Good morning, ladies and gentlemen. Welcome to our 9 month sales conference here in GIVE. The conference will be held in English, but you can also follow it in German and French using the headsets provided. And if you're watching the webcast, you can choose the right language by clicking on the respective link on the webcast page. Now let's start.
Paul, you have the floor.
Thank you, Robin. Good morning, ladies and gentlemen, and welcome to our 9 months sales conference. And thank you for your interest in our company. Also I want to say welcome to everybody who is following us by the webcast. Also thank you for your interest in our company.
On our podium, we have first Wendling Martello, our CFO. On her left, we have Rodichard Villiers, Head of our Investors Relations. And on my right, I have Robin Dickl, Head of Corporate Media Relations. And I have here in the front row my colleagues of the Executive Board who are there also to answer questions maybe later on. We're holding this conference of fall back in the way after a few years having been traveling.
And also we do it we have changed the format. We are combining now the investors analyst call with the press conference. And that's because also as these events are webcasted, we felt there is an increasing duplication of interesting points that we want to cover and we rather give it we do it in one conference and we give it enough time to answer all your questions. So that's why we have combined it. We when we came back to Vivei for once after I think 3 years traveling, first we went to New York and Paris and last year we were in Shanghai.
And basically what we wanted to convey with also having it in different physical locations was showing and sharing with you how our strategy that we have been sharing with you in many, many occasions is actually getting done, being done in the markets. And because that's where the action is, that's where the results are brought in. And so in New York, we had actually in our biggest market, the whole all the aspects of our strategy being explained to you through the different divisions that we have there. In Paris, we were focusing on innovation because that was already in quite a downturn in Europe and how we could grow in Europe and specifically in France, while sharing with you the strength of innovation and how we want to go about our own agenda in spite of all the negative headwinds to innovation. Shanghai was the dynamism what's happening in the emerging markets.
We speak about the emerging markets. Well, it was really to share with you how we have increased our presence there, how we have increased our engagement in this country that has fascinating prospectus. But it was actually an example of what we are doing also in Africa, what we are doing in Latin America for so many years. It is engaging for the long term and building the capabilities there. While you saw earlier this morning, our figures sales figures of the 9 months, I would say they are sound healthy sales figures.
They are broad based and they show acceleration continued acceleration of growth specifically real internal growth which is the volume growth. It is the growth that reflects market position and leadership. And it is broad based. It was about around all categories also geographies. And we also are quite proud to show that still in Europe in spite of all the negative consumer confidence and all that we can show growth way ahead of the market and also how AOA or AZONE has picked up and growth again has increased their speed and growth.
But I don't want to steal the show of online press. So online please the floor is yours to comment a little bit on our 9 months results.
Thank you, Paul. Good morning, everyone here in the room and a happy Thursday to everyone who is listening in to the webcast. It has I will take the Safe Harbor statement as read. It has only been 2 months since we reported our first half results, so there should be no surprises for you in our 9 months sales. Our sales consistent with the first half were driven by a broad based improvement in our real internal growth or rig as we call it.
This performance has enabled us to confirm unchanged our guidance for the full year. Our 9 month sales were CHF68.4 billion with an increased rig of 3% and pricing of 1 0.4%, which was unchanged from the first half giving organic growth of 4.4%. Now one meaningful issue in the last few months has been the strengthening of the Swiss francs against most currencies. There has also been significant weakness in a number of emerging market currencies such as those of Brazil and India. Our currency impact for the 9 months was negative 2.5 percent, down from minus 0.9 percent at the half year.
Now coming back to rates, I would highlight in particular the performance of Zone Europe, where we are growing in a no growth environment and of Zone Asia, Oceania and Africa where we have seen a strong acceleration in the race. The broad based growth like Paul alluded to earlier, both in emerging and developed markets is one confirmation of Nestle's commitment to being the end company, AND. If you recall back in the full year roadshow, we talked about Nestle being end company, develop, emerging, PPP, premium, investing for the future as well as delivering for the short term. So in this case, we are determined not just to benefit from the growth in the more dynamic emerging countries, but also to grow and develop markets as well. Now with all the excitement in recent years about the potential for growth in emerging markets, it is sometimes forgotten that developed markets for around 50% of the world economy.
One of the points of difference in Nestle's growth has been that we are economy that is driven by emerging markets. With the slowdown in emerging markets, our continued focus on underdeveloped markets is perhaps becoming an even greater differentiator. In the 1st 9 months of 2013, we grew 1.1% in the developed market in the developed world as well as 8.8% in emerging markets. Among product groups, I would highlight in particular the consistent good growth in Pet Care and the acceleration in both Confectionery and Powdered and Liquid Beverages. Our pattern of growth with all areas contributing positively is the same whether you look at our operating segments at the zones and globally managed businesses, which you can see on this slide or whether you look at our product growth, which you can see on the next slide, all have contributed positively to our organic growth in the 1st 9 months.
This next slide pulls together all our globally and regionally managed businesses into the 3 regions. Again, all three grew. In Europe, we achieved rate of 1.9% and organic growth of 0.9 percent. Somewhat unusually, but it's a pattern we've seen already this year, our rate in Europe was higher than our organic growth. This reflecting deflation in some categories, particularly coffee and chocolate.
In the Americas, we had rate of 2 percent and organic growth of 5.1 percent. And in Asia, Oceania and Africa, we had rate of 5.8% with organic growth of 6.9%. These last three slides demonstrate both that our growth is broad based and that ours is a strong performance given the economic environment we have today. Let's now take a look at the performance in more detail starting with Europe. And as I did at the first half, I will debate about the challenges facing many economies in Europe.
What I can say however is that our Zone Europe management has refused to give in to the macro issues instead focusing on identifying opportunities to grow the business. Successes have included addressing the needs of cash drop households as you would expect, but also more counterintuitive perhaps innovation focused on premiumizing our categories. They have been also very focused on increasing distribution of our products, ensuring our products are present not just in supermarkets, convenience stores, but in all channels, channels like hard discounters and e commerce and online, newer and faster growing. This has resulted in a good market share performance for Zone Europe. Let's have a look at the categories.
Pet Care has continued to deliver mid single digit growth with good performances in its key markets both in Western and Eastern Europe. Brine highlights include Gourmet, 1, Pro Plan and Felix. Pet Care is an example where we have increased distribution, particularly in Eastern Europe. Our coffee activities have also continued to perform well with both Nescafe Dolce Gusto and Nescafe Gold gaining shares, while Nespresso has continued to accelerate. The pizza business has been picking up momentum the year both Wagner and Butoni brands are accelerating.
Confectionery is also growing with highlights including Russia, the U. K, Germany and France. KitKat is performing extremely well. Turning now to our globally managed businesses, Nutrition showed good growth in Russia. The Western European businesses continues to be generally slow due to economic environment and overall category slowdown.
However, our innovations particularly in infant formula are showing good results. Waters had a good late summer in Europe. The U. K. Grew double digit, which is a highlight, but there was growth in many markets including France and Greece.
Regional waters performed well and Perrier and Sao Pellegrino maintained their strong momentum from earlier in the year. Nestle Professional's performance is being impacted by the poor dynamics in Western Europe for the out of home markets, though it continued to enjoy strong growth in Russia. Moving now to the Americas. Consumer confidence in North America has if anything slightly deteriorated since the first since the half year, although that was a bit of a good news coming out of the U. S.
Last night. Our growth for the 9 months has continued to be driven more by rig than price. Pet Care continued to grow and show solid growth fueled by innovations such as Benefal Healthy Smile and Tidy Cats Lightweight Litter. The frozen food category remains subdued, particularly the continued weakness in the diet related segment impacting our Lean Cuisine brand. We're seeing stronger performances in Stouffer's as well as pizzas where I would highlight the success of our DiGiorno Pizzeria launch.
In ice cream, we continue to see good performances in super premium as well as in snacks, but weaker performance in Premium. Haagen Dazs Gelato launch earlier this year has achieved really good traction. Chocolate, creamers and coffee activities are all performing well. In Latin America, growth this year has been more driven by price than rig, reflecting currency weakness in the region. Brazil accelerated driven by the large category, while Mexico's growth was a little weaker.
The picture was mixed in other regions, though all contributed to the region's growth. Some categories for the zone in the region were pet care, chocolate, biscuits, culinary, cocoa and malt beverages. The globally managed businesses continue to have a strong year in the Americas. Water and infant nutrition made good progress in North America and continued to be highlights in Latin America, growing double digit. The North American water market has been highly promotional, but we have chosen to be more focused on profitable growth than driving market shares in this environment.
Our growth there was driven primarily by Nestle Pure Life, Perrier and San Pellegrino. Infant nutrition's performance in North America was driven by dynamic growth in its formula business and continued momentum in meals and drinks. Nestle Professional also delivered growth in North America despite the tough trading environment. We also saw good progress by Nestle Health Science and this is a continued good performance by Boost in North America. Next up is Asia, Oceania and Africa or AOA.
The trading environment no surprise continues to be affected by the broad based economic slowdown. And hit as you know it's been like that for about a year as well as increasing civil unrest. That said, we have seen our improving rig momentum already evident at the half year point accelerating further in recent months such that the zone achieved 5.1% rig for the 9 months, up from 4% at the half year. It is true that we have benefited from easier comparable, but growth was also driven by our initiatives in the zone as well as by us resolving some of the issues we discussed earlier in the year, issues including the loss of our Syria, factory and stock levels with distributors. Most markets contributed to the improved growth.
China did slowdown. The slowdown there impacted most categories in the zone. Having said that, our Chinese business continued to outperform the market, delivering high single digit growth for the 9 months. Markets and regions have been performing well earlier in the year such as Japan, Malaysia, Indonesia, Africa and South Asia which includes India, Sri Lanka and Bangladesh continue to do so accelerating in recent months. We saw an improvement in the Philippines as well as in Indochina, but we still have work to do in both markets to ensure sustainable growth.
The Middle East accelerated, but the region remains extremely unstable, no surprise. Looking at the zones categories, I would highlight the performance of culinary, dairy, chocolate and both powdered and ready to drink beverages in the emerging markets and chocolate and coffee in the developed markets. Turning now to globally managed businesses, the Water business continued to grow well. Infant nutrition further increased its strong momentum with both formula and cereals contributing. Markets to highlight include South Asia, China, the Middle East and Indonesia.
Nestle Professional is performing well generally in the region, though its big business in China has slowed during the course of the year. This completes my review of the 9 months sales performance. I'd like to summarize the environment continues to be tough. But you know what? Instead of focusing on underlying trends, we continue to focus on creating our own opportunities to grow.
Our performance is broad based with all regions and categories contributing. We have growth momentum in the business, particularly in of organic growth around 5% together with an improvement in margins and earnings per share in constant currencies as well of course as in our capital efficiency. I thank you very much. I will now hand it back to Paul.
Thank you, Wen Ning. Yes, indeed, I call it sound performance because of road base, but also it shows the gain in momentum that we have seen already in the Q2 behind growth, real internal growth that is really driving our positions in the markets, etcetera. So and then to reflect the and company that we have been expressing sometimes to you too that is that we combine. We're not going for 1 or the other. We have it broad based through the categories also the different price points that we have been offering to the consumers.
That is very relevant when the consumer is subdued and also to all the categories. Well, I also said in the press release that actually in difficult times and these are not easy times. I don't think there are ever easy times, but we are particularly challenged in these last years that the difficult environments, difficult times are ideal times are good times to really challenge ourselves too and see if we really can enforce our like distribution, like how we connect with the consumers or those that drive our performance Like are we structured like are we using our structure to the right extent? Are we driving efficiency? Are we leveraging our size into scale and into competitive advantage?
These are the things that actually when you are challenged are to be also asked for. And yes indeed we are permanently challenging ourselves on these and that has been the driving force and the driving condition how we have been able to deliver profitable growth during all these years. And you see here the growth, the blue bars, the growth that we had in the 10 years and giving us an average of 6.1%. And doing that again in the mentality of the end with an increase in margin as you see in the red line that is on top of it. So we have been able to drive what we then came to call an SLIM model, which is the logic of the top line bottom line increases over years.
And the Nestle model is to do that 6%. And you see, we have overdone that in average to 6.1%. Sometimes we were way above that. Sometimes we were slightly under that. But that's the whole line that we want.
The Nestle model is a model that is stretched over time. It doesn't have the nervousness of quarters and that is what and how we engineer everything we do around it. So this is driven by innovation. This is driven by putting the money and resources behind the right ideas. This is driven by building our capabilities in the world.
This is driven by putting the right people in the right places in the past and it's going to be also in the future. This is also driven by the fact that every time we challenge ourselves and we ask ourselves if we do the right things with the right inspiration. And driving performance over time is first of all linked with yes indeed the right inspiration, the right strategic direction and then also create the alignment of whole organization behind that right direction. And that is what we come to call our road map. And the road map you see it here we have shared with you there in many, many occasions.
The road map is all centered around the Nutrition and Health and Wellness. Nestle is all about nutrition. And with that, we define clearly what we want to be as a company. That is giving the purpose of 340,000 people all over the world. They had to wake up in the morning and drive that agenda.
What does it mean, Truschneuf Wijnalds? It means that we want a true food and beverages allow people to make healthier and tastier choices every day, every moment of his life. And then by doing so, build quality of life for himself and his family. That is what we want to drive. That is the purpose of this company.
That is what is in the center of the road map. The road map also and I have shared that with you in many occasions is defining very clearly what do we want to leverage, what is our strength that we want to scale up and with whom we with which we want to go and drive performance. And you see there the competitive advantages and this is our portfolio or a mix of brands and products that is linked with our research and development that is driving the permanent innovation and arguments into that portfolio that's linked with our worldwide presence and how we drive our value creation in every part of the world and it is linked definitely with people because it's people driving everything else. And we have also in the roadmap defined where we want to grow, defining where we're going to look for growth and we have shared that with you too. And I think the biggest argument of growth of this company is what is in the core of our DNA, which is nutrition.
Nutrition, health and wellness and we have shared that also in other occasions, the value creation potential just by driving that agenda, just by driving the arguments in our portfolio that is allowing these tastier and healthier choices and doing so creating a better quality for our societies. That's the biggest agenda we have. Growth to be found in emerging markets that has been played and augmented in many occasions. Out of home, 50% of what people spend on food and beverages is out of home. We want to play there and we have built and are building still our platforms and our base for the future there.
Premiumization, we have mentioned that too. So much value, so much rational and emotional arguments to be built in that premiumization. So we have defined what we want to be, what we want to leverage, where we want to grow. And then we say the third part is how we are going to do that efficiently and effectively and that is consumer centric innovation really going for what the consumer values and engineer and create products and portfolios around that. And it is done with efficient operations, do that efficiently and effectively, then bring that product where the consumer is looking for it.
It is to be everywhere where the consumer wants to touch your products, distribution and then it is also consumer engagement. If you have done all that, innovated rightly, way, done it efficiently, distributed well, you're proud and you connect with the consumer to say that you're ready for him. And you engage in a dialogue which is now through digital media and social media even more easier. That is all based on and I mentioned that before our values that we have as a company, our principles that is driving this dimension what is most precious to us, trust. And trust is the base of how we interrelate with society.
Trust is basically what we most share as the most important dimension of our relationship. And we do that through creating shared value. We feel really that our company can only be successful if we interrelate well with society and all stakeholders creating shared value. Yes, indeed, that is the road map that has guided us, that has aligned the organization to deliver over time even in these turbulent times that we live today. And yes, indeed, these turbulent times, we call it the VUCA world, volatile, uncertain, complex and ambiguous world we call it a new reality.
And I'm sure we have selective memory. The new reality was always new for everybody also in the past. Factors, a little bit of new trends and all that or events have intensified over the last years and have given the impression of many, many challenges. The new reality is like felt by many challenges. The crisis is indeed deeper and longer.
We just came out of 1 in the United States. So it was good news this morning. Still a lot of work to be done, but at least that was a decision on the 11th hour. Unemployment is going up and it's quite sticky and we see that in many parts of the world. The emerging markets have given us so much tailwind are slowing down a little bit.
I see it rather as a good sign to get back to levels that are sustainable. The sustainable growth in an environment that allows to continue on a slope is more important than acceleration. This acceleration, I think, that is happening. So with many, many challenges. And but yet indeed in the world today many opportunities too.
And that's how you drive a company like Nestle. It's to see yes indeed be aware of the challenges, but see the many opportunities. And I have been sharing them with you not at least the emerging consumer. 80% of the world population is working for a better tomorrow. The emerging markets are emerging.
That I would say is the biggest single driving force because there's so much collateral trends coming with that that allows so much for this company to offer and to grow with. Yes, indeed we do have a global awareness of healthier lifestyles that plays so much into our hand as a company because that's what we want to do. That's what is part of our DNA. There's new technologies and science that are converging into new platforms that allow this company also to play and to drive innovation even faster. Yes, indeed, there's a continuous change, a continuous dynamism in the world and our roadmap is tested against that and is valid.
It is valid. And we always ask is it and every part of that still driving us in the right direction. And it is most relevant than ever. It is all done in a faster world. And I think to maintain competitive intensity, we have to drive things faster.
We have to increase the sense of urgency that is needed and that we have to challenge. And that gave us somewhere also behind this road map. Looking at the times of today, the new reality, we have to have clearly priorities. And the first one is just making choices. It is really to go and define things, say yes certain things and no, we have to make these choices, sometimes tough, but it is a matter of faster, sharper decision making.
And as we are this is a very important dimension to take as a priority in our organization. Then the other one is seeing these opportunities I talked about. And really then not also identifying them, defining them clearly, but then organizing the resources and behind it to embrace these opportunities and to really go after them. You have to organize around opportunities. The third one priority was then also do that with a very acute sense of what consumer values.
What is it what the consumer values really? Because sometimes we are too inside out and we should be much more outside. And knowing what are the worries, what is what drives his decision making, what is what really worries and is valued by that consumer. That means also at the same time that what he doesn't value we should take out. We should not put resource behind things that is not having any value for the consumer and there's so much upside there too.
This has all to do with that we are in a value creation business not in a price business. And you have heard that we are very conscious about that too. 4th dimension is trust. I mentioned it before is creating share value. How we interrelate with society at large as a company is a very, very hot topic that is very relevant and even more so today than yesterday.
We have engaged and are engaging with multiple stake building capability that we are engaged and brings me then to the 5th priority embracing digital. A company like ours has to engage fast and deep into digital having the 2 phases. First of all, this whole social media and then also the 3rd on the other side the e commerce. That's why we have set up our digital acceleration team here in this floor in our building where we have young people normally it's linked with young people this whole digital world from all our markets bringing their knowledge sharing it with others and creating a corporate knowledge that is much deeper than before going back to the markets and driving that. So that's why we have now digital acceleration teams in many, many markets already.
We are connected through that world in a much more intensive way. You see also how we can link up with big players in digital like the tweeters or the Facebooks or Google for that matter. And you have may have seen lately how we also with Google have deepened the relationship as they have called their new Android KitKat release which is really giving you a great break. And then the 6th one, again, it's all about people. And I cannot stress enough how serious we are of looking for the right people, right people to drive our business with the right attitudes and the right attitude, the right culture, the right values because as decentralized we have to rely on the right people definitely.
And there again, we pride ourselves of royalty and but also on diversity. In a world that is globalizing and opening up, diversity is very important. How we have flexibility and people going from one place to another driving that agenda, but also driving what we value so much which is our principles and values throughout the world. Only speaking about diversity in this building alone we have almost 100 nationalities bringing an understanding and making us understand the world in a much deeper way. Well, we have these priorities.
Now these priorities they and then we have also the third the last one sorry I would say skip that very, very important expanding the boundaries of nutrition. I told and I shared with you Nestle is all about nutrition. Nutrition. And we do that through this taste and healthier food and beverage choices that we create permanently, driving the agenda through the whole portfolio there. But yet also we are aware of potential future platforms that we're going to give to this company, big opportunities in the future.
Driven by the fact that we have a much deeper understanding how neutrons interact with the human body and with HealthLAR to a larger extent in society that compared and Phase 2 the health care costs in our society that linked with how the developing world is really developing and building also these dimensions in their society is a fascinating opportunity. Now these are the priorities we have. And priorities induces also a plan of action and I would say shortlist for action. And I want to share with you 3 dimensions of my shortlist that I have on my shortlist, which is a consequence of having put these priorities. And I share them with you here.
It is linked with strengthening our portfolio and making choices, grasping opportunities and evaluating consumer values. They bring 3 dimensions to us. Three dimensions are the shortlist for action. You have it here. It refreshes our focus on certain areas that were present.
We just have to sharpen our focus on them and really give us no escape for them. And that is strengthening our portfolio. I'm going to get very shortly into it allocating resources too because at the end of the day there's resource efficiency that matters and then also mastering our complexity. Let me say a few words on the first on portfolios and how we want to strengthen them because I have mentioned before that we were able and we will be able to deliver the Nestle model because we drive a very strong portfolio, portfolio of products, portfolio of brands, a mixture of value creators that is accretive to driving our profitable growth. And we have done that in the past and you do it through different actions.
And you do it through innovation and innovation like we did in the past. You see here only a snapshot of a few that we have done in the last years. It actually started 150 years ago with a very innovative product that continues over a new chocolate with the milk chocolate that has with the Nescafe that just before the Second World War came into the world with the Nespresso model that we had then later on with Deutsche Gusto later on with so many innovation. And you have heard over and over again that whole Purina and the strength of Purina has been innovation. You see actually classical products like Kit Kat where we are exploring flavors where the consumer is open to that.
So it is a permanent drive of innovation and renovation that is in my eyes the strongest force behind our dynamics and behind our strength of portfolio. Well and also then through the normal products because there is bigger innovation that they're so nice to mention, but there's so much small capillary innovation behind our brands that is driven by our sixty-forty plus. This mindset that we have in our organization where we drive through all our products and portfolios these well pleasure arguments of taste we should have preference and taste and yet also to the plus and nutritional arguments. And that is quite extensive. There's thousands and thousands of tests and projects that are driven that is driving the sixty-forty plus mindset.
1 third of our portfolio can be said is permanently going through that test and we churn our product portfolio each of them over every 5, 6 years we churn them permanently towards that better agenda. That's one way of driving a portfolio and one very important one. The other one is indeed also acquisition, partnerships and also divestitures. And acquisitions and you those strategic directions. They should be accretive to creating be accretive to the Nestle model.
Drive business as I always said this has to be accretive to both sides. And you have Purina Gerber, the last so many years, Yinlu and Shubishi in China where we have built our capabilities and presence in a market that is important, very important. Why really to build even stronger core of our business. So Prometheus and PAMLAP, the latest linked with all this new opportunity of Nestle Health Science are all nice examples of that. But also on the other side is divestitures.
And when something doesn't really fit strategically or doesn't really add to the national model and is a drag, we have to take decisions there and divest. Why should we drag on the performance? And that is what we have done in the past. I think there is opportunity there also for us in the future. And we have built in a portfolio management tool or we actually had it always, potential the enablers like Globe and all that is build in global total transparency.
We have standardized the criteria to manage this And we define a portfolio through building blocks. And the building blocks are categories and markets. We have this dual dimension of each category and market. And each category in a market, we call it a cell. We are analyzing 1800 cells worldwide.
So this is quite an undertaking. But still through that transparency, you can agglomerate and you can pull certain cells together. You can open them up. So you have different ways of going around this. And that is what we have been doing the last years is building that markets, be it on categories to make that really more an active part of.
And that is what we've done. So products, brands, categories, markets combining that and give transparency. Criteria are how does that sell fit into our strategic direction with with categories that are having no prospect of adding to that profitable growth? And it should be also test against the resource intensity. One very explicit one is return on invested capital, but it's more than that.
How much spend, how much talent and resources, human resources we want to put, R and D resources, etcetera. So and at the end of the day, you have three possibilities. Of course, you're in choose that it's really accretive. You invest and invest even more to drive it faster, stronger, deeper or you'll say there's a problem, but I believe we can fix it then fix it and you have to have deadlines there and milestones instead of just dragging on or you cannot or you don't see the final the end of the tunnel of underperformers well then you have to just divest it or get rid of it. I mean that is relatively sharp language, but that's what we should do.
That is also linked with making choices, really knowing what the consumer values. You see again that there's logic in there too. So and the fact is if you have to divest then it's not a matter of if, it's a matter of when and how. And do that in a time line elegantly, do it as it will we have to do. And these are the I wouldn't say the margin orders, but that's a mindset of which we have now in our company going about that.
And I would say to a certain extent a little bit less tolerant. We were a company that we believe in our pros, but sometimes believe may blind you if there is no real possibility of certain sales to be accretive to divest. But that means also invest heavily behind the right things too. So it's definitely and more so that part. The second part of focus that came out of these priorities is allocating resources.
And I mentioned it, resources are multiple. People. It is over management time. It is R and D time. There is marketing spend.
And it is also capital. And it is also capital. It's money. So and so we speak let me speak more specifically about capital, the financial resource that we put behind our products. And in the last years, we have been probably telling you these are the right time to invest.
The world is growing. Many parts of the world are starting to grow. We have to invest. It's the right time to invest in people. It's the right time to invest in capabilities.
It's the right time to invest in capacities. And we have been building capabilities specifically in our capacity of innovation through R and D or R and D network. We have opened up in Beijing in 2008 an R and D center that goes about nutrition, safety and life science and Abidjan bottling with raw materials, cocoa and local raw materials and ingredients. India more of that's also in the same way Local raw materials and our popularly positioned price. We have been closer to home in operating our system technology center because so much value is created now through systems and we have a scale there again to be leveraged.
We have also built out our PTC Product Technology Center in Konofringen. So we have invested quite heavily in capabilities. We have constructed from scratch a Nestle Institute of Health Science where we're going to build the corner the building stones create the building stones for our Nestle Health Science initiative. We have invested in capabilities. Also we invested in capacities and we were also on that side proud to communicate new facilities be it in Nigeria, Turkey, India, Brazil, Dubai, Congo, In China quite sizable factories also in Europe closer to home U.
K. With a water factory, also in Germany with a new factory for Dolce Gusto in Spain, so in many areas also in the U. K. And the United States. In short, over time, we have been able to build and strengthen our global presence.
And here you see how we have been building these capabilities and capacities. We have been investing really in the capability
and
here in the world. You see how we are really mapped into the presence of the world. We have operations in almost 200 countries, 470 factories in almost 100 countries too, 34 So definitely we have been building and keeping our competitive advantage of I would say scale and presence in the world. Well that brings that comes at a price. You have to invest and that is what we did.
In the last 3, 4, 5 years, we felt it was the right time to accelerate our investment in the world and to build these capabilities because we saw and felt that potential and that opportunity. That brings capital investment and that went above a 5% line. We were normally between 4% and 5%. Now what I feel is it's the right time now to use it, to leverage it, to sweat the assets and to leverage what we have now. That's why we have imposed ourselves the discipline of bringing it back then to the normal levels between 4% and five percent.
And that in an organization like ours has a meaning. I mean, that's a capping. But that's something we did. And it's going to induce through also better resource usage, but because Q management and thinking it over and turning the time twice before investing is going to create a very healthy discipline of sweating our assets and bringing into the equation much more from prominently the dimension of return on invested capital. Then the last point the last thing I have on the shortlist is mastering complexity.
And that's always a killer because of complexity. We are living in a complex world. And indeed we are a complex company. And we are a complex complex company by decision, by strategic decision. Many years ago, Nestle has opted to be in different categories, because we felt if you want to be the nutritional and financial company, you have to offer products that can be part of people's lives in a meaningful way.
At the same time, if you really want to drive innovation through more science and R and D, you need scale. You cannot build a system like we have, if you have one category. And you're very focused on that with all the merits of focus. Yet we have to see how we combine the different the bigger broader portfolio of products with that advantage of size and scale and yet also maintain focus and sharpness on the other side. And that is how are we going to go from managing complexity to mastering complexity.
And that is again something that has that we have been doing that we have been doing so far during all these many years and that is what has built our structure. That first sight you see it here on this chart may impress by the complexity, because as indeed we have worked and you see here different categories. You have it there product and liquid beverage, powder and liquid beverages, water, milk products, going over pet care. Then you have Nestle Waters Nutrition Professional, different categories. Yet we have organized that first in a matrix way.
We have geographies that goes over the certain parts of the products and then we have also global managed businesses. So we have indeed a matrix a matrix organization. And that is because we have always privileged in generating demand. What drives demand should dictate structure. And we are not one size fits all.
We do have different business models. And we do have also one fundamental argument that is we are a true believer of decentralization. Food is local. Bring the decision making as close as possible to where the consumer is. These dimensions are driving the organization like we have it here.
Now that we have been building enablers to be able to manage and to master that complexity through Globe that gave the transparency through the NBSs that created the scaling up of the back line and starting to split clear up the back line and the front line, the Nestle Business Services, NBSs. We have been implementing the NCE Nestle Continuous Airlines, how we drive value creation and efficiency and driving waste out of the system, specifically more in operations, but driving it further out now also to the broader dimension of our company. These are that's the reality. It has certain complexity. It was and it is a strategic decision because it gives us the right arguments, it gives us the right presence, it gives us the possibility of enabling tools, enabling platforms that really translate size into scale and scale into competitive advantage.
Yet at the well? Is this effective and efficient? And in our human organizations like ours, you can always ask these questions and answer them with yes we can do better. And that is these are the questions we are asking. We are really asking as a tough questions like are we keeping things simple?
Are we actually keeping simple things simple? Are we bringing in unnecessary complexity? Do we take the right decision in the right places? Do we have ownership of decisions in the right places? Do we have dual reporting systems?
Do we have too much travel? Do we have or are we using new technologies to the extent that we could drive out bureaucracy or paperwork or etcetera, etcetera? And I can only tell you that whatever there is upside. And that is something that we felt as an executive board, we should go after that and see and how we organize to really bring also in the same mindset of NCE. This is not a new project.
This is just an initiative that allows us or should allow us to leverage what we have going on in this company, which is basically linked with continuous excellence asking the right questions. And you see it here. Definitely it is size to scale to competitive advantage. We have gone a long way. I still believe there's an upside and that is what we want to do.
It is not managing complexity, but mastering it and make it that intrinsic part of our competitive strength. So, ladies and gentlemen, a shortlist for action. Coming out of the 6 priorities which are embedded in our road map that is what I want to share with you. And that is linked with asking the right questions. And that is linked with the road map that gives us a strategic direction.
That is linked with 6 priorities that brings us that short list of 3 things to where I feel personally we should give the highest attention to. It translates in other words in in consequences that are linked with portfolio decisions. It is linked with resource allocation. And it is linked with, yes indeed, accepting our complexity and into it even more. So as I said in the beginning, these are challenging times and this is the right time ask the right questions.
And to build this company even stronger, we have been delivering what we call the Nestle model, which is a model that projects continuum in growth over a line over around the line of 4% 5% to 6% with margin increases. Why? Because it is intrinsically linked with our value creation agenda that is linked to nutrition, creates more value for the consumer, more margin. And we want to do that in a permanent way focus areas I shared with you. With that, I think I'm through my presentation.
And now thank you, Paul.
Paul. To 2 as maximum. Now let's take the first question from the room please.
John? Hi. John Repple, Wall Street Journal. Today you've reiterated your guidance for 2013 organic growth. You think it's going to be around 5% this year.
I was just wondering sort of Q3 seems to have improved a little bit and a lot of people think that Q4 may improve as well. I wondered what's your view 2014 on organic growth? That's the first question. And the second one is emerging markets seem to have improved a little bit. So do you think you've kind of turned the corner there?
Or what's so any concerns over there particularly to do with currencies because they seem to have
sort of taken a kind
of big bite out of you in emerging markets?
First of all, 2000 well, as we said, we're going to be around 5%. And yes indeed that has a I believe that the acceleration that we have should continue into the Q4 too. Now you asked for 2014, I see the Nestle model is this line that we want to walk of 5% to 6%. And for all what I said just before, what we want to do, the question we want to ask, the answers we want to give is to assure that over time we continue walking the Nestle Mall which is top and bottom logical. If this is a model that we want to walk online year, logical.
If this is a model that we want to walk online year after year that basically that is the intention we have clearly. We're going to work for it. I think it should be doable. I mean, we see some colors coming back in many areas of the world in spite of some slowing down. But it is the levels that are totally allowing to project that growth.
So yes, on the emerging markets, say it's slowing down and turning the corner, I didn't feel they had to turn the corner per se. What you see is a little bit slowing down of growth and certainly margin to margin. And now I'm the first to say if you have huge countries growing double digit during many, many years, it has shown over and over again that you get an overheated engine. And you have to stabilize a little bit to have enough capacity or a possibility to have sustainable growth. And when big economies are growing 7%, 8%, well, I want to be part of that.
That's a good base. And if that is projected in a way that is more continuous instead of having a 15% and then a 2% and then a 12% again, and then I'd rather go for 7% 8% permanently consistently and that allows also society to absorb that growth in a more continuous and sustainable way. So I would actually, I see it rather positively than negative. What we also have to see is the developed world really taking the right decisions there and starting to grow again. And I mentioned it before, the crisis is much deeper and longer than we would have expected, although with a little bit of thinking a problem that was in the making for many, many years normally takes a few years to get out of it too.
So what we see is indeed differentiated or a different reaction to it. Some governments are more daring to do the right steps. The others are not there yet, but I hope rationality is going
to prevail. Thank you. Let's take another question from the room. Holger?
Yes. Thank you very much. I'm sorry to bother with rumors. But if I remember correctly, you said on the investor call that there would be no big acquisitions in the near term. So I is my thinking correct that the report from Repubblica this morning that Nestle is looking at Ferrero is then wrong, so no interest for that?
Secondly, in terms of disinvestment, when what is the time frame? When can we expect
to have some concrete decisions
and communications on that until the
end of the year or next year with the full year numbers just
to have some clarity on the time frame on that? Thank you.
Well, we say no big acquisitions and normally they should we spoke about bolt on and so that stands. And I'm not going to comment on speculations and that yes indeed maybe in the press this morning. No, I have no comments on that. But our acquisitions and I speak now this link from what's in the press now. Our acquisitions indeed bolt on.
We did quite a sizable one now with wired. So good one. Gives us a lot of work and a lot of joy. But it has to be strategically fitting. Again, it should fit into the whole logic of portfolio management.
And there we see more bolt on opportunities than big ones. So on the timeframe of divestitures, look, I'm not going to answer concretely, but when we say we're going to go above that, we are serious. And so and but that doesn't mean that we want to give the timeline the priority. It should be the right thing to do. It should be done in the right way.
And that's how we're going to go about that. But there's firmness behind this focus. So there's things going to be happening a reasonable time frame. So just to give time to time as I always said without losing time.
Let's now take a question from the call. We have Thomas Russo, Gardner Russo, Gardner. Thomas, you have the floor.
Ron Lee, I was impressed to hear your reference to boost in North America. I just wanted to do this by the second, describing the size forcefully?
Yes. Bruce maybe as I have we have here Luis Cantrell. Luis, if you could answer that question as you are responsible for that and enjoying it. Yes. Yes.
You need a mic.
Okay. Yes, Thomas. Boost is enjoying good growth not only this year, but also in the last years. We have been completely renovating our offer. We have one of the best tasting products yet delivering the good nutritional values.
And this is a brand that is in the 100 of 1,000,000 and we will expect this brand to continue growing as we speak in the future. And we have already plans to continue pushing this brand in U. S.
It's a fantastic brand name too Boost. So it's giving us a lot of enjoyment and growth. Yes. China, yes.
Yes. Hi, Tom. I take it that you're not in the States otherwise you must be really early. But anyway, now China is like I said did slow down, but we are really still happy with the rate of growth. And in And in virtually almost all categories, we are outperforming the market.
So that's the good news.
Thank you, Bradley.
Thank you.
Let's take another question from the room, Uli.
On the margins in the next month or quarters in some product categories?
Well, that's like a rhetoric question. I mean, it is clear that the prices has gone up quite sharply again, but that's a little bit the reality we're living in permanently. It's called other raw materials are going up, others going down. It's cocoa prices very
closely.
We try to be smart there and do the right very closely. We try to be smarter and do the right things. And for me the most important thing is that we shouldn't price to the consumer with the same nervousness that raw material prices are sometimes going sharp increases and then decreasing again. And again, I say we try to read through these nervous trends what the underlying trend is and try to manage our business with these projected lines of costs, which are less much less nervous, because you cannot just price consumer with the same nervousness and increase prices, decrease prices, etcetera. And that is actually what is defining also if you added down a lot, that's a little bit of pricing that you see reflected globally in our company.
So when the back in 2007, 2008 when we had this huge pack of all raw materials, I got the question also, how is Nestle reacting to that? Well, and I asked, we're not going to price on the peak of what we feel is not sustainable. That's going to come and rationalize back into that trend that we have seen. It's going to be higher though. And that's what actually happened.
The raw material prices are higher because the fundamentals are that 80% of the world population is starting to eat differently and more into these raw materials. So the same thing with cocoa prices. We have to read through these nervousness of trends and do and create some stability in oil prices. Although when it confirms over time to be higher, oil prices are going be higher too. But then again, it's not only prices.
We have can we drive more efficiency into it, etcetera, to compensate because you cannot do 1 to 1 pricing to consumers, less so today when the consumer is really price sensitive.
Let's take the next question from the call. We have Warren Ackerman of Societe Generale. Warren, you have the floor.
Good morning Wang and good morning Paul and team. It's Warren Ackerman here at SG. A couple of questions. The first is, could we dig into North America in a bit more detail? It's your biggest market representing a quarter of your sales.
There has been a lot of concerns given competitor comments. I'd just be interested to know what you think the category growth is in the U. S. In the 1st 9 months of the year or if you've got a Q3 number and then what your growth is in the U. S.
Compared to the category growth. It's hard for us to see that because of Latin America being included in the numbers. I'm just interested where are you winning share? Where are you losing share in the U. S?
And are you seeing any evidence of destocking in the U. S. Market? That's the first question. And then the second one is just on Chinese infant nutrition.
I was wondering whether you can give
us an update as to the trends that we're seeing in China, especially in light of some of your competitor recalls. I mean, what is your growth in Chinese infant nutrition? I know YITH is not yet in the organic numbers, but if you could give us an idea of the growth rate year to date or in Q3 and maybe your market share position as you see it? And it seems to me that you may have taken leadership position in China maybe. Is that right?
Thank you very much.
Well, let me organize here. North America and I'm going to give it to Chris. But in North America definitely we have the Americas. North America has more volume driven growth than price driven growth. And there again, you have to go we have different categories with different dynamics.
Maybe Chris you can get some light on that question.
Sure. No, that's very true. I mean we do have in North America very different categories, different dynamics. And it's one of the strengths we have. It's true, it's our biggest market in the Nestle world.
But because of that breadth of products and brands, even in the difficult economic times that we talked about earlier, even though we don't have the tailwinds when it comes to the economy and to consumer sentiment, we can still do well. So to talk maybe a little bit about the major categories that we have or the largest category as you know is pet care. And pet care continues to have very strong leadership in the U. S, again driven by strong innovation some of them Wanling had already mentioned earlier. The next biggest category is frozen food for us.
And if you dig in a little bit deeper into frozen food, you'll see that it's a bit of a mixed picture. When you look at the regular or we call them the prepared foods, the frozen prepared foods like our Stouffer's brand, there we're gaining some good share. We're seeing some good positive momentum in the Stouffer's business. If we look at our pizza business last year as you know the category and our business was suffering last year. This year the category has flattened off and we're in the case of DiGiorno gaining share and overall handheld snacks actually increasing as far as the segment goes.
That segment is increasing in volume and we're also growing with Hot Pockets. The challenge is with lean cuisine in the individual nutritional frozen segment. And here it's a function of a few different things. There's a perception in frozen, which seems to be hurting this segment, which we're addressing and addressing this fact on behalf of an industry talking about the virtues of frozen food as a real ideal way to keep freshness in. Issues with pricing, we're trying to get the price value relationship correctly.
So we've taken some actions in that range. And also innovation in the past this segment has not had the rates of innovation that we've seen in years prior. And we're coming back with that now with things with items like Salad Additions and Honestly Good which have recently been launched. But then if you dig down even deeper into other segments for example mentioned earlier, coffee we're showing growth. Coffee enhancer is also good growth gaining share in powders in this area and confectionery also showing some strong growth.
So it's a mix. But overall, because of our breadth, because of the strength of our brands, positive about the future for North America.
Thank you, Chris. Then the second question of China Infra nutrition, let me respond that. Infant nutrition and the whole industry, milk industry and infant nutrition specifically, is a category that has shown very, very strong dynamics, growth like many other categories, but specifically infant nutrition is a very sensitive one. There were some issues. I must say we were not involved in these issues, but still this environment all about trust.
And we have 2 big dimensions there in the trust relationship, etcetera, and Nestle. And we have to play that in harmony together. So we see that whole industry is also because of we speak about kids and children, babies. And there is a framing that is really much more explicit there. And we welcome that because this is a serious industry that has to be taken serious in every part of that industry.
And so we see our self imposed framing that we have really value there. Are we growing? Yes, we are growing. Is it something that helps us in the growth of China? Definitely, it is something that drives us in infant nutrition worldwide.
Yes, there is something that is accretive to that too. I would not say leadership. This is a market that's still in the making. We have 2 expressions there, White and Nestle. And we are doing, I hope, all the right things there to keep that growth going in a very meaningful responsible way.
Yes, let's take the next question from Chris.
Can I just come back on something? Can you just confirm in the U. S. That you're not expecting any destocking pressures in the next coming quarters as has been kind of widely reported from the biggest retailer in the U. S?
Destocking I think some of that has happened already. So I hope that the biggest wave is over and that gives us also a bit of a refreshed positive feeling. Okay. Let's take the next question from
the room here in the front please.
Hello. On Katahiko Hara from Nikkei News. I have a question about Nespresso. You have been losing some court cases over the patent of capsules. Do you think you will go on and fight even more in the court?
Or would you consider change your strategy maybe just change the distribution have it sold in the supermarkets in the future?
Well, first of all, let me court cases. First of all, there's no stage of change of strategy. The strategy was not only court cases. It was and we always said that there is to win in the quality of the cup of coffee and the Nespresso to buy the best Nespresso experience, espresso experience with Nespresso. It is clear that we that we as we are an ad company, we fight on different fronts.
And if we feel that our intellectual property where we have invested so heavily in is being mean that's how the industry is settled and set up for. And sometimes we win, sometimes we lose. We may agree or not, but that's but we have total respect for the decision made there. We see if we can take that step further or not. But the whole focus, all the energy at the end of the day goes to driving the business model of Nespresso, driving the value and the fundamentals of that brand that is linked with a more holistic experience that starts with the highest quality in the cup with some excitement of innovation, new flavors, new blends and also linked with design, linked with web and experience, linked with being linked up with that society through the club.
So that is where actually the value lies. That's where we focus on. And it is not to be found in the retail world because the whole concept of Nespresso is in retail wire because the whole concept of Nespresso is geared and engineered around direct relationships. So we stay put to these principles and I think it's the right thing to do. They're showing in our growth and the strength of the brand that it is the right thing to do.
Let's take
the next question from the call. We have Eileen Ku at Morgan Stanley. Eileen, you have the floor.
I'm Pareen Foo here from Morgan Stanley. So two questions. The first one is actually on coffee. Earlier this year you mentioned that you had lost share in some of your key emerging markets for example in mixers. Is this recovering now?
Can you just update us there? And then on Nest Cafe Dolce Gusto specifically, can you update us on where you are with your global rollout plans? How many countries is it in now? How big is the business now for you? And when you say double digit growth, are we still talking 40% plus?
And then the second question is actually on AOA. Can you please update us on whether you still have any supply chain disruptions here that are still ongoing that might actually improve your performance in the coming quarters? Or are things pretty much life now? Thanks.
Well, we have mentioned in coffee certain markets we lost some market share. And I would say basically it was driven by 3 year 1. You may know this is a very, very strong category with lots of growth. Many players coming in there. So that is something we are working on.
Specifically, we have gained and have good strong market positions there. But as we were quite many markets the innovator, the initiator, it is clear that when new players coming in, they want a part of their enjoyment. So and answers has to be given again there, true marketing support, through innovation, through quality and we are playing on all these fields. And in Dolce Gusto, I would say, the rollout is indeed going very strongly. It was quite European centric when we started.
It was here. I think we are now almost 50 countries with Dolce Gusto. 50 countries are out, having some very, very nice growth figures in all these countries where we started. But what's nice about Dolce Gusto is still in Europe where we started where it is now for 6 years or 7 years in the market we see very, very interesting growth figures too. We see that we this whole coffee business, let's take Europe, where we have so many players really playing very well and with very good arguments how this whole market is dynamic and that yes indeed in spite of many other initiatives of other players that we can keep our agenda going and keeping gaining market shares because we are going into that market with these different offers.
We have Nespresso, we just mentioned it. We have Dolce Gusto in systems that is retail based. And that is having many, many additional arguments actually that other players don't find so easily through different brands that we have. Then we have the out of home and all the models that we are introducing, be it Milano or be it Nescafe La Grilla. So you have these different angles.
Then you have Nescafe where Super Premium is again doing very well to Nescafe Gold in many markets like Russia. So that's the nice thing about the coffee market that we have this complementarity of going about a market that is showing so many signs of dynamism in an environment that is actually not giving that for free with a consumer confidence that is low. That same dynamic is translated in all markets in the world step by step. So Espresso is extending its geographic footprint in its own way city by city, country by country. Deutsche Augusta is by is rolled in through retail in these markets we have.
The Nest Coffee arguments and Nestle Professional is rolling out all their new offerings too. So it's a fascinating journey. In AOA and I may give a chance shortly to Nandu who is here also the supply chain interruptions I think that's going to be part of AOA our zone Asia, Australia and Africa. We call it actually sometimes with a little twink in the eye the zone CNN. There is always something in the news.
It's a pity though, but it is our reality. It has been our reality for many, many years. And we have interruptions. We have mentioned to you in Syria how we hold on our factory 300 people 350 people working there to the last minute until it was really bombarded and looted completely. So we are rewiring all these things.
It's a permanent issue, a permanent challenge, but I think we have the right people to do that. And that's one of our strength how we can rewire them. But maybe some more light on it very shortly Nandu.
Yes. Look your question is specifically on have we been able to replace the supply that we have lost out of the Syria factory? The answer is yes. We have replaced that supply. If your question is do disruptions continue across the Middle East, across the northern part of West Africa and other parts of the zone, disruptions continue.
And we have seen you read the news and you see in fact in general the situation is not getting any better from a stability or trade environment point of view. But as Paul mentioned, we cope with that. That's what we are good at doing.
Actually, the Middle East is showing nice growth with this rewired supply chain. And yes, it would be easier with total stability. But that's why sometimes we're quite unique in being there.
Next question from the room, great.
I'm sorry you need the microphone I might for the webcast here.
Yes. Will you buy back shares? And you divest Jenny Craig and PowerBar?
Well, buying back shares, no. That's on the agenda. It's always a possibility, but that's not part of the agenda now. And on the others, I would not answer that because as I said, we're serious about things and we have to give time to time without losing time and you're going to be timely informed.
We have a question actually from Cheka Bocconi of the Tribune de Economy in Cote d'Ivoire asking about CapEx over the last 2 years and for 2014.
Well, that is linked with my part of my presentation where I said our CapEx in the last 2 years globally speaking. And capabilities has been over 5%. We had in the past a I don't know if you can speak about the cruising speed of capital investments expressed in sales in percentage of sales, but we had a capital investment between, I would say, 4%, 4.5%, give and take. And it went up above 5%, 5% to 5.5%, which was the right thing to do at that time. Now I feel it's the right time now to use what we have invested in and leverage it.
We have all the capabilities. We have the capacities now And that is exactly what we want to do. So we for 2014, I said, we want to cap that definitely under 5 percent between 4% and 5%. That's where we are. That's the instructions or the guiding that we have imposed ourselves to.
So it is basically back to a certain cruising speed. So it's still a sizable investment though.
Let's take the next question from Yvonne over here in the room.
Good morning. Yvonne Anteci from Luciano. I have two questions. First one about your portfolio management. You said you had identified 1800 sales.
Well, is that many? And you also said that you had a short list. Can you tell us a bit more explain us what are your priority in terms of divestment? Will it be a few non profitable sales or many small sales that are not that doesn't fit anymore with the portfolio? And my second competition between retailers, how do you see room for price increase in the coming months?
Thank you.
Well, first of all, this whole portfolio management, indeed, we have many sales. You say, are there too many? Too many. And that's why we have this tool to give that transparency because at the end of the day averages are done by over performance, underperformance. But how far away and how long do you want to have underperformance?
And I don't want to socialize all categories, all cells to the same common denominator of you have to deliver X and Y. But there has to be judgment. And that judgment should be done with some criteria that we all share, so that we have one common language. This portfolio management is not something that This portfolio management is not something that's new to Nestle all of a sudden. We're going to talk about portfolio.
We had already in on level of SBUs on our strategic business units or in the markets or in the zones portfolio management. But what we did is to make it more capital and to have it much more visible and to standardize some criteria, so that when we speak to each other more when we agglomerate certain dimensions like you sometimes you have to agglomerate because the world is changing, is integrating. That is now allowed in a much more simpler way through I would say the tool or the sharpening of our tool that we have now. In order to do that you have to have also capabilities of data standardization. That is what Globe gives us to be able to actually to see and to look which is complex.
I mentioned it. We are in many markets. We are in many categories. And when you add it all up, you have 1800 sales. But we are able to do that actually by simplifying with a push of a bump.
And the access we are calculating or plotting is basically strategic fit. It is resource intensity and you can open it up resource intensity in CapEx or resource intensity in R and D. So you have many angles to do it. How big is the growth potential? Can we drive and win in these categories?
Because you can be in a category that grows, but you have no capability to win while all that is now plotted out. We have one common language and we go after it. If you say what is your shortlist? Well, it is not my shortlist. It is our shortlist here of all of us looking into it from different angles and discussing.
We're building the answers of that shortlist into the we call it the strategic business, the global business plans, which are made per category worldwide that is translated into zone plans that is then taking these that transparency into consideration and in the market business strategy plans. So this translated not just in a list of categories or sales that we then shoot down like ducks. I mean that's not how it works. We build it in into the logic of a plan that is more holistic than that. And but it results and you put more resources behind because that's the most enjoyable business that needs that resources or you fix it or you get rid of it.
That is a translation that we have, which is much more I would say sharp as an intolerance than we may have before. Pricing in Europe and maybe you are the specialist of that now. But first of all, our pricing, we wouldn't like 3rd parties to manage our pricing, our pricing, because it should reflect the value that we see, again, value at consumer value. We still see what we feel we build into that product. Yet we are part of reality.
And it is true that there is not a lot of of high pricing. But you've seen also we have been sensitive to that. Also raw material prices have allowed certain things. So it's more a combination of things, but maybe two words on pricing in Europe and that's linked with the retail dimension of Europe.
Yes. It's clear that we have seen in the last months deflationary tensions building up for a number of reasons. The very first one is that there is no growth in the marketplace. So everyone is fighting for a share of a shrinking pie and that is building up tensions. That's one.
The second one is that the commodity environment especially on the coffee front has been relatively mild. So that has also fed those deflationary sure that we stay competitive at all times and we protect our market shares. That's one. The second one is that we make sure as well that we capture the value of our brands of our products in the eyes of the consumers and protect our gross margins, which we have been achieving if you see the H1 numbers. Now going forward, I don't see the markets will really pick up.
You have seen the unemployment numbers that will hamper the growth going forward for a period of time. Taxation as well is impacting available income. So it's most likely that markets will remain subdued. And when we look at the commodities, it's always difficult to forecast, but we see some inflationary tensions building up. Cocoa has been mentioned.
Dairy is another one. So what I can assure you is that we'll make sure we stay price competitive and capture the value of our brands in the eyes of the consumers. That will dictate our pricing strategy
going forward.
Let's take the floor.
Good morning.
It's Liam Reilly from Barclays here.
Good morning. It's Liam Raleigh from Barclays here. Just sort of related to that last comment there. I mean you touched on specific commodities that are going in favor or going against you. But I wonder whether you could give us sort of comment overall how your commodity basket is looking for the second half and maybe sort of into 20 14?
And then related to that, do you still expect margin progression to be slightly softer in the second half than it was in the first half? Thank you very much.
Liam, in terms of commodity, we do not we will guide assumptions for 2014 during our full year when we publish our full year results. So we'll have to wait for that. In terms of balance of the year, we have we're not changing our guidance, which is low single digit for the balance of the year. And was there another question?
Margins, have you seen margins projected as they were in first half? No. But we have mentioned it. We have mentioned it first half. You mentioned that the projection that we had in the first half the margin gained 50 basis points and all and that's not to be extended too.
That's not how we manage business too because dynamics are during the year. But we our commitment is to have margin increase though. So in line with what we have been delivering in the past too and it should be rational.
Yes. Just building on what Paul said, our trading operating profit margin was up 20 basis points in H1. And obviously, like Paul said, our commitment is to improve margin year on year. And so that's all we can say at this point.
Next question from the room. Matt over there please.
Thank you. Matt Boyle with Bloomberg. I know regarding L'Oreal, I know you said you're keeping all options open. I just wanted to know if you'd be able to help us out in terms of the timing of a decision. Do you expect to say something early next year?
Do you expect it to be at the AGM? Can you give us any sense in terms of when you expect to let us know about that? Thank you. Yes.
And we have mentioned that we keep our all options open also to the option of saying when and where we're going to say it. So you're right in your first sentence. So we keep that as an option.
Okay. So let's take the next question from the call Patrick Schwindeman of the Zoosche Cantonal Bank. Patrick you have the floor.
Hi, Paul. Hi, Wendling. My first question is regarding your organic growth guidance. You were mentioning a further acceleration in quarter 4 compared to quarter 3. Which regions and product categories would you expect to accelerate?
And where would you be a little bit more prudent for the future? That's my first question. And second question regarding your water business, which had a slight slowdown in quarter 3. You were mentioning a tough promotional environment in North America. Could you give us some more flavor?
What was your growth rate in the motor business in the U. S, maybe in the emerging markets and in Europe? Thank you.
You want to take the other?
Yes. We expect well, we don't manage our businesses on a quarterly basis. But for the balance of the year, we do expect that growth should come from just like broad based, just like 9 months, all to come from just like broad based, just like 9 months all regions, most of the categories accelerating for the balance of the
year. Then the other question about water. We have John Harris here, so who is managing our order business. And actually who is he for the last time. So because you're retiring, you're still too young to retire, but you look young because you drink a lot of water.
So please comment a little bit on the slowdown and the acceleration so in some other areas please John.
In terms of water particularly as it pertains to North America, we had a slowdown in July. We had a very good month in September from a water standpoint. Some of it was weather related. We're back on the growth trend in terms of water, particularly in North America. North America was hit with a lot of competitive pricing as regards to private label.
Private label really took the prices down in the month of July and we decided we were going to protect our margins, which is what we did, but we are coming back. I also want to comment on the strength in North America as it pertains to Perrier and San Pellegrino. Both those brands, which are basically our premium sparkling brands, showed tremendous growth. So we're pleased with the growth there in terms of North America on the Sparkling Brands, which helps us from a margin standpoint and a profitability standpoint.
Thanks, John.
Should we take the next question from the room over here? Thanks please.
Kristina Bjerke from Blands. I have two questions. You mentioned your cooperation with Google. And Roche is does cooperate with Google and getting more information about patients' needs. So I wonder could that be an option for Nestle to cooperate with Google in getting information for customer needs?
The second one would be, you pointed very strong on the healthiness of your business. And on the other hand, your business is the basis of your business is more or less lot of unhealthy products. So how does it fit together? Are you going to change anything there? Thank you.
Well, with good, Patrice maybe a word or 2 on Google. You have been behind this fantastic KitKat Google relationship, but the relationship with Google is much broader than that and patients' needs and some ideas about digital and collecting data?
Yes. Thank you for the question. I think on Google of course what has happened with KitKat was in fact the result of or an outcome of a deep relationship that we have initiated with them now 2 years ago on in search for excellence in social media and especially in search, which is the of course where Google can bring a lot. So we have several projects with Google in several part of our businesses on where we are working together at finding this excellence in search. And one can be of course how by deepening relationship and communication interaction with consumer we can service consumer better being patient, being young mother and or young consumer.
And this was done and this is where they came when launching their new Android, which as you may have known was always branded with some generic confectionery brand. They asked us if we could do things together for the first time and brand the new Android version KitKat, which we embraced and we did together I think very, very well. The last comment to give you an idea of the impact was we were close to 1,000,000,000 tweets exchanged among people with KitKat Android brand mentioned in the tweet. This is on top of all social media happening promotion and so on that we did together which was the first in the world. So that's part of it.
That's part of the way we work in marketing. Cooperation, we have this with Facebook. We work with Twitter. We work with Google because this is the new way that we have an interaction with consumer that you enter conversation with consumer.
Thank you, Patrice. Then your second question is Nestle you all talk about nutrition and health and wellness. You talk about how healthy your products etcetera. You're talking about and then you have chocolate. Shame on you.
That's what you're saying. That's I don't think that's what you believe in. You want to provoke. And I do believe there are not really unhealthy products you can have, but we don't have these. You have and it's easy to say you have unhealthy diets, but we should be part of building healthier diets and more understanding.
We have said actually our agenda of nutrition at Valmendis goes about 1st pleasure, balance and understanding. And we have to be part of driving these 3. Pleasure because people stay with things that they like. You're not going to force something as being part of people's daily life that he doesn't really like at all. So pleasure is important.
That's why we have sixty-forty. We want to be preferred as a taste. 2nd, we have to have balance means it has to be part of an it has to be possible to be part of diet of a healthy diet. But for a healthy diet you need people with understanding. So we have to do education.
You have to be transparent on the label of both intrinsic qualities and nutrients of the project you serve. You have to link up with that label through the digital media now and Internet and all that so that you can even go deeper into explaining what the product is all about, how it is made up, what it here and what there. And also you have to educate people in nutrition. We were not educated in nutrition before when I was school and never was. We see that coming in.
We are pushing that. We have the healthy the Neste Healthy Kids program that is just going above that. It is nutritional educations in schools. And it's not us our program. It's just driving with schools.
And it's not us our program. It's just driving with the authorities in the respective countries that program and building or educating children that can go in a more balanced way about healthier diets. So we bring in our portfolio whatever pleasure we can with more goodies and less baddies. With less and we are investing an incredible amount of money and how can we deliver preference of taste with less sugar or less calories in general or less fat. We have our internal policies that are really driving this agenda and where we're putting an amazing amount of talent and resources just to do that.
And it is possible. And science is being created to be able to do that. So we are definitely a company that thinks about healthy diets in a more holistic way, driving that agenda, which is not only products. There's products education transparency, etcetera, R and D, science. So I think that's a much more honest answer to the question than saying let's get disengaged from whatever may be seen as negative, but we know it's going to be part of people's lives anyhow.
But let's disengage our understanding or R and D oversight's or knowledge. Let's disengage from that category and let alone I'd rather have a company that says, no, we want to be there. We can leverage our science there too and bring and be part of broader dimension of healthier diets and healthier lifestyles. Yes indeed we accept that we may be criticized for that. But we're going to stay engaged that's why I said engage with stakeholders in that dialogue.
So we do truly believe that we sometimes push in the corners you're a big part of the problem. And I do truly believe, honestly believe we are rather part of a solution if we work together on this in a more balanced and honest discussion. And we do see an incredible openness of all parties involved in shaping that nutrition dimension in our societies. It's so much part of healthy lifestyles. And yet at the same time it could be part if you don't go about it seriously and honestly and responsibly could be part of driving and healthier.
So we want to be part of the first dimension of being part of a solution.
We have another question from the call. We have Robert Altschmidt of Bank of America Merrill Lynch. Robert, you have the floor.
Yes. Just a couple of questions if I may. You've talked about North America and what's going on there. I was wondering if you could give us some color on Latin America given there's been some concerns about slowdowns at market levels there and what you're seeing in market levels and indeed within your business given it sounded like you're seeing accelerations in those regions as well. And then also back on Europe, you mentioned that Professional is not doing so great.
I mean, can you give us a steer in terms of is that actually literally negative? And if so, how much? Thank you.
Well, let me answer that. In North America and Latin America, America, while Latin America indeed has and I have been quite a few years in Latin America. Latin America is still Latin America. It means we see some inflation coming back and some nervousness too in big countries. And Latin America is basically shaped and made by 2 countries Brazil and Mexico.
They have their challenges, Mexico linked with North America. But I do see that the arguments of labor and all that is coming back. So the factories, the industrial dimension is taking some new colors and that should give growth in the future. Brazil has some questioning that they do to themselves and I think rightly so. There are certain things that has to be sorted out.
There is quite a worldwide events coming up too that create some nervousness and some opportunism in certain areas too. So I feel also these countries and what you see in general apart from some exceptions, Maya is the fundamental basics that I believe this continent is going to continue growing interestingly. For a few exceptions made. The political authorities or leadership in these countries have seen that through democracy, through stability there's so much value to be created. They do still have in my eyes in many areas to do the structural reforms that would allow to have even more growth flourishing through these countries way far from what we know, but some inflationary dimension coming back.
That is linked in with price increases linked in also with a more subdued demand, which goes in hand in hand. I do believe that the fundamental balance is still there though for growth. And Neste Professional, there Neste Professional has two dimensions. First one is which is internal and which is external. The external one is a big part of the business of Nestle Profession as we have it was linked with the parts of the world, the developed markets that are subdued where consumers are cutting on their spending of going out of home where we were and etcetera.
So that is 1. So external headwinds. And internal not headwinds, but internal things that we are doing is we have a few years ago defined and said in this huge, huge market that we have, which is out of home, we have to pick our battles. And we have said we're going to go for branded beverage solutions and really building the capabilities and answers there in a very strong and proprietary way and then also the customized food solutions, branded food solutions too. So what we're actually doing is, I would say, one step back to jump better.
So actually to see how we then build the capability, That's where we are. With these two trends combined that's a little bit what is reflected in our results there. And I do believe that we are doing the right things and that we're going to enjoy that, that's a professional dimension which is one of our growth pillars. Definitely we're going to enjoy that in the future.
We have a question from the room over here.
This is Maria Volekho of Sao Paulo. Mr. Book, what was really the impact of the devaluation of the Brazilian currency on the business this year? And secondly, we can expect that the shale will increase still more the prices in Brazil since the inflation is getting higher?
Well, that's I'm going to answer that because impact on our business of well, it's impacting on consolidation too. I mean, Real has lost a little bit of color. It was one of the stronger ones a few years ago. I know it lost some color. So at the end of the day, although we say sell the same or even more tins or chocolates and all or milk.
If you consolidate in Swiss francs, it's less. So but that's how it is. I mean, that's something we cannot drive at the end of the day. But what it does though, as I mentioned before, it creates because of the import dimension you still have to say in certain areas, it creates inflation. Inflation is translated into price increases.
And we had to increase certain prices. We do that always not only we do it holistically in a sense we try to compensate as much as possible. We are very local producing. So we have actually a competitive edge there. In a sense, our local production capabilities that we have are much more linked with the realities and the dynamics of cost structures of the markets per se or the countries per se.
It would be worse if we would import everything. And Brazil, which is for Nestle actually an exporting market, this is not really market, this is not really affecting us directly there in that sense. So we almost, I would say, produce everything that we sell. A few small, small exceptions made. Everything we sell in Brazil is produced in Brazil.
So that is
a competitive edge we have. We have another question on the call from Jeremy Fialkow of Redburn. Jeremy, you have the floor.
Hi, good morning. Jeremy Fialkow of Redburn. I just got one question on your pricing in the AOA zone. It sounds like you had a very good acceleration in rig in the quarter, but your pricing actually turned slightly negative. So really, could you talk about where you're seeing that negative pricing?
I'm guessing that coffee will be where you're getting most of it. And how you might think it's going to evolve given the fact you have had some quite big currency devaluations and that would need to fill up prices to offset those? Thank you.
Nando, a very specific question, if you could give a short answer
to that.
Yeah. Firstly, zone AOA is you have to understand 25% of our business is developed markets, but the dynamics are similar to Europe in terms of deflationary environment and 75% of our business is emerging markets. In emerging markets, the bulk of our business comes from the PPP segment and it's the lower population groups which really face the pressure of an economic slowdown and inflation at the same time. So what we have chosen to do is to build volumes, is to grow market share, to improve gross margins very positive evolution of our business competitiveness and strength going forward.
In general, I would say, if we have low pricing, which is sometimes we have higher pricing, lower pricing, pricing is linked with many factors. The major driver is raw material prices and costs. But we have very low pricing in general now. It is the is there a best proof that we are sensitive to consumers' expectations and needs? And how we reflect our cost structure is also our efficiency drive and all that into the prices.
So I would see that as a rather positive.
We have a final question from the call from Binta Dreiv at Exotix. Binta, you have the floor.
Good morning and thanks for the presentation. I just have one question. You mentioned the recent slowdown in emerging markets. I just wanted to know if you could shed some light on smaller markets in the EM region, I. E.
Africa and more specifically Nigeria, just to have an understanding of what's going on at the moment and what's your expectation for fiscal year 2014? Thank you.
Looks like, Nando, quite a lot of interest in your zones. Many things happening, but I give that to you. Africa is a continent that has that we always believed in very, very early on many, many years there. We have invested heavily. And it is also a continent that has quite a lot of stories to tell fascinating, but also a lot of volatility and
Africa where safety starts to become a concern. So it's not as easy to reach products and distribute products as it was there earlier. So those effects continue. In general, inflation or a currency devaluation has an effect also on purchasing powers. So those issues continue, but we know how to deal with that.
Our market shares are strong. Our market shares are growing and our business continues to gain in strength and penetration in West Africa, in Equatorial Africa, in South Africa and also in the northern part of Africa, in Egypt, in Libya, we see good acceleration of our business across the continent.
Thank you, Anandu.
We have I thought we had a that was the last question from the call. But in fact, we have another one from Jeff Stent at Exane. Jeff you have the floor.
Good morning. Just a very quick question. Is 4.5 around 5?
That's the question.
I don't know, but Versailles is around Paris. Look, around 5% is our commitment. We're going to see where we get. Good question though. A little bit of a strange question for being the final question.
Is there some other question from the room here? No, it doesn't look like. But anyhow, no, thank you for the last question. It's also we're going to have to look to the dictionary. But anyhow, no, first of all, once again, thank you for following us and being here first for the persons here in front of me, but also for you watching and following us through the webcast.
I really thank you for your interest in our minds, what is pushing us, what is enthusing us, what is challenging us. And sometimes we are called sometimes and I take that actually as a compliment. We say Nestle is like Force Tranquil somebody in France say that. Yes, it's a compliment and yet at the same time say wait. Because if they just would know the I call it the intrinsic the internal competitive intensity we have and how we really ask tough questions and how we are challenging ourselves mutually and ourselves collegially and how we go and build capabilities and how we doing it.
So this doing it. So this intensity how we have built in also this external looking permanently into our way of deciding or evaluating our actions. That is something we want to share sometimes difficult because we are sitting in this room or in the web cars through these new technologies. And then you look out and you see the lake and it's all pleasant and nice. Well, I can tell you there is a lot of we are.
So with that, I just want to close here. Maybe you say a few words. This new format, we're going to be open to your comments on them to see and to see if we drive that in that sense further. I must say for us it's helpful to do it combined because we can really build all messages together and share that with you with a little bit more time then. But I'll leave that a little bit also to your feedback.
So, Ramon?
Thank you, Paul. And as usual, we are happy to take any follow-up questions via e mail or Twitter. And I'm sure you know the addresses.