Good afternoon to everyone, and welcome to the Nestle Half Year Results Conference Call. I am Luca Borlini, Head of the Investor Relations. Here with me is our CEO, Mark Schneider and our CFO, Francois Laurier. As usual, first, we will present our results, and then we will open it up for questions. For those who wish to ask a question, we ask that you please connect from a fixed landline, if possible, in order to ensure a clear connection.
I draw your attention to the disclaimer and our notes on restatements. And 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 are pleased to share with you today solid progress when it comes to our organic sales growth and underlying trading operating profit margin. As you know, the steady and balanced pursuit of these 2 value drivers is a major aspect of our long term value creation model. When it comes to sales, 2 of our key country markets, the United States and China, and one of our core categories, Nutrition, have shown improved organic growth momentum.
All of our categories continue to post positive organic revenue growth. Our underlying trading operating profit margin increased by 20 basis points in spite of commodity and packaging cost headwinds of another 20 basis points. We expect a continued acceleration of the underlying trading operating profit margin in the second half, supported by a further progress with our efficiency programs, more favorable commodity prices and last but not least, continued progress in our organic sales growth development. On a combined basis, our sales and margin development contributed to a constant currency increase of close to 10% in our underlying EPS. Based on the good progress in the first half, we are happy to fully confirm our 2018 guidance.
We also narrow our organic sales growth expectation for 2018 to around 3%, which implies a stronger second half of the year. So all in all, we're seeing good progress in our financial results. More importantly, however, we feel good about the progress that has been achieved during the last 6 months in refocusing and speeding up our innovation engine, advancing our portfolio management goals and progressing our various cost reduction initiatives. All of this puts us firmly on track for our 2020 targets, and I thank our more than 300,000 associates around the world for the extra effort and sense of urgency as we adjust to and take advantage of the significant changes in our industry. Let me hand it over now to Francois for a more detailed review of our first half results.
Thank you, Marc. Good afternoon or good morning to all. Let me start with the highlights for the 6 months. Our total sales for the first half were CHF 43,900,000,000, up 2.3% on a reported basis. Organic growth was 2.8% consistent with the levels of the 1st 3 months.
RIGs stayed strong at 2.5%, remaining at the high end of the food and beverage industry. Pricing contributed 0.3%, reflecting the challenging environment in Europe and lower inflation in some emerging markets. Acquisitions and divestments had a net neutral impact on reported sales with the acquisition of Atrium Innovation and other transactions being offset by divestments mainly U. S. Confectionery.
Foreign exchange was a mild headwind of 0.5%. Underlying trading operating profit margin rose to 16.1 percent of sales. This represents an increase of 20 basis points both in reported and constant currency. These slides illustrate the performance of our sales for the zones as well as for our globally and regionally managed businesses by geography. Our growth was broad based both in terms of organic growth and RIG with all geographies showing an improvement versus last year.
The most notable increase came from AMS and more specifically North America. Within AOA, China showed an acceleration. Pricing was softer than last year in the 3 geographies. Let's now review our growth dynamics between developed and emerging markets. Developed Markets saw an improvement of organic growth versus last year, mainly coming from improved rig in North America.
Pricing remained close to flat. Emerging market posted organic growth at mid single digit levels. RIG was helped by improved growth in AOA, most notably China as well as Middle East and North Africa. Pricing was lower due to deflationary trends in Brazil and lower levels of inflation in Sub Saharan Africa. Now let's move to our performance for the 5 operating segments, starting with Zone Americas.
Sales for the half were CHF14.2 billion. Organic growth was 1% driven fully by RIG as pricing was flat. North America saw positive organic growth in the first half with material improvement in both United States and Canada year on year. Both rig and pricing were positive. By category, pet care growth was supported by premium brands Purina Pro Plan and Purina 1 as well as Tidy Cats in cat litter.
Coffee was led by Nescafe Testers Choice and Nescafe Classico. Creamers did well helped by premium and natural coffee made offerings. In Food, Hot Pocket and Pizza, particularly Giorno, were also highlights. The divestment of the U. S.
Confectionery business had a positive contribution on organic growth. Latin America had positive organic growth, but slowed compared to prior year because of lower pricing and the strike in Brazil. Pricing was still negative in the half, but improved significantly in the second quarter. Brazil continued to face a challenging trading environment. In May, a nationwide trucker strike temporarily disrupted operations and distribution.
We recovered more than anticipated in June, but overall this reduced organic growth in AMS by around 80 basis points in the 2nd quarter and 40 basis points in the 6 months. Mexico maintained mid single digit organic growth with positive performance in most categories. Nescafe and Purina were the key contributors. Zones' underlying trading operating profit margin improved by 30 basis points as ongoing restructuring projects reduced structural cost. Efficiency savings more than offset cost increases from commodity and freight inflation.
Next is Zone M and R, where sales were CHF9.3 billion. Organic growth increased to 2.5%. RIG was strong at 3.1%, reflecting an acceleration in the 2nd quarter in both Western and Eastern Europe. This more than offset negative pricing. Looking at growth by region.
Western Europe returned to positive organic in both the second quarter and first half. Both Central and Eastern Europe as well as Middle East and North Africa saw mid single digit organic growth. M and I is now managed at category level for the zone. I will therefore provide more details on the category dynamics. Pet Care, Coffee and Nutrition were the main contributors to growth.
Pet Care delivered mid single digit organic growth supported by an acceleration of RIG in Russia and in other emerging markets in the Q2. Felix was a major contributor. 1 of the interesting growth steps in the first half was Purina's acquisition of a minority stake intels.com in the U. K. This opens exciting opportunities in the area of personalized pet nutrition and direct to consumer.
Coffee also saw good growth with RIG improving since the 1st 3 months across markets supported by the relaunch of Nescafe Gold. In the U. K, we launched a nitrogen infused coffee drink called Nescafe Azera Nitro. Nutrition and dairy performed well in Central and Eastern Europe as well as in the Middle East and North Africa. Confectionery saw improved growth owing to strong rig in the U.
K, France and Russia. We saw exciting new product launches for confectionery such as KitKat Ruby, which was successfully launched introduced in April across Europe as well as Milky Bar Wossoms, which was launched in the U. K. This product is the first chocolate using Nestle's new structured sugar to reduce sugar by 30% versus comparable bars. The sugar reductions come thanks to a Nestle scientific break through based on natural ingredients.
The disciplined category structured approach in the zone created efficiencies, which supported improvement of underlying trading operating profit margin by 70 basis points. The increase was also helped by lower commodity cost as well as by strong rig that also led to better industrial capacity utilization and better operating leverage. Moving now to Zone AOA with sales of CHF 10,600,000,000. Organic growth was 4.4 percent with RIG of 3.7% and pricing of 0.7%. Zone AOA delivered mid single digit growth with positive contribution from most geographies and categories.
China grew mid single digit and accelerated versus last year with a strong momentum in coffee and culinary. She's included Nescafe ready to drink flavors and e commerce did particularly well and sales grew at strong double digit levels. Southeast Asia had mid single digit organic growth, driven by strong contributions from Vietnam and Indonesia. In Vietnam, Milo and Maggie grew strongly. And in Indonesia, Bear brand and Milo performed well.
South Asia had mid single digit growth supported by innovation and renovation, particularly for Maggie, KitKat and Nescafe. Sub Saharan Africa posted high single digit growth even as inflation driven pricing slowed versus last year. Maggie and Milo were the key drivers. Japan and Oceania were flat with positive rig offset by negative pricing in a deflationary environment. The most important development in AOA that we have to mention is that Nutrition saw improved sales momentum in most markets.
China's organic growth was close to mid single digit in the half, clearly improving versus last year. There were encouraging results from recent launches such as organic and A2 formulas and strong growth by Gerber Infants Cereals. AOA's underlying trading operating profit margin remained strong and highly accretive to the group. The decrease of 20 basis points was due to the phasing of certain cost items. Next is Nestle Waters, which finished the first half with CHF4 1,000,000,000 of sales.
Organic growth was 1% following a sequential improvement in the 2nd quarter, driven largely by North America. RIG declined by 0.7%, mainly due to Europe and some emerging markets. Pricing increased to 1.7%. The United States saw positive growth. Both rig and pricing were positive.
Price increases were implemented in June to reflect significant inflation in packaging and distribution cost. RIG improved sequentially in the Q2, helped by the launch of the sparkling range under our 6 regional spring water brands. Europe saw slightly negative organic growth, reflecting difficult comparables. Emerging markets were flat impacted by negative sales development in China and by the pending divestment of the business in Brazil. The international premium brands San Pellegrino and Perrier continued to deliver good growth.
The underlying trading operating profit margin decreased by 2 70 basis points. Higher costs related to PET and distribution were not yet compensated by price increases that have been implemented in the U. S. In the latter part of Q2. And finally, we finish with the other businesses, which includes Nespresso, Nestle Health Science and Nestle Skin Health.
As from this year, it also includes the Gerber Life Insurance Business. Organic growth was 5.7 percent driven by strong rig of 5.4% and pricing of 0.3%. Net acquisition increased reported sales by 4.9%, mainly with the consolidation of Atrium Innovations into Nestle Health Science from the 1st March 2018. Total sales were CHF5.9 billion. Nespresso maintained mid single digit growth.
The Americas and Asia saw strong momentum and Western Europe was resilient in a context of high competitive pressure. Growth was supported by the continued progress of the virtual system rollout and boutique expansion. During the first half, Nespresso opened 20 new boutiques and point of sales to bring the total number to 728. Nestle Health Science saw mid single digit growth with good momentum in medical nutrition. The acquisition of Atrium Innovations provided additional growth in the Q2 with strong demand for its non GMO, organic and natural products offerings.
Nestle Skin Health had mid single digit growth, but pricing was negative. We saw very good performance in the aesthetic business and we set a feel in Consumer Care. The underlying trading operating profit margin of other businesses increased by 160 basis points. This was mainly driven by an improvement in Nestle Skin Health and Nespresso. Moving now to our performance by products.
Organic growth continued to be broad based with all categories positive. Our key growth categories of pet care, coffee, nutrition, water and the consumer health platforms when taken together grew about twice as fast as the others, reinforcing their position as growth drivers, which is fully in line with our focused strategy. Confectionery showed improvement, helped by the disposal of the U. S. Business.
Infant Nutrition grew well with 2.9% organic growth for H1, reaching its highest level since 2016. Moving now to the profit evolution by products. Overall margin expansion in all categories was supported by operating efficiencies and successful execution of ongoing restructuring initiatives. Favorable input costs also help in certain categories. 2 categories were affected in H1 by specific factors: high packaging and transportation costs for water and the Brazilian strike for meal products.
Our leading categories, powdered and liquid beverages, which is mainly coffee, nutrition and health science as well as pet care continued to deliver the highest level of margin in our portfolio and their profitability increased even further in H1. Looking at our gross margin, we saw a very slight decrease of 10 basis points since the prior year finishing the half at 49.3%. Our gross margin has been restated as of this year with a reclassification of certain cost items from marketing and administration to cost of goods sold in line with industry practice. We had some commodity and packaging headwind of about 20 basis points in the first half. We managed to offset part of this effect through efficiencies in industrial structural cost and conversion cost.
For the second half, we expect some commodity tailwind, but there are still some uncertainties linked to commodities that we buy on the spot market like fresh milk. Underlying trading operating profit increased by 3.5 percent to CHF 7,100,000,000. The underlying trading operating profit margin increased by 20 basis points in both constant and reported currency to 16.1%. Margin expansion was supported by operational efficiencies and successful execution of ongoing restructuring initiatives. These cost savings were partially offset by higher commodity and packaging costs and significant inflation in distribution cost especially in waters and the Americas.
We had some benefits from marketing spend efficiencies, for example, with the reduction of agencies, with the execution of regional campaigns or the optimization of agreements with suppliers for sampling and merchandising materials. The underlying trading operating profit margin is expected to improve further in the second half of the year, driven by more favorable commodity prices and further benefits of efficiency programs. Moving on to net profit and underlying EPS. Net other trading income and expenses increased by 70 basis points with both restructuring costs and impairment of assets each rising by 30 basis points. As a consequence, trading operating profit margin decreased by 50 basis points to 14.6% both on a reported basis and in constant currency.
Net other operating income and expenses had a positive contribution of 190 basis points, largely linked to the disposal of the U. S. Confectionery business. Taxes increased by 50 basis points in percentage of sales, but the group underlying tax rate decreased from 26.8 percent to 24.2% or 260 basis points. This is in line with what we have communicated before.
It is largely driven by the reduction of the U. S. Tax rate, which accounted for around 200 basis points of this improvement. The other 60 basis points are coming from the mix of our geographies, categories and activities. Basic earnings per share increased by 21.4 percent to CHF1.92.
The increase was mainly driven by income from the disposal of businesses, lower taxes and operating performance. Underlying earnings per share increased by 9.2% in constant currency and by 10.4 percent to CHF1.86 on a reported basis. The share buyback program contributed around 1.5 percent to the underlying EPS increase net of finance cost. Moving on to working capital. The 30 basis points decline show that over the last 12 months, we continued to make improvements on our working capital as a percentage of sales on a 5 quarter average basis.
Following several years of significant progress in working capital reduction, we continue to see opportunities for further improvement but at a more moderate pace going forward. Free cash flow increased by 52 percent from CHF1.9 billion to CHF2.9 billion. This was mainly driven by an improvement in working capital, which was partially supported by favorable comparables versus the prior half year. We also benefited from lower taxes and improved operating profit. We continue to work on all the levers of cash generation, growth, margin improvement and working capital improvement.
Before we conclude, I would like to mention that we are progressing well to actively evolve our portfolio with a clear focus on its high growth, high margin categories and products. This includes both acquiring and divesting. In May, we announced that we are entering a global perpetual agreement with Starbucks, granting us the right to market Starbucks consumer and foodservice products in channels outside the Starbucks coffee shops. We expect this transaction to close as at the end of August 2018. And we confirm the strategic review for our Gerdau Life Insurance business.
The process is on track and we expect to complete the exercise by year end. Finally, to close, I finish with our guidance for 2018, which we confirm. Our full year organic sales growth expectation has been narrowed to around 3% with the top line momentum likely to be weighted towards Q4, partially due to comparables. Underlying trading operating margin improvement is going to be in line with our 2020 targets. Restructuring costs are expected to be around CHF 700,000,000 and we expect underlying earnings per share in constant currency and capital efficiency to increase.
I now hand back over to Marc for his final remarks.
Thank you, Francois. Before we turn to the Q and A part of the call, I would like to place these first half results in the context of Nestle's Nutrition, Health and Wellness strategy. As you know, we're committed to a path of accelerated value creation while pursuing this long term strategy. We have outlined specific goals, are on track to meet or exceed these goals and have implemented substantial change at Nestle. We continue to invest in our core food and beverage brands and extend with prudence our portfolio into the promising adjacent area of consumer health.
We have rapidly evolved and developed a portfolio on both the acquisition and divestiture sides of the ledger. This includes investing in high growth businesses like Starbucks, Atrium and Blue Bottle Coffee as well as divesting slower growth businesses like U. S. Confectionery. We have committed to specific higher margin targets and are already delivering margin improvements without sacrificing growth.
And we have returned significantly more capital to our shareholders, including CHF 10,000,000,000 in 2017 through dividends and share repurchases and another CHF 11,000,000,000 in the first half of 2018. We have also increased our dividend for the 23rd consecutive year. The year to date results show some of our progress. We are pleased but not satisfied. We are far from done.
There's a lot more to come. Our commitment to investing for the future and leading change at Nestle is unwavering. Our progress is the result of a plan developed with a complete alignment of our Board, its leadership and our management team. Let me underscore in this context my strong working relationship with our Chairman, Paul Wuchen. We are in full agreement regarding the scope and the accelerated pace of the actions we're putting into place, And we are unanimous in our commitment to analyze all aspects of our strategy as well as ensuring that our structure aligns with this strategy, in all cases objectively and in a fact based manner.
As CEO, I have the full authority to undertake this analysis and implement the right actions to meet our objectives. The management team and I are moving fast at a pace consistent with the significant shifts in our food and beverage market environment. In this context, let me briefly comment on our corporate strategy. It is my deep belief that corporate strategy is a movie and not a photo. The logic and direction of such a strategy will unfold at the appropriate speed and will only become fully visible over time through consistent operating and portfolio related decisions.
This movie builds on solid past foundations. It also requires keeping more than 300,000 employees aligned and motivated with an understanding of how change needs to happen in a way that optimizes value even for the parts of the company that may not be with us going forward. We will continue to seek out expert views, including from our Board of Directors. Several of our directors are consistently delivering enormous value at companies on the cutting edge of managing change in complex and fast moving consumer facing industries. We will continue to look objectively and thoughtfully at how best to advance our plans to increase value for our shareholders and other stakeholders.
Finally, we have continuously sought feedback from all of our shareholders. We appreciate your constructive input, your support and your investment. I know we are all learning a lot from our conversations with so many of you. I look forward to hearing your questions about the results reported today. As this is an earnings call, we would like to focus on our first half performance and prospects for the year.
Luca, let me hand it back to you.
Thank you, Marc. Thank you, Francois. With that, we move now to the Q and A session, and we open the lines for questions from financial analysts. So the first question comes from Eileen Ku from Morgan Stanley.
Francois and Luca. I hope you're all well. Two questions for me, please. The first one is on Nutrition. It's great to see that you have accelerated growth there.
Can you give some additional color on the moving parts behind this? So for example, specifically, what did China Nutrition do in terms of growth and share in the quarter? And also maybe give us some color on the new formula launch, how much benefit came from that? And are you now tracking on target in AOA? Because I think last quarter, you said you were below expectations.
That's the first question. And the second question is actually on your margin run rate. So consensus is looking for plus 50 bps for the full year. That would mean that second half is to be around plus 80 bps or so. Are you comfortable with this assumption?
And can you also talk about marketing spend, how that trended in the quarter? And then some more details on your efficiency program so far, where you're tracking versus your internal expectations? Thanks very much.
Thanks, Arlene. Let me handle the first one and then hand it over to Francois for the second one. I think the good news on Nutrition is that the improvement here in the second quarter is fairly broad based. So we're seeing improvement in Zone AOA. We're also seeing improvement in the other zones.
And some of this is launch and innovation related, as we explained. We are also seeing on the ground improvement in the all important Chinese market, and we're also catching up when it comes to cross border e commerce. So I know this is an opportunity we were somewhat slower to embrace, but I think we're reasonably broad based, and that's also giving me confidence for the periods going forward.
Good afternoon, Eileen. On the margin, I will not comment on the number you gave. But what I can tell you is that in H1, we had some tailwind coming from headwind coming from commodity, about 20 basis points. And we expect the situation to be exactly the reverse in H2. So it does make a big difference moving from headwind to a tailwind.
The other dynamic that is going to help us as well in the second half of the year is the more we are progressing into the year, the more we are benefiting from our efficiency program across the organization. You asked for marketing spend. We are progressing well in our program to improve the efficiency in marketing. As you know, we are trying to ring fence to a larger extent what we do there, which means that the objective is not to reduce, but to contribute some efficiencies. So we are making good progress negotiating and working differently with media companies, consolidating many of our suppliers, both with advertising agencies, sampling and merchandiser as well.
We are doing some campaign and this is more valid for MENA, for example, at zone level and not only at local level, which is very efficient from a cost point of view. And we are moving significantly as well to digital media, which now accounts for about onethree of our total spend.
Next question comes from Jean Philippe Bertsch from Vontobel.
I will take 2 questions as well. First, in terms of e commerce, if you can share with us the developments in the 1st part of the year, especially in China, excluding Nespresso? And the second one is, if you can give some color about the developments of Atrium, Blue Bottle and Chamalie on in the Neste network in the 1st month of the consolidation? And what you have been doing with these brands versus when they were like a standalone base?
Thanks, Jean Philippe. I think on e commerce, in general, you're seeing continued good progress. And as we mentioned, I think now we are also progressing when it comes to the all important Chinese market and nutrition. Beyond that, just due to competitive reasons, it's pretty hard for us to go into details. But I'm very encouraged by the progress we're seeing there given the somewhat late start we had.
On the second question regarding new acquisitions, all of these businesses continue to grow very strongly. So I think that new governance model that we had envisaged where we need them a certain degree of autonomy and really make it an on demand relationship where we can help them and really support their growth. I think that relationship, which had been honed on our earlier Merrick acquisition a few years ago, that's really paying off and it's delivering in that new environment as well. I'm particularly pleased with how Atrium is developing for that Q1 now that we have the business with us. So very good progress in the U.
S. Market.
Next question comes from James Targett from Berenberg. Go ahead, James.
Hi. Good afternoon, everyone. Couple of questions for me. Just firstly, going back on the margins. I wonder if you could just talk about how much visibility you have into freight in the second freight costs in the second half of the year, whether we should expect a similar headwind to your margins.
And to what extent how much the margin decline in Waters do you expect to reverse in H2 on the back of higher pricing? And then secondly, on the U. S. Market, obviously, you're going to see an acceleration there. I was wondering if you can talk about Nutrition business there, the infant nutrition business and baby food, particularly the Gerber relaunch, how that's going?
And Jim, before I hand it over to Francois for more details on the margin, let me just say specifically on Waters that we fully recognize the margin for the 1st 6 months now does not look pretty. But this is exactly the worst moment in time where you see the full impact coming from pet price increases and also that significant increase in distribution costs over the winter and spring. And yet, that has not been rolled forward yet in the form of price increases. So this is the worst possible moment to look at it. And hence, just from a timing perspective, yes, this will relax significantly in the second half of the year.
But let me hand over to Francois for that in more detail.
Okay. So regarding the margin, so we had a significant pressure obviously from distribution and transportation cost in H1. It was about a 30 basis points impact in H1. We don't see that weakening in the latter part of the year. The only difference which is by the way linked to your second question on water, which is as far as water is concerned and especially in the U.
S, which is a business and the geography that has been more hit than any other one in H1, we will soften the impact obviously on the bottom line because of these price increases that we have put through for water in the U. S, which are in the range of mid single digit. So freight is we are feeling the pressure, I would say, everywhere in the world, but it's more significant in the U. S. Because there is a combination of two factors: oil prices moving up as well as a shortage of transportation capabilities in the U.
S. Once again, we don't see that declining in the 2nd part of the year.
And then Jim, on your second question regarding Gerber, as you know, we had this launch activity starting from the second half of last year around our organic line. There is mixed news. On the one hand, the positive news is that the new lines got accepted very well by our consumers. On the other hand, that did not translate into the kind of numbers liftoff we expected because there was a supply shortage on the pouches that we're using for that product. That's going to relieve itself soon.
Next question comes from Martin Deboo from Jefferies. Go ahead, Martin.
Yes. Good afternoon, Mark and Francois. Martin Deboo, Jefferies. 2 well, one question really, just alluding to comments on the front page about changing the innovation pipeline and also cost reduction efforts in EMEA in center. I'm not going to give a just alluding to the comments on the front page about changing the innovation pipeline and also cost reduction efforts in EMEA in the center.
I'm not going to give a numbers here, but I'm just interested what's changing in terms of the model on both of those. What is the structural and operational change you're making there to achieve those?
Right. Martin, I think you're absolutely right on the innovation. This is not so much of a numbers thing. We're not looking at the R and D area as a source of savings. I think I said frequently in public that I'm looking for payback.
I'm looking for good results coming out of our R and D efforts. And hence, what we've done now under our new Chief Technology products at a nearer moment in time and also refocus that R and D portfolio more towards the food and beverage core of the company. So that's going really well, and I'm really pleased with the fast execution mindset I'm seeing in this area. And I think you're seeing some benefits from that already. When it comes to Zone and Mainland headquarters, there is not one thing that we could point you to.
As you look at the news flow coming from our company, there's hardly a week going by where you don't see significant restructuring steps in various European country markets and then also including here our headquarters in the Swiss country market. So this is basically the summary of those initiatives that you've seen reported all throughout the first half of the year.
Next question comes from Jon Cox from Kepler. Go ahead, Jon.
Jon Cox, Kepler Cheuvreux. A couple of questions. Just the first one really on growth outlook for this year. You talk about Brazil maybe costing AMS 80 basis points. As a result then, I guess, the underlying organic was probably around 3% already in H1.
You're talking about an acceleration in H2. Why is guidance only around 3% rather than, say, minimum 3 percent? That's the first question. And then a second question really for Mark, and I know this is a call about what's happening this year, but you obviously it was interesting your closing statements there obviously addressed to lots of different audiences. And you talk about being on track to meet or exceed the goals that you've set out.
And obviously, those goals are returning to mid single digit organic and somewhere around an 18% trading operating margin by 2020. I wonder what exactly you're referring to when you're talking about meeting and exceeding these goals. Thank you.
John, good afternoon. Francois speaking. I will answer the first question on the growth outlook for the 2nd part of the year. We are confident about the second half. And this is the reason why we have narrowed our indeed significant volume in the month of May.
We did recover actually fairly well in June. We did not recover everything, but we still have some uncertainties on the recoverability of the other half that we have not recovered in June. There are still some uncertainties there. There is a certain number of uncertainties as well. For example, we are obviously more optimistic as far as water is concerned for the 2nd part of the year for two reasons because of the comps that are certainly much easier on the one hand because of the price increase that we have put through.
But there again when we talk of price increase, we know that there could be potentially some negative elasticity on volume. So it's still early to make a final call on that. So all in all, once again, we are confident, but there are still some uncertainties, which is the reason why we want to be confident, pass a message of confidence, but with a message of caution as well.
And John, this is Marc. With regards to your second question, I mean, these statements were, of course, meant for all of our audiences and all of our shareholders. And this is not a veiled increase in our midterm expectations. I think it's a standard verbiage that I've been using all the time and that is that we very much believe in a meet or exceed mindset to give you reliability and faith and confidence in our numbers. And as you've seen now, coming out of 2017, for the one item that we could control right away, and that is cost and margin, we delivered in 2017.
We didn't deliver on growth, I appreciate that. But again, to revive growth in the slow growth environment, as we explained many times, does take some time and effort. Now when it comes to the first half of twenty eighteen, you're seeing us deliver, I think, on the growth and the margin side of the ledger. And as we said, there were some headwinds in the first half, but I think some of that will relieve itself when it comes to margin in the second half. And hence, we expressed confidence here that we're fully on track for these 2020 targets.
So again, I think we're doing well. We're trying to reiterate that confidence to you, but there was no hidden message here.
Next question comes from Alain Oberhuber from Main Go ahead, Alain.
Good afternoon, Marc, Francois and Luca. Two questions from my side. First, regarding the ice cream business in the U. S, did you see positive organic growth there and an improvement in margins as well? Or did you have to take more restructuring measures in U.
S. Ice cream business? The second question is regarding Europe. Did you see what was the development of the Herta brand as well as of the Wagner Pizza brand in Europe? And how was the margin development of these two brands?
Good afternoon, Alain. I will take the first question. On U. S. Ice cream, actually, as you know, we announced a project that we have been that we started a year ago, which is called Seminole, which aims at really restoring a good and attractive level of margin for U.
S. Ice cream. We are making very good progress in that regard. So this is the main focus that we have. I'm not saying that it is putting a little bit of pressure on the top line, but let's say the role that we assigned to this category as far as the U.
S. Is concerned is predominantly a significant margin improvement. That being said, I mean, the top line is okay, but this is not the main focus that we have. On pizza and Wagner Yes.
Alain, I think on Europe, since you asked specifically about Herta and Wagner, we do not disclose in detail those growth in margin numbers. Let me say that we're not quite happy yet. And I think we've made that clear in the past that these are areas that we need to work on intensively, and we are.
Next question is coming from Patrick Schwindeman from Zurcher Kantonalbank. Go ahead, Patrick.
Good afternoon, Marc, Francois Luca. Most likely, input costs will be higher again in 2019, I guess. How realistic do you see price increases in Europe, Japan and U. S. In the next quarters and in 2019?
That's my first question. 2nd question, you have an ambitious target for 2020 for organic growth to reach again around 5%. At what point in time would you sacrifice the EBIT margin to push sales more with marketing?
Patrick, on the price increases, again, short term now, in the first half, you saw that we had to take that headwind, and we didn't have enough in projects lined up to offset it. On 2019 2020, I'm more encouraged by some of the internal projects we have underway to reduce our commodity cost. I think we're doing a lot of work in the purchasing area to become less single source reliant and to have more competition in more suppliers. And hence, that will help to offset some of these problems. When it comes to price increases, I mean, generally, in this environment, even if inflation does pick up in a day and age when there's a lot of pressure on the retail trade and when we also have more transparency coming from digital, this is an area where it's harder than it used to be in the past to roll forward price increases.
Nonetheless, I think some of these price increases, and U. S. Waters is a good example, are entirely possible. And hence, it's all about prudent timing and also a good measure here and not taking excessive price increases. When it comes to the 2020 targets, again, we are interested in a balanced pursuit of growth and margin, and we are on track on both of these.
And so for now, I wouldn't want to get into a discussion as much as I want to be helpful, but I wouldn't want to get into a discussion on trade offs here between these two.
Well, this was the last question that we have today. So we thank you very much for having participated to the Nestle conference call. I thank you, Marc and Francois. If you still have questions outstanding, do not hesitate to reach out to our Investor Relations department. And we look forward to speaking you again at the next 9 months sales conference call, which will take place in October.
Wish you all the best.
Have a nice summer. Talk to you in October.