Good morning, everyone. Welcome to the Nestlé Nine Months Sales Call. My presentation will be short, as I think you are all aware of the trends in our business. I will start by taking the safe harbor as read. As you have seen from our press release, our top-line growth remains solid. We've seen a continued pickup in pricing and an easing in our real internal growth, or volume, as we expected. This growth, this group dynamic between pricing and RIG, is repeated in our primary reporting segments, and all continue to deliver positive growth. This dynamic is the same also in most product categories, exceptions being confectionery and PetCare. The RIG for confectionery was unchanged from H1, and the pricing increased, whilst PetCare delivered both increased RIG and increased pricing. Currencies have remained a major headwind on our reported numbers.
Our outlook is that we now expect to slightly outperform our long-term 5% - 6% organic growth range, and we continue to strive for margin improvements in constant currencies. Next, the key elements of sales. Organic growth was 7.3%, with RIG at 4.1%. Currencies had a negative impact of 15.1% due to the continued strength of the Swiss Franc. Also, our reported numbers include an impact from the sale of Alcon, resulting in a 5.7% reduction from divestitures net of acquisitions. Looking briefly at the sales development by region, we achieved 5% organic growth in Europe, 5.8% in the Americas, and 13.1% in Asia, Oceania, and Africa. This demonstrates how broad-spread is our growth, and it demonstrates our ability to deliver growth even in the most difficult, more constrained markets. On this next slide, you can see a bit more granularity.
As I was just saying, we are delivering growth in more growth-constrained markets, such as the PIGS with 3.7% organic growth, and in the more dynamic markets, such as the BRICs, with 12.3%. Emerging markets as a whole grew by 13.1%, and the developed by 4%. Let's now have a look at the zones and globally managed businesses. Here is the overview chart, and you can see that we have continued to grow in all our operating segments. I will now go into the detail of our performance, starting with the Americas. Organic growth was unchanged at 5.6%, with increased pricing. Growth in North America picked up, and Latin America remains above 10%. Looking at North America first, the biggest category, PetCare, had a good third quarter, as promised. Those categories remain subdued. Market shares have improved. Innovations are driving this outperformance.
The recently launched ONE beyOnd, in particular, is going well. In ice cream, the pricing accelerated in the quarter due to super premium and snacks. Market shares were about flat, changed, although the category has, if anything, slowed further. That said, our innovations, such as snacks for Lean Cuisine, have been well received. Pizza continues to perform well and gain market share. It is worth noting that the home delivery pizza segment has slowed somewhat, so the players there have increased their promotional activity. In chocolate, the Skinny Cow launch is doing well, with early indicators very positive. In Coffee Mate, the Natural Bliss launch is exceeding our expectations. This is an important launch, as it takes Coffee Mate into dairy creaming, rather than being exclusively a non-dairy creamer. Dairy creaming is about 30% of the coffee cup market, which has previously not opened to Coffee Mate.
The other recently launched Coffee Mate range, Café Collections, is also performing well. Turning to Latin America, we are continuing to achieve double-digit growth in most markets. Categories and brands growing double-digit include Nescafé, chocolate, Maggi, PetCare, and powdered beverages. The biggest category in the region is dairy, which is growing high single digit. Among brands, I would highlight the rollout of Nestlé Nido liquid milk with probiotics, Nescau powdered beverage in Brazil, Nestea and Nescafé Mexico, and Maggi in Venezuela. Next is in Europe. As you would expect, with organic growth at 3.8% for the zone and positive RIG in all Western European markets, our market share performance has been good. The zone achieved another quarter of positive growth, and this was even with a poor ice cream season. Ice cream's most important month is July, which had its worst weather in 30 years.
Our ability to deliver growth in the zone as a whole, regardless of the impact from ice cream, demonstrates the strength and sustainability of our growth in Europe. I think you know well by now the Nestlé theme in Europe: compelling innovation targeted at specific consumer segments. For example, look at the success of Juicy Roasting in the U.K. Maggi is not an established brand in the U.K., so Juicy Roasting's success there demonstrates the integrity of the concept. Equally, in France, we are selling every second. Juicy Roasting is now rolled out across much of Europe, as well as in other markets around the world. It's interesting to note that Juicy Roasting is the start point for innovation in this category. I look forward to briefing you on the coming innovations in the months and years ahead.
Equally, Nescafé continues to benefit from a range of innovation, from super premium Nescafé Dolce Gusto to renovation on the premium Nescafé Gold blend, to the continued rollout of Nescafé Green blend, with its health and wellness messaging around antioxidants, to PPPs such as Nescafé 3-in-1 and sachets, launched successfully in a number of Western European countries. Turning now to the zones markets, France has continued to perform at a high level. The U.K. has accelerated from the first half, as competitors have increased pricing, particularly in soluble coffee. Eastern Europe remains a mixed picture, with Russia and Poland experiencing subdued trading, but the Ukraine and Adriatic region enjoying double-digit growth. Culinary and powdered beverages, as well as PetCare, are performing well in the East. Among the zones categories, I would highlight the growth of soluble coffee, culinary, pizza, sugar confectionery, and shelled culinary, particularly Herta in shelled.
Also, the Pan-European PetCare business has accelerated in the third quarter, with rollouts of Felix One and Pro Plan amongst highlights. Our drive for growth and market share in Eastern Europe is going particularly well. Next is zone AOA. Organic growth was unchanged from the previous quarter at 11.7%, though with higher pricing. RIG remains at an impressive 8.2% for the nine months. The Japan and Oceania region has continued to deliver positive growth. Japan has had a very resilient year. Coffee is performing well. Innovations include the two Nescafé systems, Dolce Gusto and Barista, as well as new variants in soluble coffee. In chocolate, Kit Kat is performing well. A new launch is Kit Kat Black. This is a Kit Kat with a very dark, slightly powdery textured coating. It tastes fantastic.
It is aimed at a more mature consumer than the standard Kit Kat, which is perhaps why I like it. In Oceania, the retail environment, with basically just two players, is very price competitive, making it for tough trading conditions. The zones' emerging markets have continued to perform well, with most double-digit. Greater China, the Middle East, Africa, Indochina, South Asia, and the Philippines are all performing well. Growth in the categories is consistent with trends earlier in the year. The biggest are achieving double-digit organic growth and have high levels of RIG. Dairy, soluble coffee, and culinary are all contributing well, as are smaller categories such as ready-to-drink beverages and ice cream. Brands to highlight include Nido, Nescafé, Milo, and Maggi. Finally, on the zone, I have no news for now on the closing of the two transactions in China. Next is Nestlé Nutrition.
Infant nutrition is the biggest division. The division achieved high single-digit growth for the nine months, 9%+ , with a slight slowdown in Q3, which was up against a very strong comparative quarter in 2010. In the U.S., we were lapping the stocking of a new WIC contract from the third quarter of 2010, as well as a competitor recall. Also, the baby food category there was under pressure due to the weak economic environment. Europe continued to grow, with France particularly strong. Growth continued double-digit in the emerging markets in all three zones. All the subdivisions, being formula, cereals, and baby food, contributed well. Highlights for the nine months included Russia, China, Africa, South Asia, as well as a number of Latin American markets. Recent innovations, be they for colic and infant formula or probiotics in infant cereals, for example, are performing well. Just a word on BabyNes.
The launch has had a good first few months, and 92% of customers would recommend it to friends and family, so a good start. Both the other divisions, Jenny Craig and Performance Nutrition, enjoyed strong growth internationally, Jenny in France in particular, and Performance in AOA, but were held back by continued subdued trading in the U.S. Both are impacted by the poor economic situation there. Next is Nestlé Waters. Organic growth was 4.7% for the nine months. The North American business continued to be price disadvantaged following its price increases in Q2, which impacted volumes and shares. We continue to see good growth, however, for Perrier and San Pellegrino in the U.S. We've also now seen a few quarters of improving momentum in the U.S. home and office delivery business, which is benefiting from an improved value proposition with Nestlé Pure Life.
The European Water business performed well in a subdued market, gaining share in all key markets. The emerging market business continued to deliver double-digit growth. The international brands were the key drivers of growth, with Nestlé Pure Life, San Pellegrino, Perrier, Acqua Panna, and Vittel all performing well. Next is our other segment, which includes Nestlé Professional, Nespresso, Nestlé Health Science, and our joint ventures. Nestlé Professional is having a good year with high single-digit growth. The emerging markets are growing double-digit, whilst growth is positive also in the developed markets. The beverage division is the key growth driver, as we would expect, with double-digit growth. The new premium machines, such as Milano, and the new super premium machine, Viaggi, had a good reception with customers and are building their presence. As an example, we have placed about 3,000 Milano machines with a QSR in North America.
The food division is performing well relative to its industry, with mid-single-digit growth, and is growing in all parts of the world. In common with beverages, pricing actions have had some impacts on RIG, but these are necessary to ensure we start 2012 at the right price points. One thing to highlight is our work with hospitals. We are now able to demonstrate concretely that in hospitals where Nestlé Professional is providing customized food solutions for patients, the improved nutritional content is contributing to shorter recovery periods. This is a measurable benefit for hospitals, as it demonstrates that we don't just improve supply chain management, but we also contribute to beds being freed up faster than previously. Beds or so-called hotel costs are amongst the highest costs for hospitals. Nespresso continues to grow around 20% and is on track to have around 250 boutiques opened by the year-end.
Nestlé Health Science is integrating its recent acquisitions. It is seeing good growth in its existing healthcare nutrition business and is gaining market share. The food and beverage joint ventures, Cereal Partners Worldwide, and Beverage Partners Worldwide contributed mid-single-digit growth. I won't spend long on the product groups. The key message on this slide is the continued broad-spread growth, with all categories contributing. Powdered and liquid beverages saw a slight acceleration in the third quarter and delivered 12.6% organic growth for the nine months. The product groups' constituents: soluble coffee, powdered beverages, liquid beverages, and Nespresso all contributed to this strong performance. Growth was double-digit in Zone AOA and Zone Americas, and high single-digit in Zone Europe and Nestlé Professional. Just a word on Nescafé Dolce Gusto.
It has sold 4 billion capsules since launch, is achieving above 50% organic growth, is in 41 countries, and is already a market leader in 20 countries. In milk products and ice cream, I'd highlight the continued strong performance of dairy, which is growing double-digit, even if increased pricing has had some impact on RIG. Highlights include the strong performances of our PPP s , of our higher value-add growing up milks, and of the launch in Latin America of liquid milk with probiotics. To mention just a few countries and regions, China, Pakistan, Africa, and Mexico are among highlights. Ice cream I've already covered. It was a reasonable performance in a weak season. Moving to prepared dishes and cooking aids, ambient culinary, which is predominantly Maggi, continues to deliver strong growth and good market share performance generally. I mentioned Juicy Roasting earlier. Some KPIs for you.
We will sell 200 million packs in 2011 globally, with organic growth of above 50%. We are the leader in 32 out of 34 markets and have 88% share overall of the category. I've already discussed frozen and pizza in the U.S. Confectionery is next. I'll just remind you that Q2 was positively impacted by the late Easter, so the right comparative for Q3 is the first half number. With that in mind, 4.4% organic growth for the nine months reflects a slight increase in pricing and unchanged RIG. The emerging markets continue to perform well, with double-digit growth in Asia and Latin America and high single-digit in Africa. In Europe, France and Germany are performing well, whilst we gain share in the subdued U.K. market. Finally, in confectionery, we today announced the launch of Maison Cailler.
This is a direct-to-consumer online model offering the highest quality chocolates tailored to customers' individual tastes. There will be more on this at our press conference after my call. I have already discussed PetCare's improved performance. We grew market share in all regions and all major segments. Growth in emerging markets continued strong, with, for example, double-digit growth in Latin America and Central and Eastern Europe. The Q3 acceleration was in line with the promise we made you on our first half call. That concludes my presentation. To summarize, we continue to grow at a good level with 7.3% organic growth. The environment is tough, particularly in the developed markets. That said, we expect to slightly outperform our 5%- 6% long-term run rate at the full year. Equally, we are striving for an improvement in the margin in constant currencies.
Thanks very much for listening, and let's go to the questions.
One moment, please, for the first question.
Sorry . Hello
Thank you. It's from Mr. David Hayes of Nomura. S ir?
Thank you. Morning, Roddy.
Morning, David.
Morning, Roddy. Just two things. Firstly, just on the default, some detail on the outlook. Obviously, you're using this word slightly above 5 %- 6%, and I don't want to get too specific about how you define things, but I just want to see whether you feel that you're comfortable with, I guess, consensus, which is around 7%, or whether that slightly word would suggest that what you would define by slightly above that 6% level. Similarly, on the margin, you've moved to saying you're striving for margin uplift, and you talk about AMP uplift to support innovations in the release. Again, I just wonder whether you're as confident now as you were at the first half on the margin side and whether that's at both the trading profit level and the old definition of operating profit level.
The second question is just on slightly off the sales numbers, but just on the cash flow. As we talked about the first half, obviously, inventory was up substantially in the first half. There were some other cash outflows. I just wonder whether you can give us any indications on trends in cash flow in the second half and whether some of that inventory has been unwinding. Thanks very much, Roddy.
Thanks, David. Good questions, as usual. On the outlook, I'm not going to get into a discussion about how many basis points slightly means. We've given you our guidance on the top line. You know where we are at the moment with our organic growth. We believe we're going to slightly exceed our long-range run rate. Now, on the question about the striving to achieve, I think it's also a good question. The key message here is that we are committed to the Nestlé model. I've already discussed on my calls, Nestlé-specific issues in the third quarter. The other things that have changed since the first half results, no question, the consumer sentiment has turned down in Europe, has turned down in the U.S. Equally, the emerging market currencies are weaker against the U.S. dollar and Swiss franc.
I think our guidance about striving is simply being sensitive to the environment that we're in. As I say, we are still committed to delivering the Nestlé model. You asked on which margin we are guiding. Our press release guidance has always been on the old EBIT, underlying EBIT margin. That's where we're guiding. On cash flow, I'm not going to go into any detail on cash flow on a sales call. I will reiterate what we said at the half year, which is that the reason for one of the reasons for our cash flow performance, setting aside the currency impacts and the impact of selling Alcon, was that we were using our cash flow as a way to hedge input costs, hence, as you say, the high inventories.
We did say to you at the half year that our cash flow performance would improve in the second half of the year, and what we are seeing year to date underlines our confidence that that will indeed be the case.
Brilliant. Thank you very much. Thanks, Roddy.
Next question, please.
Thank you. Your next question will come from the line of Alain Oberhuber. Please go ahead with your question.
Morning, Alain.
Morning, Roddy.
Following question about PPP, strong growth rate again. Could you break up which areas you are currently now in, and how much is the proportion of PP when you look at Asia, Latin America, and Europe? On the other side, I'm interested in the U.S. home and office delivery bought business. Could you elaborate a little bit? What did you exactly do in order to get traction again? If the market environment for HOD has clearly.
Yeah, thanks. I'll just repeat the questions in case people didn't hear as I could hardly hear them. The first one was on PPPs, and I think it was the regional b etween the PPPs, we haven't given the regional split. I mean, we said that we had around CHF 11 billion of sales in PPPs last year. They're growing, as I showed you on the chart, they're growing low single digit. The bulk of the PPPs are clearly in AOA and the Americas. It's a growing part of the European business. Our PPPs in Europe are growing meaningfully faster than the European average, but I'm not going to go into a split of PPPs by region. On the HOD business, as you, I think, are all aware, the U.S. home and office delivery water business suffered quite severely following the downturn in 2008. What we've done is we have moved the mix of products in the lorries so that we now have Nestlé Pure Life in the lorries. We have bottles, smaller bottles, as well as the 5 gal tanks.
We've really changed the offer to consumers, and we've made it a more affordable proposition for consumers. That has been a catalyst for getting growth back into that segment for us. I can't tell you, Alain, I don't know, I'm afraid, whether the segment as a whole is enjoying a better trading environment, but certainly our business in the segment is.
Thank you very much.
Thanks, Alain. Next question, please, Carla.
Thank you for your question. The next question will come from the line of Mr. James Edwardes Jones of RBS. Sir, please go ahead.
Morning, Roddy. Just picking up on your comment about declining consumer sentiment in Europe and the U.S., can you say anything about the trajectory of your performance through the quarter? As the economic news got worse, did that have any discernible impact on your business momentum?
Morning, James. Thanks. I hope you're well settled in your new role. It's hard to say. In Europe, our weakest month was clearly July because of the ice cream business. In fact, if you take ice cream out of the European numbers, there was no slowdown at all in Europe in Q3 from H1. You know, consumer sentiment doesn't just impact the top line. It impacts the business as a whole. I think it's important that we should be sensitive to the environment we're operating in when giving you our guidance. That's why we have slightly adjusted the guidance. In North America, there's no particular variation month on month in terms of performance.
Okay, next question, please.
Thank you. Our next question will come from the line of Ms. Susanne Seibel of Barclays Capital . Ma'am?
Thank you very much. Good morning. Roddy, can you talk us a little bit more in detail through the nutrition business? On a quarterly basis, the RIG is down to 2.5% in Q3. I assume that wasn't all down to Jenny Craig . Could you give a little bit more detail on that performance, please?
Sure. Thanks, Susanne. Question on nutrition. I think, I mean, the starting point is the tough comparative. In Q3 2010, nutrition had 8% RIG. We were always going to be up against that as a tough comparative. The slowdown has actually got nothing to do with Jenny Craig . Jenny Craig 's performance isn't good, but it's no worse in Q3 than H1. Jenny Craig is a net no impact on the quarter. The slowdown is really due to infant nutrition. It is weaker in the U.S. The issues in the U.S. are we had, obviously, part of the tough comp relates to the competitor recall last year. Last year, we also won a WIC contract, which we were stocking in Q3 of last year. We don't have the same benefit this year. There is a slowdown in baby food, which we think is a bit related to the economy as well.
Those are the main reasons. We think that Q4 will be a better quarter than Q3 because of the comp issue in Q3.
Thank you very much.
Next question, please, Carla.
Thank you. Our next question will come from the line of Patrik Schwendimann of ZK Bank. Sir?
Hi, Roddy. First question regarding the coffee beverages business, which still had outstanding performance with 12.6% over nine months. Was there any extraordinary in here, or can we expect a similar performance in the near future? That's my first question. Secondly, regarding the emerging markets, still growing very, very nicely. Here again, not any slowdown here, even not in Brazil. Thank you.
Yeah, I mean, there are no extraordinaries in the coffee business apart from the extraordinary performance of Nescafé, of Dolce Gusto, and of Nespresso. They're not unusual. Nescafé, total soluble coffee Nescafé, is growing double-digit off a near $11 billion base. It was doing so in the first half of the year. It's doing so for the nine months, and it actually has slightly accelerated. Nespresso continues to perform at the same level as it did in the first half of the year. Within that Nescafé number, you have Dolce Gusto doing over 50% organic growth. The whole coffee business is really performing extremely well. If you go back to our growth drivers and you think about what those are, I mean, nutritional health and wellness, we've got good argumentation around green blend. The PPP business is going terrifically well in the emerging markets.
We also had a lot of success launching these 3-in-1 sachets in Western Europe. Think about the out-of-home business. I mentioned the Milano machines in my presentation, Viaggi. The out-of-home business is going very well, and that's growing double-digit in soluble coffee. Premiumization, of course, is Dolce Gusto and even more so Nespresso, and again, growing double digits. I think what is interesting about soluble coffee is that it's sort of the poster child of how to drive the growth driver that we talk about in our presentations at the group level. Nothing unusual in the quarter, just consistent, good, strong performance. On the emerging markets, no, I mean, there's no consistent theme. You look to Africa, you're seeing higher RIG and higher pricing. You look at the rest of the Asian emerging markets, there is pricing up in almost all of them. Some have got higher RIG, some haven't.
Latin America, good performances across the regions, and then the two big markets, Brazil and Mexico, also putting their weight. There's no sign of a slowdown, really, in the business. Great. Next question, please, Carla.
Thank you. Our next question will come from Jeremy Fialko of Redburn. Sir?
Good morning, Roddy. Jeremy Fialko here at Redburn. A couple of questions. Firstly, on pricing, clearly, we've seen quite a lot of commodities come off. Are there any areas where you do have more kind of spot-related stuff, particularly in dairy, where you could see some sort of pricing reductions towards the end of the year? Secondly, on the Americas, it looks like the RIG, if you were looking at just North America, would have been negative in the quarter. What's the outlook there? When do you think that might start to turn positive again? Thanks.
Yeah. Thanks, Jeremy. Good questions. Pricing, I mean, fundamentally, on raw materials, we're done for the year in terms of our cost base, and we're also effectively done for the year in terms of pricing. I don't think you're going to see any impact in our numbers in terms of pricing coming off, and we're not expecting to see pricing coming off in any of these categories. I think, bearing in mind that the pricing number you see is based on the 2011 quarter against the comparable 2010 quarter, you're still going to see increased pricing in the final quarter of this year rather than a reduction in pricing. I don't think you're going to see any reduced pricing. The North American RIG actually improved slightly in the third quarter, which was primarily due to the very strong performance of PetCare. There wasn't a slowdown in the North American RIG.
Okay, Jeremy?
It was still negative in the quarter.
The RIG was, for the business in the zone, it was negative, yeah.
I just was wondering, do you think that will become positive towards the end of the year or next year? Any comments there?
We would certainly like them to make it positive, but I think it's a tough call in one quarter at a time to turn RIG into a positive RIG. Hopefully, it will be next year rather than at the end of this year.
Okay, thank you.
Okay. Thanks, Jeremy. Next question, please, Carla.
Thank you. Our next question will come from Mr. Robert Waldschmidt of Merrill Lynch. Sir, please go ahead.
Good morning, Roddy. Just to comment on the input costs, can you just remind us where you are with respect to the absolute increase? Is it still at the top end of the range? In light of what Jeremy said in terms of input costs coming down, do you have an early read on where we might be heading into 2012? Two, in terms of U.S. and Europe, can you tell our promotional situation in the U.K.? Tesco has clearly been trying to be more aggressive on pricing. What, if any, impact is that having on your business? Thank you.
Yeah. Thanks, Robert. On the input cost guidance, we're guided to CHF 2.5 -CHF 3 billion of incremental cost. We said we'd be at the higher end of that range, and that's good guidance. There's no change in the guidance. 2012, I think when the environment is as volatile as it is, the best way to give good guidance is to give late guidance. I'm not planning to give any guidance for 2012 in October 2011. Assuming that raw materials are an issue in 2012, we will obviously give you some guidance in February next year, but not until then. On the retail promotional side, you're right. It's clear that there's an increased level of price promotional activity in the retailers in the U.K. The question is really just who will end up paying for that, whether it'll be them or their customers.
Equally, it's not necessarily across all categories, not necessarily across all brands. Obviously, it goes to my earlier comment about some weakening consumer sentiment in Europe and North America. That's one of the ways that our customers are responding to that sentiment. It's part of what I said earlier on about us responding to the environment in which we're operating.
Okay. Just to build on that, we've seen the promotional activity increase in the U.K. You've seen that also in concrete form in other places like France and Germany.
We have, I mean, the French business, I mean, we are having a fantastic year in France. We're gaining share in every category. All our categories are positive in France. Even ice cream is positive in France despite the summer. Germany certainly is tough in the culinary category, is tough. When wasn't the culinary category tough in Germany? Ice cream business is, I think the ice cream business is the weakest business in Germany. That waits to July. I haven't got a specific comment on Germany beyond my earlier comment that the consumer sentiment is weaker. I think, you guys must follow the VIX index, sometimes known as the fear index. If you look at that back at the end of June, it was at 16. Now, this week, it's at 32.
The VIX index has doubled, which tells you a lot about how the markets are thinking about risks in terms of macro risks. That's the environment that we're in. Not surprisingly, there's a bit more promotional activity.
Thank you. Our next question will come from the line of Mr. Warren Ackerman of SocGen . Sir?
Morning, everybody. It's Warren here. Can I go back to an earlier question? I think it was a question from Jeremy. Can you just clarify your comment about pricing? Did you say that pricing will be higher in Q4 than Q3? I think Q3 pricing was around 4.2%. Are you saying that Q4 pricing is going to be higher than 4.2%? How does that kind of tally with your comment that most of your pricing is actually being done? Does it therefore follow that you think that RIG will continue to decelerate in the final quarter, especially given, I think, quite a tough RIG comp you've got? I think it was 5% for the final quarter. I think Europe also had a very strong final quarter. Can I just clarify that, please? Thanks.
Sure. I mean, I wasn't making a specific comment, but what I was saying is the numbers that we report are obviously the comparable period is the relevant, you know, the Q4 2010 is the benchmark for the Q4 2011, not Q3. It's pricing on pricing from the prior year. We are clearly going to see positive pricing relative to where we were last year because of the raw materials situation. We've said all along that we expected pricing to increase over the course of the year. Now, frankly, whether it increases by more or less in Q4 than it did in Q3, I don't know. It will continue to increase, we expect, over the course of the year. It may be at a lower rate than in Q3. We don't measure pricing quarterly, as you know, on a backward-looking basis. We measure cumulatively.
Equally, we don't do the pricing in the center, it's done in the markets. Equally, it's based off the prior year quarter. Trying to work out in advance what your quarterly pricing is going to be to a few basis points is not really worth the effort. The trend is clearly for improved pricing. You've seen already this year that as we've taken improved pricing, the RIG has come down a bit. That's all taking you to our guidance of slightly outperforming our 6% long-term run rate.
Would you expect the RIG to continue to decelerate in the final quarter, that trend you've seen for the year, given the comp?
There is always a risk, Warren, that your RIG comes down when your pricing goes up. On the other hand, Q3 was going to be a weak quarter for RIG because of the ice cream season. Again, it's not necessarily saying it's going to be weaker than it was in Q3, but there is a risk that pricing will impact RIG.
Are there any kind of special factors you would highlight for Q4? I mean, I know that I think Europe had a very strong end to the end of the year, and the RIG was up almost 3%. Is there any other little factors you would point to?
I don't think so, no. I don't think there are any particular Q4 issues. No.
Okay, thanks, Roddy.
Thank you. Our next question will come from the line of Mr. Jeff Stent of Exane. Sir, please go ahead.
Good morning, Roddy. Just thinking about pricing again. If you sort of think sequentially, are there any areas of the business where sequential prices have actually been sort of slipping downwards as opposed to upwards? Thanks.
No.
Okay. Yeah.
Okay. Thanks.
Carla, next question, please. Okay. Thank you, sir. I'm going to give the line to Mr. Thomas Russo of Gardner Russo & Gardner. Sir, please proceed.
Good morning, Roddy. Numbers worth getting up for. Congratulations.
Thank you, Tom.
Roddy, a couple of quick questions. First, North America, the frozen integration, how's that coming along?
We're still in the midst of it, tough days. I mean, in terms of the head office integration, that's done. In terms of the nitty-gritty of integrating the pizza direct store delivery with the ice cream store delivery, it's still pretty early days. I think we're going to be well into next year before we have concrete evidence of benefits coming through from there.
Thank you very much. Just an update on the ability to commit the capital spending in developing emerging markets. I think it's mid-year you said that the numbers would go from CHF 1 billion to CHF 2.5 billion in 2011. I'm curious how that spending increase has been effective thus far.
Yeah. I mean, we have been, I think, if you've been following us on the website, no doubt you saw, for example, a couple of days ago, the announcement of the new soluble factory in Russia, another one about a dairy factory in Algeria. You know the investments are going through as planned and as quickly as one can effectively manage the capital process in terms of actually building the facilities. It is clear, though, that the way that the currencies have moved, our original CHF 5.5 billion number is a high number. We're still committing to the same amount of, if you like, incremental volume capacity. Obviously, in Swiss francs, it's costing us less. We're going to be somewhere around the CHF 5 billion number, I would guess, by the year-end for the group as a whole.
Thank you. The Maison Cailler was quite interesting. You said it was home delivery direct, customized to consumer. What markets would that roll out to, and what are your thoughts on that?
My thoughts, obviously, are very exciting as a chocolate lover. I mean, the concept is that you will be sent, or you will send your loved one a selection of particular flavored chocolates from which she will then be able to design her preferred, well, her Maison Cailler will be able to design her taste preference and then tailor chocolates to her particular desires, which to me sounds like a pretty exciting concept. I'm not fully up to speed on which markets it's going to be launched in. I mean, we tend to do these online launches, you know, in the domestic markets first and then go from there. I guess it'll be a European launch and then expand thereafter.
Thank you very much.
Thanks, Tom. Thank you very much for being out of bed in the middle of the night.
Thank you. Our next question will come from the line of Mr. Pierre Tegnér of Natixis. Sir, please go ahead.
Hi, Roddy. I have just a question coming back on North America. We understood that probably nutrition business and pet foods are quite sensitive or have showed sensitivity to the tough consumer environment. Are you seeing other categories where you are surprised by positive or negative sensitivity regarding the decreasing consumer confidence? I'm referring to what you were seeing two years ago when the environment in terms of consumer was quite tough. Are there some changes in relative to two years ago, and what are the key categories where sensitivity is particularly high, except for the nutrition business and the pet food? Thanks.
Thanks, Pierre. I think it was quite a bad line. I think the question was about the categories most impacted by consumer sentiment in North America. I think if one starts with nutrition, it's clear that Jenny Craig has been very heavily impacted. The reasons for that are really around the fact that it is a relatively high-cost approach to weight management because it's based off a one-on-one consultative service. Another area, also, performance nutrition has been somewhat impacted. It's clearly a discretionary category. Going into frozen, the Lean Cuisine and the higher value or the higher priced, more super premium and premium single serve dishes have been impacted. Lean Cuisine is a bit the same dynamic as Jenny Craig in that it's generally bought by housewives who are tending to prioritize their other family members over themselves in their shopping. So Jenny Craig, Lean Cuisine, performance nutrition.
The premium segment of ice cream, and premium in the U.S. is the same as mass in Europe. The premium segment of the U.S. ice cream market is clearly being impacted by private label gains. PetCare, the PetCare category has certainly slowed. The number of the pet replacement rate has come down. That said, we've had a very strong third quarter and are gaining share in the category. I think those are the main categories that are impacted. Of course, I mean, HOD water, we talked about already, although we seem to have found a relatively good response to the challenges there. I think those are the main categories that are impacted.
Thank you. A second question on the water business in Europe. Could you give us an indication of the trend you had in Q3 for the water business in Europe?
The reason that the total water business was down was more than 100% because of Europe, because we had good performance in North America and AOA in the third quarter. Basically, Europe is the reason for the slowdown. I think the key thing for us is that we gain share in all of our key markets. Even if, because of the poor July weather, the water market as a whole was down, our performance relative to the market was very good. Okay, Pierre? Can I give you a question?
Yes, that's fine. Yeah, sure. Our next question will come from Mr. Simon Marshall-Lockyer of Jefferies. Sir, please proceed.
Yes. Good morning, Roddy. Just a couple of follow-ups in terms of geographies. Can you give us maybe a little bit more detail on China, and particularly whether you've seen any slowdown? You mentioned slightly slow performance overall in baby within nutrition. Was that anything to do with the China business? Have you seen any indication of a slowdown maybe in the exiting months of the quarter there? Can you also remind us of the status on Yinlu and Hsu Fu Chi in terms of the consolidation prospects, what the dates are or estimates? Also, could you give us some data points, or are there any valuable data points to give either on the launch of BabyNes? I know it's a very small product launched in Switzerland, but any update on that and how that's going? Same thing on the Viaggi machine.
Thanks, Simon. Okay. I mean, BabyNes, as I said on my call, BabyNes is going very well. It is only in Switzerland. It's a very narrow distribution, so the numbers are not meaningful, apart from the number that I quoted, which is that 92% of customers would recommend the system to their friends and family. Clearly, the reception it's received from parents has been fantastic. BabyNes is going very well. The thing to remember about Viaggi is that it's super premium. Whereas we've got 3,000 Milano machines into one quick-service restaurant in North America in one hit, that's not going to happen with Viaggi. Viaggi is going to be built machine by machine as we get it into upscale bars and cafes and hotels. That said, the progress we're making with Viaggi is very good. Yinlu, Hsu Fu Chi, I haven't got an update.
We're still waiting for the final clearances for those transactions. I'd rather not give you an idea of a timeline because, frankly, doing these transactions in China is a new experience for us, and we just need to go through the process and hopefully get closure. Trading in China, there's not really much to say since in Q3 relative to H1. Business has continued to perform at a high level. It's growing double digit. The ready-to-drink business, which, by the way, Yinlu is the co-packer on, ready-to-drink business is going very well. Ice cream is going very well. Soluble coffee is going well. The dairy is doing well. Culinary is a little bit slow, nothing to worry about. Business is performing well. In the nutrition business in China, we are well into double digits on infant and performing well. I wouldn't say there's any sign of a slowdown in China.
We are, I mean, we're going to be around, we're certainly over 20% organic growth in China for the total business, including the zone nutrition and the other businesses that we have in China. Good performance in China, I think.
Thanks, Roddy.
Okay. I might just, on Maison Cailler, just to say that I'm a little bit ahead of the game. It's going to be launched in Switzerland initially, not Switzerland and France, Switzerland initially, just to clarify. Okay. Can I have the next question, please?
Thank you. Our next question will come from Mr. Jon Cox of Kepler. Sir, please proceed.
Yeah. Good morning, Roddy. Congratulations. A good set of figures. You guys certainly know how to deliver. Obviously, just on the concerns about this guidance on the margin, is it right to say it's not so much input cost? You're basically just bracing yourself for a further weakening of consumer sentiment and potentially a sort of bloody pitch battle in terms of AMP. Is that what you're basically signaling there? Just on the environment generally, obviously, none of us have a crystal ball, but do you think there's any danger next year that you'd actually maybe miss the 5% - 6% target as you did in 2000? Conditions now are totally different. Thank you.
Thanks, Jon. Okay. Coming back to the 2011 guidance, yeah, I think, as I was saying, we're just being sensitive to the environment in which we're operating. You know we can't ignore the fact that things have changed since the first half of the year. We are not giving ourselves a holiday from delivering margin improvement. We are still out there, 28,000 people around the world, working in all countries in the world to deliver margin improvement. We are striving to do so. It would be, I think, naive of us to pretend that the world hasn't changed a bit. It has. You're right. We're not saying there's been a big change in the input environment. What has changed? Clearly, the level of competitive intensity has increased. We had examples of that from one of the previous questions. That's simply the basis of our comments.
We're not talking about a myth. We're just saying that we're going to strive to achieve it. The environment's a bit tougher than it was. Yeah. For 2012, I'm not going to give guidance for 2012, but we will be committing to the Nestlé model, as we always do. I'm not going to start giving guidance on what the actual number is going to be. It will be our intention, as it always is, to deliver the Nestlé model.
Okay, thank you.
Okay, Jon. Thanks. Carla, any more questions, please?
Thank you, sir. That was the last question. There are no more questions in the queue now. I will hand you over to Mr. Child-Villiers now.
Thanks very much, everybody, for your questions. We'll be doing our press conference at 10:00 A.M. Swiss time, 9:00 A.M. U.K. time. Webcast details are on our website. Paul Bulcke and Jim Singh will host it. There will also be a presentation from Laurent Freixe, who's our Head of Zone Europe. Don't read anything into it being in Paris. You might remember that last year it was held in New York. This year it's being held in Paris. Thanks very much indeed for your interest in Nestlé and your attention today. Good morning. Thank you.