Good day, welcome to the Danone First Half Year Results 2018 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, Head of Investor Relations. Please go ahead.
Thank you, operator. Good morning. Nadia Ben Salem-Nicolas speaking. Thanks for joining us. We know it's a busy day for you, we appreciate your attendance to this call, exceptionally brought forward. Hosting the conference today, Chief Financial Officer, Cécile Cabanis. Cécile will go through the presentation that can be found on our website and will leave enough time for your questions in the second step. As usual, before we start, I draw your attention to the disclaimer on page two related to forward-looking statements and financial indicators. With that, let me hand it over to Cécile.
Thank you, Nadia. Good morning, everyone, thank you for joining us today. I know it's been a busy week, it will be a busy day for you. I will directly jump to slide four and start by highlighting that we delivered in H1 another semester of very strong recurring EPS growth, 13.4% at constant exchange rate and excluding Yakult transaction impact, and overall, a strong set of results coupling 4% net sales growth, 51 basis points recurring operating margin improvement, and over EUR 1 billion of free cash flow. These strong numbers achieved despite expected and unexpected headwinds in some markets this semester reflect the underlying strength of our business and our continued financial discipline and focus, as you know, since 2014, to strengthen our growth model.
Before going through the results in detail, let me first start by highlighting some important headlines of the past semester, I will start with page five. I am pleased to report progress in WhiteWave performance one year after the completion of the acquisition, especially that we are actually delivering strong sales growth above 5% in the key categories of plant-based in NORAM and Europe and coffee creamer, altogether representing about 75% of the former WhiteWave business. This contributed to the positive inflection point this quarter in the U.S., now our largest market, this great momentum confirms the strong rationale for WhiteWave's acquisition and strengthen our confidence in the value creation potential from this move. It shows that WhiteWave is a high-quality business, accretive to our models, with brands that are strongly complementary to our own.
It has fitted well with Danone's operation in North America and more generally. The business is being successfully integrating. The synergy capture continues to be fully on track, and the innovation momentum is strong again, and the business has started to benefit also from an accelerated distribution expansion, both in the U.S. and in Europe. Our strategic choice is now paying off. Another important part of the agenda on page six, and another very important development of the semester is a major step-up of our organization in terms of delivering innovation with an accelerated ability to deliver more, better, and faster innovation in line with the new paradigm of the ongoing food revolution. On slide six, you see some of the best performing innovations that we put in the market over the last 12 months across our businesses and geographies.
If I name a few in Essential Dairy and Plant-Based, you have on the top left, Activia Dailies, the most successful innovation in the yogurt shelf in the U.S. Specialized Nutrition in the middle top part, Aptamil Platinum, representing now more than 20% of our ELN China direct business. In the middle of those two, in Waters, a new ready-to-drink tea line in China, showing the success in building an innovation platform outside Mizone in that country. Continuing to move on the highlights. On page seven, you have the growth of the Q2 by reporting entity. When we look at the underlying performance of each reporting entity, Q2 was a solid quarter with a lot of progress, especially in rebalancing the growth profile within our portfolio and broadening the sources of growth.
Because if you look at it and excluding Morocco, all four reporting entities are delivering growth in the second quarter, and the company volume growth was positive as well. While Specialized Nutrition continued to grow at double-digit rates but sequentially decelerating, Waters pursued its mid-single-digit broad-based growth performance, and we have both EDP that made a meaningful contribution to growth, with EDP NORAM returning to like-for-like growth despite the ongoing impact from the fresh food business, and EDP International underlying performance confirming its stabilization if we exclude Morocco. Page eight, on the efficiency side, the Protein efficiency program that we started to implement last year is now underway and fully on track.
The first savings are in line with our plans, about EUR 75 million of gross savings year to date, and we are continuing to be disciplined to allocate resources in the areas of the business that will generate sustainable value over the long term. If we look- At the savings, they are delivered from all key areas of our indirect expense structure. In logistics, we've been launching new tenders and reorganizing routes to market. In professional services, we are deploying global policies for travels and events, and we have created a central control tower for consulting services. Sales and marketing, we are spending our money in a smarter way, generating efficiencies in non-working A&P, like content production, market research, and asset storage.
We have been very encouraged by the start from this semester, and we are targeting EUR 200 million gross savings for the full year, fully on track to deliver the EUR 1 billion savings by 2020. Moving to page nine, we said before and regularly that volatility is increasingly an everyday part of operating an international business. It is something that we'll continue to navigate, and in the first half of our performance, we had some impact from a number of macro headwinds. First, from left to right on this chart, a strong increase in crude oil, creating a 20% rise in PET cost, a 20% increase of U.S. freight cost, and we had the opportunity to comment that already in Q1. Lastly, transportation strikes both in Brazil and in France that have impacted top line and bottom line.
All of these had an adverse impact on our growth and margin in H1, we are continuing to improve our ability to address them through accelerated efficiencies, discipline in resource allocation. Turning to next slide, to Morocco, where, as you know, our brand Centrale Danone has started to be called out on social media three months ago by a boycott. This is an unforeseen event that sits outside the increasingly normal volatility I have just described. The impact on our local business has been significant so far, with Q2 sales having decreased by 40% and recurring operating income down EUR 25 million. While the situation is ongoing, even so it is too soon to make any definitive prediction, it is clear that this unprecedented event will continue to weigh on our performance for the second half.
P&L is including a non-cash, non-recurring operating charge of EUR 661 million, resulting mainly from a goodwill impairment of Centrale Danone. Following our CEO personal visit to Morocco to understand the reasons for this boycott directly on the ground, we are studying how to make the relevant changes to our fresh pasteurized milk model in response to a consumer environment where purchasing power is under pressure. We are fully ready to offer greater transparency and engaging in a consumer dialogue, which we hope will be an important first step to restore the situation. On page 11, to end up on the highlight and before going into the detail of the numbers, you have here the sequence of EPS since 2014. H1 2018 was another semester of progress and delivery, with a very strong recurring EPS growth, 12.8% at constant exchange rate.
Looking at the sequence since 2015, this has been a consistent delivery, semester after semester, in line with our commitments. Let me move now to the more detail in term of numbers. I will start page 14 with the usual sales bridge, the sales bridge for Q2 2018. If you look on a reported basis, sales declined by 4.4%, from EUR 6.7 billion to EUR 6.4 billion in the second quarter 2018, impacting especially by strong headwind from currency impact. You see the red box at -7.6% in the middle of the bridge. If we go through the bridge from left to right, we have a marginal positive impact of 1.3% from the contributions to net sales of WhiteWave for the first 10 days of April 2017 until the acquisition closed. We have a negative impact of 1.4% from other changes in scope of consolidation.
It's mostly linked to the disposal of Stonyfield in August last year. As in Q1, we have a very strong negative currency impact, 7.6%, reflecting primarily the appreciation versus Q2 last year of the euro against the US dollar, the Argentinian peso, and the Russian ruble. Finally, you can see a 3.3% like-for-like growth. Actually, the fourth consecutive quarter where like-for-like growth is above 3%, still driven by value. If we exclude the impact of the Moroccan boycott, like-for-like growth could have been 4.3%, with positive volumes confirming the improved volume dynamics that we already registered in Q1. The value part, 3.8%, is driven by product and country mix for about two-third, in line with our continued efforts to enhance our offering in each category, and for about one-third by price, reflecting some targeted price increase, primarily in LATAM.
Let me now go through each entity to look at Q2 growth levels and dynamics. I will start with Specialized Nutrition on page 16. Specialized Nutrition posted another excellent semester of highly profitable growth, with a Q2 growth at 10.6%, in line with expectation, driven by a very strong performance in both Early Life Nutrition and Medical Nutrition. Starting with Medical Nutrition, Medical Nutrition grew mid-to-high single-digit rate, confirming the strength of its broad and balanced platform of growth, all regions and all product category contributing to this performance. The performance was supported by a robust growth platforms in Europe and in the rest of the world, notably in China, supported by a fast-growing aging population and benefiting also from some seasoning effect. Early Life Nutrition posted a double-digit growth in Q2.
China remained the main growth engine, growing at around 30%, with balanced contribution from both volume and value. China's performance was supported by a still very dynamic market, driven by growing up the milk segment. Our performance in China was also supported by solid execution behind our strategic priorities. We continue to successfully expand in ultra-premium and invest in our direct sales distribution model, leading as a result to a continuous growth of direct sales with further market share gain in all direct channels. The performance in ASPAME was also strong, notably India and Africa. In domestic Europe, the sales slightly decreased ahead of the innovation introduction. Latin America generated double-digit sales growth with both Argentina and Brazil positive in sales and volume. In North America, Happy Family continued to expand, growing high single digit.
H1 margin for Specialized Nutrition was outstanding, 25.5%, up 121 basis point on a like-for-like basis, driven by very favorable product and country mix from China, moderated by an unfavorable base of comparison given, if you remember, the 2017 one-off that we had related to the insurance repayment for the fire in the Cuijk factory in the Netherlands. For the full year, we continue to expect Specialized Nutrition to grow at mid-to-high single digits with, as already shared, an H1 stronger than H2 given expected demand slowdown in light of lower number of births in 2017 in China for ELN and very high basis of comparison, especially given the restocking last year of the indirect channel in Q3. Moving to EDP NORAM, page 18. In Q2, EDP NORAM registered the fourth consecutive quarter of growth improvement, moving back to positive.
Nearly 3% growth if we exclude the fresh food business, which remains a strong headwind. Price mix effect was still negative in Q2, reflecting still the pricing pressure on premium dairy and some negative mix effect within Vega, where the ready-to-drink and bars are growing faster than powder. If we go through each segment, first yogurt, slightly positive growth for Danone in Q2, including positive volume in a low single-digit negative category that continues to be penalized by the decline of the Greek segment. Q2 growth was driven by innovation and distribution, but also velocity gain in valorized segments that include probiotics. I showed you earlier this Activia Daily innovation, which is very successful. In the kid segment, where there is a nice growth, including Danimals, who register nice velocity with a successful animation around Incredibles.
We also accelerated plant-based yogurt, which now represent a sizable growing portion of yogurt offering via innovation and distribution expansion as part of the revenue synergy plan. Moving to the plant-based segment. The plant-based segment grew at high single-digit rates, both in volume and sales, supported by a fast-growing category, including double-digit demand for nut-based products and a good performance of valorized almond-based innovations in large size premium bottle offerings and novelties. The new Silk communication campaign launched last quarter also enabled to drive velocity, and Vega delivered another strong quarter of growth. Coffee creamers delivered a strong growth in Q2. The category continues to be very healthy in terms of growth rates. Better-for-you products and ready-to-drink coffee under International Delight and Stok Brand continued to perform very well. Premium dairy registered another quarter of decline, mid-single digit negative.
Organic milk supply continues to outstrip demand, driving lower price on the shelf, as we already observed in the previous quarter. Horizon was, however, able to slightly outperform the category, including high-value milk extension. The base of comparison also start to be more favorable, even if the category is expecting to remain complicated for the remaining part of the year. Fresh food performance continued to weigh in the global performance, with sales declining at double-digit rates impacted by the discontinuation of the fruit business as part of our turnaround plan. The like-for-like margin of EDP NORAM was down 43 basis points in H1, mainly due to the transportation cost inflation. We are reducing the number of spots according to the synergy plan, as well as working on long-term contracts. There was also a negative mix that I just mentioned, mainly driven by premium dairy performance.
Those two headwinds absorbed the synergies that we delivered, which in H1, if we go quickly through the synergy, were mostly around procurement and SG&A. On the synergy plan, we are fully on track to deliver for the year, and I think most importantly in term of dynamic, given the good Q2 performance and the inflection point in term of positive growth, we are very confident that H2 will confirm this inflection in term of growth, and will enable to rebalance the overall profile of growth for the company. EDP International, page 20. As I said, excluding Morocco Q2 performance confirms the stabilization of the reporting entity with the second consecutive quarter with slightly positive growth. All regions contributing to the improvement. Morocco, as you know, is representing around 6% of EDP International, and sales were down 40% in Q2.
If we move through the different regions, in Europe, sales were slightly negative still in Q2, around in line with Q1. The trends by countries were still varied. From one side, U.K. and Nordics grew solidly, both in plant-based and in dairy, through both global and local brands, showing the potential of the combination of the two categories. Eastern Europe registered positive growth as well, driven by Activia innovation. On the other side, France and Spain remain complicated, even if we are seeing improvement and progress. Activia and Danone pursued their sequential stabilization, and local brands like and Light & Free keep growing strongly. Moving to Alpro. Alpro showed another quarter with growth around 10%, driven by an improved product portfolio and also revenue synergies both in France and Spain, where Alpro became the number 2 in plant-based alternative to yogurt only a few weeks after the launch.
Moving to CIS. Sales registered another quarter of strong growth, with mix continuing to improve consistently with our valorization strategy. Russia is another example of the right balance between global brand, Activia Danone, and local brand, Prostokvashino and Danissimo, and both segments are contributing to this strong growth. Latin America registered strong growth in Mexico and Argentina, but was once again penalized by Brazil. We are making good progress on the turnaround plan, both in reframing our product portfolio and our route to market. Unfortunately, we were negatively impacted by the trucker strike, so overall performance in Q2 was double-digit negative, in line with what we observed in Q1. On the margin, the like-for-like margin on EDP International was up 26 basis points in H1 as a result of an acceleration in efficiency and portfolio valorization, allowing the entity to more than absorb the hit of Morocco.
Excluding Morocco, the improvement would have been 50 basis points. The second part of the year will continue to see EDP improving and confirming its return to profitable growth, excluding Morocco. Last entity, Waters, page 22. Q2 represented another strong quarter for Waters, 4.8% like-for-like growth, in line with the expectation, and again, characterized by a broad base of growth, both in term of regions and category. If we go through the regions, in Europe, the sales growth was solid, in line with Q1. The benefits from the acceleration of valorized innovation introduction and good weather were, however, partly offset by the French railway strike on evian, for which the majority of the volumes are shipped by train. Asia delivered high single-digit growth, led by Indonesia and Turkey.
But in China, Mizone performance was solid with stable market share, including the launch that I mentioned earlier on ready-to-drink tea line, whose results, as I said, are promising. Overall, all countries in Asia are contributing to growth now. Latin America was a bit soft in Q2, penalized in particular by Mexico, where weather headwind. Argentina is growing in value but decreasing in volume, especially on premium Aquadrink. The margin level of water was severely impacted by PET price. That keeps increasing even more than previous expectation. We had also some impact from the railway strike in France that forced us to find alternative logistic solution. This generated some sell losses as well as some unexpected transportation costs for a total of around EUR 10 million. This will also have probably an impact on the summer season due to some out-of-stock as a consequence.
We consider the solid H1 performance to be confirmed in the second part of the year, in line with the outlook given for waters at the beginning of the year. Moving to the rest of the P&L, starting with the margin bridge on page 24. If we go through the margin bridge, we have an improvement in recurring operating margin of 20 basis points on a reported basis, closing the semester at 14.27%. This performance is a combination of a negative 49 basis point impact from the last quarter of consolidation of WhiteWave in our base. Q1 being historically a low quarter for WhiteWave. A slight positive effect from scope at plus eight basis point as a result of the deconsolidation of Stonyfield, a slight positive impact from currency as a result of our country mix, nine basis points.
If we turn to the underlying drivers of our like-for-like margin improvement, which was strong, 51 basis points of margin expansion, we have 24 basis points negative evolution of our margin from operation in light of the considerable inflationary environment that weighted for roughly 330 basis points in our cost of goods sold, in particular due to PET, transportation costs in the U.S., and headwinds in currency. Almost entirely offset by our profitable growth model based on an improvement of our portfolio mix through our valorized innovation, which accounted for 160 basis points, as well as accelerated delivery inefficiency, which created an extra 150 basis points in the margin of operation versus last year.
Protein unlocked also sustainable savings in selling and overhead expenses, and together with the synergy from WhiteWave integration and our continuous discipline in resource allocation, contributing also for 75 basis points of margin expansion, which is the total of the two last green box that you have on the bridge. Overall, our strategy of improved portfolio mix, combined with accelerated efficiencies out of which Protein and synergy accounted for roughly 100 basis points this semester, enabled us to increase strongly our like-for-like margin in a context that was including a lot of headwinds. Moving to the EPS on page 26, recurring EPS closed at EUR 1.76, increasing by 13.4% at constant exchange rate and excluding Yakult transaction impact. If we go through the bridge from the left to the right, the main elements are the impact of the last quarter of the consolidation of WhiteWave, representing 3.5% positive.
The combination of our like-for-like sales growth and recurring margin improvement contributing to 7.9%. The financial costs are decreasing slightly, creating a positive impact thanks to the early repayment of an expensive bond from WhiteWave in November 2017. The tax had another slight positive impact, notably from the U.S. tax reform, and we have a slight negative impact from scope that is linked to the deconsolidation of Stonyfield. Finally, on currencies, a strong negative impact, 8.2%, mostly due to the devaluation of the British pound, Russian ruble, and Indonesian rupiah, leading to the overall recurring EPS growth at 4.6%. Page 27, a few comments on non-recurring items in the P&L, because we had two major impacts that around compensate themselves. First one is the positive impact of EUR 700 million, resulting from the capital gain of the sale of our participation or part of participation in Yakult.
You can see it in the line net income from associates. On the other side, a negative EUR 660 million charge in other income expenses that is related, as I mentioned earlier, to the impairment of Centrale Danone in Morocco and of part of our goodwill linked to Centrale Danone. The net of the two together with some other items are bringing our reported EPS to EUR 1.87, up around 20% versus H1 2017. Page 29, free cash flow. H1 2018 is another semester showing Danone's strong A cash conversion and delivery model with a free cash flow at over EUR 1 billion, increasing 20% versus last year. The main driver of the performance is the increase in NOPAT. Investments are in line with last year at 3% of net sales.
The slight deterioration that you see around working capital, which overall remains well negative, is a pure mechanical impact driven from the consolidation of WhiteWave on a full-year basis, while H1 2017 only showed one quarter of net sales. This lead me to the bridge of net debt on page 30. At the end of 2017, the net debt stood at EUR 15.4 billion. The strong cash flow generation, as well as the Yakult consideration, brought it to EUR 13.7 billion, well on track with our deleveraging commitment. If you even look at it, we've been able to deleverage the balance sheet by EUR 4.5 billion over 12 months, which is a very nice pace for deleveraging the balance sheet. Moving on page 31, maybe to a bit summarize H1 and give you some outlook.
It is clear that we had to face strong external headwinds in H1, and that it will continue to weigh on our performance in the second half. H2 will be notably continue to be impacted by the boycott in Morocco in EDP International, and we know that there will be a slowdown in the overall growth of Specialized Nutrition. Having said that, the strong numbers we delivered in H1, despite the volatile backdrop, we are entering H2 with an increased confidence in the underlying strength of our operating model for a few reasons. First, there is greater agility within our organization, delivering more effective deployment of innovation. Second, our enhanced focus on efficiency and discipline is driving improved margin and agility to better tackle the volatility backdrop. Third, we have a stronger balance sheet from our continued discipline in capital allocation.
Last, and probably very importantly, we are doing great progress with WhiteWave integration. We have more growth engines in our portfolio, with particularly EDP NORAM going to the inflection point of positive growth, and with Waters growing steadily in all regions. As a consequence, even though H2 growth will be lower than H1, we continue to expect accelerated sales growth on a full-year basis versus 2017. We will ensure that we continue to accelerate our efficiency to also allow another sustainable like-for-like recurring margin expansion for the full year. Having all this in mind, I confirm our full-year guidance of double-digit EPS at constant exchange rate and without the impact of the Yakult transaction.
Starting in 2015, I told you that volatility would only increase and that we needed to strengthen our growth model in this reality, and make it more resilient in order to make sure that we would absorb the bumps, and we would have a safe journey towards our agenda of sustainable value creation. With a stronger portfolio after WhiteWave acquisition, with our ability to step up in innovation and execution, and accelerate efficiency, I have every confidence that we are making the right steps to increase the fundamental strength of our operating model to deliver sustainable value. That would be my concluding remark, and with that, I leave the floor to questions.
Thank you. If you would like to ask a question at this time, please press the star or asterisk key followed by the digit point on your telephone. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment.
For me, Nadia speaking, and for the discussion part, please be so kind as to limit your question to two and raise them all at a time to allow as many as possible people to participate. Thank you.
Thank you. As a reminder, ladies and gentlemen, star one for questions over the telephone. We'll take our first question from Eileen Khoo from Morgan Stanley. Please go ahead, your line is now open.
Good morning, Cécile. Good morning, Nadia. Two questions from me. The first one is on Morocco. If you could give us an update on where your local sales are currently trending now in terms of the actual decline, and where your prices are now relative to competitors there. What steps you think you can take to mitigate the risk of this kind of social media boycott happening in your other businesses? That's the first one. The second one is on EDP NORAM. It's great to see that business accelerating in momentum. On the business that's still at fresh food, can you update us on your thinking there? Thanks very much.
Thank you, Eileen. Overall, the trending in terms of sales in Morocco continue to be the same as the one that we've seen in Q2. In terms especially of fresh pasteurized milk. In terms of mitigation plan, there are a few. We are contemplating to have some innovation that will be more affordable also because we will do them in different packaging, and that will help in terms of going towards more affordable product. The other thing is that we are studying a plan in order to also adapt our cost base, work with the farmers in order to overall mitigate the overall impact of the boycott locally in our Morocco equation.
In terms of your question regarding how we can avoid to have this situation, I think you need to look at Morocco as a very specific situation, where the boycott was really about people going after the fact that their purchase power and inequalities are increasing. Centrale Danone is a very symbolic brand and was caught into that boycott, but it's much broader than a boycott against the Centrale brand. We continue to work on that. You know that our CEO went there. We are opening a consultation to rebuild a dialogue and trust with the people that will start very soon. With that, we believe that we can find a way with the people on the ground to adapt our business model, especially from fresh pasteurized milk. We continue to do many initiatives and innovation on the fresh dairy product part.
We hope that we can mitigate effect. On EDP NORAM, your question was around the fresh foods business. Fresh food business, we continue to be very focused on the turnaround. We have now a management that is coming that is very expert and specialized in this type of business coming from Dole. Before we didn't have a specialized management. We are working very hard on continuing to make the turnaround. We have, as I said, discontinued a line of business, and we continue to work on that. I have nothing else to say that what I said in the first quarter, no news to share on that front.
Thank you. Our next question comes from Jon Cox from Kepler Cheuvreux. Please go ahead. Your line is now open.
Yeah, good morning. Jon Cox, Kepler Cheuvreux. Thanks for taking my questions. Just to come back to Morocco. Obviously, that is a pretty serious issue and the impact it is having on the group overall. You talked about an operating loss of EUR 25 million in Q2. I am just wondering, do you envisage that sort of loss going on through the rest of the year, and is that included in overall guidance? As an add-on, on Morocco, you have written down, it looks like three quarters of the goodwill. Is that your long-term projections about that market? Just a little bit more detail on Morocco. I think it is a very important issue. Just one point of clarity. Did you say that nutrition would slow down to mid-high single digit, in H2? Or are you saying that for the full year it will be mid-high single digit? Thank you.
Thank you, Jon, for your question. To answer your question on the impact of Morocco, we have overall taken a very prudent outlook for the remaining part of the year, acknowledging that we do not have yet all the answer, even if we are building a mitigation plan on the overall impact. When I confirm the guidance, this is, of course, acknowledging that Morocco could continue to weigh on the performance for the H2. On your question on Specialized Nutrition, there is nothing new there. What we said already in Q1 is that, for the full year, Specialized Nutrition would grow mid to high single digit for the full year again. This was going to be driven by a very strong H1 with continued very strong dynamic demand in China.
An H2, which will bear the impact of very high base of comparison, because you remember that last year in Q3, we had more than 70% of growth in China, including restocking from the indirect part of the trade. The sales as a comparison and in percentage of growth will slow down. We continue to very well expand in ultra premium for our innovation of Aptamil. We continue to very successfully gain market share in the direct part of the channel, and we have just introduced new innovation in term of an organic offering. We are fully confident of China growth potential and the strength of our business going forward. We have this next quarter that will slow down versus the beginning of the year.
Thank you. Now we'll take our next question from Martin Deboo from Goldman Sachs. Please go ahead. Your line is now open.
Hello. Can I ask about the impact of the rail strike on the Waters business? Can you quantify the impact of that in Q2 and perhaps give us some color on the impact that you said you would expect spilling over into Q3? Secondly, on margin expansion, most of your margin expansion in 2017 and the first half of this year came from Specialized Nutrition. Given the growth trajectory you've guided to for the second half, is it right to expect margin expansion to come more from the other divisions than from Specialized Nutrition? Thanks.
Thank you, Martin. Oh, sorry, I was on your second question. On the railway impact, overall, we had in Q2 some impact in the top line that also led to what I say around having a solid Europe, but not strong despite some good weather and good innovations. Net-net in term of EBIT, if we take both this impact on top line, but also on the fact that we had to find alternative in term of transportation costs, you can factor in around a bit more than EUR 10 million as a net EBIT impact from that.
We are having a very hot season now, we think there might be some spillover effect in the H2, given a situation where, in some cases, we were not able to fully deliver, and we've been having out of stock, which in a very hot season could have some spillover impact of our H2. That doesn't absolutely put in question the overall outlook for the Waters category growth for the remaining part of the year. I fully confirm what we said earlier in term of the Waters growth for the year. Your question on margin coming especially from Specialized Nutrition in term of enhancement of margin. That's correct. We've been benefiting in Specialized Nutrition from a very strong rhythm of growth, including positive mix in both product and geographies.
If you look at it, I think it's very important to notice, that's why I made the comment several times on that call, is that we are starting to rebalance our growth model, for that, we will rebalance in H2 our profitable growth model. Yes, in H2 you can probably factor in that there will be more profitable growth engines, and the contribution will be a bit rebalanced between the different entities. That's ultimately what is continuing to build the strength and the resilience of the model going forward. It's an important step. Next question.
Thank you. As a reminder, ladies and gentlemen, star one to ask a question over the telephone. Our next person from the queue is Alain Oberhuber from MainFirst. Please go ahead. Your line is now open.
Good morning, Cécile. Good morning, Nadia. Alain Oberhuber, MainFirst. Would you give us a little bit more insight regarding the development of these major brands, Activia and Actimel, and where we stand? Secondly, maybe you could also give us some outlook for France and Spain. When do you expect that these two markets could find some bottom and start to grow again?
Yeah, sure. Thank you, Alain, for your question. In Activia, we are registering great progress. First, it's important to say that we have different situation. Activia is a worldwide brand. It's growing very nicely in the U.S., as I said, given especially the new innovation on the daily probiotic shot. I suppose your question was more around Europe. In Europe, we continue to make a lot of progress in terms of improving. There have been innovation, including innovation into the new paradigm with some new ingredients, some new pack that are being very well received. Overall, we're making good progress, and we expect that we will continue, and we expect that we can reach stabilization soon.
If we look at the situation in France and Spain, we are really accelerating our transformation in France and Spain, and it's important to note that the introduction of Alpro, the inspiration of the momentum of Alpro, will, we believe, accelerate the overall turnaround for these two countries. There has been also some very specific innovation. In France, we've launched a world range that we call the Yaourt du Monde, the world yogurt, with specialties of yogurt from all over the world, and it's starting quite well. We also have a drinkable that we call Yossi Le Bio, which is working well. As I said, Activia Superfruit and the infusions with new ingredients are working well. We just introduced Lactose Free, which is starting also well.
In France, we are quite confident that the trend will improve and that we can, here as well, reach stabilization in the foreseeable future. Spain, we have also good introduction from some mousse, drinkable Danone, and our customer edition. I think it's really coming. It's taking a bit of time, but it's coming. It's improving, and we can be confident that even if the market remains competitive in both France and Spain, we can really see that we will, as I said, reach a better trend in the foreseeable future. We are seeing already in July quite good improvements in those countries.
I think we don't have any other questions.
Good.
I propose we stop the call here, as it is a very busy day for everyone. Maybe I'll let Cécile make some closing remarks.
Just one really, because I think it's really important, and as we are caught in the short-term result, maybe I would really like to insist on that. I think that, as we said now for several years, volatility is the norm and will be there, and we will have some headwinds and volatility in our quarter. What we really need to focus on is continue to strengthen our growth model to navigate this reality. As I said, we have a stronger portfolio after WhiteWave acquisition, with very strong and dynamic categories that also inspire the rest of the portfolio. We've been really stepping up in term of innovation and agility in getting the innovation to market faster in the new paradigm of the food revolution. We've been accelerating efficiencies and the mindset of efficiencies quite significantly.
As a result, when you look at the growth model, I think fundamentally, we are really improving the strength of the model. It's our focus every day, and this gives us a lot of confidence that we are on the right track of our agenda. I wish you a great day, a busy day, I know, and a great summer if I don't talk to some of you since then.
Thank you very much. This is the end of this call.
Thank you. That concludes today's Danone First Half Year Results 2018 conference call. Ladies and gentlemen, thank you for your participation. You may now disconnect.