Q4 2019 Earnings Call

With a review of the full year 2019 sales and profit figures.

We will then open the lines for your questions.

Before we begin at please take note of our disclaimer.

And now I hand over to Mark.

Thank you look at a warm welcome to all of you joining us on this conference call today. We appreciate your interest in our company.

Slide number one right to the key messages for 2019 I'd like to point out the picture of success that we've seen in this year. The continued progress with our value creation model ask you know for US this value creation model. The key cornerstones, our success with top line bottom line and capital efficiency at the same.

Time, when all these three come together it means good things for the company and also good things for our shareholder I think that is the story of 2019, specifically when it comes to organic growth, we were able to increase our growth and 3% to 3.5%. So 3% 2018, three and a half in two.

2019, we saw strong momentum in the United States, our largest market and also from Kareena pet care globally.

In terms of the underlying trading operating profit margin, we saw an increase by 60 basis point to 17.6%.

As you do know going back to 2017, we do have a mid term underlying trading offer operating profit margin target in place for 2020, it called for a range of 17.5% to 18.5% so way inside that range. One year early so very good work here when it comes to the underlying trading operating profit margin.

In terms of very much also something that you saw coming as we progressed very nicely on that margin in 2019.

Now on both of these growth and margin I think we came smac inside our guided ranges here for the year.

We will not only staying very close to the guidance I.

I think we will also staying very close to the profile of growth and margin development in the year that we let you do expect.

So very strong first half of 2019 some of that also driven by the commodity cycle and then we told you early on to expect lower growth in the second half and also a bit more pressure on the margin as some of these commodities were turning against us.

In the fourth quarter also mathematically. The fact that can help was no longer part of the consolidation circle made itself felt skin health as you know did.

Definitely benefit from a strong strong turnaround that we put in place in the years 2017 and 18. It grew by almost 10% in 2019, and so a 3 billion business, calling it almost 10% when that leaves you mathematically of course with the next quarter, there's going to be a bit of near pocket and this is what you saw with Q4.

Now the important thing is first of all piece appreciate the precision here up the guidance and also the expectations that the fundamental growth drivers when it comes to organic growth and also the underlying trading operating profit margin improvement those are still in place and you will see that later on reflected in our guidance.

Portfolio transformation are very much on track I'll talk more about bad later, and then you see a significant return of cash to our shareholders 16.9 billion Swiss francs through the share buybacks in the dividends in 2019.

On the dividend. The good news is also slated to continue our board approved to propose a dividend increase of 20 517 per share to squeeze strength 70, so on team.

If approved at the annual shareholders meeting in April this woodmark. The 25 consecutive annual dividend increase so 20 twice on teams in this in a 25 year of increase very stable sustainable.

Dividend increase overtime that I think has become the hallmark of our company.

With this increase will with an also drawn the rank off the dividend aristocrats. So stocks that for the 25 consecutive year are able to raise the dividend by the way when it comes two notches raising it but keeping it stable.

We have a 60 year history now have not lowering the dividends. So for 60 years, the dividends has either been stable or increasing so tremendous financial stability coming from the business to the benefit of our shareholders.

Let me also point out we believe very much in creating shared values. So we create a lot of value in that past here, but I think we also took some pretty bold steps in sustainability and diversity inclusion ask you know we follow the UN pledged to become carbon neutral by 2050, we unveiled major initiatives in plastics waste.

Production and then as part of the diversity inclusion plan more many other things. We also unveiled a new parental leave policy in the fall of 2019, which now is in the process of being rolled out globally, and which work ranch primary care givers 18 months of parental leave so all in all.

Busy year lots of successes across a broad spectrum in something to be proud off.

Moving onto the next slide I won't spend too much time on the detailed financials and Alfonso will talk about bad later.

The key message here is simply to point out the consistency across all the metrics and again.

Stressing the fact that we saw success the topline the bottom line and also when it comes to cash in balance sheet.

Intensity interim return on invested capital benefiting from that very nicely I would also like to point out that our underlying earnings per share in constant currency, increasing double digit rates for the second here in a row I think when top and bottom around success come together, you typically see very nice things happening.

For underlying EPS.

Next I'd like to talk about organic growth and you see here a slide that we have also featured in previous years showing you the main buckets of organic growth improvement.

Fixing underperforming businesses portfolio management, and then also advancing high growth categories and innovation.

So in all three buckets I think a lot of activity happening in 2019, and contributing then to that increase towards 3.5%.

On portfolio management as you know, it's been a busy year on the divestiture front.

The one regret a half over the years that we didn't do that much on the acquiring site I hope that's going to change now in 2020, we already announced through Nestle Health Science the acquisition of sand tap in January and we have a few other progress to work on so I believe that 2020, we'll see a more balanced view between acquisitions.

In disposals, but it will continue to be a busy year on portfolio management that wasn't that much is pretty clear as from now.

Why don't portfolio I think it is worthwhile after a few years to kind of step back on to see what has been accomplished you see a summary of some of the disposals over the last three years and then companies we have invested in and I think it's pretty clear path. The businesses, we have invested in our higher growth higher.

Margin there more on trend more in tune with younger more affluent consumers the more premiumize products. They also make better use of digital opportunities into personalization, so very much.

We continue to trends here that are going to be very important for the company. All in all more than 50 transactions have been closed or announced in that timeframe. In terms. This represents about 12% of group sales.

So this is north of what we told you to expect in 2017, we had talked about roughly 10% of group sales in term looking now ahead.

Looking at the next three years I would expect a similar level of activity when it comes to portfolio transformation.

Next I would like to talk about.

Faster innovation internally as you know if this has also become a hallmark of our company significant changes happening.

In our R&D and innovation engine and Tim.

You see some other key examples highlighted here.

I want to talk about all of them in the create amount of detail, but I'd like to point out a few.

So clearly on coffee, we saw significant success with the rollout of the Starbucks product range as you know when viasat arrange exactly one year ago.

It was very easy for you to see that.

We only had about five to six minutes to develop this because the Starbucks transaction only closed in late August 2018, and here we were a year ago in February 2019, showing you 24 eschar use at the time.

Starting from March these SK use hit the shelves, we're now out there in more than 40 countries.

And November when we saw already the overwhelming success of this launch we told you do expect about 250 million Swiss francs of additional sales.

We expect in 2019 as it happens we beat those we bet those numbers we came in at more than 300 million of additional sales in 2019, So very nice success here on the coffee front as you know that rollout is now being bolstered by continued innovation under the Starbucks label.

It was very important for us after the initial excitement with these products to continue now what the new stream of exciting must have products. In so we continue to be very bullish when it comes to that Starbucks franchise for 2020.

Pet care as you know as a category was flying last year, both and Premiumization and also in veterinary veterinary and science based products. So this is where we're bringing the full strength of our research and development team to the table and here again, we also continue to be very bullish when it comes to 2020 and beyond.

Okay.

And the last but not least plant based foods.

As you know that segment has received a lot of attention in 2019, one of the signature products that people talked about was the plant based Burgos, where things early on we were able to compete both in Europe, and the United States in Europe with incredible Burger, which is soy based in the United States, where the awesome Burger particular.

Oh P. based.

Both of those fantastic products that have taken good shanda market.

This story, however is way way way beyond the Burleson. So all in all four this plant based segment we have.

Cheap sales of about 200 million Swiss francs were growing at double digit strong double digit rates and the good news is that these growth rates keep accelerating. So here is something that is way beyond just a short term Trent rather something that does have a runway in it.

Aside from plant based burgers, we're also talking about.

Analog Ics.

For meatballs for ground beef.

We're talking a chicken analog products like chicken Nuggets and checking for lace and we will work in now on tuna salad analog, which I think holds great promise and should be out on the shelves later this year.

So lots of good examples in the works.

It's very important to gain credibility with these pure play in Koreans, but then the bigger picture of the size of the opportunity is to look at our 12 billion Swiss franc category, which we call prepare dishes and cooking eights.

This category Sq now is signature category for us It has delivered solid growth, but not exciting crop in recent years and I think what you're seeing here is a once in a generation opportunity to revive to rejuvenate re energize.

This category because these ingredients. These plant based ingredients can find their way in so many of our dishes and follow on products that make up this category. So from a frozen pizza to frozen or chilled meals.

To some of the seasonings the plant based opportunity is one that I believe has lots of follow on opportunities that we can use to make this category more exciting going forward. So very interesting developments here. Let me also point out while we did not event, but no compromise sector, where we try to December.

The original product as closely as possible due to our 30 year history implant based products, we were able to move up to this really really fast.

So this is why we didnt miss much of a beat and I think we're out there now among the top offerings and we continue to be very very much invested in that race.

Next let me talk about business as a forced a good one thing you will have noticed starting from last March is that what each quarterly report more so talking about a sustainability or SSG type project that we pursue as a company when we looked up she a number of.

Contracts, we have it was very clear that we have a lot of quarters to cover here with good things that we're doing for the people that do business with us the people that work for us to communities going live in order to consumers of suppliers that work with us and this quarter I would like to talk about again plastics packaging and packaging innovation in.

General this builds on a press release that we issued in January that outlined to further steps on the road towards our 2025 commitment to make packaging sustainable and basically make all of that reusable or recyclable buying that year.

The first one is to get a market for footwear to recycle plastics going.

So we are devoting.

More than 1.5 billion Swiss francs to incentivize supply in this area, we saw weakness when it comes to food clashed recycle plastics, there was simply not enough capacity people were reluctant to invest because it didn't see stable demand and so by committing to purchase up to 2 million metric tons.

Loans in this five year timeframe and to pay a premium for this material, we hope to create a market in particular for pp in PE, where the lack of food grade alternatives was was quite traveling on P.T., which makes up the plastic bottle situation was better, but even dara you need to pay a premium right now to get your.

Hands on recycled material.

As investors, it's important to me to point out to you that we have sufficient cost reduction efforts underway that we can make this commitment in a cost neutral way. So this is not coming at the expense of margin.

But I do believe this is important to stay in tune with an order sustainability commitment and also stay in favor where the public and consumers in general who expect from us that we improved the eco footprint of our packaging.

Right side or the screen talk my packaging innovation.

As you know traditionally we looked at packaging as a supplier issue, but it is true that in this industry. There was not that much innovation coming so we started to take things into our own hands. We inaugurated our institute of packaging Sciences last year, where as part of our research Center, we do our own.

Research and packaging material to drive innovation.

We know from our food and beverage research that not all good ideas come from inside our own four walls and hence we complemented now be institute of packaging Sciences, with a 250 million Swiss franc venture fund that focuses on ideas that happened outside of our company. So these 250 million are available today.

Invest in startup companies in this space and we hope that way to get more innovation in the packaging space off the ground, we'll be looking at all options. So it's going to be we use and refill, which I think in densely populated areas does have great promise, we'll look at recycling of course, and we're looking at noon.

Materials, including biodegradable materials.

So.

Before I hand, it over to Francois, Let me talk about the guidance for 2020 in term looking at the first two bullet points again, what you're seeing here is the good news continuing when it comes to organic growth and the underlying trading operating margin.

On organic growth. However book, we did say is that when it comes to the mid single digit range that 4% to 6% range that we will need another one to two years to make it towards that so organic growth will continue to improve but it will improve not quite as fast that we get to better range in 2020, yet so looking back at that.

2017 midterm targets, you see us basically being one year early when it comes to the underlying trading operating profit margin and you see US wanted two years late when it comes to the organic sales growth important thing. However is on both of these we will get there we are there already on the underlying trading operating profit.

Margin and we will get there on organic sales growth.

I think that's pretty apparent now on the confidence level.

That we have a path to get there has certainly increased very much from the time that we had in 2017 will quite far away from these target at numbers.

In terms of restructuring cost, we expect about 500 million Swiss francs.

And then.

When it comes to underlying earnings per share in constant currency and capital efficiency, we expect those to increase as in previous years.

For good order, it's important to point out, but it's too early to quantify at the financial impact of a corona virus outbreak.

I think this is very much in line with the practice from other companies.

When it comes to the situation on the ground I would like to recognize the enormous efforts from our team here.

As you know China is our second largest market the greater China region accounts for about 8% of our revenues we have to spend a week. Some weeks now to get prepared for this tremendous effort from the team on the ground.

It's important for us of course to be show up at our associates a safe it's important that we cooperate fully with the local authorities to be sure that we take all measures to prevent the spread of the virus and of course, given that we have strong responsibility here.

As a producer of food and beverage products, it's important to velocities extent possible to maintain the uninterrupted supply of these products and thing on all these metrics, we're doing very well thanks to the strong efforts on the ground.

I think is particularly important for the youngest and the oldest members of society.

That food production and food supply is maintained to the largest and possible so, especially when it comes to infant nutrition and when it comes to medical nutrition.

We are giving it very very strong efforts.

We have restarted.

The largest part of our more than 30 factories in China earlier. This week. So the largest part of these factories are running upbeat, they're running at a lower rate and new low because as you can imagine distribution capacity is much much tighter than usual.

And also some of our employees have not been able to leave the home provinces. After Chinese new year in rejoin us at peace manufacturing sites, but overall I would just like to underline our strong commitment to the Chinese market at this time.

And our strong commitment to work with the authorities to do all we can to overcome this challenge with that let me hand over to Francois.

Thank you Mark good morning, Good afternoon to you all markets shared with you the financial headlines, where we'll provide you with some of the details behind those numbers.

Starting with sales growth with the different building blocks of topline growth.

Sales for the full year total 92.6 billion Swiss francs, 1.2% increase on the reported basis.

Organic growth increased to 3.5 person for the second year in neural nets that can help contributed around 20 basis points of organic growth in 2019 them.

The most significant contributor to growth was a rig which accelerated to 2.9% the highest level in the last six years.

Our rig was supported by innovation strong roles in the ecommerce channel and portfolio management.

Pricing was 0.6% on return to positive territory in the fourth quarter net acquisitions had a negative impact of 0.8% largely related to the divestment of networking helps on the first of October.

Foreign exchange reduced sales by 1.5%, mainly as a result of the appreciation of the Swiss francs against the euro on against a number of emerging market currencies.

This slide illustrates the development of ourselves by geography.

Includes both ore zones as well as our globally on regionally manage businesses.

Our growth was broad based both in terms of organic growth on rig which were positive in all geographies.

Organic growth in Emmis at 4% increase significantly versus the previous your pricing was positive in the Americas anyway.

Europe, so slightly negative pricing, mainly impacted by decreasing coffee prices.

This was more than compensated by stronger real internal growth on overall, we have been very encouraged by among other resilience and momentum in the low growth environment.

Now turning to growth dynamics between developed and emerging markets developed markets, especially North America. So increased growth momentum. The increase came mainly from rig and was largely driven by innovation strong growth in the ecommerce channel and disciplined execution.

Emerging markets posted steady mid single digit organic growth.

Slowdown in China was offset by an acceleration in most of the other regions.

Let's now look at the result of five operating segments, starting with only Emmis, where we are pleased to see a significant increase inorganic growth.

Sales were 33.2 billion Swiss rungs organic growth were 3.9 person supported by a strong rig of 2.6 persons.

North America grew at a mid single digit best led by the United States, which saw 4.4, 0.1% organic growth when including the globally managed businesses.

Organic growth in the US reached its highest level in the last 10 years.

This performance reflects a pipeline of success would innovations and strong demand for premium products across categories.

The largest contributor to organic growth, we are purina petcare and beverages.

During a pet care source concept development in E Commerce, and science based premium brands, such as pure inappropriate on Purina, one on veterinary products.

The beverage category, so high single digit growth supported by strong demand for Starbucks coffee met products.

The transition of the USPI on ice cream businesses from a direct store delivery system to a warehouse distribution model was successfully completed six months ahead of schedule.

The DSD transition will have a marginal negative impact on group organic growth in twentytwenty.

Latin America posted mid single digit growth with positive contribution across all categories.

Brazil return to mid single digit growth supported by better result in dairy and strong performances in infant nutrition keep get on the square feet.

Mickey core grew at a mid single digit right with Mr food beings as Tom outperform.

Latin America tell recorded double digit growth for Purina Petcare on strong mid single digit growth in dairy and coffee.

The zones underlying trading operating profit margin increased by 10 basis points pricing on structural cost reduction more than offset cost increases from commodity inflation on one of transition cost associated with the DSD exits.

Marketing and commercial investment increased to support innovation and brand building.

Next is only me now with sales of 18.8 billion Swiss France organic growth was 2.7 persons rig was 4.2% the best level in the last five years.

In a low growth environment, there's all made broad based market share gains across categories and geographies.

Each sub region had positive organic growth with an acceleration in both western Europe on Eastern Europe, particularly Russia.

By category the largest contributor to growth was purina petcare supported by Felix Purina, one on the expansion of tells dotcom.

Infant nutrition grew mid single digit with strong roles in eastern Europe on May now held by innovation, particularly with human milk 40 goes like a rider originals.

Coffee, so positive growth, particularly in the second half of the year with mid single digit region held by the launch of Starbucks on the stronger performance form this carefully.

Confectionery maintain solid momentum with good growth for kept.

Vegetarian on plan best Wood products grew at a double digit both supported by the successful launch of incredible Berger on incredible means.

The zones underlying trading operating profit margin increased by 20 basis points.

This improvement was supported by structural cost savings operational efficiencies on product mix.

Marketing on commercial investment increased to support innovation and brand building.

Moving now to his own anyway, we sales of 21.6 billion Swiss France zoning away posted 3.2% organic growth while the euro rig was 2.5% growth was solid in spite of a slower momentum in China and they get he says developed development in Pakistan due to the choice.

Challenging trading conditions.

China had slightly positive growth with some benefit from the timing of Chinese new year in the fourth quarter.

Culinary coffee on ice cream perform well.

You know peanut milk oncology continued to see a decrease in sales.

Infant nutrition in China posted low single digit growth a strong sell momentum for luma was largely offset by a decline for the as 26 range.

With more than 1 billion Swiss francs in sales in China Luma is now a member of 4 billion everyones.

Southeast Asia posted good growth with strong momentum in Indonesia, Vietnam their brand ready to drink Milo and this traffic grew at a double digit rate.

South Asia reported mid single digit growth driven by strong sales in India.

Maggie none on let's get the perform well held by innovation distribution expansion in smaller cities and strong execution.

Sub Saharan Africa accelerated to mid single digit growth supported by infant nutrition, Maggie Niska fee.

Japan on let's say Aneel maintain low single digit growth with strong demand for Purina petcare products on the newly launched Starbucks range.

By product category, the largest contributions to the zones growth came from culinary products infant nutrition and Purina Petcare.

Infant nutrition maintain mid single digit growth with good momentum ignore market with the exception, obviously as 26 range in China.

Zones underlying trading operating profit margin at 22.7 person was unchanged.

Pricing structural cost reductions on favorable mix offset cost increases from commodity inflation.

Marketing investment increased to support innovation and brand building.

Moving onto our globally managed business, even starting witness the waters organic growth for the year was 0.2% driven entirely by pricing as Rick finished at minus 1.9% total sales were 7.8 billion Switzerland's.

In North America organic growth was slightly positive international premium brands, so double digit growth, we strong demand for some period renal failure on a core panel.

The launch of San Pellegrino, Esensor resonated strongly with consumers the ready refreshed direct to consumer business grew at a mid single digit right held by pricing on the deployment of the new online platform.

The mainstream segment, particularly the care spectrum at unrealistic your life continued to be challenged.

Europe, so negative growth.

Impacted by high Comparables on the soft market in the second half of the year.

The emerging markets posted mid single digit growth.

Nestle water is now manage as part of the groups three geographical zones from January one twentytwenty.

This move is one of the several steps we're taking it to address the underperformance of the water business.

The underlying treading operating profit margin for the water business increased by 80 basis points. The improvement camps will increase pricing on structural reduction structural cost reduction these more than offset higher P.T. packaging cost as well as a higher marketing investments.

Finally, we review our other businesses, which includes Nespresso Nestle Health Science on this list in house.

We completed the sale of the Nestle skin health business on the first of October 2019.

Total sales for other businesses were 11.2 billion Swiss francs strong organic growth of 6.4% largely came from rig at 5.8 persons.

Nespresso maintained solid mid single digit organic growth with positive momentum across all regions.

North America grew at a strong double digit pace with significant market share gains.

The virtual system was a key contributor to growth as sales grew more than 60%.

The out of home segment also had a good cells developments. We also continue to develop an optimized or boutique network to increase availability, while maintaining personalized services.

As of the end of 2019, Nespresso operative 810, boutiques more than 70% of them being in a smaller format.

Nestle Health Science grew at a high single digit right supported by the strong growth of medical nutrition on natrium products in consumer care.

Successful innovation and strong growth in the ecommerce channel were key contributors.

In September this their health science expanded into personalized nutrition with the acquisition of pestana, leading personalized determine business.

And this list in house posted high single digit growth for the nine months of consolidation until September.

The underlying trading operating profit margin of other businesses increased by 220 basis points as a result of broad based improvement across all businesses.

Looking now at our grows by product categories, where all segments sustain positive organic gross toddled on liquid beverages, which is largely coffee maintained solid organic growth driven entirely by rig.

Pricing declined slightly largely as a consequence of lower green coffee prices.

Coffee had a good momentum helped by strong demand for Starbucks products rolled out in more than 40 countries.

Nutritional health science perform well driven by solid rig it all threeq subcategories.

Infant nutrition posted 3.1% organic growth with Robert momentum in emerging market outside of China.

We already commented on Mr Health Science honestly skin Hills.

But care accelerated to 7% organic growth, we saw positive contribution promotes region brands and products segments.

The strong performance was supported by successful innovation and sustained demand for premium products.

The ecommerce channel grew by more than 40% announced slightly exceeded 10% of total purina petcare cells.

We are also particularly pleased with the progress made by the 10 dot com in Europe, which grew above 50%.

These platforms open up exciting opportunities easier as of personalized nutrition on direct to consumer.

Prepare dishes and cooking, Ed so rig led growth.

Beyond culinary benefited from strong momentum in Maggie young a new doors in emerging markets.

Confectionery posted positive gross all rig driven.

It get delivered another year of high single digit growth supported by innovation on geographic expansion.

We are continuing to premiumize, our product range during the year, we opened new Chokolata re boutiques expanded kitkat Ruby and successfully launched later said the laterally label share in the high value gifting segment.

Waters, we already discussed.

Moving now to profit evolution by product categories, our largest categories other than liquid beverages nutrition and health science as when aspect here continue to delivered the highest levels of margin in our portfolio.

Most categories maintained their profitability at a similar level to 2018 them.

The margins of nutritional health science increase significantly largely due to Netflix greenhills, which benefited from our turnaround efforts Nestle Health Science margins also increases based on strong says rules.

Mill products on ice cream margins increased held by pricing on the operating leverage.

Looking at our gross margin we finished the year at 49.6%, excluding the impact of Mystic in house, which we disposed off the gross margin improved by 20 basis points significant structural cost reduction manufacturing positive product mix and pricing more than offset increased commodity and package.

In cost of about 350 million Swiss francs.

In manufacturing, we continue to optimize our production footprint of factory fixed overheads declined by 5.5 persons.

In procurement, we continue to leverage our scale global buying through a three global purchasing hubs increased from 55% in 2018% to 61% in 2019.

Now looking at our underlying trading operating margin, we have delivered a significant improvement of 60 basis points in underlying trailing operating profit margin in 2019.

The improvement adds up to a 160 basis points increase since 2016 to a record operating margin for the company.

It also means we are within of Twentytwenty guidance range, one year ahead of schedule.

The improvement mainly comes from the successful execution of ongoing restructuring initiatives, which reduced our structural cost for the Serbia in Europe.

We also had some benefits coming from pricing improve portfolio mix on marketing efficiencies all of these savings more than offset an increase in input cost.

Consumer facing marketing expenses increased by 3.4% in constant currency.

Which underlines our growth focus digital spend continue to increase reaching 41% of total media spend.

Moving on to the piano lightens from underlying trading operating profit down to underlying EPS.

We had restructuring costs are slightly more than 550 million.

And that we expect to spend around 500 million twentytwenty impairment of assets increased by 100 basis points largely related to you in low as a result of trading operating profit margin was 14.8% on the reported but this represented a decrease of 30 basis points versus the previous year.

We benefited from higher income related to gains made on the disposal of nested in house.

Net financial expenses grew by 30 basis points, many reflected reflecting an increase in average net that during the year.

Our underlying tax rate declined by 220 basis points to 21.6%, mainly as a result for the development of our geographical business mix as a result, net profit increased by 250 basis points to 13.6%.

Underlying earnings per share increased by 11.1% in constant currency, but second year of double digit increase.

Although these growth level will moderate in twentytwenty as a consequence of the disposal of networking has on USA screen, we expect to maintain your EPS growth at the sustainable mid to high single digit level going forward.

The share buyback program contributed 1.9 pursuant to the underlying earning per share increase net of finance cost.

Moving on to working capital.

The chart shows our working capital levels based on the five quarter Rolling average in 2019, we managed to deliver a fills up 80 basis points improvement in working capital as a percentage of sales. The main factors driving this improvement was continued strong strong improvement in payables.

We continue to see opportunities for further improvements and expect working capital to trend towards zero, but at the moment the red pace going forward.

Return on invested capital improve that for a fifth consecutive year, given our disciplined approach to capital allocation. We expect our ROI see to continue to increase on trend of times towards 15%, including the impact of any future midsized acquisitions.

Free cash flow grew strongly increasing nearly 11% to reached 11.9 billion Swiss rungs of 12.9% of sales.

These results reflect the reliability on sustainability for profitable growth model as we grow so does our cash flow.

The increase in 2019 was mainly the result of higher operating profit undisciplined capital expenditure.

We continue to work on order levels of cash generation gross margin improvement as well as working capital improvement.

Going forward, we expect or cash flow to remain at around 12% of sales.

Net debt decreased by 3.2 billion Swiss francs in 2019 closing at 27.1 billion Swiss francs on December 31st 2019.

The decrease in net debt largely reflected our strong free cash flow generation on the net cash inflow from acquisition on divestments, mainly as a disposal of Netflix greenhills.

During 2019, we bought back nearly 10 billion from swaps of shares through our buyback program on paid over 7 billion, France in dividend.

This means that we returned a record 16.9 billion Switzerland's of cash to our shareholders in 2019.

We are committed to maintaining of 25 year practice to increase the dividend every year in Swiss francs.

Future dividend increases will be more closely linked to underlying EPS growth.

At the annual General meeting on April 20 served the board of director will propose a dividend of two fronts on 70 sawtimber share an increase of 25 cents teams.

The net dividend will be payroll as of April 29.

Our net debt to EBITDA ratio stood at 1.4 times, the net debt level will increase again as we initiated the new share buyback program of 20 billion switch from in January.

This concludes my remark I know handover to Luca to open the cure decision.

Thank you for us.

With that we move to the Kuni session.

We open the lines for questions from financial analyst.

Please limit yourself to no more than two questions.

The first question comes from Celine Pannuti. Please go ahead Selena.

Our.

Please go ahead.

Selling it.

Okay, I see that what I.

Can you. Please go ahead.

Yes, Hi, Luca it's warrant here at Barclays Highmark High Francois.

Just to make lays can you hear me okay. Yes, we can you do very well.

Okay first on some are more but bigger picture question. So when I look at the Coca Phase Mark.

3.3% growth in the years lower than we would expect mix obviously credit of ours is a short term headwind, but what can you guys get growth back to mid or high single digits.

In the zone or is the push back at the mid single digit because also in Iowa, probably workout.

But what really to premiumize the portfolio.

Whether you could do a similar chops his own Iowa as you did in the you asked a few years ago. When you turn around the growth just interested into perspective or what you're thinking about stocks are running design.

And then the second one is for first quarter from the ROIC target. So very interesting you've given us a target today, a 15% is quite big uplift.

300, Bips could you maybe discuss the drivers order pockets for that pickup place where are you.

We remain on things that the key leaders at a margin the assets where are we on the assets held for example, where your priorities about 30% packet.

Well on business Mark and thanks for your question and I think the question on airway is absolutely spot on so we have a number of specific issues to address and we know veteran in total agreement with Chris Johnson on this.

So one is for example in China as you know we have been slowed down by again little where we felt in 2017 and 18, we had stabilized the situation, but we saw in 2019 that that was not the case. So we work on a strategy will be back to you later this year and how to address that we added situation in Pakistan that.

Really really slowed us down last year, which when the prices of overcoming we have new leadership in place I was actually in Pakistan end of last year to convince myself that we have good solid growth strategies in place and them quite bullish on that we have a few specific issues in Japan to address we're working on those so once these specific issues on track.

There is no reason why would you stay at the Crawford that we are so mid term I fully expect a way to be the growth engine of the group, which is rightfully should be given Asia as importance for the world economy in the quote rates were seeing in terms. This is what our clear.

Ambition is and I think Chris now working towards that.

Well informed speaking so on your question on our IC first of all you need to understand that even in 2019, we'll be able to make some progress of 20 basis point Inspite of the fact that we had significant.

Impairments, which reduced our IC actually without the impairment for you look for example, we would be already north of 13% last year.

In the future to move from let's say, the 13% underlying last year to a directional 15% over time, we will use oliveros, which means accelerated growth as we discussed earlier improve margin as we discussed earlier, we will continue to reduce our working capital maybe not to the Cemig stent as what we have done over the last few years, but could we expect to be probably.

We are at zero below zero already in Twentytwenty and to continue to slow down a little bit further in the negative territories you talked of asset turnover. So we will be discipline. There I must say that the asset turnover ratio used to go down on over the last two years, we started to move up again, so which is very good we're very disciplined on capex as well we have.

Introduced much tighter policies, we don't lead Capex, because capex is driving growth, but we have reduced the payback on average over the last three years by about one year or so which is quite significant both in terms of cash positive impact, but in terms of ROI see as well and we will continue to be disciplined M&A.

As we have dinner doesn't mean that we can do any I mean, we bought out where young we booked Starbucks frightened of the our assets as well.

You noticed as well that we gave that indication of.

The direction towards 15%, including mid size acquisition, which defacto means that we could potentially exclude any large acquisition even.

Next question either transit Oh, sorry, when do you want to add something.

Okay Celina Youre. The next one on the on the Q. Please go ahead, yes could you tell me.

Yes.

Great.

Good afternoon, So I was.

Just a clarification on the actual.

Could you.

I remind me what impacting on video B. I think would be types. They did also twinkie currently that's right.

I understand that.

It's in the mid single digit improvements when he has been delayed because deltic locally and Oh goodness to have access control.

Both of which.

Okay, well, thank you well on track, but frankly, twentys I wonder if there wasnt anything out at that.

Absolutely last year, that's what could you talk quite accurate ago.

My question is on that.

Well, we literally I will now correct.

Right.

Lack of your top three months, what David said that needed to do that but in terms of custody and now you have reached the bottom end up but you're not have greatly enhance target trends and our we've done we've got more to go into anti corruption scandal.

Before we get into a more normalized margins development.

Thanks, Saline, let me address both so for 2020, we do expect some negative consequence, as a result of the DST exit. This is unavoidable given the pretty heavy surgery that we're doing the error in our operations and let me confirm everything that we have seen since we announced this.

Yep and quoted in place totally convinced us that we're doing the right thing for the company here to position us better in the us market.

At a time when be separate DST systems are falling more and more out of favor and so we're doing the right thing, it's going exceedingly well, but again, there's going to be a minor price to be paid inorganic growth in 2020, we did not itemize that here by the basis points, but there is a minor price to be paid into we nonetheless target because.

As we felt it servite thing to do mid term he will see as a result of that step significant benefits. When it comes to operational efficiencies dose will get reinvested towards further growth and so again it will strengthen the was business significantly.

When it comes to the outlook.

I think that you should see the positive side, what we're saying and that is.

We are expecting further increase in our organic growth that leaves us very little downside here when it comes to where organic growth could go and term so compared to traditional two percentage points man's where we had guided in the past I think this is a strong statement and always saying is towards the top end it may not.

So the crossover towards the 4% yet.

And Tim to me one of the swing factors here clearly is the fact that our waters business is not in great shape and Tim.

Our us business from globally manage business to one that is managed by the zones has also confirms some of the issues. We're very very busy working on a strategy will unveil to you that water strategy in the first half of this year. So that you have some confidence where we're going.

And with the waters business. So we're tracking all of this with a large degree of certainly.

Intend and intensity.

And we'll give you a better sense of where exactly we're going with that business in a short order of time.

Secondly, when it comes to the savings.

Clearly inside the company, we will continue to target. This what a lot of intensity, we will start to reinvest more that towards growth because clearly that is the best long term value driver.

And I think this is in everyone's best interest to do that but there's still lots of savings efficiencies to be had and we will patiently pursue those.

Yes.

Feature Taylor at Morgan Stanley.

Good afternoon, everyone I'd start by asking strategic question about coffee.

If you reflect on the lost 20 years last place stay there number one player, but I suppose the asked a number one Claire the profit coal in coffee Eve I suppose actively chosen not to participate and is the retail coffee chain, you've got your Nespresso peaks of course, and importantly popular for years.

Okay, but youre tiny and contacts have the overall retail chain profit pool and coffee.

Can you give us an update on fully booked so now you own there for a little while and then maybe some more strategic goals on how you think about that profit pool on your non participation and then secondly.

Just on plastic you set out soon leading interest recall gets on plastic, but 2 million tons of classic is still a great deal. Even if there is a recycle say classical pay more specifically, how you expect much expects to be recycled how much will be biodegradable, maybe you can give some more details on how you expect your investment.

Incentivization is to create the ecosystem that you may say, perhaps collaborating with payers that kind of effect.

Sure. Thanks, Richard So let me start on coffee, so cruel bottle is doing very well for us both in the cafes and also when it comes to exploring CPG opportunities that are related to the blue bottle Bryant and particularly excited about the Asian growth opportunity with blue bottle and.

But in addition to that also when it comes to the home use market that business is doing fine. So this is one of those cases, where it's not a coffee shop only play I think it's one of those where you have a coffee shop opportunity and a related CPG opportunity at the same time.

Clearly our home is CPG and you see that also from our Starbucks transaction, where we're focusing on what we do best and we're doing it well and in addition to that best kind of a halfway house embarrass the out of home opportunity, where you cooperate with foodservice operators.

People, there on canteens cafeterias hotels restaurants, and so forth.

And you basically make sure, but your coffee brands make their way into those situations.

But that doesn't mean you have to own the real estate you don't have to own. The place you don't have to run the place you just need to make sure. Your products are in it and here again, the strong stable of brands that we command.

But it's Starbucks validates nespresso, whether its nest cafe I think helps us to make a foray into that segment.

So I feel pretty good with a focus that we have and that focus is not coffee shops per se.

Now on plastics, let me just be very clear.

Recycling is not the only game in town. So you have other options like the refill and reuse and also biodegradable material.

It's in order to make a real dent into the waste problem. I think you have to pursue every opportunity that's available and this is what we're doing it's too early to give specific indications as to what percentage will fall to recycling in what percentage will fall to reuse and refill or biotech.

Tradable.

It will also be vastly different by geography. So for example markets that have very dense population.

And on the also population that is in a more north and moderate climate I think those markets will be more.

Attractive for reuse and refill and markets that have mass distances and also an absence off recycling systems. Those may be more interesting when it comes to biodegradable material, but again. These are early indications I think everyone is in the process of testing and scaling various and I'll turn.

Let's and then once we see the winners we can give more specific numbers as to how fast that will scale up in what they will mean.

What we saw is that for P.T., which makes the the largest part of the water bottles that we do have sufficient recycling quantity. So that we can actually use recycle PT two very good percentage.

For most of our bottles, but when it comes to PE and pp two very important packaging plastics.

There was pretty much a complete absence of food grade recycled material and so by committing to purchase this 2 million metric tons and paying a premium for that we hope to get that market going.

Next question is from Jon Cox at Kettler.

Yes, Thank you very much Jon Cox Kepler Cheuvreux.

A couple of questions one on just on coffee and Starbucks and the boost to the business.

Looking at the.

Sort of like a core organic sales growth from powdered beverages and in the others.

Businesses, you don't really see any acceleration in terms of organic sales growth. We just wondering what what is actually going on there may be instant or other parts of the coffee business are doing so well I guess the others segment is impacted by the skin health removal.

One of you can sort of talk us through the on the coffee side and then just.

An outlook regarding commodities for Twentytwenty, just wondering what your thoughts are.

In terms of commodities and also pricing generally pricing remains.

Relatively fragile, although obviously did improve in the fourth quarter. Thanks very much.

Thank you John Good afternoon. So let me take both question indeed, the other than liquid the beverage is the category a slow down a little bit. So this is not necessarily linked to coffee if we take a different bits and pieces of this category Festival soluble is positive, but it is growing a little bit less the needs.

Used to largely as a consequence of declining green coffee prices and this is especially true in western Europe as you know, where we had to pass on to the trade them to consumer part of the decline significant decline in comedies, we're not talking up a small number it's close to 25% last year versus the previous here. The other thing within this category you have other assets as well.

The next week is one of them. This quick is under pressure so what to across geographies and then the last the section is Milo, which continued to grow nicely, but at a slightly lower level moving to the question on commodities. So we had an increase of commodities and packaging material last year, which was around 300.

50 million Swiss francs, an increase which will not totally reflected the and passed on in terms of pricing on our side.

To the try them to consumers this year in Twentytwenty, we expect to get an increase of commodity and packaging maternal which will be higher than the one that we had last year. So more than 350 million two different different from last year, although it will be essentially targeted at dairy and packaging, which was different from what we had in 19, which was.

As largely surrounds grandson cocoa.

John Evaporators them follow up on this.

Let me point the outer Inc. Q4, we did return as projected to positive pricing. So I know this was a point of concern in our Q3 conference call. So think our prediction at the time prove to be right and then secondly, I'd like to remind everyone.

That's what the system, we use real internal growth versus pricing and the pricing is that youre like for like pricing and in this day nature of increased transparency and digitalization that usually means passing on commodity cost increases the bit that comes from innovation the new products.

Exciting engine here of innovation that we got going all our bad is essentially in rate will we call. It makes but essentially its innovation and hence I think you're seeing here. This very strong picture with Rick doing very well, even and challenge geographies, but then giving up some of that in pricing when there's price pressure.

But it's important to note that system is different from some of our competitors that report volume and then pricing in on their side includes the innovation on our side the innovation is in Rick.

Yes.

Next question is from James target at Berger. Please go ahead James.

Hello, Good afternoon, two questions on categories. Please firstly on on pet care, clearly very strong growth seven cents in that 2019.

How confident you all the drivers of that great Premiumization et cetera.

Can sustain that level of greater than 2020.

Secondly on coffee just I was impressed by the growth rates in the virtually business can you maybe give some indication of how big the charities in the context of espresso considering its going to over 60%. Thanks.

Thanks on pet care thing, we're very bullish on the fundamentals going forward.

Having said that I mean, 2019 was truly a stellar year and so.

I would not exactly pencil in backdrop right now he after here, but I think.

This is a category that is clearly on trend.

In emerging markets and developed markets and so we see as very well positioned in their playing to all the major trends and so going forward, it's going to be very very reliable growth driver.

On coffee, yes, the tool a doing fantastically well, making good progress in Europe, we try to be helpful. But are also Haskell your understanding that we're not disclosing this epicel some bad Sq no. We're not even disclosing the total sales of guns pressel. So I think we want to stay away here from any competitive signaling and that's new best interest.

Next question is from David Hayes.

Institutional please go ahead David.

Thanks, Nick.

Secondly, especially awards is just going back to that seasonal slowdown.

Second our.

Lets you mentioned.

Back last flight and seamless to the plastic water usage I think that networks.

You get worse.

2012 beyond that I guess related to that one of your core categories alongside beverages nutrition.

Well the pesos awards is now changed is dynamic and maybe it's business as.

Yes.

Yeah managements.

The second question is actually make headlines again early I think mark.

The one TV.

Nice to see that over the headline suggested that you talk about the l'oreal state.

Sure source.

Positions I get to take questions I'll, let it that need additional or l'oreal space.

Is that an indication that the lease acquisitions could be larger.

We look like between jovial psyche.

Thanks, David and let me now what the second one for us because as the easiest one no. There's no change in position whatsoever. I think we've described as it was no news. We described this as a financial state before is a very significant financial stake and.

So this was not any signaling are hitting here on my part and I think also made a very clear.

There were not intend to day trade with the L'oreal stock and the also point out there I think over 40 plus years. This investment has done very well.

For Naslund Nessler shareholders and that includes recent years.

On waters.

So we continue to stay committed to waters as a growth category and I think healthy hydration is a growing trend and one that.

Can deliver serious growth.

What do we have to do is to position the business better in the segments of the waters business that are doing well. So we are over indexed in some segments and geographies that are not doing so well we are under indexed in some are the ones that are doing extremely well and turned back shift is something we have to do we have to outlined to you and as I mentioned, we will come back to you in the.

First half of this year and give you a very specific plan as you recall, when we announced the geographic.

Transition here from globally managed business to one by handled by the zones. We told you look and that structural change alone is not going to be enough. It really has to be new strategy into and thats. The one that we will unveil you.

Later this year.

When it comes to the softening of the business in Europe, I know everyone is jumping to that conclusion, it must be more plastic.

Our plastic in some isolated markets and some isolated circumstances has something to do with it but I.

I would attribute much more this to this whole notion that we are in quite a few segments and geographies in in the market segment. There was not doing so well that usually the lower priced segment, where you battle.

Private label and have a low price competitors, where we do extremely well is in the premium and functional waters.

This is where you're seeing good growth and good margin.

Okay.

Next question is from hopefully the that she at Vontobel. Please go ahead John fleet them.

Thanks, a lot good afternoon.

And.

I have two questions as well as the first one would be on.

Innovation to faster innovation is better for you to coincide growth contribution of the product launch in the past 12 month.

And the second one that would be on confectionary.

Growth in about three years will actually.

Really anaemic converts to the growing faster the margin is trending down and the return of capital is.

Let's say an impressive what are you thought through strategy with regards to the local brands in this category over the long term.

Thanks.

Simply put maybe I'll start with the second one and confectionary. So thank you are seeing a bifurcated picture here, where we're doing extremely well on some our flagship brands.

And so the consolidated numbers do not do justice to be amazing success, we're seeing on some other key brands and I think the the poster boy for that as kit Kat, which just flying so I tip my hat to what the team has done to reminders and so on the key brands usually the larger wants the more international ones were doing extremely well.

Now.

On the local ones, we do have some pockets of success and here again.

Nice job, but then we also have a few there are still weighing us down. So this to me is very clearly in the fixed category and something that we now devoted a lot of attention too.

And one on that for example includes also the Super cheap business in China. So we're working on that but I think this is one of those moments. If you just take the average now you're not seeing the significant success of the wants that we have focused on and where we actually got things going and we will do more bad so when it comes to.

Simple turnaround efforts frankly, you know insight.

The group and sort of looking at at the end and at the work that various categories have done I think confectionery is one of those Stella examples.

On the innovation side, we don't measure it as a percentage of sales you anything I can tell you is what we share usually which is the fact that we have about to sell the for SK use which are fully renovated or a part of the total innovation every year or to turn it another way around we have about assert of four.

ISCA use two dozen the market that did not exist three years ago, which is about the same concept.

Next question any from John Hence that Goldman Sachs. Please go ahead John.

Hello.

Two questions for me to outlays.

First is on inventory levels in China.

You have enough inventory in the system to ensure the retailers have products. This out given the distribution and production issues in the region.

And then my second question is on the guidance to mid single digit growth.

Thank you all flash 22.

You held pretty outlined some catch we country combination that need to be fair, then I away, but I wondered if you think you can get to mid single digit growth by current portfolio.

Or yet or is that target reliant on more rationalization and acquisitions as well. Thank you.

Thanks, John so local inventory.

We do have inventory of course and inventory sets at various levels you know raw materials work in process finished goods and then of course, there's a lot in the supply chain towards the retailers.

So I think whether it's sufficient or not we'll all depend on what the next few weeks will look like and to what extent.

Transportation distribution capacity will be constrained and what the future of this outbreak is local is looking like so hence I think it is too early to give a precise estimate and where we stand what I did applaud is the efforts behind the team to really be available to start up early take all precautions that are necessary.

Three enter and worked very closely with the Chinese authorities to do as well as we can because we understand that in addition to a business. We also have a responsibility to fulfill and so if you very very good about that.

On the guidance.

I think we did point out I did point out that for the next several years you should expect a similar level of portfolio transformation as you've seen for the past three years Internet that will contribute to improved organic growth just as much as for example, improved innovation and strengthening our hycroft categories.

And also fixing underperforming area. So again, it's going to come down to the same three buckets that were accounting for the past improvements and.

We should not forget I mean, two years ago, we were looking back at the year that had 2.4% of organic growth. We're now looking back at the year that has 3.5% of organic growth. So I think that balanced plan to build on those three buckets.

Is working and we will bet on the same tools come forward and I feel very confident they will help us get there.

So you heard about some of the issues were fixed in a way.

You heard about the water plan that we were unveiled a year later this year and then clearly more innovation more work in the high growth categories into more portfolio transformation and will help us to get them.

Okay. Thank you very much.

Next question is from Patrick Benjamin attitude Kantonalbank. Please go ahead Patrick.

Yes.

Thanks, Hi, Mark High Francois, Hi, Luca and coming back to the coffee business what has to change at NASCAR fair. Besides pricing that you can reach a mid single digit organic growth in the future again.

And second question, you've mentioned that you'd like to do more acquisitions in 2020, instead, a possibility that this could impact the buyback program or would you say you still have more bolt on acquisitions in lines. Thank you.

Thanks, Patrick so on the acquisitions clearly a small to midsize acquisitions aside from any buyback considerations are the shores them best way to create value and so.

That has always been our preference and continues to be I wouldn't want to rule out large deals but.

Really the sweet spot is small to midsized, usually it's the much larger integration job, which means more financial certainty and they're typically tends to be much less anti trust risk and antitrust leakage, because typically get by without any antitrust divestitures, so clearly thats the sweet spot and.

Let me say address with ascend Pep acquisition alone, which we announced a few weeks ago. The buying volume is already going to be larger in 2020 than it was in 2019. So it was a pretty low hurdle here that we had to clear.

We have a few more projects to work on in turn all of those are in the small to midsize category, but overall I think everyone will understand better portfolio transformation ideally you do it on both sides of the letter the buying by side and the selling side.

We want to position the portfolio towards higher CRO, but we don't want to de leveraged the company when it comes to the size and be operating leverage that we have.

And.

That's why I think a balance between buying and selling is the best way to go I don't see as of this point any threat here to the ongoing share buyback program.

When it comes to coffee. So clearly there was some pressure on green coffee prices and ness copy tends to be exposed to that.

We have a lot of good other initiatives underway Ines cafe to get that a whole new lease of life when it comes to growth.

And so I feel pretty good about the work I'm seeing around the world in escapades.

Excellent.

Yes next question is from Alan hair skin at Credit Suisse. Please go ahead Alan.

Yes, good afternoon gentlemen.

If I may I'd like to go back to the coffee.

In the that part in liquid beverage Division grew at just under three I know you mentioned the.

The other product categories, but.

It looks like coffee with mid single digit growth then in North America is it looks like Nespresso was mid single digit and coffee was mid single digit rig in the in.

Yes, I just want to check was was.

Was most of that rig canceled out by by negative pricing Enzo lumena or were there some.

Headwinds in in ins are they away specifically for for coffee and just as a follow up can you give us idea what the growth was for adults Augusta.

Last year please.

Alan Let me take that one just to come back here, because I think I can answer to partly the previous one on your question as well first of all NIST kefir had the positive growth overall across the three zones, which is important even in Europe, where we are feeling the pressure in terms of pricing. We are growing and we are gaining market share our descent arms, which is good netscout.

Continues to grow mid single digit in emerging markets as well. So the feature is not bad the what we are suffering from essentially easy low a coffee bean prices, which are putting pressure on organic growth, but there is nothing.

Nothing dramatic there, let's kefir Dolce goods store, it's a sizable business for us.

It's feeling the same pressure at the end with green coffee prices as well we have.

So the business with a mixed performance by market. We have positive growth for example in France in Benelux in Iberia, Brazil, it's a little bit more difficult in some other markets.

Especially if you European ones, but.

We focus on margin improvement as well, but no thing.

Really negative them.

Thanks Alan.

Please a Jeff. Please go ahead. This is Jeff stand from examined.

Good afternoon.

Just one question if I may.

Recall when Mark outlined to strategy in 2017, you showed US chart was 3.2% organic growth in 16, Lendingtree building blocks of the base business.

So we will change in high growth categories will take you into mid single digit growth, but given today you said the M&A is added 35 basis points.

Kind of imply is done and I could we get the base business and high growth categories.

Carbon added anything since 16, I am I misinterpreting, not or how should we think capella. Thanks.

Thanks, Jeff I think what you're seeing here is that the more us between.

The portfolio aside in what is internal development, our flooring at times and the single biggest an example, I think is Starbucks, where the origin of it all was a transaction the acquisition of those Starbucks rights, but that would not up and worked very much without very diligent work that the teams have done to develop a whole range.

Range of Verykool products, and then do picture perfect launches all across the globe. So it's kind of an internal external hyper it.

For the purposes of the slide we have sort of attribute it to M&A, but you might as well say you know it's a good example of advancing our Hycroft category. So all in all I think all three buckets are active depending on which year I think it's one more than the other.

But continue to count on all three buckets going forward to contribute to organic growth.

Okay. Thank you.

Next question is from a albeit at Mainfirst. Please go ahead Ella.

Good afternoon, Mark transplant Luca you just mentioned its two questions just to come back like our thinking at the transformation. So what we heard yourself in May So obviously, we'll see a similar trend.

I understand you're right that it will be much more into divestment versus acquisitions.

And.

Second question is regarding China, you teach significant impairment view of more than 80 minutes relative to fucci of ultra HD gyrate vidich correctly that the steps forward exit and each not.

He has to do you know to turn around really to achieve thanks.

And now I think the impairment is an accounting of recognition offer reality that has happened.

And so this is you know our conservative financial practices to be sure that we recognize what has gone on and reflect that in our carrying values for these businesses going forward.

That should not be read about where if something is going.

Going forward.

When it comes to the transformation that when it comes to buying and selling the point I was trying to make as last year, we're certainly more weighted towards the selling.

If necessary if we feel that there's no other option will continue to look at these options, but we are also eager to built a business into two by where we can strengthen attractive categories and market positions going forward and that's my hope for 2020 that will come to more balanced picture in that regard, which I think it's a good thing to build.

And to grow the company.

Next question is from a Jeremy Fialko at HSBC. Please go ahead Jeremy.

Yes.

M&A related questions. Maybe this is especially as we just clarifying on.

The previous question.

Sequentially, saying that Youre divestment going forward again, we will walk.

Affiliates to find suitable acquisition.

The second part.

You can you get the actually quite a bit Turner is the in.

You bet if history.

Can you talk about why did that and recover over the head.

Mike Your margins just sort of.

Hans.

So is it.

Thanks.

So Jeff.

I'm glad you're bringing this up I want to be sure not misunderstood if we come to the conclusion on a business that has to be sold we will not slow that down.

As to wait for something that we bought that was not intended message here and I think you saw us in 2019 to exactly the right thing for shareholders on these three businesses Nestle skin health and us ice cream enter heritage. So I think thats proof, but even in a year, where there was almost no acquisition.

I mean, we did exactly the right thing for shareholders at the right time that attitude is going to continue unchanged in 2020 and beyond all I'm, saying is with a lot of diligent work. We have started to refill our pipeline of interesting projects on the acquisition side of ledger and that was expressing hope that by more success.

Yes on that front, we come to more balanced picture what is you'd never assume that were slowing down anything that has to happen simply because there's a lack of buying opportunities.

Germany, France was speaking on the question of the absorption of fixed cost and central cost and the impact of the leverage and especially in the context of disposals, which is something that absolute obviously, we are fully factored in our guidance and in our model.

We are not too worried at that stage. Your first of all because we continue delivering outstanding results in terms of selling program for the sale during a role we have reduced our structural cost fixed factory.

Overheads and fixed distribution cost on DNA in general we still have a lot of room to go. So this will help us UBS world to absorb.

The the fact that.

We have a little bit less labor right as a consequence of some disposal, but it's not that matter annual either so no specific concern on the impact that it has on the margin going forward.

We are operated breakout.

Sorry, we're approaching the end of the color I think we still have time for two more calls or tumor questions and Jeff on us from by their please go ahead and risk.

Yeah. Good afternoon, and just quick question I mean, you called plant based a once in lots of opportunity for prepared dishes and cooking eds could you explain to me why you need a frozen food business to expand on a mostly CIL plant based products I mean, where our here exactly the synergies.

And secondly on your circuit drinks businesses, like Milo and nets, click, which seemed to slow down in recent I guess a quarter so even years.

I mean wouldn't they be now prudent to think about early about an exit offer category were also behavior of consumer seen as seem to be changing thank you.

Thanks, and trailers and so on plant based and let me be very clear.

The business entered four itself is super attractive. So when you have a 200 billion Swiss franc business growing at strongly and accelerating double digit rates has nothing to reject the point I was trying to make to you is that over and above that.

Within our footprint in this category. We also have lots of follow on opportunities, which we extend to pursue that's not the only reason to maintain that business I think we've seen a turnaround in frozen as a category overall and I think we're also seeing very promising work in our own frozen business when it comes.

[music] improving growth rates, but I think is one added opportunity here to creep new life into this category, Hence I was saying, it's a once in a generation opportunity to we think.

These products and to give them competitive advantage on your frozen versus Chelsea, Let me just be sure.

And then point this out to you.

The purity of these products is you can actually do them both ways. So besides chilled products and we have a child pipeline and then you can also certain frozen the same happens out of home some people prefer them chilled others prefer them frozen. So you can actually serve these up both ways, which I think makes them very versatile and.

That's one of the reasons why are these ingredients, a very very powerful and very good to preview life into our various follow on dishes and products in this category.

On.

Sure coded based beverages, and we have first of all the sizable business, which is growing and which is delivering an attractive level of growth I, just said before that it's a little bit less than what it used to be but too. So there is absolutely no plan whatsoever to dispose of these businesses there are changing consumer demands and especially the move from powder to.

Liquid detergent and ready to drink and by the were ready to drink is growing double digits and we have very attractive position down so which we are really leveraging upon.

Thanks, Andrea we will go on to Tristan funds, three and Dread bonded is the last questions of the day. Please go ahead that reason.

Thank you look good morning, good afternoon, gentlemen, Stephanie. Please just first of all restructuring when I look at Netflix lost 20 years, you've efforts to about 50 bips of restructuring charges, a year and again last year and again you're guiding it.

Two.

Good morning that next year.

How do you think about if this is just cost half a billion a year for business like Nestle every year to stay on this dose assist us in normal charge. The way you think about it.

And that's like going over the next decade Allah per annum base, a slight bit of a philosophical question and the second one.

It's a question about cap you seem to skirts the the line of going into much more pharmacological area, where is aligning your mindset that mark what won't you or will you look at as should go on the actual for medical nutrition.

Thanks, Tristan So let me start and send path at this is a prescription product, but it's very clearly designed to address the metabolism deficiency and.

It is not a high tech product, it's not something that for example is to be injected or so it's not a biotech product, it's actually fairly established technology and as such we had several other products initiatives in our Nestle health science portfolio that already came very close so while the owner at the present time.

Is a traditional big pharma company. It is not something that we saw its out of balance in something that we cannot handle.

That's not only our view in order to qualify as a buyer.

We had to submit all of this to the FTC in the United States. The FTC one of the be sure that the buyer is a qualified by an owner and they came out with a strong thumbs up that they see us see qualified by an owner for this business going forward, but absent that the FTC wants is that and simple as a product with as a way.

On the new owner into and I think they convinced themselves that nester health science is a very credible owner for this asset going forward.

So on the restructuring maybe I'll give us together, what Francois, but let me just say we have seen ups and downs, we have seen numbers as low as 150 million in recent years and we have seen numbers as high as 700 plus.

So I think the 500 number shows you that.

A big deal or what we wanted to do in terms of restructuring is behind us.

I think some people like to see these numbers all included other people like to see them before restructuring expenses, we cater to both needs. We are fully public and transparent on underlying trading operating profit margin, but we also give you all numbers, including the trading operating profit margin so whatever we.

You want to look at it I think we're focusing on both sides.

Yes, I think you said it will not but just I mean, we had two years of heavy restructuring in 2017, and 2018, which were around 700 million, but that followed a few years, where we were between 100 and 300 million.

I think that we had heavy programs like your what we did fall Nestle skin health, what we did recently for the DSD exceeded one in the US. These were heavy programs. We don't have any heavy program currently ongoing but we continue managing quite a large number of for small to medium sized project and that will be some for the one in the future obviously.

So last week, but they are.

Appreciate you're staying with us here, where branch 90 longer than usual at almost 90 minutes. Appreciate your patience I think this gave us a good opportunity to answer other questions on your mind, you look forward to talking to you again as part of Q1 and just wanted to show you the value creation journey here continues full fledged on all the key metrics that we talked about top line.

Bottom line capital efficiency, and so we as bullish as we happen and we'll continue to work in that direction appreciate it and talk to your Q1.

Yes.

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