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Paul Bulcke - Chief Executive Officer, Member of Executive Board, Director and Member of Chairman's and Corporate Governance Committee

Roddy Child-Villiers - Head of Investor Relations

Wan Ling Martello - Chief Financial Officer, Executive Vice President and Member of Executive Board


Patrik Schwendimann - Zurcher Kantonalbank AG, Research Division

David Hayes - Nomura Securities Co. Ltd., Research Division

Warren Ackerman - Societe Generale Cross Asset Research

Eileen Khoo - Morgan Stanley, Research Division

Pablo E. Zuanic - Liberum Capital Limited, Research Division

Jon Cox - Kepler Cheuvreux, Research Division

Nestle Sa Reg Shrs S (OTCPK:NSRGY) Investor Seminar October 1, 2013 5:30 AM ET

Paul Bulcke

Well, good morning. We wouldn't be a Swiss company and not starting before time, but thank you for all being back after the coffee break. And I really hope that you had an interesting, insightful and enjoyable 1.5 days with us here in Switzerland, and that we could share with you some important aspects of our Nutrition, Health and Wellness agenda, also with The Nutrition -- Nestlé Nutrition Journey that Luis Cantarell has shared with you.

It is indeed, if you see our roadmap -- and we have been sharing with you the roadmap in many, many occasions already, but if you see the roadmap, actually, the whole roadmap is centered around the Nutrition, Health and Wellness agenda. And what does that mean? Because -- these words, nutrition, health and wellness, what do they mean? And at the end of this too, we are a company about offering tastier and healthier food and beverage choices to consumers, and encourage them to have balanced and healthy lifestyles, and ultimately, by doing so, helping them to care for themselves and for their families. That is what we're all about. And I cannot stress enough the importance of that line in the sense that the whole organization is focused and centered around this. But at the other side too, it is indeed, we are Nestlé, we are all about quality of life and nutrition, but the relevance of that is the value that it creates. First of all, it defines what we are, it defines our DNA from the start. It defines what we live for as a company. But it drives also the competitive advantage, the competitive advantage of differentiation, of building more arguments, being ahead of the curve, driving our R&D and, at the end, creating our brand value. That is what drives then also the business value.

It also addresses the nutritional needs, be it personal or from society, that is increasingly visible in our society and [indiscernible] for and also challenged too as a company. It is how we link -- as in other words, how we link as a company with society, Nestlé in Society, and how we have called that Creating Shared Value. And at the end of the day, it is the agenda of Nutrition that drives profitable growth and, through profitable -- or profitable growth, shareholder value. The value of that agenda cannot be stressed enough. And that is something that we make permanently explicit that we embrace also much more forcefully in the whole organization, in our R&D definition, where we're going to put our resources behind.

And we find that agenda of Nutrition, Health and Wellness in the normal food and beverages that we have. We find it back also in the Nutrition that we have for people with specific needs, and we have been sharing some of that and are going to go back to this in a few moments. And we also have that reflected in the Nestlé Health Science initiative and where we definitely believe there is some -- there's great value in that potential in that market opportunity or whole market opportunity that is in the making.

Luis Cantarell have shared with you this journey, a journey that started 150 years, almost, ago but that we intensified and held -- have made more specific by establishing Nestlé Nutrition; and how that has evolved and how thereof came the certain decisions that are very meaningful for the future. We are also having shared with you this, in order to have a healthy and fulfilling life, it all starts with growth and even before that, and all -- and then also Heiko Schipper has shared with you this first 1,000 days and how we are embracing this. And at the end of the day, it is for a company going back to its roots: We started with Infant Cereals, and we have been close to infants and babies ever since. And how we embrace this in a holistic way and how we also in -- are engaging and deepening our presence in the world through also the very meaningful Wyeth acquisitions where our friend Julius Romano [ph] (sic) [Bill Partyka] has shared with you where we stand, what it means, what intrinsic values are and the drivers of the success of that company. And then also, with the example of the huge potential in the world showing through the presentations of John Cheung and James Chiu in -- on Nestlé Nutrition China which is an example of how the potential -- how big the potential is in many, many other markets where we are not so engaged only a few years ago. And that same thing that we see in China is going and is repeated in the Africas of this world, in the Indias of this world. The potential is huge.

Then the other part that you saw with Thierry Philardeau is that the first 1,000 days. And we're going to embrace this. There's a lot of potential there in we -- how we're going to organize this through infant formulas, Infant Cereals and baby food. Yet at the same time, in the society, in the aging society, there is huge opportunity for adult and healthy-aging nutrition, if you want. There's link of this good lifers that he -- what he called it. So a huge potential that is on specific aspects of the Nutrition, Health and Wellness that we have focused on the last days.

Then Luis Cantarell has shared you, with you, the Nestlé Health Science journey. It's now 2 years that we have started this initiative. That came out of healthcare nutrition that we had in Nestlé Nutrition. We have put it at an arm length and have shared that with you why. And basically, the reason why we have done that with specific governments is that the focus we have in food and beverage is to drive our nutritional agenda. And so it's very sharp, the alignment we have with the organization is very, very strong. That creates so much gravity of focus and alignment -- that whatever you want to explore that is a little bit further the road in time has no chance of really flying. That's why we have set up that organization. And he reflect it, the effect and the consequences of putting that with the specific governments.

We have quite a few new people coming in there. We have Shevrad Yuhi [ph] and the 20-plus people now in that organization, and more than half of them are form the outside. Why? Because this is another ball game. This is another platform. It drives and it is under the same roof of Nutrition, Health and Wellness that it grows them further. And also, the science is different. And the new science that allows us to go after that opportunity is different. And that's why we have set up Nestlé Health Science. So he, I hope, shared with you the journey of building, defining and driving this initiative and also have showed with you the balance we have picked because that's the world. When you start there, you have an amazing amount of opportunities to go after. You have to pick your battles. And we have defined there basically 3 existing platforms and 3 news ones that are going to be driven by the Nestlé Health Science institute.

Now as I've said, that was the first, in Nestlé, it's all about quality of life. And what more important in quality of life are food safety. And that's an issue that, through the world of today -- and John O'Brien has shared that with you, in the world of today, food safety and quality is of paramount importance. That is, that has been always important, but it is now so much visible and present in people's minds, also in societies and regulators, et cetera. And that is something that we have embraced always because we always told you that the biggest or the most important, I mentioned, that we have to care for is trust and trust earned with delivering on your promise. And promise, that promise is quality and safe food.

And that is something we have been managing quite intensively. We have been more explicitly building capabilities there. The world has changed. The supply chains are more complex. The -- we are operating in all parts of the world, so we have build-in and strengthened our safeguards there, call it safe by design and safe by control, that combination. We have also a very, very strong early warning system that is very important in a globalized, interconnected world that's today. And we are measuring our compliance to these rules and we are measuring our performance. And he spoke about more than 100 millions of test that we do a year over.

So that is quality of life. It's linked with the food safety. Quality of life is also linked with what we do with our environment. And that as well is a little bit of walk-through that we wanted to share with you here on this floor.

And sustainability is not an add-on for us. And you may have here dug [ph] before, but it is really embedded in my -- how we do business. It is so closely linked with our Creating Shared Value that, we as a company, whatever we do, we have to have respect.

And respect, if you want. When I think about one word that is on the base of all our principles and values, it's respect. It's respect for other people, respect for other cultures, respect for the future. And respect for the future equals environmental sensibility and priority. So I hope we could also share a little bit with you how that is intimately

linked with how we do business, be it in the supply chain, be it in our factories, be it also how we connect to the society through efficient supply chains, et cetera.

So I think these are -- this was the meaning of setting up that program. First of all, they're showing some aspects, very important aspects, of our Nutrition, Health and Wellness. That underlines again the importance of that agenda and what we are as a company, what drives us, where we put our resources behind but also what creates our value and, at the end, shareholder value, and then also the respect we have for the nature and environment and also for food safety and quality.

Now if you want to be successful -- and that brings me to another point. If you want to be successful over time, you have to perform over time. And therefore, you have to have as an organization major [ph] complexity we have as an organization. You have to have a very clear strategy. And that is, again I'm talking about the roadmap. I can only stress again the importance of the roadmap that we have known for 5, 6 years, 5 years, how that has helped us to steer through these troubled times, because at the end of the day, it's more or less exactly 5 years that some troubles started in all range of society and all the world. But it is that clear view on what we want to stand for, what the reason and strategic direction of this company is and having that set up under one page that aligns the whole organization. It has given us purpose and has shown us always where the journey going to lead us to.

I spoke then afterwards also, in this company, of

the need for acceleration, the need for acceleration in the sense of we are a company that goes with a certain pace, we secure our steps. We don't lose people's thanks. In essence, we have quite a few Swiss qualities, but in the world today, we have to accelerate. We have to put faster execution behind our strategic direction. And that is what we call then this whole sense of urgency.

And then it is not a matter of only going faster -- or fast, it is going faster. And then we spoke very, very explicitly internally about this competitive intensity and winning. It is not just doing good and being best in class. In Nestlé, it is best in class in the industry and to do that in every part of the supply and the value chain. That urgency, we have been building that in, in our organization, faster decision-making, et cetera, also fast moving to market of good and new ideas. That was a little bit of the keywords that we have used the last years.

And then we spoke about this new reality, too. And we spoke about winning in the new reality. And the new reality, you know all the characteristics of the new reality. Actually, what the crisis did was many, many underlying trends of the emerging markets are floating and coming up faster, the crisis in the developed markets and all what came with that, the price sensitivity. Aging population, the demographics have changes with that. All this, we are really living in a new reality.

And we spoke about facts in our new reality. We've got the roadmap that we challenge every year. We always check our roadmap if it still stands, [indiscernible] stands. We need to have some priorities specifically linked with the new reality. And one of these, the first one was -- and I have shared it with you, was making choices and making tough choices sometimes. That was the first one. I'm going to go back to this. The other one was grasping opportunities. In all this turbulence of troubles and challenges we see, I always believe there's an amazing amount of opportunities. We are actually privileged to live in these times because it's full of opportunities. Just think about what science allows us now to do: We can create products and build nutritional arguments through new insights of science. There's just an amazing amount of opportunities in the developing word and are really developing now on their own terms, full of opportunities. It's a matter of seeing them and then organizing around them and getting after them.

Second was grasping the opportunities. The third was valuing what the consumer values. It should be consumer-centric. That means also taking out what he doesn't, which is reducing waste in the system. And there, you start seeing then this holistic, continuous excellence coming into it too, but really knowing, understanding, anticipating what the consumer really values. It's all about value: value identification and organizing around that. That was the third one, more value than ever.

And then we spoke also about this new reality where we have to engage as a company with communities and stakeholders much more intimately. And we know that. We're on a high tree [ph], catching a lot of win, we always have, but this is just not getting better or -- and so we have to engage and we have to talk about ourselves. We have to be more transparent, and that is something, I think, we have done more increasingly the last years and, to a certain extent, recognized for it. And that is heartwarming, I must say. But we see also the meaning of a company like ours to be a really part of society and to drive some parts of the discussions in society, not just limit them.

The fourth one was, and we held [ph], said the fifth one was engage in digital. We normally, as a company, are a company that is sometimes just watching out a little bit, making sure steps in the newer dimensions but sometimes waiting. Digital goes so fast. We don't have that luxury. And I said -- we said, as a company, we want to be a leading, fast-moving consumer goods company in the digital world. We have 2 dimensions to it.

There's this whole dimension of social media and how we engage there and, actually, the fact that we have a Digital Acceleration Team here, DAT, that -- where we brought in talent from the markets, from the Nestlé markets, to really share and to learn this digital world. As you can imagine, all the young people, people with a different language, engaging with the digital world, engaging with consumers all over the world in another way. And we have gone a long way in the 2 years that, that is in existence now. And we're rolling out -- these people go back to their markets and are engaging their markets in that dialogue, in that conversation. That's the first part.

The second part of digital is e-business. And we do have really important aspects already and businesses in e-business that I do believe we can engage more, more so because it's -- truly believe ecommerce and e-business in general is going to be actually taking over in -- from the developed world into the developing world. As you can see, the ecommerce is actually a way of bypassing the cushioned [ph] infrastructures. So we see there traction coming, and you see it all the way -- already happening in quite a few big markets. I do believe there's an amazing upside for a company like ours to really engage there with the third parties who are interested in that, having our own business set to consumer businesses also driven more efficiently and effectively.

So embracing digital was the fifth one, priority we want to embrace and that we have our own agenda as a global organization, digital.

And then the last one, the obvious one, is to have the best people. And the best people has more meaning now because, with the globalized world, with a world where business models are not unilateral [ph] from the Western world, you've seen new thinking coming in, how -- new ways of going about supply chains of -- where you need diversity of talent. So it is to have good talent for absorbing growth, but it's also to have good talent to have all the insights that you need to be successful in this ever-changing world. And I think we -- if you think it, we have more than 90 nationalities already in this building, for example. In this headquarter, we have more than 90 nationalities. You'll see, our general management, with all the nationalities and countries that we have there together, I do believe we have an advantage there, but we have still to drive it further.

These are 6 -- the 6 priorities, if you want, that we want to focus on. Now I want to go back to 3 of them. I -- and we spoke about making choices. We spoke about grasping the opportunities. I mean, here we have spoken about also really understanding what the consumer values now and tomorrow. And if we want to reembrace that with these 3 priorities, these 3 priorities have consequences and induces [ph] to action. And I have personally, on my desk, 3 dimensions that I really want to share with you and be more explicit. They are high on my agenda list, on my agenda.

And the first one says strengthening our portfolio, link to it portfolio management. You have heard of that before. It's a tool or it's a way of going about analyzing and building transparency through this complexity of categories and markets, basically. We have, actually, 1,800, I think, cells that we analyze on cell criterion [ph], be it the strategic fit; be it also the resource need and allocation you have behind it, where I know -- or what we've done in invested capital; and also the capability that we have in this categories to win, in other words, to grow profitably. These are the criteria, base criteria, that we use.

Now when you judge all that, all these cells, all these categories and markets and all that, and that better creates consequences in the sense that if something doesn't work, well, there is basically 2 ways to go: it is to fix it; or it is, get rid of it. And we have been a company that has, to a certain extent, a little bit of luxury. And I got enough feedback from you, sad to say, "Well, you were a company that allowed quite a few of these underperformers to underperform for too long." Well, that's on my agenda to make sure that is not the case anymore because I do believe that if you do now allow that over a long time, you start to actually weaken the good businesses because they'd have to overcompensate for the weak businesses. And we're going to go after them.

That visibility that we know have create shortslists. And the shortlists are there and now action has to come. The time lines have to be wise, but the action will come. So the portfolio management that we have been sharing with you over the last years that has given us the cost to implement it and has been embraced by the whole organization has created quite a few shortlist. And we are organized around that now with the right time frames. First on my desk.

Second one is resource allocation. As the end of the day, all what we do is getting results with much more efficiency of resource allocation. And one of the big resource allocations that we have used the last years is CapEx, capital expenditures, and I think that was the right thing to do. The last 3, 4 years, we have increased our capital expenditures quite intensively, both quite heavily above levels that we normally have, so the cruising levels, as we call it. And that was the right thing to do. Why? Because we saw acceleration of growth. We saw also acceleration of the emerging markets embracing new product concepts, going from the classic Boolean cube to more-sophisticated concepts. You have to build the capacities and the capabilities in these markets.

As you know, we are, by definition, a decentralized company, and food is to bring, produce [ph] as close as possible to where the consumers are. So we have built these capabilities, be it in capacities. We have opened R&D centers because we found also that the emerging markets can have unexpected opportunities of driving and inspiring our whole R&D. We have built these capabilities too. In other words, we had, during the last 3, 4 years, quite an impressive acceleration of capital expenditures. We want now to leverage that investment, to sweat the assets, as we call it. And it -- by that, we -- for the future, for next year, for example, I want to cap capital expenditures, which is always a healthy thing to do sometimes, just cap it. And it's just

amazing how creative people are to get their things done with limited resources. But I feel, after 3, 4 years, it's time now to sweat, to leverage the investments we have done. A lot of capital, a lot of the cash went into that, and we're going to sweat it now and recapping, I will say, the capital expenditures for next year back into the normal cruising speed of between 4% and 5%. That's basically more than 100 basis points less than what we have, for example, this year foreseen.

That's the second one. So results allocation efficiency, specifically capital expenditures discipline for next year, is in and, I hope, in the years after. A right thing to have done investments in the last years.

And then the third one is, call it, structural efficiency, or call it managing of -- going from managing complexity to mastering complexity. We are -- by definition, by strategic decision, we are a complex company. We have to -- we took a decision, we've taken the decision in the past to really be engaged in different categories [indiscernible] in different categories, be it milk, be it coffee, be it et cetera, that's certain complexity. We are engaged worldwide over, having operations almost in all every country of the world. We have a fundamental belief that the best structure in food in our company is to be decentralized in decision-making, create some complexity. So we have intrinsically banked [ph] strategic decision-making and certain complexity in our landscape.

Now that creates -- that decentralized, that creates, at the other side, size. Being in different categories, being in all these markets, creates size. And we have always said and worked to translate that size into scale, and scale into competitive advantage. Just think about R&D, for example: How many platforms we can roll out on different categories in all these markets? These are where we leverage size into scale, scales into competitive advantage.

Now we have defined different business models because we don't have one business model, and you see examples. We have local managed businesses that are linked up with the zones. We have regional managed businesses that are not in every country but managed by zone, like, for example, Purina. We have Purina North America, we have Purina Europe, we have Purina AOA. We have global managed businesses like Infant Nutrition, so Heiko and then Luis. We have water global managed businesses. What has driven with -- what has driven the decision-making there was basically generating demand: What is more driving that category? And in certain categories like infant formulas, it's clear that's innovation and renovation. These are worldwide initiatives, and the rollouts, rather than, for example, soups or Nescafé, although worldwide brands, strong worldwide brand, but we have 180 brand -- blends because coffee is so -- in taste and profiles, so local. So we have these different models.

Then we have the strategic business units in the center, in the role of the center that we have defined, and then the role of the markets and how they are agglutinating the Nestlé presence through Nestlé in the market where then all businesses are coming together under one roof in spite of having different product reporting lines. We have been driving, over time, true GLOBE transparency, a major project 10, 15 years ago that started and has gained -- given -- has linked up that complexity through the transparency and the standardization of data and processes and has brought us an amazing amount of enabled possibilities; of driving also, in the other side, NCE that is driving through all of the operations efficiencies and goes after the ways I was talking about. That, I mentioned, is helping us. We're driving also NCE out of operations, beyond operations, so that we start building up a Lean Enterprise. And that comes to my point.

Are we -- after having established all these dimensions and the global managed business, the regional managed business, GLOBE, NCE, et cetera, are we on the top of our efficiency of our performance as a structure, as a company in decision-making and the processes of decision-making? The rollouts of innovation, are they fast enough in these more globalized world? There are new means that are now technically there available. Are we still working in the most efficient way?

I do believe, in an organization like ours, it will be very pretentious and blind to say that we are on the top of our form. I think what we have done is like if we were an athlete. When an athlete goes and as you -- he's performing, he's quite fit but he's performing well, he goes to the limits of his lungs. If we wants to go faster, he has to do something with the body. I think we are on the capacity of our lungs, there is so much upside still with the body. And an organization like ours always tends -- in spite of all best efforts of time, tends to sort disorder. And it is my personal initiative also to challenge that structure not structurally but in the way it flux the information flux as the decision-making is made, to reconfirm what I feel is good and to tweak and challenge what is not really working well. And that is something we're going to do as an executive board, we're going to start thinking and processing and seeing and challenging how we are structured, what is working well and what is not, what can we do better.

There is upside there. And the biggest upside for us is to have a much more flexible or a much more flexible, more agile, crisp organization so that our decision-making goes faster, that our responsibility definition is clearer and that our rollouts of good ideas and a lot of new products is faster, that we have processes that we don't have millions of emails happening around and read by people who should not read them. There's so much upside: that we have short-term meetings. There's very, very, very many, small little things that can be much done, be much better by these organization. And I do believe that, that is not -- I'm not speaking about restructuring here. I'm not speaking about we're going to take so many people out in that, that's not the idea. The idea is to absorb the growth that we projected for the future on the same structures with a more efficient working method and interrelationships between. I'm speaking about marginal getting better over time, but I do believe there is quite an upside here that is going to help us be lighter in structure, Lean Enterprise, and yet, at the same time, faster.

So I have -- basically, we have the roadmap. We have 6 priorities. I shared them with you in 2, 3 occasions already, but I have 3 things on my desk, and that is definitely actions coming from portfolio management. The second one is CapEx discipline or CapEx capping discipline. We always have disciplined CapEx and but just to cap it because I do feel we have done a major effort with the shareholder money investing in our structures, in our capacities and all that, no time to leverage that and spread our assets. Capital efficiency is definitely linked to that. And then the third one is structural efficiencies. It's from managing complexity to mastering it, and there are some upside there too.

These are the 3 things that I wanted to share with you, and that they are very high on my agenda. These are the things we're going to work on in the next months, years. And we are very much aware of the upside there that we all are going to enjoy and show it off.

With that, I think I've -- I didn't want to make such a long introduction, but we open for questions now, so please...

Question-and-Answer Session

Patrik Schwendimann - Zurcher Kantonalbank AG, Research Division

Patrik Schwendimann, Zurcher Kantonalbank. I have 2 questions. Firstly, Dutch colleague [ph] was mentioning yesterday a slowdown in the emerging markets in quarter 3. I know Nestlé already had a slowdown 1 year ago, but what are your expectations here for the emerging markets for Nestlé? And secondly, regarding your stake in L'Oreal, and all the options are open for you, but let's assume you would sell the stake and would do a major share buyback. What would justify such a move?

Paul Bulcke

Well, first question, slowdown of the emerging markets. That's something we've said already a year ago. And these slowdowns are not all of a sudden, you wake up in the morning and they all slowed down. It is not that the emerging markets are all orchestrated to slow down at the same time. So that reality, we are so copular [ph] in the market that we have -- we -- actually a very barometer of what's happening in the world, so we were quite early to see these signs. No, I -- in many markets, a slowdown, that, I would say, is to us, to a certain extent, healthy. I'm the first to say and have shared with you, when a China or another country grows 12%, 13%, 14%, 15% several years in a row, that overheats the engine. And there are some structural dimensions that you pried in [ph] and you see that the authorities there are structuring the playing field a little bit in China. That, in my eyes, over time, is healthy. Now if you have a regional, like the Middle East and certain countries, being in war, that's not very healthy. And that's part of our reality. I mean, we have shared with you how -- an anchor factory in Syria that we had that was working until a few months ago. That was blown apart and looted, it's not operational anymore. That was actually a factory that was also supplying the region. Well, we are rewiring now and investing in certain other factories in other countries. But before you get that, you -- but that's the emerging markets. Then we said the developing markets, where I hope to get some more callers back, that's -- these really work [ph] for you. It's in North America and Europe, but it takes a little bit longer. In North America, it's a little bit lukewarm, and Europe is longer because it was structural. So no surprise, that's reality. What is important for a company like ours is to drive the right innovation and renovation agenda. To win in a marketplace is to grow faster than the market and with the agenda that you want to drive and not be driven by. And I think that is how we measure ourselves. And so the emerging markets are a little bit slower than before. That's why also we said at the beginning we're not a company that's emerging markets, no. We have always said, we always said, "No, we are an end [ph] company," developed markets too. And we have really focused a lot and invested a lot in market gain, in consumer spend behind our brands, in innovation and renovation to maintain all parts of the world because, at the end of the day, the emerging markets are very, very important, and in short time, they're going to be 50% of the world economy, all right, but still, only 50%. So you better don't limit your playing field on 50%. So we really engage overall. Our growth, I would say also, you see less pricing in that growth we have. And that's good, I will say, because you have less input cost. You may remember also, when input costs skyrocketed, you say, "Oh, your pricing to the highest level." We said, "No. They're going to go down one day because we see underlying lines there and try to be right there and we have quite a little bit of visibility of how these trends go." And then we have less pricing need because of input cost reduction. Or well, then you have less pricing and you grow. That's normal. I mean, that's what we have. What for me is important is really is growth is [ph] taking up. And that is underlying, really, of the strength of our growth: It's quality growth, it's balanced growth, it's all over the world, with weak points. But I must say, the consistency and the spread of our growth is healthy. In emerging markets, some are accelerating. We are putting right things in place to accelerate. Africa is still going on with its 40-plus countries, and some are accelerating, others are a little bit slower, but all in all, it's a continent that goes 5% to 7%. So -- and Latin America is challenged a little bit. You see -- I don't have to give many examples, but Brazil, you see some of the inflation coming back, devaluation. I lived in Latin America for a long time, so I know what I'm saying there. But it's far from what it was used to be, so a more establishing dimension in these countries that allows, really, them to -- in the long term, to be a very interesting place to be. So that's how I read it. I mean, I'd be aware of -- quite early in seeing it happening, coming in. And we are organizing, and part of the capital expenditure discipline that we are speaking about is linked to that. We have our capacities now, we have to spread them. And we're happy we did it in the right time. On the other question, L'Oreal: You just say it, all options are open. And no more comments.

David Hayes - Nomura Securities Co. Ltd., Research Division

It's David Hayes from Nomura. Can you just talk about how you're going to balance the risk as you get the organization to focus on capping capital intensity, working capital, which you've talked about as well, that you're not suffocating the business in terms of seeking growth and that, as things are getting more difficult, to your previous answer, you're making it even more difficult for Nestlé to hit the management of the Nestlé Model?

Paul Bulcke

No, because -- let me share with you. The Nestlé Model, as we all came to name it, is -- I mentioned of consistency over time because the Nestlé in, the model -- because the model per se, profitable growth and capital efficiency is the first of our in-business goal. That's what companies should do, top line, bottom line, capital efficiency. Now the Nestlé, in the model, is we try to have consistency, and the consistency is over years. Consistency is not every quarter, every year, specifically per se, but the line we want to walk is 5% to 6% growth, and the margin increase that we want to have is part of that. If you see also -- and the margin we want to have is not because we want just more margin. We do believe that the business model and the strategic direction we have is added-value direction, so you should see that coming in through margins. Capital efficiency was always there, but we're giving them more privilege now and being part of the decision-making process in more explicit way, not only on an aggregated way but in cell-by-cell way, and that is where portfolio management comes in. Now and so we don't privilege one or the other. We're an end [ph] company, again. And I do believe that when you stop growing, you're in trouble because then you're losing part of the relative size you have, you don't grow and you manage -- your own agenda, your innovation and renovation is not fruitful. And the frustration in your company and the morale of the troops is very linked with growth too. Overdoing growth and growth for growth at the expense of the future, no way. We can grow tomorrow very nicely but on the back of the future. Now we live in a society where too much has done already on the back of the future, and we don't want to be there as a company. We've never been. We always have given that privilege a long-term perspective on things. We have an intensity for the short term. We will deliver but always in perspective of time. The perspective of time, over time, over the years, is that line of 5% to 6% growth margin increased linked to overall strategy, capital efficiency, and I have shared some ideas on that. So and that is linked, again, with investment. And we have increased our consumer-facing investment because we feel we have more and more arguments built in our products, we -- and more and more innovation driving our growth. Well, then, we have to communicate. So we -- this balanced way of going about things. This is not agonizing for just small little things on the short term but seeing the underlying trends of things. It's seeing the underlying strength of the company and its growth. It's seeing the underlying pipeline that is going to come. And again, a pipeline is not every month the same impact of innovation. Sometimes, you have more accelerates. Sometime, there's less. That all is actually the nicety of my job, to see that all happening and orchestrating it in a harmonious way. And harmony is the strength for the future. Harmony is linked with not overdoing it now on the good back of the future. We're not going to do that.

Roddy Child-Villiers


Warren Ackerman - Societe Generale Cross Asset Research

It's Warren Ackerman of SocGen. Well, a couple of financial questions for Wan Ling. The first one is, I mean, you've signaled that CapEx is coming down, your more active portfolio management and there's no transformational deals out there. That all sounds quite positive from a return on invested capital point of view. So I was hoping you could share some of your findings on return on invested capital. Specifically, what percentage of your invested capital currently is generating below WACC returns? And then secondly, where do you think the returns could get to on a 3- to 5-year view? And what will be the biggest drivers of that uplift hopefully in the return on the invested capital? And then the second one is just on the restructuring charges. I noted that, in 2012, the restructuring charges were only CHF 95 million on a sales base of CHF 90 billion, that's only 10 basis points of sales and restructuring. Some of your peers are spending 100 basis points on restructuring. So the question is, how should we view that negligible restructuring spend? And what do you think is the right level of restructuring? Does it kind of go back to the 40, 50 bps level? So those are my 2 questions.

Wan Ling Martello


Paul Bulcke

You're up.

Wan Ling Martello

Yes, thanks, Warren. Let me go back also to what David had said earlier about balancing the risk of suffocating. I want to reiterate what Paul said earlier: When we think about portfolio and managing our portfolio more actively, there's really 2 sides to the coin. It's not just walking away from businesses that are underperforming but also accelerating where we need to accelerate. So to David's question about will we be risking a sub-optimal level of investment for future growth, that is categorically not the case. And that will not be the case because, like I said, there are 2 sides to the coin. In terms of the review that we've done, we have -- the tool has been rolled out to 97% of our business, of our cells, and we obviously have clear visibility on how many cells are anywhere from value destroying to sort of like on the verge. It's not a detail, Paul, that we're sharing broadly with the public. But clearly, like Paul said, it's not just an automatic assumption that if a cell or a category in a geography has not been doing well, it's not an automatic assumption that we're going to put it on the block. Rather, can we fix it? How long is it going to take? And if not, maybe this is just a business that we're not the best owner for, and therefore, we will walk away from it. In terms of the question on restructuring, I had alluded to this in the H1 call. We -- because of this portfolio, we're looking at some divestment. A lot depends on what -- from a timing perspective, like we -- to the extent that we sell some businesses and we have to pick some or we have to do something from a restructuring standpoint. Once the businesses goes, then we have some retained costs that we have to deal with, so it's not it's going to be -- I guess our guidance is we will improve margin, which is our Nestlé Model, from year-on-year. And so obviously, restructuring cost is a part of it, but we'll manage it so that we deliver against our commitment of improving our trading operating profit margin.

Paul Bulcke

That would be a strange target. "Well, let's have 30 basis points of restructuring costs," I mean. But you're right, there was a certain level that we have which is intrinsic to a business, but it doesn't have to be played every year, and we want to do it in the right time, in the right event. There was a time that we had a much higher restructuring cost. You may remember, 7, 8 years ago, we had a wave of restructuring because it comes always in blocks and -- but linked with efficiency and resource allocation, restructuring is part of that too. What doesn't work, you fix it.

Roddy Child-Villiers


Eileen Khoo - Morgan Stanley, Research Division

Eileen Khoo from Morgan Stanley. Two questions. One, it's encouraging to hear you talk about more active portfolio management. I was wondering, what kind of scale are we talking about here? You've done your review. What percentage of businesses have you looked at that look like they're underperforming or could be in the hands of other owners? And the second question is actually on local competition. I mean, I don't know if this is a fair assessment, but it feels like, in food particularly, the competition from local players seems to be more sophisticated and more aggressive lately. I mean, would you say this is a fair assessment? Is this a threat for your pricing power long term? And what other steps are you taking to make sure you stay ahead?

Paul Bulcke

The active portfolio management you speak about. First of all, the whole portfolio management is not with one objective alone in the sense of let's see what we divest. It's part of it, but for me, the most important thing is to have the visibility of where should we fix certain things that are sailing under the radar stream for too long without being part of the party. And that is what we are focusing on. Divestitures, we're going to have some. We're not going to give figures on this, as you can imagine, but there are certain things that are not -- that we can see all the work [ph] on the strategy and all that but we cannot enjoy the business. Well, you don't want to be -- we want to be in business, not in agony. So if something doesn't really show it, well, we have to be sharp and say, "Okay, fine, let's put our energy not in evading the question, but let's put the energy in getting into a solution to the problem," and that's how it is. So that's going to be the shortlist I'm speaking about. There's a shortlist also of fixing. And the shortlist of fixing is slightly lower -- longer than getting rid of. We are business people. We want to do business, not getting rid of business. But there are certain things that we don't see we can fix. Now a very important comment on local competition: I'm the first to really acknowledge that in -- food is local. We always say that. And that's why we are decentralized, that's where -- but that means also many local players. And our competition, the classical big ones and the classical names and the classical, we have to be aware, and we are, that so much competition is coming from new places and not only local, like we had. I was in -- I've mentioned that before, I was living in Latin America for a long time. We have many, and we always had, the small local players and teasing here or being already in the market for a long time and having that leadership. What we see is that there's -- these players are developing very fast, going international or are big in their own country and resizable, and they're not opportunistic. They're starting to invest in R&D, they linked up with universities. They have very good quality, and very good managed. So we see new dimensions of competition coming in that are very, very strong. And you have some countries that you're regional players, but you're multibillion already. So we have to be aware of that. And we should not be blinded by only the classical players and what they do only. They're part of it, but we should have an increasing openness to these new competitors. And I can tell you they're fantastic. They are very strong. They have the capacity of attracting very good talent be it in management or in R&D. And they do the right things. And that's again an advantage of having a company that is so decentralized in decision making because it is clear that the market had -- somebody who's leading or a presence in a market, in a country is very close to that. And then they're reporting back of what's happening. And they're monitoring that we can do to these people. And it's very direct. So -- but there's -- indeed, the competitive landscape of our industry is changing and changing fast.

Unknown Executive


Pablo E. Zuanic - Liberum Capital Limited, Research Division

Yes. It's Pablo Zuanic from Liberum Capital. I have 3 questions. One, I want to go back to the theme of emerging markets. But can you help us put in context? Okay, emerging markets are slowing down. But how bad is it really compared with '08, '09 or previous crises? And the reason I asked that, from my perspective it's a lot less worse than it is in the past. But I find that there's a reluctance or a reticence from other consumer companies to take pricing in emerging markets in the middle of a crisis compared to other locations. And I find that -- particularly, I came across in the second quarter conference call, second quarter results, yesterday's pricing. I know you mentioned commodities, but I can go back 2 or 3 years ago, I think, in a conference call. I don't remember if it was Mr. Singh or Roddy said something like "You cannot underestimate how much pricing we've taking in Latin America, and it was in the middle of a crisis." So I'm just trying to understand, how bad is it really? And if it's not so bad, why this reluctance to take pricing? That's one question. The second one, I want to, I guess, ask the L'Oreal question a different way. Can we go back to Alcon and Novartis and how the science? When you divested the Alcon business, and I had just started to cover the story at that time, when you divested the Alcon business, was that because there was an opportunity to buy something? Or because strategically you decided, we want to sell it and we have a good bid there? Can you give us some history or just put that in context? And I guess the last one is maybe one for Ms. Martello. Is there a debt target? I mean, where -- we make our own little projections in terms of cash flow, but is there a debt target in terms of balance sheet efficiency that we should think of in terms of net debt-to-EBITDA or other metrics that you would use? And related to that, when you think of dividends or buybacks, is there a preference? I mean, if your dividends -- if it's going to be an extraordinary dividend or a big share buyback program or one-off, is there any preference taking into account, of course, shareholders' tax interest?

Paul Bulcke

Thank you for your questions. The first, on emerging markets, they're slowing down, how bad is it, how deep is it, how structural is it versus history and the past. And then second question, pricing. I don't think -- as they have been growing so fast, in contrast with the developed market in crisis, the contrast was so huge and the dependence for growth of the world was so important that it hurts now that they're slowing down much more visible. So it consists of -- [indiscernible] phase. And I do believe the growth in emerging markets is much more stable than before if you compare with the past. So 2 considerations. First, the contrast is showing that it's worse than it is because at the end of the day, they're still growing, and they're still growing nicely. We were used to more and would have liked more. But -- and there are some parts of that, the emerging markets, that are going to reaccelerate, to a certain extent, I hope not to, again, to 15% and then slowing down again. I think growth in these markets are going to stabilize whenever we have stable political, social environment. That's one. Second, the stability of this growth, of the growth in emerging markets is also linked with the fact that emerging markets, in my eyes, are growing on their own terms. And that's much different than in the past. In the past, the emerging markets were classified as developing by the developed world. And basically, they developed definition of behind us. But their whole growth was dictated and conditioned by the developed world. That has changed. In the developing markets and emerging markets, their governments are going about their own future. They have a lot of confidence and trust in themselves. They're starting to build their own structures. You'll see more stability, politically speaking, and that is really refreshing. You'll see how they embrace their own natural resources and wanted to go for added value. You'll see how they really start to bind themselves together. And that goes hand-in-hand with 2 phenomena. First of all, they really see the strength of going about economical development and how that is a stabilizing factor in their own countries over time. And secondly, it is also linked with the fact that the developed world has its own challenges. So they don't say, we depending on that. They take their own fate in their own hands with -- and there's actually [indiscernible] also. When a small country says, I'm going to go about my future on my own terms, that's one thing. But if China says that, everybody listens and motivates us to do it. So the stability of growth, in my eyes and for the emerging markets, is linked with the more intrinsic internal growth, the building of middle class in these countries, middle class which is always a stabilizing factor in countries in general.

So I see definitely growth has softened after a huge acceleration that was contrasting this more, and we depend more of all that. So it hurts a little bit more when it slows down. But the fact that there's still a very, very recommendable rate of growth, then I do believe that's going to stay because it's more stable. The reluctance to taking prices, I mean, why should we? We're not taking prices for prices. We are not price hunger. We are creating value for consumers. And when you have -- and we had to increase on pricing. In the last years, you saw this -- the spiking of many of our raw materials. You'll remember in 2007, actually there was a major acceleration of raw material prices, and everybody says, "Can you price up to compensate for it?" Then I -- we conducted a review saying, well, these spikes, we see an underlying line going upwards but not to that extent, and down again. And so some fluctuations, some more fluctuation, bigger, higher fluctuation in the raw material prices. Now I see them coming back to the line we are tracing, and there's less need for increase in prices. So we don't do that. Why should be? We are creating value. We have to be competitive in prices. We have efficiency programs driving costs out. We have lower input costs. So that goes hand-in-hand. And we are living in a competitive environment where that is relevant. And so, are we afraid to take prices? I am the last to say we should not take prices. When we need to take price, you have to take price because that is a substance of your business. And if you have devaluation and you have cost inflation, we have to price. And actually, you'll see that. In Latin America, our pricing is higher than the rest of the world. In certain countries, even double digit. Why? Because if -- you have a environment like where you need to price because if not, your substance is fading away dramatically. We are not taking price decisions here in the center. We have people who are totally understanding the dynamics of pricing and the need for pricing in the markets, and they take the decision there based on different considerations: input costs, competitive environment, et cetera, et cetera. And that's how we work. And that's how then, by aggregation, we have then one fear. That is by aggregation. If you go into the nitty-gritty, you have lots of differentiation and -- in emerging markets. Where there is need for it, we increase prices. And if not, we don't. Then on the debt target -- so L'Oreal. Again...

Pablo E. Zuanic - Liberum Capital Limited, Research Division

Okay. It's not really about L'Oreal, but it's the history about that one and...

Paul Bulcke

Yes. The reason we invest in outcome, [indiscernible] business is another reality. And Alcon at the time, we -- Alcon has been a success story in its own right because it has a shareholder that allowed them -- in a business that need to be cocooned and have capital and cash. That is what we gave them. And they have been growing and has been a success story and it has got value in the market. And we got a point when we say, can we -- is Alcon served by staying with Nestlé where Nestlé only can give some size and cash protection or R&D was really driven by them and all that? Or are they better off by somebody who may have an interest and who can drive more value out of it because they are in that same one and they can bring R&D capabilities, et cetera? We got to a point where the crossing of the lines was really on value creation for Nestlé, the best point of crossing. That's why we sold off Alcon at that time. And I think that is clearly here and the value was there. And you know what the value was. Each company has a lot of dynamics and has to be judged on the dynamics. And Alcon was -- the dynamics. I'm not going to comment again on L'Oreal because we have all options open, as you have mentioned, and I would limit my comments on that.

Wan Ling Martello

I'll take this one.

Paul Bulcke

The debt targets? Well, a little bit, but, yes, you take it.

Wan Ling Martello

Yes, I'll take that. It is Pablo who asked the question, right? Pablo, call me Wan Ling. Don't call me Mrs. Martello. I feel antiquated. That doesn't make me happy. On the question of balance sheet and debt target, it's -- we closed the year last year at 20 -- net debt at CHF 22.2 billion, and we ended at the half-year point at CHF 18.2 billion. We don't typically guide on net debt, but this what I can tell you. We as a company are very comfortable at the AA rating, and we also have guided that said this year, we do not anticipate any meaningful, significant acquisition. And so we've always said bolt-on, bolt-on defined as CHF 300 million to CHF 400 million -ish. And here, we're sitting on October 1, and we've only done one this year, which is a very small one, Pamlab. And so, with 3 more months to go, we don't anticipate any. So you can -- without formally guiding, we -- you would -- you can do the math and probably likely close the year at closer to last year's level or slightly below. In terms of dividend, we've always said dividend versus share buyback. Our dividend policy is that of a sustainable policy. We pay our dividends always in Swiss francs. And in the last 50 years, the number, in absolute terms, has never gone down, and that is our commitment to our investors. And we don't look at it on a payout ratio. We look at it in an absolute basis. And so share buyback, we've always said it's more opportunistic to the extent that we have cash, excess cash buildup. We will always look at that. We don't have a program as we speak today, but that's something that's not off the table and something that we will obviously consider if the opportunity comes up.

Paul Bulcke


Unknown Attendee

So you -- we spent a lot of time yesterday talking about -- sorry, [indiscernible] from Blackhawk [ph]. You spent a lot of time talking yesterday about Nutrition, and it's obvious that as a food company, you have a very long duration of your brands and your products. And pharma companies have a much shorter duration of their product. They have to reinvent it much more quickly, more regularly. Are you concerned about that within Nestlé? Are you increasing the product risk within the business as you go more towards the Nutrition and Nestlé Health Science business?

Paul Bulcke

Well, it is clear that Nestlé Health Science has another dynamics, their classical food and beverage business. First of all, in the classical food and beverage business, you do have different dynamics, too. You think about, espresso is a good example there. It too us 11, 12 years, I think, before we got black figures. That's a long time. That's -- you have to be stubborn to get there, but -- or convinced. So 1 of the 2. It is clear that the time lines of flavors in certain products is easier to manage, and we have quite a lot of capabilities in that. And -- but the Dolce Gusto, for example, is another thing that has a much shorter time line already because it -- so we have different time lines already. We have BabyNes, for example, that specific machine that, by my eyes, is a fantastic offering, a fantastic value. It's going to take time. Why? My sense, capabilities, quality of service that you want to deliver so you don't overdo it. So -- then you go to Nestlé Health Science, and the time lines are much bigger. And there are -- you know that. The lower the time line, the higher the risk. That's why we also said we have to pick our battles. You just don't jump in that ocean there because we have -- so we had already 3. We have already 2 billion business. We have already 3 platforms that we are quite close to that we know a few things more. We have defined 3 others, brain health, and you have seen them. It is clear that these time lines are much longer. But the size of the price is huge. So the risk is, in other words, slightly higher. And that's why also a company like ours has to go for more margin, too, because it's intrinsically linked with the high risk that you're exposed to. Now this time line per se, we want to have a short-term dimension into it, 2 billion business already going well and which is relatively close still to full fast-moving consumers, which we have the BOOST, for example, in United States and there's Nestlé Health Science. Yet at the same time, the dynamics are still quite close to what we know and how to manage it. We brought in to accelerate and understanding -- we brought in some capabilities, and that's Prometheus or Pamlab, is to accelerate our knowledge and our understanding there in that new area. We are working more with third parties also in the science base building up because this is so huge and vast and so deep. So in other words, we are combining. Now the size of the price, we are talking about healthcare and how actually the society of today is going about healthcare by going for sick care and corrective therapeutic dimensions. We know that food -- and actually, the Chinese, they call it the best [indiscernible] food, that food can induce health dramatically. If you just would understand more how [indiscernible] interact, you don't want to tell the whole story that surely, Luis has shared with you. But that understanding, that conviction is what drives us to do that investment. Now, if somebody can do this, I think a company like ours should be there. Why? Exactly for what you say. There's higher risk. There is more upfront payment to be done or investment to be done. Who can do that? Well, if we have the uniqueness of being able to do that and not many would like to do this, you build competitive advantages, so you see the opportunities I'm convinced about. You just have to -- and you need 2 words, right, solutions and [indiscernible]. And there's a timeline on risk, so not many are going to organize this. Well, then a company like ours should do that because the opportunity is definitely going to be there. So that's a little bit of timeline we have. And actually, this whole Nestlé Health Science Institute, the setting up of the structure that Luis has been doing and all that comes from the same P&L. We are actually delivering on that upside investment because we are driving very profitable growth on all the rest. And we don't say, "Why are we going to construct and build a future? Give us a little bit of a break." We don't feel they would be fair. We have to be able to leverage where we are saving energy. We have to be able to do both wisely, and that's how -- and actually, that goes back to fundamental conviction they have. A company I call should be able to do innovation permanently. They've called it the rolling innovation cycle. We are doing this because somebody else did something 10 years ago, 5 years ago in innovation paying or investing in something that gives now the cash, so that we can do the same for the next generation. That is what we're doing. Because if not, you build anemia into your organization, and you still hanging in the air but you're pre-stall. And we don't want to be there, big platform in the making, which is Nestlé Health Science. It has little bit of a higher risk and lower timeframes and more investment, but we have to be able to do it. On the upside, it's just too inviting.

Jon Cox - Kepler Cheuvreux, Research Division

John Cox with Kepler Cheuvreux. I was wondering on the North American market, Paul. I know you were sort of regional head there. Just it looks a lot more challenging and maybe it hasn't come back as much as people had anticipated. I'm just wondering has there been any sort of structural change, do you think, in the North American market? And then on top of that, what about your own business, and how to reinvigorate that business somewhat?

Paul Bulcke

You're totally right. It is challenging. It's slightly more challenging than we thought also because of the external environment that is re-bouncing slower than we thought. We always said North America has the characteristic of going to crisis faster, but bouncing back faster while the wind -- and fast and not bouncing back as fast, still faster than Europe, but still less than we thought. So in other words, it doesn't come back as fast as we thought also because of some of the problems of our making maybe. First of all, you have 2 differences in North America. You have fantastic businesses there like Purina. Walker's has done well. Dog challenge there also because of pricing in the last quarters. And we have good performing businesses, coffee, for example. Beverages, in general, is going very well. You have -- Coffee-Mate is going very, very well, strong growth of the whole category that isn't used by the innovation that Coffee-Mate is bringing. And we are building more and more strong even market shares in spite of many other players trying to get a bit of it. And so we have many underlying things. Now, we have actually also in frozen, if you think about Stouffer's. Stouffer's is doing well. Now, Lean Cuisine is suffering. In Lean Cuisine, these are business categories that are changing or inducing new innovation that drives the business a little bit slow always. But for example, again, Chef America with Hot Pockets is doing well. Although that was something that we had to reengineer a few years ago. So you have many underlying things that's going well. Others that I feel we have to inspire or restructure or -- not restructure, but having better innovation. And certain parts of the business in the United States had a little bit of a weakness, I would say, of what I just mentioned is rolling innovation. And when you go for the short term in certain categories to try to save the day, you build in anemia in certain categories. And that is something we are now reverting with some upfront investment. We have restructured already quite a part of the business also structurally to free up resources to put behind the brands, to be able to finance innovation because we have quite a lot of innovation that does not really support it in this -- to the -- in the right way and long enough with consumer facing marketing spend. So that is -- we have a change of leadership. And the change of leadership is on new angles that are, in my eyes, is going to drive better value in North America, so I'm very, very positive for North America, for Nestlé and for North America, in general, for the years to come.

Unknown Analyst

Jeremy Fialko, Redburn here. Can you talk a little bit more about the structural efficiency improvements that you spoke about earlier? So -- and it's obviously something, which all companies is fast do -- fast decision making, more flexible structures, et cetera, et cetera. So can you perhaps talk about what's different about this time that you're looking at it? Are there any examples of some specific actions that you have taken so far? And I guess as a result of this, do you think that you can achieve a sustainable year-on-year reductions in your overhead costs as a percentage of sales? Thanks.

Paul Bulcke

Yes, it's always difficult to be very specific when you speak structure and then you see the whole structure. What are we going to do there and et cetera? First of all, what we're going to do is we have organizational principles that we have defined a few years ago, like what is a market head as a role? Our decentralization first, as a first chance, what is the role of a market head? And a market head is local manage business. What is the role of a regional market head? Who is managing the region? What is the role of a global managed business? And how is that global management is intertwined or linked up with the local dimensions. For example, HR issues or regulatory issues. We have defined all of these things a few years ago, and we have defined the role of the center and the strategic business units. What is the authority of the global business strategy? When we have something like a Nescafé brand or a brand essence, as we used to call it, how strong is that authority? If we're having a strategic option that has been discussed in general management, how strong is that imposing into the markets? How is the decision-making process, how is the rollout of new innovation? How is the link between R&D and strategic thinking, the strategic business units and the markets? How is that triangle going and zones? All these things have been defined at the time and has been actually never something like, "Oops, we invent something new.' It is evolutionary always. We always tune these things and adjust and adapt. We have defined how we are interlinked, and group has been a tremendous enabler to link us up in a much more transparent way and faster way. All these things have, we have introduced NCE. And NCE, we have mentioned that is very strong in operations in the physical dimensions of our value chain. We are driving and rolling it out in the softer parts of our organization, like HR, like Finance, like what does it mean? How fast is it growing? We know it's much harder to drive an NCE discipline through the softer part of the organization, but then we have to do it. And these are the -- how are we linked up with the fact that where we have millions of emails a day to be read by people. I feel this is totally, totally unnecessary. How about not having an email dimension of our company and having platforms of communication like the new tools alone? Some companies have decided no emails anymore. How about the fact of having so much travel and seminars that we have that are normally part of our landscape? We have, for example, we have in this center, we have 120x, 130x people coming from the markets all over the world here for training. That's good investment. And we're going there -- general management goes there to -- that's the leadership of the future, so we invest in people. But we have $300, $350 meetings here sitting full of people coming, that's flying around. And do we need that? Do we need that same -- these are the things we're talking about, you see. And do we need -- I am fighting for 1 pager [ph]? And it's proved that I have no authority in this company because you don't get there. Many are doing it, but still too many long, minimals [ph], long things. We have too many nose hairs in our organization like ours. It's easier to say no, but who is responsible? Who thinks all these dimensions -- you think about it. I don't say we're going to reschedule and rebuild our building and re -- they're just going to challenge the fluxes we have. The fluxes of information, the fluxes of how we decide, what we have in global business strategies. That said, in SBU, who -- it's actually, the newest [ph] platform of a product category in the world in the Nestlé world and in the world who through knowledge understanding of all the merits and the dynamics of that category in the world is actually where the markets is and defining the global business strategy. We call it GBS. That's the GBS for, for example, Nescafé. That is saying Nestlé where are we -- what we do want to do in the next so many years and with the nuances of different dynamics, of different markets and all that, that's at GBS. Then you have some conclusions. We decide on that, that general management is involved, say, okay. What is the follow-up on decisions that are inherent to that proof? Is that the discipline there? How is that translated into demand business strategies. Every year, a market comes and says, in the meantime, in the midterm, I think Nestlé should do ABC in English market and put the resource more here and do that priorities. Is there a link between that matrix? That is sufficient, fast and disciplined enough. And I know that we have been working on this, and I know there's lots of efficiency already. I see upside, I see upside. What is the authority of the good idea in this company? Good example, Dolce Gusto, used and abused already as an example, but let me, allow me to use it again. Dolce Gusto is a concept that 10, 15 years ago would not have flown like it has flown now lately. It is a 1 billion business now. It has rolled out of the whole Europe. It's, in 4 or 5 years, we have the Nestlé country in Europe, basically. Well, that's the authority of a good idea. How is that going? We have that example. We have some more examples, but I would like to have more. And although we are very decentralized in decision making, it should be consumer-relevant decision making and consumer-relevant differentiation in the market, not ego-defined differentiation. And we are a company, and we are people, and we have ego [indiscernible]. We have to see and analyze that a little bit more. And I do believe that in globalized world with all the differentiation [indiscernible] because food is local. Global ideas should walk faster than roller [ph]. And that's an upside we have. That's where the [indiscernible] starts to be translated and scaled again. That's why -- that's when we're going to have R&D really multiplied to do things because what comes out of it is rolled out broader and faster. We're going to have competitive advantage because if we launched in a few concept in 1 market, and it takes us 5 years to get to the other market, competition is before us. So that is what we say the structural efficiency is, decision-making rollouts, fluxes of information, paper, meetings, travel, all these things. And maybe, we then say that, that structure that we defined 5 years, 6 years ago, has some things to be done to or on it because it doesn't work really. That relationship doesn't work or is doubled. That's what we're going to do. How are we going to do that? We're not going to bring in a whole bunch of very smart people. We're going to put somebody on this who has a good mind or knows his company in and out, and he's going to drive this with me. I am responsible for this. He's going to help me to be responsible, together with the executive board, together with the -- so in other words, it's my job to do, together with the executive board, and they're going to have somebody who helps to drive that project to really go and ask the right questions. And he's going to do that together with the structures we have. If you need some transparency, he goes to one wing. And he's going to have the resources there to get that transparency, and we have built that in. So that's they we're going to do it. So it's going to be something that is going to -- I'm sure have creeped in. It's going to go hand-in-hand with NCE beyond operations too, because at the end of the day, Nestlé Continuous Excellence is going to give us some discipline and tool work to drive then all what we see and inside is that we get there to drive that through the organization in a more organized way. What is the upside of it? I think it is -- I'm the first to say whatever organization, you can always leverage that by quite a percentage. I think we can grow quite -- over the next years, we should be able to grow over the same structure, over the next years. How much is that? I don't know. But there's 30%, 10%, more efficiency out of this building. If you shorten the meetings by half, it's 50% or it's 100%. But think about it, I don't want to go very -- to the nitty-gritty now, but think about meetings because that's how we have to show how the efficiency is all over the place. It's all here potentially. We have meetings where we have 10, 15, 20 people. We have the tendency of many people -- everybody involved, it's happy-go-lucky. If you think around the table, half would be, shouldn't be there. As somebody who was leading that meeting, saying half of the people sitting here should not be here, no, we don't. We are a very sociable, likable company. And sometimes, people sit in there because the person was relevant to the topic of the meeting, well, he's the boss of that person and then the other side you have somebody in his level, you know how people are. And the meeting starts 10 minutes late, 10, 15 minutes multiply it by 10. It's quite a lot of time. And if somebody's really leading a meeting saying, "The purpose of this meeting is a, b, c," and whatever is discussed that is fighting away from it, not a lot. Do we do that? In other words, if you think about it, help people out, have the time to do the meeting, it's already 25% of his time. You understand, so you think about it. The upside in our organization, the complexity we have is tremendous, it's tremendous. And I know why a social organization, our Nestlé kind of worked with that cuteness of 25% only. People are people, sociable, they talk about football, something else for a few minutes. But still, I do believe there's a high upside. I still read too much paper. I still read too long emails and you what I mean. So...

Unknown Attendee

You mentioned that one of your areas of focus is to be more intimately involved with the consumer and stakeholders. And in some categories, such as baby food, you're restricted in getting more intimately involved from a marketing perspective. In some other areas, say, adding micronutrients into your PPP foods, it might distract from the brand messaging in traditional media. So I'm just curious to hear a bit more detail on how you are working on ways to more intimately engage with the consumer and make sure that they're valuing everything that you're putting into the business the way you would hope they would.

Paul Bulcke

Let us make a distinction. First of all, when I say value with the consumer values and -- that's consumer. And in a row, might you seek cover -- consumer engagement as one of the operational pillars at -- and that's why digital and digital and social media is part of that, too. That's talking about our products, talking about our company, how we go about business because the consumer is not only asking benefits of the product, who is behind that, that's the engagement, deep engagement with consumer. It is going from unilateral communication to conversation -- digital comms in there, the consumer lines, the telephone lines, all that is there. That's consumer. But I said is we, as a company, as one of the priorities, is to engage deeper with communities and stakeholders, which is the other part, which is being part -- being a citizen in the society. And you know that more and more is -- the society is more -- and, specifically, in certain parts of the developed world and some parts in the developing world, but specifically, developed world, many, many stakeholders are questioning and challenging on many areas, many issues like sustainability, what you do about certain ingredients you use or the supply chain in cocoa and the farming of cocoa or is it with infant formulas or is it -- and we, as a company, we have to accept the dialogue much more practically. And we had many, many good stories to tell at the time. We didn't engaged though because we are a little bit like a company that I always show this, we have so much reality and only talk like this. Yes. Some other companies, they have so much reality and talk like that. We're never going to talk more than reality, but we should talk slightly less -- more than we are doing because we have so many things to connect with, to talk about. And there's so much effort being developed in many areas that are of interest to society. They should know about that because they're asking it. They're asking the questions. And we said, how do we do that? And we said, at the end of the day, all that we do is so intimately linked to what we have been doing ever since. And with -- we are completely convinced that a company can only be successful when it connects positively with society. We call it Creating Shared Value, which is the economic activity of every company, of every economical -- economic element in society should create value for society, too. And you think about milk districts, you think about putting a factory in a god-forgotten place and having hygiene, safety rules, education. It radiates, added value of society. Why? Because we are a company that thinks long term, long term linked to have respect. And so when we engage in a society, we don't hit and run. We commit. We are part of that society. We're locally involved, and we stay there for the long term. Hence, and many times, I have gone on in countries, and it's 100 years of Nestlé in a country B, it's country C. That is how we go about it. That is what I meant by intimately connecting with the communities and other stakeholders and engage in discussion. And we were a little bit reluctant to do that because we felt only criticism coming. And it is clear that with many stakeholders, there, we see society from a certain angle. And they want to reinforce that angle and say, "That's important. Don't forget that angle, too." It is clear that when you have an irrational angle, it's always harder to engage because we are living more a 360 world as a company and have engagement, discussions with people who are 50 degrees only. But that's how it goes. I mean, we have been doing that much more intensively. We have been -- the Creating Shared Value concept is something that we have been putting out there more explicitly. We have been documenting that. We have held forums that we share with society, be it academic, be it societal, be it NGOs, be it local authorities, just to show and to communicate how we go about our owning society more proactively. And that goes hand-in-hand with consumers. Because at the end of the day, consumer is asking, what is the company. So we enforce that from both sides. And that's why we also shared with you a little bit sustainability, because in sustainability -- you see, social responsibility and Creating Shared Value is not a product that we want to sell. Sometimes, the society pushes you in a corner of that's like a product you sell. It's like something you do on top of what you do. And that's not true. That's not how we see these things, like environment, like stakeholders' engagement, like being part of social -- of local communities. It's not after seven. It should be intrinsically linked with our activities, and that's why so you saw also the sustainability for us. It's linked with how we operate, how we are, how we define. It's sustainable by design. It's sustainable by conviction. It's a sustainable by investment. So -- and it should be linked through the whole value chain. And we don't want to have just a showcase stuff. It should be everywhere in our organization.

Unknown Executive

One last question?

David Hayes - Nomura Securities Co. Ltd., Research Division

It's David Hayes from Nomura again. Over the last couple of days, you kind of picked up a gain, that you seem to have this competitive advantage from vertical integration and partnerships with suppliers. But would you say it's true that that's an advantage during inflationary periods of time in terms of raw materials, which you talked about, what you see in the last few years? And does it become a disadvantage in terms of seeing the offset when you see a deflationary period like we're seeing more now?

Paul Bulcke

But what is your question? Is it a statement or a question?

David Hayes - Nomura Securities Co. Ltd., Research Division

No, no, it's a question. So the question being do you feel the vertical integration that you've got with your partnerships is an advantage during inflationary periods, and you have a competitive advantage which you've enjoyed effectively, and that is less of an advantage because you don't get the relief on the -- on deflationary side? And I guess to extend that, do you see that as an advantage competitively on the longer term because you see on the longer-term inflationary pressures for raw materials costs?

Paul Bulcke

I'm sorry, but your question as being integrated means we are owning more part of the value chain?

David Hayes - Nomura Securities Co. Ltd., Research Division

Exactly. You're vertically integrated. So it feels like you are more vertically integrated with suppliers, with the sustainability we've looked at and the other comments we've had through the last couple of days. Is that a competitive advantage, significant competitive advantage? And hasn't been so more over the last 3 years in inflationary times? Is it less so now?

Paul Bulcke

We are indeed very much integrated and through relationships, but we don't own a cow. And if we own a cow, and it's more for experimental things to see how a milk district works and all that. We don't have coffee trees giving us coffee. But we're very much integrated even more so that we say the coffee trees quality is going down, there's no taking care of -- to this time, to the extent that we showed because of prices were down many years ago and et cetera. So we do have oversight, not oversight, insight of the whole value chain and see that also what's -- we have a little bit of an insight in the cost structures and the evolutions of prices. We are engaged, yes, indeed, with 700,000 farmers directly and many in the milk districts but also in other areas. And that gives you insight. You have lots of antenna house. We have 1,200, I think, agronoms on our payroll, working with these farmers and working with others. So we have relationships with huge companies that do an important job on the upstream of raw agricultural materials and working in partnership also in R&D and development with these people, yet, at the same time, downstream. We have customers and working more intimately with them. We go to [indiscernible]. So you say -- but you speak more upstream, do you have a cost advantage having that? Well, insight is a cost advantage, insight, not ownership per se. And this insight and the scale of that insight and the global-ness of that insight that we want to leverage. That's how we see lines of cost increases over time, how we manage around this, how we can then hedge meaningfully and operationally that serves our operation. Why? Because it creates stability of pricing and costing, because you cannot handle a business like this, like Nestlé if you allow all the volatility of some raw materials just being played in every market. We do that more sensibly. All these things are advantages. So I would say it's insight advantage, definitely, and it anticipates your manageables. You induce more stability in your management of your reality through that insight, definitely. And also, it secures. With the size we have, it secures also raw materials directly or tangibly. If we have -- like we have been communicating, distributing small plantlets of good coffee trees that have higher yields and less need for water and more disease resistant, well, that's direct impact in having enough supply. And again, it is totally, I would say, a social responsible, because at the end of the day, you give something for your own interest again, at the same time, you create value for society because you create better quality, better yields on the same square mile. So these are the things that helps us. It is clear that these relationships are, in many, many instances, not even binding. But we have seen over and over again, and I speak from firsthand, that many relationships are not only on financial terms. They are really linked on being part of a society or a community for the longer term and to being trustworthy. So -- and trust, at the end of the day, is the most precious thing we have, and that's what we care for. And that is linked to suppliers, customers, consumers, society and global.

Well, I think one more question or no? He says no, no. Okay, thank you. Thank you very much for good questions. Thank you.

Just 2 words more. I only can stress, we have organized this program around nutrition and nutrition, health and wellness and what it means actually. I can only stress the value potential of that agenda is tremendous, and that's why we have organized these 2 days with you here a little bit around this. And I can only stress also, remember the 3 things I have on my desk, I'm really going to go after them, and I do see also quite a lot of a potential there, too. So looking forward to be communicating that to you, too, later on. So thank you very much for your presence to and interest in our company.

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