People are getting increasingly familiar with the Growth Action Plan. We’ve obviously talked about it a lot. I see a renewed momentum, a renewed level of energy in the company. And I wouldn’t say that our employees in the emerging markets will be less inclined to drive the priorities that we’ve set out in the developed markets. Obviously, it’s a sizable company and we have many people, so therefore, it may change — It may take a little bit before everything takes effect. But I’m very positive on the momentum that we have, but of course, much more to do and that’s what we’re working on every day.
Unidentified Company Representative: Our next question comes from Guillaume at UBS.
Guillaume Delmas: Two questions for me, please. Firstly, on your pricing outlook, if you could shed some light on your expectations for 2024 because we’ve seen already some negative development in India, Indonesia. There seems to be some quite tense negotiations in Europe, particularly with French retailers. You mentioned some trading down in the U.S. So how should we think about it at this stage? I mean, more pressure on price growth this year meaning that we could actually see some pockets of negative pricing development here and there. And which categories do you think would be the most vulnerable to some price cuts or heightened level of promotional activities? And then my second question is on your underlying operating margin for 2024.
I mean, could you maybe touch on the key moving parts and assumptions, which lead to your modest underlying operating margin development guidance? Because given the strong gross margin recovery you should get this year, I mean, it seems you are signaling another year of triple-digit basis points increase in BMI. And very lastly, on this also, what do you mean when you talk about net material inflation back to more normal levels for 2024? Do you mean you’re still going to get some inflation? Or could we actually have some deflation on NMI?
Hein Schumacher: Thank you, Guillaume, and a good mix of questions here. So let me start and then I’ll hand over to Fernando on some of the details, particularly on pricing. As I mentioned to you before, we’re looking within that guidance of 3% to 5%. We’re looking at a healthy composition. And clearly, when inflation eases, and that’s what we’re currently seeing across the globe, we tend to increase promotional activity. I mean that’s what usually consumer companies do. So that will have a bit of pressure on our pricing — on growth from pricing. But look, I don’t think at this point that I want to signal a real reduction. We’re seeing some deflationary tendencies in South Asia — in Southeast Asia in our nonfood business. And obviously, we are responding to that because we want to make sure that we remain competitive.
Competitiveness is a very important objective for us as well. And we’ve seen an increased level of promotional activity in Ice Cream in North America, also here to drive competitiveness. But these are more targeted pricing actions that we take. But if you look overall for 2024, I still — we still expect some level of inflation. And when we talk about inflation more to normal levels, think of in the range of somewhere between 2.5% and 3% or so. That’s at least what the expectation is, but that means that there is ongoing inflation, but it differs by category and it differs a little bit by geography. And where there will be ongoing inflation is somewhat in food and less so probably in the nonfood side of the business. When it comes to the operating margin, yes, we are guiding towards a modest improvement and we’re laser-focused on improving on gross margin, as you said.
I mean, we’ve had some good improvements on gross margin in the second half. This is a super-important agenda item for us going forward. I think I’ve talked about it since October, we’re seeing opportunities for productivity enhancement. And then, of course, there’s the whole mix on the top line. We still believe that there is room for increased investment behind our core brands, but at the same time we don’t want to waste it. So plans need to come together for our brands around market development, around category development, around lending multiyear and scalable innovations. That’s an important part of the Growth Action Plan. And I’m seeing increasingly an opportunity to do so, but we will only start really spending it when we feel that the plans are coming together.
So at this point, I feel good about the guidance on our overall margin development. But clearly, if there’s opportunity to do more, hey, then we will go for that. Fernando, anything on pricing you wanted to add?
Fernando Fernandez: Yes. Well, first of all, Guillaume, shall I say that it’s a pleasure to be with you all now. I’m sure that we will have a lot of opportunities to interact frequently. A bit of color on pricing, particularly in D&E markets like India or like Brazil. It’s true that we have seen a significant deceleration of pricing along the 2023. But we have seen this before. Take the example of India, for example, we have seen this in 2008 and 2009. We have seen this in 2012, 2013. The reason behind that is significant — substantial part of the market trade at fixed price points. And during a commodity inflationary cycle in categories where commodities play a key role in their cost structures, like laundry or like skin cleansing bars, we see many, many competitors abandoning or reducing their presence in the market.
When the commodity cycle reverses, we see these players returning given the expansion in gross margin. This puts some pressure on pricing. We are navigating this commodity cycle in places like India or like Brazil like we have done many times in the past, always preserving long-term competitiveness. It will take a bit of time for our pricing to stabilize, so probably 1 quarter or 2 more. But at this stage, our priority to really defend competitiveness in these markets and we will price in line with this objective of preserving our market share. In terms of outlook, I would like to highlight a couple of things, I feel Hein has touched based on that. At this stage of the year, we need to — we prefer to remain cautious for a few reasons. The first one is the price growth, volume growth dynamic will take some time to normalize.
The second is that we want to confirm the positive trajectory of our gross margin. And the third one is that we need to assess what is the cost of restoring competitiveness, particularly in Europe, particularly in Personal Care U.S. and we are really assessing what kind of resources that we need to make that happen.
Unidentified Company Representative: Our next question comes from Warren at Barclays.
Warren Ackerman: Warren at Barclays. I’ve got 2 questions and one observation. The questions are, firstly, can you dive a little bit more into Prestige Beauty and wellness? So you say 6% volume growth in the quarter, but that’s for the whole division. What was the volume growth for the new Prestige Beauty, wellness units, specifically? I’m interested in some of the bigger brands, Dermalogica, Paula’s Choice, Nutrafol, Liquid I.V. and maybe if you could talk a bit about the K18 acquisition and you’re ambition for before that. If you can just dive into that whole topic would be super. And secondly, Indonesia and India, can you maybe tell us what’s going on the ground? Hein, you mentioned the consumer boycott in Indonesia already and you talked about an improvement in January.
Can you put some numbers around that in Indonesia? And also in India, I mean, it seems to be Indonesia and India in 2023, pretty disappointing for both geographies. What is your outlook for Indonesia and India in terms of top line and margin for 2024 and maybe in terms of competitiveness as well? And then the observation quickly. This new market share metric, I get turnover-weighted makes sense. But why does it still only include 70% of the portfolio? I get it’s different channels, but seems to me all the parts of the portfolio, like Prestige Beauty, are not included in this new metric. And so my question is why are you not able to measure market share in the other 30% of your portfolio?
Hein Schumacher: Thanks, Warren. Very clear questions. Look, I’ll start off, but — and then again, what we just did, Fernando will add. I mean, first of all, on Prestige, and obviously, Fernando, having led the division until the end of last year, will probably add a bit more color. But I would say, if I look at the brands and the brands that you called out in Prestige Beauty, all of them have been growing double digit and particularly the ones that we acquired at a later stage, not just in Prestige Beauty, but also in the Health & Wellbeing space. All good — off to a very good start — well, not start because we acquired them a while ago, but ongoing strong performance, I would say. And I think we’re — in the small verticals in which we’re operating, I think we’ll outgrow — I feel we are outgrowing competition.
So that’s really a good thing. And we’re very pleased with that, but also very optimistic on the future, obviously fueled with significant investments. If you — so it’s pretty broad. I would say. I would not call out one brand specifically, but it’s truly across the board with particularly strong performance on Hourglass and on Dermalogica. I mean, probably I would call out those, but hey, all in the double-digit space. On Indonesia, we’ve seen a 15% decline there and you’ve probably seen the Indonesia numbers that were reported separately. There is indeed improvement. I mean, in the month of January, I’m pleased to see actually quite strong improvement, but here we are cautious. So we’re guiding for the first and the second — for the first quarter somewhere mid-single-digit declines, potentially.
Obviously, the team is working on it very hard and we’re seeing some upside. But once again, we’re taking a fairly cautious approach and that is included in our overall guidance. If you look at India, as you say, the good thing about quarter 4 is, yes, with the price pressure that is there in India and Fernando just alluded to that, what one of the impacts of deflationary pressure in some categories could be with increased competition and so forth, we have seen a volume growth. So the minus 2% on pricing was balanced by a 2% volume growth. I think that’s a positive for India. We do see that situation continuing for Q1 and Q2 and we do see improvement opportunities in Q3 and Q4. So we believe that in the balance of the year, India should see a slowly changing trajectory.
