Good morning, everyone, and welcome to our results presentation. For those of you in London, I'm sorry that we changed our plans at the last minute and are not with you today, but we thought the most important thing was to be sure that we were in touch this morning, even if only by webcast, rather than to have the risk of the event being disrupted either due to transport or other issues. As usual, we will take you through our performance and key events of the year before opening things up for discussion. As ever, I will start by taking the safe harbor statement as read. Nestlé continues to make progress in an environment characterized by volatility and subdued consumer confidence, particularly in the developed world.
At the same time as delivering in the short term, we have again demonstrated our commitment to building the business over the long term in line with the strategies that we have previously discussed. Our consumer-facing marketing spend is up in constant currencies. We have continued to build the innovation pipeline while launching many new products and systems. We are on our way to a record year for capital investment, with a lot going into emerging markets. We have been able to announce some exciting partnerships and acquisitions, again, often in emerging markets. Nestlé Health Science has become operational, and new and exciting pillars of growth have been established, including the soon-to-be inaugurated Nestlé Institute of Health Sciences. We have increased and held market shares in over 70% of measured sales, maintained real internal growth momentum, and are seeing increased pricing.
2011 has certainly been an extraordinary year for our company, with activities in every corner of the world. We have people managing our operations and making progress in those countries that have been making the headlines, like Egypt, Côte d'Ivoire, and the Middle East, or for rather different reasons, the Eurozone and North America. Equally, we have been confronted by record prices for raw materials, extreme volatility in currencies, and a seemingly unending increase in the strength of the Swiss franc. Many of you came to our seminar in June or listened to the webcast. You heard that we have processes in place that enable us to manage through turbulent times and that we have further increased our procurement capabilities since the last period of high input cost pressure.
The result is that we can report today a performance that demonstrates our ability to deliver on our key objectives, even in the toughest of times. As I go through the different business areas, there are some that have had a strong start to the year and some less so. Of importance is that we have delivered at a group level. Accordingly, we are well set to achieve the Nestlé model again in 2011, being an improvement in margin in constant currency and organic growth at the top end of our 5%- 6% range. Finally, we have unprecedented opportunities to invest in future growth, particularly in emerging markets, both organically with CapEx and through BOTONs. With that in mind and with an eye on the uncertain economic environment, we will retain financial flexibility to drive our strategic priorities with confidence. Now, let's have a look at the headline performance.
Organic growth for the first half was 7.5%, a meaningful acceleration from the first quarter, with an outstanding second quarter of 8.5%. In line with what we had said at the time, growth from pricing is up from 1.5% at Q1 to 3.8% in Q2, giving 2.7% for the first half. The real internal growth continues to be strong at 4.8% for the first half. The trading operating profit is up by 20 basis points to 15.1% and by 40 basis points in constant currencies. Trading operating profit before other net trading operating expenses and income, EBIT as previously reported, is flat in constant currencies and down 20 basis points as reported. Please note that at this margin level, last year, we had a 60 basis point improvement. The consumer-facing marketing spend is up by 6.2% in constant currencies.
As a reminder, this was 14% in constant currencies up in the first half of 2010. This is a further increase on top of a big increase last year. The net profit was CHF 4.7 billion, and the margin was 11.5%. In constant currencies, the net profit margin was virtually unchanged compared to the first half of 2010, which included Alcon. The underlying earnings per share for the group are up 5.2% in constant currencies. On the next slide, we have created our usual margin bridge for trading operating profit. The benefits from Nestlé's continuous excellence and other actions by the organization help to address the significant impact of escalating input costs on cost of goods. In particular, the positive evolution of pricing has also contributed, as well as growth leverage and the benefits from restructuring in prior periods.
On input costs, I reiterate our June guidance that we expect the impact at the upper end of a CHF 2.5 billion-CHF 3.3 billion range. Distribution costs were up 10 basis points. Efficiencies played a part again, but also mix in mitigating the effects of increasing energy costs. Marketing costs were down 20 basis points. This follows a meaningful increase in the first half of 2010. As I said, our consumer-facing marketing spend increased in constant currencies even after we have achieved efficiencies through a more global alignment of campaign messaging, as well as through the use of media mix. Administrative costs were down 150 basis points. There are a number of factors at play here. First, we are rolling out Nestlé's continuous excellence beyond operations, and as part of this, we have targeted for admin costs to grow much slower than organic growth. This creates leverage from growth.
We were already achieving significant savings in the second half of last year, and consequently, we would not expect the second half evolution to be as dramatic. R&D costs increased by 10 basis points. Next are the other net income, net trading income and expenses. These improved by 40 basis points due to lower restructuring costs, as well as a lower level of cost for litigation and other expenses. You can expect the full-year restructuring costs to be 30- 40 basis points. This then gives you the trading operating profit improvement of 20 basis points or 40 basis points in constant currencies. I've already mentioned the phrase constant currency several times. Let's have a look at the currency situation. Half year on half year, we have a 17% decline in the U.S. dollar against the Swiss franc and a 12% decline in the euro.
All other currencies are also weaker against the Swiss franc. The impact of the strong Swiss franc is clearly significant on translation of our financials for reporting purposes: 13.8% on sales, 20 basis points on trading operating margin, 15% on underlying earnings per share, between CHF 600 million and CHF 700 million on operating cash flows, and CHF 5 billion on the balance sheet. Importantly, there is no meaningful impact on our underlying operating performance, which, as you have seen, has remained strong in the first half. Now, let's look at our sales performance, starting with our traditional sales evolution chart. I've already discussed foreign exchange. The vestiges net of acquisition was negative 6.6% due to the August 2010 sale of Alcon, which in itself impacted our sales evolution by over 8%.
The sale of Alcon and the exchange rates should not overshadow the very strong operating performance reflected in the organic growth of 7.5%. ROIC for the first half was 4.8%. This maintains our momentum from Q1 and is a truly differentiating level of performance. There was also a step up in pricing in Q2 to 3.8%, giving 2.7% for the first half. I believe this half-year number will gradually increase during the rest of the year. I'd like now to pass over to Roddy to do our usual run-through of the business segments. Roddy?
Thanks, Jim. Good morning, everyone. I'll start with the total group sales by region. In each region, the numbers include the relevant zone and the globally managed businesses, which are nutrition, waters, professional, Nespresso, and our joint ventures. We show this to give you a good read across with our peers. It is once again a picture of broad-based growth, strong relative to the various markets. Europe has accelerated from 3.9% organic growth in Q1 to 5.8% for the half, with ROIC up 120 basis points to 4.6% and pricing up 70 basis points to 1.2%. This is growth on growth, coming on top of 3.6% organic growth in the first half of 2010. The Americas achieved 5.7% organic growth, with ROIC of 2.2%. Pricing has accelerated, but ROIC was lapping a tough second quarter in 2010. Asia, Oceania, and Africa achieved 13.3% organic growth.
The ROIC remained double-digit, and pricing was up to 3.2%. A key reason for our broad-based growth is that we have been able to deliver growth both where you would expect strong growth and where you might not. Where you might expect strong growth, the emerging markets and the BRIC countries both growing at 13.3%. Where you might not, the developed markets growing at 4.4% and Portugal, Italy, Greece, and Spain growing as a group at 3.9%. Let's now look at the operating segments. First, here is the currency impact by reporting area. Normally, this slide would be in the appendix, but I think it merits being shown up front this time. The currency impact on sales will most likely remain double-digit, but it could lessen a bit due to the relative comparison versus 2010, as you can see on the two graphs.
As Jim said, the currency impact should not take away from our strong operating performance. On this slide, you can see how broad-based our ROIC has been and our organic growth, which ranges from over 4% in zone Europe to over 11% in zone AOA. There is increased pricing in the second quarter in all reporting areas. The ROIC evolution remains robust, and I'll go through this in more detail, starting with the Americas. The ROIC in zone Americas improved marginally from Q1, but there's been a strong acceleration in pricing, up 360 basis points in the second quarter from the Q1 level. With weak consumer sentiment in the U.S.A., the North American business continued to experience tough trading conditions, as demonstrated by moderate growth but a reasonable market share performance. The frozen aisle continues to be under pressure generally.
The Lean Cuisine and Hot Pockets segments are slightly down, whilst the starters, regular meals segment is flat. We have success in frozen with launches under the Market Creations and Farmers' Harvest banners, as well as range extensions in Lean Cuisine such as spring rolls and dips. The frozen pizza category is growing. Our Pizza plus launch, being a frozen pizza packed with another product such as Nestlé Toll House cookies or chicken wings, is performing well. Overall, in frozen, DiGiorno, Stouffer, and Lean Cuisine have gained share. The PetCare business is flat but showing increased market shares. New products such as Purina One Beyond, Fancy Feast Delights, and Friskies Tasty Treasures are performing well. Confectionery is lapping the tough comps caused by last year's Wonka launch, but shares are stable in a market that is up by a high single-digit percentage .
This year, we have launched a successful ice cream brand, Skinny Cow, into confectionery. The early take-up is promising. In chilled, Nestlé Toll House is performing well. The ice cream business is continuing to face pressure from private label and premium take-home and has seen volume impacted by pricing. Our strongest performance is in the snack segments and then super premium. Innovation has included launches of shakes and smoothies, as well as Häagen-Dazs cones and the Skinny Cow More to Love pack. Nescafé and Coffee mate had a positive first half. The Nescafé Dolce Gusto launch is building momentum with, importantly, high capsule consumption per machine. The Café Collection and Natural Bliss variants of Coffee mate have been well received. Latin America has had a strong first half, both for ROIC and pricing, and continues to deliver double-digit organic growth.
Mexico, though most of the regions are growing double-digit, whilst Nestlé Brazil is celebrating its 90th anniversary with high single-digit growth. The big three categories in Brazil, being dairy, chocolate, and biscuits, all accelerated in the second quarter, partly due to Easter. Looking now at the Latin America categories, the big five, being ambient dairy, chocolate, soluble coffee, ambient culinary, and PetCare, are all growing double-digit. The rest are all positive, ranging from mid-single digit to over 20%. PPPs are growing in the teens with particularly strong performances in dairy, powdered beverages, and soluble coffee. The zone's trading operating margin fell 10 basis points. This reflects a significant increase in raw material costs, as well as some relative weakness in volumes in North America, all mitigated by Nestlé continuous excellence.
The zone did, however, increase its brand investment in the first half and is continuing to invest to build its brands over the longer term. Next, zone Europe. The zone had a strong second quarter as the uneven quarterly trading pattern created by Easter rebalanced itself. ROIC accelerated from 1.9% at the first quarter to 2.7% for the half. Pricing also picked up by 100 basis points to 1.4% to give organic growth of 4.1%. This first half performance is a good reflection of the underlying growth in the zone. Perhaps most impressive in Western Europe is the continued positive growth in Spain, Portugal, Greece, and Italy, despite the tough economic environments in those countries. As a group, those countries achieved about 4% organic growth. Maggi Juicy Roasting is performing well in these markets, as are Nescafé and ice cream.
PPPs grew in high single digit in Europe; their growth was about 20% in Spain, for example, demonstrating the benefit of our strategy of rolling PPPs into the developed world. It also confirms our belief that it is possible to generate growth with the right innovation, even in the most difficult markets. Germany saw a meaningful acceleration in Q2, where 80% of sales are holding or growing share. Most categories are performing well in Germany. Growth in the GB region was flat, but shares were up overall. The confectionery business had a strong Easter and has gained share. In soluble coffee, there was a good performance from Nescafé Dolce Gusto and the mixes variants. Nescafé Dolce Gusto is now the market leader in the U.K,, both in machine and capsule sales.
Maggi Juicy Roasting has had a successful launch in the U.K., even despite Maggi not being a particularly well-established brand in Britain. This demonstrates the strength of the Juicy Roasting concept. France continues to perform well with mid to single-digit growth and share gains in all categories. Ice cream, soluble coffee, and frozen food were particularly strong. In Eastern Europe, we are continuing to see subdued sales growth in Russia, particularly in the big chocolate category. We are enjoying good growth in a number of other countries, including the Ukraine and the Baltic region. Looking at the categories for the zone as a whole, all the big categories were positive, a performance reflected both in our strong market share performance by country and in the achievement of above-category growth for the zone as a whole.
As you would expect, the category story is one of continued momentum from Q1, with strong performances from ambient culinary, frozen pizza, chilled culinary, soluble coffee, and PetCare. Equally, the key innovations continue to perform well. Nescafé Dolce Gusto has gained over 400 basis points in the machine market, further expanding its sales base as growth continues above 50%. The other Nescafé launches, Green Blend and Crema, also continue to perform well. Maggi Juicy Chicken has evolved into Maggi Juicy Roasting, and the range has expanded into other meat and fish dishes, as well as into new markets geographically. It's one of our fastest growing innovations. Innovation is a core aspect of our strategy, and we are accelerating our efforts here. They are making a real difference in driving growth and creating value for our consumers.
The zone has delivered a strong operating margin performance in a particularly difficult operating environment, characterized by weak consumer sentiment in some markets and by an exceedingly tough competitive environment. A key driver of this operating performance was a strong delivery of savings to Nestlé Continuous Excellence, in addition to the benefits of previous restructuring of facilities, of businesses, and of employee post-retirement programs. Next is Zone AOA. The zone had a very strong first half, especially when one thinks of the news headlines from the region that dominated the first few months of the year. This performance is broad-based, as we've seen good growth in Africa, the Middle East, and a number of Asian markets. In Japan, we were the first food and beverage company to get back to full supply to the retailers, a great effort by our people.
We are now seeing our performance at normal levels, and we are gaining share in soluble coffee, chocolate, and ready-to-drink beverages. The Greater China region is accelerating with over 20% growth. Our milk business is now back to previous levels and building strong momentum. Our ice cream business in China is also growing well, following its relaunch last year, including a strong PPP portfolio, and growth is over 30%. The ambient culinary business had a strong second quarter after a slow start to the year and is growing in the teens. Nescafé is also performing well, both in its soluble and ready-to-drink variants. The Central West Africa region is another highlight, even though it includes Côte d'Ivoire, where we are reestablishing supply chain networks. Growth in the region is being led by ambient dairy and beverages. The South Asia region, which includes India, is growing over 20%.
All the region's categories are growing double-digit, with ambient culinary and chocolate both above 30%. These growth rates explain our increased investment in the region. PPPs were crucial to the zone at 18% organic growth. The zone's trading operating profit was up 50 basis points. The increased raw material prices have been offset by savings, growth, leverage, and pricing. The worst of the raw material pressure for the zone is in H2, but there is also a greater benefit to come from the zone's pricing actions. Next is Nestlé Nutrition. Nutrition has had a strong first half growth performance, driven by the infant nutrition business, which is achieving double-digit organic growth and has gained 60 basis points of share on a global basis.
The infant nutrition performance is well balanced across all divisions, baby food, infant cereals, and infant formula, and all regions, including some markets where we are seemed to be having a tough time more recently. For example, France is achieving double-digit growth, and we are gaining share in every category and channel there. The emerging markets are growing dynamically, whether in Europe, Asia, Africa, or Latin America. Infant cereals continue to perform very well. The North American business is also performing well relative to its market. Our formula market share in the U.S.A. is now 17%, up from below 15% three years ago.
The infant nutrition performance is built on a number of pillars which have come together over the last couple of years, including successful innovation in formula and cereals, improved communication where rules allow, expanded distribution, rigoros 60-40 testing, increased competitive intensity, and closer working relationships to leverage the scale of other Nestlé businesses in the markets. I'm also pleased to say that our baby nest launch has got off to a good start in Switzerland. The French and British launches of Jenny Craig and the business in Oceania are doing fine, but we have some issues in the U.S., our biggest market. It is clear that the weak economy has played a role in impacting the business.
We are making some changes, including to our marketing strategy, and we should start to see an improvement in the coming months, particularly in rebuilding new client leads, which are the key to longer-term growth of the business. Nestlé Nutrition's operating margin is down 90 basis points versus a tough comparison last year. This partly reflects the raw material environment, in particular the contrast of a low-cost H1 2010, but also the performance of Jenny Craig. We expect to see an improvement in the zone's operating margin in H2, as pricing taken already this year works its way into the numbers. Nestlé Waters is next. The organic growth of 5.8% reflects continued strong performances in many markets with appropriate brand support. It is also notable that the pricing has turned positive in the second quarter after over a year of reducing price.
Highlights included double-digit growth and share gains in France and Belgium, strong performances globally for Perrier up 14% and S. Pellegrino up 9%, as well as Vittel, Acqua Panna, and Nestlé Pure Life, and double-digit growth in the emerging markets, both in Asia and in Latin America. The North American market has been challenging. Pricing taken earlier in the year has impacted volumes, as others have been slow to follow. We have maintained shares in North America on a year-to-date basis, but have slipped in recent months. In Europe, there's positive growth in many markets, including France, Germany, Italy, and the U.K. The trading operating margin fell 140 basis points. This was due to increased oil-related and PET costs, not offset by good delivery of efficiencies and gradual price realization. Nestlé Professional is continuing to build positive momentum, notwithstanding the fact that economic conditions remain subdued.
Growth was double-digit in emerging markets, as much as 20% in China, for example. There's positive growth, too, in North America, where beverages are performing well, and in Europe. The 2010 launches of premium and super premium Nescafé machines have been well received by customers, and sales momentum is building. Nespresso has continued to grow at a high rate, slightly above the Q1 level. This is an investment year for Nespresso, and the first half has seen a very high level of marketing spend, supporting the successful launch of the Pixie machine in 50 markets simultaneously. This was the first machine launched by Nespresso to be done globally. They've also opened new boutiques, including in St. Petersburg and Stockholm. A further development of Nespresso is the launch of new machines for the out-of-home channel. Nestlé Health Science achieved double-digit ROIC.
A company only created on the 1st of January is now fully operational and has already been active in M&A, as you will have seen, building future growth platforms in strategic areas. The decline in the trading operating profit for the whole segment is down mainly due to investments at Nespresso and Nestlé Health Science. Next is the product group review. I've already touched on most key messages, so I will go through this quickly, only making a comment if I have any additional value to add. On this slide, you can see that all are delivering positive growth. Let's now go through them individually. First is powdered and liquid beverages. Soluble coffee has had a strong first half, both in terms of growth, which was double-digit, and in terms of operating margin. The performance was good in all three zones and in Nestlé Professional.
The markets have been very focused on their key innovations, aligned with our growth drivers, with good execution, and appropriate brand support. For example, in Europe, these include Nescafé Dolce Gusto and Nescafé Sensazione, both examples of premiumization, Nescafé Green Blend, an example of nutrition health and wellness, and Nespresso 3-in-1 , an example of a PPP that we're rolling out in Western Europe. We are seeing growth well into double digits in all of these products, as we are globally in PPPs with our flavoring mixes, such as cappuccinos. Pricing is increasing as the year goes on. Powdered beverages also have had a strong growth in the first half, particularly Milo. Milo is performing well in Asia and is building its presence in parts of Latin America, such as Colombia and Chile. Nesquik also achieved positive growth, and highlights included Russia and Italy.
The powdered category has experienced significant cost pressure, sugar and cocoa in particular. Accordingly, we are also seeing pricing increasing period on period. Marketing spend was up for the category. Liquid beverages performed well, with high single-digit organic growth and improved margins. I would highlight excellent progress by Nescafé and Milo in a number of markets. The trading operating profit margin is down due to innovation and launch costs, both at Nespresso and in other segments of the product group. The milk business has again delivered double-digit top-line growth in all zones and has accelerated from Q1 both in ROIC and price. It has also been able to leverage this growth into an improved operating margin performance.
The business is heavily weighted to emerging markets and has continued to perform at a high level, driven by aligned global product priorities, aligned communication teams, and a focus also on increased leverage of our marketing spend. It has achieved market share gains in many countries. Among our growth drivers, nutrition health and wellness, for example, in growing up milks and PPPs, which are also nutritionally enhanced, are key drivers. I have already touched on Coffee mate in my Zone America comments. The ice cream business has had a good start to the year in all three zones. Particular successes include China, France, Germany, Switzerland, Egypt, Latin America, Indo-China, amongst others.
The growth drivers and innovation are key contributors here, whether out of home or in-house business, the PPPs, including our peel-able ice creams, which are now in 11 countries and doing well in all of them, and also are now available in new variants. Nutrition health and wellness, such as Slow Churn, or premiumization, such as Häagen-Dazs and Nescafé Frappé Latte in Spain. Next is prepared dishes. The frozen food business in Europe continues to be driven by the strong performance of pizza, both under the Buitoni and Wagner brands. I've already discussed frozen in North America. Culinary chilled, particularly Herta, continues to perform well in Europe, especially in France and Germany, even if part of its business exported from Switzerland is suffering due to the franc euro exchange rate. The ambient culinary business, primarily Maggi, has had a strong first half both in emerging markets and in Europe.
The recent acquisitions in Eastern Europe and Latin America are performing well, and we have new capacity coming on stream in India and China. Our biggest markets are all increasing market shares. The product group's margin increased 30 basis points. There are good performances in most businesses, which compensated the integration costs for the pizza business and high input costs such as cheese, whey, and meat in the U.S. frozen. There are also lower restructuring charges than in 2010. Next is confectionery. I will start by reminding you that we had over 8% organic growth in the first half last year, so 4.2% in the first half of 2011 demonstrates good momentum over a tough comparative. The business is performing well with over 70% of sales gaining share, including key markets such as the U.K.
We had a successful Easter season around the world, demonstrated by a strong pickup in growth in the second quarter in each zone. Both China and India are growing over 20%. The growth would be even higher but for capacity constraints that we are addressing in both countries. I've already discussed the U.S. Pricing has increased during the year, driven by increases in milk and sugar costs. This pricing is a contributing factor to the improved margin performance, but equally, there are higher contributions for some of the faster growing markets, as well as benefits from the European restructuring in recent years. Next is PetCare. Overall, we have seen a building of momentum from the Q1 growth numbers, with growth in Q2 at twice the level of Q1.
Europe has continued to grow at a good level, driven by the success of innovations for cats, such as Purina ONE, actually the expansion of the Felix brand into Central and Eastern Europe, and the launches of Felix Sensations and Gourmet à la Carte. For dogs, we have enhanced our leadership in older pets with the successful launch of Pro Plan Senior 7+ . We've also launched Beneful Little Enjoyers, taking Beneful into the small dog market for the first time in Europe. I've already discussed the strong competitive performance by the North American business, which achieved share gains in most segments. Growth was double-digit in Latin America and in the emerging markets as a whole. Globally, Purina outpaced the growth in its category by 184 basis points. The trading operating profit was impacted by commodity prices.
This is not just because of the 2011 impact, but also because we were very successful in 2010 in the first half with our commodity hedges. You might remember that the H1 2010 margin was up 190 basis points. Effectively, therefore, it made for a difficult comparative. We will see an improved margin performance in the second half, helped by a more normal comparative and by the benefit of pricing taken in April. That concludes my run-through the business performance, and I'll hand back to Jim.
Thanks, Roddy. On the next slide is the rest of the P&L. I've shown both the 2010 comparison against continuing operations and the group performance. The reduction in net financing costs and lower tax expenses contribute to a 60 basis points improvement in net profit for the continuing operations.
The comparison with the 2010 group numbers, including Alcon, shows a marginal decline of 10 basis points in net profit is reported. The group's underlying earnings per share are up 5.2% in constant currencies. Turning to cash flow and net debt. The operating cash flow is CHF 1.7 billion. This is a good performance, albeit lower than the first half of 2010, recognizing the impacts of the sale of Alcon, currency weaknesses, and working capital. First, Alcon. Alcon's cash flow was about CHF 1.4 billion in the first half of 2010. Now, currencies. You may assume a conversion impact on our cash flow, broadly similar to the impact on our sales. On top of this, we made an investment in 2010 to protect foreign currency assets. This was already reflected in the full year 2010 cash flow.
These impacts created a negative comparison from first half 2010 to first half 2011 of about CHF 1 billion. Third, working capital, which increased about CHF 1.2 billion, but improved slightly as a percentage of sales. We made a tactical decision to increase inventories in order to manage capacity constraints in some of our fast-growing emerging markets and the disruption in our supply chain caused by external events. As a whole, working capital has improved as a percentage of sales, turning now to our net debt position. Half-year net debt was CHF 14.5 billion, compared to CHF 29.6 billion in the first half of 2010. The big impacts include the sale of Alcon, the dividend payment in 2011, the share buyback, and the medium to long-term investments in treasury shares and other long to medium-term investments.
The 2010 dividend payment, which was up 15.6% per share in Swiss francs, resulted in a payout of CHF 5.9 billion. We bought about CHF 4 billion of shares in the first half and continued in July to nearly complete our CHF 10 billion program started last year. We have increased our medium to long-term investments from CHF 2 billion to about CHF 4 billion. These investments are blue chip. We have made them because we needed to manage the proceeds from Alcon beyond those which were used either to restructure our debt or for the share buyback. The benefit of treasury shares and mid to long-term investments, beyond their inherent investment characteristics, is that they enable us to maintain an appropriate degree of financial flexibility.
With CHF 14.5 billion of net debt, we are approaching the level that we had at the end of 2009, which we told you was an appropriate level for the group at this time. If our medium to long-term investments are included, then net debt would be CHF 10.5 billion. Now let's have a look at our priorities for our use of cash. As you know, our clear priority is to invest in our business, either internally or externally. We have stepped up the level of capital investment. You can assume it will be about CHF 5 billion in 2011. We have also stepped up our M&A activity, though we remain focused on BOTONs. I will come back to both these areas on the next slide. After investment in our business, the next priority is to return cash to our shareholders through our dividend.
The priority for us is the actual Swiss franc amount of the dividend, not necessarily a ratio. We would expect, all things being equal, to continue to enhance the dividend we pay to our shareholders. Buying our own shares, whether as part of a buyback or to hold as treasury shares, is optional. We see this as a tool for managing excess cash, assuming that the share price is at an appropriate level. Therefore, our announcements of a share buyback have been part of a disciplined approach to managing our balance sheet whilst retaining financial flexibility. On completion of the current program, we would have returned CHF 39 billion to shareholders since 2005 through share buybacks at an average price of CHF 48 per share. At the same time, we would have paid CHF 31 billion in dividend.
In the first half of 2011, we have committed to about CHF 10 billion to the dividend and share buyback. This had to be paid in Swiss francs from cash flows generated in significant weaker currencies. We have also committed about CHF 10 billion to total capital and acquisitions. Given the current economic environment and the consequent need for financial flexibility, given the fact that we use foreign currency cash flows to buy our shares in Swiss francs, and importantly, given the fact that there are potential alternative uses of our cash, such as investments in capabilities and BOTONs that provide greater long-term strategic value for our shareholders, we believe that today is not the right time to be launching a new share buyback program. However, buybacks will stay under Board review on an ongoing basis as an option to address excess cash built up by your company.
On the slide, you can see some of the capital investments that we have announced recently. It is not exhaustive, however, the projects include confectionery and culinary in India and China, PetCare in Hungary, powdered beverages, cereals and milk in Indonesia, cereals in Malaysia and Turkey, infant formula in Germany, milk in Brazil, culinary in Nigeria and South Africa, and so on. On this slide, you can see some of the recently announced and/or completed acquisitions. These include our two proposed acquisitions in China, now under consideration by the authorities, as well as three deals for Nestlé Health Science, culinary in Eastern Europe, beverages in the U.S., dermatology in Sweden, among others. By now, you know our strategic roadmap well. Our performance in the first half has been coherent with our strategic priorities.
I would like to touch briefly on brands and innovation, which are key areas of investment for us. First, a quick look at our billionaire brands. As you have heard during Roddy's presentation, these brands have contributed greatly to our first half performance. In total, they achieved over 8% organic growth compared to 7.5% for the group as a whole. Their growth is reflected in strong market share performances. All the brands in beverages, nutrition, waters, and confectionery are achieving positive organic growth. In frozen, Lean Cuisine has returned to positive growth in a declining frozen food category. Stouffer is marginally in negative territory, but it has gained share over the last year. PetC are continues to be a generally good picture despite the slower growth of the category as a whole. Friskies, ONE, and Purina are positive, and a growth of more than 10% for Dog Chow.
In ice cream, the Dreyer's brand, which is heavily present in the U.S. premium take-home segment, has been under pressure from private label and regional brands, but is only marginally down less than 1%. One of the reasons for the strong performances of our billionaire brand is our continued high level of innovation. Innovation is a value-added growth driver for all our categories. The great benefit is, as we enhance value for consumers at each consumption moment, we also enhance value for our shareholders. Making this more tangible, here are a few of the innovations from last year that have contributed to strong first-half improved performance. Nescafé, with a clear segmentation strategy for its innovation, super premium with Nescafé Dolce Gusto, premium and nutrition health and wellness with Nescafé Green Blend, and PPPs such as Nescafé 3-in-1 l aunching successfully in Europe.
We're seeing strong growth in all these segments, from well over 50% for Dolce Gusto to about 15% for a premium range. In ice cream, we also have a range of PPPs. The peelable PPP ice cream has been one of the most successful launches in this category. On this slide, we have captured just some of the innovations launched in the first half. In ice cream, we have launched a new shake concept in developed markets, as well as Häagen-Dazs smoothies in the U.S. The dairy business has extended Coffee- mate out of the non-dairy creamer market into dairy creamers. It also has a raft of launches and extensions in the emerging markets, including value-added liquid milks such as Nido Protectus.
In prepared goods and cooking aids, the Maggi Juicy Chicken range, the leader in its segment, has evolved into Maggi Juicy Roasting, now for beef, pork, or fish, for example, and its international rollout continues. In the U.S. frozen category, we have responded to the tough environment with new lines and extensions such as Lean Cuisine snacks. In PetCare, where I mentioned our improving market share performance on a global basis, there is a strong roll call of innovations, a few of which are listed on this slide. In chocolate, we are building on the Wonka extension into chocolate and are now extending Skinny Cow into the category. We launched Aero Biscuit in the U.K., we took Kit Kat into Brazil, and launched Kit Kat Black in Japan with a special type of wafer.
These were just some examples of recent launches and extensions, and our pipeline has much more to come. The future will not just be bringing new products, but in addition, also new routes to market, new technologies, new system capabilities, as well as a range of innovation in nutrition and Nestlé Health Science. Next, a slide that I showed at a four-year conference call early this year. We said then that we understand the challenges we faced in 2011 and that we would be taking a holistic approach to managing them. I think these first-half numbers demonstrate that we have done that. We have compensated input cost pressures, not just through savings in those areas that have been directly impacted, but also through savings in administrative costs, for example. We also talked about a rich pipeline of innovation and about growth momentum.
We are seeing the benefit of both in our continued strong level of real internal growth. This is growth on top of growth year after year. We also have momentum in extending Nestlé Continuous Excellence and with our growth drivers such as nutrition, health and wellness, PPP, premiumization, and out of home. Our growth momentum is contributing a positive mix effect due to the faster growth of our emerging markets, which are benefiting from increased capacity investment. We also said then that we would deliver the Nestlé model again in 2011. We are confirming this guidance with organic growth at the top end of our 5%- 6% range. We continue to run the business with a mix of long-term inspiration and short-term delivery. We believe that in today's environment, these qualities will really help us outperform.
To conclude, it has been a challenging first half, but we need to separate the foreign exchange impact on the reported numbers from the underlying solid operational performance. The foreign exchange movements on our numbers are a big impact on translation, no question, but they have only a small impact on our underlying operations. We are fundamentally a conglomeration of local currency and regional currency businesses that are leveraging our global scale to compete successfully. I believe that we have demonstrated our operational strength in the first half by delivering a strong performance in all KPIs. Organic growth is strong, the operating margin is up, and our underlying earnings are improved in constant currencies. We have continued to invest in the future.
The real differentiating highlight of the first half of 2011 is that Nestlé has not only delivered where you would expect us to deliver, but we have also delivered against the odds, as our businesses have demonstrated their ability to perform in the toughest of times. Whether it is in Central West Africa achieving double-digit growth despite the unrest in the region, or the Japanese business disrupted by natural disasters, or whether it is our business in the troubled economies of Southern and Western Europe that continue to deliver positive growth, these achievements not only differentiate our performance in the first half, they also give us confidence in our ability to deliver for the rest of the year, but beyond. Finally, as I said, we have unprecedented opportunities to invest in future growth, particularly the emerging markets, both organically with CapEx and through BOTONs.
With that in mind and with an eye on the uncertain economic environment, we are retaining financial flexibility to drive our strategic priorities with confidence. Thank you. Now let's open up for discussions. Roddy? We'll go to the questions.
Okay, ladies and gentlemen, your question- and- answer session will now begin. If you would like to ask questions, please key Star and one on your tone dial phone. If you change your mind and decide to withdraw your question, simply key Star and two. All questions will be answered in order received, and you will be advised when to ask your question. All other lines will remain on the listen-only mode. I would like to remind you to restrict yourselves to two questions per person. One moment, please, for the first question. Our first question comes from David Hayes. Please go ahead. Your line is now open.
Good morning, gentlemen. Thank you. Just firstly, quick on the buyback. I wonder if you can give us any kind of background as to whether that decision on the policy was changed or taken in the last few weeks with obviously the market and the economic uncertainty that we've seen, and whether also with the Swiss franc move the last three weeks, that you delay effectively some dividend pay-through from the subsidiaries, which is part of that decision process as well that you worked that play out. I guess still, the question on cash flow again, you kind of alluded to maybe some of the points in the presentation, but I'm just noticing that the variation in other operating assets and liabilities is an additional outflow of about CHF 1 billion in the first half versus last year, and then other investing cash flows about an additional CHF 1.5 billion.
I just want to make sure you're seeing your color as to what those outflows actually relate to and why they're quite a big difference to the first half from last year. Thanks very much.
Okay, let's come back to the share buyback program. You know, David, we have always said the share buyback program is optional, given the priorities we have laid out. The priorities have always been to invest in building our business. I believe that this year, as we have communicated to you, we have several opportunities to invest in CapEx for organic growth in areas where, especially in areas today where we are constrained because of very demanding utilization of existing capacities, and you have seen what we have announced in terms of possible M&A transactions this year. In addition, our commitment to the dividend, you see the dividend increasing year after year. Those are really our priorities.
I think you're right, given the economic environment in which we operate, combined with the opportunities we have to invest the cash flows, we believe it is a point in time where we have to focus on driving the business with confidence. We are not saying that share buybacks will never occur, or as we said, share buybacks will continue to be under the watchful eye of the board, and they will make a decision on that from time to time. I think at this moment, as we have communicated, our focus is really driving our internal priorities. On the cash flow, just on the cash flow, David, I think generally, I don't want to get into the specific lines.
If you look at our cash flow, CHF 1.7 billion in operating cash flow and about CHF 300 million in free cash flow, which is just under CHF 3 billion down from what we reported last year. First of all, we said Alcon, the impact on the disposal of Alcon in our free cash flow is about CHF 1.4 billion. Working capital increased about CHF 1 billion. The carry of the foreign currency on financial assets, the impact, and our funding, the negative impact was about CHF 1 billion, and minority and associates was positive about CHF 0.5 billion. When you add those up, you basically explain where we were half year versus half year. You also realize that the impact on the cash investments, etc., from the Alcon proceeds, most of those occurred in the second half of last year.
They are more or less in this half year versus last half year. The comparisons are a bit different. The base is slightly different. I would say those three or four items explain the movement in cash flow.
Just to quickly come back on the buyback, from what you're saying, the decision on the buyback policy today, you say make a review, but that could well be the same decision three months ago rather than today, effectively. It's a long-term plan rather than a reactionary to the marketplace.
Yes, it is. As we said, David, when we announced our first half-year results, we said that we will not make any decision on the share buyback while we're continuing to execute the existing program.
The question comes from Alain Oberhuber from MainFirst. Please go ahead. Your line is now open.
Yes, good morning, Roddy . Good morning, Jim. I have some questions. One is about the source of capital increase in H1. Is this a strategic one for the GDP or is it also for 2013 that the economic environment remains difficult? Maybe you can elaborate a little bit on that. Secondly, could you also give us the specifics of the announced profit plus costs and GDP revenue announced?
Just on working capital, Alan, thanks for the question. The CHF 1.2 billion was significantly influenced by inventories. The inventory bill in the first half compared to the first half last year, as I said, related to some specific circumstances. There are markets, especially in the emerging markets, particularly in Asia, where we have had to build inventories to overcome certain capacity issues that exist at that point in time. We are addressing those, as you notice on the chart, by accelerating our investments in several factories to address these issues. The other issue is that we have had severe disruption in certain parts of the world because of high-impact events that have been announced from time to time. I think our objective over time is to manage our working capital relative to the evolution of our sales.
In spite of the increase, this increase in working capital, working capital as a percentage of our sales is trending down. I think that trend will continue. At least that is our objective.
On your second question, PPPs, we gave you the number, it grew 13.3%. Dolce Gusto was well over 50%. Those are the numbers. Was that a thought?
The PPP is around CHF 5 billion. I haven't got the Dolce Gusto number at this stage in the year. I mean, it's not a.
Just to let you know that Nescafé Dolce Gusto is trending to exceed CHF 0.5 billion, more than CHF 0.5 billion.
Thank you.
Thank you. Our next question comes from Patrik Schwendimann. Please go ahead. Your line is now open.
Patrik Schwendimann at Zürcher Kantonalbank. Hi, Roddy. First, regarding the statement about the dividends, you were mentioning that you'll continue to enhance it. Does this mean that you'll increase dividends for the current financial year, despite probably negative shares in Swiss francs? Secondly, regarding the margin improvement, which was really good, the first half with 40 basis points in local currencies. In the second half, you were already mentioning that the second half of 2010 had already these admin costs improvements in it. Does this mean that in H2, the margin could grow and be stable in local currency? That's my second question. Thank you.
Thanks, Patrik. The dividend, as we said, assuming everything else being equal, that it is the intention to enhance the dividend in Swiss francs. That's the intention. That is how we've approached the dividends in the last four or five years. Every year, you've seen a substantial increase in the dividend. That is the level, you know, it is our intention that we will improve the dividend payout in Swiss francs to our shareholders. How much will depend on the particular circumstances. The margin improvement, we said also that our margin, including the all EBIT margin, the model is that we will improve in constant currencies. You noticed that at the EBIT level, we were flat in constant currencies. We are expecting that. Margins will improve also in the second half.
You remember for 2010, we had the sort of reverse of 2011 with a very tough H1 comp and an easier H2 comp. It's a reverse this year. That's an opportunity for the margin to improve, as Jim says.
Thank you. Our next question comes from Jamie Eisenmuller from Deutsche Bank. Please go ahead. Your line is now open.
Good morning. Just one question, actually. There's a big decline in your litigation and owners' lease costs in the first half, about CHF 100 million to a joint swing. I'm just wondering what the driver of that was and whether you can give us any help on what we should expect for the full year. Thank you.
Morning, Jamie, and thanks. Yes, there is a decline in the other, what we call other trading expenses and income. The litigation expenses are triggered depending on different circumstances. This year, so far, it has been very low. I'd love to give you guidance, but I really don't know because I don't want to tell you we're going to spend more on litigation when, in fact, so far, we have spent very little. I really can't give you guidance. We have given you guidance more or less on restructuring, which we said will be 30-4 0 basis points. We will have to make decisions with respect to making provisions for litigations depending on what's there today. We don't see any particular material litigation currently, but we have to manage that from time to time.
Sorry, on the owners' leases, presumably you've got a bit of, you can see for the full year. Is that a big number? Is that a big swing factor?
Not so far this year. Last year, we had some arrangements with respect to certain contractual arrangements in the supply chain that we have had to sort out. This year, we don't have any of those so far. There are always going to be litigations and onerous contracts, et cetera, but I really can't give you any guidance on that. I say we do our best to manage our business in a way that we avoid those costs. Okay.
Thank you. Our next question comes from Jeremy Fialko from Redburn . Please go ahead. Your line is now open.
Hi. Good morning, Jeremy Fialko at Redburn here. A couple of questions. The first question is on your zone Europe margin. You mentioned you had a potential cost-benefit within the half. Can you quantify how much of a contributor that was to the region's margins and what you see that was being applied yet? The second question is on your coffee business. Clearly, that's one which has had some very significant input cost inflation in it. Can you say how much of that you have priced through and sort of how the volume reaction to that has been so far and what you expect?
I'll start by taking the coffee question. As we said, the soluble coffee business had a good, good year both in terms of price and in terms of margin. We have clearly been successful in recovering the cost pressure that we've faced. The same is true in the Nespresso business. Their weaker H1 relative to 2010 is simply a result of the launch of this, you know, their first ever global launch of a coffee machine, the Pixie machine. We have been successful in protecting the margin. We have priced up clearly. We have not necessarily always been followed as quickly as we would have hoped by the competition. Soluble has had some share pressure as a result, but competition has since followed and we're seeing the share coming back. I think the soluble business is in good shape. The strength of the Nescafé brand helping us to get the necessary pricing.
Jeremy, on the pension question, first of all, I think the first half we have seen some good results from our pension plans, especially in Europe. The pension, the funding ratios have been up. We have some benefit, of course, by virtue of foreign exchange translation. Over the last two years, we have done a lot of work in trying to restructure benefit plans for post-retirement benefits. We have started amidst, we made some good progress last year in some markets, and this year, we continue to do that. Last year, we had about CHF 125 million for the whole year. This year, we would like to get closer, slightly above that.
What I must caution is that most of the benefits that we got last year were in the second half, whereas this year, the benefits are in the first half. That will sort of average itself during the course of the year, but we expect around that as a benefit from the restructuring of our post-retirement benefit plans with a big focus in Europe. We have not done that for many years, but now we're doing this. I hope that answers the question.
All right. Thank you.
Thanks, Jeremy.
Thank you. Our next question comes from Robert Waldschmidt from Merrill Lynch. Please go ahead. Your line is going.
In terms of the meeting break and how we think about the question I asked, I remember we put cost aside. I would be first off pointed from memory. It seems like everything was up in the first half, and I was just kind of ignoring it for a while. I do see a lot of similarities, both organic and inorganic. Can you remind us in terms of what opportunities we'd be looking for in terms of deals, sizes, and reasons, perhaps?
Okay. Let me deal with the input costs. We did say that the input costs this year, the impact would be somewhere at the upper end of the range we'd given, which is CHF 2.5 billion-CHF 3 billion in terms of price and mix. We have seen slightly more than half of that impact in the first half of the year. We do expect that there will be a marginal decline on impact in the second half of the year. On A&P, we continue to spend to support our brands. You've seen in constant currencies, our consumer-facing marketing was up 6.2% in constant currencies. This was on top of what we spent at the same time in 2010, which was up 14% in constant currency. It is an investment priority for us.
You have seen the benefits of that, primarily through the improvement in market shares on a global basis and the strong real internal growth of nearly 4.8% for the first half. On capital, just coming back on the input cost guidance, I want to reiterate our guidance on input costs this year for price and mix to be somewhere at the upper end of the CHF 2.5-CHF 3 billion range. On capital expenditures, we have announced, and that's portrayed on the slide, several major capital expenditure programs around the world, primarily in the developed and emerging markets where we are experiencing very good growth. That, of course, has always been a priority for us. This year, we will spend about close to CHF 5 billion, recognizing that there is also an impact on the exchange.
We had said CHF 5 billion-CHF 5.5 billion; given the exchange impact, it will be closer to CHF 5 billion this year. On M&A, we also have included that on the slide. Those are deals that have been completed and announced, not yet completed. Those are the projects we're working on to make sure we bring them to successful completion. I, unfortunately, will not give you any specific targets, but I would say that we are looking for M&A opportunities all over the world, in the developed world, in the emerging markets, and in categories that are of strategic importance to our future. We are focused on bolt-on acquisitions, and that's what we will continue to do.
Steve, do you see more opportunities now than a year ago with the activity?
Yeah, I would say in our industry, I've seen a little more activity this year than last year. It's not only in the emerging markets, it's all over the world. You know, we're going to be very discriminate in terms of what is strategically compelling and with good financial logic, and that's how we are pursuing these deals. Some, maybe we will win, others we won't. That's how we are, that's how we have always conducted our M&A, executed the M&A strategy for the group.
Thanks.
Thank you. Our next question comes from Jeff Stent. Please go ahead. Your line is now open.
Good morning, Jim. Good morning, Roddy. Two questions, if I may. The first one, just on the raw material guidance, the CHF 2.5 billion-CHF 3 billion. I'm going to stress just a little bit surprised at that given what we've seen in the number of commodities. There is a little bit of hedging exercise there, but we still have seen a number of your material inputs.
Puzzled as to follow on a sort of underlying basis, you're effectively increasing the quality guidance for that. If you'd put any color on that, that would be great. Secondly, on the local financial investments, could you give any thorough as to what's actually in there and also the rationale? Are you effectively using your favorable short-term borrowing cost to buy longer-term investments on the asset side? Could you just clarify a little bit?
Okay. On raw materials, yeah, I mean, we're in the guidance towards the CHF 3 billion impact, which does include the benefits of transaction exchange costs in the markets. There is, you know, the question is if the exchange, everything was okay in the world, and you know, would this number increase or go down? Unfortunately, it is not. There continues to be significant volatility in the markets. Given where we are, and we have spent slightly more than half that number already, it's difficult. I don't think it's advisable to change because of volatility in currency and commodities. We have more or less seen some offsetting impacts, and we're confident the guidance to the upper end of the CHF 2.5 billion-CHF 3 billion is what we will likely experience this year.
Also, Jeff, it's worth remembering that our guidance was not based on prices at the time. It was based on our expectation for how prices were going to evolve over the course of the year. The guidance incorporated a view on the various commodities as well as on the currency impacts.
On the long-term investments, you know, this is what we did. It's really the overflow of the income from our current disposition and the timing horizons of our debt obligations. We had the excess cash was invested in equities. A lot of it is in European equities where we are spending a lot of making a lot of investments in capital and also some of our M&A deals and in bonds. Of course, we also have some treasury shares, which we're holding. As I said in the discussion, the nature of these investments is good from a return point of view, but it also gives us the flexibility in the event we need cash in those parts of the world.
The qualification, did you see some of this money being invested into European equities?
No, no, Asian equities. Yeah, more or less. When you say plain vanilla, you know, these are blue-chip companies in these markets. We have investment managers. This is being managed by our investment management company. You know, we have a target return for the group of assets, and that's what we expect to get.
Okay, thank you.
Thanks.
Thank you. Our next question comes from Jon Cox. Please go ahead. Your line is now open.
Yes, I'm Jon Cox I'm a strong C-suite sales deliverer. I have a couple of questions for you. First, on the guidance, you know, you cite that 6% will be towards the top end this year. Obviously, you did 8.5% in Q2, and you're saying the pricing will actually increase as we go through the year. You seem to be guiding that you're only going to be somewhere around 4%, 4.5% in the second half of the year. It's all going to be volume. Sorry, it's all going to be pricing, and actually, volume will go negative. Is that a correct sort of extrapolation of what you're saying, or are you just being slightly cautious as we still have some way to go for the year? That's the first question.
Second question, Jim, previously, you said you don't want necessarily to go back to a AAA credit rating. You said that you need probably CHF 25 billion net debt on your balance sheet to avoid that. On my calculations, at least, you know, including your investment, you'll be probably, you know, around CHF 7 billion at the end of this year because you've stopped the buyback program. Is it still your aim? I can understand what you're saying about the M&A, and you know, you probably have a bit of a pipeline. Can you still see that you're going back to the CHF 25 billion net debt, you know, just on the M&A? I just wanted a bit more guidance on that if possible. Thank you.
Okay, Jon, thanks, and good morning. First of all, on the organic growth guidance, I think, yeah, we are cautious because of the environment in which we are operating. By the way, to get even to 6%, we have to do more than 5% for the rest of the year. We're not saying that is what we're going to do, but our guidance, yeah, you can say we are being cautious. I think at this time, you know, this is what we believe is prudent to do. We are not letting up in the organization to do less. We will do, and we will be competitive as we have done in the past and as we need to be to make sure we get fair share of growth and continue to drive our market shares.
At this time, yeah, we are guiding towards the top end of our 5%- 6% range. We, you know, would look at it in the third quarter again. We feel comfortable with this, and we think that's a good challenge to the rest of the organization to keep driving our competitive performance in the marketplace.
Jon, I think also the Q2 is perhaps not the right start point for which to base your expectation for the full year, because the Q2 RIG was clearly inflated by the late Easter. Probably the H1 is a better start point than the Q2 number if you're thinking about your full year. We told you back in Q1 that Q1 was impacted negatively, Q2 will be impacted positively on the RIG side. It clearly has been. I think the H1 number is a better start point than the Q2 number.
Yeah. The other thing, Jon, is that the first half price was 2.7%. That's what we said, that average will increase as the year progresses. Now, coming back on the AAA and the debt ceiling and the debt level, we had said in London and during our subsequent discussions that we were targeting by the end of 2012 that we will be back to a net debt position as to where we were at the end of 2009. At the end of 2009, with Alcan, we were about slightly over CHF 15 billion. Without Alcan, we were about CHF 18 billion. Somewhere between those two numbers is where we think we will be at the end of 2012, 2013. We have never mentioned the CHF 25 billion number. There must have been some miscommunication, but that is what we said at the time, and that's still our objective.
With respect to AAA, we said we believe that our current credit quality of AA, AA+ is a gold standard that we strive for. We know as a company, we are a AAA quality company. We are very happy with where we are from a credit quality and a credit rating point of view. AAA is not an objective for our organization.
Okay. I want to just get some clarification on the pricing. I seem to understand when you were talking that the Q2 pricing of 3.8% would actually rise as we went through the year. You're basically saying that actually is the 2.7% average.
Yeah, that's.
We thought April will rise as we go through into the second half of the year.
Yeah, because we're talking cumulative, Jon.
Yeah.
Okay. Even sort of taking all that into account, and obviously, you have the 4% of the pricing in the Q2, and I presume that H2 will be similar to that. You seem to be implying that there will be a serious deceleration in volume, or you guys are already working on the assumption that the volume will decline to close to zero by the end of the year. Am I being slightly too pessimistic with what you're saying?
I don't necessarily agree with you. I think we are not, you know, we believe that a performance guiding at the top end of our range is a prudent one. We have no expectation that our volumes are going to be negative, because as I said, we will continue to compete, and we will drive a combination of rig and price, albeit maybe price is going to be a slightly bigger part of the mix going forward, but we're not expecting to have any kind of negative real internal growth numbers for the balance of this year.
Okay, great. Thank you.
Okay.
Thank you. Our next question comes from Julian Hardwick . Please go ahead. Your line is now open.
Good morning, two questions for you. One, Jim, on the currency impact for the year, I thought I heard you say that for the full year, you didn't think the currency impact would be as bad as the 30% decline in the first half. Is that correct? I don't know. My numbers look as though it'll still get worse by the time we get to the full year. Secondly, just back on this long-term investment, can you tell us how much of the CHF 4 billion is invested in your treasury stock? Presumably, the right way to think about this is that your net debt is really CHF 10.8 billion rather than CHF 14.5 billion at the moment if we're trying to sort of look at where you're how you're going to get to your CHF 15 billion-CHF 18 billion eventual target.
Yeah. I think on the currency, Julian, I think you may be right. If you look at the U.S. dollar in the first six months this year compared to the first six months last year, we moved from an average of about, I don't know, 1.08 to about $0.90, so it was 16%, 17%, as we said, and the same thing for the euro. You know, it's difficult to predict. It could be slightly better. It could be slightly worse. At the end of the day, we have to find a way to manage through this. As you've seen, we have done in the first half. It's really, you know, it's really difficult to give a guidance on currency impact given what we have seen over the last two or three days, especially Swiss francs relative to other currencies.
Now, the last time I looked, the Swiss franc relative to the euro was about CHF 1.05, CHF 1.06, and CHF 0.73, CHF 0.72, CHF 0.73 to the dollar. It is a reality of our world, and we have to manage that. The impact in terms of the margin was 20 basis points, and that's also something we have to manage. That's why we give our guidance in constant currencies while also making some important underlying improvements in our performance. Now, the long-term billion, as I said, our net debt at the end of the first half was CHF 14.5 billion. If you did deduct the long-term investments, et cetera, it would have been CHF 10.8 billion. I think that's the number we use. You're absolutely right there, Julian.
CHF 2 billion. The CHF 2 billion is in addition to the CHF 4 billion. You have CHF4 billion in long-term investments and CHF 2 billion of treasury shares.
Yeah. The CHF 2 billion is not part of, in other words, if we were to convert, the CHF 2 billion is not part of the net debt, whether it's CHF 14.5 billion or CHF 10.8 billion. Just going back on the currency comment since I made it in my speech. What I said was that it could lessen a bit due to the relative comparison versus 2010. In other words, the deterioration in the currencies was already happening in the second half of last year, so the comparison is easier. Clearly, if the currencies continue to deteriorate, then the situation will get worse. The point was that the relative start point is easier in H2 than it was in H1.
Today, we would expect it to be needed in the full year than you would for the past.
Sure.
Okay. Thanks, a lot
Thank you. Our next question comes from David Hayes. Please go ahead. Your line is now open.
Hey, Jim. Sorry. Just a couple of follow-ups again. Getting back to that point earlier about the investments you're making in other securities. Just two things. In terms of where that comes to sort of about setting up the cash flow, in terms of where that comes through, is that included in the CHF 2 billion of other investing cash flows? I'm just trying to reconcile that with the fact that talking about investments was an inflow of CHF 3.9 billion in the first half of the year. I guess also just in terms of mark-to-market of those investments, do you mark-to-market those investments at the end of each period, and is that appearing as a profit or loss item on the P&L, and where does that appear?
I guess related to that as well, if an investor said to us, "You know, why are you investing in Asian blue-chip securities rather than Nestlé equities?" does that not mean you think Nestlé offers more appetite? I wonder what you would respond to that. Thanks very much.
Okay. David, thanks for the question. As you said, as you note, we said before that we are also investing in Nestlé equities. We have about just under CHF 1 billion in Asian equities, and we have about CHF 2 billion in Nestlé shares. Yes, if you know we'd likely continue to do some more Nestlé shares, depending, of course, on the price. Sorry, what was the other question, David?
It's just in terms of where you see that investment going through your P&L.
It goes into.
Where do you mark the market, the investment, the return on those investments?
Yeah, it goes into the, it is marked to market at the period end, as you say, and it goes into the comprehensive income statement.
Which is equity?
Yes.
Okay, not through, not a big financial income or any other.
No, no, no. Not through the operating income.
Sorry, one other operational question as well, just in terms of the confectionery margin, obviously a big movement there. You kind of explain some of the moving part. I mean, is that the new norm margin-wise for confectionery, or is that kind of a higher level than you would expect it to hold, or is that now what we should be looking for confectioneries to be able to sustain at the margin? Thank you.
I think confectionery, as we said, has gotten some benefits primarily in the administrative cost reduction. That will sort of normalize during the course of the year. It's not a target. I expect the margins will sort of flatten out for the balance of the year.
Okay, so more in line with last year or flat in terms of the first half?
We don't give guidance on the margin, just to say that it did get a benefit, as we talked, for this important reduction in administrative costs in the first half, which will sort of normalize itself. Not normalize, but it will be less impactful in the second half or the full-year comparison.
There are a lot of moving pieces going on in confectionery, both the seasonality issue. Also, we're seeing very strong growth in some of the emerging markets where we have very good margins. You know, as you've seen over now, I think three, four, five years even, there has been a continuing trend of improvement in the returns in that business. There is also an underlying clear improvement going on over time.
Okay, great. Thank you very much.
Thank you. Our next question comes from Pablo Zuanic. Please go ahead. Your line is now open.
Morning, everyone. I don't have questions for the quarter, but maybe two just structural questions. Roddy , can you talk about your baby formula business in China? You know, from outside, we hear that Mead Johnson competes mostly in the premium segment, Danone, apparently across the board in all the segments. Obviously, the value, the lower end of the market is not growing, so they seem to be losing share. Just talk about your business in baby formula and remind us of what your market shares are in China in baby formula versus Mead Johnson, Wyeth, and Danone. Maybe just a follow-on on Nespresso and Nescafé Dolce Gusto. Just give us some more color there. In the case of Nespresso, I think you said sales like growth as in the first quarter, I guess it means more than 20%.
Just, you know, how much of your business of Nespresso at the moment is coming outside of Western Europe? What's the progress you're making in the U.S., particularly with Nespresso? Related to Nescafé Dolce Gusto, what's the progress of that business in the U.S. and other European markets, say, versus Tassimo or versus Senseo, particularly in Western Europe? That type of color would help. Thank you.
Thanks, Pablo. Just on China, as you, I think, know well, it's a relatively small business. It's only a few hundred million. It's not exactly material to the results discussion. I haven't got a lot of information on it. The market shares are the Nielsen market shares, which are around mid-single digit. They probably understate our true market share because we're very present in rural areas where Nielsen isn't. The business is growing very meaningfully in double digits, performing very well. We've seen a very material acceleration in traction across infant formula all the way through to growing up milk business as well in China. That whole business is absolutely flying at the moment. It's doing really, really well. The market share, as I say, is not really a great, it's not particularly accurate.
The reason that we'd also said the market share is not accurate is we've been growing that business double digit, over 20% for a couple of years, and the market share data point hasn't moved. There aren't that many babies being born in China. We're clearly doing well, coming back from a difficult period three or four years ago, and we're very excited about it, but it's not a material part of the Nestlé group.
It's a very different material market, right? It's one of the largest markets in baby formula in the world. You're thinking Latin American baby formula, not in China.
Yeah, and that's why it's so fantastic that we're doing so well in that business at the moment in China. It's absolutely a key market for us, and we're growing, as I say, way over 20%, and it's going really well. On Nespresso, the performance is, as you said, I haven't got the percentage split for Europe relative to the rest of the world. It won't have changed very much from the last number we gave you because Europe is, as you know, over 80% growing double digit. It's not going to have changed materially from the last number we gave you. The business is continuing to deliver double-digit growth in its big markets. It's growing much faster in the U.S., as you'd expect, off a smaller base. Again, similar levels of growth that we saw in the first quarter.
We quoted you a number then of around 50%. Dolce Gusto, as we said, is growing over 50% globally. It's a predominantly European business, so the growth in Europe continues to be very, very strong. We quoted you 420 basis points, 480 basis points of market share gain in system sales in Europe. That business clearly has real traction. In the U.S., with the U.S. launch, which was primarily in Walmart, that launch is going fine. The really good news about the launch is that where we have sold the machines, the actual consumption is higher than we're seeing in most other markets. The take-up once the machines are sold is very, very strong. That is a reason, that is the reason why we are very bullish about that project going forwards in the U.S.
I just want to follow on. I mean, obviously, you know, it's still early days and you're doing well in the U.S. with Dolce Gusto. Given the explosive growth of Green Mountain Coffee Roasters and their huge size in single-serve coffee, would it make sense for Nestlé to actually make Dolce Gusto take-ups for Green Mountain or that job stand? That would be a nice amount, would that make sense for you?
Our strategy on Dolce Gusto is clearly one that is focused on our total control and execution. That's the strategy we are executing around the world, and that's the model we have in the U.S. and elsewhere. We're not going to change that.
Also important to remember, the U.S. market is growing. Indeed, the global market is growing, but the U.S. market is growing very rapidly in systems. It is not about having it all to be in one system. There is room for a number of players in that market. We clearly intend to be one of the leaders. We are the leader at the moment globally.
Thank you.
Thank you. Our next question comes from Jon Cox. Please go ahead. Your line is now open.
Hi, Jon.
You have in your own shares, the investments you have in your own shares and running parallel to the buyback program. I'm just wondering, when you're actually investing in your own shares, I guess you're not using that second trading run. You just come into the market when you feel there's an opportune moment. Are you saying basically you won't cancel the CHF 5 billion worth of shares that you'll be completed in the next, I guess, in the next couple of weeks? You won't cancel them next year. That's the first question. Secondly, just on the baby nest, you said it's gone very well in Switzerland. Just wondering, does that mean you will do a sort of more of an international launch? Should we expect that over the next couple of months and quarters?
Okay, Jon. Thanks. The shares, yeah, the treasury shares are bought in the normal market, whereas the share buyback is done on the second trading line. Yes, the intention is what we do on share buybacks will be canceled. I hope that deals with your first question. I think baby nests, we had a very successful launch based on our criteria for the project. Maybe as we progress later on in the year, we would like to give you an update, Jon Right now, the focus is trying to get the launch right and all the dynamics that are included in making such a, taking such an important innovation to the marketplace. We are very focused in getting the Swiss, which is the first market, right, and building and using the learnings there to build a program for the other markets.
Okay. Just to come back to this, you know, you investing in your own shares, you know, how should we think about that going forward then? Will you just act opportunistically if you think the share is looking interesting from however you might want to value it, and you just come in and buy the stock and then we hear about it every half year when you announce or when you announce it to the stock exchange in a normal way, that's, you know, depending if key ratios are hit under the Swiss Stock Exchange regulations?
Yeah, I don't think we will get to a level where we have to make any disclosure. It is an activity we engage in from time to time, but as I said, it's not a priority for us. It's one way of managing the cash flows in the short term.
Before we did our share buybacks, the share buybacks for cancellation, I think, if I remember well, back in 2004 and before, we only ever announced the treasury share amount annually, not biannually. I don't think you can expect to have regular updates on whether we're buying or selling our treasury shares.
Thanks.
Thank you. Our next question comes from Simon Marshall-Lockyer. Please go ahead. Your line is now open.
Yes, good morning, Roddy. Good morning, Jim. Just a question. While we're with the machine-based systems, can you just update us on specialty and the Viaggi machine? Could you give us some indication as to the breaking deadline in respect to the IP losses around Capsule in 2012, I think, if I'm correct in saying. The second question is, could you give us some more granularity in perspectives in Eastern Europe, including Russia, but particularly on Poland and Ukraine, how the development of the business kind of in the third half and what you're expecting there? Thank you.
Specialty, to start, specialty is continuing to perform very well. It's to expectations. We're not going to give you any numbers because it's so clearly not material at this stage. The clear focus now, obviously, is to have a very successful Christmas season, as with the other systems machines. The big sell-in for the machines is during the Christmas season with gifting. We are very pleased with how specialty is going. On what you call the Capsule 2012 issue, fundamentally, we have a whole series of protections around the Nespresso systems. There isn't one issue that's going to be material to us. I've got no update to give you because there's nothing new that happens. It's just a situation that we will have some patents come off protection in 2012, but all the other patents will continue to be on protection. There is no material business risk to Nespresso.
So, okay.
Yeah. Russia is a bit of a mixed picture. If you start with the zone, the in-house business, primarily chocolate, which is our big zone business, continues to suffer from poor consumer sentiment. The other less in-house, more fundamental businesses like the soluble coffee business, the soup business, are doing very well. Ice cream is also doing okay. If you go out of the zone into nutrition, the nutrition business is doing terrifically well. Double-digit growth now for a number of years, and they're let up there, going very well. I mentioned in my presentation, PetCare also performing very well in Russia. Ukraine equally, Ukraine especially, performing very well indeed across the business. We've been quite active, as you know, in recent years in acquisitions in Ukraine. We have a super business in Ukraine.
We've also recently opened up our shared service center for Europe in Ukraine, and that business is performing very, very well indeed. Poland, I think we're having reasonable progress for the first half. We're quite happy with the markets that you mentioned. Russia continues to improve, albeit a bit slowly. The exciting news in Russia is that we're opening a Nescafé factory imminently. We may even just have opened. That's a big benefit to us in terms of leveling the playing field, having local manufacturing of Nescafé in Russia. Okay. Any?
Thank you. We have no more questions. I'd now like to hand the call over to Mr. Singh.
Thank you for your attention this morning, your time and attention. As you've seen, we have delivered a very solid performance in the first half, which really gives us the confidence that our strategies are working even in these difficult times as we look at the business and the economic environment in which we operate around the world. The performance in the first half gives us confidence that we can once again recommit ourselves to achieving the Nestlé model in 2011, which, as you know, and this time we reiterate the organic growth at the top end of a 5%- 6% range and an improvement in our margins in constant currencies. Thank you.
Thank you.