Full Year 2022 Nestle SA Earnings Call

Good afternoon, and good morning to everyone.

Warm welcome to the Netflix <unk> full year 2022 results webcast and thanks for joining.

Luca Bellini Nestle investor relation.

I'm joined by our CEO , Mark Schneider, and our CFO Francois here.

Market will begin with an overview of 2022 and discuss the 2023 guidance.

What will follow with a review of the full year 2022 sales and profit figures.

We'll then open up the lines for your questions.

Before we begin please take note of our disclaimer.

And now I hand over tomorrow.

Thank you Luca and I won't well coming to our conference call participants today as always we appreciate your interest in our company. Thanks for joining us.

It's good to update you today on where we are as you can imagine a lot has happened in this turbulent and demanding year.

All the more I am pleased to say that NASA has been able to prove its resilience and dependability at this very demanding time.

Let's move to some of our key message is here and the slides I'll walk through a similar to the ones from the press conference. This morning, we've seen insights from this morning I'm also trying to offer some value added to some reaction apart in order to advance the debate.

So clearly from our perspective when it comes to the financial performance, we considered very resilient in a volatile and travel in time organic sales of eight 3% was smack in the middle of our guided range of eight to eight 5% and it was also noteworthy in positive.

That the real internal growth so the sum of volume and mix came up ever so slightly positive for.

For the full year the.

The mix, which of course is a very important indicator for us since it measures the rate of progress and innovation.

All I would Wang.

<unk> negative coming from volume development.

Know that Theres a lot of concern among you about the volume in our rent development, specifically in the fourth quarter and I hope it when Francois me, we'll be able to trust them off and we are obviously a lot less spooked about this than you are because I think that's perfectly explainable reasons that are not solely related to pricing that were leading to this development.

Underlying trading operating profit margin decreased as we guided you to expect all throughout the year due to significant inflation, but I think we were able to limit the decrease to better extent than anticipated 17, 1% certainly above what outside estimates were.

I think what you're seeing is significant focus on cost efficiencies trough leverage.

To offset some of the effect of cost inflation, so very pleased with battery cell tremendous effort from the team.

And again pointing out the resilience of our financials and a very demanding time.

Underlying earnings per share growth of nine 4%, so very close to the top end up at 6% to 10%.

Constant currency underlying scheffel freight.

He led you to expect as part of our Barcelona Investor Day.

And as you saw from our guidance. This is also what we're confirming as a range again for this year. So here again on the underlying earnings per share for freight also very consistent dependable performance.

We did not give up when it comes to building for the long term in this year. So clearly when it comes to Capex in particular, but also innovation sustainability lots of good forward looking spend set of course will deliver its benefits in the future years.

And then also continue to progress when it comes to portfolio rotation, where we are now at about 22% of our portfolio compared to the 2017 baseline.

You will see later that we made good progress on the good for you good for the planet agenda and here is another item where of course at a time of inflation and affordability concerns it would've been easy to cut corners, we chose not to do that because these are important strategic initiatives that over time, the company will get measured on by.

And the public at large and to also he was investors enhance disciplined continued progress in that arena is important to us.

And then regarding the dividend I think we're sharing some of the benefits of our value creation here with a dividend increase of 15 stone team to to Swiss francs and 95. Some teams. So all throughout I think very consistent performance at a time that was smart by so much turbulence and volatility.

I also would like to thank T nessler for tremendous job.

This tremendous focus inside the company on operational discipline.

Making things happen as agreed.

And really keeping their eyes on the ball.

Over and above that I think whatever capacity is available towards the strategic development of the company were devoting to that because we know that we're not just managing for today. We're also managing for tomorrow and for positioning the company well for the future.

With this I'd like to move on to the 2022 achievements in particular.

Clearly petcare does stand out as the one category of a deliberate open above no question about it to me Nonetheless, the second item coffee is one that's worthy to point out eight 1% is a very resilient number in a year that saw.

On the one hand, spanking coffee prices and on the other hand also normalization in this post COVID-19 world for so many markets around the world.

We are clearly in.

In home consumption.

Did first of all lap very strong quarters from the year 'twenty, one and also the in home consumption gave way to at least some partial to out of home consumption, whereas you know our market shares are less so in light of all of that eight 1% very strong performance and in particular continue to be very pleased with how the Starbucks.

Global Coffee alliance is shaping up and continues to develop.

We've been developing one 5 billion of incremental sales in this line of business since 2018.

Emerging markets are clearly a base of stability with.

We're seeing in addition to the pricing led growth also very good development in those markets. So I think our strong presence in Russian market is clearly paying off at this time and then out of home channels showing a tremendous rebound. We're now above 2019 levels, having said that the rebound was a lot stronger in the first nine months.

Yes.

And then we see some degree of normalization setting and in the fourth quarter, which is simply a function of how the fourth quarter of 'twenty one shaped up.

And then also.

We're seeing the negative impact in the fourth quarter out of Hong Kong, It's coming from China, where of course, the country was going through some clearly some advanced.

Covid related reductions and as a result of that out of home consumption was quite muted.

We did make good progress moving on to the next section regarding underperforming businesses.

China infant nutrition startup process done cleaning up the distribution system simplifying it the SKU rationalization and much clearer price point positioning of our various brands and offerings and again. The results are following on the heels of that so that was very reassuring at a time when the birth rate in there.

Chinese market is still quite low.

And then one thing that I'll talk about later, some more and that we've discussed already in Barcelona, and as part of our Q3 investor call.

Streamlining our P. S. Ku portfolio. That's one was originally born as a root cause.

<unk> some of the supply chain limitations, we've seen.

I think it has now grown into a full blown strategic initiative that really gives us lots of bottomline benefits, but also expected topline benefits down the road more on that later.

On portfolio management.

Two items worth as you pointed out one is that new focus if necessary health science on consumer care and medical nutrition with consumer care breaking down into.

Active nutrition and vitamins minerals and supplements as you know we did not achieve our objectives with the immune acquisition and we arent looking into alternatives for that I think that new strategic positioning and built on witness the health Science is best at and then there's lots of scaling up opportunity in those three.

Basis.

Going forward, we will focus on that so again, we regret that we did not meet our objectives here, but I also believe we found a good way out when it comes to future strategic positioning and ensuring the continued success story of Nestle Health Science and.

In food and on freshly similar situation as you know that business, while its clearly flu in the early days of Covid.

That's so direct to consumer focus was too narrow.

However, if a war and pretty strong demand.

And so combining with a firm Cadillac cuisine, and now creating a fresh food business to business platform. In my opinion is very much aligned with the needs of the times. So this would serve as foodservice operators that don't want to prepare fresh food onsite Pete.

As a result of labor shortages or cost pressures and we believe that this is a niche that's very much in demand and that we can successfully exploit with this company going forward. So quite bullish on that and I think what you're seeing here is two examples of us addressing.

Situations that were not performing well clearly, but then also finding the proper strategic resolution going forward that ensures continued success for the company.

I'll now focus on two of.

Our strategic plan is good for you good for the planet and let me start with good for you and Tampa and nutrition side of things as you know this built on literally 25 years of success with our nutrition health and wellness strategy.

And in that quarter of a century I think we've done already a lot of progress regarding the reduction of sodium sugar and saturated fats.

It is clear that while the work goes on there are limits so enrollment related cat as always it will not be turned into health related categories, but nonetheless across the full spectrum. A lot has been accomplished in our research and development stays very much focused on that.

Because there are limits to how much sodium sugar and saturated fats eventually can come out I think we also have to broaden our approach and one is around transparency transparency when it comes to labeling but also when it comes to the entire portfolio and this is where we've made some significant announcements when from my wife and.

Last fall.

The first one is on global transparency.

So we will rates coming out with a report in the next few weeks our entire global portfolio. According to the health Star rating, which is the same one that's used by the access to nutrition index and that to our knowledge among the major global food companies, where the first one is to do this on a global scale to give.

Are you a good sense of where the entire portfolio of stance and then for 14 major markets around the world. We will use the prevalent national rating system to also provide a rating of those national portfolios. So that's in our opinion and key progress on the transparency front as you know we complement to that.

With a step up in our responsible marketing initiatives and enlarge the H bracket of our marketing to children policy and go now starting from July from zero to 16.

We will not stop there I think we have exciting new initiatives underway for this year.

Again regarding targeting we would like to work and published with you.

Target number for the healthier parts of the product portfolio. So the once that are rated.

Three and a half under the health star rating system or above.

It gives you an expected sales figure for several years down the road for that bucket.

And then the other thing that we're working on it since we do believe in the future promise and potential of plant based food to give you a sense of where we can take that business and plant based food and beverage overtime. So both of these are projects that are in the works and that are forthcoming later this year, we will also.

Clearly continuing to work on.

Other transparency commitments and responsible marketing commitments of this work will not let up and all of that comes on top of ongoing work that we do as you know when it comes to affordable nutrition, especially in emerging markets and also a high highly successful trials when micronutrient fortification so long.

What's going on in this area. It is the core of what we're selling and attrition is at the end of the day when tasty and balanced diets are the core of what were selling and so upgrading our ambition levels here over time I think is important.

Next under the good for the planet header.

Obviously lots of eco initiatives lots of initiatives underway that are designed to improve our.

Sustainable sustainability footprint, but greenhouse gas emissions is clearly one that.

It is at the center of our activities.

Here also I think after a very successful 2022, we have progress to report I told you last year that peak carbon was behind US already we crossed that sometime 2019 2020, but now were also below the 2018 starting.

Levels. So when you think about our nets you a roadmap of the ones that went from 2018, and then extends to 2050, where we intend to be net zero. We're now below the baseline emissions level staff from 2018 and to our knowledge. When they are very few companies that has reached that milestone. We're also on track.

For the 20% carbon emission reduction by 2025 versus that 2018 level and we expect to make significant progress. This year in the next two following years and so you can imagine that some of these initiatives, especially when it comes to planting trees. For example in your agriculture supply chain.

Some of them have lead times, because any carbon reduction for later to that does not get counted for the first two years and only then snappy ramps up so that's why when you have the whole progress what can be somewhat backend loaded but against that backdrop I think.

Well, we already we have good reasons to be happy and to have we feel good about the 2025 target at this moment in time.

Moving on to some key focus areas for 2023, let.

Let me start at the center of the Snipe at the operational side, one thing I've said at the press conference. This morning, interpreting moments like these good operations and good operational management, a management each trying to achieve for breakfast and so clearly protecting volume growth is something that's very important to us and I think our.

Tasty project that would describe to you and they were expanding now is geared towards helping them out over time.

We will continue to focus on driving cost efficiencies, which are very important to us and of course, well also after taking it somewhat easier on marketing investments in 2022 will ramp up that again in 2023.

<unk> I will explain later to you but of course, the marketing spend has also needs to be seen in conjunction with the trade spend and so the patriot may not be as bleak as you think but nonetheless, we believe that in 2023. There is room for further marketing investments and as of Friday goods Company. You know these are very important to us.

On the strategic front.

We'll accelerate portfolio optimization that is an area that's important to us and in a sense. We will have the complete scalable setup efforts from SKU optimization to the entire portfolio and I explained that on one of the following slides.

And then a continued focus on fast relevant and impactful innovation is going to be important to try and mix and then we will continue to lead on our climate sustainability and nutrition agenda is financially speaking restoring the gross margin is key clearly after this tremendous a search and inflation.

And also renewed focus stronger focus on cash flow generation, we've made some deliberate choices to run up inventory levels to supply to ensure at all times that our supply chain holds up but I think now with some of the COVID-19 fears and supply chain constraints around the world easing now is the time to also work it down again.

It will reduce the net working capital and focus on cash flow generation.

That brings me to the portfolio optimization slide and this is one I'd like to spend a minute on because from what used to be a very tactical operational tools to react to supply chain shortages. This has now morphed into.

A major strategic in a company wide initiative. That's in my opinion has significant promise. So originally when you had shortages.

Clearly it was a choice of focusing on the articles that were most in demand with our consumers and our retail partners and that this led US then to what we call cutting the tail in order to push the head, but once we started doing that we saw that there was tremendous promise in it and that we scaled it up and accelerated quite a bit.

And clearly we noticed that we haven't done that sort of exercise for long period of time and the overall SKU portfolio have proliferated and there was tremendous promise when it comes to cost efficiencies near term and even increasing the organic growth longer term that focusing on the items that are more.

And demand. So this is what I described this morning in the press conference as a win win win situation, where clearly consumers are going for the most popular articles retailers like high rotation of items.

And for Us having a more limited SKU lineup also means less complexity more operational efficiency, and then of course and even better on shelf availability for the items that are in demand. So this was the starting point and.

Then from there we took a somewhat broader and bolder and even now we start to look at entire brands and segments and geographies is itemized here and Tim.

In cases, where we cannot sell a business, we're not afraid of walking away from it as long as we do it right and a good example, here is the frozen food, Canada business that you see the bottom left hand corner that wasn't announcement from a few weeks ago. This is a book of business of about 150 million Swiss francs its a bit.

And as that was not really sellable and not really a winning proposition because we don't have our own local manufacturing in Canada. These products were made in the U S and then imported and Tim.

Clearly by the time, you are talking in transportation and you're talking currency. It was hard to turn this one into winter.

But we believe that walking away from it and winding it down over a period of two years, while being a track on rig and organic growth for the short term clearly will have significant benefits for the business going forward and that is essentially what we're interested in.

And while this example may stand out size wise, you will see lots of smaller ones, where I believe making the tough choice short term, even though it does impact rig and it does impact Oh Gee for the moment clearly will have benefits turned down the line because it will free up capacity. She will free up supply chain, you will free up risk.

Horses to focus on the proven winners and to make the most of those.

That was one of the key factors one of three behind some of the stronger than expected volume reduction in Q4, because we were carrying at this thing up as fast as possible. The frozen food, Canada announcement is not among them. This was the 23 announcement and as I said, we'll be winding this down in 'twenty three in 'twenty.

Four but on a smaller more regional scale, we've done lots of decisions are already in the fall of 'twenty. Two now that were impacting the rig and the LG <unk> for the fourth quarter, but again with a good business logic and unexpected benefits down the line and then of course, we are reallocating those resources towards high CRO.

Hi, Martin Hi, rotation products and that is what everyone wants.

With this I'd like to turn to the 2023 guidance.

And Tim would like to confirm that we expect organic profit range between six and 8%. So this will continue to be pricing led we're not in a position and I think this is in line with prior practice to give a breakdown here between.

The pricing part and the rig part I'm asking for your understanding on that but it will be pricing led.

And Nonetheless, we're also seeing good development, especially towards the end of the year and we're working hard when it comes to stabilizing rig.

The underlying trading operating profit margin is expected to be between 17 and 17, 5%. So this is very much in line with the kind of path that we have laid out for you as part of our Barcelona Investor Conference and we expect to make meaningful progress towards that 2025 goal and that then also true.

Slides into the fracking for the underlying earnings per share growth in constant currency between 6% and 10%. So similar to the practice that you have seen for this year.

This concludes my part of the presentation with that I would like to hand, it to Francois and then later on we'll be happy to answer your questions.

Thank you Mark and good morning to all let me start with some of the key highlights for 2022.

<unk> shipped by volatile macroeconomic and geopolitical events, we delivered record financial results.

As you can see from the chart our reported sales growth was strong at eight 4%, adding seven 3 billion Swiss francs of cells.

With Frank So underlying trading operating profit increased by six 5% or $1 billion.

Underlying earnings per share growth was robust increasing by nine 4% in constant currency to $4 80 for Swiss francs.

Increase the returns to shareholders to $18 2 billion Swiss francs, the highest ever level on an annual basis.

Organic growth was eight 3% pricing increase to eight 2%, reflecting significant cost inflation rig was positive at 0.1 person. Following a high base of comparison in 2021 supply constraints and portfolio optimization actions net acquisitions increased sales by one 1%.

Largely related to the acquisition of the Ko brands of the Bountiful company as well as all game.

Foreign exchange decreased sales by 0.9% turning negative in the second half.

Total reported sales reached $94 4 billion Swiss francs, and eight 4% increase versus last year.

Turning to the distribution of growth between developed and emerging markets are getting growth in developed markets was seven 1% based on increased pricing.

Rig was negative following a high base of comparison in 2021.

Growth in emerging markets increased to 10% with strong pricing and positive region.

Growth was driven by Latin America Africa, and South Asia with continued momentum for the full devote offerings.

This chart shows the evolution of our growth factors of the last five yields overall the group's rig in 2022 was positive at 0.1 persons.

In the context of significant volatility we felt there was merit in breaking out rig into its two components, namely mix and volume.

And so quality of you suddenly rises we excluded water on their science, which results in a slightly negative Ric for 2022 of minus 0.1% on these charts.

As you can see mix has historically been a key driver of organic growth supported by premium musician and intervention.

Mix remained resilient in 2022 at one 6%, indicating that we have seen only limited dumped trading by consumers to date.

In 2022 pricing became the largest contributor to growth.

Looking at volume, we saw an exceptional steps up in 2021 with growth of almost three times higher than historical levels in the context of elevated pandemic related demand.

This exceptionally high base of comparison and supply constraints negatively impacted our 2022 volume growth.

Overall, the average volume growth for the last two years. That's one person's was only slightly lower than pre pandemic levels, reflecting limited pricing at MTT to date.

The recent volume evolution is more reflective of overall market conditions. Indeed, we continue to see more than half of business sounds gaining or holding market share in spite of some supply constraints and deliberate decisions to optimize our SKU portfolio.

When looking more specifically at our billionaire brands, which account for more than 70% of our sounds and so organic growth of 10%, we're gaining or holding share in close to 60% of business sounds.

Looking at Q4 week, most specifically beyond the high base of comparison at 4% in the fourth quarter of 2021 on supply constraints Q4 was also impacted by three additional transitory factors, which had a negative impact on rig off around 160 basis points.

The two largest factors well the normalization of our telephone growth acceleration.

Acceleration of SK and portfolio optimization actions.

Normalization of outperform girls reflect the unwinding of pandemic related volatility.

The rules decelerated from 18, 3% at the nine months to six 1% in the fourth quarter. So while the level more in line with what we saw pre pandemic.

Second we accelerated the SK you on portfolio optimization program, which is part of project E. On has delivered almost 1 billion Swiss francs of saving in 2022.

The portfolio optimization component of these program has delivered strongly to debt, giving us the confidence to broader need scope beyond SK used to include brands segments and geographies.

In Q4 2022.

Acceleration of these program led to a more negative impact on rig than previously communicated.

Going forward, we confirm that the rig impact is expected to be negative for H, one and 2023 until 20 basis points positive for the full year as we start to reap the benefits of growing the head.

The expansion of the program, we just support growth and margin in 2024.

The recently announced discontinuation of our frozen food business in Canada with annual sales of around 150 million francs is a good example of the new broader scope of our portfolio optimization program.

The old water, so a rig decrease in the fourth quarter as a result of temporary capacity constraints. These.

These capacity reduction follows our recent decision to upgrade the production facility.

The decision will impact or what a rig for a few more months.

Overall, while we are actively working to protect the rig in 2023, we expect <unk> to be negative for the first half as the three factors mentioned here will continue to impact our business.

Let's now shift focus to the results of our seven operating segments, beginning with North America, where we sold 10, 3% organic growth driven by pricing of 11, 6%.

Rig was resilient at minus one 3% in the context of a high base of comparison in 2021 supply constraints on pricing.

In the fourth quarter rig was minus four 9% largely impacted by portfolio optimization actions, a moderation of growth in our telephone channels and temporary capacity constraints for failure.

The zone, so broad based growth contributions across strategic brands and categories driven by pricing strong operational execution and continued momentum in e-commerce.

The zone also saw market share gains led by pet food portion coffee on baby food.

By product category Sams in Purina, Petcare Nestle professional on Starbucks I would tell form products grew at a strong double digit rates in.

Infant formula recorded double digit growth, reflecting supply constraints in the markets.

As a reminder, we sold the Gilbert good style brand in the fourth quarter to focus on our core baby food business, which includes <unk> snacks answer yes.

Premium water posted mid single digit growth, we as I said, a decrease in the fourth quarter, mainly due to temporary capacity constraints.

The zones underlying trading operating profit margin increased by 70 basis points with a notable improvement in the second half of the Yale.

Pricing gross leverage and portfolio management more than offset significant cost inflation.

Next is on Europe organic growth was seven 2% driven by pricing rig was positive at 0.9%. Despite a high base of comparison in 2021 on supply constraints.

In a challenging and disruptive environment zone, Europe demonstrated resilience, particularly in Ukraine, We obviously announced a 40 million Swiss francs investment for a new production facility.

The zone also continued to see market share gains in confectionery pet food and nutrition.

By product category. The key growth drivers were Purina Petcare on this day professional within Petcare Lilly kitchen until it does cover both grew by more than 20%.

Sales in water, so double digit growth, we as I said, a decrease in the fourth quarter, mainly due to temporary capacity constraints for feraheme.

Coffee posted mid single digit growth led by Nick Jeffery soluble coffee and continued strong sales development for Starbucks by Nespresso.

In some nutrition reported double digit growth with strong momentum for premium infant formulas, including human milk oligosaccharide products.

Garden Gourmet plant based products continued to see double digit growth fueled by new product launches.

The zones underlying trading operating profit margin decreased by 190 basis points, a significant cost inflation and the impact of war related supply constraints was not fully offset by pricing gross leverage on cost efficiencies.

Moving to zone AOA.

The zone reported high single digit organic growth with contribution from most geographies and categories.

Growth was driven by pricing the continued recovery of our telephone channels on innovation.

The zones are market share gains in coffee culinary and infant nutrition.

By geography or region posted positive growth, we spotted kudos trends in South Asia, Middle East and Africa, as well as the Oceania.

By product category truly never he was the largest growth contributor led by Maggie.

Saturday Nifty professional grew at a double digit rate across geographies and categories driven by increased distribution.

Cocoa on more beverages as well as Purina Petcare all posted high single digit growth supported by new product launches.

Growth in infant nutrition reach a high single digit rate with broad based contributions from most geographies.

Ambient dairy saw a slight sales decrease.

Largely driven by portfolio optimization.

The zone underlying trading operating profit margin decreased by 110 basis points significant cost inflation more than offset pricing gross leverage and disciplined cost control.

Next is on Latin America, which reported sustained double digit organic growth led by pricing of 11, 6%.

<unk> was resilient at one 5% building on a high base of comparison in 2021.

The zones growth was broad based and supported by strong operational execution and continued momentum of out of home channels.

Zone, so market share gains in infant nutrition pet food entrepreneurs.

By geography, Brazil reported strong double digit growth sales in Mexico, Chile, Colombia on the plateau region continued to grow at double digit rates.

By product category confectionery was the largest growth contributor based on strong demand for kit Kat on key local brands.

Sure enough Petcare coffee on this day professional or reported strong double digit growth.

They're re posted high single digit growth led by 45 mix on hold and baking products.

The zones underlying trading operating profit margin decreased by 70 basis points as cost inflation on one off items in the second half outwait pricing gross leverage and disciplined cost control.

Turning to zone Greater China, we are pleased to see significant progress on the turnaround of our business in China, following the new organizational structure and leadership.

Organic growth was three 5% with pricing of two 5%.

<unk> was 1% impacted by COVID-19 related movement restrictions.

Growth was supported by strong operational execution in a challenging environment rubbers demand in e-commerce channels and continued innovation.

Byproduct category infant nutrition, so high single digit growth with improved market share trends for none on illumina.

Coffee posted high single digit growth led by net cafe, so LIBOR on ready to drink coffee as whaler Starbucks products.

In confectionery seafood, she reported high single digit growth helped by innovation, including the successful launch of savory snacks.

Founded in Purina Petcare grew at a double digit rate with strong growth in specialty channels E Commerce.

Following movement restrictions Nestle professional so mid single digit set a decrease with market share gains supported by new customer enrollments on product launches.

The zones underlying trading operating profit margin increased by 260 basis points favorable mix and disciplined cost control more than offset relatively low cost inflation.

Next is Nestle health science, the business posted mid single digit growth, although a high beds with two consecutive years of strong double digit growth during the pandemic.

Our three year recap of Reg was eight 9%.

<unk> geographic expansion and market share gains supported growth.

On Cmos care reported positive rules active nutrition, so double digit growth led by healthy aging products as well as the continued expansion of vital protein on all game.

Growth was helped by increased distribution, new product launches and geographic expansion.

Vitamins minerals and supplements. So we set a decrease impacted by the high base of comparison, particularly for immune related products during the pandemic.

Medical nutrition reported double digit growth with strong set of development for pediatric an allergy products.

Acute medical care products also posted strong growth based on new product launches.

By geography sales in North America grew at a low single digit right.

Europe reported positive growth, while other regions combined posted high single digit growth.

The underlying trading operating profit margin of Mr. Hill Science was unchanged versus the prior year as cost synergies from newly acquired businesses pricing and gross leverage were offset by cost inflation on growth investments.

Finally, nespresso, which reported mid single digit organic growth driven by pricing Greig was minus one 7% following exceptional growth of eight 2% in 2021 during the pandemic.

Comparable organic sounds from this fritzl all around 20% higher than they were three years ago under three year average rig was 4%.

Growth was led by broad based momentum for the virtual system rules.

Growth was also supported by a strong recovery of out of home channels with continued expansion further momentum system unimproved sales development for the office segments.

By geography, North America posted double digit growth with continued market share gains.

Europe reported a sales decrease with girls turning positive in the fourth quarter.

Also regions combined reported high single digit growth.

The underlying trading operating profit margin of an espresso decreased by 150 basis points impacted by cost inflation uninvested months in the rollout of the virtual system, which will not fully compensated by pricing.

Let's now look at product categories are getting girls, who has a broad base supported by pricing across all categories.

The contracted category dynamics in 2022, largely reflect the residual effect of COVID-19 as consumer demand somewhat normalize by channel.

Categories with great to at home consumption, such as dairy and culinary so negative rigor of a high base of comparison.

By contrast categories and businesses with greater exposure to our telephone channels undergo conception unimpaired buying such as confectionery saw a continued strong recovery.

Within the powdered and liquid beverages coffee, so high single digit growth building on a high base of comparison in 2021 growth was broad based across brands segments and geographies and led by a strong recovery. So I would tell form channels, which grew at a strong double digit rates.

Sales of Starbucks unless cafe ready to drink products grew at double digit rates.

Overall sales of Starbucks products grew by 12, 9% to reach $3 6 billion Swiss francs generating an additional $1 5 billion Swiss francs of incremental sales since 2018.

Cocoa and more beverage he's reported high single digit growth driven by strong demand from Milo on this quick ready to drink formats.

Pet care posted itself consecutive year of double digit growth despite supply constraints with mid single digit range.

Sounds best premium on veterinary products saw strong sense developments.

Growth was also supported by pricing continued ecommerce momentum on innovation.

Nutrition and health Science posted seven four for some growth infant nutrition reported 10.1% organic growth with a strong recovery and market share gains across most geographies, particularly China.

Infant Formula growth was supported by continued robust demand for human milk oligosaccharide products, which grew at a double digit rate. We set is reaching $1 3 billion Swiss francs in the fourth year of marketing that we.

We have already discussed necessarily had a science.

Prepared dishes and cooking AIDS, so three 1% growth driven by strong sales development for ambient culinary, particularly Maggie in zone AOA.

Sales in vegetarian and plant based food grew at a mid single digit rates.

Garden Gourmet in Europe continued to see double digit growth why does satisfy sweet Earth in North America were impacted by SKU optimization.

Growth in frozen food was slightly positive a very high base.

Milk products on ice cream recorded five four for some growth the key contributors to growth were coffee creamer bills before they bought 45, milks and home baking products.

The Roes in Confectionary reached nine 4%, reflecting strong demand for kitkat.

He's a known products on key local brands in 2022, kitkat posted double digit growth with over 5 billion barrels sold in 87 countries.

Saturday and water grew by 11% despite temporary capacity constraints.

Moving now to profit margin by product category, most categories of margin decline as pricing gross leverage and efficiencies did not fully offset input cost inflation.

There are a number of exceptions.

In infant nutrition pricing gross leverage unfavorable product mix drove a 160 basis points margin increase.

Fiction rehearsal, so imagine improvement that's pricing on gross leverage more than offset cost inflation.

It is worth calling out that pet care also saw a significant margin improvement in the second half.

What the or so so it's small gene temporarily affected by capacity constraints in the fourth quarter and inflationary pressure, particularly linked to energy.

Next is underlying trading operating profit, which increased by six 5%, a 1 billion Swiss shrunk as a percentage of sales decreased by 30 basis points to 17, 1%.

In 2022 gross profit increased by two 5% to $42 7 billion Swiss francs.

Gross profit margin decreased by 260 basis points to 45, 2% a significant input cost inflation more than offset pricing efficiencies and growth leverage in the second half we saw it fills a gross margin decrease as inflation was metals really high yields than we anticipated in the summer primary.

Really due to energy as well as labor cost.

Well the first half of 2023, we expect our gross profit margin to decrease versus the corresponding period in 2022.

Going for a while to restoring our gross margin remains a top priority.

Distribution costs as a percentage of sales decreased by 20 basis points, mainly as a result of the disposal of the initially what else brands in North America.

Marketing administration on the R&D expenses as a percentage of sales decreased by 210 basis points supported by solid gross leverage and disciplined cost control.

Consumer facing marketing spend decreased temporarily following a lower level of marketing activities in the context of supply constraints.

Marketing spend increased in the second half of the year.

Going forward, we expect to increase our level of marketing investments both in absolute amount and as a percentage of sales.

Bear in mind that we should not only look at marketing, but also our trade spend we always look at marketing and trade spend jointly because we all be trade very often between these two lines of the P&L.

In 2022, our total marketing and trade investment increasing suite fronts versus the prior year.

Overall sustainability investments mainly recorded in cost of goods sold were around 700 million Swiss francs.

Moving onto P&L items from underlying trading operating profit down to net profit.

Restructuring expenses on net wholesale trading items decreased by 30 basis points slightly below the prior year across most items.

As a result, the trading operating profit margin was unchanged versus the prior year on a reported basis at 14%.

Taxes as a percentage of sales increased by 30 basis points on a reported basis.

The underlying tax rate was relatively stable at 29 persons.

Lower income from associates and joint ventures, largely reflects the disposal of some real held shares in 2021.

Moving to underlying earnings per share, which increased by nine 4% in constant currency and by eight 4% on a reported basis to $4 80 Swiss francs.

The largest contributor to the improvement was a strong organic growth nestle's share buyback program also contributed one 8% net of finance costs.

Although mainly related to income from joint ventures, and associates contributed two 2% growth driven by increased contributions from l'oreal unsold nailing.

The negative impact of foreign exchange reflect the currency depreciation of the euro denominated loyal even come.

Our cash generated from operations before changes in working capital remains solid and deepen their board at around 20% over the last six years.

Free cash flow decreased from $8 7 billion Swiss francs to $6 6 billion Swiss francs, reflecting our decision to temporarily increase inventory level in the context of supply constraints the energy crisis in Europe , as well as elevated capital expenditure.

I was working capital and Capex normalize we should see an increase in free cash flow trending back towards 12% of centers by 2025 in line with our mid term financial targets.

The group returns on invested capital before goodwill and intangibles decreased to 39, 4%, reflecting a temporary increase in inventories on a higher level of capex.

The group's return on invested capital after goodwill and intangibles was 12, 2% unchanged versus the prior year.

Without the impact of impairments return on invested capital increased by 10 basis points to 14, 3% in 2022.

The group's RAC has been relatively stable over the last three years at between 14 and 15%.

As a level two times high yields I know what.

Even as we made significant acquisitions.

Net debt increased by $15 3 billion Swiss francs to reach $48 2 billion Swiss fronts as at the 31st of December 2022 the.

The increase largely reflected the dividend payment of $7 6 billion Swiss francs and share buybacks of $10 5 billion Swiss francs.

Free cash flow in 2022 was exceptionally low due to our decision to temporarily increase inventories in the context of supply constraints on the energy crisis in Europe .

This impact will reverse in 2023, and 2024 with a significant cash flow benefit.

During 2022, where retail new recalled $18 2 billion Swiss francs of cash to our shareholders in dv done on share buybacks.

We are committed to maintaining our practice of increasing the dividend every year in Swiss francs at the next annual General meeting the board of directors will propose a dividend of $2 95, Swiss shrunk spill share if approved this will be the 28th consecutive annual dividend increase.

Company has maintained or increased its dividend in Swiss francs, although the last 63 years.

Net debt to EBITDA ratio at 245 times need to be seen in the context of a temporary increase in inventories.

This concludes my remarks, I know hand over to Luca to open the Q&A session.

Thank you Francois with that we move to the Q&A session.

We open the lines for questions from financial analysts.

Please limit yourself to no more than two questions. The first question is from Jon Cox Kepler. Please go ahead John .

Yes, good afternoon, Jon Cox Kepler Chevron two questions one just to make crystal clear on the guidance. This includes the impact of the S. K you face I think some of the market maybe thing that it does not include that S. K you phase I, so that 6% to 8% is Ah ha.

6% to 8%.

The second question just on the slides you showed 15 and 16 in terms of the weakness in Q4, you mentioned mix is about 1.5%. So then can we assume the volume decline was about 4% in Q4, and then just bearing in mind. The splits that you gave.

For the two 6% decline can be roughly assume one and a half points is the SKU rationalization maybe.

Maybe one and a half points is the.

Are they out of home change and then maybe one point is the supply chain constraints. Thanks very much.

So now I'll hand, it to Francois for the second question, but on the first one just to confirm yes. This is a hard guidance of six to eight we're not playing around with guidance terms as you know and this includes the impact of SKU rationalization. So we see we're feeling very confident about you know a very decent sales development in light of these longer term.

Undertakings.

The Jordan also speaking a good afternoon.

On my Slide 15, or 16 in D. C are the rig negative impact in Q4 of two 6%. The three main factors that I mentioned contributed about 160 basis points. There is one the last one the water one which is a which is a smaller contribution under the bulk of this 160 basis points.

<unk> impacted Q4 that will continue for a H one is coming from the SKU optimization as well as the out of AUM growth slow down.

Don't forget that as well and so we don't want to go too much into into that but in Q4, we had one less invoicing day as well. So don't go too far in interpreting the decline negative decline of volume in Q4.

So next question is thrown that yield and that did mask that UBS. Please go ahead.

Illness.

Thanks, Nick kind of afternoon and marketing have also two.

Two questions for me. Please the first one is on your medium term margin Chuck.

Because you reiterated again today your ambition to restore your gross margin to the 'twenty 'twenty levels.

So that would effectively mean, a 400 basis points gross margin uplift over the next few years.

Based on your medium term margin outlook of 17, five to 18 and a half I mean this imply some significant step up in SG&A.

250 to 350 basis points.

So my question is what returns do you anticipate on this incremental investments because we such a heightened level of investments and a stronger leaner portfolio would it be fair to assume that your organic sales growth could go from four to six tomorrow, a 5% to 7%.

And then my second question is on inflation I mean, I appreciate you're probably still early days, but.

At this stage what level of cost inflation would you expect for 2023.

How do you think it will compare to the levels of inflation you faced last year and is there a scenario, maybe whereby you could actually face some deflation.

By the time, we get to the back half of the year. Thank you.

Thank you, let me try and take a first crack at both of these and then also hindered a transplant for them for some additional detail on the second one again, we're trying to be helpful. But.

I don't think at this point it is good to you to speculate on exactly where input concentration is going to go.

As you saw frequently the past anyone who speculated on this in the last two or three years frequently ended up wrong, but then also at least since the wrong signal. It's when it comes to retailer negotiations, it's not in the best interest of shareholders to speculate on that and hence we're refraining from it so I'm asking for your understanding.

When it comes to the medium term outlook in 2025 do keep in mind the.

What the guidance expectation of zone.

Is on the underlying trading operating profit margin. So the 17 five to 18 and a half that we're getting there.

Well, it's very hard to estimate you know in this volatile environment and three years ahead of time, it's exactly what the breakdown is between operational improvements overheads and then ultimately of course, the gross margin what were trying to explain is that of course, the cross marching eastward passed somewhat to get back there because clearly it came down quite a bit.

In the face of inflation and then typically as inflation eases somewhat that showed repair as a result of the price increases we've done.

And input costs over time coming down again, but.

And assume that you know if this is an exact like for like 2025 is not going to be a copy of 2020, but we feel confident about is that we have a set of initiatives that will lead us to an underlying trading operating profit improvement to come back to that old range of 17, five to 18 and a half how exactly it than the other.

Ingredients that add up to the underlying trading operating profit margin of how they will shape up and we need some flexibility there.

And just to complement what Mark said I can just give you some color on to some more specific items, obviously, the structural cost benefit I would say the gross leverage benefit that we have you know that historically, we have generated between 50% to 70 basis points of benefit to the bottom line, we expect that to continue as well.

Addition to that these program that we are starting now with SK you on portfolio optimization that will impact very positively on margins as by the way. It has been the case in the fastest one but we expect these two items to contribute continue to contribute positively to our margin development in the next couple of years.

Thank you very much from the ethylene penuche at JP Morgan piece glad to Selina.

Okay.

Thank you good afternoon, Marc Kofler from Macquarie.

My question coming back on the portfolio rationalization.

You mentioned that it would be a magnitude you said one.

In Q4, and then you should expect this to continue.

I think it feels like from regions like Latam and Europe .

It seemed to have seen yet an impact and you just you guys want to grow their rates by geography and business. So I just want to understand how much more that we should expect in 'twenty suite and you also said that for instance to him.

And business teams.

Southern Sweden, Canada will take two years to wind down so how long will that last fall and.

That's my first question My second question is on <unk>.

Trade spending and E&P.

<unk> spend was up in 'twenty two given that many people are talking about.

Simulation in order to pass through pricing. So can you explain a big base.

And if you wind down trade spend in 'twenty three.

Is that correct.

Can you quantify the potential impact this could have on the full year.

Thank you.

Speaking on the portfolio optimization to one of them.

So some of the story I said not only for portfolio optimization just to give you some more color as well we do confirm that this program will have a positive impact on <unk> for the full year 2023, but it will have a negative impact in the first part of the year. As you know we are there are two parts to it there is the cutting the tail the classical.

One, which we are somewhat suffering from a little bit currently and in the last quarter of 2022 for example, but as we progress over time, we expect to really get the benefit of pushing the head which is a reason why net for the full year, we expect to have a positive impact.

On the trade spend so what is important is to look as I mentioned in our Barcelona confirms not only to look at marketing spend which did decrease last year for us in the context of supply chain disruption as well take the example of pet care. For example, since we did not have enough products to sell there was no point in a certain number of instances to ins.

Dressed in the advertising and publicity, but if we look at the total amount.

Which I mentioned is 28 billion last year during the Barcelona conference, what's a decent amount in its entirety for the two components did increase in absolute value last year within that we feel that it's a relevant in a certain number of cases to arbitrate between these two amounts and Nicky stood at <unk>.

Spend as increasing in absolute value last year.

We saw that it was appropriate in a certain number of cases is to make sure that our products remain a full day board at the time when we went for significant price increases it seems to have paid off because when we look at our market share. It has been resilient and if you look at more specifically at our market share four billionaire brands in more than six.

Depots in almost 60% of the cases it did increase a stabilized. So we think that it does work fairly well in the course of 2022.

So the next question is from that that would be 20 minutes Sufentanil Bank. Please go ahead Patrick.

Thank you little competition do you want to take that.

Good afternoon. Laurie contrast, what you have mentioned Mark that you are confident to reach the 6% to 8% organic growth guidance for the current year in terms of product categories and what will be the main growth drivers behind this one and second question. You also have mentioned that you will.

We'd like to accelerate portfolio optimization, you just mentioned the frozen fruit business in Canada are also large divestments possible in the current year. Thank you.

Thanks, Patrick.

No I have no particular.

Announcement at this point when it comes to categories and I expect it to be recently broad base, which I think is one of the nestle strengths and.

So clearly some of the high performing categories. When it comes to organic growth. So think Petcare I'd say, we'll continue to do well.

But.

Other than that I don't have a lot more detail at this point that I would like to share.

On the portfolio, let me spend a minute on that because clearly.

What we're showing with this and at the risk of beating the Canada example to death I mean, we're showing you that we're willing to walk away from a book of business take the hit on rig.

Take the hit on the underlying volume and organic growth and time and basically simplify the company focused across spend and actually use those resources to advance the windows.

It doesn't mean, we're eager to walk away and so if we can sell something we will sell it but.

But we're ready to walk away and I think this built on a period when you think back to the time before COVID-19.

As a period of four or five years. When US included everyone. In the industry was really striving for organic growth and I think at that time in hindsight. It's clear to me that we will probably taken a little easy on this permanent process of SKU rationalization that shouldn't be going on in a company like ours that has such a large number.

We were probably at the time a bit more reluctant to take these hits on volume break and organic growth and as a result of that the product program as well a little bit, especially since we're cranking up innovation a lot and it had a nice new stream of innovative products coming to market.

And as I explained in the prepared remarks.

What got our attention initially was the supply chain constraints and if we had to make choices like how to use limited resources to make either one product or another but then once we saw the tremendous benefits from that we saw that there was.

Significant opportunity here to do more and really play to win as opposed to just play to have another SKU on the shelf and a focused profitable growth. That's essentially what we're after so that will include some <unk> items.

But that will also include some divestitures over time. So that we are even more focused we will continue as a multi category diversified food and beverage company no question, but we believe that the company overall within that broader scope will benefit from even more focused than before and that's essentially what we're after and this is where it is.

Supply chain constraints, just opened our eyes.

In terms of that additional upside that we've left on the table.

Okay perfect. Thank you Warren Ackerman at Barclays. Please go ahead Warren.

Yeah. Good morning, sorry, good afternoon Mark.

Luca So I'm Warren here at Barclays.

Two for me as well the first one is just a follow up on the SKU rationalization pointed out we've had a few questions on it but the 150 bips in the Q4 quarter how much of that was just the S. K use.

And related to that the 20 bps that you reiterated from the C. M day for 'twenty three is great to know that and it is great to hear is it still happening but in terms of the phasing of that it sounds like it will still be negative I'm trying to understand why does it swing suddenly back positive how can you be sure the numbers.

EBIT for the full year when you've got so many things moving around just as interested in the mechanics of how you can be so precise on the 20 bips that would be that'd be helpful. Additional color and then the second one is just on the supply chain constraints I mean, it's been a feature now for quite a few quarters I love your competitor doesn't know.

Saying things are easing significantly, but it sounds like the nestle.

That isn't the case I'm, specifically interested in pet food.

A lot of new capacity coming online from pet food can you maybe explain that.

The phasing of the capacity increases in short you know when do you expect the supply chain constraints in pets.

A coffee mate, but my knee and pet stopping being an issue and is there a worry about eventual overcapacity in pet food because all of the premium players are adding capacity at the same time. Thanks.

Thank you and let me start on the second one and then hand it to Francois for the first one and so youre absolutely right. If we are citing.

<unk> chain constraints, maybe a tad more often than some of our peers I think it is due to the fact that we have such a large and successful pet food business.

And we're a little bit the victims of our own success here because as far as Joe pointed out. This is now the third consecutive year of double digit growth and then we were even close to capacity limits before COVID-19 and had started to green.

Green light some of the capacity enhancement enhancement programs, then came COVID-19 and that huge surge in pet adoption and and demand.

And this is something that no one had on the radar screen and this can imagine, especially when it comes to Greenfield sites.

These things do take some time for planning and permitting and then put it into capacity into the ground and getting.

And them up and running.

And so we expect that to come on stream, depending on what geography look you look at in 'twenty, three and 'twenty four.

But clearly yes, it did take some time and Tim.

Think pet food and pet food in North America in particular.

Pretty much I hate five days and we expect that now to ease over the next one to two years.

I'm not so concerned about the eventual overcapacity because we've done as you can imagine on major capex items here, we've done lots of projections about how things could turn out and even if there is a little bit of overcapacity temporarily it was very clear that where the underlying <unk>, which is so much intact you were very quickly CRO.

Into it so I think you know going back several years, we were probably getting a little bit too close to a capacity limit COVID-19 struck and put us into this situation.

<unk>.

As regrettable as it is that we can surprise also a nice problem to have because clearly those projects into existing demand are very very certain projects and it's all about now getting them implemented and get them up and running.

Good afternoon transfer speaking.

In the Q4 rig impact coming from these three transitory factors once again to smaller one was what a capacity constraint that we had to do appear you plant. The two the main items.

Items are the two other ones.

Slow down of the out of AUM growth moving from 18% in the nine months to around 6% in the fourth quarter that is something that we expected for some time and the second largest factor. They are relatively equivalent on the two of them is this a portfolio SKU optimization.

This is not an exact science, but I mean, we have a good level of confidence in the fact that this will continue having a negative impact in niche. One in addition to that let's not forget that in each one we will have the impact.

Of these cannot yet in the frozen decision as well, but you know when do we start entering into edge to we will get the benefit of what we call pushing the head I mean, we have been involved in the program for more than a year old now. So we start seeing the benefits of it we have gained confidence about it we start seeing increase the service level for <unk>.

Example of many of these skus as an example, so we are very confident that the net impact will be positive in the second half of 2023.

Okay, but can you put on that Tom Sykes Deutsche Bank. Please go ahead Tom.

Yes, good afternoon everybody.

Firstly just in terms of the.

Pricing impacts totaled six to eight.

Yes.

Put it out, but how many rounds of pricing.

Great.

You're expecting to conclude.

Over the course of this year.

If you buy.

'twenty two.

And do you feel like need like to list price increases that youll peers say.

Sort of conceptually to catch up on pricing, maybe some of your peers are not increasing prices by as much. So.

And then is it possible to exploring this question.

Just it looks like.

Space, and especially went up quite considerably.

And I guess, that's probably to see what the <unk> rollout.

The ROIC seems towards diminished quite considerably.

So.

So.

What is the outlet near term growth in this asset where.

Where do you think you can get back to you. Please.

Thanks, Tom.

The first one and then enhancing francois for the.

Second one.

No.

Again, I don't think it's helpful to all our shareholders to know speculate on how many rounds of pricing there will be as you can imagine.

This is highly specifics by market and category.

It's also clear that at this point, we're not talking Prof based price increases, but very targeted by category by situation and well justified by the data I mean, otherwise reach.

Our retail partners and consumers will simply not accepting price increases and it's also important to step away from the notion that all pricing needs to happen de novo from now because much of the pricing that will apply to the 23 is pricing that may happen effectuate. It in the second half of 'twenty.

Two and then there's a full year benefit of <unk> 23, as well then there price increases that were rolled out and agreed.

At the very end of 'twenty, two or now at the beginning of 'twenty three that are taking effect now as we speak over the next few weeks and then depending on where inflation takes as some additional action might be needed and that's why again.

Don't imagine that everything has to be newly priced from the ground up now with some of it is carryover from 'twenty two.

It's highly situation on category and geography specific.

But clearly FCC from the combined consolidated numbers.

It is very clear and I think you'll see the same picture borne out with our peers that inflation has left its mark on gross margins and profit margins.

Clearly some repairing still needs to be done.

So I think your second question was on this pretzel. So there we are clearly putting a safety net investment position developing virtual which is still a protected system to start with and so we have a unique position there to a system that is growing nicely and really meeting the demand of consumers.

<unk> long coffee cups is concerned given that it does a short coffee cups as well Nespresso is actually doing well overall, even if you look at the numbers for 2022 as it may look a little bit depressed depressed, but let's not forget that we are growing over an exceptionally high base in 2021, if you look at the.

Growth in Riga on average over the last three years. It was up two 4%, which provides a good indication of the good performance of new stores. One once again on a comparable basis. The sales in 2022 were 20% higher than a few years ago. So I think this is the right thing to do as far as investing for growth in virtual.

But let's not forget the debate of comparison was fairly high in the context of the pandemic in 2021.

Okay. Thank you for your question he said I'm not John any said Goldman Sachs. Please go ahead John .

Yes, Hello, everyone. Thanks for taking the questions.

My first is on the greater China margin can you just give a few more details behind the 260 basis point expansion there how much was mix versus SG&A savings and <unk>.

Is any of that margin expansion temporary.

With us it in 2023, if you need to step up investments that that's the first question and then my second question is I suppose a bit bigger picture, but as you look at your good figures nutrition program I guess, it seems sensible to try and grow that ratio, but how do you ensure that you don't become fixated on a percentage healthy food sales target.

Here are the expensive.

Some of the best healthy more indulgent pockets, if you will portfolio such as confectionery, because I guess from the outside looking in that that always seems to be the westwood with those types of initiatives.

Thank you.

Let me take the first question on China. So.

The increase of the margin in 2022, and China is essentially coming from the mix given that we had a significant turnaround of our infant nutrition business that did help tremendously.

You're all aware has one of the things that in China, we are suffering less from inflation. There was actually limited inflation in China. So the improvement of our margin is actually satisfactory because it has to be seen in the context of lockdowns, which did impact our growth and our business overall, especially so that we are more exposed to out of them in China.

All geographies.

Very important question of regarding the.

Good for you strategy and let me be precise we're not interested in a target on how the healthier parts of the portfolio would outperform.

Other parts of the portfolio.

This will very likely take the shape of an absolute size kind of target because it is true.

That these parts of the businesses have been growing faster historically and they're also slated to grow faster going forward, but you're absolutely right no matter weight, whether you're walking in a part of the portfolio that is above health star rating of three and a half or below we're committed to both we want to succeed in both we believe in Hell.

<unk> and balanced and tasty diet and clearly for the healthier part of the portfolio. The name of the game as expansion and then for the other parts of the portfolio. It is about responsible marketing practices responsible consumption, but within those limits also to go for success and to go for market share to go for.

Well no question.

Okay. Thanks for that at least from a balloon or maintain at Bernstein. Please go ahead Bruno.

Hi, good afternoon Mark.

Mark a few quarters ago, you talked about private label, gaining some share in the U S and ready meals in pet food you said it was largely capacity related.

HUD is wanting on some of the interviews I think you did say that there were some signs of trading down. So I'm just trying to see where it is trading down where it is.

Can we shift where do you see some signs of that.

Or do you expect it to develop and second of all if you think about China infant nutrition.

New regulations that have started in February anything you can say about it have met this process and going through that I think you had the HMO introduction in China that hasn't been approved yet any update there.

You see that developing does here in the future. Thank you.

Thank you and Tim So clearly on whatever signs of trading down we've seen there.

Often limited and.

So remember we do have in quite a few categories, France at different price points. So it's not like necessarily that consumer is completely lost to us.

When you look specifically at the North American market. One example, I believe I believe on a temporary basis.

With its been some trading down or some shifting to <unk>.

Companies with less price increases wasn't frozen food, but here again looking at the underlying economics, we do believe that over time this will normalize and.

We believe that we will regain some of that chair and I have no regrets about the pricing action that we have taken and are very similar we've seen some of that in border offerings square, maybe people happen trading but anyway.

Here in the European context from premium water offerings to more mainstream border offerings or even private label.

So these are some examples beginning kind of in quite a few of those it's a question we've.

<unk> been moving early with pricing, which I think is the right thing to do sooner or later gravity will catch up with some of our competitors and and hence at that point that situation will correct itself. Because that will also then have to take pricing action or left with permanent reductions in their profitability and.

This is why I believe what we've done and that has to go when it early is still the right way to go.

Because it doesn't weaken your underlying.

Profit picture in your ability to invest for the long term and.

Then over time, you will see that the situation will normalize so I'm not concerned and.

I think some of the snapback of private label in particular is very understandable given that private label has suffered a lot in 2020 and early 'twenty, one with supply chain constraints and under Covid.

And the big brands were the ones at the time that we're gaining and now you're seeing a somewhat of a normalization of that situation.

But we know from so speaking on the China infant nutrition market I can just comment on HMO. So filing has been made for us and for many of our competitors as well. So there are different steps in the approval. So we are waiting for the approval. Obviously, we are very interested in getting that diesels HMO approved in China.

Those in placebo competition, given that when you look at the success that we have rich for HMO outside of China of $1 3 billion Swiss francs of salaries in year for that.

Certainly one of the best success that we have experienced over the last couple of decades. So something that we are very much interested in China, but we don't necessarily have visibility on the timing of the approval process.

Thank you Tony from the basketball at Stifel. Please go ahead Pascal.

And how do you connect it.

But it seems bhaskar.

Not able to connect to so next question is from Jeremy Pee alcohol. Please go ahead Jeremy.

Hum.

Thanks for the question. So a couple from me and festival.

Thinking about.

Yes.

If we strip out the 160 basis points it needs I guess about 100 basis points.

Negative.

More straightforward pricing elasticity and do you think that says a sensible number.

Taking forward into the early part of <unk>.

2023, you see any increases in elasticity.

If the price rises.

So that's question.

One is on your Capex plans now at the Investor Day.

You said that your capex is going to be around 5% of sales.

Bye.

But now today, you will say well, we found new areas of rationalizing our portfolio.

Yeah, I capacity and therefore do you think it needs that actually you might end up being able to spend less on capex.

You outlined a few months.

Yeah.

Which ones were speaking would be a little bit careful with the elasticity. What you said because it goes beyond the 160 basis points. So let's not forget the two significant factors is when does it have influence our volume growth in during the course of 2022 has to do with the high base of comparison and it was still highest in.

Q4, a rig in Q4 2021 was at 4%. So it was a high base and let's not forget is what about the.

Supply constraints, even if some of them are.

Softening a little bit as we progress over time, but these two factors did influence as well.

Volume, so I would not conclude that everything is coming from elasticity. Once again elasticity, we have seen some but to moderate live on capex, we confirm that we expect to be around 5% for 2020 funds. This is part of the guidance we have provided.

I'm not totally sure that's deep portfolio.

Activities that we're doing of optimization will impact the capex because the capex is a new needs, especially for pet care. For example, and this is not I mean, the the new needs that we have all nuts with necessarily with the same products. So we are investing essentially for coffee mate, which continues to grow nicely, we invest in the pet care, where we see continued demand.

So it has a limited impact those two so.

Base of for example, what we.

Pruning our portfolio is much more on some other categories. We mentioned there in the middle East in the first order in Brazil, or some of these products. So it's a does not necessarily impact of capex going forward.

Yeah, Let me, let me build on that and just confirm the whole model of this is that the rig off.

It takes the initial hateable repair and so youre, serving the same volume neat, but your settlement with fewer more focused more successful brands and Skus and.

So that's why there's no immediate connection to Capex.

Our next question is from Jeff Stent at <unk>. Please go ahead Jeff.

Okay. Thank you. Thank you Lisa and good afternoon.

Just one question on U S frozen foods.

Appreciate you obviously got manufacturing assets.

Contrasting versus Canada, what why is the U S market.

You know why they are so much better than it was in Canada. If you could just contrast the.

So the two businesses that would be great.

Yeah look.

The simple answer is our U S business is fully geared and targeted to.

Towards the needs of the U S market and sell from the manufacturing sites and supply chain all of US is optimized for the U S. The.

Our Canadian business was one that was done on the side from the U S. But it suffers from transportation and things changed trade disadvantages and that's what I was saying it was hard for us to compete in that effectively over time and make it into a long term winning business and at the same time.

From our perspective, the volumes were in such as I mentioned the book of business is about $150 million for us. So the volumes weren't such that it would justify a full fledged.

Investment and build out of our <unk>.

Land in our own logistics and all of that so we believe it's the right thing to do and focusing instead on winning in the U S. Frozen market is for us the better way to go.

Okay. Thank you. The next question is from Matt David as associated Generality. Please go ahead David.

Thanks Luca.

Good afternoon also achieved for me one on North America, and then a housekeeping mop up I guess, there's still North America. The rig I think it was down 5%.

In the fourth quarter, you mentioned, a little bit of that I think was perrier AR in the comments, but pets, obviously, a key key element there that was still doing very well for Jake tasty as I understood. It was a little bit more orientated towards Asia. The question is there was there anything specific one off any specific category in North America that we should be.

Thinking about in that fourth quarter rig.

Rig reduction and then the housekeeping more pop is just to see whether we can get anything in terms of outlook on capex percentage of sales, but following up on Jeremy's question.

Net interest costs, which obviously inevitably will second half, but any guidance on that and then the tax rate and the FX impact on EPS as rates stand today any clarity on those moving parts in terms of the guidance reset that's it. Thank you.

David Let me take some of these question in terms of net interest rates you could see that it was a moderate increase in the context of today with interest rates, having increased quite a lot. So we moved from an average net cost of debt of 2% in 2021% to two 2% in 2022. So it was another great one.

Usually in the restaurant to stay where they are each will increase as we have to renew some of the debt, but don't forget that these rates are even before tax the foreign exchange impact we had actually a moderate negative foreign exchange impact last year minus 0.9% deteriorated towards even positive in each one they get TV niche too.

As of to date is negative but this is something that is very difficult to forecast anyway.

Because we don't have necessarily the visibility, but we know is that as of today.

Red West thing for the balance of the year.

Foreign exchange in fact for auto toward business, both to convert off sounds a bit on your EPS would be a more negative impact.

Outlook of Capex, we don't provide the guidance you're off by year, but as I, just said before but we expect still to have them.

Relatively high level of debt.

Hum.

Capex in 2023 that might be the peak and then we will start seeing the capex going down to around 5% by 2025 and just to give you. One example of the North American question.

On the SKU optimization. There is one example that I can share with you, which is on sweet Earth Falkland beds to them.

The food that we did the restructure of our portfolio of offering in the U S. So it's not only a program that is valid for Asia, but you did have some implications in North America and you can expect that it will have a stronger impact in North America as you could see through the Canadian example.

So we have the final question from James Edward Jones at RBC before.

Giving the water to mark for his final comments.

Alright.

Squeezing me in.

Chuck just a quick one Carl can control I'm.

Just wanted to confused on all your execution.

Pricing because of Mccloskey has spoken a lot about responsible pricing, but also on the strip what are your current well.

A few moments ago, but youre actually.

Let the weigh on pricing.

Sure.

Just to clarify is that correct.

Okay, because I think I can help out on that.

It depends always on what particular category and geography, you're referring to and for the vast part of our business that relates to.

Developing markets.

We're clearly whatever you offer also needs to be seen in the context of a daily income and cash incomes. This whole notion of responsible pricing is one that continues to apply.

There's many other markets, especially advanced markets and more premium products, where I feel there it's about at times being proactive where needed and I think our management in the U S. In particular.

It was quite proactive in the actions there.

They are also I think what the U S market benefited from is that the inflationary search started a little earlier because it didn't get started with the <unk>.

Crisis that was caused by the invasion of Ukraine. It got started more in the second half of 'twenty one.

On the back of some of the supply chain constraints and also the early inflation on labor that everyone had seen and so the price and they have started a lot earlier and I think the U S management team was quite proactive in doing it and to FCC now where things turned out for 'twenty two I think they made the right call.

Okay. That's helpful.

With that hope that answers the question I hope that the call was.

Useful to you in addressing some of the concerns we do understand especially in this context, where everyone sees immediately.

Pricing and inflation in relation to the volume development. If you only look at it through that lens I do understand that there is amongst some of your concern over the Q4 volume of direct development.

And some of the reasons that folks when I laid out to you addressed those.

As I mentioned to you find is a lot more relaxed about the situations and I can also tell you that the office costs directly about 'twenty two in at about 23, when I look at how the year started clearly we're not seeing in Q4 at the beginning of a trend is worsening, but rather we're seeing a strong start to the year and that's <unk>.

Specifically to volumes and rig as well so again hope that the call was helpful. In addressing some of these concerns and we look forward to talking to you again as part of our Q1 conference call. Thank you.

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