Kerry Group plc

Good morning and welcome to Kerry's full year 2024 results call. I'm joined on the call by our CEO Edmund Scanlon and our CFO Marguerite Larkin. Edmund and Marguerite will take you through today's presentation and following this we will then open the lines up for your questions. Before we begin please take note of our disclaimer regarding forward-looking statements. I will now hand over to Edmund.

Thanks William and good morning everyone and thank you for joining our call.

Beginning with the overview of 2024, which represented a milestone year for Kerry with our transition to a pure play B2B taste and nutrition company, better position for growth and long-term value creation. We're pleased to report a strong financial performance right across our metrics. Volume growth of 3.4% in taste and nutrition for the year and 4.1% in Q4 both well ahead of our end markets. And this growth was led by increased nutritional renovation activity with many customers, continued strong performance in the Americas, and very good growth in our food service business. We delivered strong EBITDA margin expansion of 120 basis points at group level and 110 basis points in taste and nutrition, leading to constant currency EPS growth of 9.7% for the year. We made good progress on returns and also generated strong cash flow of 766 million. We also delivered significant returns to shareholders in 2024 while continuing to reinvest in our business. On reinvestment, we further developed our capacity across all three regions while stepping up our expenditure on science, technology, and innovation, which continues to be a key enabler of growth. Capital returns in the year were over $750 million as we continued our share repurchase activity and grew our dividend at a double-digit rate. We maintain a proactive, flexible approach as regards capital allocation with a clear priority of delivering the best return for our shareholders. Moving to our sustainability commitments, we made good progress, including increasing our nutritional reach to 1.4 billion consumers and reducing our scope one and two emissions by 50% versus the base year. From a strategic perspective, it was an important year of development. Firstly, we further enhanced and developed our biotechnology solutions portfolio, including the acquisition of the lactase enzymes business of Nova Nisus, along with continued investment behind our selected biotechnology hub. And we gave a deep dive in our biotechnology solutions capability as part of our strategic update at our investor day back in October. And as I mentioned, the sale of the Kerry Dairy Ireland represented the culminating step in Kerry's transformation to becoming a dedicated taste nutrition company within the value-add specialty ingredients market. So a very pleasing year as regards business performance and strategic development.

Now moving to taste and nutrition on slide five.

We achieved revenue of 6.9 billion in the year. EBITDA was 1.3 billion at a margin of 18.1%. And this represented an increase of 110 basis points driven by our accelerated operational excellence program, operating leverage, mix, portfolio, and the effect from pricing. Full year volume growth was 3.4% and 4.1% in the last quarter, both well ahead of food and beverage end market volumes of around 0.5%. Our market outperformance was particularly strong in our snacks end use market. where we achieved excellent volume growth through our range of savory taste profiles and taste sense salt reduction technologies. Growth in beverage was led by the performance of our coffee extracts, proactive health, and taste sense sugar reduction technologies, with growth in bakery supported by performance of preservation and taste systems. From a channel perspective, food service achieved strong volume growth of 6.8%, supported by new menu innovations, seasonal products, and customized ingredient solutions designed to reduce operational costs and simplify processes, while growth in the retail channel of 1.8% reflected good performances in the Americas and APMEA. Growth in emerging markets of 6.5% was driven by the Middle East, Africa, LATAM,

and Southeast Asia. Turning now to slide six and taste and nutrition performance by region. And firstly on the Americas. We were happy with our continued strong performance.

Revenue of 3.8 billion represented volume growth of 4.1% in the full year and 5.9% in Q4. Within North America, we had excellent growth in snacks, beverage, and bakery. Food service delivered strong volume growth across both established and emerging chains, with good growth in the retail channel across both customer and retailer brands.

And in LATAM, growth was led by Mexico, particularly in snacks and beverage. Moving to Europe, where revenue was one and a half billion, with volumes similar to the prior year, given soft market conditions.

It was good to see the improvement through the year with a return to growth in the second half, supported by recovery in the retail channel. Meals in bakery performed well through food protection, preservation, and authentic taste technologies, while performance in dairy reflected strong prior year comparatives. In food service, we delivered good growth through new launch activity, along with seasonal and limited time offering activity within the region. In apnea, we had revenue of 1.7 billion with overall volume growth of 4.8%, led by strong performances across the Middle East, Africa, and Southeast Asia, with the challenging market conditions in China leading to a softer Q4 volume growth of 3.3% in the region. Growth in the year was led by beverages, snack,

and meat with strong growth in food service across regional coffee chains and QSRs in particular. Turning to slide seven and our end use market breakdown.

Starting first with the food EUM, which had volume growth across all categories and 3% overall. In snacks, we delivered double digit growth driven by the performance of our savory taste profiles and taste sense salt production technologies, while growth in bakery of 5% was driven by preservation and taste systems. In the beverage EUM, we had volume growth of over 4%, representing good performance across both retail and food service, and growth across all three regions. This market remains highly dynamic, with a significant level of innovation driving strong growth across our coffee extracts, proactive health, and taste sense sugar reduction technologies in particular.

And in our global pharma EUM, we saw growth in supplements partially offset by softer volumes in cell nutrition. Moving to slide eight and just to spend a moment on Dairy Ireland.

The business delivered a good EBITDA performance of 63 million with margin expansion of 60 basis points. Volume growth was driven by dairy consumer products with dairy ingredients volumes improving through the year. And as previously announced, the phase one transaction for the sale of the business completed on 31st of December. And I'd like to thank our colleagues in Dairy Ireland for their contribution over the years and wish them all the best in the future.

With that, I now hand you over to Marguerite for the financial overview.

Thank you, Edmund, and good morning, everyone.

As you would have seen from our press release this morning, for presentation and comparative purposes, group numbers are shown including continuing and discontinued operations. Continuing operations exclude Kerry Dairy Ireland, which is presented as discontinued operations within the financial statements, and further details can be found within the appendix to this presentation. Moving now to slide 10 and beginning with the group financial overview. Revenue for the year was 8 billion euro, reflecting volume growth of 3.3%. Group EBITDA was up 7.4% to 1.25 billion euro, with EBITDA margins up 120 basis points. Adjusted earnings per share of 467.5 cents was up 9.7% in constant currency, and 8.7% in reported currency. Returns on capital employed increased by 60 basis points in the year to 10.6%. And we achieved strong free cash flow of 766 million, representing 95% cash conversion.

Turning next to our group revenue bridge on slide 11,

We had group volume growth of 3.3% and lower pricing of 1.9% in the year. Foreign currency translation was 0.9% adverse due to movements in the US dollar and the weakness of some emerging market currencies versus the euro, while foreign currency transaction was 0.2% favorable. The positive contribution from acquisitions of 0.7% was more than offset by the impact from divestments of 1.9%, primarily relating to the disposal of the sweet ingredients portfolio in the prior year.

Moving to slide 12 and our revenue analysis by division.

Group volume growth was led by taste and nutrition volume growth of 3.4%. Looking at this by channel, in food service, we delivered a strong performance across the year with 7.3% growth in the first half and 6.2% growth in the second half. In the retail channel, there was improvement through the year with good growth in the Americas and apneas supported by the recovery in Europe, where volumes returned to growth in the fourth quarter.

Turning now to our group margin bridge on slide 13.

We are pleased with the strong group EBITDA margin expansion of 120 basis points in the year. Looking at the key moving parts, firstly on operating leverage and mix, we had a 20 basis points improvement with both operating leverage and mix contributing to this expansion. Pricing was net 40 basis points accretive, driven principally by the mathematical impact of deflationary pricing, with the recovery in Dairy Ireland also contributing. Our Accelerate Operational Excellence programme continued to make very good progress, contributing 40 basis points to EBITDA margin expansion in the full year, with the overall contribution from the programme ahead of expectations. Foreign currency was net neutral from a margin perspective, and acquisitions and disposals contributed a net contribution of 20 basis points with both the disposal of our sweet ingredients portfolio and the lactase enzyme business acquisition being positive drivers of margin expansion in the period. Overall, we are well on track with our margin development plans and post the Dairy Ireland transaction Our 2024 group margin is 17.1%, which will be the reference point for our margin targets going forward. And I will take you through this in more detail shortly. Next to free cash flow on slide 14. I am pleased to say we generated free cash flow of 766 million in the year, with cash conversion of 95% on an average basis and 86% on a point-to-point basis. The main drivers of free cash flow were as follows. Firstly, EBITDA growth, as I just mentioned. On average working capital, the improvement reflects benefits from the ongoing management of working capital across 2023 and 2024. The reduction in net finance costs is due to the timing of bond interest payments versus deposit interest received, as well as the strong cash generation in the year. And our net capital investment aligned to our strategic growth areas was 350 million, representing over 4% of group revenues as we continue to invest to support our growth with added capacity in LATAM, Southeast Asia, and the Middle East. Now turning to our debt profile and credit metrics on slide 15. Net debt at the end of December was 1.9 billion. In September, given market conditions, 1 billion euro of new bonds were issued in advance of our 2025 repayment. And these bond proceeds are reflected in our year-end cash figure. As you can see, our profile of our debt is good and awaited average maturity of 5.6 years and 7.5 years after the repayment of the refinanced 950 million bond maturing later this year. Our credit metrics are strong with a net debt to EBITDA ratio of 1.6 times and we have a very strong balance sheet which will continue to support the further development of our business. Now turning to slide 16, I'll provide an overview of our group EBITDA margin expansion in recent years. And post the sale of Kerry Dairy Ireland, our refreshed EBITDA margin target of 18 to 19% by 2026, and our new group target of 19 to 20% by 2028. Beginning with the past three years, since 2021, we have expanded group margins by 240 basis points to 17.1%. In this same timeframe, we have successfully managed the significant increase in input costs due to inflation in absolute terms via pricing. However, this has resulted in a mathematical headwind on margins of circa 150 basis points. We now have a step change margin improvement of 140 basis points post the carried area Ireland disposal. And since the beginning of 2022, we have delivered 150 basis points of margin expansion from operating leverage, mix, and portfolio benefits, together with 100 basis points from net efficiencies with our Accelerate Operational Excellence program as key drivers of our expansion. Going forward over the next two years, and in line with what we have previously communicated, we will expand our EBITDA margin by more than 100 basis points into the 18 to 19% range by 2026 to further accelerate operational excellence program benefits combined with operating leverage and mix. Beyond the current plan and as we referenced at our investor day last October, we see further continued margin expansion opportunities through continued operating leverage and mixed benefits. The key enabler of achieving our new 2028 EBITDA margin target of 19% to 20% will be our new business efficiency program, Accelerate 2.0, which I'll outline shortly. Finally, on margins, as we have done over the years, we will continue to balance our business margin expansion with our business growth ambitions. Now moving to CERI Accelerate 2.0 on slide 17. The successful completion of our Accelerate Operational Excellence Program provides us with a strong platform for the launch of Accelerate 2.0, which will commence later this year and run to 2028. There are two elements to this program, with the first focusing on footprint optimization and the second on enabling digital excellence across the organization. Under footprint optimization, we will be leveraging the capacity utilization benefits we have realized under the Accelerate Operational Excellence program to support in the reduction of our manufacturing footprint across all three regions aligned to our business development and growth ambitions. We have a total manufacturing footprint of 124 facilities, which will reduce by circa 10% over the coming years. The second element, carry digital excellence, will focus on driving enhanced business performance and productivity through digital enablement initiatives across operations, commercial, R&D, and global business services. We plan to utilize new technology and applications, including AI, to improve business processes and further enhance our partnerships with our customers and suppliers. We have been piloting a number of digital initiatives over the past 12 to 18 months in advance of upscaling their deployment across the organization as part of this program. The overall programme is expected to deliver a projected recurring annual saving of circa 100 million by 2028, with a total net cost of circa 140 million.

We will update you with further detail when we commence and as we progress the programme. Now moving to slide 18 and other financial matters.

Finance costs of $54 million in the year reflected strong cash generation and interest income. Non-trading items were an overall net charge of $16 million, with the costs relating to our Accelerate Operational Excellence program being partially offset by profit on disposal of businesses and assets. On input costs, the deflation in the first half moderated significantly in the second half. We are currently looking at limited overall inflation in 2025. For taxation, the current outlook is for a tax rate of 14% to 15% in 2025. On currency, the translation headwind on earnings per share in 2024 was 1%. Based on prevailing exchange rates, we are currently forecasting a tailwind of one to 2% on EPS in 2025. Capital returns for the year included share buybacks of 557 million, and dividends paid of 205 million. And on reporting segments, post the divestment of Kerry Dairy Ireland, reflective of how we manage our business, we will report on a geographical basis going forward. Within the appendix, we've included the 2024 pro forma basis for comparative purposes. And finally, to summarize on our financial performance for 2024, we are pleased to say we have delivered good volume growth, strong EBITDA margin progression, good progress on returns, and strong cash generation. And with that, I'll pass you back to Edmund.

Thanks, Marguerite. Moving to slide 20 and the outlook for 2025. While some markets remain challenged, we feel we're well positioned for strong market outperformance, given our unique positioning with our customers as their innovation and renovation partner. We have significantly evolved our business in recent years, and we will continue to strategically develop our portfolio in the areas where we can create the most value. As we look to 2025, while recognizing uncertain market conditions, we expect to deliver good volume growth and strong margin expansion, resulting in constant currency adjusted earnings per share growth of 7% to 11% or 9% to 13% before the net 2% dilution from the Kerry Dairy Ireland disposal. Finally, and before we move to Q&A, I'd like to update you on our targets on slide 21, given our portfolio change post the divestment of Kerry Dairy Ireland. Firstly, on our current medium term plan for 2026, we're well on track. Taste and nutrition volumes have averaged 4% across the first three years, reflecting our continued market outperformance. given our unique strategic positioning with our customers. On margins, we're on track for 18 to 19% EBITDA, as we said earlier, and we're delivering strong cash while making good progress on returns. And as Marguerite outlined, we're adding a new margin target of 19 to 20% EBITDA margin by 2028. And given we are now a pure play taste nutrition company, post the significant portfolio developments of recent years, we're targeting high single digit plus adjusted EPS growth on average across the next four years. So with that, I'll hand you back to the operator and we look forward to taking your questions.

We are now opening the floor for question and answer session. If you'd like to ask a question, please press star and then one on your telephone keypad. Your first question comes from Alex Sloan from Workplace. Your line is now open.

Yeah, hi, morning all. A few questions from my side, if that's okay. Just the first one. In terms of volume expectations embedded in the guidance, I guess excluding the Dairy Island dilution, it looks like you're guiding to a pretty strong underlying EPS growth, which would seem to support solid volume expectations, but perhaps you could give some more color on that in terms of what you're seeing for the end market and Kerry's level of outperformance embedded in the guidance that you've given and any phasing that you might be calling out within that. And then the second one, just on the balance sheet, obviously in good shape, thanks to the strong cash generation last year, despite the buyback activity. What's the outlook on the cash conversion front in 25? And What are the priorities for cash? Could we expect further shareholder returns? And can we assume that the returns hurdle target on new M&A is perhaps higher than a few years ago, given higher cost of capital? Thanks.

Thanks, Alex, and good morning. I'll kick us off here, and Marguerite will add. Just firstly on the volume outlook for the year, the volume assumptions, So maybe starting with the market, and when we currently look at the market, we're seeing volume growth of about a half a percent zone, similar to what we saw in 2024. So on that basis, year on year, we expect volume growth to be similar or better in 2025. And I guess we're taking the same approach to guidance as we did last year in that when we see improvement in the market volumes, you will see that reported in our figures. We do see continued strong market outperformance in 2025, and we have a particularly strong innovation pipeline in North America in particular. And in terms of phasing, as we look to 2025, there's no major call-outs on H1 or H2 phasing.

And Alex, just on your cash and returns question, firstly on cash, we were pleased with the cash conversion that we delivered in 2024, and we expect 2025 to be another year of strong cash conversion in the 80% to 90% range. Then on your question on capital allocation priorities, it's very much continuing to follow our capital allocation priority framework. First priority, as we would have communicated in the past, is capital investment. No change in our plan. And our intention is to invest 4% to 5% of our revenues on capital investment. On dividends, we'll maintain our track record of double digit percentage per share growth. And then on M&A and share buybacks, we'll continue to balance where we believe we can best generate the greatest return. We'll continue to evaluate M&A investment opportunities very much aligned to our strategy. And then in relation to share buybacks, as I've said in the past, our objective is to remain as agile and flexible in terms of assessing the different capital allocation options and how we can create value for shareholders. So no change on the priorities we've previously outlined.

That's very helpful. And just to squeeze in one follow-up, just on the returns point, I mean, obviously good to see 60 basis point improvement. How would you see that evolving in 25, please, just as a follow-up? Thank you.

Yes, we did increase our returns to 10.6% reflective of the good organic profit growth. And we do see positive returns development going forward and moving back towards that 12% in the coming years.

Thanks very much.

Your next question comes from Charles Eden from UBS.

Your line is now open.

Thank you very much, and good morning, everyone. My first question is on the 28 targets. And to deliver on the sort of high single-digit plus percentage EPS CAGR through to 28, and I guess assuming 4% to 5% TNN volume CAGR over that period, and no real sort of fluctuations in finance, cost, tax rate, et cetera, then it would imply reaching the sort of mid to upper end of the 19 to 20% EBITDA margin by 2028. Just wanted to clarify, is that the correct way to think about it? And then my second one, just as a sort of clarification, what are you expecting in terms of raw material inflation for 2025, please? Thank you.

Thanks, Charles. Before I hand it over to Marguerite to comment on input costs, I think on margins, we have increased margins by approximately 240 basis points over the last three years to where we are today at 17.1%. And we're looking to take this to the zone of 20% by 2028. And like Marguerite mentioned, Accelerate 2.0 is a key element of that roadmap to get us there. So I guess as we take a step back, we think about the growth algorithm for the company. I think it's pretty straightforward. We're looking to deliver at least high single-digit EPS growth going forward. through revenue volume growth in the mid single digit range and expanding our EBITDA margins by more than our 50 basis points plus per annum across the coming years as well. So a pretty straightforward outlook for us I think here for the years ahead with Accelerate being a key component.

And on input costs, we currently expect some overall limited cost inflation and pricing in 2025. And we'll update on the level of this as we progress during the year.

That's great. Thank you both.

The next question comes from Ed Hodkin from J.P. Morgan. Your line is now open.

Hello, all. Thank you very much for taking my questions. I've got two, please. My first one is following up on the volume outlook for 2025 and really using Q4 as a bit of a reference point. You did very well in North America. Maybe 1% or 2% of this, I think, is helped by the comp, but would it be fair to say that 4% plus run rate in the Americas is something we could be thinking about for 2025? And then, on the other hand, APMEA, what visibility you have on growth improving from a bit of a lower level in Q4 as we head through 2025, basically in China and in developed markets in APMIA, what your outlook for these countries, these regions are in particular. And then my second question, please, is a bit more on the midterm. So since you last reported, we now have a new U.S. health secretary who There was a proposed ruling by the FDA potentially on front of pack labeling. You've got large food companies as well quite publicly talking about doing more on healthy offerings. So can you remind us please in the midterm some of the key risks and opportunities you see from some of these changes and remind us as well how sizable your natural and clean label portfolio is please. Thank you.

Hi, Ed. There's a lot to cover there. But in terms of Q4, yes, relative to 2023, we have some small benefits from a comps perspective in Q4, especially in North America. But maybe just to give a regional outlook for 2025, firstly, on the Americas, Look, we've had a very good year in 2024, and we would look to continue that strong market outperformance in 2025, given the strong innovation pipeline that we have in front of us. And you will recall that we touched on that pretty significantly at our investor day back in last October. Then in apnea, a lot of moving parts as usual. We continue to expect a good performance in the Middle East and Africa, along with Southeast Asia. We do expect China to be flattish overall in the year ahead, and it has been impacted by underlying consumer sentiment a little bit. And then maybe just to finish off, in Europe, volumes are flat in 2024. We do expect some progression in Europe and expect to be in positive territory in 2025. Then in terms of, let's say, your broader question as regards some of the regulatory developments that you just referenced, Maybe it might be just useful just to share a little bit, you know, the impact of these, let's say, regulatory interventions when they happen in other countries. And like I've mentioned in the past, in the few years post the HFSS announcement in the UK, Our volume performance was a couple of hundred basis points ahead in the UK relative to other markets in Europe driven by reformulation. So I guess, look, it's always hard to predict how these things play out, but the reformulation opportunity the penetration opportunity that we talked about at our investor day last October, we feel probably even more positive about that today than we did back in October. And I would draw your attention to our snack end-use market growth volume, our volume growth of 10% in 2024, which had salt reduction as a key driver of that growth. So I think it's a fact where we feel pretty well positioned in terms of our ability or capability to work with customers to reduce sugar and salt. which we do expect to be, you know, a direction of travel for customers in North America here over time. And then on your last question in terms of, let's say, our portfolio, more than 90% of our raw materials that we use within our business are from natural sources, and 80% plus or greater than 80% of our portfolio is either positive or balanced from a nutrition perspective. So overall, we feel well-positioned, as we've talked about last October at our investor day, to be able to capitalize on the opportunity that a regulatory intervention will have over time in various geographies.

Thank you. Thank you very much.

Your next question comes from Patrick Higgins from Good Body. Your line is now open.

Thank you. Good morning, everyone. My first question, and I appreciate the kind of comments you made around wanting to have flexibility on capital allocation, but just interested to hear your thoughts on what the pipeline from M&A perspective looks like now versus, I guess, the past year where it was a little bit more muted. How do valuation expectations look like? And then the second question is, is just around your expected performance across channels. Should we expect a similar cadence or growth being driven by food service versus retail, or is there an expectation for retail to take up from here?

Thanks. Good morning, Patrick, and thanks.

In terms of our channel outlook, like you're aware, We do believe that food service is a structural tailwind for us. We do believe food service will outperform retail in the year ahead. The level of outperformance, Patrick, we'll have to see as the year progresses. But we continue to be, let's say, positive in the overall food service channel. And then in terms of M&A and the pipeline and how we're thinking about it, For sure, we have been quieter of late on the M&A front. Probably doesn't reflect the level of activity that's going on behind the scenes. So we do have an active M&A pipeline. Expectation management has improved for sure, but it is still a feature. And I think it's important for me to say that we have a very synergistic platform to create value from acquisitions. you know, be it integrating complementary technologies, especially in the area of the foundation that we've built on the biotech part of our business and continuing to look to scale that. And on top of that, expanding our emerging markets footprint. So we will continue to deploy capital to create value via M&A and feel we're well positioned to do that.

Great, Gary. Thank you.

Neve from Morgan Stanley, your line is now open.

Hi, good morning. This is Lisa Deneby from Morgan Stanley. I have two questions, if I may. The first one is on your savings program. So I understand that you mentioned during the presentation that you intend to reduce your footprint of 124 manufacturing assets by 10% over the coming years. I mean, would it be possible to provide some granularity around your process to decide where and what plans to close, and to which extent this is weighted to certain regions, given you've now disclosed your EBITDA margins per region, and we can see that America is quite well ahead of the two other regions. And then the second question follows up from the previous question on emerging markets and the potential M&A pipeline. Could you outline where you are in establishing your presence in emerging markets? You've done a number of acquisitions. You've added some capacities in recent years. Where are you in that penetration opportunity? And how should we think about the profitability profile from apnea or emerging markets as a whole over the coming years? Thank you.

Good morning Lisa and thank you for the question.

I might kick off here and Marguerite might want to add and I think it would be useful maybe to explain the regional differences by region in terms of margin because I think that that covers, let's say, a lot of what you're asking, Lisa. And I think it's important to say just when we're starting the Americas, we do have some portfolio differences across the regions in terms of, let's say, portfolio deployments. with greater pro-rata sales in areas like proactive health and pharma in North America. And then in terms of just the North American market, in terms of scale, just by the very nature of that market and from an operational perspective, we have been able to realize greater benefits in North America just by the fact that it is effectively one country versus other regions. And then in Europe, you know, it is a more fragmented market. It is a more fragmented footprint from an operational perspective. This is something we will be progressing and Marguerite might touch on that. And then the second point in Europe, just by virtue of the fact we have our global technology center based in Europe, we do tend to retain more early stage R&D costs in Europe. And then in AFMIA, which covers a large part of emerging markets, we have invested ahead of the curve. to support our growth ambitions there. We referenced at our investor day that we're only 25 years in the Apnea region. And just based on that fact, we do believe we have further opportunities to realize further operational leverage benefits over time in terms of margin expansion from the investment that we have already put in place. So I think it is important to note that we do see greater margin progression in Europe and APMEA in the coming years, and the margin differential between Europe and APMEA and the Americas will reduce, but at the same time there will continue to be a difference just given the nature and structure of the regions. Margaret, you might want to add on Accelerate.

Yeah, so just a couple of comments on the footprint optimization. So, firstly, I would say we'll be leveraging the capacity utilization benefits that we realized under the existing Accelerate operational excellence program just to support that reduction across the footprint. It will be applicable to all of the three regions, and we're running a fairly comprehensive review, evaluating the footprint with obvious sensitivities at this juncture, taking into consideration size, capacity, growth opportunity, profitability, future capital requirements, just to mention a few. I would say, while it's applicable across all regions, it will be more indexed to the developed markets of Europe and North America. Thank you. That's super helpful.

Question comes from Alex Jones from Bank of America. Your line is now open.

Good morning. Thanks for taking my questions. The first, just on the savings program again, could you give us any color on the phasing of those savings? Should we expect them to be fairly even out to 28 or any sort of back-end loaded aspect to that? And then the second question, just on the pharma segment within TNN, I think there's a number of years now where that's been at or below the group volume growth. So do you see any prospects of re-acceleration there or does it make you reassess the sort of role of that business in your portfolio? Thank you.

I might take the pharma question first, Alex, and good morning. Yeah, look, I think we for sure have had some challenges in the last couple of years, but maybe if we roll back further, I think pharma has been a business that has delivered pretty solid performance over a medium term, over a four or five year basis. Look, some of let's say the performance is some carry issues where we had some supply chain issues, let's say during 2024 and the back end of 2023. But we look forward into 2024 or into 2025, quite confident that the performance of that farmer business will improve.

First on the Accelerate 2.0 programme, firstly it's an important enabler of achieving our expanded 2028 EBITDA target. of 19% to 20%. And in terms of the costs and the phasing of those overall, the programme is expected to deliver, as I referenced, a recurring annual saving of 100 million by 2028, with a total net cost of circa 140 million. We expect to commence it later in 2025. The costs will be more front half loaded in the second half of 2025 and 2026, so circa 50% to 60% by the end of 2026. In terms of the benefits, we will see benefits coming through in 2026, circa 20%. and then ratably increasing over the remainder of the plan, so circa 30% plus in 2027 and the balance in 2028. Obviously, we will update as we progress through the year in terms of the phasing of costs and benefits.

Thank you.

Your next question comes from Fulvio Cazal from Berenberg. Your line is now open.

Yes, good morning. Thank you for taking my question. So I just had a couple of follow-ups. So the first one is on the volume phasing. And I understood what you said, Edmund, about the H1, H2 phasing. There's nothing really to call out. But what about Q1? versus Q2, because I remember last year you had some customers shifting orders from Q4 into Q1. So does that give you a tougher comparative in Q1 of 2025? And also I know that many of the food companies that have reported have highlight at a slow start to the year expected for 2025 and then subsequent acceleration. So again, can you maybe just elaborate a little bit on how we should think about Q1? Is it going to be slower start and then accelerate through the year? And then my second question is on the carry accelerate 2.0. So the total cost of 140 million, is that just the P&L cost or does that also include costs that come into the cash flow through the capex line. And further to that, I was just wondering, Marguerite, if you can give a bit more color on where the money is going to be invested in predominantly in the 4% to 5% capex guidance for 2025. Will there be much investment behind the digital excellence program that will fall into this period? Like you said, in the back half, is that what's contributing to that fairly high capex number? Thank you.

Good morning, Fulvio, and I'll kick off here. Look, the beginning of the year is more or less in line with expectations with no major call-outs. And in terms of phasing, like I said, you know, there's no significant phasing, half one to half two. You know, as always, there'll be some, let's say, minor, let's say, phasing quarter to quarter linked to comparatives. But, you know, overall we're, you know, let's say we're pretty much in line with where we expected, you know, here where we stand in the middle of February.

We're just picking up your questions on the program costs of 140. That is P&L cost phased over the years, as I had indicated. Just maybe to give you a little bit more perspective from a cost perspective, the breakdown between footprint optimization and digital excellence. Directionally, it's estimated to be about 60%, 40% footprint optimization versus digital excellence split, and the benefits are more likely to be 50-50. We will incorporate, as you've referenced, any capital investment associated with the programme in our normal capital expenditure during the year, which, at this juncture, we indicate that that capital expenditure is in the order of 4% to 5%. It was just over 4% in 2024. So, no significant additional call-out. We'll continue to invest in the strategic growth areas of the business to drive organic growth and also encompass our digital capital spend in that window.

Thank you both.

Your next question comes from Nicola Tang from BNP Harinbush Exchange. Your line is now open.

Hi, everyone. Thanks for taking the questions. I think most have been covered, but maybe to focus a bit more on the Americas again and thinking about those mid-term targets, the new one to 2028. I mean, Americas is already within that 2028 range at 19.7%. So can you talk about the mid-term aspirations across the different divisions? You said there would always be a difference with Americas, but is it fair to say that Americas isn't staying still in terms of margin performance? And then shorter-term, Edmund, you mentioned that there was a particularly strong innovation pipeline in North America as we look into this year. Are there any specific technologies or end-market call-outs that you would want to flag? And then maybe tagging in a longer-term question related to Ed's question on the reformulation opportunity, at the Capital Markets Day you talked about this €15 billion incremental investment addressable market from reformulation on a global basis. I was wondering if you'd be able to size the potential reformulation opportunity within the US within that 15 billion. Thanks.

Thanks, Nicola. And maybe I might start at the last part of the question. and maybe building on what we talked about, let's say, at the investor day in terms of the penetration opportunities. Because as we think about North America being our largest market, and as we look at just where market growth levels are at, at that approximately half a percent level, we are looking at a significant outperformance right across our business, but especially in North America. And it is the penetration opportunity that is underpinning our confidence in outperforming the market, be that driven by nutritional reformulation, be it driven by reformulating to improve sustainability credentials, or be that reformulating for value for our customers where our customers are looking to take costs out of their end-to-end supply chains. So that is kind of, let's say, crucial and critical to the underpin of our outperformance. And look, we believe there's, let's say, significant runway ahead of us to make packaged food healthier and better. Salt is highly functional. It is highly complex to reduce salt in formulations. So we believe we're really at the early stages of what can be done on salt. And customers are looking to the next five years to or beyond even to, you know, how they can evolve and lower the level of salt in their formulations. On sugar, it's a slightly different phase in that customers are looking at more natural solutions to reduce sweetness. versus the high intensity sweeteners that they have been using in the past. And again, we're at the fairly early stages of that evolution as well. And then in terms of cost and complexity reduction, this really has kicked off since the increase, the labor inflation and the increase in labor costs and the labor challenges in recent years. And then lastly on sustainability, companies have set their scope three targets and in most cases are still trying to figure out what actions they're going to take to actually achieve those targets. So I guess as we look out from a volume growth perspective in North America, but broader, we do feel that the penetration opportunity is the key underpin of growth out into the future. Like we talked to the investor there, food service is obviously, let's say, another aspect of that growth that we feel we're extremely well positioned. And lastly, in emerging markets, and we are seeing, you know, some of the, let's say, the regulatory intervention happening in emerging markets that, you know, may have come as a little bit of surprise to people when they saw it at the investor there back last October. where regulatory intervention in Latin America has been, let's say, a positive tailwind there, and that, we believe, will continue. And I guess maybe just to share with you maybe one or two examples around this penetration opportunity, especially with a kind of, let's say, a fear, for the want of a better word, You know, there could be regulatory intervention here around, let's say, nutrition. You know, we do see customers being a lot more action orientated, you know, by implementing clear sugar and sodium reduction targets. We're also seeing retailers embrace quickly an adopted pace and reformulate their own brands. And they are looking for innovation partners to help them work across categories with their various suppliers. And then several customers then, they're not just thinking about wanting to meet regulations, they want to label their products low salt and sugar. So I think as we kind of put all of that into the mix, And we think about that market growth opportunity for our industry. In North America, we think about that opportunity being at least a billion in the years ahead.

Thanks. That was too many details.

I was wondering if on the other question around midterm EBITDA margins in the Americas, given that they're already ahead of the kind of, or they're within the 2028 target and bearing in mind all you said there in terms of reformulation and biotechnology and so on, how should we think about those margins going forward?

Sorry Nicola, I probably got carried away on the volume opportunity, but on the margins, look, We will be north of 20% in the Americas here over time. I'm not calling out, let's say, much more significant, let's say, margin expansion beyond that at this moment in time. The margin expansion that you're going to see here for the years ahead is going to be primarily orientated towards Europe and ACMEA.

Got it. Thank you so much.

That now brings the Q&A session to an end, and we'll now hand back to Kerry for closing remarks.

I just wanted to bring to your attention that we will be presenting at Cagney on Thursday, where we will be pulling together elements from our Investor Day last October and elements that we touched on today during the Q&A as well. So thank you for your interest as always. And please reach out to William and the team with any other questions. And hopefully you'll have the opportunity to connect with us on Thursday. Thank you.