NSRGY Q1 2025 Earnings Call

David Hancock: Good morning and welcome to Nestlé's Three-Month 2025 Sales Conference Call. I am David Hancock, Head of Investor Relations. Today I am joined by Laurent Freixe, CEO; and Anna Manz, CFO. Laurent and Anna will provide a short update on our progress in the first quarter before we open up for Q&A. Before we get started, please take a moment to read the disclaimer on Page 2. With that, I will hand over to Laurent.

Laurent Freixe: Thank you, David and good morning everyone. Before Anna takes you through the financials, let me share some highlights on our progress in the first quarter. Despite a challenging consumer environment, we delivered resilient and broad-based organic growth of 2.8% in the first quarter. I would like to thank our team for their efforts as we navigate the first full year under our new strategy. Over the last year, we have seen unprecedented cost inflation in coffee and cocoa. We have been proactive on pricing, and our team navigated the negotiations with customers well, with limited disruptions. My priority is to accelerate our growth. There is no growth without investment, so generating the resources to invest is critical. That is why we launched the Fuel for Growth savings program. We are making good progress, and we are on track to deliver CHF700 million incremental cost savings in 2025, on top of over 1.2 billion of savings from ongoing efficiency initiatives. Alignment and focus of the teams is critical to delivering performance. Following the rapid actions on the organization we took last year, we are further simplifying to support effective execution. This includes steps to harmonize our structure in Zone Europe and enhance our capabilities in R&D. We are driving these savings and improving organizational alignment to support growth, both accelerating our categories and improving our market share. Let's turn now to how we have done that in Q1. We are making good progress on actions which will accelerate our growth. I want to touch on a few in each of our growth pillars over the quarter. Firstly, expanding winners. We continue to invest behind winning brands like KitKat and Maggi. KitKat tablets were rolled out to twelve markets in Europe during Q1, with strong marketing support. Early indicators have been positive both with customers and consumers. In Maggi, we have been investing further behind the brand and strengthening our digital platform, which provides access to modern recipes, peer to peer sharing, and a personalized user experience. In Q1, we added new functionalities in several markets. Between the Maggi and Recetas platforms, we will roll out enhancements across around 50 markets during this year. E-commerce is another area of progress, and we continued to deliver strong growth in Q1. This is supported by the rollout at scale of innovative AI tools, allowing us to better optimize our digital shelf and significantly improve the generation of personalized content. Next, scaling big bets. At the Full year results and CAGNY, we talked about the rollouts of Nescafé Espresso concentrate and our Gourmet wet cat pyramids. Early traction in the market has been good for both. During Q1, we also rolled out chocobakery and this has now scaled to thirteen markets in LATAM as well as markets in AOA. Given the pricing dynamics from cocoa inflation, it is a great time to be scaling these chocolate with biscuit products. Third, addressing underperformers. I have talked before about diagnosing the issues across our eighteen key underperforming sales, and we are taking action. It is still early days, but I am encouraged that we are seeing signs of improvement in the majority of the sales. Finally, we are moving ahead with building new growth platforms. In Nutrition, we want to play in each stage of life, and women's health is one of the most promising newer growth areas. With Materna, we already have a great brand, well established in LATAM and Canada. This year we are expanding globally, including in China and India, and we are developing our range with premium, science-led innovation. So this is a small snapshot. Overall, lots of focus and good progress, giving us confidence that even in this uncertain environment, we can continue to accelerate our growth. And with that, I will hand over to Anna to take you through the Q1 figures in more detail.

Anna Manz: Thanks Laurent, and good morning. As Laurent said, we delivered 2.8% organic sales growth in the quarter, with RIG of 0.7% and pricing of 2.1%. Sales were negatively impacted by foreign exchange movements. The impact this quarter was much less than last year, but the recent strengthening of the Swiss Franc means we will see an increased impact again looking forward. Looking next at the quarterly movement of sales over time, and you can see that pricing has picked up in the first quarter as we respond to the input cost inflation in coffee and cocoa. I want to spend a moment on our pricing approach. We typically aim to price for the absolute dollar increase in input costs. Given the significant moves in coffee and cocoa, it is critical that we price to the fullest extent possible to provide the margin for future investment behind our brands, and our goal is to do that whilst maintaining medium term consumer penetration. As we price, we have to consider the customer as well as the consumer. In some markets, particularly Europe, customer negotiations are predominantly in the first quarter each year. These are now largely concluded, and as Laurent has said, there has been only limited customer disruption. From a consumer perspective, it is still too early to get a clear read on elasticities. Where pricing has been significant, there has initially been some impact on RIG. We are monitoring this closely as consumers and the competitive environment adjust and stabilizes. RIG also continues to be dampened by soft consumer demand. Consumer confidence in many geographies was already fragile even before the increasing macroeconomic and political uncertainties. Now let's look at the performance of our segments in the quarter. In Zone Americas, macroeconomic uncertainty has made for a challenging environment with consumer confidence fragile. In that context, flat organic growth with positive RIG in North America was a very solid performance, and we grew nicely in Latin America. Growth for the zone was driven by strong pricing actions in confectionery and coffee. This was supported by high single-digit growth in our Professional business. The main drags on the Zone’s first quarter delivery were Infant Nutrition and Frozen Foods. On the latter, we're making progress in restoring competitiveness. There are recent indications of improving market share developments, although it's too early to call this a sustained trend. In Zone AOA, we delivered positive growth across all categories and most regions. The highlight was our confectionery business. Here, we achieved positive RIG and market share gains even while we took significant pricing. We also made good progress in the areas we've identified as being a strategic focus. This includes double-digit growth in Maggi Cooking aids and in emerging market PetCare. Across the Zone, consumer sentiment remained subdued. This is particularly true in China. In that context, our organic growth in China was driven by sales phasing with a buildup of inventories, rather than by underlying consumption. Consumer demand remains broadly flat in the quarter. Turning to Zone Europe, we generated broad-based growth across markets and categories, with improving market share trends across most country-category combinations. A priority during the quarter was our annual price negotiations. And as we have said, we navigated these with relatively limited disruption. We now need to see the impact of price increases on consumer demand in Coffee and Confectionery, which we are watching carefully. Beyond these categories, the Zone’s growth continues to be supported by solid RIG-led growth in PetCare. In Nestlé Health Science, performance was mixed. In H2 last year we had double-digit growth as we were getting back on shelf after the resolution of our supply issues. Moving into this year, growth has decelerated. In some areas we are performing very well: for example, growth continues to be double-digit in our premium VMS brands and in Orgain. Offsetting that, there’s been areas of weaker performance. In Nature’s Bounty, we are now back on shelf, but consumer uptake has been slower than expected. And Vital Proteins has been weak, in a category that has seen an increasing number of entrants. So, we have got work to do – on competitive positioning, promotional strategies and strengthening our brands and product line-ups through innovation and marketing. Finally, a comment on pricing, which was negative. In part, this reflects a return to more normal levels of promotional activity in our VMS business. Pricing was also impacted by changes to the reimbursement model of our Zenpep gastrointestinal product as a consequence of the U.S. Inflation Reduction Act. Nespresso had a strong first quarter. Growth was largely driven by the US, but we also saw reducing share loss in Europe. Across the business, we have been progressively taking price. In many markets, this took effect towards the end of the quarter, and we did see a benefit from some sales pull forward ahead of price increases. As you look ahead, keep in mind that our consumers purchase Nespresso less frequently than our other categories, so it will take a while to see the consumer impact of the price increases. All of that said, it was a good quarter for Nespresso. And this is also true of the broader Nespresso ecosystem, including Starbucks by Nespresso, where we continued strong momentum and added a further 130 basis points to growth. Finally, Nestlé Waters and Premium Beverages. We rapidly implemented the new organizational structure and progressed with our strategic evaluation, while staying focused on operational execution. Growth improved and was broad-based across markets, mainly driven by recent product launches in the Sanpellegrino and Maison Perrier range. Our waters business posted low single-digit growth as Perrier was impacted by ongoing supply constraints. Turning to categories, I will be brief, as we have covered much of this already. The Group’s first quarter growth was driven by Powdered and Liquid Beverages, specifically Coffee, and by Confectionery, PetCare and Health Science. In Powdered & Liquid Beverages, growth was price-led. On average, pricing was mid-single digit. This varied across markets and products as our actions were tailored to the specific dynamics of different markets. On PetCare, category growth has come down from a year ago, but is now stabilizing. First quarter organic growth of 1.6% was similar to the growth we saw in the second half of last year. RIG continues to be positive across all regions, led by cat food and therapeutics. Negative pricing reflects input costs and a return to a more normal promotional environment. Within Nutrition and Health Science, I have talked about Health Science already. Nutrition saw a decline in Infant nutrition, impacted by our underperformance in Gerber baby food and in NIDO. On Prepared Dishes and Cooking Aids, flat organic growth overall was a function of growth in Cooking aids, led by Maggi, and offset by Frozen food. Milk products and ice cream organic growth was slightly positive, with growth in ambient culinary offset by coffee creamers. In Confectionery, pricing was double-digit, with LATAM the highest, followed by Europe and AOA. As noted, this had some impact on demand. And Waters we have covered already. Turning finally to guidance. Performance in the first quarter was in-line with our expectations, and our 2025 guidance remains unchanged, and this is based on our assessment of the direct impact of current tariffs and our ability to adapt. Organic sales growth is expected to improve versus 2024 and strengthen over the year as we deliver on our growth plans. We expect our UTOP margin to be at or above 16%, as we invest for growth. And as you've heard from Laurent, in a complex external environment, we remain focused on execution of our strategy. And with that, I'll hand you back to David for the Q&A.

A - David Hancock: Thank you, Anna. [Operator Instructions] Our first question is come from Guillaume Delmas from UBS. Please go ahead, Guillaume.

Guillaume Delmas: Thank you very much and good morning, Laurent, Anna and David. First, maybe a point of clarification. Could you quantify the impact from this positive sales phasing in China and maybe the sales pulled forward for Nespresso? As in, it did have a visible impact on the Nestlé group level? And also should we expect an immediate reversal in the second quarter? And then my two questions. So firstly, on your guidance for organic sales growth to strengthen through the course of the year, I mean, would it be right to assume that you expect both RIG and pricing to improve quarter-after-quarter this year? And specifically on pricing, how much of your additional commodity costs, particularly coffee and cocoa, are you now covered by your recent pricing actions? So how much is left for the next quarters? And then my second question is on infant nutrition, which I think declined in the first quarter. It seems performance was quite soft across the three zones with some particular weakness in the U.S. My question here would be, is this softness mostly attributable to anemic category growth? Or is it also reflective of some share losses? And I guess at the time when we are seeing some encouraging signs in China, what would be your action plan and your outlook for this category to rapidly return to positive growth? Thank you very much.

Laurent Freixe: Thanks, Guillaume, good morning. It's many questions in two. So we'll try to take them one by one. On the growth side, we gave you a message of confidence on the way forward. And why is that in the environment, which is ours, which is uncertain because we are seeing impact of our strategy at play in all dimensions. We see Fuel for Growth coming strong, and we are very confident that we will deliver what we committed to. We start to redeploy those investments behind strengthening the core, in particular, our billionaire brands, deploying our big bets and addressing our underperformers, and we see impact also in all dimensions of that. We see market share position improving. And to your question, yes, we have passed most of the pricing that we expected to pass. There is a logic into that, number one, because we got the visibility for a large part of the year when it comes to commodities. Second, because there is one slot for developed markets, where you can really increase the pricing and the prices, and this is the start to the year, this is Q1. So we have been through that round of negotiations with expected results, which means good results. And this pricing now has to translate progressively into consumer prices. So you'll see impact coming, well, both in terms of our pricing and also in terms of the consumer pricing. On Nutrition, I mean, category is what it is. There is the positive of – when it comes to China of the boost of the Year of the Dragon with more babies, so that will support the growth in the coming couple of years. U.S. is different in this respect, and we have one specific issue to address, which is one of our underperformers, which is Gerber. So that's one of our focus areas going forward. But back to the core message, we see progress in all dimensions of our strategy. We are sharpening this strategy. We are sharpening the execution. The organization is aligned to execute. You saw some new announcement as regards further strengthening the organization, Europe, and R&D, and we expect the impact to come also in the next period to further strengthen and sharpen our action plans and our execution going forward. Anna, you probably want to add something.

Anna Manz: Yes, sure. I will do some of the guidance points. So maybe to take them in order. So what was the impact of the sales pull forward around China in Nespresso? Relatively small impact, so about 20 basis points at a group level, and that sales phasing customer-driven. Will it unwind? Well, it was customer-driven, so it's a little bit hard to know. But at some point, you would expect it to unwind. The broader question around organic sales growth strengthening through the year, that is a statement that we are making in the context of the actions that you've just heard Laurent call out to consistently improve our performance against the categories that we play in. So you should see improving performance from a share perspective as we move through the year. What we’re not trying to say to you is that you should expect an improvement in RIG and OG quarter-on-quarter because we’re not managing the business by quarter. We’re managing to really drive that consumer pool in the medium-term. So see that as a full year statement, and there will be some puts and takes by quarter. And I’m not going to give you specific guidance as such on Q2, but maybe just some of the moving parts, as you think it through, we’ve taken the majority of our price through Q1, as you’ve heard Laurent say. Obviously, we get the full benefit of that as we move into the second quarter. There may or may not be some unwind of these sales pull forward in the second quarter, we’ll see. We have the benefit of Easter or more Easter this year versus last year. And we have the consistent actions that we are taking to improve our performance versus the category that we’re playing in. Just on Infant Nutrition, maybe just to give you a couple of the numbers, the category overall is low growth because of low birth rates. Overall, we’re gaining share in Infant Nutrition. What’s holding us back a bit, as you call out is baby food. And that is most marked in North America, where Gerber is a bigger proportion of the sales. But the work to do is on baby food, and we’re focused on that.

David Hancock: Thank you. So we’ll take the next question from Warren Ackerman from Barclays. Please go ahead.

Warren Ackerman: Yes. Good morning, Laurent, David, Warren here at Barclays. A couple as well. First one is just want to dive a bit into pet food. I mean, 1.6% organic growth in the quarter is not great for arguably one of your best businesses. I know there’s a negative price in there, but even the RIG at 2.5%, I wouldn’t say its brilliant, and that probably includes emerging markets that are quite good. So should I then read into that there’s something going on in developed markets, U.S. and European pet food? Maybe you can discuss what you’re seeing on the ground competitively in pet food. And is there a reason to think that pet food – I know you’ve got the innovations coming, should be better? I mean, you’ve been talking about sort of pet food normalizing for some time, but I guess most people thought mid-single digit, and we’re kind of running at 1.6%. So can you maybe sort of square that for us a little bit? And what you’re seeing? How happy are you with the pet food performance in the different – three different zones, is my first one? And then just secondly, on tariffs and currency. Clearly, Anna, you said that the Swiss francs moved considerably since Liberation Day early April. Are you able to give kind of a sort of a mark-to-market on top line and UTOP on currency? I know it’s moving around a lot, but just where we are today because I guess there’s some transactional FX on top of translation. And on tariffs, can you just confirm, will tariffs be applied to cocoa and coffee – sorry, tariffs on coffee in the U.S., how does that work? Because I heard your comment about pricing mostly done. But then on coffee tariffs in the U.S., would you then need to take more pricing over and above what you’ve done? Or do you have sort of inventory where you don’t need to take any additional pricing? I’m just trying to understand your sort of tariff strategy with regards to your – the key commodities going into the U.S. and what that means for pricing. Thank you.

Laurent Freixe: Okay. So let me start with the question on pet food. I think the key point there is the slightly negative pricing, which is largely justified by a mild commodity environment. So there is no need for pricing to protect the margins on the one hand. And second, we got more capacity coming on stream, and more to come, by the way, as we are still constrained in a few areas, especially wet pet food. And that makes that promotional activities have resumed, and that has an impact also on pricing. But I would qualify the RIG as solid. It’s ahead of the rest of the group. And we have a broad-based positive RIG, more, of course, in emerging markets than in developed markets, but the category is strong. We took massive volumes. When you think of a growth of 2% on massive volumes, this is very, very significant. And we’ve got everything it takes to support the growth. We got the brands. We’ve got the R&D capabilities. We’ve got innovation, and we got the resources being deployed, and on top of that, the capacity also being available. So we are very, very confident. You’re right to say that this is certainly one of our best categories, among the best, one of the best and strong across the Board and share position also pointing to performance in the competitive set. So that will be for pet food. For rest of the question, Anna.

Anna Manz: Yes, sure. So currency, you’re right, currencies are moving around a fair bit at the moment on the back of recent events. As our commodity prices, by the way, so you’ve got positives and negatives there. With respect to currency, in the back of the slides, we’ve given you sales by country and the Q1 exchange rates, really to give you the data in one place to build a ready reckoner so you can continue to model the impact on the top line as we move through the year because I’m sure the currency basket will continue to move. And with respect to the UTOP impact of currency, if you look backwards over the last few years, what you will see is that the rule of thumb is roughly a 5% strengthening of the Swiss franc has a 10 to 15 basis point negative movement on UTOP margin. Now that is a rule of thumb because, of course, it depends on market mix and specific currency movements within the basket, but that will give you an order of magnitude. And as I say, this is all moving around quite a lot at the moment as our commodity prices and we look at it in the round. With respect to tariffs, you're right that the impact of importing Nespresso into the U.S. and some soluble coffee will be impacted by tariffs. In the overall scheme of our business, this is manageable where we sit today. And we are looking at a number of different mitigating actions and those include a number of things around load balancing, how we source some things as well as, of course, pricing is also another lever. I guess what I would say is we've seen supply chain disruption and changes like this a number of times over the last five years, and we're quite good at putting the action plans together to manage the different scenarios as they evolve, and we've been very focused on that.

Laurent Freixe: Maybe a couple of additional comments just to also reframe the – or frame the state of play for us. And just to highlight that in the tariff environment, we got that unique position that we make where we sell, we produce essentially local for local. And you look at our three big geographies: U.S., Europe, China, more than 90% of what we sell is produced locally. So that is a kind of natural protection for most part. And on the – and back to what Anna was saying on the category is the most exposed, which would be coffee for us in the U.S., especially in Nespresso or premium water brands or Nestlé Health Science for ingredients, those are categories where we got pricing power, so – or the highest pricing power. So hence, our confidence going forward, recognizing that this is a fast-moving reality, and we stay tuned and ready to adjust to moving – fast-moving environment.

David Hancock: Thank you. The next question comes from Patrik Schwendimann at ZKB. Please go ahead.

Patrik Schwendimann: Thank you, David. It's Patrik Schwendimann, ZKB. Good morning, Laurent. Good morning, Anna. Could you please give us a little bit more color on the current tough situation for Gerber and Nido and how optimistic you are to improve the situation in the next couple of quarters? That's my first question. And also coming back to the U.S. tariffs, what percentage of U.S. sales are exports from Switzerland and how much is coming from other countries? Thank you.

Laurent Freixe: Thanks, Patrik, for the question. Good morning. On Gerber and Nido, we come back to the same point that we made on the underperformance has to do with our value equations. Is value equation competitive in the marketplace? Do we have the right product at the right price with the right availability, visibility and the right level of consumer engagement? So those are the elements on which we are focusing on. I just would like to highlight that on those two, we are fighting from a position of strength. We have leadership in both categories. We have capabilities. We have the brands. So it's really about sharpening our pens, and this is part of our work on the 18 core underperformers. And I just would like to highlight to put things in the context that we are making good progress. Majority of those sales are showing improvements in market share. So we are determined to bring. It takes time, obviously, when you need to address value proposition dimensions, as we explained already at the Capital Market Day and full year results, but we are making the right steps in the right direction to be in a winning position going forward.

Anna Manz: And on the tariffs question, exports from Switzerland are largely in Nespresso. But I'd sort of urge you to up above this one and look at it in the broader way because I think there is a risk of almost false precision in what's a very dynamic environment with multiple things changing to try and model it too precisely.

David Hancock: Thank you. Our next question comes from Jon Cox from Kepler Cheuvreux. Jon, go ahead.

Jon Cox: Yes, good morning, guys. Thanks for letting me ask a couple of questions. Just on the sort of reorganization of Europe. I wonder if you could just talk a little bit about that. Are we talking about collapsing sort of country admin structures or maybe some factory consolidation and maybe it sort of indicates you moving on from the procurement savings and now into, say, Stage 2 of the program. Then a question on inflation. It's more of a follow-up from what we heard before. You're talking about commodity costs moving around. Previously, you talked about high single-digit. I'm just wondering, that's still the case, given what's happening to cocoa specifically, but also coffee as well. And just wondering on the consumer. You're talking about the consumer being pretty difficult or in a fragile place in many parts of the world. I wonder if you could elaborate a little bit on that because you talked about Europe, you called out, you talked about other countries. I guess the U.S. is still not great. And I'm just wondering if you saw any deterioration on that. And then just a point of clarity to Warren's question, a 10% rise in the franc costs you maybe 10 to 15 bps. Is that the correct figures you mentioned there? Thank you.

Laurent Freixe: So thanks Jon, and good morning. On the European reorganization and to put things in context, you're right to highlight that as part of our Fuel for Growth program. I mean it goes beyond that. So I’ll explain it. And you are right to say that the procurement piece, as we highlighted, is our biggest contribution. But there is also the operational efficiency. And in the context of Europe, we can even speak about efficiency and effectiveness. So what we are doing is that we are bringing back Zone Europe into a similar model as the rest of the zones with a mix of regionally managed businesses and locally managed businesses, exactly the same as Zone Americas or Zone AOA. And we give more power to the market. So we put more feet on the ground, more capacity to decide, close to the consumers and to the customers. And we eliminate duplication as well as part of that. And of course, we continue what we had started to optimize our footprint, including our manufacturing footprint. So that’s the play in Europe. We are in the design phase. So it will unfold in the next couple of years, but starting right now, and we expect a sharpening of our execution with, again, more teeth in the markets and more capacity to decide close to consumers and to the customers and greater alignment to the way the group is operating. On the commodity cost side, nothing really new on that front. And if anything, maybe we see that the landscape is improving a little bit. So there is no worsening. We are still in the same high single digit, and we see more softening towards the – I mean, as we can see, you follow the futures softening in terms of impact for us going forward. On the consumer piece, we entered 2025 with a consumer who was not optimistic to say the least cautious, maybe concerned by impact of inflation and economic development. And I think uncertainties created by economic policies, trade wars and evolution of the financial markets have increased the concerns and created more uncertainty, so we got more concerned consumer, and that’s visible in many parts of the world. How does it translate? Cautious on consumption and increased savings, especially in China. So this is a dynamic that we are seeing unfolding. But I would like to highlight once again that this is the context. Our Nestlé virtuous circle is designed to make us grow and win in that kind of context. Why? Because we are raising our game when it comes to cost savings, cost efficiency, productivity, to be able to invest in our brands, strengthen the core, deploy big bets and address underperformance. So we are very, very confident with our strategy the way it is unfolding. And you know that Food and Bev is a resilient category in the context of economic uncertainty. People have to eat and drink every day. So there is the resilience built in the category, but we are determined, and we are taking action to outperform our categories through our plan. So that’s what is our focus.

Anna Manz: And just to reclarify the UTOP margin point, I said 5% movement or strengthening in the Swiss franc. Order of magnitude has a 10 to 15 basis points impact to UTOP. And just on the commodity cost, obviously, our commodity costs are not just about spot prices because, of course, we have quite a level of hedging as we move through the year. But we’ll give you a further update on that at the half year.

David Hancock: Thank you. The next question comes from Olivier Nicolai at Goldman Sachs. Your line is open.

Olivier Nicolai: Hi, good morning, Laurent, Anna and David. Just two questions, please. Could you first go back to the Health and Science performance and quantify the various moving parts here? How much is the premium part of the portfolio there? And could you quantify the impact of the private label discontinuation for instance? And then going back to coffee and cost inflation, do you think you will be able to offset the input costs in absolute term? I know that’s the goal, but do you think you’re able to offset that? Some of your peers, from what you can see, whether it’s on scanner data or so, are pushing through a strong double-digit price increase, and it seems to be much less for you. So I’m trying to reconcile the two. Thank you.

Laurent Freixe: Yes. On the Nestlé Health Science, as we said, our premium brands are doing well. They are growing double digits, where we faced more challenges, is more in the mainstream side and part of it is related to the fact that we are pruning the private level part of the portfolio logically to focus on where we can create the most value that, that has an impact on the growth short-term, but that to strengthen the portfolio going forward. On coffee, we have this privilege position that not only we got the best brands, but we are much less exposed than most of the players, not to say all of the players that are primarily roast and ground. We are soluble coffee player, less impact of green coffee. We are also coffee systems, coffee capsule player, again, less impact – more added value, less impact of green coffee in the equation. So we are quite privileged in that context. Generally, R&G players are short covered or shorter covered than us, so they have to increase quicker and more. So in that competitive context, we are doing what we have to do to cover our costs, but we are also very mindful of the consumer capacity to absorb and to how the competitive set is moving. And we want to make sure that we strike the right balance between covering our costs and maintaining the penetration of our brands. And, yes, I mean, as you can see and as you could see with the numbers from the coffee area and Nespresso, momentum is very, very solid.

David Hancock: Thank you. The next question comes from Sarah Simon at Morgan Stanley. Please go ahead Sarah.

Sarah Simon: Yes, good morning. I have a couple of questions. First of all, can you give us an idea of kind of when in the quarter you took price in the key categories? And then the second one was on margin phasing through the year. I’m sure you know your peer has kind of slightly adjusted the phasing of margin. And I’m just wondering how you see that developing through the year for you? Thanks.

Laurent Freixe: So on pricing, we have two, and we have very, very different situations according to our categories. We have categories little impacted, where there is little pricing required, where we even have the possibility to promote more and be more aggressive to attract the consumer or keep the consumer and coffee and cocoa more impacted. So those are the two where we had to take more action. And there is different dynamics between developed markets, emerging markets. Developed market, there is a slot where you negotiate, start to the year. We are through that period of negotiation without disruption and without negative impact, hopefully, from the customer standpoint. And – I mean we have to see now how the consumers do react, but we are really satisfied with the way negotiations have been going. In developing markets, we have the possibility to do it step by step. Most of it has been done, but a little bit more to come possibly depending also on how things develop from a cost standpoint and tariff standpoint. But yes, this is a dynamic that you see in the marketplace. On the margins, Anna?

Anna Manz: Yes, sure. So just maybe to give you the moving parts, as you know, as we’ve just been talking about, pricing is something that we have taken through Q1 and the timing of that varies enormously market-to-market. But, therefore, we will see an increasing impact from pricing in H2 versus H1. And in terms of cost, you see an increasing impact of the commodity costs coming through during the year. And then the other moving factors are really the timing of – in which we generate efficiencies versus the rate at which we increase our investment. And we’ll give you an update on all of this in more detail at the half year.

David Hancock: Thank you. So the next question comes from Jeremy Fialko at HSBC. Go ahead, Jeremy.

Jeremy Fialko: Hi, good morning. Thanks for taking my couple of questions. The first one is on elasticities. I know you said in certain areas, it’s a bit too early to tell. But I guess other areas, maybe for the EM, the pricing did go in a bit earlier. So can you talk about how the volume evolution you reported? Is it relative to your expectations you’re seeing you anticipated reaction? Or is it a little bit more or less than you had expected? And then secondly, on coffee creamers, perhaps you could just give us a bit of an insight into that business and where you are in terms of getting back to your points of distribution, recovery, your market share, some of the innovations coming to market, et cetera? Thanks a lot.

Laurent Freixe: So I understand that the first question was on volumes. The connection was not great, Jeremy. And the second one was on creamers. Yes. So let’s...

Jeremy Fialko: That’s right. Thanks.

Laurent Freixe: Thanks. Let’s start with the volumes. So we explained the dynamic of Q1. There are many, many dimensions in Q1. We didn’t highlight that much. And this is entirely volume-related, early Chinese New Year and no leap year and late Easter that has an impact, obviously, on volumes, and we highlighted the Nespresso and the, yes, impact. So on the volumes, we are pricing to both protect the margins and make sure that we support the volumes. So we are not one-sided in the way we take action. We are really trying to cover the two dimensions, and market shares, of course, are of the essence. So volume is an important part of the equation, and pricing will come on top. So that’s the way we are focusing on it. And our – the big difference this year compared to history or recent history at Nestlé is that in the context of inflation in some categories, we will keep investing in marketing to strengthen our core, to deploy our big bets, our innovation, our growth platforms and to address our underperformance, that should translate and that will translate, and that translates already in market share improvement, and that will support the volumes going forward. On the creamers, you want to...

Anna Manz: Yes. Can I just actually build on that one because I think there was also – the connection was a bit bad, but I think there was something about elasticities in there, too? So maybe just to comment on that, look, these are both pretty resilient categories. I mean, coffee particularly has been pretty resilient through previous rounds of price increases and confectionary, too, because it's an impulse and gifting category, is generally less elastic. It's too early to say how these price increases will play out. But maybe just to kind of bring that to life for you, just two different market examples, we've taken price on confectionery in Japan, which is a big confectionery market. And there, it's predominantly a gifting market, and we've seen strong RIG performance and a very good elasticity. Equally, if you look at the initial reaction to when we've taken price on soluble coffee in the UK, the initial reaction was a bit more muted because consumers in the UK generally have a spare bottle of Nescafe in the cub board. And so they delay their pricing, their purchasing action, while they wait to see how prices play out and how that move. So you initially see quite a big move, and then, you see it come back as people, then adjust to the new pricing. So that's why it's a little bit hard to read elasticities at this stage. We just need a little bit of time for it all to play through. But we are actively managing it at a market category level in the context of the competitive set and making the adjustments that we need to make as we see that play out. And then on creamers, I think I heard the question, which was how are you doing on share and distribution. And if that was right, I would say we're making good progress on getting our distribution back, albeit not all done yet, but big strides. And you see the share performance improving. And actually, we've reclaimed some competitive distribution. So you would expect to see our share performance starting to improve. I don't know if there's anything you want to add to creamers.

Laurent Freixe: No, I think it's clear. We just have the capacity now to also compete in the marketplace. So you will see impact in terms of better supply, better presence on shelf, and they will be competitive in all dimensions, bearing in mind that this is a category also that we lead from a market share standpoint.

Jeremy Fialko: Thanks very much.

David Hancock: Thank you. Our next question comes from David Hayes at Jefferies. Go ahead, David.

David Hayes: Good morning, all. Thank you. Two for me. One on the sales guide and then one on the margin outlook. So on the sales guide, just to kind of pick up on this comment about sequential improvement, can I just clarify? When you talk about being better OSG than last year, is that on the reported OSG at 2.3% or are we thinking about that from the underlying base that you've talked about of about 2.8% when you adjust for the Muslim Western brand boycott and the second half destocking that you took action on through the – through last year? And then into the margin, and some of the commentary, I guess, that you've been making, some of your competitors have talked about with the consumer environment need to discount more to narrow price gaps with private label or local players, A&P spend, some are committing to needing to go up. So I guess two questions related to that. A&P spend exiting at 9% of sales versus the 8.1% through last year. Is that still the right level in that kind of competitive environment and those points being made? And I guess in terms of picking up on your comments at the beginning about pricing plans need to be taken part of consumer sentiment, and your determination to improve consumer penetration is 16%, which you obviously reiterated today, are they still the right level? It feels like that's a bit of a needed compromise. And if that is still the right level, what's offsetting that compromise? Is it more cost saving – deeper, quicker cost saving? Just trying to get an understanding of the moving parts to get to the same profit point. Thank you.

Laurent Freixe: Yes. So to put the things in context and you ended up with the cost savings, and this is the end and this is the start as well, and the starting point of being capable to invest more in the marketplace and make an impact for our brands, strengthen the core, deploy innovation at pace, get the consumers on board, build up loyalty and also address on the performance, which we are doing. In the last two quarters, I've been showing already impact of what we have been capable to implement in no time. It's – at the Capital Market Day a few months ago that we deployed – explained the strategy and it's already in action and again showing impact. So the guidance says what it says that it's about an acceleration compared to last year. And again, the last two quarters give you a picture of what is in the making. The critical point is that all the building blocks are in place. The savings programs are bringing what we expect fast and we can redeploy quickly. We are doing those redeployments. We have increased significantly our investments already in Q1. We did already some in the last quarter of last year, and we start to see the impact. Our share position is improving. Majority of our underperformers are improving market shares. We see the fast deployment of innovation. So that will produce the expected results. Is the 9% or the 9.5% [ph] the right mark? Well, I think this is what we framed and this is what we have in the making. And again, we see the impact. So it looks like being working, and we want to make sure that we put the right level of support to our core brands, to our core. We will win through the core and also through – on both our innovation business and underperformance. On the margin, you want to say something?

Anna Manz: Yes. Maybe just to clarify a few of the guidance point. So the sales guidance was that we – and this is the guidance we made at the full year is that we expect to improve our organic sales growth compared to 2024? And 2024 was 2.2%. So 2025 will be an improvement on that. And that was not intended. That is not – shouldn't be read as a quarter-by-quarter improvement. It's an improvement coming from the execution of strengthening and investment that we're bringing behind our brands that will see us perform against our categories in a better way to improve our share performance quarter-on-quarter, actually, with phasing of days and shipment phasing and all the other moving parts, what that actually means quarter-by-quarter in reported terms could move around a little bit. But that's the underlying driver of our sales improvement. And you've seen some early good signs of that share improvement in the Q1 numbers? In terms of the PFME guidance, what we've said is we would like to be, by the end of next year, a 9% run rate investment as a percentage of sales, sorry, at the end of this year. I'm confusing my years here at the end of 2025. And therefore, you should expect this year to see us ramp up. So if you think about us improving roughly 40 basis points of where we were at the end of – for the full year 2023, you'll see us – no, I'm getting all my years confused here, full year 2024, you'll see us at about 8.5%, and that's the 8.5% that Laurent was referring to. And that increase in PFME has not been arrived at through solving for margin. We have started by solving for what's the right investment in our brands in this environment and the margin is the outcome. And the reason why that 16% is the right number is because there's substantial opportunity, as Laurent just said, for efficiencies in our business. And it's really important that we hold ourselves accountable to driving out those efficiencies to make sure that our businesses where it needs to be for the medium term. So that's really what informs that 16%. And if we felt that we needed to invest more, we would be having that conversation. But we feel we've got the right level of investment to drive improvement from here.

Laurent Freixe: And maybe the point to highlight always is that this is not just a matter of the PFME investment that we put in the equation, we got also the pricing element of it, we got, of course, the PFME investments and all sorts of levers that capabilities as well fit on the ground and so on and so forth that make us sharper and more competitive organization to win in the marketplace. So it's one element. This is one of the very visible element, but we are pulling all levers to sharpen our performance going forward.

David Hancock: Thank you. Our next question comes from Jeff Stent at BNP Paribas Exane. Go ahead, Jeff.

Jeff Stent: Hello. Can you hear me, David?

David Hancock: We can hear you, yes.

Jeff Stent: Okay. Great. Just a question, Anna, on the dividend. Obviously, you've got the commitment to increasing the dividend in Swiss francs every year. But by my reckoning, this year, you'll probably be north of the 70% payout ratio, is there any point where the Board might see actually is just no longer makes sense given the development of the Swiss franc currency? Thanks.

Anna Manz: That's a big question for a sales call. And I'm sure one that you will raise again as we move through. We are committed to our dividend, and we are a strong cash flow generating organization. You see us in this year with a slightly lower margin, but that's because we have made the conscious decision to really invest to accelerate our medium-term growth. And you see in the first quarter, the impact of the decisions that we're making starting to come through as you see improving share in the billionaire brands and progress on those brands where we have historically been losing share. So right now, our focus is very much on executing against our strategy because we believe firmly that as we do this, performance will follow.

David Hancock: Thank you. And our last question comes from Tom Sykes from Deutsche Bank. Your line is open, Tom.

Tom Sykes: Great. Thanks, David. Good morning, everybody. And just firstly, following up on your comments about the consumer, you've previously spoken about the bifurcation of the consumer and weakness in lower income exposed categories. Is that still the case? And is there at all a point where you annualize a fast pace of decline that actually begins to be a bit less of a drag at some point in 2025? And then in addition to that, in the U.S., I thought you'd grown a little bit more quickly in categories exposed to Hispanic consumers. And there's been some talk about changes in consumer behavior there. Are you at all seeing any impact on your business, potentially even a benefit from people staying at home more? And is there any impact on the food supply chain given the high impact of immigrant labor on food supply? Is that at all a concern? Thank you.

Laurent Freixe: So the quality of the connection was not great, Tom, so I think the question on consumer was how do we see this developing through the year we would like to know, we would like to have a crystal ball. I think it will be very, very much related to economic policies, economic growth development at this point or at this – there is no recession in sight, but we see the GDP growth outlook globally and in core geographies being reduced. So, yes, that impacts the markets – the financial markets, also developments impact many of the consumers, especially in the U.S. So that's the context. And I guess, the things will evolve as economic policies do evolve, and we see more color and the global economy turning the corner from what is, at the moment, a declining trend to stabilization at least and coming back. What we see in China is the determination of – it's also an important geography, not only the U.S. And I guess, administration will have to do something to reassure the consumers. So that's for the U.S. For China, there is a real determination from the government to support consumption. So that should produce results also, maybe not in the very short-term, but certainly medium and long-term, we know that the policy interventions in China have a bit more focus on the supply side, maybe less on the demand side, but there is real determination and the means to address the demand side and the consumer part. On the U.S. Hispanic, what I can say is that it's a big – of course, it's a big segment. It's been a growing segment and that we just highlighted that we are super well placed, thanks to our strong portfolio in Mexico and in Central America. You know that Mexico is our number four market in size and that we have a leading position in all categories where we play, coffee, dairy, food and so on and so forth, pet food. So the dynamic of the Hispanic consumer, we, of course, follow, but we are very, very well placed to play role and an increasing role in that context.

Anna Manz: Tom, I just cover off the supply chain one. I guess we've had a lot of challenges in the supply chain over the last few years, if you think about COVID and then the supply chain disruption that we saw and then some of the conflicts that have been occurring. And so managing our way through supply chain change or volatility, it's just part of our everyday norm. And I would say it's something that we've had a lot of opportunity to build muscle around. And so as I look at kind of some of the current challenges around and tariffs and the like, it's more of the same is how I think about it.

David Hancock: Thank you. We have no further questions. So we will bring the call to a close. Thanks for the questions and the attention. We will look forward to hearing from you again on July 24 with our half year results, if not before. Many thanks.