Q2 2026 Nestle SA Earnings Call

July 23, 2026

Speaker #2: Good morning, and welcome to Nestlé's half-year 2026 results. I'm David Hancock, Head of Investor Relations, and I'm joined today by Philip Navratil, CEO, and Anna Manns, CFO.

David Hancock: Good morning and welcome to Nestlé's H1 2026 results. I'm David Hancock, Head of Investor Relations, and I'm joined today by Philipp Navratil, CEO, and Anna Manz, CFO. Before we get started, please take a moment to review the disclaimer on Slide two. Let me quickly take you through our agenda. We'll start with an overview of the key messages and updates from Philipp before Anna reviews the numbers in more detail. We will then open up the lines for Q&A. With that, I'll hand over to Philipp.

David Hancock: Good morning and welcome to Nestlé's H1 2026 results. I'm David Hancock, Head of Investor Relations, and I'm joined today by Philipp Navratil, CEO, and Anna Manz, CFO. Before we get started, please take a moment to review the disclaimer on slide two. Let me quickly take you through our agenda. We'll start with an overview of the key messages and updates from Philipp before Anna reviews the numbers in more detail. We will then open up the lines for Q&A. With that, I'll hand over to Philipp.

Speaker #2: Before we get started, please take a moment to review the disclaimer on slide 2. Let me quickly take you through our agenda. We'll start with an overview of the key messages and updates from Philip, before Anna reviews the numbers in more detail.

Speaker #2: We will then open up the lines for Q&A. And with that, I'll hand over to Philip.

Speaker #3: Thanks, David. Good morning, everyone, and thank you for joining us. Let me start with some key messages. First, our execution is improving, and this is driving growth.

Philipp Navratil: Thanks, David. Good morning, everyone, and thank you for joining us. Let me start with some key messages. First, our execution is improving, and this is driving growth. For the last four quarters, we have delivered good OG and RIG. Now we need to keep delivering consistently and accelerate RIG to at least 2%. Second, we are sharpening our portfolio. The partnership for Nestlé Waters is an important step here. This is about focusing to win. Third, efficiency and cash. We are becoming a more efficient company, and we are delivering cost savings slightly ahead of plan. This creates additional resources to reinvest in growth. Free cash flow was strong. Finally, we are on track to deliver our 2026 guidance. Our strategy is clear. Now it is all about consistent execution, quarter after quarter, half after half. The H1 showed encouraging financial progress.

Speaker #3: For the last four quarters, we have delivered good OG and RIG. Now, we need to keep delivering consistently and accelerate RIG to at least 2%.

Speaker #3: Second, we are sharpening our portfolio. The partnership for Waters is an important step here. This is about focusing to win. Third, efficiency and cash.

Speaker #3: We are becoming a more efficient company, and we are delivering cost savings slightly ahead of plan. This creates additional resources to reinvest in growth.

Speaker #3: Free cash flow was strong. Finally, we are on track to deliver our 2026 guidance. Our strategy is clear; now it is all about consistent execution.

Speaker #3: Quarter after quarter, half after half. The first half showed encouraging financial progress. Growth was broad-based and RIG strengthened from Q1 to Q2. Profitability improved from the low point in H2 last year.

Philipp Navratil: Growth was broad based and RIG strengthened from Q1 to Q2. Profitability improved from the low point in H2 last year. Free cash flow was much stronger than at this time last year, and net debt is lower. The actions we are taking are gaining traction, and we see plenty of opportunities ahead of us to further improve execution. By now, this should be a familiar slide. I have shared these priorities before. The most important is RIG-led growth. Today, I will spend most of my time on growth, and I will also touch on some of the other areas. Let me start with the winning portfolio. For us, this is not about large disruptive change. We don't need that. It is about focusing resources on our strong positions in the most attractive categories. The partnership for Nestlé Waters and Premium Beverages announced today is a part of this.

Speaker #3: Free cash flow was much stronger than at this time last year, and net debt is lower. The actions we are taking are gaining traction.

Speaker #3: And we see plenty of opportunities ahead of us to further improve execution. By now, this should be a familiar slide. I have shared these priorities before.

Speaker #3: The most important is rig-led growth. Today, I will spend most of my time on growth, and I will also touch on some of the other areas.

Speaker #3: Let me start with the winning portfolio. For us, this is not about large, disruptive change. We don't need that. It is about focusing resources on our strong positions in the most attractive categories.

Speaker #3: The partnership for Nestlé Waters and Premium Beverages announced today is a part of this. For Nestlé, it allows us to concentrate fully on our four large categories: coffee, pet care, nutrition, and food and snacks.

Philipp Navratil: For Nestlé, it allows us to concentrate fully on our four large categories: coffee, pet care, nutrition, and food and snacks. For Nestlé Waters, it will create a dedicated global leader with the right structure to develop the business further. In H1, we also moved ahead with our mainstream VMS and ice cream divestments, and we acquired the remainder of YFood and divested Blue Bottle Coffee. My goal on portfolio is very simple: a sharper Nestlé focused on the businesses and brands where we can create most value. Turning to growth. We target sustained organic growth of 4% plus, led by RIG of at least 2%. This slide summarizes how we think about our growth model. The model has two parts. Both are important, but we have different expectations on each. First, in the core of our business, deliver 3% to 4% organic growth.

Speaker #3: For Waters, it will create a dedicated global leader with the right structure to develop the business further. In H1, we also moved ahead with our mainstream VMS and ice cream divestments.

Speaker #3: And we acquired the remainder of Wyeth Food and divested Blue Bottle Coffee. My goal on portfolio is very simple: a sharper Nestlé, focused on the businesses and brands where we can create the most value.

Speaker #3: Turning to growth, we target sustained organic growth of 4% plus, led by RIG of at least 2%. This slide summarizes how we think about our growth model.

Speaker #3: The model has two parts. Both are important, but we have different expectations for each. First, in the core of our business, deliver 3% to 4% organic growth.

Speaker #3: This means executing consistently to hold market share. Second, in our growth platforms, deliver high single-digit growth. This means accelerating our categories by stepping up investment in areas with the highest structural growth potential.

Philipp Navratil: This means executing consistently to hold market share. Second, in our growth platforms, deliver high single-digit growth. This means accelerating our categories by stepping up investment in areas with the highest structural growth potential. Underpinning both are our leading brands. Take Nescafé. In Europe, Nescafé Gold has solid growth potential and is truly a core business. Elsewhere, the brand has higher structural opportunities, like within our cold coffee and out-of-home growth platforms. Two parts of the growth model, different expectations on each, both underpinned by our leading brands. Key to driving growth across the business is being deliberate about where and how we invest, and then relentlessly executing. Investment in growth is much broader than marketing. Growth does not come from one lever alone. It comes from better products, stronger brands, the right value proposition, increased visibility in store and online, and clear communications with consumers.

Speaker #3: Underpinning both are our leading brands. Take Nescafé. In Europe, Nescafé Gold has solid growth potential and is truly a core business. Elsewhere, the brand has the highest structural opportunities.

Speaker #3: Like within our cold coffee and out-of-home growth platforms—so, two parts of the growth model; different expectations on each, both underpinned by our leading brands.

Speaker #3: Key to driving growth across the business is being deliberate about where and how we invest, and then relentlessly executing. Investment in growth is much broader than marketing.

Speaker #3: Growth does not come from one lever alone. It comes from better products, stronger brands, the right value proposition, increased visibility in-store and online, and clearer communications with consumers.

Speaker #3: We are rigorously monitoring execution KPIs across all of these areas, like taste preference, price competitiveness, shelf space, and marketing ROI. In all cases where our execution scorecards are green across metrics, we are consistently gaining market share.

Philipp Navratil: We are rigorously monitoring execution KPIs across all of these areas, like taste preference, price competitiveness, shelf space, and marketing ROI. In all cases where execution scorecards are green across metrics, we are consistently gaining market share. Felix in Europe is a great illustration of this, but the same principles apply across every brand. Coming to marketing, which is an important focus area for me. As you know, we have been increasing investment in marketing, up from 8.1% two years ago to 8.9% today. It is not just the amount, it's how we spend and where we spend. On the how, we are increasing effectiveness. On the left, you can see some color on this. Paid media spend was up double digit in constant currency, with strong increases in retail, digital media, and influencer marketing. Non-working media is now below 20%, coming from a number closer to 25%.

Speaker #3: Felix in Europe is a great illustration of this. But the same principles apply across every brand. Coming to marketing, which is an important focus area for me.

Speaker #3: As you know, we have been increasing investment in marketing, up from 8.1% two years ago to 8.9% today. But it is not just about the amount.

Speaker #3: It's how we spend and where we spend. On the 'how,' we are increasing effectiveness. On the left, you can see some color on this.

Speaker #3: Paid media spend was up double digits in constant currency, with strong increases in retail digital media and influencer marketing. Non-working media is now below 20%, down from a number closer to 25%.

Speaker #3: So overall, investing more and better on the right, we show where we are deploying the marketing spend. It is critical that we invest in both the core business and the growth platforms.

Philipp Navratil: Overall, investing more and better. On the right, we show where we are deploying the marketing spend. It is critical that we invest in both the core business and the growth platforms to ensure we at least hold share in the core and to help accelerate our categories in the growth platforms. As we polarize spend, we're not taking away from the core. You see that on the chart. You see that we are over-investing in the growth platforms. The additional funds from our cost-savings programs are being invested here because we see the strongest opportunity to accelerate. As well as increasing investment in marketing, we are also strengthening innovation, working from consumer insight back rather than technology insight forwards. We are seeing the impact of increased speed and scale of deployments. In all of this, increasingly leveraging AI across marketing and innovation.

Speaker #3: To ensure we at least hold share in the core, and to help accelerate our categories in the growth platforms. As we polarize spend, we are not taking away from the core.

Speaker #3: You see that on the chart, and you see that we are all investing in the growth platforms. The additional funds from our cost savings programs are being invested here because we see the strongest opportunity to accelerate.

Speaker #3: As well as increasing investment in marketing, we are also strengthening innovation. We are working from consumer insight back, rather than technology insight forward. And we are seeing the impact of increased speed and scale of deployments.

Speaker #3: And in all of this, we are increasingly leveraging AI across marketing and innovation. The good news is that it is working. In the core, growth accelerated meaningfully year on year, but we still have more work to do to deliver 3% to 4% and to do it consistently.

Philipp Navratil: The good news is that it is working. In the core, growth accelerated meaningfully year-on-year, but we still have more work to do to deliver 3% to 4% and do it consistently. In the growth platforms, H1 OG reached 7%, and we still have further opportunities. Moving in the right direction and more to come. Finally, I want to share an example that brings to life the changes underway at Nestlé. Let's watch this two-minute video.

Speaker #3: In the growth platforms, first half OG reached 7%, and we still have further opportunities. So, moving in the right direction, and more to come.

Speaker #3: Finally, I want to share an example that brings to life the changes underway at Nestlé. Let's watch this two-minute video.

Speaker #2: We can confirm that 12 tons of KitKat products were stolen while in transit.

[Analyst]: We can confirm that 12 tons of Kit Kat products were stolen while in transit. We are working closely with local authorities to investigate. A major chocolate heist. A theft that is getting worldwide attention.

[Video Narrator]: We can confirm that 12 tons of Kit Kat products were stolen while in transit. We are working closely with local authorities to investigate. A major chocolate heist. A theft that is getting worldwide attention.

Speaker #1: We are working closely with local authorities to investigate.

Speaker #2: A major chocolate high.

Speaker #1: A theft that is getting worldwide attention: a truck full of chocolate bars has disappeared.

[Analyst]: A truck full of chocolate bars has disappeared.

[Video Narrator]: A truck full of chocolate bars has disappeared.

Speaker #2: It feels like the premise of a heist movie written by a fourth-grader or Willy Wonka. Call it the Great KitKat Heist.

[Analyst]: Feels like the premise of a heist movie written by a fourth grader or Willy Wonka. Call it the great Kit Kat heist. It has blown up all over social media.

[Video Narrator]: Feels like the premise of a heist movie written by a fourth grader or Willy Wonka. Call it the great Kit Kat heist. It has blown up all over social media.

Speaker #1: It has blown up all over social media. The whole internet is buzzing right now, trying to figure out if this is real, and thousands of memes are going viral.

[Analyst]: The whole internet is buzzing right now trying to figure out if this is real and thousands of memes are going viral.

[Video Narrator]: The whole internet is buzzing right now trying to figure out if this is real and thousands of memes are going viral.

Speaker #1: KitKat.

[Analyst]: Kit Kat. Kit Kat.

[Video Narrator]: Kit Kat. Kit Kat.

Speaker #2: KitKat.

Speaker #1: KitKat is like owning the whole story. This morning, KitKat wants candy lovers to give them a break and help them track down stolen candy bars.

[Analyst]: Kit Kat is like owning the whole story. Help them track down stolen candy bars.

[Video Narrator]: Kit Kat is like owning the whole story. Help them track down stolen candy bars.

Speaker #2: The company's created a stolen KitKat tracker—stolen KitKat tracker, stolen candy tracker—to scan barcodes to help them find the stolen chocolate. You can check by entering the eight-digit batch number.

Anna Manz: The company's created a stolen Kit Kat tracker.

[Analyst]: Stolen Kit Kat tracker.

[Video Narrator]: Stolen Kit Kat tracker.

[Analyst]: Stolen Kit Kat tracker.

[Video Narrator]: Stolen Kit Kat tracker.

[Analyst]: Stolen candy tracker. To scan barcodes to help them find the stolen chocolate.

[Video Narrator]: Stolen candy tracker. To scan barcodes to help them find the stolen chocolate.

Anna Manz: You can check by entering the 8-digit batch number.

Speaker #1: On the back of your candy bar, to determine if your bar is from that missing batch.

[Analyst]: On the back of your candy bar to determine if your bar is from that missing batch.

[Video Narrator]: On the back of your candy bar to determine if your bar is from that missing batch.

Speaker #2: This KitKat wasn't stolen. Keep searching and help us widen the search by sharing.

[Analyst]: This Kit Kat wasn't stolen. Keep searching and help us widen the search by sharing.

[Video Narrator]: This Kit Kat wasn't stolen. Keep searching and help us widen the search by sharing.

Speaker #1: This one turns the problem into participation. That's a creative way to catch them.

Anna Manz: They turned a problem into participation.

[Video Narrator]: They turned a problem into participation.

[Analyst]: That's a creative way to catch them.

[Video Narrator]: That's a creative way to catch them.

Speaker #2: What started as a crime story just turned into one of the most genius marketing moments. You had people checking their candy, posting it online, news covering it, social media running wild.

Philipp Navratil: What started as a crime story just turned into one of the most genius marketing moments. You got people checking their candy, posting it online, news covering it, social media running wild. You can't buy that kind of engagement.

[Video Narrator]: What started as a crime story just turned into one of the most genius marketing moments. You got people checking their candy, posting it online, news covering it, social media running wild. You can't buy that kind of engagement.

Speaker #2: And you can't buy that kind of engagement.

[Analyst]: Someone stole a Kit Kat.

[Video Narrator]: Someone stole a Kit Kat.

Speaker #4: Someone stole my KitKat.

Speaker #1: There are people who are actually shopping right now for chocolate, and that is a recipe for marketing that actually moves the needle.

[Analyst]: There are people who are actually shopping right now for chocolate. That is a recipe for marketing that actually moves the needle.

[Video Narrator]: There are people who are actually shopping right now for chocolate. That is a recipe for marketing that actually moves the needle.

Speaker #2: I said this illustrates the changes at Nestlé. In fact, two specific changes: first, the change in marketing—more digital, more social, more organic, more fun.

Philipp Navratil: I said this illustrates the changes at Nestlé. In fact, two specific changes. First, the change in marketing. More digital, more social, more organic, more fun. Tapping into how younger consumers engage with the world, connecting our brands to consumers and culture in real time. You saw the stats on the business results. We are proud to win nine Cannes Lions awards for the campaign. The second change goes beyond marketing. It is a change in overall culture at the company to a performance culture. In this Kit Kat example, a handful of our people in Europe spotted an opportunity, did a rapid risk assessment, got a speedy sign-off. Acted quickly. Within days, a local incident became a global conversation. We didn't have weeks of alignment meetings, debates on press release wording, layers of approval hierarchy. Old Nestlé might well have missed this opportunity, but Nestlé's changing.

Speaker #2: Tapping into how younger consumers engage with the world, connecting our brands to consumers and culture in real time. You saw the stats on the business results.

Speaker #2: And we are proud to have won nine Cannes Lions awards for the campaign. The second change goes beyond marketing; it is a change in overall culture at the company.

Speaker #2: To a performance culture. In this KitKat example, a handful of our people in Europe spotted an opportunity, did a rapid risk assessment, got a speedy sign-off, and acted quickly.

Speaker #2: Within days, a local incident became a global conversation. We didn't have weeks of alignment meetings, debates on press release wording, or layers of approval hierarchy.

Speaker #2: Old Nestlé might well have missed this opportunity. But Nestlé is changing. We don't just use this as a case study for you externally; we have communicated about this loudly within the company to reinforce what we mean by performance culture.

Philipp Navratil: We do not just use this as a case study for you externally. We have communicated about this loudly within the company to reinforce what we mean by performance culture, empowering teams, moving faster, reducing complexity, prioritizing business impact over comfort and consensus. One campaign does not transform a company, but it is a tangible example of the change we are driving. To conclude from my side, we have made good progress during the H1, but there is still more to do. The strategy is clear. It is now all about consistent execution. With that, I will hand over to Anna to go through our Q2 and H1 performance.

Speaker #2: Empowering teams. Moving faster. Reducing complexity. Prioritizing business impact over comfort and consensus. One campaign does not transform a company, but it is a tangible example of the change we are driving.

Speaker #2: So, to conclude from my side, we have made good progress during the first half, but there is still more to do. The strategy is clear.

Speaker #2: It's now all about consistent execution. And with that, I will hand over to Anna to go through our Q2 and half-year performance.

Speaker #1: Thanks, Philip. And good morning. In the first half, we delivered solid organic growth, supported by improving rigor across the business. Our underlying trading operating profit margin improved nicely compared to H2 25.

Anna Manz: Thanks, Philipp, and good morning. In the H1, we delivered solid organic growth, supported by improving RIG across the business. Our underlying trading operating profit margin improved nicely compared to H2 2025, despite an increase in marketing investment. This was helped by cost savings slightly ahead of our original plans. Cash generation was strong, and while the operating environment is uncertain, our focus on execution is unchanged. We are building positive momentum, and we are on track to deliver our full year's guidance. We delivered 3.6% organic sales growth in the H1, with RIG of 1.5% and pricing of 2.1%. Sales continue to be impacted by foreign exchange. As a reminder, the Swiss franc strengthened sharply in April 2025. This meant we had a strong FX drag on sales in Q1 of 9% and a much more benign impact in Q2 of 3%.

Speaker #1: Despite an increase in marketing investment, this was helped by cost savings slightly ahead of our original plans. Cash generation was strong, and while the operating environment is uncertain, our focus on execution is unchanged.

Speaker #1: We're building positive momentum, and we're on track to deliver our full-year guidance. We delivered 3.6% organic sales growth in the first half, with RIG of 1.5% and pricing of 2.1%.

Speaker #1: Sales continued to be impacted by foreign exchange. And as a reminder, the Swiss franc strengthened sharply in April last year. This meant we had a strong FX drag on sales in Q1 of 9%.

Speaker #1: And a much more benign impact in Q2 of 3%. Taken together, a 6% drag in the half. At the current spot rate, the year-on-year FX impact reduces in the second half.

Anna Manz: Taken together, a 6% drag in the H1. Assuming current spot rates, the year-on-year FX impact reduces in the H2 with a full year impact on reported sales of around 3%. Looking at RIG in more detail, I will focus on the quarters as that gives the clearest view of our performance. RIG accelerated from 1.2% in Q1 to 1.8% in Q2, and this is now four quarters of good growth. The chart on the right shows quarterly RIG by category. Growth is broad based with all categories RIG positive in the Q2. This momentum is being driven by several factors: strength in emerging markets, stabilization of China, solid performance in developed markets, and ongoing recovery from the infant formula recall. I am going to get into these in more detail. First, emerging markets excluding China.

Speaker #1: With a full-year impact on reported sales of around 3%. Looking at RIG in more detail, I will focus on the quarters, as that gives the clearest view of our performance.

Speaker #1: RIG accelerated from 1.2% in Q1 to 1.8% in Q2. And this is now four quarters of good growth. The chart on the right shows quarterly RIG by category.

Speaker #1: Growth was broad-based, with all categories recording positive results in the second quarter. This momentum is being driven by several factors: strength in emerging markets, stabilization of China, solid performance in developed markets, and ongoing recovery from the infant formula recall.

Speaker #1: And I'm going to get into these in more detail. First, emerging markets excluding China. The chart on the left shows the strengthening we've seen over recent quarters.

Anna Manz: The chart on the left shows the strengthening we have seen over the recent quarters, especially in RIG. Growth here has been broad based across Asia, Africa, and Latin America. Turning to China, our business is now stable. We have completed the inventory reduction started in Q2 2025. The reduced year-on-year impact drove positive growth in the Q2. Our transition to a demand-led growth model is progressing well and provides a stronger foundation for the future. At the same time, the categories we participate in are currently still declining. Turning to North America. The organic growth trend has been improving since the beginning of 2025, and we maintained momentum in the Q2. In Q2, pricing increased and RIG declined, and this was driven by coffee and pet care, which together are more than 60% of sales. In coffee, significant recent Starbucks pricing impact RIG.

Speaker #1: Especially in RIG. Growth here has been broad-based across Asia, Africa, and Latin America. Turning to China, our business is now stable. We have completed the inventory reduction started in Q2 last year.

Speaker #1: The reduced year-on-year impact drove positive growth in the second quarter. Our transition to a demand-led growth model is progressing well and provides a stronger foundation for the future.

Speaker #1: At the same time, the categories we participate in are currently still declining. Turning to North America, the organic growth trend has been improving since the beginning of last year.

Speaker #1: And we maintained momentum in the second quarter. In Q2, pricing increased and rig declined. This was driven by coffee and pet care, which together are more than 60% of sales.

Speaker #1: In coffee, we have seen a significant recent Starbucks pricing impact. And as we saw last year, when we take pricing in coffee, there is an initial elasticity reaction.

Anna Manz: As we saw last year, when we take price in coffee, there is an initial elasticity reaction, with RIG then recovering afterwards, we expect the same here. Second, pet care growth is negatively impacted by retailer inventory reduction in the quarter. Pet care organic growth has been lumpy over recent quarters as we move from capacity constraints to pipeline replenishment, pre-buying ahead of a price increase, and now retailer de-stocking as our customers adjust to consistent supply. Looking through this noise, the retail sell-out data on the right shows an acceleration in consumers buying our products. The category outlook is improving in both cat and dog, in part due to our actions to drive it. Taking a deeper look at nutrition. OG has improved considerably from the decline of 3.9% in Q1 to growth of 1.7% in Q2. The main driver of the improvement was infant formula.

Speaker #1: With RIG, then recovering afterwards. And we expect the same here. Second, pet care growth was negatively impacted by retailer inventory reduction in the quarter.

Speaker #1: Pet care organic growth has been lumpy over recent quarters, as we move from capacity constraints to pipeline replenishment, pre-buying ahead of a price increase, and now retailer destocking as our customers adjust to consistent supply.

Speaker #1: Looking through this noise, the retail sell-out data on the right shows an acceleration in consumers buying our products. The category outlook is improving in both cat and dog.

Speaker #1: In part due to our actions to drive it. Taking a deeper look at Nutrition, OG has improved considerably, from a decline of 3.9% in Q1 to growth of 1.7% in Q2.

Speaker #1: The main driver of the improvement was infant formula. In Q1, infant nutrition sales were down in the mid-teens, while in Q2, the decline was in the mid-single digits.

Anna Manz: In Q1, infant nutrition sales were down mid-teens, while in Q2, the decline was mid-single digit. We expect further improvement through H2 and have largely recovered by the end of the year. Infant nutrition is only around a quarter of our overall nutrition business. Kids and all family remains impacted by the performance of Gerber in the US, but we saw strong growth in adult and medical nutrition, together 40% of our sales. Turning to the zones, I'll be brief as we've covered a lot of the moving parts already. Q2 performance in Zone Americas needs to be broken down. North America, I've already talked through. In Latin America, we saw significantly less pricing, with strengthening RIG across all categories. In Zone AOA, China was the largest factor in the acceleration from Q1 to Q2. The drivers of growth are broad-based across the zone.

Speaker #1: We expect further improvement through the second half and to have largely recovered by the end of the year. Infant nutrition is only around a quarter of our overall Nutrition business.

Speaker #1: Kids and the entire family remain impacted by the performance of Gerber in the US. But we saw strong growth in adult and medical nutrition. Together, they represent 40% of our sales.

Speaker #1: Turning to the zones—and I'll be brief, as we've covered a lot of the moving parts already. Q2 performance in Zone Americas needs to be broken down.

Speaker #1: North America, I've already talked through. And in Latin America, we saw significantly less pricing with strengthening rig across all categories. In Zone AOA, China was the largest factor in the acceleration from Q1 to Q2.

Speaker #1: But the drivers of growth are broad-based across the zone. Market dynamics vary, but improved execution is consistent across all. In Zone Europe, OG has slowed over the last four quarters.

Anna Manz: Market dynamics vary. Improved execution is consistent across all. In Zone Europe, OG has slowed over the last four quarters. This largely reflects reduced pricing in coffee, along with the impact of the infant formula recall. We were also impacted by some temporary customer delistings in the quarter. UTOP margins across the three zones were flat in AOA, down 30 basis points in the Americas, and down 120 basis points in Europe. AOA benefited from the strongest growth leverage and largest cost savings impact. Americas was negatively impacted by tariffs as well as higher consumer investment. In Europe, we had the largest increase in marketing spend, plus the impact of the infant formula recall. Turning to the globally managed businesses. Nespresso delivered solid performance with OG a bit lower than a few quarters ago. That's mainly due to reduced pricing and with softening consumption in Q2.

Speaker #1: This largely reflects reduced pricing in coffee, along with the impact of the infant formula recall. We were also impacted by some temporary customer delistings in the quarter.

Speaker #1: UTOP margins across the three zones were flat in AOA, down 30 basis points in the Americas, and down 120 basis points in Europe. AOA benefited from the strongest growth leverage.

Speaker #1: And the largest cost savings impact. The Americas were negatively impacted by tariffs as well as higher consumer investment. In Europe, we had the largest increase in marketing spend.

Speaker #1: Plus the impact of the infant formula recall. Turning to the globally managed businesses, Nespresso delivered a solid performance, with OG a bit lower than a few quarters ago.

Speaker #1: And that's mainly due to reduced pricing and the softening of consumption in Q2. Our consumer acquisition activities are attracting new and younger consumers to Nespresso.

Anna Manz: Our consumer acquisition activities are attracting new and younger consumers to Nespresso. Margin declined as higher coffee costs flowed through the P&L. Commodity prices impact Nespresso later than the rest of our coffee business due to the longer supply chain. Finally, Nestlé Waters delivered strong growth, supported by the momentum in the US and a hot start to the summer in Europe. Our international brands performed well, benefiting from innovations such as Sanpellegrino Chinò and the ongoing expansion of Maison Perrier. Moving to our categories. Coffee continued to perform well. As expected, RIG slowed in Q2 from the very strong level in Q1. Pricing reduced. Also, as expected, profitability declined year on year, mainly driven by higher input costs now hitting the P&L. Pet care growth remains below our midterm expectation. We're confident in the category.

Speaker #1: Margin declined as higher coffee costs flowed through the P&L. Commodity prices impact Nespresso later than the rest of our coffee business due to the longer supply chain.

Speaker #1: And finally, Nestlé Waters delivered strong growth, supported by the momentum in the US and a hot start to the summer in Europe. Our international brands performed well.

Speaker #1: Benefiting from innovations such as San Pellegrino Ciao and the ongoing expansion of Maison Perrier. Moving to our categories, coffee continued to perform well. As expected, RIG slowed in Q2 from the very strong level in Q1.

Speaker #1: And pricing reduced. Also, as expected, profitability declined year on year, mainly driven by higher input costs now hitting the P&L. Pet care growth remains below our mid-term expectation.

Speaker #1: But we're confident in the category. I already talked through the improving sell-out in the US, and this is combined with consistent rig-led growth in Europe.

Anna Manz: I already talked through the improving sell-out in the US. This is combined with consistent RIG-led growth in Europe and strengthening in emerging markets. In nutrition, we've already covered the key drivers of growth performance. The profit decline was largely attributable to the infant formula recall. Finally, food and snacks. As you can see, we're delivering consistent good growth now with a balanced profile of RIG and pricing. We saw double-digit RIG-led growth in emerging markets where we generate more than CHF 5 billion of annual sales. Turning next to profitability. We delivered 16.4% UTOP in H1, a 10-basis point decline year-on-year. On the left-hand side, you can see that we faced some very significant headwinds this year. These included higher input costs, tariffs, and FX.

Speaker #1: And strengthening in emerging markets. In Nutrition, we've already covered the key drivers of growth performance. The profit decline was largely attributable to the infant formula recall.

Speaker #1: And finally, food and snacks. As you can see, we're delivering consistent, good growth, now with a balanced profile of RIG and pricing. And we saw double-digit RIG-led growth in emerging markets, where we generate more than $5 billion of annual sales.

Speaker #1: Turning next to profitability, we delivered 16.4% UTOP in H1, a 10 basis point decline year on year. On the left-hand side, you can see that we faced some very significant headwinds this year.

Speaker #1: These included higher input costs, tariffs, and FX. 'Net others' here includes the impact of the infant formula recall, partially offset by a 30 basis point benefit from changes we made to one of our pension schemes.

Anna Manz: Net others here includes the impact of the infant formula recall, partially offset by a 30-basis point benefit from changes we made to one of our pension schemes. We increased marketing spend. We worked hard to largely offset these factors in the half. Through more than 300 basis points of positive impact from cost savings, pricing, and RIG leverage. This slide shows gross profit and UTOP margin progression over the last few periods. I just explained the year-on-year change in UTOP margin, and the drivers of gross margin are largely the same. Looking forward, after a good profit delivery in H1, we now expect the H2 margin to be broadly similar to the first, with no change to our full-year outlook. There's many moving parts, but I'll focus on the most material.

Speaker #1: And we increased marketing spend. We worked hard to largely offset these factors in the half through more than 300 basis points of positive impact from cost savings, pricing, and rig leverage.

Speaker #1: This slide shows gross profit and UTOP margin progression over the last few periods. I just explained the year-on-year change in UTOP margin, and the drivers of gross margin are largely the same.

Speaker #1: Looking forward, after a good profit delivery in H1, we now expect the second half margin to be broadly similar to the first, with no change to our full-year outlook.

Speaker #1: There are many moving parts, but I'll focus on the most material. Compared to H1, we expect H2 UTOP margin to benefit from lower coffee and cocoa costs.

Anna Manz: Compared to H1, we expect H2 UTOP margin to benefit from lower coffee and cocoa costs impacting the P&L, and further cost savings. On the other hand, we have some higher transportation and energy costs arising from the Middle East conflict. Our Fuel for Growth program continues to make strong progress and contribute to our margin delivery. In H1, we delivered CHF 600 million of incremental procurement and operational efficiency savings, slightly ahead of plan, bringing cumulative savings to CHF 1.7 billion. This puts us firmly on track to deliver our target of CHF 2 billion cumulative savings for 2026 and CHF 3 billion by the end of 2027. Let's look at marketing. Philipp talked earlier about how we're using these cost savings to fund additional investment, particularly on our growth platforms. This is a journey we've been on over the last couple of years.

Speaker #1: Impacting the P&L, and further cost savings. On the other hand, we have some higher transportation and energy costs arising from the Middle East conflict.

Speaker #1: Our Fuel for Growth program continues to make strong progress and contribute to our margin delivery. In the first half, we delivered €600 million of incremental procurement and operational efficiency savings.

Speaker #1: Slightly ahead of plan, bringing cumulative savings to 1.7 billion Swiss francs. This puts us firmly on track to deliver our target of 2 billion cumulative savings for 2026.

Speaker #1: And $3 billion by the end of 2027. Now let's look at marketing. Philip talked earlier about how we're using these cost savings to fund additional investment.

Speaker #1: Particularly on our growth platforms, and this is a journey we've been on over the last couple of years. We continued to step up investment in the first half.

Anna Manz: We continued to step up investment in H1, increasing spend by 30 basis points year-on-year to 8.9% of sales. With a sharper emphasis on effectiveness and return on investment, we're not only spending more, but we're getting more out of each Swiss franc we spend. As we look to the H2, we expect a similar level of marketing investment as a percentage of sales. Let's look at the items below UTOP, shown as a percentage of sales, and I'll touch on the two most significant. Restructuring costs increased by 90 basis points. This is linked to the delivery of our cost savings plans and is delivering a good payback. Second, the loss on disposal impact of 290 basis points. This comes from a write-off as we classify the businesses we're divesting as assets held for sale. Turning to underlying EPS.

Speaker #1: Increasing spend by 30 basis points year on year, to 8.9% of sales, with a sharper emphasis on effectiveness and return on investment. We're not only spending more.

Speaker #1: But we're getting more out of each Swiss franc we spend. As we look to the second half, we expect a similar level of marketing investment as a percentage of sales.

Speaker #1: Now, let's look at the items below UTOP, shown as a percentage of sales. I'll touch on the two most significant. Restructuring costs increased by 90 basis points.

Speaker #1: This is linked to the delivery of our cost savings plans and is delivering a good payback. Second, the loss on disposal impact of 290 basis points.

Speaker #1: This comes from a write-off as we classify the businesses we’re divesting as assets held for sale. Turning to underlying EPS—in constant currency, this increased by 4%.

Anna Manz: In constant currency, this increased by 4%, driven by our operating performance. At actual exchange rates, underlying EPS was down 2.4%, reflecting the strength of the Swiss franc. We delivered CHF 3.4 billion of free cash flow, a significant improvement versus the prior year. EBITDA was lower year-on-year, mainly due to the currency, with working capital and CapEx driving the improvement. On working capital, this is partly due to the reducing cost of raw materials and inventory. The improvement in both working capital and CapEx also reflects tighter execution and a stronger discipline on returns. Net debt was CHF 66.3 billion, down from CHF 60 billion a year ago. As usual, net debt increased compared to the year-end as we pay the dividend in April. The primary driver of the net debt reduction was the CHF 3.4 billion of free cash flow. Turning to 2026 guidance.

Speaker #1: Driven by our operating performance at actual exchange rates, underlying EPS was down 2.4%, reflecting the strength of the Swiss franc. We delivered CHF 3.4 billion of free cash flow.

Speaker #1: A significant improvement versus the prior year. EBITDA was lower year-on-year, mainly due to the currency, with working capital and capex driving the improvement.

Speaker #1: Our working capital—this is partly due to the reducing cost of raw materials and inventory. But the improvement in both working capital and capex also reflects tighter execution.

Speaker #1: And a stronger discipline on returns. Net debt was $56.3 billion, down from $60 billion a year ago. As usual, net debt increased compared to the year-end.

Speaker #1: As we pay the dividend in April, the primary driver of the net debt reduction was the $3.4 billion of free cash flow. Turning to 2026 guidance.

Speaker #1: On the top line, we've tightened our guidance slightly. We now expect organic growth to be in the range of 3% to 4%. Previously, we'd said around 3% up to 4%.

Anna Manz: On top line, we've tightened our guidance slightly. We now expect organic growth to be in the range of 3% to 4%. Previously, we'd said around 3% up to 4%. On profitability, no change to our view of the full year, with UTOP margin expected to improve versus 2025. As I mentioned, we now expect H2 margin to be broadly similar to H1. Finally, no change on free cash flow, which we expect to be above CHF 9 billion for the full year. To conclude, we set out our strategy at the beginning of this year, and we're fully focused on putting it into action. The objective is accelerating RIG-led growth. This is the most powerful lever we have to drive shareholder value creation. In H1, we made good progress and we're well on track for our full year guidance.

Speaker #1: On profitability, there is no change to our view of the full year, with UTOP margin expected to improve versus 2025. As I mentioned, we now expect second half margin to be broadly similar to the first.

Speaker #1: And finally, no change on free cash flow, which we expect to be above $9 billion for the full year. So to conclude, we set out our strategy at the beginning of this year.

Speaker #1: And we're fully focused on putting it into action. The objective is accelerating rig-led growth. This is the most powerful lever we have to drive shareholder value creation.

Speaker #1: In the first half, we made good progress. And we're well on track for our full-year guidance. So now it's all about delivery, consistently.

Anna Manz: Now it's all about delivery consistently quarter after quarter, half after half. With that, I'll hand over to David to open the Q&A.

Speaker #1: Quarter after quarter, half after half. And with that, I'll hand over to David to open the Q&A.

David Hancock: Thank you, Anna. We'll now begin our Q&A session. As usual, please limit yourselves to a maximum of two questions each in order to give everyone the opportunity to ask their questions. We'll take our first question from Olivier Nicolai at Goldman Sachs. Please go ahead, Olivier.

Speaker #2: Thank you, Anna. We will now begin our Q&A session. As usual, please limit yourselves to a maximum of two questions each in order to give everyone the opportunity to ask their questions.

Speaker #2: And we'll take our first question from Olivier Nicolai at Goldman Sachs. Please go ahead, Olivier.

Speaker #3: Hi, good morning. Just two questions. First one on pets: you said in your prepared remarks that pet growth remains below your midterm expectations. When do you expect to reach those?

Olivier Nicolai: Hi. Good morning. Just two questions. First, on pets, you said in your prepared remarks that pet growth remain below your medium-term expectations. When do you expect to reach those? Should we expect also further destocking in North America in H2, or will sell-in equal sell-out? Then the second question is more on the margin. If we can go back to the building block for margins and your margin outlook for H2, considering the lower coffee and cocoa price and the other side, the logistic costs. If I think about next year, full year 2027, should we assume some margin improvements despite the fact that you will lapse the pension adjustment this year? Thank you.

Olivier Nicolaï: Hi. Good morning. Just two questions. First, on pets, you said in your prepared remarks that pet growth remain below your medium-term expectations. When do you expect to reach those? Should we expect also further destocking in North America in H2, or will sell-in equal sell-out? Then the second question is more on the margin. If we can go back to the building block for margins and your margin outlook for H2, considering the lower coffee and cocoa price and the other side, the logistic costs. If I think about next year, full year 2027, should we assume some margin improvements despite the fact that you will lapse the pension adjustment this year? Thank you.

Speaker #3: And should we expect also fewer de-stocking in North America in H2? Or will sell-in equal sell-out? And then the second question is more on the margin.

Speaker #3: If we can go back to the building blocks for margins and your margin outlook for H2, considering the lower coffee and cocoa prices and, on the other side, the logistics costs.

Speaker #3: And if I think about next year, full year '27, should we assume some margin improvements despite the fact that you will lapse the pension adjustment this year?

Speaker #3: Thank you.

Speaker #2: Yeah. Thanks, Olivier, and thanks for the questions. I'll pass those to Anna to give you the answer on numerics.

Anna Manz: Thanks, Olivier. Thanks for the questions. I'll pass those to Anna to give you the answer on the mix. On pet care, we feel good about the medium-term expectations of the category. Actually, you see really good RIG-led momentum in Europe, growing at mid-single digits. You see the emerging markets growing really nicely. What's held pet care back in the half and specifically the quarter is the performance in the US, which, as I talked through, is really a function of retailer inventory reductions because you see that strong and improving sell-out data. The fundamentals of the category are really good. It's been a bit lumpy because of that retailer inventory reduction.

Philipp Navratil: Thanks, Olivier. Thanks for the questions. I'll pass those to Anna to give you the answer on the mix.

Speaker #1: So, on pet care, we feel good about the medium-term expectations of the category. And actually, you see really good RIG-led momentum in Europe, growing at mid-single digits.

Anna Manz: On pet care, we feel good about the medium-term expectations of the category. Actually, you see really good RIG-led momentum in Europe, growing at mid-single digits. You see the emerging markets growing really nicely. What's held pet care back in the half and specifically the quarter is the performance in the US, which, as I talked through, is really a function of retailer inventory reductions because you see that strong and improving sell-out data. The fundamentals of the category are really good. It's been a bit lumpy because of that retailer inventory reduction.

Speaker #1: You see the emerging markets growing really nicely. So, what's held pet care back in the half—and specifically the quarter—is the performance in the US, which, as I talked through, is really a function of retailer inventory reductions.

Speaker #1: Because you see that strong and improving sell-out data, the fundamentals of the category are really good. It's been a bit lumpy because of that retailer inventory reduction.

Speaker #1: Looking forward, I don't foresee further lumps. But I would just point out that the comp in Q4 for Pet Care is higher because, of course, we had the pre-price increase about a year ago.

Anna Manz: Looking forward, I don't particularly see any further lumps, but I would just point out that the comp in Q4 for pet care is higher because, of course, we had the pre-price increase buy-in a year ago. Good underlying momentum in the category. Then secondly, on margin and how to think about it for both 2026 and 2027. Maybe just to step back a minute. Both last year in 2025 and in H1, we've had significant headwinds in the context of incremental commodity costs, tariffs, and then more recently, some impact from the Middle East. Through that period, actually, we've been stepping up our PFME investment. Both in 2025 and in H1 2026, you've seen us make good progress through really driving that cost savings lever, driving RIG leverage through accelerating the business and through the benefit of pricing.

Speaker #1: But there is good underlying momentum in the category. And then secondly, on margin—how should we think about it for both 2026 and 2027? Maybe just stepping back for a minute.

Speaker #1: We've both, last year and in 2025 and in the first half, had significant headwinds in the context of incremental commodity costs, tariffs, and then more recently, some impact from the Middle East.

Speaker #1: And through that period, actually, we've been stepping up our PFME investment. In both 2025 and the first half of 2026, you've seen us make good progress by really driving that cost savings lever.

Speaker #1: Driving rig leverage through accelerating the business and through the benefit of pricing. So as I look forward to the second half, you'll see us do the same.

Anna Manz: As I look forward to H2, you'll see us do the same. We've got good momentum around cost savings. We will have a little bit more of a headwind in the context of the Middle East crisis, but we're comfortable that taken in the round, the H2 margin will be broadly similar to H1 with good momentum. Looking forward to next year, we've said our medium-term margin outlook is 17% or more, and we're absolutely focused on getting there. You will see progression in margin as we look forward to 2027. The exact makeup and shape of that will depend a little bit on the external environment between here and there.

Speaker #1: We've got good momentum around cost savings. We will have a little bit more of a headwind in the context of the Middle East crisis.

Speaker #1: But we're comfortable that, taken in the round, the second half margin will be broadly similar to the first, with good momentum. And looking forward to next year.

Speaker #1: So we've said our medium-term margin outlook is 17% or more, and we're absolutely focused on getting there. You will see progression in margin as we look forward to 2027.

Speaker #1: The exact make-up and shape of that will depend a little bit on the external environment between here and there. But again, the actions that we're taking to accelerate our growth, drive cost savings, and make sure we're delivering the right consumer proposition mean that I'm confident we've got the levers to improve margin as we go into 2027.

Anna Manz: Again, the actions that we're taking to accelerate our growth, drive cost savings, and make sure we're delivering the right consumer proposition means that I'm confident we've got the levers to improve margin as we go into 2027.

Speaker #3: Thank you very much.

Olivier Nicolai: Thank you very much.

Olivier Nicolaï: Thank you very much.

Speaker #2: Great, thank you. The next question comes from Guillaume Delma at UBS. Go ahead, Guillaume.

David Hancock: Great. Thank you. The next question comes from Guillaume Delmas at UBS. Go ahead, Guillaume.

Speaker #3: Thank you very much, David. Good morning, Philippe and Anna. Two questions for me, please. The first one is a bit of a follow-up to Olivier's question.

Guillaume Delmas: Thank you very much, David. Good morning, Philippe and Anna. Two questions for me, please. The first one is a bit part of a follow-up to Olivier's question because there were clearly a couple of factors that held back your growth in Q2: the inventory reduction in North America and the delistings in Europe. Just wondering if you could give us a sense on the impact these two factors had on your Q2 OG, and also if you would expect these headwinds to very rapidly fade away or maybe they could continue to weigh on your OG for the next couple of quarters. Any visibility on impact and future impact on your OG would be helpful. My second question, it's on the core business. Philippe, you mentioned in your presentation, growth platforms, they're basically already delivering a performance consistent with your medium-term objective.

Speaker #3: Because there were clearly a couple of factors that held back your growth in the second quarter: the inventory reduction in North America and the delistings in Europe.

Speaker #3: Just wondering if you could give us a sense of the impact these two factors had on your Q2 OG, and also if you would expect these headwinds to very rapidly fade away.

Speaker #3: Or maybe they continue to weigh on your OG for the next couple of quarters. So, any visibility on impact and future impact on your OG would be helpful.

Speaker #3: And then my second question is on the core business. So, Philippe, you mentioned in your presentation the growth platforms. I mean, they're basically already delivering performance consistent with your medium-term objective.

Speaker #3: The core business is not. So my question here is: do you think this softness in the core is mostly attributable to the few underperformers, like Gerber's and Nespresso Europe?

Guillaume Delmas: The core business is not. My question here is, do you think this softness in the core is mostly attributable to the few underperformers like the Gerber, Nespresso Europe of this world, or is it more broad-based and showing some continued market share erosion? Any color on this would be very helpful. Thank you very much.

Speaker #3: Or is it more broad-based, and showing some continued market share erosion? So, any color on this would be very helpful. Thank you very much.

Speaker #2: Yeah, thanks, Guillaume. Look, I'll start with the second question, and I'll give the follow-up then on the factors in Europe and the US to Anna. Look, on the core business, that's a good question.

Philipp Navratil: Yeah. Thanks, Guillaume. Look, I'll start with the second question, and I'll give the follow-up then to the factors Europe and US to Anna. Look, on the core business is a good question. You saw the growth platforms deliver 7% OG, so we're happy with that. As you know, these are the areas where we overinvest and where we see higher structural growth. On the core, the growth was indeed lower. We have said before, the growth on the core, we wanted to get in the area of 3% to 4%. That's the objective. On the core, you also have to consider we have improved half on half, we have improved over 170 basis points in terms of core performance, in terms of OG. It's going into the right direction. What we focused on there is really executing brilliantly against the core.

Speaker #2: And you saw the growth platforms deliver 7% OG, so we're happy with that. And, as you know, these are the areas where we over-invest and where we see higher structural growth.

Speaker #2: On the core, the growth was indeed lower. As we have said before, the growth on the core—we wanted to get in the area of 3% to 4%.

Speaker #2: That's the objectives. But at the core, you also have to consider that we have improved half on half. We have improved over 170 basis points in terms of core performance, in terms of OG.

Speaker #2: So it's going in the right direction. And what we focused on there is really executing brilliantly against the core. What's important to understand is that what we do in the growth platforms will also help the core to perform.

Philipp Navratil: What's important to understand is what we do in the growth platforms also will help the core to perform, because what's common between the two, as I have said in the prepared remarks, is our billionaire brands. They span across the core and the growth platforms. In the core, we also have innovations that go below those billionaire brands. What we know, and we have said that as well, and you saw that in the Felix example in the presentation before, is where we execute brilliantly, where we have the right taste, great-tasting product, where we have the right visibility, where we have the right consumer communication, and where we also have the right value in terms of price and pack architecture, where all of that works together, we consistently win share.

Speaker #2: Because what's common between the two, as I have said in the prepared remarks, is our billionaire brands. So they span across the core and the growth platforms.

Speaker #2: And in the core, we also have innovations that go below those billionaire brands. So, what we know—and we have said that as well.

Speaker #2: And you saw that in the Felix example in the presentation before. It’s where we execute brilliantly, where we have the right taste, the great-tasting product, where we have the right visibility, where we have the right consumer communication.

Speaker #2: And where we also have the right value in terms of price and pack architecture—where all of that works together—we consistently win share.

Speaker #2: And then there is also to consider still, there is one large drag still on the core business, which is Infant Formula. As you know, we have called that out.

Philipp Navratil: Then there's also to consider still, there's one large drag still on the core business, which is infant formula. As you know, we have called that out, and that is also improving as we are investing in consumer communication and rebuilding that trust. I'm confident that we'll get steadily towards that 3% to 4% organic growth that is also RIG driven in the core. I'll pass to Anna on the follow-up on the two factors that you mentioned.

Speaker #2: And that is also improving as we are investing in consumer communication and rebuilding that trust. So, I'm confident that we'll get steadily towards that 3% to 4% organic growth.

Speaker #2: That is also rig-driven in the core. And I'll pass to Anna for a follow-up on the two factors that you mentioned.

Speaker #1: Thanks. So, I see both these things as somewhat one-off in nature. With respect to retailer inventory, I can't speak for our retailers, and they look at their inventory levels from time to time.

Anna Manz: Thanks. I see both these things as somewhat one-off in nature. With respect to retailer inventory, I can't speak for our retailers, and they look at their inventory levels from time to time. The element of the inventory reduction in pet care that was around our supply, so the fact that we now have the supply that we need and we're delivering more consistently for our customers, that element, which has allowed them to reduce their safety stocks, that's absolutely one-off in nature. With respect to levels of retailer inventory, they adjust them from time to time. We don't expect them to be putting the inventory levels back up in this current environment. We're steady where we are at now, so more one-off in nature. With respect to Europe, yes, we did have a customer delisting in the quarter.

Speaker #1: But the element of the inventory reduction in pet care that was around our supply, so the fact that we now have the supply that we need and we're delivering more consistently for our customers, that element, which has allowed them to reduce their safety stocks, that's absolutely one-off in nature.

Speaker #1: And with respect to levels of retailer inventory, they adjust them from time to time. We don't expect them to be putting the inventory levels back up in this current environment.

Speaker #1: But we're steady where we are at now. So more one-off in nature. And with respect to Europe, yes, we did have a customer delisting in the quarter.

Speaker #1: And this is the normal course in Europe. I would look at it as a phasing thing, rather than anything else. I would say underlying consumption in, really, Q1 and Q2—or underlying consumption by our consumers between Q1 and Q2—the momentum is consistent.

Anna Manz: This is normal course in Europe, and I would look at it as a phasing thing rather than anything else. I would say underlying consumption in RIG Q1, Q2 or underlying consumption by our consumers between Q1 and Q2, the momentum is consistent. This is a phasing thing associated with a single customer. When we have that situation, we're of course working with all of our other customers to make sure that our products are well available for our consumers. Yes, again, it's somewhat one-off, but it's the normal course of business in Europe. I can't remember, was there another bit to the question?

Speaker #1: So this is a phasing thing associated with a single customer. And when we have that situation, we're, of course, working with all of our other customers to make sure that our products are well available for our consumers.

Speaker #1: So yes, again, it's somewhat one-off, but it's the normal course of business in Europe. And I can't remember—was there another bit to the question?

Speaker #1: No, I think I've answered it.

Philipp Navratil: No, that's it.

Anna Manz: No, I think I've answered it.

Speaker #3: And in terms of quantification of this impact?

Guillaume Delmas: In terms of quantification of this impact?

Speaker #1: Oh, quantification. So, we haven't quantified it. And I'm not going to. Neither of them are material at the group level, but it is at the zone level.

Anna Manz: Quantification. We haven't quantified it, and I'm not going to. Neither is a material at a group level, but at a zone level, they're big enough to call out as a factor. What we're not going to do is give a sort of running commentaries on the ups and downs and give you the picture in the round.

Speaker #1: They're big enough to call out as a factor. But what we're not going to do is give a sort of running commentary on the ups and downs.

Speaker #1: And give you the picture in the round.

Speaker #3: Thank you very much.

Guillaume Delmas: Thank you very much.

Speaker #2: Thank you, Guillaume. The next question comes from David Hayes from Jefferies. Go ahead, David.

David Hancock: Thank you, Guillaume. The next question comes from David Hayes from Jefferies. Go ahead, David.

Speaker #4: Thanks, David. Good morning, all. I'll just quickly follow up on that question from Guillaume and the answer regarding the European delisting. Is that pan-category?

David Hayes: Thanks, David. Good morning, all. Just a quick follow-up on that question from Guillaume and the answer on the European delisting. Is that pan category or are there certain categories that have been delisted that are affected and others that are not affected? My question will just be on the coffee dynamics around Starbucks and Nespresso. Obviously Starbucks taking pricing quite late. Can you just explain sort of the drivers of that? Was there a bit of a pre-buy in Starbucks in Q1 ahead of that change? I'm thinking of Nespresso, you called out that the supply chain there maybe is even longer in terms of seeing the input cost headwind. Should we expect a Nespresso price rise to come through maybe in Q3, a bit like we saw in Starbucks, and be aware of that dynamic?

Speaker #4: Or are there certain categories that have been delisted that are affected, and others that are not affected? And then my question will just be on the coffee dynamics around Starbucks and Nespresso.

Speaker #4: So, obviously, Starbucks took pricing quite late. Can you just explain the drivers of that? And was there a bit of a pre-buy in Starbucks in the first quarter ahead of that change?

Speaker #4: And then I'm thinking about Nespresso. You called out that the supply chain there maybe is even longer, in terms of seeing the input cost headwind.

Speaker #4: So should we expect a Nespresso price rise to come through, maybe in the third quarter? A bit like we saw in Starbucks, and be aware of that dynamic?

Speaker #4: And then, sort of one question. Just in terms—and you mentioned the consumption softening in Nespresso. This is obviously one of the key growth platform areas.

David Hayes: Sorry, long question. Just in terms of, you mentioned the consumption softening in Nespresso, and it's obviously one of the key growth platform areas. Can you just talk to us about what's going on there? Is that a consumer discretionary spend issue? Is that going to improve as we go through the H2? Thank you.

Speaker #4: Can you talk to us about what's going on there? Is that a consumer discretionary spend issue, and is that going to improve as you go through the second half?

Speaker #4: Thank you.

Speaker #2: Yeah, thanks. Thanks, David. Look, I'll take those. So, look, the delistings—it depends. I mean, it's not pan-category, but it's mainly related to categories where you see input costs moving.

Philipp Navratil: Thanks, David. Look, I'll take those. Look, the delistings, it depends. I mean, it's not pan category, but it's mainly related to categories where you see input costs moving, so mainly coffee and confectionery. It's something, as Anna said, it's normal of doing business in Europe, and we have to keep working through that. I'm really confident we'll get that solved because price is one aspect, obviously, that we discuss with our retail partners. We're really focused on driving category growth through innovation and other aspects than pricing, that will weigh in while we solve those temporary delistings. We're very confident we'll work those through. On the coffee dynamics, look, the pricing on Starbucks, it's not late pricing, and it was also not a pre-buy in Q1 at all.

Speaker #2: So, mainly coffee and confectionery. But it's something, as Anna said, it's normal when doing business in Europe. And we have to keep working through that.

Speaker #2: And I'm really confident we'll get that solved, because price is one aspect, obviously, that we discuss with our retail partners. But we're really focused on driving category growth through innovation.

Speaker #2: And other aspects than pricing. And so that will weigh in while we solve those temporary delistings. So, I am very confident we’ll work those through.

Speaker #2: On the coffee dynamics, look, the pricing on Starbucks is not late pricing. And there was also not a pre-buy in Q1 at all. What we do, and we do that—and this also relates to your question on Nespresso.

Philipp Navratil: What we do, we do that, and it also relates to your question on Nespresso. When we price, we've always said that we do that in a staggered way, we take consumers along. You have seen coffee, specifically coffee, go up steep in last year and also 2024, and we did not reflect all of that input cost increase in prices. What we tend to do is to stagger prices as we want to take consumers along when we price. That last price increase end of Q1 this year obviously reflects one of those last adjustments that we did on Starbucks.

Speaker #2: When we price, and we've always said that we do that in a staggered way, we take consumers along. And you have seen coffee—specifically coffee—go up steeply last year, and also in 2024.

Speaker #2: And we did not reflect all of that input cost increase in prices. So, what we tend to do is stagger prices, as we want to take consumers along when we price.

Speaker #2: And that last price increase, end of Q1 this year, obviously reflects one of those last adjustments that we did on Starbucks. And you see, obviously, normally in the first quarter after a price increase in coffee, you see consumers adjust.

Philipp Navratil: You see obviously normally in the first quarter after a price increase in coffee, you see consumers adjust, as coffee is a habit that is really much common, people will go back to their normal usage normally after a quarter. That is the dynamic in terms of the pricing. In terms of Nespresso, we do the same, we apply the same in terms when we price at Nespresso, you have seen us price in Nespresso, specifically in the US last year, we have not taken more price there. As far as consumption is concerned, what we see now, that is what we measure and what I'm really focused on when we look at Nespresso, is really household penetration. As we have said, in Nespresso in the US, we're still gaining share.

Speaker #2: But then, as coffee is a habit that is really quite common, people will usually go back to their normal usage, typically after a quarter.

Speaker #2: So that is the dynamic in terms of the pricing. In terms of Nespresso, we do the same. We apply the same terms when we price at Nespresso.

Speaker #2: And you have seen us price in Nespresso, specifically in the US, last year, and we have not taken more price there. As far as consumption is concerned, what we see now—and that is what we measure and what I’m really focused on when we look at Nespresso—is really household penetration.

Speaker #2: As we have said, in Nespresso in the US, we're still gaining share. In an environment where portion coffee growth is negative, we're gaining share.

Philipp Navratil: In an environment where portion coffee growth is negative, where we're gaining share within that, as we're gaining household penetration. What I'm focused on is really looking at machine sales. How many households buy an Nespresso machine and then have access to the pods. Those households, what we have seen, those households that come on board now are households that might have a little bit weaker purchasing power than the households we had in the past, or we already have. That is exactly the opportunity we have with Nespresso to get them into the system and then making sure they have access to the coffees they love through our boutiques, through our online store, through retail partners like Walmart or Amazon and Target, where pods are available online as well.

Speaker #2: Within that, as we're gaining household penetration, what I'm focused on is really looking at machine sales—so how many households buy a Nespresso machine and then have access to the pods.

Speaker #2: And those households—what we have seen is that those households that are coming on board now might have a little bit weaker purchasing power than the households we had in the past or that we already have.

Speaker #2: But that is exactly the opportunity we have with Nespresso—to get them into the system and then make sure they have access to the coffees they love.

Speaker #2: Through our boutiques, through our online store, through retail partners like Walmart or Amazon, and Target, where pods are available online as well. So really, we are still doing well in terms of consumer acquisition in Nespresso, as we have vast opportunities to still get household penetration in the largest portion coffee market in the world, which is the US.

Philipp Navratil: Really still doing well in terms of consumer acquisition in Nespresso as we have vast opportunities to still gain household penetration in the largest portion coffee market in the world, which is the US.

Speaker #4: Thanks.

David Hayes: Thanks.

Speaker #2: Thank you, David. The next question comes from Warren Ackerman from Barclays. Go ahead, Warren. Your line should be open.

David Hancock: Thank you, David. The next question comes from Warren Ackerman from Barclays. Go ahead, Warren. Your line should be open.

Speaker #4: Yeah, thanks, David. Hi, Philip and Anna. It's Warren here at Barclays. I've also got a couple of questions. The first one is AOA RIG was pretty strong, I think 6% in the quarter.

Warren Ackerman: Thanks, David. Hi, Philippe and Anna. It's Warren here at Barclays. I've also got a couple of questions. The first one is AOA RIG was pretty strong, I think 6% in the quarter, and China was better than you'd indicated. I think you were still expecting it to be small down in the quarter. It's actually up, and it seems quite broad based. Could you do a bit of a tour of the key AOA countries for us? I know Nestlé India printed, but just what you're seeing in India, China, Southeast Asia, Middle East, and your outlook. Should we be overall expecting China better in H2, but the rest of AOA may be less good? Just trying to understand how you're thinking about the big geos in the region, what's going on. It's obviously very strong.

Speaker #4: And China was better than we indicated. I think you were still expecting it to be slightly down in the quarter—it's actually up, and it seems quite broad-based.

Speaker #4: So could you do a bit of a tour of the key AOA countries for us? I know Nestlé, India, printed. But just what you're seeing in India, China, Southeast Asia, Middle East.

Speaker #4: And your outlook—should we overall be expecting China to perform better in H2, but the rest of AOA maybe less well? I'm just trying to understand how you're thinking about the big geos in the region.

Speaker #4: What's going on? It's obviously very strong. And then the second one is a bit of a detailed one, maybe for Anna, on the margin bridge.

Warren Ackerman: The second one is a bit of a kind of detailed one maybe for Anna on the margin bridge. Apologies, Anna, for the kind of geeky question, but on the sort of 70 bip other line that you showed us, there's a footnote that talks about a 30 bip pension credit, and I guess you also mentioned the infant formula recall. I'm assuming that must be almost a -100 bip impact to get to the 70 bip headwind overall, netting off the pension credit of 30. I'm just trying to understand that, because I thought that you had booked the margin impact from the recall on infant formula in the H2 of last year. It looks like there's an additional 100 bip headwind on the margin from that in the H1, which seems pretty big.

Speaker #4: Apologies, Anna, for the kind of geeky question. But on the sort of 70-bip other line, that you showed us, there's a footnote that talks about a 30-bip pension credit.

Speaker #4: And I guess you also mentioned the infant formula recall. So I'm assuming that must be almost a minus 100-bip impact to get to the 70-bip headwind overall, netting off the pension credit of 30.

Speaker #4: So I'm just trying to understand that, because I thought that you had booked the margin impact from the recall on infant formula in the second half of last year.

Speaker #4: So it looks like there's an additional 100-bip headwind on the margin from that in the first half, which seems pretty big. I know you haven't quite got through the whole thing.

Warren Ackerman: I know you haven't quite got through the whole thing, but formula did improve quite a bit in the Q2. Just trying to understand that, why it's ongoing. The second part is on the pension credit. Can you explain what's happened and whether there's any kind of additional benefit to the margin in the H2? Just trying to understand those two sort of bits within the other buckets. Thank you.

Speaker #4: But formula did improve quite a bit in the second quarter, so just trying to understand that—why it's ongoing. And then the second part is on the pension credit.

Speaker #4: Can you explain what's happened and whether there's any kind of additional benefit to the margin in the second half? I'm just trying to understand those two elements within the other buckets.

Speaker #4: Thank you.

Speaker #2: Thanks, Warren. I'll take the first part, and the second one is obviously a detailed one for Anna. Thanks for that one. Look, on AOA, the whole zone was strong, as you rightly point out.

Philipp Navratil: Thanks, Warren. I'll take the first part, and the second one is obviously a detailed one for Anna. Thanks for that one. Look, on AOA, the whole Zone was strong, as you rightly point out, and as you also rightly point out, there's two parts of it. Obviously, China, we're happy to see that back to positive growth after one year of adjustment, and we're now through our stock adjustments in China, building this consumer-led model, consumption-led model. There's, as you know, a new management team in place, focused on driving innovation, focused on driving the right distribution, the right numeric and weighted distribution, and also the right level of brand support that we need. Really through with rebuilding the model. You have to take that sort of in the context of where the categories stand in China.

Speaker #2: And as you also rightly point out, there are two parts to it. Obviously, with China, we're happy to see that return to positive growth after one year of adjustment.

Speaker #2: And we were going through our stock adjustments in China, building this consumer-led model, consumption-led model. There is, as you know, a new management team in place.

Speaker #2: Focused on driving innovation, focused on driving the right distribution—the right numeric and weighted distribution—and also the right level of brand support that we need.

Speaker #2: So, really, we're through with rebuilding the model, but you have to take that in the context of where the categories stand. In China, the category 3 plane still shows negative growth.

Philipp Navratil: The category play in China still shows negative growth, so negative 1%, 2%, 3% depending on the category. Our more steady performance goes against that backdrop. In some categories, we're still losing share as we're rebuilding the model. China, we expect to have stabilized, but you have to take that into context with the categories and environment we play in China. Definitely, we're setting the business up to be able to capture any change in that underlying category growth over there. The rest of Zone Asia, Oceania and Africa, ASEAN, including Japan, very strong. Southern Asia, India, very, very strong. That's really to draw back to our execution muscle in those markets. That goes even beyond Zone Asia, Oceania and Africa.

Speaker #2: So, negative 1, 2, 3 percent depending on the category. So our more steady performance goes against that backdrop. And in some categories, we're still losing share as we're rebuilding the model.

Speaker #2: So, China we expect to have stabilized. But you have to take that into context with the categories and environment we play in in China. But definitely, we're setting the business up to be able to capture any change in that underlying category growth over there.

Speaker #2: And then the rest of AOA, ASEAN, including Japan—very strong. Southern Asia, so India—very, very strong. And that's really to draw back to our execution muscle in those markets.

Speaker #2: And that goes even beyond AOA, so the whole emerging markets—we're really proud about the growth there. And it's really where the execution muscle comes together, in terms of having the right product at the right place, where consumers shop, where consumers consume.

Philipp Navratil: The whole emerging markets, we're really proud about the growth there, and it's really where the execution muscle comes together in terms of having the right product at the right place, where consumers shop, where consumers consume, and just the power of our brands. That is where the power of Nestlé really comes to life, and that you have seen reflected in some of the Zone Asia, Oceania and Africa performance. Just as you asked for outlook, just two caveats there. India, obviously, there is a tailwind in terms of the change in sales tax, and that will lap now in Q3. We still expect double-digit growth coming from India. India is a growth driver for us, definitely. Obviously comparable numbers are getting stronger.

Speaker #2: And just the power of our brands. That is where the power of Nestlé really comes to life, and you have seen that reflected in some of the AOA performance.

Speaker #2: Then just two—just as I asked for outlook, just two caveats there. So, India, obviously, there is a tailwind in terms of the change in sales tax.

Speaker #2: And that will lap now in Q3. But we still expect double-digit growth coming from India. So, India is a growth driver for us, definitely.

Speaker #2: And then, obviously, comparable numbers are getting stronger. But definitely, emerging markets and AOA will continue to be a place of growth for us going forward.

Philipp Navratil: Definitely emerging markets and Zone Asia, Oceania and Africa will continue to be a place of growth for us going forward while China is stabilizing its performance in this still negative category environment. I'll pass to Anna on the bridge.

Speaker #2: While China is stabilizing its performance in this still-negative category environment. And I'll pass to Anna on the bridge.

Speaker #1: On the bridge. Actually, just one last thought on AOA. We're consistently growing share, and the share gains are broad-based. What may change are the category dynamics.

Anna Manz: On the bridge. Actually, just one last thought on Zone Asia, Oceania and Africa, we're consistently growing share. The share gains are broad based, what may change is the category dynamics, but we are outperforming the categories that we're playing in very largely across emerging Zone Asia, Oceania and Africa, China to one side. With respect to the margin bridge, thanks for the question, I always like a detailed question. On the others, there's a few things going on here. You do have the impact of the infant formula recall, it isn't just that. There's a number of other headwinds in that others box. We didn't do a long list of them, it's things like transportation costs being higher because of the Middle East, things like that.

Speaker #1: But we are outperforming the categories that we're playing in, very largely, across the emerging side. So, with respect to the margin bridge—and thanks for the question.

Speaker #1: I always like a detailed question. And so on the others, there's a few things going on here. You do have the impact of the infant formula recall.

Speaker #1: But it isn't just that. There are a number of other headwinds in that 'Others' box, and we didn't do a long list of them. But it's things like transportation costs being higher because of the Middle East—things like that.

Speaker #1: So the biggest element of the headwind is infant nutrition. But it is only one element. So it's by far not all of the 100 basis points that is effectively that net headwind.

Anna Manz: The biggest element of the headwind is infant nutrition, it is only one element, it's by far not all of the 100 basis points that is effectively that net headwind. Where that's coming from is it's the impact of the lost sales. Our sales are lower. We've got the same cost base, that obviously has a margin impact in the period. It's not the cost of recalling or writing off product that was taken in the prior year. That's the headwind element. In terms of the pension credit, yes, there was a 30 basis point benefit that we also put in that other bucket. We didn't call it a cost saving because it's one-off in nature, and that was why we put it in the other bucket.

Speaker #1: And where that's coming from is the impact of the lost sales. So our sales are lower, but we've got the same cost base. So that obviously has a margin impact in the period.

Speaker #1: It's not the cost of recalling or writing off product; that was taken in the prior year, so that's the headwind element. In terms of the pension credit—so yes, there was a 30-basis-point benefit that we also put in that other bucket.

Speaker #1: We didn't call it a cost saving because it's one-off in nature, and that was why we put it in the other bucket. What we've been doing, in the context of the performance culture that you hear Philip talking about, is we've looked at our employee benefits.

Anna Manz: What we've been doing in the context of the performance culture that you hear Philipp talking about is we've looked at our employee benefits, and we're working to make sure that employee benefits and packages are better aligned with what employees want today, and are modernized in some areas. A big chunk of where this has come from is that we offer, within this pension scheme, our employees the opportunity now to take a lump sum when they retire, or as an alternative to taking a pension. Previously, there was only the pension alternative, that gives you a one-off curtailment gain in the period. In terms of the ongoing impact of that, none in the P&L, obviously there'll be a cash flow benefit, which will be small over time.

Speaker #1: And we're working to make sure that employee benefits and packages are better aligned with what employees want today, and are modernized in some areas.

Speaker #1: So, this big chunk of where this has come from is that we offer in this pension scheme our employees the opportunity now to take a lump sum when they retire, as an alternative to taking a pension, previously.

Speaker #1: There was only the pension alternative, and that gives you a one-off curtailment gain in the period. In terms of the ongoing impact of that—none in the P&L.

Speaker #1: But obviously there'll be a cash flow benefit, which will be small over time. But maybe if you step back overall, on that bridge, I guess what we were laying out for you is that there are a lot of moving parts.

Anna Manz: Maybe if you step back overall, on that bridge, I guess what we were laying out for you is that there are a lot of moving parts in terms of input cost, tariffs, the others, the increase in investment. We've been really focused on driving the right-hand side of the bridge, which is the piece under our control. Really focused on delivering those cost savings, you'll see us absolutely remain on that trajectory. Really making sure that we are accelerating RIG, which gives us the RIG leverage, of course, appropriate pricing where the consumer can take it, where it works with our product proposition. That's why we're confident of the overall margin and the overall margin outlook and positive progression as we look forward to 2027.

Speaker #1: In terms of input cost tariffs, and the others, the increase in investment. And we've been really focused on driving the right-hand side of the bridge, which is the piece under our control.

Speaker #1: So, really focused on delivering those cost savings, and you'll see us absolutely remain on that trajectory. We're really making sure that we are accelerating rig, which gives us the rig leverage.

Speaker #1: And of course, appropriate pricing. Where the consumer can take it. Where it works with our product proposition. And that's why we're confident of the overall margin.

Speaker #1: And the overall margin outlook, and positive progression as we look forward to 2027.

Speaker #2: Thank you both.

Warren Ackerman: Thank you both.

Speaker #3: Thank you both.

David Hancock: Thank you, Warren. The next question comes from Nicolas Seron from Bank of America. Please go ahead.

Speaker #4: Thank you, Warren. The next question comes from Nicholas Saron from Bank of America. Please go ahead.

Speaker #2: Thanks, David. Morning, Philip. Morning, Anna. I just have one question on your U.S. pet care business. We've seen some of your large competitors doubling down on fresh pet food in the U.S.

Nicolas Seron: Thanks, David. Morning, Philipp. Morning, Anna. Just one question on your US pet care business. We've seen some of your large competitors doubling down on the fresh pet food in the US, and so far you've not made any strategic announcement there. My question is, do you really intend to continue losing share in dog food to protect the margins, or do you think you need to enter the space at scale at some point? In that context, do you think the margin growth or margin protection is more important than RIG at Nestlé? I have a second question on capital allocation. Would you consider redeploying capital in the US infant formula if there was a business that became available? Thank you.

Nicolas Ceron: Thanks, David. Morning, Philipp. Morning, Anna. Just one question on your US pet care business. We've seen some of your large competitors doubling down on the fresh pet food in the US, and so far you've not made any strategic announcement there. My question is, do you really intend to continue losing share in dog food to protect the margins, or do you think you need to enter the space at scale at some point? In that context, do you think the margin growth or margin protection is more important than RIG at Nestlé? I have a second question on capital allocation. Would you consider redeploying capital in the US infant formula if there was a business that became available? Thank you.

Speaker #2: And so far, you have not made any strategic announcement there. So my question is: do you really intend to continue losing share in dog food to protect the margins?

Speaker #2: Or do you think you need to enter the space at scale at some point? And in that context, do you think margin growth or margin protection is more important than RIG at Nestlé?

Speaker #2: And I have a second question on capital allocation. Would you consider redeploying capital in the US infant formula business if there was a business that became available?

Speaker #2: Thank you.

Speaker #4: Yeah, thanks. Thanks, Nicholas. So, I'll take those. Look, in U.S. pet care, in fact, overall we're doing well on share. In terms of fresh, which is an area of obvious growth, we're looking at it.

Philipp Navratil: Yeah, thanks. Thanks, Nicolas. I'll take those. Look, in US pet care, in fact, overall we're doing well on share. In terms of fresh, which is an area of obviously growth, we're looking at it and we're actually playing in it through two areas. Obviously there's always opportunities to do other things. We have our brand Merrick, where we play in fresh pet, and we have a stake in JustFoodForDogs as well, where we play in that. It's a space, obviously, we look at it. As I have always said, we're interested in growth. Margin is one thing, but we want to drive RIG-led growth, but it has to make sense as well on the bottom line. It's a space we're looking at. We're playing in it.

Speaker #4: And we're actually playing in it through two areas. And obviously, there's always opportunities to do other things. So we have our brand Merrick, where we play in Freshpet.

Speaker #4: And we have a stake in Just Food for Dogs as well, where we play in that. And it's a space, obviously, we look at.

Speaker #4: As I always said, we're interested in growth. Margin is one thing, but we want to drive rig-led growth. But it has to make sense as well on the bottom line.

Speaker #4: It's a space we're looking at. We're playing in it. And obviously, we're always interested and focused on driving rig-led growth. And Freshpet is one of those.

Philipp Navratil: Obviously, we're always interested and focused on driving RIG-led growth, and Freshpet is one of those. In terms of infant formula in the US, where we don't play. Look, we have no plans there at the moment. The infant formula today in the US is a space of not much growth. We're focused on infant formula at the moment, in any case, to drive consumer trust and healthcare professionals trust back in everywhere else in Asia and Europe. That's where we're focused on. No plans to enter the infant formula market in the US. Thank you.

Speaker #4: In terms of infant formula, in the US, where we don't play, look, we have no plans there at the moment. The infant formula today in the US is a space with not much growth.

Speaker #4: And we're focused on infant formula at the moment, in any case, to drive trust—consumer trust and healthcare professionals’ trust—back everywhere else in Asia and Europe.

Speaker #4: And that's what we focused on. But no plans to enter the infant formula market in the US.

Speaker #2: Thank you.

Nicolas Ceron: Thank you.

Speaker #3: Thank you.

David Hancock: Thank you, Nicolette. The next question comes from Jeff Bent from BNP Paribas. Please go ahead and ask your question, Jeff.

Speaker #4: Thank you, Nicholas. The next question comes from Jeff Stent from BNP Paribas. Please go ahead and ask your question, Jeff.

Speaker #5: Good morning, everyone. Just one question, if I may. It sounds like Nespresso is still very much driven by the success of Vertuo. I was wondering, are you able to give us any quantification of how much of Nespresso that now represents?

Jeff Bent: Good morning, everyone. Just one question, if I may. It sounds like Nespresso is still very much driven by the success of Vertuo. I was wondering, are you able to give us any quantification of how much of Nespresso that now represents? Also, I think I'm correct in thinking some of the important Vertuo patents start to come off over the next few years. When do you expect to see some generics come in on the Vertuo platform? Thank you.

Jeff Stent: Good morning, everyone. Just one question, if I may. It sounds like Nespresso is still very much driven by the success of Vertuo. I was wondering, are you able to give us any quantification of how much of Nespresso that now represents? Also, I think I'm correct in thinking some of the important Vertuo patents start to come off over the next few years. When do you expect to see some generics come in on the Vertuo platform? Thank you.

Speaker #5: And also, I think I'm correct in thinking some of the important Vertuo patents start to come off over the next few years. When do you expect to see some generics come in on the Vertuo platform?

Speaker #5: Thank you.

Speaker #4: Yeah, thanks, Jeff, for the questions. Look, it is indeed I mean, most of the growth now comes from virtual line, where we are still a patent protected most of that growth comes today from the US and Canada, where we still see strong growth on the back of that system.

Philipp Navratil: Yeah. Thanks, Jeff, for the questions. Look, it is indeed. Most of the growth now comes from Vertuo line, where we are still patent protected. Most of that growth comes today from the US and Canada, where we still see strong growth on the back of that system. Also we see growth in the original line system as we still roll that out in terms of penetration across the rest of the world. Vertuo is definitely what we are focused on. Because Vertuo drives more into where consumers want coffee to be, which is a more versatile system. You can drive more flavors. We have different recipes in terms of cold coffee. You have seen our new brand ambassador, Dua Lipa, really promoting Vertuo line mostly, which is giving this variety and versatility of the Nespresso system. We're really investing behind that.

Speaker #4: But also, we see growth in the original line system as we still roll that out in terms of penetration across the rest of the world.

Speaker #4: But Virtuo is definitely what we are focused on, also because Virtuo drives more into where consumers want coffee to be, which is a more versatile system.

Speaker #4: You can drive more flavors. We have different recipes in terms of cold coffee. You have seen our new brand ambassador, Dua Lipa, really promoting Vertuo Line mostly.

Speaker #4: Which is giving this variety and versatility of the Nespresso behind that. We've also seen us launching a new machine on Vertuo, which is more practical, smaller, and reminiscent of what consumers love about the machines in the Original line.

Philipp Navratil: You're also seeing us launching a new machine on Vertuo, which is more practical, smaller, and reminiscent of what consumers love about the machines in original line. This is still a growth platform for us, especially in the US and Canada, but also in Europe, as said. In terms of patents, we're still patent protected for some years. There's several patents on that system. At some stage, it's clear that we might see compatibles coming onto the market as we have seen in original line in the other system. We have plans for that, and really what we're trying to do is building a Nespresso brand, making Nespresso not only a coffee brand, but really a lifestyle brand that goes beyond just a coffee. It's an experience.

Speaker #4: So this is still a growth platform for us, especially in the US and Canada, but also in Europe, as said. And in terms of patents, we're still patent protected for some years.

Speaker #4: There are several patents on that system. But at some stage, it's clear that we might see compatibles coming onto the market, as we have seen in the original line in the other system.

Speaker #4: And look, we have plans for that. And really, what we're trying to do is build the Nespresso brand—making Nespresso not only a coffee brand, but really a lifestyle brand that goes beyond just coffee.

Speaker #4: It's an experience. And we're winning today because it's just a superior proposition for consumers, and we will continue to do that. While we are obviously looking at how we will drive potential with the patent coming off.

Philipp Navratil: We're winning today because it's just a superior proposition for consumers, and we will continue to do that, while we're obviously looking at how we will drive potential then patents coming off. We're confident in what we're doing. Good innovation, good marketing, and good progress so far on Vertuo, but also generally on Nespresso still.

Speaker #4: But we're confident in what we're doing—good innovation, good marketing, and good progress so far on the Vertuo line, but also generally on Nespresso still.

Speaker #5: Philip, are you able to give any sense of what proportion of revenue it represents?

Jeff Bent: Philipp, are you able to give any sense of what proportion of revenue it represents?

Jeff Stent: Philipp, are you able to give any sense of what proportion of revenue it represents?

Speaker #4: Oh, I think we don't split that. We don't split that. But it's the main system in the US and Canada, and North America.

Philipp Navratil: I think we don't split that. We don't split that. It's the main system in the US and Canada and North America. You can get a bit of an idea. That's as far as I can go.

Speaker #4: So you can get a bit of an idea. That's as far as I can go.

Speaker #5: OK, that's great. Thank you.

Jeff Bent: Okay. That's great. Thank you.

Jeff Stent: Okay. That's great. Thank you.

Speaker #4: Thank you, Jeff. The next question comes from Tom Sykes at Deutsche Bank. Go ahead with your question, Tom.

David Hancock: Thank you, Jeff. The next question comes from Tom Sykes from Deutsche Bank. Go ahead with your question, Tom.

Speaker #2: Yeah, morning. Thank you. Just firstly, on the U.S. inventory commentary, I think Amazon's by far and away the highest growth in the channel, in the scanner data.

Tom Sykes: Yeah. Morning. Thank you. Just firstly on the US inventory commentary. I think Amazon's by far and away the highest growth in the channel, in the scanner data. Are you seeing a negative mix impact on inventory to sales from that? How healthy is the retailer base that isn't Amazon, Walmart, or Costco? They seem to be losing share of every category, and they're probably slightly higher margin for you as well. Just on the marketing spend, how bifurcated do you see the marketing spend getting between the core and the growth platforms? Obviously, the core has dipped a bit and the growth isn't quite where you want it to be. Are you at all thinking that the core marketing spend would at all go lower as a proportion of sales, please?

Speaker #2: Are you seeing a negative mix impact on inventory to sales from that? And how healthy is the retailer base that isn’t Amazon, Walmart, or Costco?

Speaker #2: Because they seem to be losing share in every category, and they're probably slightly higher margin for you as well. And then, just on the marketing spend, how bifurcated do you see the marketing spend getting between the core and the growth platforms?

Speaker #2: Because obviously the core has dipped a bit, and the growth isn't quite where you want it to be. So, are you at all thinking that the core marketing spend would go lower as a proportion of sales?

Speaker #4: Yeah, look, I'll start with the marketing one. Tom, look, marketing spend I mean, you have seen in the chart that I showed in the presentation, we're not taking away marketing spend from the core what we are doing is we're deploying additional marketing spend to the growth platforms that comes out of the growth out of the savings initiatives that we have.

Philipp Navratil: Yeah. Look, I'll start with the marketing one, Tom. Look, marketing spend, you have seen in the chart that I showed in the presentation, we're not taking away marketing spend from the core. What we are doing is we're deploying the additional marketing spend to the growth platforms that comes out of the savings initiatives that we have. There's about CHF 600 million additional investment this year into the growth platforms while not taking away from the core. The core, it's important we don't take away from the core, the core still is an important engine of the company. You have heard me say in a previous answer that we still need to step up the growth on the core, that comes obviously with sustained investment, also sustained innovation. That we're doing.

Speaker #4: So this is about $600 million in additional investment this year into the growth platforms, while not taking away from the core. And for the core, it's important we don't take away from it, because the core still is an important engine of the company.

Speaker #4: And you have heard me say in a previous answer that we still need to step up the growth on the core. And that comes, obviously, with sustained investment and also sustained innovation.

Speaker #4: And that we're doing. And then again, these two buckets are somehow connected, because if we invest, for example, in Nescafe in growth platforms, that will have a positive effect also on the core business.

Philipp Navratil: Again, these two buckets are somehow connected because if we invest, for example, in Nescafé, in the growth platforms, that will have a positive effect also on the core business. They are somehow, those two buckets are connected. We're not going to go down that road again to take away money from the core to then fund something else. It's important we have both well-funded but expect additional investments to go into the growth platforms. You have seen us do that as well. Look at where we have also invested, not only marketing spend, but also CapEx. You have seen the last two big announcements of factories. They were bang on the growth platforms as well. One was the coffee factory in Thailand, which is all about driving coffee growth in emerging markets, mainly on Nescafé there.

Speaker #4: And so they are somehow those two buckets are connected. But it's not we're not going to we're not going to go down that road again to take away money from the core to then fund something else.

Speaker #4: I mean, it’s important we have both well funded, but expect additional investments to go into the growth platforms. And you have seen us do that as well.

Speaker #4: You know, we look at where we have also invested not only marketing spend, but also CapEx. You have seen the last two big announcements of factories.

Speaker #4: They were bang-on on the growth platforms as well. One was the factory—the coffee factory in Thailand—which is all about driving coffee growth in emerging markets.

Speaker #4: Mainly on Nescafé there. And then in pet food in Europe, it's mainly about driving wet cat, but also dog food, which is where we expect additional investments.

Philipp Navratil: In pet food in Europe, it's mainly about driving wet cat, but also dog food, which is where we expect additional investments, CapEx and marketing to go against. In terms of US inventory, look, I don't know I got your answer correctly, but it was about Amazon and the rest of that.

Speaker #4: CapEx and marketing to go against. In terms of U.S. inventory, look, I don't know if I got your answer correctly, but it was about Amazon and the rest.

Speaker #3: It's about mix, yeah. Yeah, so just one comment on the marketing spend. We're accelerating the core. The core has accelerated nearly 200 basis points.

Anna Manz: It's about mix. Yeah.

Philipp Navratil: Yeah.

Anna Manz: Yeah. Just one comment on the marketing spend. We're accelerating the core. The core has accelerated nearly 200 basis points with the investment that we've got. On specific brands, you've seen the investment go up because we've reduced things like our non-working marketing spend significantly from 20 plus plus to around 20. There's a lot going on to make sure we've got everything right, and it's driving the acceleration. If we felt we needed more marketing to further accelerate the core faster, we would invest it. We don't feel held back by that, maybe, is a different way of saying it. On inventory, I think the question was around, do we see a negative mix and does Amazon have a negative mix on us because it has lower level of inventory? No, that's not what's going on here.

Speaker #3: With the investment that we've got, and on specific brands, you've seen the investment go up because we've reduced things like our non-working marketing spend significantly from 20-plus to around 20.

Speaker #3: So, there's a lot going on to make sure we've got everything right, and it's driving the acceleration. If we felt we needed more marketing to further accelerate the core faster, we would invest in it.

Speaker #3: We don't feel held back by that—maybe that's a different way of saying it. And on inventory, I think the question was around whether we see a negative mix?

Speaker #3: And does Amazon have a negative mix on us because it has a lower level of inventory? No, that's not what's going on here.

Speaker #3: Actually, our customer mix is good, and our profitability by customer is pretty consistent because we have different offerings. We also work in different ways with each customer.

Anna Manz: Actually, our customer mix is good and actually, our profitability by customer is pretty consistent because we have different offerings and we work in a different way with each customer. We don't suffer from customer mix as such. Yes, they have different ways of selling and they hold different levels of inventory. That's just how we operate with them. We have different, effectively, business models with each of them. What's going on here is quite different. It's our existing customers reducing their levels of inventory. That's been the impact in the quarter. It's as simple as that, and that's why it's somewhat one-off in nature. It won't continue. It's not in any way systemic.

Speaker #3: So, we don't suffer from customer mix as such. And yes, they have different ways of selling, and they hold different levels of inventory. But that's just how we operate with them.

Speaker #3: We have different, effectively, business models with each of them. What's going on here is quite different. It's our existing customers reducing their levels of inventory.

Speaker #3: And that's been the impact in the quarter, and it's as simple as that. That's why it's somewhat one-off in nature—it won't continue.

Speaker #3: It's not systemic in any way.

Speaker #4: Yeah, and what really matters more and more is focusing on sell-out data. The inventory—customers just need to hold as much inventory as they need to serve their consumers well.

Philipp Navratil: Yeah, what really matters more and more is focusing on sellout data. The inventory customers just need to hold as much inventory as they need to serve their consumers well, and we're focused on actually the takeoff out of those customers into consumers' homes and then consumption, and that's where we focused on everywhere, and that is why it's one-off.

Speaker #4: And we're focused on, actually, the take-off out of those customers into consumers' homes, and then consumption. And that's where we've focused everywhere. And that is why it's one-off.

Speaker #2: OK, many thanks.

Tom Sykes: Okay. Many thanks.

Speaker #4: Thank you, Tom. We'll squeeze in our last question from Celine Panuti at JPMorgan. Please go ahead, Celine.

David Hancock: Thank you, Tom. We'll squeeze our last question in from Celine Pannuti from JPMorgan. Please go ahead, Celine.

Speaker #5: Good morning. Thank you for squeezing in my questions. My first question is on pricing and probably the overall cost inflation framework. Is it possible to have an idea, in terms of where you see cost inflation for the full year?

Celine Pannuti: Good morning. Thank you for squeezing my questions. My first question is on pricing and probably the overall cost inflation framework. Is it possible to have an idea in terms of where you see for the full year, the cost inflation? It seems like you had inflation in H1, it would be less in H2, but you also mentioned, well, on cocoa and coffee will be less, but you also mentioned the higher cost in energy and transportation. Is it possible to have a broad figure? Then could you as well comment on maybe other costs that are important to you, like milk, how you see it trending? Within that, it seems to be that it's higher costs than expected potentially, and does it mean that pricing deceleration would be a bit less than what we envision? Would that be a fair commentary?

Speaker #5: I mean, it seems like you had inflation in H1. It will be less in H2. But you also mentioned, well, on cocoa and coffee, it will be less.

Speaker #5: But you also mentioned the higher cost in energy and transportation. So is it possible to have a broad figure? And then could you also comment on maybe other costs that are important to you, like milk, and how you see that trending?

Speaker #5: And within that, does it mean that it seems to me that it's higher cost than expected, potentially? And does it mean that pricing deceleration would be a bit less than what we envisioned?

Speaker #5: Would that be a fair commentary? And then, my second question is on the overall outlook on demand and rig for the second half of the year.

Celine Pannuti: My second question is on the overall outlook on demand and RIG for the H2 of the year. I think you mentioned that you will be facing higher comp in AOA ex China in the H2 already. We have been talking about this delisting and probably the retail environment. Are you feeling that the demand environment is a bit tougher as you look in the H2 of the year? Would it be fair, therefore, to expect that RIG decelerates? Could you explain why RIG would be broadly similar to the H1? Thank you.

Speaker #5: I think you mentioned that you will be facing higher comp in AOA ex-China in the second half already. And then we have been talking about this delisting and probably the retail environment.

Speaker #5: So, are you feeling that the demand environment is a bit tougher as you look into the second half of the year? And would it be fair, therefore, to expect that rig decelerates?

Speaker #5: Or otherwise, could you explain why RIG would be broadly similar to the first half? Thank you.

Speaker #4: Yeah, I want to take the... and I want to take the pricing one.

Philipp Navratil: Anna, you want to take the pricing one?

Speaker #3: Sure. So, the moving parts are: we’ve got a tailwind on cocoa and coffee, and we’ve got a smaller headwind from the Middle East conflict.

Anna Manz: Sure. The moving parts are, we've got a tailwind on cocoa and coffee, we've got a smaller headwind on the Middle East conflict. I'm not going to quantify what that means in terms of COGS inflation, because frankly, it moves around a lot. Almost every time I check the news, oil prices move. Whatever it is today, it won't be that by the end of the year. It could be better, it could be worse. I think the more important piece is how we think about managing it. We do that through driving really consistent cost savings, then really focusing on how we accelerate RIG and what the right level of pricing is to take. You'll see us take pricing where we think the consumer can tolerate it, and where we think it is appropriate.

Speaker #3: And I'm not going to quantify what that means in terms of COGS inflation because, frankly, it moves around a lot. Almost every time I check the news, oil prices move.

Speaker #3: And so, whatever it is today, it won't be that by the end of the year. It could be better; it could be worse. I think the more important piece is how we think about managing it.

Speaker #3: And we do that through driving really, really consistent cost savings, and then really focusing on how we accelerate RIG and what the right level of pricing is to take.

Speaker #3: And you'll see us take pricing where we think the consumer can tolerate it and where we think it is appropriate. So you've seen in Q2, for example, us take pricing in Starbucks in the US.

Anna Manz: You've seen in Q2, for example, us take pricing in Starbucks in the US, but you've also seen us with slightly higher pricing in some markets, in some categories in AOA, for example, where we think that the consumer can tolerate it, and we've got a moving cost environment. We look at it all very specifically, and we manage it as we go through the lens of the right proposition for the consumer. If you step back from it all, I'm confident in the H1 margin guidance. I think we've proven over the last 18 months that we have the levers to manage this. We've had a lot of practice at managing cost inflation, probably more so than most, because of coffee and cocoa. Pricing deceleration, we'll work our way through it.

Speaker #3: But you've also seen us with slightly higher pricing in some markets and some categories in AOA, for example, where we think that the consumer can tolerate it.

Speaker #3: And we've got a moving cost environment, so we look at it all very specifically, and we manage it as we go through the lens of the right proposition for the consumer.

Speaker #3: But if you step back from it all, I'm confident in the first-half margin guidance. And I think we've proven over the last 18 months that you can leave it to us to manage this.

Speaker #3: We've had a lot of practice at managing cost inflation—probably more so than most, because of coffee and cocoa. And, yeah, with pricing deceleration, we'll work our way through it.

Speaker #3: We'll take price where we think we can take price, and we won't where we won't. We're coming off some highs in coffee and cocoa.

Anna Manz: We'll take price where we think we can take price, and we won't where we won't. We're coming off some highs in coffee and cocoa, but as I say, there are pockets where we're taking price, and you see that already show up in Q2. Do you want to talk about demand and RIG?

Speaker #3: But as I say, there are pockets where we're taking price, and you see that already show up in Q2. Do you want to talk about demand and rig?

Speaker #4: Yeah, I mean, it's very similar. I mean, lots of moving parts there as well as consumers adjust. Look, I mean, what you can expect going forward, definitely, is more innovation, more renovation.

Philipp Navratil: Yeah. It's very similar. Lots of moving parts there as well as consumers adjust. Look, what you can expect going forward definitely is more innovation, more renovation, faster roll-outs of innovations into more markets. Also more marketing, so we will keep investing into growth platforms, into the core. Generally what we do, we control what is in our control, and we execute that brilliantly. Whatever is thrown at us from the outside in terms of cost increase, et cetera, we will take price, we will adjust promotions, we'll adjust price and packs, et cetera, to drive growth, balancing RIG and pricing. You should expect, in general, less pricing and more RIG going forward as we work towards this 2% RIG midterm guidance.

Speaker #4: Faster rollouts of innovations into more markets. Also, more marketing. So, we will keep investing in growth platforms into the core. And generally, what we do is control what is in our control.

Speaker #4: And we execute that brilliantly. And whatever is thrown at us from the outside in terms of cost increases, etc., we will take price.

Speaker #4: We will adjust promotions. We will adjust price and packs, et cetera, to drive growth by balancing RIG and pricing. But you should expect, in general, less pricing and more RIG going forward as we work towards this 2% RIG mid-term guidance.

Speaker #3: And on the specific H2 rig question, while we don't guide that precisely, what I would say is we've had a couple of one-off impacts in Q2.

Anna Manz: On the specific H2 RIG question, and while we don't guide that precisely, what I would say is we've had a couple of one-off impacts in Q2. We do have slightly tougher comps in the H2, and we have ever improving momentum vis-a-vis the category because of all the actions that Philipp was just talking about. If you put all of that together, we feel confident about our RIG performance.

Speaker #3: We do have slightly tougher comps in the second half, and we have ever-improving momentum vis-à-vis the category because of all the actions that Philip was just talking about.

Speaker #3: So if you put all of that together, we feel confident about our rig performance.

David Hancock: Thanks, Celine.

Speaker #5: Thank you.

Speaker #4: That concludes the Q&A session. I will pass over to Philip for some concluding remarks. And thanks to all for your questions. Look, just to conclude, you have seen us talk a lot about execution, and execution is improving. This is driving the growth.

Anna Manz: Thank you.

Celine Pannuti: Thank you.

David Hancock: That concludes our Q&A session. I will pass over to Philipp for some concluding remarks.

Philipp Navratil: Yeah. Thanks, Damon. Thanks all for your questions. Look, just to conclude, you have seen us talk a lot about execution, and execution is improving, and this is driving the growth. We have delivered good OG and RIG over the last 4 quarters, which we're happy about. We are on track to deliver our 2026 guidance. Strategy is very clear, and now it's all about consistent delivery quarter after quarter, half after half, year after year. Thank you very much, and have a great day.

Speaker #4: We have delivered good OG and RIG over the last four quarters, which we're happy about. We are on track to deliver our 2026 guidance.

Speaker #4: Strategy is very clear. And now it's all about consistent delivery—quarter after quarter, half after half, year after year after year. Thank you very much.

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