I am Roddy Child Phillips. Welcome to our 1st half results conference call and thank you for tuning in. I am here with Wanling Martello, the Neste CFO. As usual, we will start with the presentation and then open up for discussion. As we always have financial journalists and the wire services listening to our results calls, we've also opened the discussion up to them should they wish to join in.
If you are listening online rather than by phone, the numbers joint conversation is on the invitation. As always, this call is being recorded. I'd like just to remind you that we are reporting off the base of the restated 2012 numbers following the various accounting changes this year, including employee benefits and joint ventures that can no longer be proportionately I'll take the safe harbor slide as read and we'll hand the call over to Ann Lin.
Thank you, Rade. Good morning and good afternoon, everyone. We have about half an hour together, so let me spend 20, 25 minutes to update you on how things are going so far this year and leave enough time for questions and discussion. Let me start with some key takeaways. I'm happy to say that these are quality numbers.
Low balance for growth, margin improvement, reinvestment in growth and cash flow for Q1. The group's rate accelerated during the first half. The group's margin was up 20 basis points and marketing investment was up 60 basis points. The cash flow performance was strong and working capital remains on a good trend. Of course, we also have challenges and I will highlight those in my presentation.
Let me give you a little more detail. The good news at a group level was acceleration in rig from Q1. Yes, pricing was low, but we should expect that in a generally deflationary environment. The input cost situation may have reduced our pricing, but it has benefited our trading operating profit margin. The margin was up 20 basis points even after reinvesting 60 basis points in marketing spend.
And earnings per share were up, both in reported as well as in constant currencies. So it is clear that we have succeeded in delivering quality, profitable growth in the first half of twenty thirteen. Our cash flow was also strong, driven by improved operating performance despite the tough comparable. Now turning to some summary comments on our business performance. Our continued growth developed markets is clearly noteworthy.
Emerging markets grew over 8%. We're double digit in Latin America and Russia, over 7% for AOA as a whole, though double digit in many markets there and single digit in the rest of Eastern and Central Europe. Looking forward to the rest of the year, we expect continued good momentum in rig to enable us to end the year with organic growth of around 5%, together with an improvement in our trading operating profit margin and underlying earnings per share in constant currencies as well, of course, as an improvement in capital efficiency. So now let's get a look into the half year numbers and look at the zones and globally managed businesses. Let's do first growth.
You can see on the slide, they all delivered positive RIG and organic growth. The majority accelerated the RIG during the half. Nutrition did not and rate for the Americas was flat. Also, their pricing reduced, so a pretty consistent picture. Now margins.
Europe was slightly down. I think this was a reasonable performance in view of the tough competitive environment, the challenges around product recalls and label scares in Q1 and the fact that marketing spend increased in the period. Americas was up, a good performance. Again, marketing investment was up. There has been good work done here in terms of structural costs and streamlining of operations.
Also, the zone had to overcome continued inflation in Latin America reflected in the relatively high pricing for the zone. Moving now to Asia, Oceania and Africa. AOA delivered 20 basis points margin improvement. The zone has been the brunt of external criticism recently focused mainly on its top line performance. I would like to give the zone credit for delivering margin improvement in a period characterized by slowing economic growth and the distraction of a major regional factory.
It also had an extremely strong working capital performance. Net Lane Nutrition saw margins fall 60 basis points. This is in part explained by the expected YF dilution. The other impact was weight management, which has continued to contract. We're restructuring the Jenny Craig centers and other steps to address the situation.
The core infant nutrition business is performing well. Nestle Waters. Nestle Waters held its margins flat, bearing in mind that H1 2012 has the leverage from strong volume growth and H1 2013 did benefit in terms of both brand growth and geographic growth. There was also a good improvement in our other activities, which of course includes Nestle Professional, Nespresso and Nestle Health Sciences. I will now move to the product groups.
And again, I will start with growth. The story is similar here with pricing reduced everywhere with a mixed picture on RIG. There was a good improvement in RIG of Powdered and Liquid driven in part by Nespresso's acceleration to double digit growth for the first half, in line with Roddy's promise at our last sales call. The Powdered and Ready to Drink segments also accelerated. Dairy and Ice Cream both improved their rig during the half and both were positive.
Rig and Prepared Foods remained slightly negative. Ambient accelerated slightly, but there wasn't much change in the other segments. Rig and Confectionery's 1st 2 quarters is always impacted by the timing of both Easter and Chinese New Year. So after a strong Q1, it normalized during the Q2. Rig for Pet Care continued with its good group's margins.
Powdered and liquid was up 100 basis points. Our coffee activities and malt beverages both improved. Dairy and ice cream was also up, ice cream being the main contributor. Margin for prepared dishes and cooking aids was up, frozen being the main driver. In case of frozen food and ice cream, the margin improvement was driven mainly by structural cost savings in the U.
S. Confectionery's margins were down. There were a number of drivers here. 1st, the highly competitive environment in the sector, generally speaking. Also, we had a very significant increase in marketing spend in Latin America relating to the Confederation's Cup as well as the upcoming World Cup.
Pet Care's margin was down, although I have to note the underlying operational performance of Pet Care was very strong, but the improvement in margin was canceled out by the cost of the wagon train recall. You can see this in our financial statements, which are published online today. Now I would like to pause here for a moment and come back to the group's overall pricing. Clearly, as we beat consensus with our rig performance, we did not on organic growth. Pricing was the biggest disconnect versus your expectations.
My view on the change between Q1 and H1 pricing we have reported is that it reflects more the current inherent volatility in our marketplace than it does a trend for of 2013. As you can see in this last few slides, we have very varied levels of pricing whether by geography or category. So you see ranging from strongly positive in the Americas or select negative in Europe, from flat in in Latin America are driving inflation there. So even in categories such as chocolate, where the U. S.
Dollar cocoa price has fallen, we have responded with pricing. Dollar cocoa price has fallen, we have responded with pricing. On the other hand, in coffee, for example, where the commodity is sharply over the last 12 months, our lower pricing reflects this in key markets such as the U. K. And Russia.
Or think about milk. We're seeing high raw material prices. And again, our pricing reflects this in our Dairy and Nutrition businesses. As you know, we don't make pricing decisions here in Switzerland. Those decisions are made locally by our people in the markets in view of their local cost pressures and competitive environments.
And those pricing decisions are made to drive profitable growth businesses. Their objective is there for not to take price for the sake of taking price. Their objective is to ensure that they are at the appropriate price points. The fact that we have delivered an operating performance that includes both increased marketing spend and an improvement in our margin demonstrates that our people around the world have got their pricing right, enabling us to drive rig as well as margin. As an example of this, look at powdered and liquid.
They may be at the low end in terms of pricing, but it is at the top end in terms of margin improvement. Doing the right thing for consumers and therefore, doing the right thing for our business. And this is nothing new here. You go back over the the we are delivering profitable growth. And in the first half of twenty thirteen, we have certainly done that, while continuing to invest for the future with a big step up in marketing spend.
Moving to the next slide, regional growth. Let me dig down deeper into our performance, and I'm going to do this on a regional basis for total Food and Beverage as many of the a a geographic split of the growth of all of our businesses, including the globally managed ones. The Americas finished the half basically unchanged from Q1 for organic growth. North America was slightly weaker due to reduced pricing. Latin America, on the other hand, saw good rig momentum with pricing remaining firm.
Europe ended the half slightly weaker than Q1 for organic growth as Eastern and Central Europe experienced lower rig and price. A number of the regions in Central and Eastern Europe are struggling from a macro perspective. In Russia, where we've taken a number of initiatives over the last couple of years, both structurally and tactically in the marketplace to improve on our competitive position, rig was double digit. Western Europe accelerated slightly due to increased rig. AOA ended the half basically unchanged from Q1 for organic growth.
The increased rig was almost matched by the reduced level of pricing. So the trend that you can see here is the same in all our three regions, rig acceleration. There was no material change in the organic growth of the developed or emerging markets, and the trend was the same, more rig in both, less price. Those were some introductory remarks. Let's now have a look at each region in detail and share with you all where we are doing well and where we also have challenges.
So let us start with the Americas. In North America, ice cream is a challenge in segments that lack differentiation, such as premium, though we are gaining share. When there is differentiation, such as super premium, growth is definitely more dynamic. Haagen Dazs, for example, is up near double digit. Pet Care is a mixed picture.
A key strategic question for us in Pet Care is the growth of the Specialty's Retail and Natural segments, where we are clearly underrepresented. We're of course looking at various approaches to address this, but it will take some time. And I could equally describe this as an opportunity much like it's a challenge for us. A more immediate challenge in some segments in dog, where we have lost share recently after consistently gaining share over the last few years, we are fighting back and the latest trends suggest successfully. On the other hand, we are doing extremely well in our cat, treats and litter segments.
And to put the challenges in context, the business continues to perform well from a top line perspective. The frozen entree and pizza categories continue to struggle for growth. The competing restaurants are pushing hard on the fresh not frozen theme. We are responding to this with our own messaging under the theme, balance your plate. In pizza, home delivery continues to compete on a very promotional basis.
In this subdued environment, Stilfers is actually having a good year and DiGiorno has taken share and both are rate positive. The bigger challenge in frozen is in the nutritional segment, which continues to contract. This is impacting our weight management business, Jenny Craig. And as I've said earlier, we are making significant changes there. To Waters.
Waters' environment is tough with private label players pricing aggressively. We have taken a more profit focused approach, which has, of course, impacted our market share. More positive on Water, though, is the continued growth in the market and in our business. The premium brands San Pellegrino and Perrier are performing well. Infant Nutrition is performing extremely well in Finally, on North America, you might recall that we put new management into Nestle USA less than a year ago.
Early signs are encouraging. Shorter term market share trends are positive. There was positive rig for the half. The margin performance was and they are tackling structural costs and business complexity. There's obviously still room for improvement, but so far, so good.
Now a few words now on Latin America. The key challenge in the region is the macroeconomic situation, including the weakening in some Input
costs are another challenge as those weaker
currencies Input costs are another challenge as those weaker currencies mean that the fall in the dollar price of raw materials is not reflected in local currencies. In that environment, we have delivered double digit growth with a good contribution from RIG. Among categories, there are no major Doing especially well are Pet Care, Powdered and Liquid Beverages, Culinary and Biscuits, Infant Nutrition, Waters and Professional, all growing double digit. Let's now move to Europe. The challenge here should be no surprise.
It is the macroeconomic environment and everything that springs from it, whether it's a recession in Southern Europe, the slowdown in parts of East and Central Europe, austerity programs, increased taxes, falling consumer spend, increased competition, I could go on and on, but you get the idea. Given all of that, the fact that we're growing our rig suggests that there must be a few things that are going well. First off, the Zone's customer service levels are high, innovation continues to flow and existing launches have the ranges expanded or extended into new markets. With a lot of activities, it is not surprising that the zone's marketing spend was up. Of course, not everything in Europe is going well.
No surprise. So let's have a look at the challenges. Southern Europe is extremely tough. Now this cannot be new news. We talked about challenges in Q1 such as labeling issues in the industry.
We're also seeing signs of improvement in the we are seeing signs of improvement in the affected categories. Ice cream also had a slow half. Water is having a challenging year after the strong growth in 2012. The competitive environment has intensified. It's the same story as in North America with increased promotional activity.
Our best performers are the more differentiated waters. Nestle Professional has had a weak start. Clearly, there is a link to the macro environment here. So I will have to say the beverage solutions continue to perform well. I touch in my opening comments on what is going well and here's a little bit more detail.
The zone's growth drivers such as premiumization, value focus offers and nutrition, health and wellness have strong traction. Pet Care. Pet Care was again a key growth driver for the region. Coffee activities consisting of Nescafe, Nescafe Dolce Gusto and Nespresso continue to be growth enhancing. Key markets performed well, particularly in the U.
K, in Germany and in Russia. Infant nutrition has good rig in the region with positive growth in both France and Germany. Next up is Asia, Oceania and Africa. The environment in AOA continues to be relatively buoyant, even though there has been a slowdown during the last 18 months. We're also seeing the effects of government responses such as the austerity programs in China.
And the zone continues to be impacted by civil unrest and natural disasters. Let's have a look at some of our challenges. The loss of the Syrian factory in Q1 has had an impact, even if we were able to restore supply by the end of June, albeit at lower margins. We are in the process of establishing a new facility in Dubai that should replace the CRN factory on a permanent basis hopefully next year. A bit of a mixed picture.
Some of our PPPs are fighting tough competitive battles in countries such as the Philippines, but we're doing well in premium and systems, both in the developed and emerging markets in AOA as well as in ready to drink. Nestle Professional is having a tough start to the year also in the region. Its biggest market in AOA is in China. It also has been impacted by the austerity program as well as a slowdown at a major customer. Elsewhere in the region, the business is going well.
Looking at the more positive aspects now in AOA, Powdered Beverages, especially Milo, is performing extremely well. And in dairy, BARE brand is outstanding. SEWAR, which is Central West Africa region, picked up pace, doubling its Q1 organic growth in Q2 as we said it would be on the Q1 call. China continued to grow double digit, but has slowed a bit after the New Year benefit to Q1. Having said that, we in China grew faster than the market.
Indonesia, Malaysia and Singapore are performing extremely well. Category highlights included Milo, our coffee activities, dairy and chocolate. The South Asia region, which includes India, picked up pace as ambient culinary continued to perform well and tea enhancers accelerated sharply. The developed markets in AOA are also delivering positively, driven by our coffee activities, chocolate and Milo. The NextLight infant nutrition business grew extremely strongly not just in China, but across Asia and Africa.
Formula and cereals are both performing well. Wyatt Nutrition, as you all know, is not included in our organic growth, but I'm very happy to report it is meeting our expectations. Finally, Waters and AOA performed well in the first half. Let's now move to the group numbers and start with our trading operating profit performance. Here you can see our usual margin bridge.
The headline story the 20 basis points improvement in margins to 15.1%. Let me give you a little more color. We have taken advantage of an improved cost environment driven by raw materials, but further enhanced by our efficiencies. We have overcome unexpected costs around the world, such as the recalls in both Europe and the U. S.
And the factory that was mentioned earlier destroyed in Zone AOA. We have increased our marketing spend by 60 basis points and our consumer facing spend is up 15%, again that's 15% in constant currencies and we have added the 20 basis points to our margin. In summary, our H1 margin performance reflects 3 things. 1st, we have benefited from a lower input cost environment. 2nd, we have the ability to invest dynamically in marketing.
3rd, our efficiency programs over the years means that we convert more sales into profit. And also for those of you who continue to benchmark us against our old EBIT, there is also a bigger margin improvement at that level. This speaks to a high quality first half. I would like to take the opportunity to say a few words on the trading operating profit margin for the full year. I am aware that in February, we guided to a second weighting of margin improvement, which could lead some of you to think that we will further improve from our first half performance.
A few words of caution. First, our operating performance in the first half was already good. So it would be difficult, it would be hard to materially be better in the second half. 2nd, the first half was more benign in terms of raw material pressures and comparables than the second will be. 3rd, I've talked about being more active in how we manage our portfolio.
It's difficult to forecast specific timings, but it is clear that a more active approach brings with it likely increases in other income and other expenses. That all said, our commitment remains an improvement in the margin in constant currencies. Here's the rest of the income statement. Our financial expenses increased in line with our higher net debt, but fell as a percentage, no surprise, due to our growth and the lower interest rate environment. Taxes were also higher, but we are not changing our full year guidance of an underlying tax rate of around 27% to 28%.
Earnings per share up 3.4% reported and 7 point 2% underlying in constant currencies. That's 7.2% underlying in constant currencies. Next up, cash flow and working capital. Our cash flow is strong. We had an extremely tough comparison due to 2012 cash flow performance.
You should know that, but we remain at a similar level in 2013. This was driven by a good operating performance and improved cash conversion with the major offset being a significant increase in taxes paid due to timing differences. On working capital, our cash conversion cycle improved by 6 days and total working capital has decreased in absolute value versus June of 2012, even though we have increased our sales and we have acquired Wyeth, a very positive trend. So let me now wrap things up. It has certainly been an eventful first half.
I think we have been successful in navigating through the various challenges that we have faced as well as continuing to drive successfully where we are winning. We wanted to be transparent highlighting to you what's going well and where we clearly have work to do. I would like to end by underscoring 3 key points. 1st, from the group perspective, the quality of our numbers, well balanced with rig acceleration, margin increase, together with the marketing investment going and good cash flow performance and positive trend in working capital. 2nd, from an operating perspective, the results are also broad based.
The Americas progressing on both top and bottom line. Europe, despite the macroeconomic condition, continuing to grow and to invest for growth. Zone AOA improving margin despite cost pressures and driving rig Nutrition's very strong emerging market and U. S. Performance Water's positive growth in a difficult season and last but not least, Nespresso double digit in H1.
And third, for the rest of the year, our good rig momentum will enable us to deliver organic growth of efficiency. With that, let's now open up the discussion. So I'll turn it over to you, the operator.
Ladies and gentlemen, your question and answer session will now begin. Your first question is from Warren Ackerman from Societe Generale. Please go ahead. Your line is now open.
Wang Ling, good morning, Roddie. Hi, I've got a couple of questions. The first one, I hope you can hear me. It's not been a great line to be honest. Looking at your full year guidance now of around 5%, I mean that obviously has notched down slightly from the low end of the 5% to 6%.
You did 4.1% in H1, so you kind of need to do around 6% in the second half. I mean that looks on the surface to be quite a stretch. I'm just wondering what are your assumptions for the second half with some of the key elements or pricing and zone AOA growth and any other moving parts that you want to call out at this stage for the second half in terms of organic growth to get you to around 5%? That's the first question. And then the second question is just around you made an interesting
comment around North America and
the new management team. You talked about Can you maybe give us a bit more color
as to
what that means? And Can you maybe give us a bit more color as to what that means? And is this just an issue in North America? Or are you looking at structural costs and business complexity in the other zones given the current environment that you face? Thank you.
Thank you. Good morning, Warren. Let me answer your first question about the outlook. You are correct. We are guiding around 5%.
And you are also correct, Warren, this is a stretch. Will we it's interesting, I'm fairly new to the organization. And I mean, like you did, you can do the math. And some of my colleagues are optimistic that we can make that number, but it is not going to be easy and I completely agree with you, it's going to be a stretch. In terms of North America's complexity and structural costs, they're looking at everything from infrastructure costs to how they go to market.
And yes, this is something that Paul Greenwood in the U. S. Is doing, but it's something that we will be looking at on a broader basis, so not just in the U. S, but also in other regions.
I think And Wainwright, can
I just maybe just push you
a little bit on the second half? Obviously, Zone AOA has been in the spotlight for the last few quarters and you did see a slight acceleration in Q2, I guess, in line with your thinking. But given the easier comps in the second half of the year, are you still confident that Zone AOA can achieve sort of high single digit growth in the second half of the year to leave you in a better place for the full year? Or have things changed in the quarter so that you are perhaps on the margin less confident on the uplift in the second half in the zone AOA?
Warren, you're exactly right. There are easier comps in AOA as we go into the second half. But there are other things like we talked about issues that were in Q1 that we're obviously recovering from much like the factory that was destroyed in Middle East. And so we are we'll see. Pricing obviously is take its local decision, so a lot depends on input costs as well as competition.
So we do not as you know guide on pricing. And so it's lots of moving parts.
I think also I'll just pick up on Randling's comments on the in her presentation about the volatility in the pricing and the change between Q1 and H1 not being so much I'd point into a trend through the year, but more just volatility within quarters. And as Wenling says, there are other issues in different regions of the world that also provide perhaps more momentum in the second half than the first half. And clearly one of those is the situation in Europe with the bounce back from the labeling related recalls. Also of course we've had a pickup in the season for ice cream and water. So there are some other more positive drivers, which support our confidence in terms of the rig momentum in H2.
Yes. But I will Warren, I will go back and underscore what you said. It is in fact a stretch. But it's the organization's intention to get there, but it is a stretch.
Okay. Thank you, guys.
Thank you.
Our next question is from Celine Panuti of JPMorgan. Please go ahead and ask your question.
Yes. Good morning. I just understand what you said in your guide on pricing. But my first question, I would like to if you could give a bit more commentary around what you said in the presentation that you think that Q2 pricing will not recur in the rest of the year. Can you explain a bit what you mean there?
Has there been any specific proactivity in Q2 that will not recur? And are you as well expecting some local pricing in emerging market to pick up to recover FX volatility in emerging market? And then my second question is around margin. There I understand that you were saying that it was more going to be H280 and now you're saying it's maybe more balanced. Is that the way we should look at it?
And could you as well explain why it is dilutive to your margin in the first half? Thank you.
Yes. Thank you, Celine. In terms of margin, in my presentation, I've indicated you've heard us talk about more focus in terms of portfolio management. And so there will be we are timing, it's difficult to predict, but we are actively looking at our portfolio and what we need to do. So there will be restructuring.
Whatever it is, we can't really say what it's going to be, but there will be some volatility in terms of other expenses and income. And so the H2 we said H2 weighted in Q1, but that will not we did not anticipate raw material costs to be as good as in the first half. So that's not going to be repeated. That on top of activities that we're doing relating to portfolio management is what's guiding us to tell you that H1 improvement in margin is likely not going to be repeated in H2, so for the full year. In terms of pricing, you want to take pricing?
Yes. Just also on the margin on the Wyeth question you asked. Wyeth is accretive to the group. It is not accretive to Nesting Nutrition. That was the point we made, which actually is the point we made at the time of the acquisition as well.
So there's no change in message there. On the pricing, all that we're saying is if you just do a straight line trend from Q1 to H2, you'd end up with probably no pricing at all in Q3. That's not the case. This is more about volatility in the trend. That's what we're saying.
Also the pricing started to decrease already in H2 last year. So there's also a comp benefit in the sense to the pricing.
I want to come back to Wyeth though. If you go back to our presentation when we announced the Wyeth Nutrition acquisition, you will recall that the Wyeth margin was accretive to the group, but not accretive to the Nestle Nutrition margin. That's why.
All right. And on pricing, so pricing turning quite negative in Europe in the second quarter. Is that something we should continue to expect?
Yes. I mean the pricing in Europe was driven fundamentally by coffee. Coffee. And you might remember that even last year we talked about this and we've made a major reduction in the coffee price in Russia. That was second half last year.
And that's an example of one of the pricing actions that we did last year that will there will not be in the comp for H2 this year. But copy is the key driver of the weaker pricing in Europe, because it's also fair to say that most of the categories in Europe have got less pricing than they had earlier in the in Europe have got less pricing than they had earlier in the year.
And can you give a bit which categories on less pricing because this pricing on coffee as you said was already in the second half of last year and here we really see a worsening of the pricing in
Well, as I just said, the pricing is weaker to a certain extent across basically all the categories in Europe.
Yes. Okay. Thank you.
Thank you. Our next question is from Silke Kolrowitz from Reuters. Please go ahead. Your line is now open.
Yes. Hello, good morning. Actually some of my questions have already been answered. So I wanted to
ask specifically about pricing in China. You could give us guidance on how that developed in the first half
and what you're expecting there in the second half? And also can you give us a more precise
outlook on the input costs you're expecting in the second half?
Yes
Yes. No, our pricing in China has been pretty minimal. Our growth in China is really driven very predominantly by real internal growth not by pricing. And in terms of the input cost picture generally, our guidance remains what it was at the start of the year, which is that we expect to see low single digit cost pressure.
Yeah. The second half input cost in that situation should have less tailwind than the first half.
Next question please.
The line is not very good. I can't hear you very well.
Next question please.
There's something wrong with the line. I can't hear very
Operator, are you there? Do we have any more questions?
Thank you. Our next question is from Alan Oberhuber from MainFirst. You may now ask your question.
Thank you. Good morning, Ron Lin and Rodin. I have three questions, more on the region side. First is, could you tell us if the what happened in Mexico? You mentioned that there is lower growth than before.
Was it in the past because we had almost similar growth in Mexico than in Brazil? Maybe you can elaborate a little bit on Mexico. Secondly, what are the current trends in France? Have you seen an acceleration in volume in France as well and in specifically
in which category? The same is true for Germany.
And the last 3rd quarter already. That's pretty difficult category. Could we see a bottoming out of that category probably in the next one to 2 quarters? Or what is your knowledge about that category?
The question in terms of Mexico. Mexico was impacted by coffee. Our dairy business in Mexico less pricing. And so that's sort of the situation in Mexico. In terms of lean cuisine, the whole category has continued to contract.
And we being a category leader, we have to we're obviously affected by that. And we also have the responsibility and the obligation to try to get that reinvigorated. We have launched 2 products, 2 new products, Honestly Good as well as solid addition. And I said earlier in my presentation that it's not so far it's not changing the dynamics in the category. So our team in the U.
S. Continues to explore different things. I do know I was visiting with Paul Greenwood in the U. S. A few months ago.
There are indeed a lot of new products in the pipeline. And so hopefully, that would make a difference sooner than later.
And what was the other?
And on France, the you may remember that we had a fantastic year in France last year. So clearly, a fantastic year in France last year. So clearly challenged by the comps. The business started the year quite weakly in Q1 and it's picked up a little bit since. And of course part of that pickup relates to again the pizza the horse meat related recalls.
But we are seeing a slight pickup in France in Q2. So hopefully that momentum will continue into the second half. Next question please, operator.
Thank you. Our next question is from Jon Koch from Kepler. Please ask your question.
Yes. Good morning, guys. I wonder if I can just come back on this whole commodities issue in terms of the impact in H1. And then you seem to be saying you're going to start picking up headwinds in H2. Is it just a little bit the way you normally hedge, exclude coffee for the moment, but typically you hedged, say, 6 to 12 months forward.
I'm just wondering, you're saying it seems to be coffee in H1 was the main driver of that great gross margin gain. So what is unwinding in H2? Why won't there be more headwinds in H2 than there were in H1? That's the first question. And then just in terms of the overall environment with regards to the to come back a little bit to this pricing question.
You said to say there's also different factors going to happen with pricing. Should we just expect a continuation of this sort of one point pricing seen in Q2 that will really just go through the rest of the year? Or is that sort of what you're saying? Or are you saying it could actually start to go up again as we go through the year? Thank you.
Yes. Thank you, John. On your first question in terms of COGS, well, first of all, we do not share with you like what our hedging policy is. But across commodities, we can hedge anywhere from weeks to months. And so that varies depending on what commodities.
And obviously, we work with our procurement folks who are really good. So I can't tell you exactly what categories hedge how long. In terms of the tailwind that we picked up in H1, clearly, it's not just input costs being favorable. There's obviously pricing impact, there's volume leverage. There's also efficiencies that we have done in terms of conversion.
So the favorability you're seeing in H1 is not purely just input costs. So it's a whole host of things that's coming together. Comping against a much lower level in H1. So it's H2 is a tougher comp is what I should say. In terms of pricing, we do not guide rig or pricing, we guide on an OG from an OG perspective.
John, you should know that. And we have said in the presentation, we expect pricing to be volatile again because of a whole host of reasons depending on market, depending on input costs, depending on competitive landscape that we'll see. But our overall guidance for the year is around 5% for organic growth.
Yes. And I think the big the key message on commodities is that the commodities began to fall already in H2 last year. That therefore provides a tougher H2 for this year than in H1. That's the key message. Next question, please.
Thank you. Our next question is from Morgan Lapierre from Bloomberg. You may now ask your question.
Hi, good morning. I have two questions. So first, which currencies have impacted your sales in the first half of the year? And how will foreign exchange rates impact your sales in the second half
of the year? Thank you.
Well, I mean the biggest moves in currencies have been in Latin America particularly obviously Brazil.
And Venezuela.
Venezuela, they're the biggest ones. Yeah. How we'll be impacted in H2 clearly depends upon how the currencies evolve. I think the important thing is from a group perspective, we did not have any impact on earnings either TOP margin or earnings per share from currencies. But we always every year we have an impact on the top line.
Yes. Last year we ended with a positive impact. So we don't guide on what we expect for the full year this
year. Did I answer your question, Morgan? I see in the release that actually sales have been impacted in the order of 0.9%. I just wanted to know if you expect this to remain the case in the second quarter in the second half of the year?
Yes. Morgan, we that you are exactly correct. That was 0.9%. We do not guide for year, but you can we don't forecast how currencies are going to move. I mean clearly Swiss franc is getting a bit stronger, but we'll see.
A lot can happen between now December 31.
We could easily give you a number of today's spot rates, but it won't be the right number by the year end. We're not
going to do that.
It's not really very helpful.
Okay. But compared with earlier periods, is that the performance compared to that?
Well, I mean, it's incredibly volatile. Last year, we had a positive contribution from currencies. This year, we're having a slightly negative contribution from currencies. But it's simply I mean,
we are present fundamentally in every country in the world.
We're always going to have these currency swings. Poured in Swiss francs. It's not something that we try to hedge or manage. We run the business locally in local currencies and then we just convert into Swiss francs then we report. And that's as simple as it is really for us.
I mean having said that you saw the trend in the second half of last year started to be more favorable. And so as we go into the second half of this year, it's going to be a tougher comp if you operator.
Thank you.
Our next question, please, operator.
Thank you. Our next question is from David Hayes from Nomura. Please, you may now ask your question.
Good morning. All right. 2 for me. Just on the tone AOA, you talked at the Q1 about too much stock in the system. It's just wonder whether you've seen that now normalized and at what point during the Q2 you saw shipment patterns return to normalized levels?
And then secondly just on beverages, the margin obviously very strong up 100 basis points. You talked about coffee prices obviously coming off. Is there a risk that pricing wise in coffee you're still a bit high and that margin effectively is slightly over earning and you expect prices in coffee to come in the second half and therefore the margin there to come in as well? Thanks very much.
Yes. In terms of hi, David. In terms of destocking, it varies by market and category. So in markets like Philippines, Thailand, we are seeing a recovery and doing better. In terms of coffee pricing, it's again, it's to vary by market.
We've been extremely aggressive on pricing. So I think it would be I'd be extremely surprised if we are how we just phrased it over whatever the phrase was you used, extracting too profit. We've been extremely aggressive on pricing and we are managing locally our price points extremely carefully. And you see that in the volume growth as well.
Yes. I would say that David, we have done a fair bit of adjustments in terms of coffee prices. So that would I would characterize it that way.
Okay. Thank you. Just to get back to the first question, so there's still a reasonable amount of shipment disconnect then that may wash out more significantly in the second half. I was just trying to understand where the underlying the consumer take is a bit better effectively and whether that effect it disappears as a disconnect in the second
half? David, again, in that in terms of destocking, we have improved significantly. So we're not anticipating any meaningful impact going into H2.
Okay. Can I just ask one other question? Sorry, I don't know. It's meant to be 2. Just a third one last one for me.
Just on the working capital, obviously, dollars 1,900,000,000 outflow first half, but seasonally we see that outflow than a catch up. You talked about structurally effectively better working capital. Would you say that you'd expect more than a catch up in the second half that working capital will be a net inflow or at least flat? Or do you see that as a big dynamic in the second half to catch up to the 1.9? Thank you.
No. It would still be an outflow because we're growing and so I don't anticipate that no, to answer your question, it'd still be an outflow.
Okay. That's great. Thank you much guys. Thank you.
Thank you. Our next question is from Eileen Ku of Morgan Stanley. You may now ask your question.
Good morning, Wamin and Roddie. Just a couple of questions for me. The first one is on cash and returns. Could you update us on the internal exercise that you've been carrying out in terms of benchmarking returns? How what the progress is there?
And then on cash as well, pretty good performance in operating cash flow. Just wondered whether you could update us on your thoughts in terms of cash returns? And then second question is on nutrition. I was wondering why does this big deceleration in rig, it surely can't all just be weight management given the strong double digit performance in infant and baby nutrition? And then on coffee, I understand that you've taken actually price increases for Nespresso in the U.
S. Recently. Could you just confirm this and also just update us on how your price reductions in soluble have helped your market share in some markets like Philippines for example? Thanks very much.
Yes. Irene, let me answer the first question as I think most a lot of you have heard that we are there's renewed focus in terms of on return. And so we talked about I think at cage and at different roadshow that we have an enhancer like portfolio management tool that has been rolled out to the rest of the organization. It was started last year and completely rolled out now sometime I think a couple of months ago. It's been really, really good to see how it's been embraced by the organization.
I've talked about this many times. What it does is it provides us a common language across the organization. So whether you are managing coffee in the Philippines or you're managing coffee in China and up and down the organization whether you're somebody sitting at the EB level or you're a BEM, which is a business executive manager running a category in a geography. And it's great to see because we just finished our what we call our MBS season, which is market business strategy. And we have seen, I mean, Chris Johnson, who runs our Zone Americas will tell you that we it's great to see that markets coming in saying that, look, we were going to ask for investment in X, Y and Z, but we've run this exercise and we know it's actually not really value accretive.
So to your question about how like this renewed focus and returns, I'm really happy to say that it's gaining traction. And clearly, it's an exercise. It's not an end all and be all tool, but it provides a common language and it provides a common framework so that discussions don't get too emotional. I'm not saying it's still not emotional. And so now we're seeing sort of like a bottoms up analysis being done and obviously top down at the executive board level, we're also doing analysis looking at bigger sales, bigger across on a broader base on a broad base basis.
So that's going really well. On your question, do you want to take the second question?
Sure. I mean on Nespresso, I mean frankly I don't know what the Nespresso pricing strategy is in different countries around the world. But I do hope you're right. I do hope they have taken pricing in the U. S.
Because I know that when you compare their capsules to the competitor capsules from other manufacturers, we represent extremely good value. So if they're occasionally value cap that's good news. On Nutrition, when I did the Q1 call, I did call out China as having organic growth above 40%. And I did say at the time that was not a sustainable level of growth. And so that has come off a bit.
That's obviously impacted the infant nutrition growth number. Also we've seen I mean there's volatility. We've got a little bit lower growth in Russia and Brazil, though still double digits still very strong. We picked up a bit in France and Germany. So there's different levels of performance.
But the big swing really is China. But China continues to be growing very, very strongly indeed and we continue to gain share. And your other question was on just on the cash returns piece. But I mean clearly if we had a new message on cash returns it would be in the press release. So obviously we don't at the moment.
But
I will I do I thought
you might say that to
To Nutrition, it's we're very, very pleased with the nutrition business across all of our geographies.
Thank you.
Thank you. Our next question is from Eric Chow from Value Partners. You may now ask your question.
Hi, good morning. We are investors, existing shareholders based in Hong Kong. And first of all, I'd like to thank Roddie and his teammates taking the time to visit Hong Kong in May and meeting us. We hope to come back soon. We got two questions.
First of all, related to China, your Wave nutrition team has been very fast in terms of responding to the recent investigation of the Chinese government related to the segments and as a result they escaped or they don't need to pay for any penalty, which now other competitors are facing. But I just wonder in terms of the internal decision making, for the decisions to commit to cutting prices and cooperating with the Chinese government, did they need to come back to last year for approval or they could have just make it to such a fast decision because they were clearly the first company making such changes? And also as a result to the price cut they committed to, do you see that the margin or profit growth we projected would be changed in for example in the near future? That's our first question. 2nd part is that given your 5% EPS growth target and we also grew our dividend per share by 5% earlier this year when we announced last year result.
Looking ahead, should we expect the growth in the dividend per share making behind the EPS growth and the expectation globally is about a and the expectation globally is about a gradual increase in terms of the interest rate looking ahead. So just like to learn from you regarding these two aspects. Thank you.
Thank you, Eric. And thank you. And I look forward to seeing you when I come to Asia meeting investors. So I look forward to doing that. Let me answer your first question in terms of Nutrition business in China.
First of all, I don't want to comment on the NDRC decision. I would say that the facts obviously have been published in their announcement. I will say though, it's compliance is one of our core business principle at Nestle. So compliance is number one regardless of where we operate. And so we hold all of our business managers very much accountable for making sure that we're complying to the local laws and regulations.
In terms of your question about, is this an internal decision? What you've seen on what has happened between the interaction between the market in China and the center here in Vevey speaks to how speaks to one of the great strengths of Nestle. We're very matrix from an organization standpoint and yet we can be agile when it comes to quick decisions that have to be made. So what has transpired in this example is clearly a manifestation of how we are able to collaborate with the Ve. It's just it really sets to that.
Now in terms of your question on margin impact, you have to remember our Nutrition business in China has a great portfolio, whether it's locally manufactured with local source milk supply to imported supply, locally manufactured to what is this imported product from Germany. So we have a good portfolio, a good mix. So we can what happened in terms of price reduction, we can manage that through portfolio management. And we also don't forget have a good meaningful business in China across many categories. So we this is a case where if you do if you do have to do some adjustment in one category or even in one product within a portfolio of that within that category, you can offset it with others in the portfolio or in other categories.
In terms of dividend, I just wanted to you said 5% dividend, that's you meant 5% around 5% organic growth is our guidance. Now we do not we've always said in terms of our dividend policy, we guide and we if you look back in the last 50 years, we have never ever lowered our dividend, so in absolute 2011, where our EPS number was severely impacted by FX, you saw that the dividend in absolute amount went up. So our guidance in terms of dividend is an absolute amount and in the last 50 years, it's never gone down. So we want to make it a sustainable policy so that you know what to expect.
All right. Thank you.
You're welcome.
So far to seeing you too in Asia.
Thank you, Eric. Me too.
Thank you. Thank you.
Next question, please.
Thank you. Our next question is from Jeremy Fialco from Redburn. You may now ask your question.
Hi, good morning. Jeremy Fialkow, Redburn here. A couple of questions. The first one is coming back to this issue on the 5 percent full year underlying sales guidance. I think obviously it's important that there's a good degree of realism to your guidance if you think that you're going to make it.
But at the same time, you describe it as being a bit of a stretch. So perhaps what you could do is talk about what are the kind of assumptions that you're making in terms the second half where you think there's kind of like the greatest sensitivity in terms of you actually not making the 5 percent afterwards perhaps, if you could talk around that a little bit more. And then the second point would be on your weight management business. That has been a fairly persistent underperforming in your portfolio. So I really want to say kind of how much longer you think that you can keep this business kind of underperforming as it has been before you might need to start considering a divestment?
Thanks.
Jeremy, I that is a fair challenge in terms of Jenny Craig Weight Management in the U. S. And look, are we happy with the performance? The whole industry is contracting, but we're not going to hide behind that. It's clearly something we need to fix.
And so we are trying different things, and I can tell you that it's not something that I'm sure by the 9 month sales forecast that you'll be able to say that we're seeing improvement. And so it's look, we're painfully aware that it's a problem that we need to address. And it's I can just tell you that it's very much on our radar and Louise Cantarell, who heads up nutrition as well as Nestle Health Science, is very much on top of that. That's all that's what I can tell you. In terms of the 5% around 5% organic growth, clearly, it's we would have loved to have a higher organic growth in H1.
So we're not seeing that we're not that we're happy with 4.1. But having said that, we're very pleased with the rig acceleration. We're very pleased with the quality set of numbers that we've delivered top and bottom line. What goes into H2, again, lots of moving parts with the economy slowing in emerging market water and ice cream if you look at categories. Pricing, if inflation continues to persist, we should be able to take pricing in high inflationary markets.
And so yes, I said it earlier, it is a stretch. Some of my colleagues are very committed and not some, everybody is very committed to delivering their organic growth for the balance of the year. Some of my colleagues are quite optimistic. I think it's a stretch. So
I think I mean it's quite hard to go through all the zones and talk about risks and opportunities. But we're clearly counting on as we said before AOA picking up in H2. We're assuming we're going to continue to deliver positive growth in developed markets. And again, we saw a bit of a pickup in the rig in Europe in the Q2. But there's enough momentum in the business for us to be comfortable in the guidance that we've given.
But I think there isn't a lot of value in us going through each of the zones and GMBs and saying here's a risk, here's an opportunity, because broadly we're going to be around 5%.
I hope you do it. Thanks.
Thank you.
Thanks,
Jeremy. Next question please.
Thank you. Our next question is from Patrick Van Demens of CKB. You may now ask your question.
Good morning, Wendling. Good morning, Roddie. I have a question regarding your marketing expense, which were up 60 basis points in H1. What should we expect as a best guess for H2 a similar increase? Or would you say maybe after the strong increase a little bit lower increase in marketing?
My first question. And secondly, regarding the EBIT margin development in confectionery, which was down minus 110 basis points. You gave us some reason for it, but I'm still a little bit surprised because I would assume that the gross margin in confectionery was strongly up in H1 because of the lower cocoa prices. Could you give us here some more ideas and also what your expectations are here for the future? Thank you.
Yes. Thank you, Patrick. Let me address the question on marketing, up 60 basis points. First of all, I have to characterize that in terms of marketing spend, our digital spend, which I don't think I mentioned in my presentation earlier, was actually has been up 30 basis points. So we're really pleased on that.
And marketing spend, in general, our expectation of the market is to make sure that marketing spend is never sacrificed in order to deliver margin. And that's, again, one of the core things that we hold our market management responsible for. And so it's going to depend. If you see depending on market product launches in terms of launches going into new markets, a lot depends are we going to introduce new systems. So it's a lot of moving parts.
You will depending on what's happening, I remember in H1 last year, I was talking about how the year before we had celebration of 100 years in Singapore, in Philippines, 90 years, in Brazil. So a lot depends on product launches, market celebration, you saw and this ties back to your question in terms of confectionery. One of the reasons why confectionery margins was down, well, first of all, generally very competitive environment, but also we in Latin America invested a lot in terms of marketing for what do you call it, I'm not a football fan. World Cup?
The World Cup, I don't
know what the difference is between the 2, but anyway it's think CFA or something. So anyway, so you see depending on opportunities to invest behind the brands like the sports event. And so that's it. So that's also the reason behind our concessionary margins being down. So it should improve in the second half.
But I mean, we don't run a group marketing budget. Marketing spend is decided locally. Just one detailed correction to what Ronny just said. The digital spend is up 30 percent not 30 basis points.
That's right. 30%.
Just and also on the you mentioned the that you thought that cocoa would be a help to the gross margin. It's just worth pointing out as we said earlier that in Latin America and Brazil for example, which is our I think our biggest cocoa market by volume, we did not have a raw material benefit because the dollar
Currency.
Fall in the cocoa price was wiped out by the weakness of the real. So it's not as straightforward as just saying the cocoa price is up that should help. So that's also part of the issue that we faced as well as the other things that Randling mentioned.
But that's why we were able to price on the other
hand. Okay.
All right. Thanks a lot, Failing and Rody.
Thanks, Patrick.
Next question, please.
Thank you. Our next question is from Katie Esky of Trust Food. Please go ahead. You may now ask your question. Good morning.
I'm afraid I dropped out of the call a little earlier. So apologies if I'm repeating anything. Just first of all, I wanted to return to your comment that you want more focus in your portfolio management. I wondered if you could give any detail on what you meant by that. Will you be looking at SKUs?
Should we see a reduction there? Are you considering any disposals? Or should we think about it more in terms of asset allocation? And then going back again to your outlook, you're saying it's going to be a stretch to hit the low end of the model this year, but do you remain committed to 5% to 6% organic growth in the longer term?
Yes. Let me answer the question in terms of the Nestle model. Let me be very clear. Categorically, we are committed to the Nestle model. So if you look, our CEO, Paul Boulkiewicz, always talks about this and whether it's a presentation or in roadshows that it's the 5% to 6% organic growth is the line we want to walk over time.
And so if you look at the last 10 years, we averaged 6% over 6% of organic growth. So there are times that we might come lower than 5%, but over time, it's going to be 5% and 6%, and we're very committed to that. And we're obviously very also very committed to the other components of the Nestle model, which is trading operating, profit improvement, capital efficiency, EPS on an underlying basis improvement. So those no change whatsoever. I want to go back to the It's very important for a company like Nestle.
We're very fortunate, thanks to the very good work of the people of the earlier generation who has handed over to this generation a great business with the breadth and depth in terms of categories, geographic footprint. We have operations in 184 or so countries. We sell in a lot more virtually in every country on earth. So the thing that we need to be careful of is how do you then when it comes to asset allocation how do you compare noodles in India versus pizza? How do you compare noodles in India versus pizza in the U.
S, versus coffee in China. And so the ability to have or having the tool, having a common language that looks at all the cells, which is basically category in a geography, putting everything on an equal footing is very important for us to do. It's not used for performance management. It is again used for asset allocation. So not just knowing where we sort of like need to say.
So for instance, we had a business that came in and presented to the Executive Board what they call a globally a global business strategy. And we said, look, this is not this business has been struggling. Where we need to not just cut our losses, but also where we need to accelerate is very important for a company that's been blessed with the breadth and depth of categories and then the geographic footprint that we're in. So it's an asset it's a resource allocation tool. Was I missing anything else?
No. That's it.
All right.
That's great. Thank you.
Thank you. Next question please.
Thank you. Our next question is from Alex Molloy of Credit Suisse. Please go ahead. You may now ask your question.
Good morning, guys.
My question is firstly on the U. S. I think you said in the past there the macro environment has been tough, of course, but Nestle also could have done things a little better. You upped promotions in some categories, you cut advertising. If we look at those two factors, promotions and advertising, is advertising now going back up in the Nestle U.
S. A. Businesses?
I will let me answer your question this way. First of all, in terms of maybe let me come back to this. Innovation, it's not just in advertising that we were we could have done better in the past in terms of our Nestle U. S. Business.
We could have done more in terms of innovation. And so when it comes to innovation, I touched on this earlier on my trip with Paul Greenwood, I was really, really pleased to see the number of products in the pipeline. If you think about the new launch in pizza in our U. S. Pizza business, pizzeria, it's fantastic and it's doing quite well.
We're very, very pleased with the early feedback we're getting from the market. So it's not just advertising, it's innovation. In terms of advertising, one of the things that we have changed in the U. S. Bonus system is you cannot you can no longer overachieve if you hit your margin improvement if you do not improve your market share.
And so there's a bit of a what do you call it, a gate yes, and before you can hit your full bonus potential. So that's something that more importantly is it's not just a message sent to our colleagues in the U. S, but it's also going to drive a behavior change. And so you see a step up in spending in terms of behind our
brands.
Sorry. My second question, if I may, is following on from one question someone asked earlier. On weeding out under So the question really is, what does a business actually have to do to be weeded out?
Again, what does the business have to do? Again, we every business that is challenged today has to come in and present a turnaround plan. And so that is our assessment. Louise, in the case of Jenny Craig, it's Louise Cantrell, it's Paul Boke, it's myself to see if the turnaround plan is credible and if we in assessing the risk and the opportunities. And so I don't want to get into a lot of details in terms of the Ginnie Craig turnaround plan.
You've seen what we've done. I think I mentioned this in the presentation. We've closed down some centers. We have we're shifting the focus to e com. And so we're looking at a whole host of stuff.
But this is, like I said, something that we are painfully aware of and something very much on our radar screen, not on Louisa, but it's also on Paul's myself. So we're actively addressing it. I just cannot tell you other details.
Thank you.
Thank you. Operator, next question please.
Thank you. Our next question is from from Gardner Russo and Gardner. Please ask your question.
Yes. Good morning, Ravi. Good morning, Wamly. And 2, one allocation of funds to share repurchase and where we stand on that now and looking forward. And the second modeling is the priority for capital spending for the second half of this year.
Now for 2014, what regions or categories are receiving increase in heavied up capital spending?
Thomas, good to hear from you. In terms of share repurchase, we do not we have said that we do not have any we've always said. And so it's something that we will look at more on an opportunistic basis versus a dividend policy, which is more sustainable year in and year out. In terms of priority for capital spend, we've gone through our exercise in terms of portfolio looking at where we need to spend. Clearly, if you look at our categories like pet care, we're completely under indexed.
We've talked about this before in emerging markets. We're completely under indexed in Latin America and parts of Asia. So Pet Care clearly will get a meaningful chunk of our capital spend. Our systems technology center, our coffee behind with our systems that's going to get a good nutritionist, we'll get we'll also so a lot depends also on what the business is and what our R and D as well as our SBUs, which is the strategic business units come up with in terms of innovation. So that also depends on that.
But what we have guided at the beginning of the year that our CapEx spend is going to be around 5.7 percent of sales. We will come in slightly lower than that, Thomas. And I've said this before, if you've seen our CapEx spend in the last few years, it was stepped up because we had to do a lot of catch up in terms of capacity in a lot of our emerging markets. Have done the catching up, we also over time should see that normalize that trend normalize from a CapEx spending perspective. So again, but this year will come in a bit lower than last year in terms of percentage of sales.
Thank you. How about the region of Africa in general for the capital spending for this and next?
I mean it is an area of focus, but we haven't been putting big facilities into Africa. We've been putting more greenfield facilities we can then expand rather than putting in major facilities. But it's certainly an area of focus. Modular factories that's the way we're putting in modular factories. So these are not big ticket factories.
These are getting in close to consumers finishing product close to consumers. The idea being that as we've established the market, we can then put more substantial capital behind them.
Yes. Thomas, we typically do not say how much of sales, but we are spending a meaningful amount, I mean 5% circa or something like that.
Thank you very much.
You're welcome.
Thanks, Thomas. Operator, any more questions?
Thank you. Our next question is from Erik Bergler of Sonntag Zaitum. Please go ahead. You may now ask your question.
Yes. Hello. Good morning. A couple of questions to Jenny Craig again. Is it correct if you did withdraw from the U.
K. Market? And are you planning to go out of other markets? And is the business loss making or profitable? And are we seeing the same patterns with any drag as we see with lean QC?
And are you facing the same challenges there?
Yes. It's like in my presentation, I've said, it's sort of like in the nutritional diet kind of segment, it is the dynamics you're seeing is similar between Jenny Craig and Lynquicine. We have you correct, Eric, that we have closed down our U. K. Operations.
And so the big operations in Jenny Craig is obviously in the U. S. We do not disclose profit by businesses, but I will tell you that the Jenny Craig business in the last this year as well as last year was very much below our expectations and below what they have been able to do in the last few years. And so again, we are it's we're dealing with it is what we can tell you.
And how about the European business? Are you planning to go out of other markets?
We don't really have a big European business. I mean the Ginnie Craig when we bought it was basically a U. S. And Australian business. We still have a good Australian business.
We opened the U. K. Operation that was fundamentally online operation not a store driven operation. And we have a small operation in France and that continues. Thank
you. Thank you. Our next question is from Robert Foch Smith from Merrill Lynch. Please go ahead.
Thank you. Good morning. Just wanted to come back in terms of top line in second half. We've seen a lot of announcements on the aforementioned CapEx, which had been in the EMs in particular coming on stream with plants in places like China, Vietnam, etcetera. So I guess, would it be fair to say that volume or rig can accelerate in the second half indeed just based on the fact that you've got these new tenants coming and they're going to be filling up and also the easier comps?
And then 2, within second half growth as well. And we know Europe was a bit tough in Q2. Can you extrapolate what is weather versus what is macro, if at all possible for us? And then on margins, just wanted to clarify the comments that were made earlier about not extrapolating 1H performance. Does that mean that 2H would not be as strong as 1H or that it would be more balanced and say plus 20 basis points could be achievable in both halves?
Thank
you. Robert, let me answer your last question first. In terms of margin, you know we guide in terms of margin improvement and trading operating margin for the full year. So what I wanted to do when I guided was I wanted to make sure much like I did in H1 of last year when I guided saying please don't extrapolate our good performance in cash flow in H1 and sort of extrapolate it for the rest of the year. What I wanted to do the same thing this time, this H1 is to do the same thing from a margin perspective because we have done a nice job in H1 and it's there will be things like we talked about earlier in my presentation given that we will be doing some more focus on portfolio, there will be some increase in other income and expenses, and so that will offset some of it.
But having said that, the margin should improve year on year on a full year basis. So that's the last question. The
Well, on AOA, I mean, I wouldn't draw too much of a straight line between the factory announcements and the growth. I mean, some of these factory announcements are announcing the building of the factory as opposed to the completion of the building of the factory. So there's not a straight line connection between the 2. I would just come back to our earlier comment that we've got the relatively easier comps in the second half in AerWay and we would expect to see continued pickup in the rig in in AOA in the second half of
the
year. On Europe, we haven't tried to do the math to break out how much of our growth is weather and non weather. Whenever anybody does that they always get criticized for making excuses. So we haven't done it. But hopefully, the weather will be better in H2 than it was in H1.
But by that I mean that said, it's not just I mean people get criticized internally when they
use the weather. So the weather
being an excuse is think, Wadi,
is that the last question? Yes. I was going
to ask you, think, Wadi, is that the last question?
Yes, absolutely.
That's the last question. Okay. I wanted to thank you very much for all
of your questions. As I said, so far this year, we have delivered a well
Thank you very much for your time this morning and as always for your interest in Nestle. Thank you.