Good morning, everyone, and welcome to Nestlé 2012 nine-month sales conference call. For your information, this is being recorded as well as webcast. As usual, I will start with the presentation. Then we will take your questions. I am sure that some of you have already had the press conference. In fact, I think it's running over a bit, but anyway, we need to start. Hopefully, I can give you a bit more detail than you've had on the press conference. I will start by taking the safe harbor statement as read and go straight to the highlights. Total sales increased by 11.1% in the nine months to 67.6 billion CHF. We benefited for the first time in several years from a positive evolution of foreign exchange, as well as from the inclusion in the numbers of our Chinese partnerships.
RIG, or real internal growth, momentum was robust, unchanged at 2.9%, contributing to organic growth of 6.1%. We continue to grow both in developed and emerging markets. Looking forward, we do not see the third quarter as a good guide to the full year. There are a number of events which I will touch on that will not repeat or that will balance out favorably in the fourth quarter. I will touch on these as I go through my presentation. On the next slide, you can see the detail of the makeup of our sales growth with, for the first time since 2007, all elements being positive. We had a 2.7% positive impact from acquisitions, net of divestitures, and a 2.2% from foreign exchange. You should be aware that Yinlu will no longer be included in the acquisition line from December 2012.
I will now start to dig deeper into our performance with a regional overview of our total food and beverage business. All three regions achieved positive growth, both organic and real internal growth. Europe reported 2.5% organic growth and 1.1% real internal growth. Clearly, the environment in Europe remains particularly challenging with low consumer confidence, the general economic malaise, and the accompanying austerity programs. This performance is therefore notable relative to the environment in which it was achieved. The Americas achieved 6.1% organic growth and 1.5% real internal growth. Again, the environment, particularly in the North, is not conducive to growth. This performance, continuing positive growth in the USA, should be seen in that context. The Asia, Oceania, and Africa Region achieved 10.8% organic growth and 7.5% real internal growth.
This region was the only of the three not to report higher RIG in the period than in the first half. I'll go into the detail when I review the operating segments. On this next slide is another way of looking at our overall performance. Emerging markets, and within that, the BRIC markets, are growing double digit. As I've already said, the developed markets are also growing, but Portugal, Italy, Greece, and Spain remain a slight drag on growth. Although those markets are not growing, our market share performance there is pretty good. Globally, our Properly Positioned Products, or PPPs, are also growing double digit. The fact that their growth is slightly below the level achieved by emerging markets is to be expected as we have PPPs in developed markets too. Let's now look at the operating segments, all of which are delivering positive growth.
I will start with Zone Americas. The zone achieved 5.5% organic growth and 0.4% real internal growth. The real internal growth has returned to positive territory after being -0.1% at the half year. This is wholly due to an improvement in the RIG in North America. In North America, our organic growth has improved slightly as the improvement in the RIG has outweighed the decline in pricing. Pricing was lower in the quarter in all categories to varying degrees. The improved RIG performance is also broad-based and is generally supported by the latest market share data. You might remember that we had already seen an improvement in RIG at the half year. We would expect this trend of improvement to continue into the final quarter. Frozen food continues to be challenged as a category.
Our performance measured by share is slightly better than the category for both Stouffer's and Lean Cuisine. The pizza category also continues to be challenged. Here, the regional expansion of the Jack's brand has gone well. Exciting for us is that we have meaningful launches in the coming months for both Lean Cuisine and pizza. We have also seen an improvement in RIG in ice cream in the last quarter, again continuing the trend of improvement seen earlier in the year. The category saw higher pricing at the start of the year, you might remember. This impacted volumes across the category and contributed to share gains in premium by private label. We are seeing better performances in snacks, brands such as Häagen-Dazs and Drumstick. The Slow Churned relaunch has also helped. The Coffee-mate and Nescafé businesses are seeing positive growth. Both categories have seen new entrants.
In the case of creamers, where we are the leader with over half the market, our share was initially impacted but has trended better in recent months. In soluble coffee, we have gained share with good performances from the Nescafé variants Clásico and Momento. Our U.S. chocolate business is also performing well with growth and share gains. In Latin America, we are seeing growth in all categories and good performances from almost all regions and countries. Brazil had a slower third quarter as it has pushed its confectionery shipments for the Christmas season into the fourth quarter. It should therefore have a strong final quarter. That said, it is achieving high single-digit growth for the nine months in any event. Mexico is also performing well. Next is in Europe. Real internal rate accelerated during the third quarter, organic growth is down due to pricing easing.
As you might have heard from the retailers, the quarter was short one shopping day, which obviously had an impact on our organic growth. This will be recovered in the final quarter. In Western Europe, we are seeing continued good momentum in soluble coffee and pet care, as well as a good third quarter in ice cream. Looking at the markets, Germany has been tough all year and continues to be. France is rather more resilient, though the recently announced austerity measures there could be a risk factor for growth going forward. Nescafé, Maggi, Buitoni, and the chocolate business are all among the highlights. The U.K. is also growing well with the big two categories, confectionery and soluble coffee, both contributing, as well as ambient culinary, the Maggi juicy range. For Nescafé, I'd highlight the refill packs as a particular success story.
This is a value proposition well-aligned to today's environment. Among the PIGS, I'd pull out the performance of Greece. I think the decisive factor is the local nature of our business there, including our decentralized management as well as our strength in key categories such as soluble coffee. This has enabled us to grow in Greece. In Eastern Europe, Russia has continued its positive momentum, reflecting decisive action to rebalance the pricing between the different segments of the soluble coffee category. Other categories are also performing well, confectionery, ice cream, and Nesquik included. Zone Asia, Oceania, and Africa slowed somewhat in the third quarter. Despite this, they reported a still impressive organic growth of 9.4% and real internal growth of 6.3% for the nine months.
It's interesting to note also that the reported sales are up 25.9% from the corresponding period in 2011 due to the inclusion of the Chinese partnerships this year. We often call Zone AOA, Zone CNN. It is the zone's feeling that the third quarter was particularly impacted by issues beyond its control. Specific examples would be the demonstrations in Pakistan that caused five days in lost distribution and the typhoons in the Philippines that resulted in a week's factory closing. Beyond this, there was disruption from the election in Egypt and other aftershocks from the Arab Spring, as well as the impact of the sanctions in Iran. Issues will not be present in Q4. Let's turn now to the business performance in the zone. The emerging markets have continued to deliver double-digit growth. China also reported growth in the high teens, with most categories double digit.
The Philippines had a weak quarter for reasons I just mentioned. The Malaysia Singapore market, on the other hand, is performing well this year, with double-digit growth heavily weighted to RIG. Dairy, Milo, and Maggi are among the highlights there. The South Asia region, which includes India, is running near double digit. Culinary, chocolate, and milk beverages are among highlights. We have seen extremely good growth in Africa in the high teens for nine months. The third quarter number is meaningfully weaker, though, than the half year as we are cycling the Cote d'Ivoire recovery in 2011. Growth in Japan also continued to be positive. Nescafé and KitKat both doing well. Among the zones, categories, dairy, culinary, powdered, and ready-to-drink beverages, and ice cream were double digit. On the next slide is Nestlé Nutrition.
The organic growth of 6.6% and real internal growth of 2.4% reflect increased RIG and pricing over the half year numbers. We have continued to see strong growth in emerging markets in both formula and cereals, double-digit in AOA, as well as in Russia and most Latin American markets. This continues to reflect the benefit of our broad-based innovation programs in both the cereal and formula categories. You may have seen last week's headlines about U.S. birth rates being at all-time lows. This makes for a tough environment in which to grow our business. That said, we continue to see improving momentum quarter-on-quarter. The first key driver here is the pouch category for our Gerber Graduates brand. We entered the category relatively recently, but we have already taken leadership.
The second driver is our rollout of our anticolic formula. The European environment is somewhat similar to that in the U.S., with birth rates down generally in Western Europe and particularly in the southern countries. In this environment, our performance is relatively good, measured by generally positive market share performances, including in France, where we are growing the business. The trends in the two smaller businesses in the division are unchanged. Performance continues to grow, rate management doesn't. Nestlé Waters is next. They reported accelerated real internal growth to 4% and organic growth to 5.8%. In North America, we are seeing good growth for the nine months. The international brands S.Pellegrino and Perrier, as well as regional brands Zephyrhills, Ice Mountain, and Poland Spring, have contributed well.
Our market share story is less strong. This simply reflects that we have responded to higher PET costs by pricing up. We have been able to do this ahead of competition, much of whom have longer term supply contracts than us. We are protecting our margins, even if this is costing us some share short term. The European business had a good quarter. France, Italy, and the U.K. all contributed, as did a number of smaller markets. I think our U.K. business is worthy of note. A few years ago, we had no meaningful presence. Today, we have a market share in the mid-teens and are continuing to see impressive share growth. We have a good domestic brand, Buxton, with a well-situated source, whilst our International Waters and Nestlé Pure Life are also performing well.
The emerging markets have continued to see double-digit growth both in Asia and Latin America. Next is other activities incorporating Nestlé Professional and Nespresso, Nestlé Health Science, and our joint ventures. Nestlé Professional has maintained its great momentum from the first half, with accelerated real internal growth compensating for a lower level of positive pricing. Its performance is certainly strong relative to its industry, the out of home sector being under pressure in the current economic environment. Professional has delivered double-digit growth in the emerging markets, with double-digit growth also in North America, with only Western Europe being slightly negative. The legacy beverage and ingredients businesses are proving to be defensive in the current environment, providing good value alternatives for operators. We are also seeing strong growth in our beverage systems business, as well as in our services to chefs within the food area.
Nespresso continued to deliver double-digit growth. Its innovation programs are running apace, with three limited edition coffees and two machines launched in the first nine months. It is on track to have over 300 boutiques by the year-end, with about 30 openings this year. Nestlé Health Science has performed well. There is good growth in the U.S. and Canada, where Boost is a highlight, and in Northern Europe, as well as in AOA and Latin America. The acquisitions announced in the last couple of years are all performing well. The joint ventures are all performing broadly in line with their markets. The next slide is the overview of the product categories. Just a few comments to build on my zone commentary. Powdered and liquid beverages are near double digit. The Milo and Nespresso Billionaire brands are double digit, and Nescafé is high single digit.
Perhaps you might be interested by two of the overlooked Nescafé businesses. First is Nescafé ready to drink. This is doing extremely well in emerging markets such as China. Second is the legacy Nescafé large can business in Nestlé Professional. This is growing near double-digit. Nescafé Dolce Gusto, meanwhile, is now the number 1 coffee system in Europe in the retail channel. Nespresso is, of course, the overall market leader. Also, it is small, but SPECIAL.T by Nestlé, available in France and Switzerland, has been rolled out into five new countries in Europe: Germany, Belgium, Austria, the Netherlands, and Luxembourg. Dairy and ice cream is mid-single-digit. In dairy, our add out premium milks are performing extremely well as their benefit platforms resonate clearly with consumers. The family cereals businesses, brands such as Golden Morn, are also growing rapidly.
Our ability also to support our PPP dairy range with claims is also a clear differentiator, enhancing our nutritional profile within the category. In ice cream, our global current business has continued to perform well. So are local adaptations such as Cups in Greece and international innovations like peelable ice cream. Peelable is now in Europe and the Americas as well as in Zone AOA, where it was created, and is now available in various flavors. Prepared dishes and cooking aids is growing slightly, having had a small increase in pricing in the third quarter. The ambient business, generally Maggi, has continued to grow double-digit in AOA, and I've already touched on some of the key markets. This is despite a sharp slowdown in the big Central West Africa region which was lapping the period in 2011, when it had strong growth following the war in Côte d'Ivoire.
The European market is tough. Very interesting is the continued success of the introduction of the Maggi brand to the U.K. as part of our international rollout of the juicy roasting concept. I have discussed the U.S. frozen business. Perhaps it is just worth reminding you that we took a decision to reduce our level of promotional activity at the start of the year. We knew this would impact our growth. It has proven, but it would also improve the economics of the category for us, particularly as we enhance product quality, drive innovation, and restore growth to the category. I've already talked about confectionery. The quarter was impacted by the changed shipping pattern in Brazil, which is our biggest confectionery market. Growth picked up pace in Russia, the U.K., and Japan. Petcare delivered 7.8% organic growth in the nine months.
We grew share in all major regions and all major segments. Growth in emerging markets continued to be strong, driven by double-digit growth in Latin America and in Central and Eastern Europe. The North American market was weak, growing about 2%. We continued to outpace category growth, driven by good performances in cat food and dry dog. Innovations included Beneful Baked Delights, a new line of baked dog treats, and Fancy Feast Medleys. In addition, Be Happy, a new mainstream dry brand, was launched within the mass and grocery channels targeted at value-conscious consumers. In Europe, Felix, Purina ONE dry cat, and Pro Plan all delivered strong results. In addition, Felix Party Mix cat snacks has now been launched in 10 markets and is gaining market share. In Russia, we are also seeing share gains helped by the Felix wet cat single-serve rollout. That concludes my presentation.
As I think is clear from my speech, Q3 is not a good guide to Q4. A range of things, from the Brazilian Christmas supply to the missing trading day in Europe, to the pickup in the North American business, to some one-offs in AoA, point to Q3 being the year's weakest quarter. Importantly, with the trend in pricing reflecting and easing in a number of raw material costs, our real internal growth is solid and even improving in some areas. In conclusion, therefore, we are confirming our guidance for the full year. Thank you for your attention, and let's now open up the discussion. I'll pass this call over to Roran, the operator. Thank you, Roran.
Thank you. Ladies and gentlemen, your question and answer session will now begin. To ask a question, please key star one on your phone. You will be advised when to ask your question. All other lines will remain on listen only. If you decide to withdraw your question, simply key star two, and for assistance, please key star zero. I would like to remind you to restrict yourself to two questions per person. Thank you. One moment, please. Thank you. The first question comes from Warren Ackerman from Société Générale. Please go ahead. Your line is open.
Morning, Roddy. It's Warren Ackerman here at Soc Gen. Welcome back. Can I go back to the one-offs you mentioned in zone AoA? You've obviously talked about floods in Philippines, Iran, Pakistan, Egypt. If you had to aggregate all those issues, what drag would that have been on growth? I know you probably haven't worked it out, but just wondering what would be your best estimate. Because you said that, Q3 zone AoA is not a good guide to Q4. Is there any reason to think that the Q4 zone AoA growth won't go back to double-digit growth that we saw in the first half? What I'm really trying to ask, Roddy, is in a bigger picture, can you confirm that there's no underlying slowdown in your emerging market business?
Thank you.
Thanks, Warren. Sure. I don't have a basis point impact number for-
Right
the one-offs in Zone AOA. I think if you look at the-
Didn't think so
if you look at the one-offs in the group, including the European trading day and everything else, it's certainly north of 100 basis points. In the zone in particular, I think those of you who listened to the press conference will also have heard Nandu answering a similar question from one of the media, and he was expressing his confidence that the zone will bounce back in Q4 and indeed, next year as well.
It's clearly we don't call it Zone AOA, Zone CNN for no good reason, every quarter has issues. To strip out the particular issues of this quarter, I think is difficult. It is clear, talking to the zone, that their feeling is that it was extremely impactful.
Right.
If I look across all the markets, it is evident that there is a broad slowdown of maybe 100, 150 basis points across the different markets, emerging markets. Asian and Japan improved. The exception is Africa, that was more like a 500 basis point dip for the nine months relative to the half year. That really is a result of Central West Africa region and the Côte d'Ivoire comparative from the prior year. That's a pretty big move in itself. That's a bit more depth where you want it, but I haven't got a precise number.
Okay. Roddy, you said north of 100 basis points. Can I interpret that as if I look at the Q3 organic growth in isolation, which was around 5%, that would, in underlying terms, be slightly above 6%? Is that what you're saying?
Well, what I said was that the north of 100 basis points is for the group as a whole.
Right
European thing. I haven't worked out a number for AOA.
Okay.
I think the AOA impact is probably bigger than that if you think about 700 basis points in Africa.
Okay. Sorry, Roddy, just on this 100-150 basis point slowdown in emerging market growth, what would that go from and to then in terms of the absolute %, do you think, roughly?
We are still slightly over double-digit for emerging markets in the zone. It's gone from the very low teens to just below the low teens.
Right. Okay. Thank you.
Thanks, Warren. Next question please.
Thank you. The next question comes from David Hayes from Nomura. Please go ahead.
Morning. Very good to see you back. Just a couple of quick questions to follow up on that AOA discussion in terms of those one-offs, and just taking the point about them not being there. I guess some of them may well reverse in the fourth quarter in terms of catch-up. Just whether you can talk about which ones you've mentioned, where you actually see a benefit in the fourth quarter because it's just a lag effect effectively. Also in terms of Europe, we heard from one of your competitors yesterday that since September, particularly in Southern Europe, things have got a little bit worse, partly around Spain, I guess, with the VAT rise. Just wonder whether you would say that you saw that impact or whether you think that may affect that PIGS dynamic in the fourth quarter as well. Thanks so much.
Thanks, David, and thank you, Warren, for your kind welcome back. AOA, I think in Africa is cycling a quarter issue, so that's a clear example of something that should bounce back a bit. Elections that I've mentioned have happened, hopefully that will bounce back. We're back in operations in the Philippines. We're back in operation in Pakistan. Those are very clearly incidents related only to the quarter. Now, we're never going to make back the sales we lost, but it doesn't mean we won't see growth coming back in the fourth quarter. I think a lot of those issues are very specific to the third quarter only. In the particularly Greece, Spain, the PIGS, we saw a slight slowdown in the nine months relative to the first half in Spain. We're consistent with our competitor in that comment.
We are not seeing dramatically negative numbers in these countries. We published a number for you for the PIGS, so you saw it. In fact, Greece is 4% positive, which is the smallest of the four countries, but nonetheless, it's positive. In Spain, a highlight there is coffee, which is still doing well. Curiously, Dolce Gusto as well is still doing well in Spain despite being a very premium offer. I know also that the Nestlé Health Science business is struggling a bit in Spain because of the reinbursement changes that have happened there, and I think that's also a consistent message from what you've heard already this reporting season. That would be my comment on Spain.
Okay, thank you. If I could just be cheeky and just do one follow-up on Nespresso. Obviously, you give these kind of broader sort of growth levels. Taking those as numbers, if you like, you may conclude that the third quarter growth would have slowed to around 6%-7% on the basis of saying high double digit in the first half, now double digit. Is that the kind of thinking that we should have, or is that just a sort of nuance of the definitions and actually third quarter also is double digit growth for Nespresso? Sorry. Thanks very much, Rod.
That's all right, David. No, you don't be pessimistic on Nespresso. The slowdown in other is more due to the joint ventures than it is to the Nespresso or Professional or Health Science.
Right. Thank you very much, sir. Thank you.
Okay. Next question, please.
The next question comes from Alain Oberhuber from MainFirst. Please go ahead.
Yes, good morning, Roddy. Alain Oberhuber, MainFirst, also from outside. Good to have you back. Two questions. First question is about Germany. Could you elaborate a little bit more on the German development, which category were weak and which were good, and what we could expect through the second or for the last quarter? The other question is also about Europe. Excluding this one day which we had, of what would have been the underlying growth rate, would have been similar to Q2 for Europe?
Thanks, Alain. Basically, Germany was weak more or less across the board. We are very focused on ensuring that we are achieving value with our retailers, and we are not willing to be overly promotional in that market, and that has impacted our growth across basically all the categories. I think you can work out the impact of a trading day in Europe. It's one day out of three months, so it's a relatively straightforward piece of math, Anna, for you to do, I think.
Okay. Thank you very much.
Okay, thanks. Next question, please.
The next question is from Jon Cox from Kepler. Please go ahead.
Yeah. It's actually Kepler Capital Markets, soon to be Kepler Cheuvreux. Welcome back, Roddy. Good to see you back in the saddle, as it were. I have a couple of questions for you. Just on the commodities side of things. Basically, you seem to be alluding to the fact that there actually could be a little bit better tailwinds in the latter part of the year than maybe you implied in the first half. That's just the first question. Just the second question, I know you're probably a bit bored of talking about Nespresso. I think Wan Ling alluded to the fact that there could be some sort of security type innovations coming through with Nespresso. I'm just wondering if you have any sort of timeframe. Should we be expecting a machine with a chip reader anytime soon? You alluded to a couple of new machines being launched.
I'm just wondering on the sort of timeframe of some ways to sort of block copycats other than legal measures. Thank you.
Thanks, Jon. If you look at our guidance at the first half, we already talked there about input costs easing in the second half. This is not a piece of new guidance. It's the same wording we used at the first half that we expected input costs to ease in the second half of the year. I guess the only changes, really, to input costs that are meaningful for us are actually probably more on the less good news side than the good news side, in that we've seen input cost pressure a little bit in infant nutrition and also in pet care as well, with the grains going up. Nespresso, I didn't hear the Wan Ling comments.
I'm not aware of what she said, in terms of chips, all I know about chips is that we have in the boutique in France, we're using the RFID chip in one of the boutiques, which is something new that we're doing to get a better feel for consumer behavior in the boutique. I don't know about anything we're doing around security on machines. Anyway, I wouldn't really want to talk about coming innovations. The two machines that I talked about in my speech that we've launched are already out. One is the U and one is the Maestria machine, they're already out. They're already on the market. Okay, Jon?
Okay, great. Thank you very much. Cheers. Yeah.
Great. Thank you, Jon. Next question, please.
The next question comes from Eileen Khoo from Morgan Stanley. Please go ahead.
Morning, Roddy. Eileen Khoo here from Morgan Stanley. Really nice to see you as well. I just had a really quick question on pricing, actually. It looks like pricing decelerated in all the other categories apart from nutrition, where it seemed to be really strong, almost 7%. Could you give us some color on this? Maybe just comment in general on pricing given the outlook for input costs. Were there actually any price reductions in the third quarter, or was it just a lower pass-through effect? What should we expect for the remaining of the year? Thanks.
Thanks, Eileen. Clearly, the big impact on our reported pricing is that the pricing we took in 2011 is obviously now falling out of the numbers. Effectively, it's roll over pricing disappearing. When you look at individual categories, you clearly have categories where either we've increased promotions or we've adjusted prices. An example of that would be, for example, soluble coffee in Russia. I don't know whether you know, but we have a fairly standard price gap between our super premium Nescafé and premium Nescafé, and that's pretty standard across the world. In Russia, however, the price gap was a lot bigger than anywhere else, and we've effectively brought that price gap down by lowering the price of the super premium Nescafé. That's clearly helping us to drive growth in that market in Russia, in that category in Russia.
That would be an example where we have adjusted pricing. Beyond that, as you know, pricing decisions are taken locally. I'm not surprised to see the pricing coming off because apart from the roll over effect, we clearly have less input cost pressure this year than last year and therefore less need to take pricing. As you say, Nutrition is going up. Also, pet care, as I just mentioned, has got some raw material pressure and they've taken pricing. There are places where we're taking pricing, but broadly, there's not much pricing being taken this year.
Thank you.
Thanks, Eileen. Next question, please.
Thank you. The next question comes from Robert Waldschmidt. Please go ahead.
Morning, Roddy. My question relates to the Americas Region, in particular in North America, where it seems like we're seeing a little bit of signs of improvement, albeit perhaps at increased price or promotional activity. Can you just give us a flavor in terms of how you see North America as a whole in Q4, beyond just the frozen area?
Sure. First of all, I mean, if one looks at market shares, with the exception of Waters and Nutrition, all our shares are either up or they're on an improving trend from having been negative. Broad-based, our share performance is improving. The reason for our weakness in the Water market share I've already touched on, which basically is that we have taken pricing, private label suppliers are locked in on their contracts, can't take pricing, and in a somewhat price-sensitive category, we are losing share. Clearly, we are prioritizing the bottom line. Looking at the categories individually, I touched on these in my call. Looking at the frozen aisle, first of all, the category remains weak, and you can put in that, in the frozen aisle, pizza, frozen entrées, Lean Cuisine, even ice cream. The categories are weak. We are seeing improving trends.
You asked about Q4 and next year. We also have some big innovations in the frozen meals and pizza businesses coming through end of this year into next year. They've tested very well, we're excited about that. We need some innovation to bring some growth and consumer excitement back into those categories. We're also working on a broad communication strategy, not product specific, but category specific, addressing perceptions about the relative healthiness of frozen against fresh. Hopefully, that will also start to impact the categories positively as well. Pet care is doing well in terms of market share. That's true, by the way, across the world, and actually, even in Germany. From the earlier question, pet care is doing well in Germany as well. Probably the exception there. In North America, pet care is performing well across all categories relative to the market.
The weak category and the reason for the slight dip in pet care in North America in the third quarter is the wet dog category, which is weak as a category and also weak for us. Chocolate obviously is a small market share business for us, but it's doing well. You know the story there. Skinny Cow continues to perform well. I touched already on soluble coffee. Not much more to say there. Both the Hispanic business, Clásico, and the newly launched premium, Momento, are doing very well. Nestlé Professional is a standout, I think, in North America. For an out-of-home business in North America to be growing double digit is pretty extraordinary, and all credit for them for doing that. Also, Nestlé Health Science is growing high single digit in North America. It's broadly a very good story.
Nestlé Nutrition, I mentioned the birth rate issue, but again, within the context that we're operating, we're doing okay, and the recent innovations I mentioned in my speech are certainly driving growth already and will continue to do so. Does that answer the question, Robert?
Yes. That's very helpful. Thank you very much.
Fantastic. Thanks, Robert.
Thank you. The next question comes from Patrik Schwendimann from Switzerland. Please ask your question.
Patrik Schwendimann from the Cantonal Bank. Also, a very warm welcome back to you, Roddy. Firstly, again, on the U.S., did I get this right that overall you would say you would expect some more improvements in quarter four in the U.S. compared to quarter three? Secondly, regarding input costs, could you give us a first idea what your expectations are for 2013? Thank you.
Morning, Patrik. Thank you. Yes, we expect the U.S. to be better in Q4 than Q3. On input cost for next year, I would rather wait until February to give you the guidance. The later we leave it, the more likely we are to be accurate. We'll do that in February.
Okay, fair enough. Thanks.
Thanks, Patrik. Next question, please.
Thank you. The next question comes from Jeremy Fialko from Redburn. Please go ahead, ask your question.
Morning. Jeremy Fialko, Redburn here. Again, welcome back, Roddy. A couple of things from me. First of all, on the press conference, I think Nandu talked about some trading issues in Australia. If you could talk about what they were, what the impact might have been in Q3, and whether you should see some resolution of those in Q4. The second thing is that the FX has now turned positive for you, which is a bit of an unusual thing. Can you say whether that is going to have a positive effect on your margins this year and what that might be? Obviously, I know that's independent of the guidance that you're giving, but just some sort of indication would still be helpful. Thanks.
Thanks, Jeremy. Australia, I don't know if you know the Australian retail market, but there are basically two large food retailers. It's somewhat like the U.K. market in terms of the level of competitive activity between those two players. Also, a number of the managers down there come out of the U.K. market. There are quite some similarities between Australia and the U.K. for us food manufacturers. We have had some tough negotiations with those players. The negotiations are resolved and hopefully therefore, that's another relative positive for Q4 over Q3. In terms of the FX, you're right. It's certainly relatively unusual in recent times for us to have positive FX. I think you can work it out for yourself. You know that we have different levels of profitability in different markets.
You know to what extent, you know which markets are higher margin and lower margin, and you know what the currencies have done. Our results are always characterized by a mix effect. Whether that mix effect will be different in 2012 than 2011, I don't know. It doesn't change our guidance, which obviously is improved margin and constant currency.
Okay, thank you.
Thanks, Jeremy. Next question, please.
The next question is from Pedro Gil from Santander. Please ask your question.
My question has been covered already.
Thanks, Pedro. That's an easy one. Another question?
We have another question from Alain Oberhuber from MainFirst. Please go ahead.
Yes, thanks so much. Just really coming back. You mentioned a couple of specific issues why AOA growth was lower. You also mentioned in your presentation that the emerging market growth was at 11.5%, almost similar to the previous quarter. Could you help me on that? Why emerging market was still stated to be strong, whereas in AOA it was slower?
Yeah. We had a good improvement in Eastern Europe. LatAm was fundamentally unchanged. I think the globally managed businesses also contributed. Nutrition contributed positively to the AOA result. It was obviously is not in the zone number. Waters continued to perform well, I think the big swing factor probably was Eastern Europe and nutrition.
Great. Thank you very much.
All right. Thank you. Next question, please.
Thank you. There are no more questions in the queue. I will hand you back to Mr. Child- Villers. Thank you.
Well, thank you. First of all, thank you very much, everybody, for your very kind remarks. Also thank you for joining us today and for your questions. As I said, the Q3 great performance for food to be the weakest of the year, and we reconfirm our guidance for the full year unchanged from February. Thank you again. It's also very nice to be back, and I look forward to talking to you soon. Goodbye.