nary question. But we judge that nan institution wide wrong that broader scope will use from moreover much attraction than before. And that's fundamentally what we're after. And this is wherever nan proviso concatenation constraints, conscionable unfastened our eyes successful position of that further upside that we've near connected nan table.

Luca Borlini

Next mobility is from Warren Ackerman astatine Barclays.

Warren Ackerman

Yes. I'm Warren present astatine Barclays. Two from maine arsenic well. The first 1 is conscionable a follow-up connected nan SKU rationalization. I cognize we've had a fewer questions connected it, but that 150 bps successful nan Q4 quarter, really overmuch of that was conscionable nan SKUs? And related to that, nan 20 bps that you reiterated from nan CMD for '23 is awesome to cognize that. And it's awesome to perceive it's still happening. But successful position of nan phasing of that, it sounds for illustration it will still beryllium negative. I'm trying to understand why does it plaything abruptly backmost positive? How tin you beryllium judge nan numbers, nan number 20 bps for nan afloat twelvemonth erstwhile you've sewage truthful galore things moving around. Just willing successful nan mechanics of really you tin beryllium truthful precise connected nan 20 bps, that would beryllium adjuvant that further color.

And past nan 2nd 1 is conscionable connected nan proviso concatenation constraints. I mean, it's been a characteristic now for rather a fewer quarters. A batch of your competitors are now saying things are easing significantly, but it sounds for illustration for Nestlé, that isn't nan case. So I'm specifically willing successful pet food. You person a batch of caller capacity coming online from Pet Food. Can you possibly explicate nan phasing of nan capacity increases. In short, erstwhile do you expect nan proviso concatenation constraints successful pets -- and it's besides java made, but chiefly successful pet stopping being an issue? And is location a interest astir eventual overcapacity successful pet nutrient because each nan premium players are adding capacity astatine nan aforesaid time?

Mark Schneider

Warren, convey you. And fto maine commencement connected nan 2nd 1 and past manus it to François for nan first one. And truthful you're perfectly right. If we are signing proviso concatenation constraints, possibly a tad much often than immoderate of our peers, I deliberation it is owed to nan truth that we person specified a ample and successful pet nutrient business. And we are a small spot nan victims of our ain occurrence present because, arsenic Francois pointed out, this is now nan 3rd consecutive twelvemonth of double-digit growth. And we were moreover adjacent to capacity limits earlier COVID and had started to greenlight immoderate of nan capacity enhancement programs past came COVID and that immense surge successful pet take and demand, and this is thing that nary 1 had connected nan radar screen. And arsenic you tin imagine, particularly erstwhile it comes to greenfield sites, these things do return immoderate clip for readying and permitting and past putting nan capacity into nan crushed and getting them up and running. And truthful we expect that to travel connected watercourse depending connected what surface science you look astatine successful '23 and '24. But clearly, yes, it did return immoderate time. And I deliberation pet nutrient and pet nutrient North America, successful particular, were beautiful overmuch deed by this, and we expect that now to easiness complete nan adjacent 1 to 2 years. I'm not truthful concerned astir nan eventual overcapacity because we've done, arsenic you tin imagine, connected awesome CapEx items here. We've done tons of projections astir really things could move out. And moreover if location is simply a small spot of overcapacity temporarily, it was very clear that pinch nan underlying growth, which is truthful overmuch intact, you will very quickly turn into it. So I deliberation going backmost respective years, we're astir apt getting a small spot excessively adjacent to our capacity limit. COVID struck and put america into this situation. It's arsenic reliable arsenic it is, that we tin supply, it's besides a bully problem to person because clearly, those projects into existing request are very, very definite projects. And it's each astir now getting them implemented and getting them up and running.

François Roger

François speaking. So successful nan Q4 RIG effect coming from these 3 transitory factors, erstwhile again, nan smaller 1 was nan h2o capacity constraint that we had astatine nan Perry plant. The 2 -- nan main items are nan 2 different ones. The slowdown of nan out-of-home maturation moving from 18% successful nan 9 months to astir 6% successful nan 4th quarter. That is thing that we expected for immoderate time. And nan 2nd largest facet location comparatively equivalent, nan 2 of them is this portfolio SKU optimization. This is not an nonstop science, but I mean we person a bully level of assurance connected nan truth that this will proceed having a antagonistic effect successful H1. In summation to that, let's not hide that successful H1, we will person nan effect of this Canadian stiff determination arsenic well. But erstwhile we commencement entering into H2, we will get nan use of what we telephone pushing nan head. I mean we person been progressive successful that programme for much than a twelvemonth now. So we commencement seeing nan benefits of it. We person gained assurance astir it. We commencement seeing accrued work levels, for example, connected galore of these SKUs, arsenic an example. So we are very assured that nan nett effect will beryllium affirmative successful nan 2nd half of 2023. .

Luca Borlini

Next mobility is from Tom Sykes astatine Deutsche Bank.

Thomas Sykes

Firstly, conscionable successful position of nan pricing effect connected nan 6% to 8%, I mean you don't want to divided it out, but really galore rounds of pricing do you deliberation are successful your expecting to reason complete nan people of this twelvemonth benignant of compared to, if you like, to '22? And do you astatine each consciousness for illustration you've lagged database value increases of your peers? So there's benignant of conceptually immoderate drawback up successful pricing, possibly arsenic immoderate of your peers are not expanding their prices by arsenic overmuch now. And past is it imaginable to research this reason? Just it looks for illustration nan fixed plus guidelines successful Nespresso went up rather considerably. And I conjecture that's astir apt to do pinch nan virtual rollout. But nan ROIC seems to person diminished rather considerably. One presumes therefore, successful Nespresso. So what is nan outlook adjacent word for maturation successful Nespresso and wherever do you deliberation you tin get nan ROIC backmost to, please?

Mark Schneider

Thanks, Tom. And fto maine deed nan first 1 and past manus it to François for nan 2nd one. So again, I don't deliberation it's adjuvant to our shareholders to now estimate connected really galore rounds of pricing location will be. As you tin imagine, this is highly circumstantial by marketplace and category. It's besides clear that astatine this point, we're not talking broad-based value increases, but very targeted by category, by business and good justified by nan data. I mean, otherwise, unit partners and consumers will simply not judge value increases. And it's besides important to measurement distant from nan conception that each value needs to hap de novo from now because overmuch of nan pricing that will use to nan twelvemonth '23 is pricing that whitethorn person been effectuated successful nan 2nd half of '22 and past there's a afloat twelvemonth use of 23 arsenic well. Then location are value increases that were rolled retired and agreed astatine nan very extremity of '22 aliases now astatine nan opening of '23, but it taking effect now arsenic we speak complete nan adjacent fewer weeks. And past depending connected wherever ostentation takes us, immoderate further action mightiness beryllium needed. That's why, again, don't ideate that everything has to beryllium recently priced from nan crushed up now. Some of it is carryover from '22. And it's highly business and class and surface science specific. But clearly, arsenic you spot from nan mixed consolidated numbers, it's very clear. And I deliberation you spot nan aforesaid image borne retired pinch our peers. That ostentation has near its people connected gross margins and profit margins. And clearly, immoderate repairing still request to beryllium done.

François Roger

Tom, I deliberation your 2nd mobility was connected Nespresso. So location -- I mean, we are intelligibly putting ourselves successful an finance position, processing Virtua, which is still a protected strategy to commencement with. And truthful we person a unsocial position there. It's a strategy that is increasing nicely and really gathering nan request of consumers arsenic acold arsenic nan agelong java cups is concerned, fixed that it does short java cups arsenic well. Nespresso is really doing good overall, moreover if -- you look astatine nan numbers for 2022, they whitethorn look a small spot depressed, but let's not hide that we are increasing complete an exceptionally precocious guidelines successful 2021. If you look astatine nan maturation successful RIG connected mean complete nan past 3 years, it was astatine 4%, which provides a bully denotation of nan bully capacity of Nespresso. And erstwhile again, connected a comparable basis, income successful 2022 were 20% higher than a fewer years ago. So I deliberation this is nan correct point to do arsenic acold arsenic investing for maturation successful virtual. But let's not hide that nan guidelines of comparison was reasonably precocious successful nan discourse of nan pandemic successful 2021.

Luca Borlini

Next mobility is from John Ennis astatine Goldman Sachs.

John Ennis

My first is connected nan Greater China margin. Can you conscionable springiness a fewer much specifications down nan 260 ground constituent description there? How overmuch was operation versus SG&A savings? And is immoderate of that separator description temporary? I.e., will we reverse it successful 2023, if you request to measurement up investments there? That's nan first question. And past my 2nd mobility is, I suppose, a spot bigger picture. But arsenic you look astatine your Good-for-You nutrition program, I guess, it seems sensible to effort and turn that ratio. But really do you guarantee that you don't go fixated connected a percent patient nutrient income target present astatine nan disbursal of immoderate of nan little healthy, much indulgent pockets of your portfolio, specified arsenic confectionery because I conjecture from nan extracurricular looking astatine that ever seems to beryllium nan consequence pinch those types of initiatives.

François Roger

John, fto maine return nan first mobility connected China. So nan summation of nan separator successful 2022 successful China is fundamentally coming from nan mix, fixed that we had a important turnaround of our babe nutrition business that did thief tremendously. You're alert arsenic good of nan truth that successful China, we are suffering little from inflation. There was really constricted ostentation successful China. So nan betterment of our separator is really satisfactory because it has to beryllium seen successful nan discourse of lockdowns, which did effect our maturation successful our business overall, particularly truthful that we are much exposed to out-of-home successful China than successful immoderate different geographies.

Mark Schneider

John, very important mobility regarding nan good-for-you strategy. And fto maine beryllium precise. We're not willing successful a target connected really nan healthier parts of nan portfolio would outperform nan different parts of nan portfolio. This will very apt return a style of an absolute size benignant of target because it is existent that these parts of nan business person been increasing faster historically, and they are besides slated to turn faster going forward. But you're perfectly right, nary matter whether you're moving successful a portion of nan portfolio that is supra a wellness prima standing of 3.5 aliases beneath we're committed to both. We want to win successful both. We judge successful a patient and balanced and tasty diet. And clearly, for nan healthier portion of nan portfolio, nan sanction of nan crippled is description . And past for nan different parts of nan portfolio, it is astir responsible trading practices, responsible consumption, but wrong those limits besides to spell for occurrence and to spell for marketplace stock and to spell for growth, nary question.

Luca Borlini

So adjacent mobility is from Bruno Monteyne astatine Bernstein.

Bruno Monteyne

Mark, a fewer quarters ago, you erstwhile we talked astir backstage label, we're gaining immoderate stock successful nan U.S. and fresh meals and successful pet food. -- said it was mostly capacity related. But if I heard you this greeting connected immoderate of nan interviews, I deliberation you did show that location signs of trading down. So I'm conscionable trying to spot wherever is that trading down? Where is it starting to displacement wherever do you spot immoderate signs of that and really you expect it to develop? And 2nd of all, if we deliberation astir China Infant Nutrition, there's nan caller regulations that person started successful February. Anything you tin opportunity astir benignant of Nestle's processing going done that. I deliberation you had nan HMO preamble successful China that hasn't been approved yet. Any update location of really you spot that processing this twelvemonth and early years?

Mark Schneider

Bruno, convey you. And truthful clearly, connected immoderate signs of trading down, we've seen, they person been constricted and besides Remember, we do person successful rather a fewer categories, brands astatine different value points. So it's not for illustration needfully a bad user is wholly mislaid to us. erstwhile you look specifically astatine nan North American market, 1 example, I believe, connected a impermanent basis, wherever there's been immoderate trading down aliases immoderate shifting to companies pinch little value increases was successful stiff food. But present again, looking astatine nan underlying economics, we do judge that complete time, this will normalize, and we judge that we will regain immoderate of that share. And I person nary regrets astir nan pricing action that we person taken. And very similar, we've seen immoderate of that successful h2o offerings wherever possibly group person been trading a amended measurement present successful nan European discourse from premium h2o offerings to much mainstream separator offerings aliases moreover backstage label. So these are immoderate examples.

Again, successful rather a fewer of those, it's a mobility we've been moving early pinch pricing, which I deliberation is nan correct point to do. Sooner aliases later, gravity will drawback up pinch immoderate of our competitors. And and hence, astatine that point, that business will correct itself because they will besides past person to return pricing action aliases unrecorded pinch imperishable reductions successful their profitability. And this is why, I believe, what we've done, and that is to spell successful early, is still nan correct measurement to spell because it doesn't weaken your underlying profit image and your expertise to put for nan agelong term. And past complete time, you will spot that nan business will normalize. So I'm not concerned. And I deliberation immoderate of nan snapback of backstage label, successful particular, is very understandable, fixed that backstage explanation suffered a batch successful 2020 and early '21, pinch proviso concatenation constraints and nether COVID. And nan large brands were nan ones astatine nan clip that were gaining. And now you're seeing somewhat of a normalization of that situation.

François Roger

Bruno, François speaking. On nan China Infant Nutrition market, I tin conscionable remark connected HMO. So filing has been made for america and for galore of our competitors arsenic well. So location are different steps successful nan approval, truthful we are waiting for nan approval. Obviously, we are very willing successful getting that -- those HMO approved successful China aliases perchance for competition, fixed that erstwhile you look astatine nan occurrence that we person reached for HMO extracurricular of China, CHF 1.3 cardinal of income successful twelvemonth 4. That's surely 1 of nan champion occurrence that we person knowledgeable complete nan past mates of decades. So thing that we are very overmuch willing successful China, but we don't needfully person visibility connected nan timing of an support process.

Luca Borlini

So adjacent mobility is from Jeremy Fialko.

Jeremy Fialko

So a mates from me. First of all, I'm reasoning astir elastics, I conjecture if we portion retired nan benignant of 160 ground points, it intends I guess, astir 100 ground points of antagonistic RIG was owed to nan much straightforward pricing elasticity. Do you deliberation that's a benignant of sensible number to beryllium taking guardant into nan early portion of 2023. Are you spot immoderate increases successful elasticities arsenic further value rises are implemented. So that's nan first question.

And nan 2nd 1 is connected your CapEx plans now astatine nan Investor Day you said that your CapEx is going to beryllium astir 5% of income complete this '23 to '25 period. But now today, you'll say, well, we recovered each these caller areas of rationalizing our portfolio, that tin free up our capacity. And therefore, do you deliberation it intends that really you mightiness extremity up being capable to walk a spot little connected CapEx than you outlined a fewer months ago.

François Roger

Jeremy, François speaking. I would beryllium a small spot observant pinch nan elasticity, what you opportunity because it goes beyond nan 160 ground points. Let's not hide nan 2 important factors arsenic ones that person influenced our measurement maturation successful -- during nan people of 2022 has to do pinch nan precocious guidelines of comparison, and it was still precocious successful Q4. our rig successful Q4 2021 was astatine 4%. So it was a precocious base. And let's not hide arsenic good astir nan proviso constraints, moreover if immoderate of them are softening a small spot arsenic we advancement complete time, but these 2 factors did power arsenic good volume. So I would not reason that everything is coming from elasticity. Once again, elasticity, we person seen some, but to mean level.

CapEx. We corroborate that we expect to beryllium astir 5% for 2025. This is portion of nan guidance we person provided. I'm not wholly judge that nan portfolio activities that we are doing of optimization will effect nan CapEx because nan CapEx is connected caller needs particularly for pet care, for example. And this is not -- I mean, nan caller needs that we person are not pinch needfully pinch nan aforesaid products. So we are investing fundamentally for java met, which continues to turn nicely, we put successful pet care, wherever we spot continued demand. So it has a constricted effect versus our guidelines of, for example, what we prune successful our portfolio is overmuch much connected immoderate of nan categories we mentioned, dairy successful nan Middle East successful nan past aliases dairy successful Brazil aliases immoderate of these products. So it does not needfully effect our CapEx going forward.

Mark Schneider

Let maine build connected that and conscionable corroborate nan full exemplary of this is that nan rig aft taking nan first deed will repair. And truthful you're serving nan aforesaid measurement need, but you surely pinch less much focused, much successful brands and SKUs. And truthful that's why there's nary contiguous relationship to CapEx.

Luca Borlini

So adjacent mobility is from Jeff Stent astatine Exane.

Jeffrey Stent

Okay. Just 1 mobility connected U.S. stiff foods. I admit you've evidently sewage manufacturing assets there, but contrasting versus Canada, why is nan U.S. stiff market? Why nan outlook location is truthful overmuch amended than possibly is successful Canada. If you could conscionable opposition nan benignant of 2 businesses, that would beryllium great.

Mark Schneider

Yes. Look, nan elemental reply is our U.S. business is afloat geared and targeted towards nan needs of nan U.S. market. And truthful from nan manufacturing sites and proviso chain, each of this is optimized for nan U.S. The Canadian business was 1 that was done connected nan tract from nan U.S. but it suffers from proscription and speech complaint disadvantages. And that's why we're saying it was difficult for america to compete successful that efficaciously complete clip and make it into a semipermanent winning business. And astatine nan aforesaid time, from our perspective, nan volumes weren't specified arsenic I mentioned, nan book of business is astir CHF 150 cardinal for us. So nan volumes weren't specified that it would warrant a full-fledged finance and build-out of a blend successful our ain logistics and Autobat. So we judge it's nan correct point to do and focusing and stayed connected winning successful nan U.S. stiff marketplace is for america nan amended measurement to go.

Luca Borlini

So adjacent mobility is from David Hayes astatine Societe Generale.

David Hayes

Two for me. One connected North America and past a housekeeping mop-up, I guess. So conscionable connected North America, nan RIG, I think, was down 5% successful nan 4th quarter. You mentioned a small spot of that, I think, it was Perrier successful nan comments, but pets evidently a cardinal constituent location that was still doing very well. Project Tasty, arsenic I understood it, was a small spot much orientated towards Asia. So nan mobility is, is location thing circumstantial one-off, immoderate circumstantial class successful North America that we should beryllium reasoning astir successful that 4th fourth RIG reduction. And past nan housekeeping mop up is conscionable to spot whether we tin get thing successful position of outlook connected CapEx percent of sales, a spot pursuing up connected Jeremy's question, nett liking costs, which obviously, inevitably were up 2nd half, but immoderate guidance connected that. And past nan taxation complaint and nan FX effect connected EPS arsenic rates guidelines today? Any clarity connected those moving parts successful position of nan guidance will beryllium fantastic.

Mark Schneider

David, fto maine return immoderate of these questions. In position of nett liking rates, you could spot that it was a mean summation successful nan discourse of coming pinch interest, having accrued rather a lot. So we moved from an mean nett costs of indebtedness of 2% successful 2021 to 2.2% successful 2022. So it was a mean one. Obviously, if liking complaint enactment wherever they are, it will summation arsenic we person to renew immoderate of nan debt. Don't hide that these rates are moreover earlier tax. The overseas speech impact, we had really a mean antagonistic overseas speech effect past year, minus 0.9%. And deteriorate, it was moreover affirmative successful H1, antagonistic successful H2. As of today, it's negative, but this is thing that is very difficult to forecast anyhow because we don't person needfully nan visibility. But we cognize arsenic of today, effecting complaint were staying for nan equilibrium of nan year, nan overseas speech effect for our full business, some to person our sales, but our caller EPS would beryllium a much antagonistic impact.

Outlook of CapEx, we don't supply nan guidance year-by-year, but arsenic I conscionable said before, we expect still to person a comparatively precocious level of indebtedness successful -- precocious level of CapEx, sorry, successful 2023, that mightiness beryllium nan peak, and past we will commencement seeing nan CapEx going down to astir 5% by 2025. And conscionable to springiness you 1 illustration of -- for nan North American mobility connected SKU optimization, location is 1 illustration that I tin stock pinch you, which is connected Sweet Earth for plant-based food. We did restructure our portfolio of offering successful nan U.S. So it's not only a programme that is valid for Asia, but it did person immoderate implications successful North America, and you tin expect that it will person a stronger effect successful North America, arsenic you could spot done nan Canadian example.

Luca Borlini

So we person a last mobility from James Edward Jones astatine RBC earlier giving nan connection to Marc for his last comments.

James Jones

Just a speedy one, Mark. I deliberation it's Francois. I'm somewhat confused connected your attitude, your accuracy of pricing because successful nan past, you've spoken a batch astir responsible pricing. But I thought I understood from 1 of your comments a fewer moments agone that you really -- you consciousness you've led nan measurement connected pricing. I was now request to drawback up. Could you conscionable explain that a bit.

Mark Schneider

James, I deliberation I tin thief retired connected that. I mean it depends ever connected what peculiar class and surface science you're referring to. And for nan immense portion of our business that relates to processing markets where, clearly, immoderate you connection besides needs to beryllium seen successful nan discourse of regular income and rate income. This full conception of responsible pricing is 1 that continues to apply. There's galore different markets, particularly precocious markets and much premium products wherever I consciousness there, it's astir astatine times being proactive erstwhile needed. And I deliberation our guidance successful nan U.S., successful particular, was rather proactive successful their actions. They are also, I think, what nan U.S. marketplace benefited from is that nan inflationary investigation started a small earlier because it didn't get started pinch nan situation that was caused by nan penetration of Ukraine. It sewage started much successful nan 2nd half of '21 connected nan backmost of immoderate of nan proviso concatenation constraints and besides nan early ostentation connected labour that everyone had seen. And truthful nan pricing location started a batch earlier. And I deliberation nan U.S. guidance squad was rather proactive successful doing it. And arsenic you spot now wherever things turned retired for '22, I deliberation they made nan correct call.

Mark Schneider

And pinch that, I dream that answers nan question. I dream that nan telephone was useful to you successful addressing immoderate of nan concerns. We do understand particularly successful this discourse wherever everyone sees instantly pricing and ostentation successful narration to nan measurement development. If you only look astatine it done that lens, I do understand that location is among immoderate of you interest complete nan Q4 measurement and RIG development. I dream that immoderate of nan reasons that François I laid retired to you addressed those. As I mentioned, you find america a batch much reliance astir nan situation. And I tin besides show you that while this telephone is strictly astir '22 and not astir '23. When I look astatine really nan twelvemonth started, clearly, we're not seeing successful Q4 nan opening of a inclination that's worsening, but alternatively we're seeing a beardown commencement to nan year, and that implies specifically to volumes and RIG arsenic well. So again, I dream that nan telephone was adjuvant successful addressing immoderate of these concerns, and we look guardant to talking to you again arsenic portion of nan Q1 convention call. Thank you.