Dirk Van De Put: Well, roughly, you can assume, for the markets where we can drive significant numerical distribution, I’m talking about China and India, but we are now also starting to drive very hard in places like Brazil. We — probably in those markets, you can expect that about 50% of our organic growth is driven through distribution expansion. On a global basis, we’re probably talking about 2% of our extra growth coming from this. The runway of this is still quite big, to give you a few numbers. So, since 2019, we’ve added 1.7 million stores in China, India and Brazil. But, for instance, our biscuits are now in about 3 million of the potential 6 million stores in China, or our gum business is only in 2 million of the 6 million potential stores.
In India, we’ve added 180,000 stores in ’23. We deployed 100,000 new VISI coolers, but there is over 900 — sorry, 9 million retail outlets. We cover directly 2 million and we have about 3 million that are indirect coverage. So we’re in 5 million of the 9 million stores in India. And I can go on, on different countries. So I gave you the percentages, what it means for us. And the other message here is that the runway, the years that we can keep on doing this are quite significant going forward.
David Palmer: Thank you very much. That’s great.
Dirk Van De Put: Thank you.
Luca Zaramella: Thank you, David.
Operator: Our next question comes from Robert Moskow with TD Cowen.
Robert Moskow: Hi. Thanks. I actually had a follow-up on the distribution question. Are you taking extra steps to monitor distribution levels at distributors or even the retailers in light of volatility of consumption? There’s been multinationals who have fallen into inventory de-loading situations in LaTAM. You’re expanding distribution so well. I’m just wondering if you’re also taking extra steps to monitor it at the same time.
Dirk Van De Put: Yes, yes, we are aware that the distribution expansion needs to be very well monitored. So what we’re putting in place is a direct connection because we use mainly distributors to make this happen, is a direct connection to their system. So we can read what they sell per store and what the sell-in is, how much the replenishment is. So we monitor that very carefully. We go slow in some of the cities where we’re doing the expansion so that we make sure that we can see that setting up the whole distribution system is profitable and that it can be maintained. So we’ve had no surprises so far. I’ve done this many times in my career and I’ve had surprises, but so far things have gone quite smoothly. I think our teams around the world know what to do.
They’re on top of it. We usually accompany these distribution expansions with very heavy activation in the cities that we are doing this. So we feel pretty good that we have a very controlled way of doing it. And like I said, so far we’ve had no surprises whatsoever with this.
Robert Moskow: And a follow-up on that. In some of these markets, you’ve introduced more digitized tools to enable small retailers or distributors to order or reorder and also monitor their performance on promotions, I think. Has that improved your ability to keep track of distribution and monitor sales because the tools are better than they were ten years ago to monitor all this?
Dirk Van De Put: Yes, we are still in a relatively experimental phase with that. We are, for instance, mainly experimenting with this in Latin America, largely in channels that we don’t have immediate big coverage. So as an example, I would say bars in Brazil would be typically something that we don’t cover directly or indirectly at the moment. But we have started to have a presence and we are monitoring how that is going. I would say those tools help you — help the retailer order directly and get our products in there. It helps us to understand how much the store sells. And yes, we can monitor promotions. As a tool to monitor how our distribution is evolving, it’s probably complementary to the other system I was talking about, but we prefer at this stage to monitor that through our distributors, because the way it works is they will order through this new app and then we, through our normal distribution system, will deliver, or we will use a third party to do it.
So that’s usually the source of the monitoring of distribution, not necessarily the new app for us.
Robert Moskow: I got it, thank you.
Dirk Van De Put: Thanks.
Operator: Our next question comes from Steve Powers with Deutsche Bank.
Steve Powers: Yes, thanks for the question. Luca, I think based on the EPS guidance combined with the $3.5 billion-plus free cash flow guidance. At — towards the $3.5 billion kind of ignoring the plus, if I focus on the $3.5 billion, I think it implies a 75% or lower free cash flow conversion. I just wanted to kind of throw that past you and see if that’s the message you intended to convey. If so, what might be some of the drags on that free cash flow conversion, or if there’s a — it is a higher level of free cash flow conversion we should anchor to as a target? Maybe you could talk about that.
Luca Zaramella: Thank you for the question, Steve. As we think about the free cash flow and net income conversion into free cash flow, important to realize that the dividend payout of the joint ventures that we have is not 100%. And so that is a little bit of a factor as you consider the conversion. The other one, I would tell you is we’re going to have a slight uptick in CapEx, particularly as we need to invest in places like India. I mean, you look at the volume over the last five years in India, it has been stellar, and we are very happy, but we are at a point where we need to put down a little bit more capacity. Same goes for Latin America and Oreo, and obviously, we integrate platforms like Ricolino, et cetera. The other one that will come into play in terms of capital expenses for ’24 is SAP HANA.
