Good afternoon to everyone. Welcome to the Nestlé Nine Month Sales Conference Call. I am Luca Borlini, Head of Investor Relations at Nestlé. Here with me is our Chief Executive Officer, Mark Schneider, and our Chief Financial Officer, François-Xavier Roger. As usual, first, we will start with some opening remarks from our CEO, Mark Schneider. We will then hand over to our CFO, François-Xavier Roger. At the end, we will open the lines for questions and answer. I draw your attention to the disclaimer in our notes on the restatements. Now I hand over to Mark.
Thank you, Luca, and a warm welcome to our conference call participants today. As always, we appreciate your interest in our company. We're pleased to report steady progress on our path of accelerated value creation. Organic growth has continued to improve in the third quarter, and we are on track for our full-year organic growth target. I'm particularly pleased with the progress in our China infant nutrition business and our increased momentum in the U.S. market. As you will see in this presentation, it has been a solid quarter on the operations front. Having said that, we also saw areas of improvement. This includes pricing on a global basis and our growth in Nestlé Waters and in U.S. frozen food. On the strategy front, we completed our review of the Gerber Life Insurance business this quarter and started the review for our Nestlé Skin Health business.
Methodically, and with the full support of our board of directors, we are sharpening the strategic focus of our group, advancing growth areas, and addressing either areas of weakness or situations that are outside of our strategic boundaries. Nestlé Skin Health is a good example of the latter. Our Starbucks transaction has closed ahead of schedule, and we are on track to get Starbucks products on store shelves in key international markets by early 2019. Again, beating our original business plan. By separate press release today, we announced changes to our executive board. I very much regret Wan Ling Martello's decision to leave Nestlé at the end of this year. At the same time, I'm deeply grateful to her for her significant contributions in turning around our business in Zone AOA, as well as for her previous contributions as Group CFO. What an outstanding job.
I respect her decision and wish her all the best for her new endeavors. So we are glad to be able to fill the resulting vacancy without missing a beat. I'm particularly pleased to announce that Chris Johnson will succeed Wan Ling as CEO of our Zone AOA as from January 1, 2019. Chris has not only run one of our zones before, he also has on-the-ground experience running several Asian businesses and markets in the past. He is an outstanding leader with a growth mindset, entrepreneurial vision, operating rigor, and strong people management skills. On a personal note, let me say how much I enjoy working with him, as he is driven and fun at the same time. Replacing Chris as Head of Group Human Resources and Business Services will be Béatrice Guillaume-Grabisch, our current CEO of Nestlé Germany.
Béa will continue to drive HR initiatives started by Chris that are very important and dear to us. This includes a business-focused mindset in HR, as well as our ambition to significantly develop diversity and improve gender balance in our leadership ranks. Béa has shown a deep interest in and dedication to those initiatives. Prior to joining Nestlé in 2013, she worked in several leading consumer goods companies, including L'Oréal, Coca-Cola, and Colgate. I very much look forward to working with Béa on the Nestlé executive board. This concludes my initial remarks. Let me hand it over now to François, and I look forward to your questions later.
Thank you, Mark. Good morning or good afternoon to all. Let me start with the highlights for the nine months. Organic growth was 2.8%, in line with our expectations. RIG stayed strong at 2.3%, remaining at the high end of the food and beverage industry. Pricing increased slightly since the half year and was at 0.5%, helped by improvement in the Americas. The net effect of acquisitions and divestments was slightly positive at 0.1% with the acquisition of Atrium Innovations and the acquisition of the Starbucks license being offset by divestments, mainly U.S. confectionery. Foreign exchange was a 0.9% headwind, largely due to currency depreciation in a number of emerging markets. Sales for the nine months were CHF 66.4 billion, a 2% increase on a reported basis. This slide illustrates the development of our sales, including our zones as well as our globally managed businesses.
Our growth was broad-based, both in terms of organic growth and RIG. All three geographies show an improvement in RIG versus last year. The most notable increase came from AMS, more specifically North America, and to a lesser extent, from MENA. Overall, pricing remained limited, but improved in Q3 versus the first half. Pricing dynamics are different by geography, partly depending on our category mix and their related commodities. EMENA is more weighted towards coffee, where input prices have fallen, resulting in slightly negative pricing. On the other hand, AMS is more weighted towards waters and pet care, where increasing input costs have allowed us to take pricing. Now looking at the growth dynamics between developed and emerging markets. Developed markets saw an improvement of organic growth versus last year, driven by higher pricing and RIG in North America. Emerging market posted mid-single digit OG.
RIG was helped by improved growth in AoA, as well as in the Middle East and North Africa. Let's now look at the results by operating segment, starting with zone AMS. Sales were CHF 21.9 billion. Organic growth was 1.4%, with RIG of 0.8% and pricing of 0.6%. North America had positive growth for the nine months. We continued to place emphasis on faster innovation and portfolio management. Pricing increased in Q3, reflecting inflation in commodity and freight costs. There was continued solid growth in pet care with Purina and in coffee malt creamers. Ice cream had a strong performance in Q3, supported by Häagen-Dazs and Outshine. In the frozen category, Pizza and Hot Pockets did well. Latin America reported low single-digit organic growth with positive RIG and pricing. Organic growth accelerated in Q3 compared to the half year.
Brazil returned to positive growth in the quarter, helped by improved pricing in Q3, particularly in dairy. There was good growth in confectionery with KitKat and in coffee with Nescafé Dolce Gusto. The trading environment in Brazil remains challenging with soft consumer confidence. Mexico had mid-single-digit organic growth with positive contributions from most categories, particularly Nescafé. There was continued strong momentum for Purina pet care and for Professional across the region. Next is zone EMENA, where sales were CHF 13.7 billion. Organic growth was 1.6%. Growth in the third quarter looks slightly slower as it faced a very high comparable from last year, when organic growth was exceptionally high at 3.6%. RIG at the nine months was resilient at 2.3% in the context of a low growth environment, particularly in Western Europe.
Pricing declined by 0.7% as deflationary trends in Western Europe persisted in Q3, largely as a result of lower commodity cost. Looking at growth by region, Western Europe saw slightly negative organic growth as positive RIG was offset by negative pricing. Both Central and Eastern Europe, as well as Middle East and North Africa, saw mid-single-digit organic growth supported by good RIG. EMENA is now managed at category level for the zone. I will provide more details on the category dynamics. Purina pet care, infant nutrition, and Nestlé Professional were the main contributors to growth across the zone. Premium products had a strong momentum in these categories, especially gourmet cat food and human milk oligosaccharides infant formula. Nescafé remained positive in a competitive market and in spite of difficult comparables. Confectionery was positive, helped by innovations as well as a continued strong performance from KitKat.
Moving now to zone AOA with sales of CHF 15.8 billion. Organic growth was 4.4% with RIG of 3.7% and pricing of 0.7%, totally consistent with the level of the half year. Overall, the zone continued to deliver good broad-based growth with all geographies and all categories contributing. All the developing markets posted mid-single-digit organic growth with solid RIG and positive pricing. Looking in more details by market. China grew well, driven by e-commerce and innovations in infant nutrition, coffee, and culinary. Southeast Asia was led by Vietnam and Indonesia with Milo and Bear Brand. In the South Asian region, growth was supported by Maggi, Nescafé, and KitKat. In sub-Saharan Africa, there was strong momentum in the Central and West Africa region. In the developed markets, organic growth was slightly positive as robust RIG was partially offset by negative pricing.
Overall for the zone, infant nutrition and pet care accelerated in the third quarter, posting high-single-digit growth. In China, the infant nutrition business had mid-single-digit organic growth in the nine months, with a high-single-digit performance in Q3. The performance in China was driven by strong growth in e-commerce and encouraging results from recent launches such as Illuma Organic and A2 Formula. We also had strong momentum from Gerber infant cereals. Moving on to our globally managed businesses and starting with Nestlé Waters. Organic growth for the nine months was 2.1%, reaching 4.1% in Q3. The growth for the nine months was driven entirely by pricing, while RIG declined modestly by minus 0.2%. Total sales were CHF 6.1 billion. In the U.S., growth was positive and price-driven. We took pricing in June to reflect significant inflation in packaging and distribution costs.
We also saw good performance of our recently launched sparkling range under our regional spring water brands such as Poland Spring, Ice Mountain, and Ozarka. In Europe, growth for the nine months was positive, thanks to a solid RIG-driven contribution in Q3. These results were supported by the hot summer, as well as innovations such as Perrier & Juice, as well as Levissima Plus. Our international premium brands, S.Pellegrino and Perrier, continue to deliver accretive growth globally. Finally, we finish with the other businesses, which includes Nespresso, Nestlé Health Science, Nestlé Skin Health, and Gerber Life Insurance. We have reached an agreement for the sale of Gerber Life Insurance, we announced very recently that we are exploring strategic options for the Skin Health business. Total sales for the other businesses was CHF 8.9 billion.
RIG was strong at 5.7%. Pricing contributed 0.3%, resulting in organic growth of 6%. Nespresso maintains strong mid-single-digit organic growth with a positive quarter in all three zones, supported by further boutique expansion as well as continued innovation in both systems and capsules. We opened 24 new boutiques in the third quarter, bringing the total number to 752. The Vertuo system expanded into six new markets in the third quarter, Germany, Switzerland, Sweden, Norway, Finland, and Mexico, for a total of 14 markets. The Americas and Asia saw strong growth, Western Europe was flat in a competitive environment. Nestlé Health Science continued to deliver mid-single-digit growth, supported by the medical nutrition and consumer care products, as well as by the expansion of Atrium products into food, drug, and mass channels. Nestlé Skin Health had high-single-digit growth.
Looking now at our growth by product categories, where all segments sustained positive organic growth, showing the strength and the consistency of our portfolio. Powder and liquid beverages saw some decelerations in the half year as Nescafé faced difficult comparables in Q3 in Europe. Waters, we already discussed. Milk products and ice cream improved since the first half, helped by a good Q3 for ice cream, particularly in the U.S. This was driven by strong growth for Häagen-Dazs and Outshine. Ambient dairy showed improvement in the quarter, driven by Brazil. Nutrition and health science grew well, driven by solid RIG in all three subcategories. Nutrition continues to be supported by innovation, such as our HMO and A2 protein infant formula, as well as organic and natural ranges. In prepared dishes and cooking aids, growth came mainly from the ambient segment.
In confectionery, pricing was negative, this was more than offset by solid RIG. Excluding the U.S. business for confectionery, this business was sold in April this year, organic growth would have been 20 basis points higher. KitKat was a highlight in many regions, including Zone EMENA, Japan, and Brazil, supported by strong execution and innovations such as KitKat Ruby in Europe and KitKat Gold in Australia. Finally, pet care continued to accelerate versus the half, helped by premiumization, helped by our natural portfolio, including Merrick, and by e-commerce channels. Finally, to close, I finish with our guidance for 2018, which we confirm our full-year organic sales growth expectation is around 3%. Underlying trading operating margin improvement is going to be in line with our 2020 targets.
Restructuring costs are expected to be around CHF 700 million. We expect underlying earnings per share in constant currency and capital efficiency to increase. I now hand back to Mark for his final remarks. With that, we'd like to open our Q&A. Luca, over to you.
Yes, thank you, Mark. Thank you, François. With that, we move to the Q&A session. We open the lines for questions from financial analysts. As a reminder, please press star one to enter the queue and star two if you want to withdraw. Please try to dial also from a fixed telephone line to help avoid sound quality systems. The first question is coming from Eileen Khoo from Morgan Stanley. Please go ahead, Eileen.
Morning. Sorry, afternoon rather. Afternoon, François, Mark, and Luca. Two questions from me, please. First one is on coffee. I just noticed that your beverages like for like was weaker in the quarter. Was this just comps, or were there other dynamics driving this? Now that you've closed the Starbucks deal, can you give us some color as to your priorities for this business, immediate priorities? Also, given that it does execute the fastest-growing part of the overall coffee market, which is ready to drink, maybe you can give us some color on what your strategy is for this particular segment. The second question is on nutrition. Can you give us some more color on the growth dynamics for nutrition in the quarter, specifically in your key markets, U.S. and China? I was also interested about A2 milk. You've launched it in China.
I see that you've launched it in Australia and New Zealand as well. Are you planning to roll it out in more markets? I was curious, in China specifically, which channels you're selling it in. Thanks very much.
Eileen, thanks for your question. Let me tackle the one on coffee. I think aside from comps, what you're seeing is quite a bit of competitive intensity in Western Europe, and that applies both to soluble but also to the Nespresso side. I think this is what you're seeing here in the nine-month numbers. When it comes to Starbucks, we're very excited about this. As I said, we closed the transaction early, and I think we're also ahead of our plan to get products on the shelves early next year. Let me remind you, this does not include ready-to-drink. We're talking about roast and ground here. We're talking about capsule systems and soluble formats. Those are the formats we're going to be playing in. When it comes to ready-to-drink, our understanding is that Starbucks had other contractual relationships with various partners in various geographies.
Yes. I'm super excited about the products I'm seeing, and I'm very convinced that this will support our growth in coffee going forward. Let me also remind you, in addition to the retail side of it, there's also a significant opportunity in out-of-home, in what we call Nestlé Professional. Since the Starbucks brand is a very recognized global brand, this will play extremely well. For nutrition, let me hand it over to François.
Yes. Good afternoon, Eileen. Infant nutrition, actually our growth for the nine months improved to 3.1%. This is essentially driven by RIG, but this is also driven by innovation, which had a fair contribution there. We are talking of HMOs, oligosaccharides, and then organic A2 and so forth. We clearly saw a significant contribution of innovation in that growth. If you look more specifically at Q3, our growth was 3.7%, which is the highest level since 2016. We are pleased by that. Infant nutrition is now better in terms of OG than the group average, which is another point of satisfaction. The growth is broad-based by geography, more specifically in China. It's a little bit softer in North America, which is still something that we need to fully address.
Since we are talking of China, we are interested in the improvement, which is once again coming from innovation. We see an acceleration in China. Q3 was as well the strongest quarter that we had over the last three years. There again, this is about premiumization. This is about innovation, organic, A2 milk. Even in a market that is growing less, we do accelerate our growth, which is very attractive. We have some contribution as well from infant cereals in China with under the Gerber brand. For A2 milk, we don't disclose in advance where we are going to launch product. It's a product that for the time being is more appropriate, we believe, for China and Oceania. This is what we have done, but we don't share commercially sensitive information ahead of launches.
Next question is coming from Jean-Philippe Bertschy from Vontobel.
Good afternoon, gentlemen. The first one would be on the frozen foods. You had like a kind of a weak quarter in terms of RIG. I think, Mark, you were mentioning weak frozen foods in the U.S. I guess it's like Lean Cuisine and Stouffer's. If you can share your view on that. I think you had a big relaunch plan back in 2014. I think we have seen some volatility in those segments. The second one would be on the management change. Would be very interesting to know whether Chris Johnson is like an interim solution or if not, sorry. If it is, you didn't find any candidates from the Zone AO itself or within the Group in order to renew the Executive Committee.
Jean-Philippe, thanks for your question. On frozen, I wanted to tackle this one up front. We're not happy with the development we're seeing this year. Since I know that some of you had strategic questions around frozen, I just wanted to acknowledge our operational issues very openly. We're as committed as ever to the strategic promise of it, but we know that on an operating level, we have work to do. You're right, it kind of centers on the Lean Cuisine and Stouffer's brands. I think when we developed a whole lot of other initiatives, we sometimes lost sight of that base.
In particular, when it comes to some of the renovation drive and innovation drive that we have put in place in 2014, 2015, and early 2016, too much of that was a one-shot deal and was not followed up by a second and third wave of continuing innovation. These days, of course, within a few months, typically, competition follows you and hence you need the next thing to be ready to go and give you an edge. This is what we're working on now. This will probably persist for the rest of this year, but we're laser focused on improving the performance and coming out with meaningful innovation that will help us in 2019 and 2020 and beyond. Regarding the management changes, I just want to confirm very strongly, Chris is not an interim solution.
I think Chris has made significant contributions to this business and the zone management job, the zone CEO job is not an easy one. To really do that, you need on-the-ground experience. You need to have managed, ideally, a country market, but you also need to understand how the entire organization works. He brings that to the table. I'm very excited with the leadership that he can bring to that zone going forward.
Next question is coming from Celine. Hello, Celine, how are you? Go ahead with your question.
Yes. Good afternoon, everybody. Thank you for taking my questions. First I wanted to come back on pricing. I think you mentioned that you were happy that pricing is accelerating. I was a bit surprised to see not much pricing momentum in AOA. Just wanted to know whether that was specific to the categories there. In general, if you are still happy with your guidance that pricing recovery in H2 along with the change in raw mat should help. You remember you had a 20 basis point hit from that in the first half margin. My second question is on innovation. I think recently there was a newsletter from your head of innovation. Could you give us some example on how Nestlé becomes faster to market and why, or example on where you are more innovative. Thank you.
Celine, good afternoon. I will take the question on pricing. You could see in our numbers for Q3 that pricing has improved moderately. This is essentially coming from North America across categories. Actually, this is also coming from Brazil, where we have somewhat easy comps on the higher milk prices. You may remember that milk prices started to fall in Q3 last year. It is true that we have had some headwind in commodities in H1, and we will have some tailwind in H2. This is absolutely confirmed. You were mentioning more specifically AOA. As I mentioned during my earlier presentation, we have very different dynamics in terms of commodities between the three zones.
We have actually a significant increase for the whole year in AMS, which explains partly the fact that we are in a position to pass on price increases, while we have overall for the full year, a significant decrease in EMENA, which partly explain the fact that we have negative pricing there, and to a lesser extent in AOA as well. It's not that our pricing is directly linked always to commodities, but it has some impact. Once again, very different dynamics from one zone to the other.
Celine, this is Mark. Let me take your question on innovation. I'm glad you're bringing this up because when we talk about pricing, I think one of the ways to get around the pricing pressures is through fast and meaningful innovation and bringing that to the market. It has to be things that really resonate strongly with consumers, but they have to get out there fast before someone else takes the opportunity. We have seen now over the past year, several very encouraging examples where from concept to the store shelves, we made it in 6 to 9 months. This, in my opinion, has to become the new normal. This is what we as an organization have to strive for. That is not just an ambition.
We are putting in place now an entirely new process, which we call Idea to Launch, that supports this innovation and is supposed to facilitate it. Significantly lower number of discrete steps required compared to the former process when it comes to getting product out the door. We're also differentiating much more between what I would call more superficial renovation, which requires less effort and less steps, and then the deeper innovation that really goes to the heart of the product's nature, and where you may want to put in more diligence and more steps to be sure that all aspects are being considered.
I think by differentiating, wanting to be more discerning on the process, we allow the easier ones to go faster and the more meaningful ones will get more scrutiny so that our quality and safety reputation doesn't suffer as we crank up the rate of innovation. I think this is an area in summary where aside from the leadership change beginning of the year, you're seeing a lot of work sort of underneath the surface, stuff that doesn't hit the headlines and doesn't make material for separate announcements. But collectively, I'm very encouraged by the progress I'm seeing.
Next question is coming from Martin Deboo from Jefferies.
Yeah. Hello, everybody. Martin Deboo, Jefferies. I think it relates to Celine's question actually on pricing. I just want to sort of push a bit further on this. How do you see your pricing evolution going in the rest of the year? Have you taken the price you want to take, or are pricing actions still going through the business? From the outside, it looks if you probably exited Q3 at sort of 1.5% positive pricing, or am I overinterpreting the trend? Just a perspective on the development of pricing from here, please.
On pricing, Martin, I don't expect very significant changes from Q3 to Q4. I think that we might have some further changes next year, because as I said, the commodity cycle is slightly positive overall for the year 2018. We already know that we will be facing some increase in commodity pricing next year. We can compensate some of it through efficiencies and so forth, but we know that there will be an additional consideration to finance there. Which, once again, part of it will have to go through pricing for next year, 2019.
Next in queue is Jon Cox from Kepler. Please go ahead.
Thanks so much, guys. Jon Cox, Kepler Cheuvreux here. I want to come back to the pricing as well as if I can. In terms of Western Europe and that EMENA negative pricing 1.1%, which I think is probably the worst ever, in line with, I think, about 18 months ago. What are your thoughts on Western Europe and the whole pricing environment? You have a lot of retailers getting together wanting to negotiate centrally. You mentioned coffee as a commodity coming down. A lot of other people are talking about wage inflation, and there is inflation coming through the system. How do you view this going forward, particularly in terms of the big restructuring programs you have going on? Is it a case of Europe, you don't expect pricing to come back anytime soon, but you just have to work harder on the restructuring programs?
Do you think there are signs that some of the European retailers are now prepared to start accepting price increases? Thank you very much.
Jon, thanks for the question. I think you named the various elements quite well. I guess the only one that you left out is sort of isolated categories that have intense competitive pressure like coffee, for example. You mentioned the European retailers, and I think the pressure from there is something that'll go on and just continue to exist. For 2019, I think as the world is reinflating, I think that will also offer some opportunity for Western Europe when it comes to pricing. The restructuring activity that you are seeing, that is not something that we do in a direct relation to pricing. I think this is simply when you look at Nestlé and its old and inherited industrial structure, you see a lot of what I would call silo structures in various European markets that used to be run very independently for decades.
That was not only the marketing and sales end of it, but also the manufacturing and supply chain end of it. As we harmonize this and go for efficiencies and avoid duplication and go for focused plans, there is a need for restructuring here. Which I think will benefit the business not only in Western Europe but also beyond. That is not directly related to the pricing side. On pricing, I think on the one hand you have some headwinds, like the competitive intensity and increased retailer cooperation. On the other hand, I think for 2019 and beyond, it seems like the world, including Western Europe, there's some inflationary tendencies that will help us.
Okay. Next question comes from Patrik Schwendimann from Zürcher Kantonalbank. Please go ahead.
Thank you. Good afternoon, Mark, François, and Luca. The split of the organic growth in quarter three was roughly two-third RIG and one-third pricing. Do you see for the next couple of quarters a shift towards more pricing and less RIG? That's my first question. Second question regarding the underlying trading operating margin. The consensus is expecting a 50 basis points improvement in 2018. Do you think this is still a fair assumption, or has anything changed since the July conference call? Thank you.
Patrik, let me just take the second one first. You form your assumptions. I think we gave our guidance beginning of the year, that did not talk specifically about basis points for the year, but rather on a path for 2020. Just as a matter of good form, I need to remind you of that. We see a lot of progress here when it comes to operating efficiency in UTOP, but we did not give any specific guidance here when it comes to the basis points. Then on the organic growth and its composition on pricing and RIG, François, maybe you want to comment.
Indeed, we have about two-third of RIG now and one-third of pricing. Obviously on RIG, we are leading the industry. That's a good reflection of the volume growth that we enjoy, as well as a good reflection of our capacity to innovate because it includes a mix, the mix is largely linked to innovation. We do expect to continue maintaining a high level of RIG, that's clearly what we have been working upon. I think Nestlé has been very consistent over the last couple of years in that regard. As Mark said, we do expect to have a little bit more pricing as a consequence of commodity pricing moving up next year, as a consequence of inflation coming back, especially in the West.
We may see a little bit more as well of pricing coming from currency depreciation, especially in emerging market, because over time we will have to pass it on. You asked the question, is there some impact of pricing on RIG? It may happen usually in the short term that there is a little bit of negative elasticity. For example, if you look at in the U.K. last year after Brexit, because of the currency depreciation, we had to pass on some price increases. We suffered for a quarter in Q2 last year. Then we recovered everything and went back to a normal situation in the following quarter. That's a little bit what we have seen as well with waters in the U.S. this last quarter, where we raised prices usually whenever we are category leader, which is often the case.
It's up to the category leader to take the initiative as far as pricing is concerned. Usually competitors follow. Then it adjusts back in terms of volume growth.
Also related to input costs. Did I get it right that in H1, it was a headwind of 20 basis points, and you just have confirmed that the second half is on change, which means plus 20 basis points tailwind? Is that correct?
I don't want to quantify it. I confirm the fact that it was a headwind in H1, which is the reason why we increased our margin by 20 basis points. I confirm that this will be a tailwind in H2. Absolutely, yes. With a net impact for the full year, slightly positive in terms of contribution from commodities.
For 2019, you just mentioned some headwinds. How much would you expect?
We'll tell you about 2019 with you in February, Patrik. I hope that's okay.
Thanks, Patrik, for your questions.
Okay.
Yeah. Next in the queue is Alain-Sebastian Oberhuber from MainFirst. Please go ahead.
Thank you. Good afternoon, Mark, François, and Luca. Two questions from my side, Alain-Sebastian Oberhuber, MainFirst. The first is, could you give us a little bit more insight regarding the development of the different categories in Brazil, where we could see where we are really happy with the recovery and where you still see upside potential? The second question is, from today, what do you expect the foreign currency impact could be for the year?
On Brazil, the trading environment remains challenging with soft consumer confidence. We were happy to see that we were back into positive territories in Q3, which is something that we expected, should probably be the case in Q4 as well. That's positive. You know that we had these trucker strikes in May. We have recovered the most of it, not everything, but so it's moving in the right direction. We had been facing as well, at the end of last year and still in the early part of this year, some pressure coming from the price decreases in dairy. We are seeing the opposite now. Dairy prices are moving up, so which is certainly helping. We saw interesting development since you are asking about categories. In confectionery, we did very well, and KitKat performed very well.
In infant cereal, Nescafé Dolce Gusto has been a good contributor along with Nestlé Professional. Little bit more difficulties maybe in cocoa-based beverages, but no significant issues. As far as Forex is concerned, difficult to say. We are still at the beginning of the quarter. We saw some deterioration very recently, especially coming from emerging markets. Is it going to be sustainable? It remains to be seen. Anyway, we are in this market. We have been there for long. We have a long-term view. We can accommodate this ups and down. Emerging markets are a strong contributor in terms of organic growth because they grow two to three times faster than the average of our market. They are a good margin improvement driver as well because we have a better margin on average in emerging market, but it brings a little bit more volatility.
This is what we may be facing. To be seen. Difficult to say. Anyway, we are equipped to handle these difficult conditions if they come.
Thanks, Alain, for your questions. The next person in the queue is Robert Bason from Liberum. Please go ahead.
Thank you for taking the questions. I look at the RIG growth in the Americas, given what you've just said about a step-up in growth rates in Brazil, there's not much delta Q3 versus Q4, sorry, Q3 versus Q2 in terms of RIG. Taking the other major market there, outside of Mexico, would be North America. What are we seeing there in terms of volumes? Is this a slowdown in reaction to pricing taken outside of the waters category? Should we expect that to continue, or should we see some rebound in RIG in North America in the fourth quarter?
It is true that we start seeing a little bit more traction in terms of pricing in North America. It applies to water, it applies to other categories beyond water. It might, once again, as I said, put a little bit of pressure in the short term on RIG. That being said, our RIG in Q3 was at the same level as where it was for H1, which is significantly, slightly lower maybe, but marginally lower. We are obviously positive in RIG. While we were flat last year. We remain with good volume growth and a good innovation pipeline as well because a significant portion of our growth in North America is coming from innovation. You take water, for example, this is coming from flavored water and sparkling water. Coffee-mate is growing thanks to innovation.
We are regaining traction a little bit, even if it is not exactly what we would like to see with Gerber, with our organic and natural products, we see very strong momentum within coffee, with Nespresso, and especially with the Vertuo system. No, RIG is positive in North America.
Well, thanks, Robert, for your questions. The next in queue is Jon Ennis from Goldman Sachs. Please go ahead.
Yeah, good afternoon. One from me, please. You talked about the speed of product launches and innovation is becoming increasingly important. I guess, do you think that this means that R&D will maybe take a greater share of overall brand investment over time?
Jon, just be sure, are you saying taking over from brand investment, or is it the absolute amount of R&D that you're interested in?
Just means, do you think R&D will be, I guess, an even more important investment behind your brands than maybe A&P over time?
Look, I think product attributes and enhance things that are coming from R&D are going to be critically important going forward. I think this is what's behind many of the small to mid-size companies, and they're taking a share that their product attributes were new and refreshing and superior and very much favored by consumers. What I said previously is we have an industry-leading R&D budget, both in absolute amounts and in % of revenue. We have not been looking for savings from that budget. What we wanted for that budget is a steadier stream of more meaningful products hitting the market quicker. It's all about rededicating that budget in ways that we get more output for the money we put in. I don't see this amount to increase on leaps and bounds.
I don't see that there is an immediate push-pull relationship to the brand-building expenses, and advertising promotion. It's simply all about bringing the brands to life with meaningful product attributes. I think that can be handled really well with the kind of budget envelope for R&D that we have today.
Okay, thanks, Jon. We have a last question from Jeff Stent from Exane. Please go ahead, Jeff.
Good afternoon. Could you just confirm that there's been no change to the accounting policy for Argentina? Thanks.
We are implementing a change as of the 1st of October because we are moving Argentina under the hyperinflation accounting treatment. Just to give you a perspective, Argentina is relatively small for us. It's about 0.5% of our total sales. It has a limited contribution to our overall business. We continue consolidating Argentina, but we are moving it, once again, into the hyperinflationary treatment. The impact that it has had so far since the beginning of the year is rather limited. You may have seen, by the way, that even our pricing in emerging market has even declined.
What we will do from the 1st of October is to, as we used to do in the past, is to cap pricing as far as Argentina is concerned, just to make sure that our RIG and OG, especially OG in that case, are reflecting the reality on the ground. You remember that we applied the same kind of policies in the past for Venezuela, in order to make sure that, once again, our KPIs and APMs are reflecting the economic reality.
Okay. Thanks, Jeff. We do have a last question from Thorsten Wiese from Baader Bank. Please go ahead.
Yes, thanks. Just one question indeed. Your guidance for the full year of 3% organic growth implies an acceleration in Q4 to, say, 3.5% or something. Now, do you expect this to be supported more by RIG or by pricing and by which product groups, so to speak, if you can differentiate that? Thanks.
Indeed, we expect to see some acceleration in Q4. This is largely coming from the comps. Actually, we had unfavorable comps in Q3 because we had a very strong Q3 last year. We had a very soft Q4 last year. We did only 1.9% of organic growth. It's certainly going to help. It's valid across categories. It's probably, if I look at in terms of geography, it may be even more positive probably for AMS, because this is where we had a little bit of softness last year in Q4. We do confirm that we expect some improvement of OG coming from Q4.
I think there's also an additional trading day.
Yes, there is an additional trading day which we don't want to talk too much about it. We can because usually we can absorb it over a quarter. Indeed, there was one less trading day in Q3, and there will be one more trading day in Q4, which will help a little bit, technically speaking, indeed.
Okay. Thank you.
Well, thank you very much. I don't see anyone else on the list, so, I believe that we can conclude our session today.
Thanks for joining us, and we look forward to talking to you in February.