Good day, and welcome to the Danone Q3 2018 Sales Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Nadia Ben Salem-Nicolas. Please go ahead.
Thank you very much, operator. Good morning, everyone. This is Nadia Ben Salem-Nicolas, Head of Investor Relations Team of Danone. Welcome to Danone's conference call for its third quarter sales, which will be given today by CFO Cécile Cabanis. Before we go through the presentation and your questions in the second step, please let me draw your attention to the disclaimer on page 2 related to financial indicators, definition, and forward-looking statements. For the Q&A, in order to allow as many as possible people to participate, please be so kind as to limit your number of questions and raise them all at a time. With that, I hand it over to Cécile Cabanis.
Thank you, Nadia. Good morning, everyone. Thank you for joining us today. I will move straight into slide 3. You've seen that we have registered a quarter with 1.4% like-for-like sales growth, which is reflecting notable progress, especially in rebalancing and broadening the growth profile of our business. If I go through the categories, the company delivered another quarter of meaningful acceleration in Essential Dairy and Plant-Based, both in North America, which registered the fifth consecutive period of growth improvement, but also internationally with a significant step-up in its performance. Waters registered a very good performance, notably in Europe with a high summer season. Finally, as expected, Specialized Nutrition posted its first negative quarter as a result of a contraction in ELN China after 12 months of exceptional performance. Let me go through the details, starting with the bridge on page 4.
Going through the bridge in the third quarter 2018, consolidated sales stood at EUR 6.186 billion, down 4.4% on a reported basis. This is primarily due to negative impact from currencies, minus 5.3%, reflecting the appreciation of the euro against the Argentinian peso, the Turkish lira, and the Brazilian real mainly, which all depreciated by 20% or more in the quarter versus last year. The changes in the scope of consolidation marginally affected sales by 0.5%. This is entirely due to the disposal of Stonyfield that occurred last year in August. Moving to the like-for-like growth, 1.4%. The growth continued to be driven by value at 3.3%, with volumes decreasing by 1.9%, which is mainly due to Morocco and the contraction of Early Life Nutrition sales in China.
Value contribution to growth was driven by the continued effort in enhancing mix in each category with product innovation that are launched at a higher net sales per kilo or liter compared to the existing portfolio, and was compensated partly by negative country mix due to the ELN contraction in China. The value growth also resulted from targeted price increases in the water business and to a lesser extent in the U.S. EDP, helping to partly offset inflation on PET and U.S. transportation costs, respectively. We had some specific price increase in inflationary markets like Argentina. I will come back to Argentina and the accounting implications later in the presentation. Moving on page five.
If we go in more details through the underlying performance of each reporting entity in the third quarter, first, I think it's important to note that if we take the nine first months of the year, both specialized nutrition and waters, which represent 50% of the business, are growing more than 5%, and we have had significant progresses in our agenda for the growth on EDP as a whole. If I start with EDP, which represents around 50% on our sales on the quarter, EDP Noram delivered 2.7% like-for-like sales growth, driven by solid volume growth, 3.4%, and a minor negative value effect, lower than what we had in previous quarter. Second, Essential Dairy and Plant-Based International posted flat sales despite the impact on the full quarter on the ongoing consumer boycott in Morocco. That weighted almost three percentage points.
This is a really great progress that we have registered in EDP International. This positive progress versus last quarter mostly came from improvement in both volumes, also coming from the continued valorization strategy of the business. Specialized nutrition sales decreased by 1.5%. The volume growth turned negative this quarter, 3.9%, while value growth remained positive but slowed down to 2.4%, reflecting primarily a contraction in Early Life Nutrition China sales that I will comment on later. Finally, Waters delivered a very strong quarter with like-for-like sales growth at 6.4%. Including a strong rise in value contribution, which is reflecting what I was mentioning on targeted price increases, also the benefit from successful valorized innovation since the beginning of the year, especially on aquadrinks. Let's move now through each of the category to have some deep dive on the performance drivers.
I will start on page seven with EDP Noram. We are overall very pleased to report the fifth quarter of acceleration in a row, so that today, with 2.7% growth and 3.5% growth if we exclude fresh food, EDP Noram is really representing the new growth engine for the company. If we go through the different segments, yogurt segment delivered a solid growth in Q3 and achieved 34% market share in the U.S. This excellent performance was realized through our leadership positioning, especially in fast-growing segments like probiotics, kids, and plant-based, also top velocity in our innovations. I will comment on yogurt on the next slide. Silk and So Delicious posted strong growth in plant-based segments, thanks to a buoyant demand on nut-based product. Innovation in adjacent segments such as So Delicious Mousse and innovations in format around the Silk brand are also part of the growth driver.
Vega registered a weak quarter, with Vega One organic powder under challenge after the recent reformulation. We are changing that to recover the growth on that part. Growth in coffee creamers was strong in Q3, with ready-to-drink and Better for You creamers as key contributors. We also added a new license with Baileys that will further enlarge our offer in the trendy coffee creamers category. We had some better news in the premium dairy, where Horizon is improving. Volumes are turning positive. Sales were reinforced by gallon format and value-added offer, while still being slightly negative versus last year. Given all these progresses, we see EDP Noram in Q4 around the same performance than Q3. If I move to the next chart, I know that there had been quite a few questions about, especially the attractiveness of the yogurt category in the U.S.
The truth is that, as I mentioned, I think before, the yogurt category is composed of different realities, and that's what you can see on the chart on the left part. You have on one side, the Greek and regular segments, which are suffering. On the other side you have kids, indulgence, and new trendy segments, which are increasing in weight and growing strongly. For example, our plant-based yogurt is still small in retail, but already represents as a category more than 10% on the natural channel. This is a channel where the yogurt category is growing globally. We are clear leaders in the most dynamic yogurt segments with Activia and probiotics, Danimals in kids' yogurt, and Silk and So Delicious in plant-based yogurt.
This overexposure to the fast-growing parts of the category is allowing us to consolidate our leadership in yogurt as a whole and to improve our mix, because these segments are better valorized than the rest of the category. Lastly, the potential of the category is also confirmed by the retailers that year after year bet on yogurt, continuously increasing the shelf space dedicated to yogurt. If I move to EDP International. As you've seen, the sales were flat overall and up 2.6% if we exclude the impact of the Moroccan boycott. Every region has made progress in Q3. Europe made another significant big step towards full stabilization. I will share that in a minute. Russia delivered another quarter of growth superior than 5% in a category led by valorized yogurt. Sales in Latin America were up mid-single digits, while Mexico and Argentina keep delivering strong growth.
All the improvement versus Q2 came from Brazil. In the country, the sales were still decreasing, but all the action that we've implemented and I shared with you over the past quarters, both on portfolio and road to market, are starting to pay off. We also relaunched Silk through our own sales force. In AMEA, sales declined, with Morocco continuing to be severely affected by the boycott of the Centrale brand. Sales in Morocco were down approximately 35%, especially in the milk category, while yogurts are now improving. Given the strong progresses and the continued headwinds, we expect overall for EDP International, a Q4 that will be roughly in line with Q3. Going on page 11, where you can see the Europe progress. In Europe, sales growth was slightly negative, and the performance has been improving for the last 18 months.
Execution, local relevancy, and disruptive innovation are the main drivers of this continued progress toward stabilization. I said in Q2 that some countries like U.K. and Nordics were growing solidly. This is still the case. Spain is showing good progress as well. We are putting on the shelf a slate of innovations such as Light & Free, some new on-the-go cereal topping by Activia. Danette has been relaunched as well with new visual identity, and results are promising. In France, we are rolling out the Danone Bio and Activia Touch Of, as well as the Danone du Monde, and we activated a call for action towards our consumers, where all the sales that we achieved in France on September 21st from all Danone products were devoted to regenerative agriculture project to favor biodiversity. The result exceeded expectation with more than EUR 5 million collected.
Going on a brand perspective, Activia, our biggest brand in Europe, is well on track, growing in countries representing around 40% of itself. In Italy, for example, sales were double-digit, thanks to a successful activation around probiotics and 0% fat range. Alpro continued to deliver another double-digit growth quarter with sales led in particular by nut-based beverages, plant-based alternative to yogurt and ice cream. We continue to expand in France and Spain, and we pursue our top-line synergy plan, deploying the brand in Poland, started in July. Finally, young and local brand continue to be at the core of our strategy with Light & Free, I mentioned it in Spain, and Les 2 Vaches that are growing double-digits. Moving now to specialized nutrition on page 13.
I told you at the beginning of this year that the growth rate for specialized nutrition was going to be unbalanced during the year. We expected H2 to be significantly weaker after 12 months of exceptional growth in China, and as a result, specialized nutrition posted in Q3 a sales decline at -1.5%. This decline is entirely linked to Early Life Nutrition, while advanced medical nutrition grew solidly, sorry, this quarter again, both in pediatrics category, which performed well, driven mainly by products for faltering growth in all regions, and also in the tube segments, where we launch in several countries a new packaging called OpTri, which offer a better tube feeding usability and safety for patients, and is also better for the planet as it's recyclable.
Moving to the performance of Early Life Nutrition, it was negative on the back of a steep drop in sales in China of around 20%. Outside China, Early Life Nutrition registered solid growth. In Asia, and particularly Indonesia, we are gaining market share. In the U.S., we registered double-digit growth, and in Africa, Middle East, growth was very strong, too. On the other hand, we had Europe affected by social and mainstream media coverage after the formula upgrade in July of Aptamil in the U.K., where the brand lost locally market share. We put in place a communication plan to better convey the product benefits and safety and restore parents' confidence, but it will take time. Besides Cow & Gate, our second brand in the U.K., was relaunched in Q3, and results are excellent. This allowed us to partially compensate Aptamil market share loss.
This Aptamil innovation has been successfully launched in several other markets in Europe, so it's really a situation that is locally affecting U.K. Let's now go through China on page 14 and focus on the different drivers of the sharp contraction that we've seen in Q3 with, as I said, sales declining at around -20% with negative volume but positive value effect. It's overall three main factors that we already mentioned. It's the base of comparison, it's some changes in market dynamics, especially given the lower number of births in 2017, continued premiumization, and continued channel shift. If I go through each of them, the performance was first due to an unfavorable year-on-year comparison. If you remember, last year, Q3 sales rose by more than 50%, including, at that time, strong restocking from cross-border players.
The second driver around changes in market dynamics is following the slowdown of birth that we had in 2017, where we have a decline in volumes on products Stage 1 milk and Stage 2 milk, so it's zero to six months and six to 12 months. Growing-up milk remains pretty dynamic, but we expect it to progressively soften in the coming months. The IF category is overall still very supported by valorization trend and ultra premium and specialties products that are increasing their share in the market. Accordingly, our Aptamil Platinum keeps performing well in our portfolio. On the channel side, cross-border e-commerce continued to be under pressure given the regulatory change where we've seen some increase in custom control.
The rebalance of channels is not new, is continuing to happen and will require us to continue to adjust our model and build on our direct channels, which is what we've been doing and it's now representing 70% of our business. Looking at that, overall sales will continue to contract over the next quarters after years of exceptional growth. We are confident in our assets and strengths and ability to capture the growth beyond that, and Bridgette will have the opportunity to deep dive on Monday on our investor day on this topic. For the short term, we expect sales to remain negative in Q4 in China. This will weigh on specialized nutrition global performance, and we expect that specialized nutrition sales should be broadly flat in Q4, and as a result, specialized nutrition should be around mid-single digit for the full year.
Moving on page 15, because we talk a lot about China because it's the biggest market worldwide in term of category for IF. Specialized nutrition is more than early life nutrition China, which accounts roughly for 25% of the reporting line. We have a number of exciting growth platform that you can see on this chart. Blédina in France launched earlier this year a range of organic baby food that has already achieved 10% market share. In Indonesia, which I mentioned earlier, we relaunched our three leading brands, SGM, Bebelac and Nutrilon Royal, and results have been outstanding in terms of share and brand equity. We have now more than a 40% market share with our first brand, SGM, in that country.
Happy Family, number 1 player in organic baby food in the U.S., is consolidating its leadership and guiding the growth of organic product in the baby food space. Overall, there continue to be lots of opportunities for specialized nutrition in these regions. Finally, moving to Waters, page 17. Water growth in Q3 was strong, 6.4%. It was driven by both volumes and even more by valorization, combining some price increases to offset PET inflation and positive mix, thanks in particular to a number of innovation that we've put on the shelf at a price 50% higher than the average range. In Europe, we had particularly strong momentum for the category overall due to temperature, around 10% higher than same period of last year. In addition to that, we put on the market some new aquadrinks that were particularly well-received by consumers.
In North America, Evian keeps growing steep double digits, benefiting on both distribution gain and a new campaign this summer involving famous U.S. influencers. Asia registered strong growth in Q3 despite a weak season in China for Mizone. Growth was led by Indonesia, where Aqua sponsored the Asian Games, the second most popular sport event in the world after the Olympic Games. In Latin America, finally, growth was positive, with Mexico growing moderate and Argentina challenged mainly on aquadrinks as consumer look for more affordable drinking options in this moment. Despite the high comparison base for Q4, given Q4 2017, we expect the next quarter to be roughly in line with the growth registered during the first nine months of this year, around mid-single digits. To complete on waters, important to stop page 18. Coming back to a very strong innovation pipeline, especially in Europe aquadrinks.
You can see here the three most successful launches put on the market earlier this year. Badoit Bulles de Fruits, Volvic Infusion Bio, and the lemonade of our local Polish brand, which drove the growth of aquadrinks in Europe. As I was saying, these innovations are sold at a higher net sales per liter versus the basic range, bringing value growth to the category. Moving to the overall performance. On page 19, this is the mirror of what I described in July, probably where I flagged strong headwind that impacted our H1 results. These elements will remain in the back half of the year and will impact H2.
On the left, we continue to have a challenging macro environment, including strong inflation on input cost, increase in transportation cost in the U.S., and particularly on the raw material side on PET. Emerging market currencies that are devaluating and that are being very volatile for some of them. Second, the boycott of Morocco will continue to impact us in the second half. Finally, as we were expecting, the contraction of Early Life Nutrition China sales versus a high base of comparison. If I move page 20 before going back on the overall guidance, I wanted to give you an update on the way we were going to manage Argentina. As you know, consensus has been recently reached that all necessary conditions are in place to now consider the country as a hyperinflationary, as defined by the IFRS rules.
Danone will obviously apply IAS 29 to the country from July 2018 with the effect from January 1st. Since Argentina is now considered as hyperinflationary, to have a better readability of the performance, we will exclude Argentina entirely from our like-for-like definition, starting January 1st next year. However, as you know as well, our like-for-like current definition excludes the effects from change in applicable accounting principle. For this year, it will have no impact on the like-for-like sales growth and margin evolution. For reference, however, you should know that Argentina represented around 3% of Danone net sales in the first half, contributed to the total company like-for-like sales growth for around 10 basis points in Q3, and 30 basis points year-to-date. In Q4, the contribution will increase because it's the high season in Argentina.
Finally, on this topic, I want to make clear that the full-year guidance that we communicated at the beginning of the year was set obviously without considering the application of hyperinflation accounting to Argentina, and therefore excludes any impact from IAS 29 on recurring EPS. Given the current volatility in the country, it is very difficult to predict the impact for the future. But in any case, this represents an accounting effect, and it doesn't change the value fundamentally of our model.
Maybe to wrap up on the overall performance and why we are confident that we are making the right steps toward our superior profitable growth model is that if you look at Q3, we have been doing great progresses in many underlying parts of our model, and notably around rebalancing our growth profile with meaningful acceleration in Essential Dairy and Plant-Based, as well as strong delivery in Waters, and I think this is a great achievement. At the same time, we've been facing an exacerbation of headwinds, as I just said, but given the full focus that we've been putting on both driving value growth and efficiency agenda, we will be in a position to boost and to ensure another semester of sustained like-for-like margin improvement as we did in the first half of the year. Therefore, our EPS guidance for the year remains unchanged.
Thanks a lot for your time, and I'm now open for your questions.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We'll pause for just a moment to allow everyone an opportunity to signal for questions. We'll now take our first question from Jon Cox from Kepler Cheuvreux. Please go ahead, sir. Your line is open.
Yeah, good morning. Thanks for taking the question. Jon Cox, Kepler Cheuvreux here. Just a question, excuse me, on the Chinese nutrition, no surprises. Just at the end of the year, I understand the regulations will change at the end of the year regarding indirects after being postponed for 12 months. As a result, I expected some destocking in Q3 offsetting the restocking we saw a year ago. You also seem to be saying now actually that the custom controls at the border now is having a negative impact. I wonder if you can just give us a bit more granularity on what the regulation changes are at the end of the year, or do you still think there will be changes? Maybe you can give us a bit of insight into the start of next year, what you think will happen in China and nutrition generally.
We know that Q4 obviously is going to be again, a tough comp, and you've given guidance for a flat development there. Should we start to think about a re-acceleration in the second half of the year, or are some of those things you're talking about, regarding less births, et cetera? Will that continue to weigh in the first part of the year in nutrition? A second question, just a point of clarification on the whole Argentina issue, what impact does that have on your guidance? You seem to be inferring that actually, your guidance unchanged, excluding now what's happening to Argentina, what would the impact be there in terms of your like-for-like sales growth being better than 2017, which is the guidance we're working on? I think consensus is about 2.9%, 2017, you're about 2.5% organically. Thank you very much.
Okay. Thank you, Jon. Overall, in term of your first question regarding Chinese regulation, there is no new news. What we are observing is that there is a continued trend of increased custom control, and including inspection, quarantine, and origin certification, putting the channel under pressure. There's no new news. We've been saying that the channel shift was starting, given the fact that there will be the implementation of the regulation. There's been nothing new. Yes, this is after a restocking of Q3 last year. It has implied some destocking in Q3 this year. It has affected the performance, obviously. The situation is still that it should occur early next year in term of change in regulation, and we have no new news on that front.
Overall, if we take the China dynamic, there are probably three things that we know today as being the underlying trends of the category. The first one is, as we said, there has been a lower number of births in 2017, and that was what I was explaining regarding the start of decline, especially on stage 1 and 2 milk, but the continued performance on GUM growing-up milk. Second, there is the channel shift. This is no news. We continue to rebalance the avenues of growth. There are also more avenues to be open, like lower tier cities, that will be avenue of growth for the mid to long term. Finally, there is premiumization. Premiumization is continuing to happen, especially with the development of premium and ultra-premium. We've been launching Aptamil Platinum, which has performed well and continue to be a driver for value growth.
Given our strengths in term of science and innovation, we have a good innovation pipeline. However, the rhythm at which we'll be able to launch this will depend on regulation. Overall, we see today an adjustment, a short-term adjustment, but that will last several quarters given the fact that we had exceptional growth started Q3 last year, but still in H1, we recorded a very strong growth. There will be a basis of comps that will lead to an adjustment of growth in the next quarter. Growth will not be linear in 2019, nor it was in 2018. We have, and we are confident that we have the assets and strengths and the ability to capture the growth beyond that.
I think I will let Bridgette on Monday go through in detail through the different drivers and our different assets to capture that going forward. On Argentina, what I said is that on the growth, it had an impact of 10 basis points in Q3. Overall, 30 basis points year-to-date. It's accelerating a bit in Q3, the overall impact for the year would be a bit more, and there won't be any impact on the margin anyway. When we say it will not impact the like-for-like, this is what you can retain in term of like-for-like impact, if it was to be adjusted.
Thank you.
Thank you. We'll now take our next question from Eileen Khoo from Morgan Stanley. Please go ahead. Your line is open.
Thanks very much. Morning to you, Nadia. Two questions from me, please. The first one is on EDP International. It's nice to see good progress here. Can you give us more color on Brazil, possibly? How your sales are progressing here, where are you on portfolio and route to market change? Then secondly, just on China ELN again, sorry. Just wonder if you could give some indication on your market share in the various channels, and how this has evolved over the year. Also, your comments on the indirect channel. One of your competitors, A2, has just reported that their momentum is still very strong here. I wonder how we should square your comments on this particularly. Thanks very much.
Thank you, Eileen, for your question. Regarding Brazil, sales were still decreasing, but to a much lesser extent than what I had to comment in the previous quarters. We are seeing an improvement in term of trends. We've been, as you know, implementing action on both the portfolio and the route to market, especially the cleaning on the distributors base in term of route to market. For the products, we've been launching the Activia probiotic shots, especially, and it's working very well. We have also relaunched the Silk brand, but through our own sales force, which is contributing to the improvement. We had some initiative on Indulgence. All this was really to rebalance our portfolio, recreate some momentum on the trendy part of the portfolio, and plant-based and probiotics are a good example of that. That's for Brazil.
In term of your question regarding market share in China and channel shift, I think we cannot probably compare the different comments as they are because as you know, we started very strongly for several years now on the indirect path for many good reason that we had the chance to comment on the origin of milk and the fact that the mom were willing to get their product from Europe, and we were leading in Europe, and we had very strong brands. It skewed the demand towards our brands. We had a starting point in the indirect channel, which is not the same as the other competitors. That's why the dynamic for us and for them is not the same.
However, on our side, we have many opportunities in continuing to adjust and build other channel, and all the question will be the rhythm and the path in doing that. Yeah. That's it for China. Thank you for your question, Eileen. Next.
Thank you. We'll now take our next question from Alain-Sebastian Oberhuber from MainFirst. Please go ahead. Your line is open.
Thank you very much, Cécile and Nadia. Good morning. Alain-Sebastian Oberhuber, MainFirst. I have two questions. The first is regarding the mix change. I know it's a call regarding revenues, but given that we see slower growth now in the specialized nutrition part, couldn't that be a negative mix effect, which could hurt you more than expected? The second question is about fresh foods. Could you give us a little bit more insight where we stand regarding the development there, and when you expect the turnaround to come through, and how much sales you currently have with that category?
Yes, sure. Thank you, Alain, for your question. Maybe the easiest way to comment on mix would be to go through each category. On specialized nutrition, we had positive mix resulting from continuous valorization strategy. This positive mix in term of segment and products, has been offset by a negative country mix, which is due to the contraction of sales for Early Life Nutrition in China. In EDP International, we had a part of the value effect that came from price and within that, Argentina. There is some slight improvement in term of mix as well, but a good improvement in volume, which is really an important thing for EDP International as we are stabilizing Europe, as we are improving the overall performance, to make sure it's a driver for superior growth later.
In EDP Noram, we had a negative mix, as you know, it's mainly linked to the premium dairy unbalance where the good news was that volume were positive, it continued to have a negative mix effect. In Waters, I commented on the mix is coming from very successful and innovation that are priced at a higher range than the overall existing range. Overall, there has been progresses in term of mix, and especially, mix is driven by premiumization in specialized nutrition and value innovation in the rest of the categories. Regarding fresh food, overall, we continue to be working on the turnaround. It is improving. It is improving also because of the base of comparison, it's not yet solved and coming back to positively participating to the agenda of growth.
We continue to work on that quarter after quarter to make sure that we can stabilize it.
Thank you.
Thank you. We'll now take our next question from Celine Pannuti from JP Morgan. Your line is open. Please go ahead.
Céline? Céline, we can't hear you. I don't know. Maybe you're on mute.
Yes. Hello? Good morning.
Yes. Now we can.
Yeah.
Yeah.
Good morning. Thank you. Sorry for that. My first question, I would like to come back on China. I see from the slide that locally it seems that you have grown. Could you tell us what was the number? Do you still expect the IF/FO market to grow in China, given your comment on the premiumization versus negative volume? Within that as well, could you tell us what % of your business is indirect China, for that division, please? My second question is on raw materials.
Sorry, Celine, we cannot hear you very well. We can't hear you very well, I am not sure that I get your full question every time because your words are not coming through very well. Maybe you can try again. Sorry.
Okay, I'll try again, otherwise, let's leave it. Can you tell us what is the local growth in the Chinese IF/FO market? It seems you have been growing locally. Also, can you tell us which percentage of your sales is gray market or indirect, sorry, for the IF/FO division, for the specialized nutrition division?
Okay. In term of growth driver, for the category, we still had a double-digit growth category in H1, which was driven by the growing up milk segment consumption dynamism, and the continued premiumization. Now, we are seeing a decline in volume in infant formula and follow-on, so IF/FO volumes. GUM segment is starting to softening in H2, but still growing. We expect overall, the IF/FO category to slow down, but still growing. For the full year 2018, overall, we assume a category that will growing at mid to high single-digit range. On your question around the split in term of direct and indirect sales, we are now 70% direct and 30% indirect.
Can I ask a follow-up. Thank you.
Next question.
Thank you. We will now take our next question from Martin Deboo from Jefferies. Your line is open. Please go ahead.
Yes, morning, everybody. Morning, Cécile. It is a brief sort of technical question, but an important one. It goes to the role of Morocco in mix. Price mix is consistently beating market estimates. Something is going on there, and you have given good account of that. It just occurs to me, is Morocco positive for mix? Because it is a low-price liquid milk market that is obviously declining sharply. Just is there a material influence of Morocco in your positive mix equation?
Morocco is positive in mix. You are right, exactly because of what you said, also because, when we look at the overall sequential performance of Morocco, we are seeing better news in yogurt, which are driving also the mix inside the country. Yes, we have a positive impact from Morocco in term of mix.
Is it material, Cécile, within overall group mix, Morocco?
In overall mix, for the company, it's not the major part, but it's there.
Okay. Thank you.
On mix, Martin, you should go back to when I was commenting each category, and you're right that I should have mentioned Morocco, which I didn't. Otherwise, for the rest, it's basically what I described in the earlier question that was asked on the mix.
No, it's all very clear. Thanks.
Thank you. We'll now take our next question from James Edwardes Jones from RBC. Please go ahead.
Hello. Two quick questions, please. Mix again. Can you just tell us what the split is in the value increase in Q3 between price and mix? Secondly, are the U.K. Aptamil problems now over, or is it still an issue?
Sorry, your second question, I didn't hear.
The problems with Aptamil in the U.K., and the reformulation, is that now all sorted out, or are you still having problems?
Okay, maybe I start with the second part. In Aptamil U.K., we've been implementing a new and a reinforced communication plan to really make sure that the parents are rebuilding the trust as well as understanding the benefits and the use of the products better. As I said, in the other country, it was very successful. In U.K., it continues to impact the performance, even if, as I mentioned, Cow & Gate is partially compensating this drop for the early life nutrition performance because the relaunch was successful, and it's taking part of the Aptamil U.K. market share. Yes, it will continue to impact until we are fully recover with the parents' confidence through our different actions. On your question on the-
It's just the value increase in Q3. How it is split?
The value increase is, if we exclude the impact of price of Argentina, it will be around half mix, half price.
Thank you.
I think we have maybe a last question, operator.
Thank you. We'll now take our last question from Cathal Kenny from Davy Research. Your line is open. Please go ahead.
Good morning, Cécile. Good morning, Nadia. One question from my side. Just would it be possible to get a little bit more granularity on the current cost circumstance? I'm just interested to know if some of the headwinds have intensified or not, particularly for PET and U.S. freight inflation. Also on dairy, you speak to low- to mid-single digit inflation. Is that closer to low now?
Overall, we are seeing for the full year in terms of input cost, mid-single-digit inflation. PET cost versus H1 would be around the same kind of inflation. More than 20%, which is what we had already in H1. The milk price inflation will be low single digits, and we also have some currency impact in our overall input cost. Especially if you take, for example, Brexit, because we are importing for two of our categories, for example, in the U.K. Overall in input cost, we observe the same situation than H1 overall. What we have in addition, in H2 is the full-half effect of the impact of the Moroccan boycott. We had it in H1 only partially because it started on the 27th of April. The deceleration of Early Life Nutrition China as a mix to the company.
As I said, despite that, and I think it should also really be noted as a consistent focus on discipline and making sure that we are increasing our efficiencies and our model overall, we will be able to post an improvement in margin as we did in H1.
U.S. freight costs, please?
It's around the same as H1. What we have in Q3, which we didn't have in H1, is that we started to pass some price increase to mitigate the impact.
Many thanks.
Okay. Thank you very much, Cathal. Thank you, everyone. Thank you for having joined this call. I think this is concluding the call of today. We remain available with the team all day long to follow up. Thanks for your attention and we look forward to meeting most of you next week in London. Thank you. Bye-bye.
Thank you. This concludes today's call. Thank you for your participation. You may now disconnect.