Nomad Foods Limited (NOMD) Q2 2024 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to Nomad Foods' Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note that, this conference is being recorded. I would now like to turn the conference over to Jason English. Please go ahead.

Hello folks, and welcome to Nomad Foods' Second Quarter 2024 Earnings Call. I'm Jason English, Interim Head of Investor Relations, and I'm joined on the call by Stéfan Descheemaeker, our CEO; and Ruben Baldew, our CFO. By now, everyone should have access to the earnings release for the period ending June 31, 2024, that was published at approximately 6:45 a.m. Eastern Time. The press release and investor presentation are available on Nomad Foods' website at nomadfoods.com. This call is being webcast, and a replay will be available on the company's website. This conference call will include forward-looking statements that are based on our view of the company's prospects, expectations and intentions at this time. Actual results may differ due to risks and uncertainties, which are discussed in our press release, our filings with the SEC and our investor presentation, which includes cautionary language. We will also discuss non-IFRS financial measures during the call today. These non-IFRS financial measures should not be considered a replacement for and should be read together with IFRS results. Users can find the IFRS to non-IFRS reconciliations within our earnings release and in the appendices at the end of the slide presentation available on our website. Please note that, certain financial information within our presentation represents adjusted figures for 2023 and 2024. All adjusted figures have been adjusted primarily for share-based payment expenses and related employer payroll taxes, non-operating M&A-related costs, acquisition purchase price adjustments, exceptional items and foreign currency translation charges or gains. Unless otherwise noted, comments from here refer to those adjusted numbers. With that, let me hand over to Stéfan. Stéfan Descheemaeker: Thank you, Jason. Nomad Foods delivered another quarter of solid top and bottom line performance. I'm pleased to report that the volume inflection we previously forecasted has come to fruition with volume growth of 1.6% this quarter. This is the first period of volume growth since quarter three 2021, but certainly not the last. Net sales increased by 1.1% including a 0.6% benefit from ForEx as the positive volume growth was only partially mitigated by the surgical price investments, we made to drive profitable growth. This marked our 8th consecutive quarter of positive organic sales growth and we are pleased that we have been able to amplify the top line growth throughout our P&L. Gross margin expanded by a robust 270 basis points on two primary drivers. Our team's continued success driving supply chain productibility savings, and our favorable mix, as we are winning our Must Win Battles. This gross margin expansion is funding our reinvestment into driving category growth with a material increase in A&P this year. But despite this reinvestment, we were still able to deliver 5% adjusted EBITDA growth in the quarter and a 10% increase in adjusted EPS. And while the top line improvement in this quarter has been a bit slower and more gradual to material than we first expected at the start of the year, the evidence that the inflection has now begun that our investments are generating increasing returns bolsters our confidence in our ability to achieve the profitable volume growth acceleration that our second half outlook is based on. Let me elaborate a bit more on what gives us this confidence. First, while the European consumer remains pressured, the headwinds from the cost of living crisis that they were under have begun to ease. Consumer confidence is inching up and price sensitivity appears to be lessening as evidenced by the modest shift we are beginning to see towards premium products. The environment is still challenging, but a bit less challenging than we have seen in recent years. And while it is happening, we are reminded that we play the great category. As we illustrate on Slide 4, while growth can vary period to period, volume growth for frozen food has generally outpaced total food for the last 18 months. And that relative outperformance has only grown our plate with frozen food posting a robust 6% volume increase in the most recent period. The early read in July suggest that the momentum has continued. And while we do not show in on the slide possibility sake, the story operating outperformance is the same through a value lens. We are leaning in to drive this growth with our retail partners. And on Slide 5 we illustrate a few of these investments. Our A&P spend rose 30% year-on-year this quarter, as we supported our Must Win Battles and growth platforms. An example of this is in our chicken portfolio where we have been executing behind a full 360-degree campaign in the UK and we will bring -- be bringing compelling innovation under the Birds Eye Chicken Shop brand in quarter three with the launch of new loaded burgers, chicken wings and buttermilk tenders. This is resulting in strong and accelerating growth in this Must Win Battles. And in Germany and Italy where chicken is an early development growth platform for us, we have fully integrated advertising, promotion and merchandising plan that have been supported by innovations such as the quarter one launch of Chicken Burgers under the Findus brand in Italy and the upcoming quarter three launch of iglo branded stuffed mixed chicken nuggets in Germany. We love this subcategory. It is large, profitable and we have a clear right to win. Our brands which have legacy heritage in branded fish have proven that they can extend in two branded chicken and relying the competitive dynamics. We are the only manufacturer investing with this level of advertising and innovation, and the actions we are taking to modernize and premiumize the category and driving revenue, and margin growth for both us and our retail partners. Volume for overall chicken platform is up double digits year-to-date and gross profit growth for the platform is outpacing volume and review as our premium innovation mixes or margins higher. This is one of many examples we have of our investments bearing fruit, and we're excited about the innovation and distribution expansion plans that we have secured in the second half. It is because of this that we are confident that the positive volume inflection and improving market share performance in this quarter is just the beginning. We will deliver further acceleration and expect our exit rate this year to be especially strong due to the timing of our initiatives. We are confident in our ability to deliver on the reiterated guidance and excited about the momentum that we will build into 2025. With that, let me turn it to our new CFO, Ruben Baldew to walk through our quarterly results and outlook in more detail. But before I do so, I want to thank Samy Zekhout for all the accomplishments we achieved in getting our company at this point during his tenure as our CFO. And I also want to thank him for generously committing his time and energy to answer a smooth as of integration month. This has helped Ruben even ground running and I'm pleased to see Ruben already making a positive impact on the business. Ruben?

Thank you, Stéfan, and good morning everyone. I'm pleased to be presenting here today for the first time as the company's CFO. I joined the organization for various reasons. First, I believe in the frozen food category. The benefit this category delivers both from a nutritional perspective as well as the positive impact on the environment because of lower waste, aligned with macro consumer trends. And I believe the strong benefits will continue to drive future category growth. Secondly, I believe in the role Nomad has been playing and will continue to play as category leader with a diverse portfolio that spends vegetables, fish, poultry and healthy meals. Lastly, I love the quality of its brand, the strength of Nomad supply chain and the level of talent among the people at the company. Now that I've been at the seat for nearly two months, I'm even more confident that I made the right decision. As second quarter results illustrate, I've joined the company at the beginning of an important inflection point and I'm excited about the contribution I will be able to make to accelerate profitable growth in the quarters ahead while generating outside shareholder value. As you can see on slide 6 and 7, for the second quarter reported net revenues increased by 1.1% to €753 million. Organic growth improved further to 0.5% while favorable ForEx contributed 0.6% to the quarterly sales. Volume growth accelerated to plus 1.6% year-on-year from a decline of 2.2% last quarter and was partially offset by minus 1.1 price/mix as we retain the vast majority of the 20.6% price/mix increase we achieved in the same quarter last year while surgically reinvesting a small portion of the prior increase to support growth. In this context and despite the surgical investment, second quarter gross profit rose by nearly 11% year-on-year with gross margin climbing to 30.9%, a 270 basis point increase from the year ago quarter. Let me spend a few minutes on our gross margin performance during the quarter. While pockets of inflation sustained the outside cost pressures seen in recent years have eased which is allowing the strong mix benefit of our RGM efforts and Must-Win Battles to become more evident. Roughly two-thirds of our gross margin expansion this quarter came from mix as we win our Must-Win Battles and still our growth platforms. The remainder of our gross margin expansion is primarily coming from our supply chain productivity or effort. Our organization has worked hard to unlock cost savings and the success team year-to-date is accompanied by a large pipeline of programs that will support future efficiency gauge. And as Stéfan mentioned, the strong gross margin is giving the organization the fuel it needs to reinvest in our growth flywheel. Adjusted operating expenses rose 15% year-on-year in the quarter as we funded a 30% increase in A&P, while investing in organizational capabilities. Despite the reinvestment, we were able to deliver robust adjusted EBITDA growth of 5.3% and a healthy year-on-year adjusted net income increase of 5%. A lower share count as we continue to return cash to shareholders and provide that growth to 10% at the adjusted EPS line yielding an EPS figure of €0.44. Turning to slide 8. Our strong profit performance continues to translate in healthy cash flow that we have increasingly returned cash to shareholders in the form of our recently established dividend. Year-to-date adjusted free cash flow was €42 million, which was down year-on-year mainly due to higher working capital needs and cash interest. The timing of receivable phasing was a headwind in the quarter, but one that we expect to reverse as we progress through the year and the same hold for cash interest expenses, which were more front-end loaded this year and will be a more moderate use of cash in the second half. Turning to our guidance for 2024 on slide 9. We are pleased with our first half performance and are building momentum, enabling us to reiterate our full year guidance. Our organic revenue growth is accelerating on the back of a powerful volume inflection and while the organic sales acceleration has taken a bit longer than we expected, we remain confident in achieving our full year net revenue growth range of 3% to 4%. This revenue outlook implies acceleration in H2 where we will be cycling much lower organic growth than we faced in the first half, while reinvesting our H1 profit over delivery to support this growth. We have line of sight to strong retail programs and distribution gains behind a robust pipeline of innovation, promising growth platforms and must-win-battles. We will be leaning in during quarter three to strengthen this momentum and expect the returns of that investment to be most evident as in quarter four as we exit the year and built strong momentum into 2025. Despite this investment, we remain confident in delivering our full year adjusted EBITDA growth guidance of 4% to 6% and adjusted EPS of €1.75 to €1.80 per share. And US dollar euro exchange rate on August 1st, our adjusted EPS guidance translates into $1.89 to $1.94 adjusted earnings per share and applies 9% to 12% year-over-year growth. We are on track to deliver 90% to 95% adjusted free cash flow conversion for the full year and remain committed to returning capital to shareholders. Year-to-date, we have returned €64 million to investors, up €12 million year-on-year as we have now returned €45 million year-to-date through our newly established dividend. We declared our third quarterly cash dividend of $0.15 per share last week, highlighting our strong consistent cash flow and our commitment to consistently return cash to shareholders. I'm pleased with our momentum in the first half. It's a testament to the hard work and dedication of our talented workforce. Our growth strategies are working and we are even more confident in delivering top-tier top and bottom line growth in 2024 meals. I will now turn the call over to the operator for your questions.

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from Andrew Lazar of Barclays. Please go ahead.

Great. Thanks so much. Nice to meet you Ruben and great to hear from you Jason.

Good morning, Andrew. Stéfan Descheemaeker: Good morning.

I wanted to I guess come back to, sort of, organic growth expectations for the back half. I think that's where obviously a lot of the focus will be. To hit the low end of the 3% to 4% organic sales growth range for the full year organic sales would need to accelerate from call it 0.4% in the first half to more than 5% in 2H and to the extent that price continues to be a modest drag given some of the surgical reinvestment it would mean obviously an even greater acceleration in volume to hit that target. And obviously, you saw a nice sequential improvement in volume from 1Q to 2Q. But the full year guide certainly requires a whole lot more. And I realize you have better momentum, easy comps and some margin flexibility to reinvest. But I was hoping maybe you could come back to maybe a little bit more depth around why you held that range and what gives you that level of sort of visibility to sort of get there. Stéfan Descheemaeker: Thanks, Andrew. Well I guess we will agree that Q2 is some sort of inflection point in terms of volume. You talked about 0.5% to 5.5%. But you may remember that Q3 last year we were at minus 13%. We moved to minus 8% to minus 2% in Q1 and then we had positive volume business territory a bit ahead of what we announced last time. So that's the first piece. Second piece is you see that the gross margin is doing fine. So it gives us obviously space and ammunition to invest behind our top-line programs. And in terms of top-line programs we see a lot in terms of innovation. We also have a new what we call the growth platforms like poultry in Germany and Italy that are really starting now. Together with A&P I think we are increase in terms of A&P and that's going to be on a full year basis is -- I mean it's much, much higher than it used to be. So all of these elements what we call the flywheel between price if needed or promo more specifically together with innovation, growth platform, A&P and obviously also the right momentum that we see with the category, yes, we think we can do it. As we said we think it's going to be probably more challenging to get to the high end of the range. But to get to this with the range is the range and the 3% to 4% is really something we think we can achieve. We're based on what we see obviously ahead of us and also the encouraging results of July.

And then if I heard you right it sounds like a bigger step-up in investment would be 3Q and then you'd expect I guess a further or a greater acceleration in organic top line really in 4Q if I heard that right. Stéfan Descheemaeker: That's correct. That's correct. We're going to -- well we're going to keep investing on a full year basis. But to your point I think Q3 is again going to still be in terms of flywheel and starting with A&P is going to be a quarter of investment, but also based on the strong margin which allows us obviously to go that way. Don't forget who ice cream is really booming. And the Q3 is a good quarter for this. So all the things indeed is leading us to a strong Q4 and then leading obviously we should help us obviously to start the next year obviously on a very, very healthy footing.

And then last just I'd love to get a better sense of what's happening sort of in the marketplace in terms of the frozen category in your key geographies in terms of consumer behavior, competitive environment with respect to private label where price gaps are, it seems like maybe you've done a lot of work obviously to sort of bring those back to I think what are closer to more normal range is. But just kind of you mentioned that there's some shifting to premium which is encouraging. A little bit of a better sense on the competitive environment and what you're seeing in terms of consumer behavior. Thanks a lot. Stéfan Descheemaeker: Well, I think to your point I think it's good to see Europe doing well by the way. I remember at some stage in the past that where it was not so nice to be in Europe. I think it doesn't mean that it's easy. Nothing is easy and the environment is still challenging, but we're starting to see the things that are easing across the base again country-by-country. But overall if you take Europe as a global market, it's definitely making progress from that standpoint. So, that's what we see. We see also that the category as such as you have seen from the presentation is moving ahead of global food. We love it because definitely we think that frozen food is great food, it's good food, it's nutrition -- from the nutrition standpoint is great. It's affordable as well. Let's not forget I think we're premiumizing things. But at the same time, it still remains affordable. So this is -- it has all the attributes of a great category not only short-term, but also in the long-term. And well with the margins we have and the capacity to reinvest any innovation also in terms of A&P. we think we have the right recipes. Anything else Ruben? Okay. That's where we stand. And well after two interesting years we're starting to see some interesting green shoots.

Thank you. See you in a couple of weeks. Stéfan Descheemaeker: Yes absolutely. Looking forward very soon Andrew.

Our next question comes from Rob Dickinson of Jefferies. Please go ahead.

Thanks very much. Maybe just a question on the volume side, maybe in the markets that aren't doing as well, right? I did hear it sounds like Must Win Battles, which are decent percent I believe of the business grew volumes 4% I heard, chicken portfolio double-digit, and then some of the growth platforms maybe around 20%. So, clearly a little bit of a disconnect in some of the focus areas maybe relative to some of the less focused areas. If you could just touch on that that would be great. Stéfan Descheemaeker: Okay. Well, thanks Rob. But you know us for quite a few years now and you see that you remember we know that we always have been focused on Must Win Battles. That's where it matters. So, we really want to win there, which represent -- the first 25 Must Win Battles represent around 50% of our business and more in terms of margin and that's where we want to invest. We did it years and years ago during the turnaround. We have never stopped. And obviously not all of this crisis it's the kind of things we're going to do on top of also of the growth platform which are the platform that two, three, four years down the road will also become new Must Win Battles like poultry for example in other countries. great example is the U.K. it used to be a 150 million category, two years to its 150 with great margin. So, that's exactly what we want to do. So now if you're looking about the difference to your point, when I'm taking for example, H1, well, Must Win Battles in terms of volume around plus -- Must Win Battles which are the key Must Win Battles the way I define it. It's around 2.6%, so as opposed to obviously a lower number for the global business. It means that, yes we're losing volume for example in private label. You know that we still have a bit of private label, when we're losing it. Well, what that doesn't wake me up at night.

Fair enough. I mean, it sounds like the areas you're focused on are doing well which then guides momentum in the back half. So maybe you could also now touch on the -- when we talk about the new market and the opportunity of the growth platform, I heard you mention, I believe chicken nuggets in Germany… Stéfan Descheemaeker: Yes.

…This morning. Stéfan Descheemaeker: Yes.

I heard you speak previously about maybe there is kind of an outsized opportunity. And we're thinking longer term here, just given even earlier this year you had raise that top line growth algo, right? In the back half, that's even above long-term new algo. And then, as you think forward, its okay, well, if we can stabilize the portfolio win the battles but then clearly there needs to be kind of that other bucket which is what is also driving kind of outsized growth relative to food. So maybe if you could just touch on Germany as kind of a proxy, as to kind of what could happen with like chicken entering a new country? Thanks a lot. Stéfan Descheemaeker: Yeah. Well, chicken as I said chicken is a fantastic category. It's -- today we have around -- around €1.1 billion of our sales is fish. And then around €s0.3 billion is poultry mostly -- most in the U.K. by the way, a bit in poultry, but mostly U.K. with great margins. So we really have -- we consider this as an interesting innovation for other countries with innovation with a low risk, because it's a proven model. It's a proven obviously platform. And so with all the experience from the U.K., we are -- we've worked a lot with the different countries mostly Italy and Germany which are the countries number two and number three and we've delivered -- we have delivered a great innovation platform for poultry, based on what we have in the U.K. but also with sometimes adaptation sometimes not always -- adaptation to the local taste. And so then with Italy is ahead of Germany which was expected by the way. And so we've launched it and what we've seen is very encouraging. The story is a bit different in Italy, if you are developing a new category, because it's mostly chilled and fresh. In Germany, it's mostly in the end of private label. And what we want to do. And we're doing -- we're going to do it. We're doing it. It's extremely well received by the trade is we want to premiumize the category which is going to be good for everybody for us, for the retailers, and for the consumers at an affordable price. So this is a great example. So already proven in Italy and what we see in early stage in Germany is also very good.

All right. Great. Thanks, Stéfan and welcome Ruben [indiscernible]. Bye-bye. Stéfan Descheemaeker: Thank you.

Thank you, Rob.

The next question comes from John Baumgartner of Mizuho Securities. Please go ahead.

Hey. Good morning. Thanks for the question. Stéfan Descheemaeker: Hi, John.

Hey, Stéfan. I wanted to go back to Q2 the retail data. The quarter started off fairly soft, and then the June data was really strong. Can you speak to any nuances there? Was there something that occurred in the transition from winter to summer where there was a temporary dip in promo activity, your ROI where maybe you transition from supporting fish testable, and was there anything in terms of shipment timing moving into these new distribution points that started to be realized in the takeaway data as you close the quarter? Stéfan Descheemaeker : Well, it's a bit of all these points, by the way, because by definition, when you see this inflection, it can never be one as opposed to the others. So yes, there was -- we saw during Q1, Q2 that we have some space in terms of our margin to further invest in promo and we've done it. It's something that can be done faster in some countries. And we have the space, and also compared to the past with all the RGM expertise that we built we can be much, much, much more surgical in terms of promo from one quarter to another. So that's the kind of thing that you can do, and that definitely it's had an impact. At the same time, the rest is -- what I would say, as expected, we're investing A&P a definition takes more time than promo than the right thing to do however. And you've seen that we already started to invest A&P late Q3 last year, Q4, Q1. And at some stage, you'll see things are starting to ramp up. And then also, we're also starting to come up with, again, innovation programs, the one, I mentioned to Rob, like the poultry in Italy. So all these things, obviously, at some stage, are starting to ramp up, and that's what we've seen.

Yes. Maybe just to build on that. I mean, Stéfan spoke a couple of times on our Must Win Battles. You've also seen our gross margin up 270 basis points. Being part two-thirds of that is a consequence of our strategy to drive profitable Must Win Battles. By the way, Stéfan said, not only for ourselves but also the retailers and to drive RGM. And we've used that to reinvest. And as reinvestment, as you can see, it's mainly in A&P, but it can also be a bit surgical on the shop and then to your question over the evolution in quarter two. The big drivers for H2, as Stéfan said, are, A, this reinvestment, B, is the distribution gains linked to innovation and C, is the fact that we have a softer comparator like H1 last year was around 8%, H2 last year was below 2%. And you see the buildup of also quarter two. And if you look at external data that also this reinvestment as well, this pushing points gain, and we see a recovery of that more in the back half of this quarter.

Thanks for that. And then just a follow-up. Just sticking with Italy, and your existing portfolio there, that was a market that comprised the bulk of your volume decline, I think prior to the revitalization you instituted in the fourth quarter. You've invested in pricing, the retail programming. And I'm curious, as you go into the back half now, how do you see Italy at this point? Are you comfortable with where the price gaps are, the in-store activity? Is that where you'd like it -- just trying to get a sense to how much more incremental investment you think Italy still needs at this point? Thank you. Stéfan Descheemaeker : The answer is, yes, we do feel comfortable with what we do. It's been a bit of a reset in Italy. I think as you know, the margins in Italy are among the big on the large countries is one of the best margin overall independently from the category. And so we gave the conclusion, especially during this, let's say, inflation war, inflation prices, especially in fish, we came to the conclusion, yes, in some fish categories, we were just too high. And well it's never nice to come to that conclusion. But you have also to be fact-based and that's what we've seen. And it's -- and despite that it's very interesting to see that our RGM helped us because then we've been very surgical again in terms of price elasticity, see what we need to do in promo, in price, in price points in terms of fish and it has responded extremely well. So at this stage, obviously, it's a very dynamic environment. But at this stage, I don't see the necessity to invest further in price in Italy. And our margins remain obviously quite very good. So that's that. And what we've seen is, yes, we're gaining market we're gaining volume and on market share and market share as well in Italy now P6 which is extremely encouraging.

Thanks, Stéfan. Thanks, Ruben.

The next question comes from Steve Powers of Deutsche Bank. Please go ahead.

Great. So I wanted to pick up a little bit more on the second half inflection. Over the past couple of quarters, we've talked about the year from your perspective originally at least being -- the goal being a nice balance between volume on the one hand and price mix on the other. So I'm curious, as you go into the back half, do you see price mix through RGM becoming a bigger contributor or is the back half composition going to look more like we saw in 2Q where it's really a heavier lean on volume?

Yes. Maybe to answer that, it's good to give context a bit on the price mix what happened in the last quarter because I think that will also help looking forward. So a bit of context and I think it was also followed earlier. I mean, we delivered the volume recovery and the price although it was negative and it needs to be seen in the comparator last year in quarter 2, we took 20.6% price. Well not only the percentage in absolute terms that's €144 million compared to. And out of that €144 million, we kind of held 95%. And I think that comes to maybe more important points rather than the context is what we will continue to do in quarter 3 and quarter 4, we will continue to drive positive mix because again big part of our margin increase was a result of us driving Must Win Battles which with more profitable margins and driving RGM. That is what we will continue to do and we chose in quarter 2 to say okay some of that we reinvested the shop floor, some of that to 30% A&P, we invest in A&P also be that we invest in the organization. And the output of that has been clear with what Stéfan said the minus 13% quarter three volume minus 8% minus 2.1% and now plus 1.6%. And that's also how we will look at that in quarter 3 and quarter 4 to continue to drive margin mix and to reinvest some of that potentially shop for and in our brands.

Okay. That's very helpful. And maybe as a follow-on to that Ruben for you. When I talked to Stéfan a few months ago with Samy about your arrival. One of the topics we talked a lot about was revenue growth management and not only the progress made over the past several years, but also the potential going forward and really the idea of taking it to the next level. And I think Stéfan can validate, he felt like your arrival was going to be a big catalyst for that. Maybe your perspective on where revenue growth, management disciplines are today, as you come into Nomad and what your objectives are over the next couple of years?

Yes. So let me be clear on the objective is really to continue the great work which was done both by Stéfan and also by Samy on the RGM. And the experience I have here coming from Unilever, a smaller company, but especially Unilever. I would say RGM is a very high level. But as with always with everything you do, there's still opportunities. I think great progress has been made on mix on promotional effectiveness. Now it's also what we looked at surgically to see how we can optimize but there are more drivers of RGM. So what can you do with the overall trade term and optimize there. So we will definitely continue to drive that. I think it's at a good level but it doesn't mean we're out of opportunities and there are more levers to pull here. That's all I can say after the first six, seven weeks now.

Okay. Very good. Thank you so much. Stéfan Descheemaeker: The good news Steve is perfection doesn't exist. There is always a way to improve.

Yes, indeed. Thank you very much.

The next question comes from Jon Tanwanteng of CJS Securities. Please go ahead.

Good morning. Hi, Stéfan and welcome Ruben. And it's great to see the return of volume growth and also healthy margins underneath. My question to you is could you break out what percentage of revenue was must-win products in the quarter? And then following that what is the margin differential between an A-grade must-win product maybe a B-grade one and then maybe the rest that you're defocusing – if you could... Stéfan Descheemaeker: Yes, Jon, can you do me a favor, can you repeat the first part of the question.

Yes. What percentage of your revenue today is must-win products? Stéfan Descheemaeker: Okay. Well, as we said, you take the top 25 must-win-battles and they represent just short of something like 50% of our sales. Now if you're thinking you're adding the let's say the must-win-battles, we're in the region of two-thirds. It's a never-ending story Jon because when we started this journey, well there was no must-win-battles. So everything was strategic, which is in and of itself an aberration. And so we started by defining okay, we're going to go with the must-win-battles, the biggest, the largest, the most profitable margin. And so we decided okay, we're going to not get our resources to A&P price, innovation behind, it's in two-third of our business. And then for years what we've seen is this business and surprisingly went up by something like 4%, 5%, which means that the last one-third obviously, was zero or even declining, which is fine because it came up also with an improvement of the gross margin. Well you know what, after six, seven, eight, nine years, if you notice when the two-third, the two-third is becoming in of itself 90% of the business. And so you have to do it again and that's what we just did last this year is to take the most profitable must-win-battles and start again from two-third to make sure that the resources we have are going to be properly allocated. Well we intend – we think that between this two-third and the growth platform this is going to quickly become again 85%, 90%. And then again and again and again I think that's the – what that allocation in action.

Got it. No, that's helpful. And then I was just wondering on the margins in each of those categories and maybe a little bit further. As you go through the year, did you expect most of the margin contribution to be from the improving mix there or underlying margin improvement? Or is it just volume leverage off of all of that?

Yes. So what you've seen in quarter two, is a big benefit of mix. But it's also worthwhile to notice, that with kind of seasoned inflation, the benefits of our supply chain team what they're doing in factories as well as logistics becoming more evident. And that would have been actually already more evident in quarter one, were not for the inventory revaluation. And that is what we'll continue to drive. We will continue to drive those mix benefits and we'll continue to drive the benefits in the supply chain. We have pretty good line of sight now, because at this moment, we covered around 90% in terms of cost outlook. And as said, we see that inflation has eased there are some pockets, but you always have with some inflation like to [indiscernible] but it's not the biggest part, it's only for 27 ice cream. So we will continue to drive benefits in mix, and in the supply chain contributions. And then again, how we will use those, it could be that some of that again, we will use surgically for shop flow investment, promotion or an A&P or the capabilities in terms of the organization. Q – Jon Tanwanteng: Great. Thank you. And then last one, if I could. Are you expecting to regain share in the back half, just given the growth of the category being as strong as it is? Stéfan Descheemaeker: The answer is, yes. The answer is, yes. And again, very much back to -- our focus behind must-win-battles overall, yes. The answer is, yes, but obviously more investment battle than in the other categories.

Yes. And to build and that's driven by our ability to invest linked to distribution gains. Q – Jon Tanwanteng: Understood. Thank you. Stéfan Descheemaeker: You’re welcome.

Our next question comes from Peter Saleh of BTIG. Please go ahead. Q – Peter Saleh: Great. Thanks for taking the question. Good morning to everyone. I did want to ask, if you could just elaborate, a little bit on your comments on the European consumer in general. It sounded like there's still pressured, but those pressures have eased. And that just seems like a little bit of a tone shift from maybe, what you heard a quarter or two ago and the modest shift to more premium items. Can you just elaborate on what you're seeing and maybe what's changed for the European consumer over the past couple of months? Stéfan Descheemaeker: Well, I think again, without being too macro, because you have a lot of different situations. But overall, what we see is well, interest rate is going down a bit. That's one thing inflation obviously easing, especially in Europe compared to the US. And well, I think and it has immediately an impact in terms of consumer confident, especially, with the let's say the -- let's say the most important items like food for example. So we've seen this. But again what I think we've calibrated our worst in the right way which is improvement but it's less challenging than the word we're using because we're not fully out of the wood yet. But let's say because people have to digest something like a 20% inflation. So that's nothing – nothing, sorry. But at the same time, yes, ahead of us ahead of what people see. Obviously, salaries are increasing in the meantime, the salaries are always coming after the first inflation. So people are seeing this and as they see the disposable income improving in that way. That's the situation of overall that we see in Europe. And again with a category that is doing well during these uncertain times.

Understood. And then can you just give us an update on what you're expecting for inflation for the balance of this year I believe you're probably mostly contracted at this point for the rest of this year. Any thoughts on early for 2025 at this point?

Yes. So as I said we're covered now around 90% -- 91%, 92%. So with pretty good line of sight of what will happen this year. And again on a we will continue to drive mix and supply chain efficiencies and then look at the best way of investing also in the context of driving our flywheel. I think it's still a bit too early to give first line of sight for 2025. I mean as Stéfan said the inflation the big heavy increases overall are behind us but there are still some buckets where we see inflation. I think it's too early to comment on that at this point in time.

Thank you very much.

Ladies and gentlemen, we have reached the end of the question-and-answer session. I will now hand over to Stéfan Descheemaeker for closing remarks. Stéfan Descheemaeker: Thank you very much and thank you for your participation on today's call. As we committed to you at the start of the year our growth flywheels beginning to spin faster as evidenced by the positive volume inflection seen this quarter and the commitment to accelerating organic sales growth through the second half of the year. This in turn set us up to sustain momentum in 2025 and deliver top-tier -- top and bottom line growth while continuing to return cash to shareholders. Thank you for your time and I look forward to engaging with many of you in the days and weeks ahead.

Thank you, sir. Ladies and gentlemen that concludes today's event. Thank you for attending and you may now disconnect your lines.