Danone S.A.

Good day and thank you for standing by. Welcome to Dunkin' First Half 2024 Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press dial 11 again. Please be advised that today's conference is being recorded. It is now my pleasure to hand you over to Mathilde Rodier, Head of Investor Relations. Please go ahead. Thank you.

Good morning, everyone. Mathilde Rodier speaking, Head of Investor Relations. Thank you for being with us this morning for Danone's 2024 H1 Resource Call. I'm here with our CEO, Antoine de Saint-Afrique, and our CFO, Jürgen Esser, who will go through some prepared remarks before taking your questions. And before we start, I draw your attention to the disclaimer on slide 32 of the presentation related to forward-looking statements and the definition of financial indicators that we'll refer to during the presentation. And with that, let me hand it over to Antoine.

Thank you, Mathilde, and good morning, everyone. A warm welcome to our Half Year 24 conference call. Juergen and I are pleased to be with you today to share what is, yet again, a strong, consistent, and broad-based set of quality results. And for this, I would like to start this call by thanking all the donors. They make it happen, day in, day out. It has only been one month since we held our capital market event in Amsterdam, and I'm very pleased that so many of you were able to join us at that event. Our progress in the first half of 24 has been very much in line with our new strategy and with what we shared in Amsterdam. As we said then, we have been on a journey of radical transformation over the past two years, driving a major cultural shift shaping a performance-oriented organization, rebuilding distinctive capabilities, refocusing our strategy, and sharpening our execution. It has been reflecting on the results of the last two years as we delivered consistently on strategy, and our 24 H1 results show further progress in the right direction. So let me dive into the results starting with slide three. As you may have seen from the press release this morning, we close a strong first half of the year with like-for-like revenue up 4% and broad-based growth across geographies and categories. As we have said before, volume mix is key for the resilience of a value creation model. And this semester, we have stepped up this contribution to plus 2.1%, showing progress for the fourth consecutive quarter. Price contributed plus 1.9% to net sales growth in H1, normalizing as anticipated with inflation slowing down. Higher quality growth combined with consistent productivity and a focus on efficiency is allowing us to leverage our assets better and deliver an improved margin from operation up plus 257 bps. And as we did since the beginning of Renew Danone, we reinvested in our brands, in product superiority, in our capabilities, driving our competitiveness while allowing our recurring operating margin to improve by 45 bps to 12.69%. The results of this fall through, along with our continued strict management of CapEx and control over working capital has allowed us to deliver 1.2 billion euros in cash in H1, an improvement of 11% over the same period in 23. Moving now to our slide four. Our H1 performance demonstrates the results from focusing our efforts on consistently deploying our Renew model. We share that the CME we are winning through fueling our growth engine, but also driving our core and taking ownership of our category growth. And here, let me confirm what I told you in Amsterdam. There is growth in our categories. As a matter of fact, they keep growing faster than the average of food and beverage. Our renewed focus on an investment in science, delivering strong product superiority and differentiating technology, expressed in a consumer-relevant way, keeps paying off. In high-protein, we keep deploying a growth model with discipline through YoPro and Oikos. Most recently, in Europe, we launched YoPro in Germany. While expanding our footprint, we keep a high pace in the markets where we are already present, leveraging our science around protein and nutrition to roll out more advanced variants which further strengthen the claims we can make around performance and recovery. In medical nutrition, we have delivered very strong growth in both adults and pediatrics across the globe. We are playing at scale and driving our global science and formulas to further expand our reach, such as in the post-discharge space in China, where adult oral is growing very fast. And Coffee Creations, our sizeable, profitable and fast-growing platform in Noram, continues to win and to grow share. For those who attended the CME, you will have heard us speak of the continued success of our international delight and stock brands. The launch of our latest innovation, Cold Foam, is showing promising early results with consumers. allowing them to take the coffeehouse experience home and recreate their favorite drinks. If you haven't tried it, please try it. It's worth it. And as discussed in the CME, we keep broadening the way we reach out to consumers by further expanding our channel reach in Away From Home. We are consolidating our position in coffee shops and are developing where needed specific formats for the Away From Home channel. I hope you have seen what we did in Wimbledon. And here in Paris, we are full on with the Olympics and Paralympics games with very visible yogurt kiosks in strategic venue and an active and visible involvement in 13 million meals served to those competing in and attending the event. So we have an overall good momentum. But we still have plenty of things on which we can do better. It is back to the constructive dissatisfaction mindset I mentioned in Amsterdam. Moving now to slide five. As I'm sure you would expect me to say, we have a mindset where we think the job is never finished. We have as category leaders the responsibility to continuously show the growth of our categories. making sure they remain relevant to consumers and exciting to customers, with a mix of our continuous focus on the core and relevant innovation. What was done in the U.S. on yogurt with the FDA accredited claims for yogurt category related to diabetes is a great example of nourishing category relevance. And as category leaders, we obviously benefit from it. As I have previously said, there is no long-term value creation model without systematically building future-looking capabilities. This year, we have announced two major partnerships, one with Microsoft on AI and another with Michelin on precision fermentation. These partnerships, each in their own way, are about projecting our company forward, making it future-ready. The same goes for Danskills, a pioneering company-wide upskilling and reskilling program, which we announced earlier this year. And as always, there are a number of things that do not yet work the way we'd like them to work. There, we go deep, we go systematic, and we make sure that we improve step by step. In the US, we are making progress with turning around our plant-based beverage business. We took some pricing actions earlier in the year and are starting to see some green shoots of regaining competitiveness. As already shared with you, we now focus on driving differentiation and usage through occasions rather than ingredients, which we believe will shift the needle as it does for Alpro in Europe. So some progress, but obviously still lots of work to be done. Similarly, and while we are making consistent and encouraging progress, and have made significant transformations in places such as Morocco and Brazil, there is still work to be done in fully transforming the business model of dairy in emerging markets. So, I'm overall happy with the strong, consistent and broad-based performance. but certainly not complacent as we see further opportunities to progress. And with this, I'm happy to hand over to Jürgen to provide more details on the financial results. Jürgen, over to you.

Thank you, Antoine, and good morning to all of you. Let's get immediately into the financial review with slide number seven and our top-line performance for the second quarter of the year. We are reporting a strong Q2 performance, posting like-for-like net sales growth of plus 4%, with, again, all our geographies and all our categories positively contributing. Before deep diving into the performance by zone, just a few comments on the performance by category. The growth in the second quarter was broad-based and supported by the good contribution of our EDP category and plus 3.3% like-for-like sales growth. We are seeing strong volume-led growth in our functional segment, particularly in our high-protein and immunity platforms, while also coffee creations continue its market share-winning growth journey. Worth mentioning that we are at the same moment restoring plant-based growth dynamics in Europe with our Alpro brand delivering competitive mid-single-digit growth in Q2. In parallel, our specialized nutrition category sustained its competitive and broad-based growth at plus 4.7%, led by continued market share gains across the world, including in China and in Europe. Our medical nutrition business is again posting double-digit growth, confirming the great growth potential which we just discussed a few weeks ago in our capital market event. And finally, our waters category that delivered another quarter of solid growth with plus 4.4%, with continued momentum of our Maison brand in China and resilient growth in Europe despite poor weather conditions at the beginning of this season. Those Q2 results demonstrate that we are making good progress in building a powerful and at the same time resilient portfolio, which is probably best explained by looking at the next page, which is page number eight. And here let me stress especially the sequential improvement of our volume mix delivery, reaching as much as plus 2.9% in this quarter. It's not only our fourth quarter of sequential improvement, but also our third consecutive quarter of positive volume mix. And importantly, we can report good volume mix dynamics across all our categories, with EDP up plus 2.6%, our best performance since a long time, as well as for specialized nutrition up plus 3.6%. Waters also delivered a solid volume mix in the quarter at plus 2.6%. And I'm sure looking at that, you will agree that these are strong top line results, which create a solid entry point for the coming second semester. And so I suggest we move on and get into our Q2 sales bridge with more details on slide number nine, please. As discussed, our Q2 like-for-like net sales growth of plus 4% was composed of a volume mix effect of plus 2.9%, complemented by a sequentially normalizing pricing effect of plus 1%. Outside of the like-for-like, Forex had a negative effect of minus 2.4% as a result of a number of currencies depreciating against the Euro, but this was partially offset by the impact of hyperinflation. And finally, Scope effects that had a negative contribution of minus 7.2%, due to the deconsolidation of EDP Russia, Horizon Organic, and the Michelin and Augustin business. The deconsolidation effect of Russia is with the closing of this first semester 2024 behind us, meaning we will report a significantly lower scope impact for the second half of the year. In total, reported sales were down 4% for the quarter, bringing our quarterly net sales to 6.9 billion euros. Let's now have a look at the performance of each zone in more detail, starting with Europe on slide number 10. Europe delivered like-for-like sales growth of plus 0.7% in quarter two, with a third consecutive quarter of positive volume mix, reflecting the progress we have made in transforming our European portfolio. The reported results for this quarter were, however, impacted by retail and negotiations, resulting into short-term delivery disruptions. Those negotiations are now behind us, making us again 100% focused on working with our retail partners to grow our categories. In EDP, we are pleased with the underlying quality of our growth. Our mix continues to improve as we see strong traction for our more differentiated segments. We are particularly happy with the performance of brand platforms like Yopro as well as Actimel. but also promising dynamics in big brands like Activia, and especially for this quarter, Alpro, as already mentioned. On waters, we can report a solid underlying performance, despite the rather poor weather conditions, with our Evian brand benefiting in this quarter from a great visibility boost, Antoine was mentioning it, as certainly also many of you have seen during the Wimbledon, but also the Evian Golf Masters event. Looking at the entire first semester, Europe closed with like-for-like sales growth of plus 1.7% and positive volume mix. The recurring operating margin improved by plus 87 bps versus last year to reach 11.5% as a result of strong gross margin improvements reflecting the quality of our growth. Let's now move on to North America on page number 11, please. North America delivered a very strong plus 5% like-for-like sales growth in the second quarter. led by volume mix and supported by resilient pricing. The growth in North America was notably led by our yogurt business with another stellar performance of the high protein range under the Oikos brand. In parallel, our coffee creations business is posting again strong growth in this quarter with continued market share gains for both brands, International Delight as well as Stoke. At the same moment, we can report a similar competitive momentum also for our waters business with our Evian brand enjoying a strong momentum in this quarter. Overall, this brings our first semester like-for-like net sales growth to plus 3.7%. The recurring operating margin continues to expand, and it's up by 33 bps compared to last year, driven by strong gross margin expansion. Another demonstration that quality growth is driving value creation. which is actually a very good transition to the next page, page number 12, with our China, North Asia, and Oceania zone. The zone registered a very strong plus 8.4% like-for-like sales growth in the second quarter, driven by volume mix up plus 9.4%. We have seen continued competitive momentum in specialized nutrition, with notably medical nutrition continuing its double-digit trajectory, driven by both adult and pediatric solutions. At the same moment, our IMF business is further winning market shares, also in the second quarter, and is contributing again positively to the growth of the zone. In waters, we confirmed that my zone had a strong start to the season, growing net sales by around plus 10% with continued market share gains. In Japan, our EDP business is now since many quarters on a strong growth trajectory. and is also in the second quarter again posting double-digit growth, led again by the Oikos and Activia brands. Looking at the entire first semester, the zone registered great like-for-like sales growth of as much as plus 8.6 percent, recurring operating margins stood at 30.6 percent with deliberate investment behind this consistent and competitive growth, making us confident for the coming quarters. Let me suggest to move on to slide number 13, reviewing together the results of Latin America. Latin America registered a solid plus 5% like-for-like sales growth in Q2, with volume mix up plus 1.8% and price up plus 3.2%. We are particularly pleased with the solid performance of waters in Mexico, as well as of specialized nutrition across all zones. We also see a solid underlying performance of EDP, which, as you know, is currently impacted by the effect of licensing out of the Paulista milk brand in Brazil. As we report first semester P&L results, it's important to acknowledge that there is a disconnect between another semester of strong like-for-like profit margin expansion, which was momentarily overcompensated by a very negative hyperinflation and currency effect from the Argentinian peso, At like-for-like rates, profit margin of the zone would have increased by as much as 150 points compared to the reported margin decline of minus 62 bps. This one-off shall disappear over the next quarters as the underlying drivers will balance off each other. Finally, let's have a look at the rest of the world zone made of Africa, Middle East, Asia, and CIS on slide number 14. Like for like sales, growth of this zone increased by plus 5.3% in the second quarter, with positive volume mix of plus 1.8% and price of plus 3.5%. Looking at the quarter more in detail, the specialized nutrition business posted a good quarter across Asia and the Middle East in particular. Across the zone, our Aptamil, but also our Babyluck brands saw double-digit growth. In parallel, our dairy business in Africa continues to make good progress, positively contributing to quality growth also during this second quarter. Looking at first semester performance of the zone, sales increased by plus 5.6% on a like-for-like basis. Recurring operating margins stood at 10.8%, increasing by plus 44 bps versus last year, particularly driven by the progress we are making in our Africa transformation, but also by the solid growth of our eCreative specialized nutrition business in the region. I suggest we conclude here the zone review, then move on to the margin bridge for the first semester of 2024 on slide 15. The recurring operating margin stood at 12.69% in the first semester of 2024, an improvement of plus 45 bps compared to last year. Our focus on quality growth, our focus on operating leverage, combined with above industry average productivity, have been important drivers to get the margin from operations up by altogether plus 257 pips. Important to acknowledge that we were in this first semester benefiting from some final carryover effects of pricing from last year, which has given the gross margin even more momentum for the last period. With pricing normalizing in the coming quarters, the effect on gross margin will not repeat with the same magnitude in the coming second half. In a market environment which has seen intense competitive pressure, we have been reinvesting 169 BIPs into what will drive our growth in the future, into A&P, into sales and marketing capabilities, into research and innovation, as well as into digitalizing our supply chain. As mentioned during our capital market event, the reinvestment focus will now sequentially move towards more category leadership initiatives, which also means that the need for additional investments will soften in the coming quarters. Other effects reflect notably the positive impact of scope arising from the before-mentioned deconsolidation of dilutive businesses, which are more than offset by negative Forex impacts for a combined effect of minus 34 bps. Let's now move on to the EPS bridge and free cash flow on slide number 16. Recurring EPS reached €1.80 in the first semester of 2024, which is a plus 2.6% increase compared to last year. The main contributor of recurring EPS growth was the strong operational performance we just went through at plus 15.7%. The scope effect amounted to minus 8.3% from the already discussed deconsolidation of businesses, while the depreciation of a number of currencies against the euro had an impact of minus 10%. Our focus on reducing our debt levels has contained the impact from financing to only a minus 0.3% impact, while tax and income from equity-accounted companies and minorities had an effect of plus 5.6%. You will remember us saying that our ambition is to turn our company into a consistent value compound. With our earnings increasing in relative but also in absolute terms and with continued focus on working capital improvement, We were able to post another record of free cash flow, reaching as much as 1.2 billion in this first semester 2024, an increase of 11% compared to last year's. Those good numbers combined with the underlying strong fundamental dynamics of our categories and brands make us confident to deliver on our future value creation ambition. Which leads me very naturally to my last slide, slide number 17 of our financial guidance. This year, 2024, is shaping up to be a strong year where, despite many external challenges, our company is set to deliver on its midterm commitments, a year where we are growing our business increasingly competitive in markets which are dynamic. The superior growth of our categories within the food and beverage sector is proving that they are on trend, that they offer great growth opportunities, especially for committed category leaders like us. Based on the strong results of the first semester of 2024 and our confident outlook, we are reiterating our full year 2024 guidance with plus 3 to plus 5% like-for-like net sales growth and moderate profit margin improvement. And with that, let me hand it back to Antoine for the conclusion.

Thank you, Jürgen. I suggest we move straight to slide 19. As said, we are obviously pleased with the results of the first half. I mean, these results are true to the Renew's strategic intent as we deliver a quality balance of volume mix versus price, which is, as Juergen said, enabling our investment, margin expansion, and ultimately good cash flow delivery. Also happy with the consistency of our delivery and the resilience it demonstrates over time. But we are also acutely aware that there are still things that remains to be done in an environment which will remain challenging and quite unpredictable. As shared with you at the CME, the way forward for us is to keep executing only new data with discipline, continuously improving what needs to be improved while preparing the future being true to what we believe to be a long-term value compounding model. And with that, let me hand over back to Mathilde to start the Q&A question. Mathilde, over to you.

Thank you, Antoine. So we will now open the Q&A session, and we will start this session with a question from Guillaume Delmas, UBS.

Good morning, Antoine. Two questions for me, please. The first one is on your pricing outlook for the second half of the year. I mean, not something that is done on fake.

You're breaking, Guillaume. Sorry? I'm breaking? You are breaking.

Can you hear me better now?

Yes.

Is it okay now? Okay. So let me try again. So I'll try to ask short questions. The first one is on pricing and your pricing outlook. Because across the board, we're seeing a fast normalization in price growth. So my question for you is, with most of your price negotiations for the year now behind you, particularly for Europe and North America, do you have a relatively good visibility on your pricing for the second half? And at this stage, do you feel confident that across your three divisions, pricing will remain in positive territory? And then my second question is on specialized nutrition. It's another strong print for this profitable business. Short term, do you see any reasons for a sudden change in trajectory? I mean, I would think the launch of Nuturis, Momentum in Medical, should probably support some optimism here. And then longer term, since you said at the CMD that for M&A activities, specialized nutrition would be the priority, would it be fair to assume that your vision built around health through food implies that specialized nutrition will effectively end up being your largest business in some years from now, not just on a profitability basis, but also on a sales basis. Thank you very much.

Thank you, Guillaume. We'll do a duet with Jorgen. Let me start with the second question. I'm sure Jorgen will take the first question. As you've seen, it's a very good print for specialized nutrition, but what is very important is its consistent quality growth in specialized nutrition. It is a business that is core to us. It is an important business. It is not the only business. So we love all the categories. And as you've seen, we are also delivering very good quality and broad-based results. So will we keep looking at acquisition through the lens that we have described, which is one of strategic fit and financial responsibility? Yes. Is specialized nutrition a place where, obviously, if such acquisition comes, we will look? Yes, it's not the only place. So are we confident in the trajectory of specialized nutrition? We definitely are. But in the same way, by the way, we are very confident that the pivot we are doing from our dairy or yogurt to our gut health and protein is one that offers immense potential in our EDP category. So it's not a one-horse track, if I may say.

Guillaume, good morning. On pricing, pricing will stay positive also in the second half of the year, just to be very clear about this. There has been a reason why in some instances negotiation took a little bit longer than we would all have wished, because the way we are approaching is to ensure that we do consumer-led pricing where we have strong brands, brands which bring innovation into the market, and where we feel that we have the right and the role, by the way, to be a driver of the market growth, but it means also increased price in certain instances. And there will be other occasions where we will invest into price in order to make sure that we get our fair share of the volume growth. But net-net, we see also positive pricing for the second semester moving forward. Thank you very much.

Thank you, Guillaume. So the next question will be from John Kopp from Kepler Showroom.

Yes, good morning, guys. Congratulations on the numbers. Just two questions from me. One sort of on that broad margin equation, you're talking about the gross margin won't be the same improvement, that 257 basis points in H1 into H2. At the same time, you're talking about the Latin America profitability potentially being 200 basis points above where you were amid these one-offs and obviously that business is a good 10 percent of revenue so that would be better 20 basis points better you know going into the second half of the year and you're still talking about only a moderate improvement in margin this year when you've done you know almost 50 basis points in h1 is is 50 basis points how you would define uh moderate that's the first question a second question on north america I want to just give us a bit more granularity on that. Some of your competitors are really struggling in that market. You talk about how proteins are leading. Maybe give us some color on that. But also at the other end of the scale, what you're seeing maybe for some of the entry level brands, what are you doing to offset maybe down trading and private label? And then maybe just to add, if you can, on the plant base, you're saying you see signs of traction. Maybe you can talk a little bit more about that. Thank you very much.

So I guess, Juergen, we'll take the first question. I'll take the second.

Yeah, look, on the first one, obviously, we are very pleased with the gross margin expansion of the first semester, which, in a way, shows that we are really working our business model, quality, top line growth, driving operating leverage, and therefore driving very naturally gross margins up. What we see, what is a bit particular in that first semester is the fact that we came into that first semester with a good level of pricing. combined with record productivity levels, combined with a number of commodity indexes, which were quite beneficial to the equation. Moving forward, gross margin will definitely continue to expand. This is our business model we are aiming for, to allow for continued value creation over time, also including reinvestment. But it will not go at the same speed as we saw some of the commodity indexes, rebounding a little bit. To your other point, John, on Latin America, there's a one-off here, and it's a quite mechanical one-off because there's a total disconnect between the level of inflation we see in Argentina and the absence of a devaluation, but this cannot take forever. At the same moment, we don't know when this is going to balance off, that in the second semester or later on, so at some moment, we're going to benefit from... from that rebound. And to your third point, I think looking at the full year, you understand that we are looking at the full year with confidence. We are maintaining the guidance we issued at the beginning of the year. You will certainly not expect me to guide to a very precise BIPs improvement. But what we can, however, share is that we are expecting a comparable composition of the margin progression as last year. Remember that we delivered last year a moderate organic margin expansion, enhanced by around 10 bps from scope effects, thanks to our portfolio rotation. And this year we'll also have both drivers contributing with a similar size of contribution from scope as last year.

So on your second question, John, I think the current performance in North America is, well, first, it's very competitive. It's very good. When you look at the external world, the team there did a very, very good job. It is a mix of a number of things. We have a number of ranges that are working extremely well. Obviously, we keep driving our protein range. We have started expanding the expression with Remix, which you have seen in Amsterdam. We keep bringing new news to our core segments. We have some local jewels around coffee creation are doing very well. And there, too, it's a mix of our great focus on the core and innovation. I mean, the cold form is working extremely well. So it's a good example of global mixers and your local mixers are putting at the same time with a focus on the quality of execution by the team in the market, which is quite remarkable, which, by the way, has been acknowledged externally as the team is being ranked in customer rankings as number one of its category. It is also, and that is interesting, the proof of the resilience of the portfolio. Not everything is going well. We are still working on things like Danonino, which was at the entry price of the market, to make sure that not only we are price competitive, but we are mix competitive. We have been working, and we've mentioned it for a number of quarters now, on silk. Silk, by the way, we see some green shoots, so we see penetration starting to go up. We see the first encouraging signs of what we do around the breakfast occasion, around the coffee occasion. But that's only the start of the journey, and there is a lot to be done on that front. I don't know, Jorgen, if you want to add something.

Maybe just one element. You may remember a chart which Antoine showed during the CME demonstrating that our categories are growing faster than the average of food and beverage. And the yogurt category, which is actually true in North America and Europe, is actually very dynamic. with consumers looking for categories which provide health benefits. And this is what the trend we are currently sailing, which we believe is a long-term trend. So I think we are well positioned.

Thank you.

Thank you. Thank you. As a reminder, to ask a question, please press star 1 1 on your telephone keypad.

Thank you. The next question is from Céline Panty, JPMorgan.

Good morning Céline, we don't hear you.

Hello? Maybe there is a technical issue with Céline.

Good morning. Can you hear me?

Good morning, Céline.

I'm sorry for that. Good morning, Antoine, Jürgen, and Mathilde. My first question is on – I wanted Jürgen to come back on the slide where you showed that nice volume progression quarter by quarter. And wondering whether we should expect this ramp-up to continue as we go into the second half. I'm thinking you were talking about the delisting being over, so I would expect some, you know, better positive evidence of what you're doing in Europe coming into Q3, Q4. So just wanted to see whether that would help at the group level. and as well whether we should continue to see that good growth momentum on a volume term in EDP continuing in the next quarters. My second question is on specialized nutrition margin. We're done. Can you please give us a bit of a steer of what has driven that? And obviously, the China division did very well in terms of volume mix, but there was as well a negative price mix. So I just want to know what drove that and whether maybe it's linked as well to your special nutrition margin. Thank you.

Let me take the very last one, and Jurgen will take care of the rest. In China, first let's start with that it's a stellar performance again. And it's a stellar performance that is driven by a great volume mix. As part of the performance, there is obviously the launch of a number of innovations in the market. And as you launch innovations, you invest behind those innovations, be it in terms of listing, be it in terms of trial, be it in terms of promotion. So the margin of our China business is at the right level. and is maintained. The balance is linked to the flow of innovation and us doing what it takes to keep rolling at a fantastic pace in China with a real quality growth.

Yeah, and just to compliment on that, and good morning, Celine, we were very clear that the DSN, the specialized nutrition margin, will stay ahead of 20%. This is what we said four weeks ago. That's totally relevant. You saw that we have been investing in that first semester into China because this is the year of innovation for China. We are launching innovation on medical nutrition, as you have seen, on the oral and the powders. We have seen us launching innovation in IMF, and this will continue in the second half of the year, as well as in Maison with the electrolyte version. So we are investing into that. You saw how much we are growing. I mean, a high single-digit growth in this first semester. So I think that's a fantastic investment, and ultimately it will be a key contributor to keep the specialized nutrition margins well ahead of 20% for the coming semesters and years. On the second element of volume mix, we're obviously very happy with the volume mix of Q2. We are now, I mean, all what we have been doing over the last two years is yielding results. Now we will manage our portfolio and maximize the opportunities of our portfolio across the different regions. Antoine was saying this is a volatile world with things happening here and there. But as you hear, we are confident that we are on the right path, and this is also why we have been reinvesting to solidify the growth momentum for the second semester and the years to come.

Thank you. Thank you, Céline. The next question is from David A. from Jeffreys.

Hello, Mathilde. Good morning, all. Thank you. Apologies. This has been covered because I did miss the beginning, but I'll ask my two anyway. So firstly, both on margin. First one on the gross margin, first half. I don't think you give that number. Just whether you can give us what the gross margin was and what it changed year on year specifically. And then secondly, on the water's margin, 290 base points improvement is very notable, but also a little bit of a surprise, to be honest, because we assume the mix is going to be perhaps a bit less favorable than you would have ideally had because of the poor weather and therefore less out of home. So just wondering whether there's anything specific in that number that's helping. Is it just the packaging costs coming off quite markedly or is there anything else that's changing that means that margin will continue to improve at quite a good tear? Thank you so much.

David, could you repeat your first question? I'm not sure I got it.

Yeah, of course. Just on the gross margin, the actual specific gross margin, can you give us that gross margin level and what it actually changed year-on-year, basis points-wise?

Thank you. What we said is the margin from operations increased by 257 bps. What Juergen said is obviously there is the carryover of price, so we will see record levels of productivity. We will see moving forward a bit of normalization, but still remaining in positive territory. And on waters and water growth margin, I don't know whether Juergen you want to comment.

No, but look, what we are seeing, and that is quite promising, we see gross margins actually going up across many of our categories and many of our regions. Gross margins going up across Europe, gross margins going up across North America, gross margins actually going up in our China, North Asia, North China division. And things are going in the right direction also when you look at the different categories. In Vortos, more precisely, as you can imagine, the fact that our MyZone business is growing at a high speed is delivering a very interesting mix to us. But also when you decompose The waters P&L evolution, what we see is that good gross margin evolution within Maison and good gross margin evolution in our other big business of Europe waters. Now, it's through the second quarter. has been under pressure in Europe because of weather-related, I would say, pressure, which is something which is not under our control, and Q3 eventually is up to a good start. But overall, I think the underlying dynamics are quite well, and so we are confident to see overall good value creation trajectory for waters from a top line and bottom line standpoint.

Maybe let me add a point because it is important for us. What we said all along is our business model and our long-term business model is we drive quality growth, so growth with a volume mix component, which enables our delivery of gross margin, which enables in turn the combination of two things. reinvestment behind our brands, our categories, our capabilities, while increasing our profit on a regular basis. So I think the first half of the year is yet again, because it's not the first time, yet again a demonstration of the model at work. and of the value that that model can create. You look at the way it drills down, I mean, supporting our brands, investing our capabilities, delivering profit ultimately delivering our cash uh by the way are delivering a good eps uh despite uh the the the scope effect so this is our model at work it's not the first time but it's a great example of the model at work yeah and final comment uh david uh gross margin level coming back to your first question gross margin level has reached end of age 149.4 percent so we are

going very fast back to where we have been a number of years ago to the 50% mark. So great dynamics.

Thank you. Just quickly, just follow up on the spending point. I mean, EDP margin down 50 bps, I guess, with all the mix you're doing. I guess, again, a little bit surprised maybe that's not a bit better. But is that because there's quite a lot of investment going into the business, that part of the business, this first half, to your point about reinvesting? Is that part of the phasing dynamics?

Actually, margins are going up on EDP in Europe and in North America. The Latin American currency issue is unfortunately distorting the reading for that first half, but again, that will balance off over the coming semesters. So the underlying is strong and consistent with what we also saw second semester of last year.

Thank you.

Thank you, David. We have the next question from Tom Sykes, Deutsche Bank.

Yeah, hi, morning. Just coming back to the gross margin, please, just trying to reconcile a bit why it might not even be higher than what you've reported. Because if you're coming in at record productivity, which I guess you guided last year to 5% plus, Feels like it's probably more than that, or at least that level. Plus you've got 2.9% volume mix, which the incremental gross margin on that is clearly going to be quite high, maybe 60% plus. It's difficult to see how that kind of gets you to the gross margin improvement that you're seeing. But then you're saying commodities are were also a benefit. So I'm just trying to understand, where is your pricing relative to the commodity growth? And is there something else in the gross margin, like, I don't know, trade spend, something like that that is affecting it, please? And then just on the AMP, how variable intra-period is your AMP? I mean, according to what happens on the gross margin, what percentage of your

So let me take the second one, and Juergen will take the first one. Although, by the way, in the first one we don't guide on productivity, just to be clear. We look at our EMP through two lenses. A lens of competitiveness, so what is needed to be competitive in our markets. What is needed to grow are categories. So we look at market, we look at promotional intensity. That's one dimension. We look at it also in a very systematic way, through a lens of return on invested capital, or return on investment. And there we are extremely disciplined. So the name of the game is one where we support, in a very systematic way, our launchers. And we are extraordinarily flexible on a day-to-day base to add where it needs to be added, but also clawback if we think that there are not proper returns. Next to that, by the way, we keep doing our work on what's the proportion of working versus non-working media. We increase the quality of our testing so that we qualify properly. So we keep a very strong eye on the return on investment. We are extremely picky where we invest, so we have a certain degree of flexibility and we are not just set one way or the other.

On the first point, let me first agree with you that we have it in our hands to continue growing our gross margin because we have a number of levels which make that we are confident for the second semester, but not only, but also as we go into 2025. The levels we discussed about is pricing, which will remain positive, but yet we will benefit less from the carryover of last year. And pricing for us includes all the elements of pricing, obviously. That includes promotional activities. That includes trade terms. We are looking at the net consolidated figures. So we will continue to have a benefit from there, although probably at a lower level. We saw indeed a number of commodities going relatively low in the first semester, and what we are seeing today, looking at the market and looking at the future, that some of them are rebounding. And this is the way we forecast the second semester, while staying very committed on getting the operating leverage from our volume mix. and by staying very committed to continue all the great things Vikram and his team is doing on productivity. This is why we are confident on the semesters to come. This is why we are confident on the second semester, although the gross margin may not be at the same magnitude of expansion as in the first one.

Okay, thank you.

Thank you, Sam. And so the next and last question is from Victoria Petrova. Thank you.

Good morning and thank you very much. Congratulations on the results. I have two follow-up questions. First of all, are you seeing anything new in retailers' alliances behavior in Europe, which you have not seen before? Are they consolidating their efforts and negotiating on pricing or anything new in this process? And my second question is on product launches in China. Could you walk us through your IMF launches and specialized nutrition launches till the year end. Thank you very much.

Good morning and thank you for the questions. I think I'll take most of it. I'll use the capable help of Jürgen. On retailer alliances, it's new and not new. Retailers have been conglomerating for a number of years. Those alliances, by the way, are changing. Some come in, some come out. The various alliances have different approaches. Some are just purchasing platforms who want to have the best conditions locally. Some try to harmonize at European level. What does it mean? Well, the price negotiations have never been easy. I mean, I'm in that business for a long, long time now, and I don't know a year in Europe where it has been easy. it will continue to be challenging. I think what is important, and you've seen it, by the way, I mean, we said that we had a difficult discussion with some of the alliances with our impact on H1, and despite that, we've printed a very good set of results, which speaks to the resilience of the company, which speaks to our ability to keep delivering despite external events. And there will be external events because such is our lives. So alliances will continue. They will keep putting pressure on people like us, which is why the name of the game for us is our number one offer products that are loved by consumers and totally differentiated. And the second thing is keeping doing what we are doing, which is being strong in away from home, being strong in pharmacy, being strong in hospital, and therefore keeping building the resilience of our business. I mean, as you remember from Amsterdam, we have over 50% of our business that is now out of mass retail. So it's also a game of resilience. When it comes to When it comes to specialized nutrition in China, well, a couple of things. You remember that we said, I think, nine months ago that at the time of the renewal of licenses in China, we obtained more licenses, opening us the opportunity to start launching more products in IMF. Some of our last launchers are doing very well. Nurturis, as we said, we will launch or introduce in September 1st in Hong Kong and then expand it further. As we said as well, it's going to be progressive because you need to build the credibility with the healthcare professional so that to make sure that the consumer, but also the doctors, understand the difference of the product, which then gives you a base to have a long-lasting success. In medical nutrition, well, first thing is we keep driving what we have, which is a very strong range of products. You know that on tube feeding, we have very strong market shares in our Tier 1 hospital. We are obviously expanding our reach. We are going further in tube feeding in powder, and there our nutrition brand is moving forward. And as we said, we are introducing FSMP in China. So same story. You do it in a methodical way. You convince the HCPs. You are where the patients are, and here you go. I think what we have done in China in a very systematic way is be very focused, be very deep in what we do, and then be very consistent, consistent, consistent. over time, which has served us well, and is serving us well, because as we said, I mean, the print of China for each one is quite remarkable.

Which makes that today we have, I believe, an unparalleled portfolio in China. Medical nutrition growing double-digit for many quarters in a row. My zone back, and you saw, again, a good and strong start into the year. And you see that we are winning super consistent in IMF, quarter by quarter, so This is the power of a strong core, but also the power of, I believe, a very intentional management of innovation.

It's a really strong team.

It's a really strong team, yes.

Okay, thank you very much. Thank you. So with that, we come to the end of the Q&A.

So many thanks again to all of you for joining the call. We'll see a number of you on the road in the coming days. Obviously, Mathilde and Tim are here to answer all your questions. I mean, as we said, we are happy, obviously, with the consistency, but also the broad-based nature and the quality of our delivery. We are also systematically, constructively dissatisfied. I mean, there are still things that need to be worked on. So we'll keep driving renew. We are on preparing or getting ready for the next chapter we've shared with you in Amsterdam. And we are working on that diligently. So see you all in the field. All right.

Thank you. Bye. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.