Thank you, Rebecca, and good morning. Welcome to our 2010 full year results conference call. It is my intention this morning to focus the call on our achievements in 2010 as well as to touch on our outlook for 2011. I will discuss the restated net net twenty ten figures in my roadshow presentation on Tuesday. I will take the Safe Harbor statement as read and move straight to the highlights of our operating performance.
In 2010, the group produced a very strong performance on all key metrics. It was another year of industry outperformance. Our results reflect our commitment to driving improvement in all areas of our business to delivering a total performance. We demonstrated a high level of discipline in 2010 being aligned across the world behind Nestle roadmap of strategic priorities. We also showed our ability to be fast and agile, entrepreneurial and dynamic and responding with great flexibility to the many challenges we faced in different parts of the world, be they related to the competitive landscape, economic challenges, natural disasters or political unrest.
We also demonstrated our commitment to the long term and to create value for our shareholders. Marketing spend was up. Our capital expenditure remained at around 4.5% of sales and will be up again in 2011. We made a number of acquisitions that address white spots in various markets both emerging and developed. We exited Alcon which allowed us to record a net profit of CHF 34,200,000,000.
We have bought back for cancellation CHF10 1,000,000,000 of our own shares. This was part of a multiyear commitment to share buybacks, which in total is already approaching the 2010 proceeds from the Alcon disposal to Novartis. We launched Nestle Health Science and the Nestle Institute of Health Science as a start point for pioneering a new business between food and pharma. We announced that we are using our financial resources and technical expertise to link the development of communities that are contributing to our development. We are making a multiyear investment commitment of CHF 600,000,000 to encourage sustainable farming and improve the security of supply of key raw materials coffee and cocoa as well as to encourage responsible consumption across the supply chain.
And we continue to make progress in an uncertain economic environment by putting the consumer first in our thinking and execution, offering them a range of value added products from luxury super premium to popularly positioned products. So it was a busy year for the group and a successful one of them. Let's now get into the details starting with the key financials. We had organic growth of 6.2 percent for the group together with a 20 basis point improvement in the EBIT margin. The group EBIT is not comparable to 2,009 due to our disposal of Alcon in August 2010.
The group delivered a net profit of CHF 34,200,000,000 this includes the profit on the sale of Alcon. Our underlying earnings per share at CHF3.32 were up 7.4% and 10.3% in constant currency. This reflects our improved operating performance. Our operating cash flow was CHF13,600,000,000 down from the 2,009 level. This change reflects a normalization of our working capital after significant reductions in 2,009.
Our return on invested capital was up 100 basis points excluding goodwill, but down 10 basis points including goodwill. We are proposing a 15.6% increase in the dividend to CHF 1.85 per share. Turning to our continuing operations. They achieved organic growth of 6% and an EBIT margin improvement of 30 basis points. Our trade net working capital improved as a percentage of sales.
We increased our level of marketing leadership with share gains in the measured channels in many markets around the world. At the same time, we deepened our distribution driving our growth in the unmeasured channels in various parts of the world. We also stepped up our level of competitiveness once again with savings over CHF 1,500,000,000 as well as improvements in manufacturing productivity and customer service levels with lower energy consumption, fewer downtime accidents and reduced bad goods. On the next slide are the constituents of our sales growth. The real internal growth was strong for both the group at 4.6% and for the continuing operations at 4.4%.
The acquisition divestment line for the group has gone from being positive 0.7% at the 9 months to being negative 0.6% for the full year, reflecting the August sale of our holding in Alcon. The continuing operations acquisition divestiture line on the other hand remains positive at 1.8%. Kraft Pizza was the main contributor here with Vitality and Nestle Professional also contributing. The big change in the final quarter has been the impact of currencies. This is negative 3.6 percent for the group, negative 3.8% for containing operations and increased impact of about 100 basis points for the year over the level of the 9 months.
In total, our group sales increased by 2% to CHF 110,000,000,000 and our continuing operations sales by 4% to CHF105 1,000,000,000 Real internal growth for the continuing operations were was pretty consistent throughout the year and in fact increased slightly in the final quarter despite the tough comparison of 4.2% from the final quarter in 2,009 demonstrating the strong momentum we have in our top line growth as we enter 2011. I'll now focus on the Food and Beverage business and start with our usual overview of our growth by region. This includes all our Food and Beverage and Nutrition businesses and so provides the best like for like regional comparison with our peers. Our top line was strong as you have just seen. These numbers have been delivered in an environment characterized by weak consumer demand in the developed markets and stronger sentiments in the emerging markets.
Yet, we have been able to add about CHF 6,000,000,000 to our sales through organic growth. All product group and geographic reporting areas grew in 2010. Our message to you has been consistent through the last couple of years that we believe that there were opportunities to grow our business provided that we had properly segmented the needs of our different consumer groups and we're driving appropriate innovation to them. These numbers demonstrate that we have been able to do this. They should also give you comfort over our ability to continue to drive the top line organically in 2011.
Our good growth performance globally reflects a pattern of consistent market share gains by category and by region. In Europe, we achieved 3% real internal growth and 3.7% organic growth. This is a clear outperformance versus our industry. In the Americas, we delivered 3.5% real internal growth and 5.7% organic growth. In Asia, Oceania and Africa, we achieved 8.3% real internal growth and 10.2% organic growth.
To summarize this slide, our growth is broad based and our performance confirms that all markets developing and emerging offer opportunities for growth. As you can see in this slide, we achieved 11.5% organic growth in emerging markets and 3.3% in developed markets. This supports another key aspect of our communication with you that we see opportunities for growth all over the world and that we believe that emerging consumer groups exist globally not just in emerging markets. Within the emerging markets, we saw 13.1% organic growth in the BRIC countries. Staying with the emerging market theme, I have included the next slide our capital expenditure in emerging markets.
I've just told you that we grew 11.5% in emerging markets and even faster within the BRICS. If you have been following the news flow on our Web site recently, you will have seen a series of investments announced in Africa, Asia and Latin America in support of our strategy to broaden our distribution and presence in emerging markets. This slide shows you the level of commitment we are making, which has been running at over CHF 1,000,000,000 annually for the last 5 years and will step up to around CHF 2,500,000,000 in 2011. These investments are in areas such as ambient culinary and dairy, soluble coffee, powdered beverages and pet care, all of which have high levels of profitability and return on capital. In other words, we are investing for growth in proven high return businesses.
Our capital expenditure is running at a higher level as a percentage of sales in emerging markets than in the developed. Let's now look at our segment reporting start with Zone Americas. The Zone achieved 5.9% organic growth and real internal growth of 3% for 2010 with a slight acceleration of real internal growth in the final quarter. The EBIT margin fell 30 basis points to 16.5%. In North America, the pet care business performed well, bouncing back in the final quarter as we promised in our 9 months conference call after a third quarter that was impacted by tough 2,009 comparisons.
I'll go into pet care in more detail when I get to the product group. Confectionery also had a good year in the U. S. Contributing factors were strong performance from our seasonal business in Toll House, innovations in Butterfinger and the Wonka rollout. There was a good performance too in Canada.
The emerging consumer business including Nescafe Classico and ice cream brands aimed at the Hispanic community had a successful year. The frozen food segment continued to experience tough trading conditions. I'll cover this in pizza in more detail when I get to the product group. There were good performances in salvo coffee and powdered beverages. Latin America achieved double digit growth in 2010.
Brazil achieved double digit growth for the 2nd year in a row and we look to another good performance in 2011. We are celebrating the 90th anniversary of our presence in that market. Mexico and most of the other regions contributed well. The broad based performance in Latin America was reflected in the growth of our categories. They all contributed strongly and most grew double digit including the biggest ambient dairy, chocolate and salivary coffee.
The decline in the zone margins despite operational savings reflected dilution from the upfront integration cost of the pizza business with no benefit until 2012. Also increased brand support generally including the Nescafe Dolce Gusto launch in the U. S. And lower sales of Lean Cuisine, the sizable prepared nutritional meals business where the market segment is in decline. Zone Europe achieved 2.5% organic growth and real internal growth of 1.7% in 2010.
The EBIT margin increased by 20 basis points to 12.6%. All the big Western European markets contributed positive real internal growth for 2010, a tremendous achievement by the zones management during a year that has seen consumer spending under pressure. We have improved our market shares in our big markets and big categories. Among categories, I would highlight the growth of pet care, chocolate, salvo coffee and frozen pizza and chilled foods. Market shares were good in ice cream and ambient culinary as well as in the faster growing categories I just mentioned.
Eastern Europe had a mixed year in general impacted by the economic situation and weaker demand for more impulse and indulgent categories. Both Western and Eastern Europe contributed the final quarter acceleration in the zone real internal growth and was achieved despite tough comparatives in 2,009. The acceleration therefore speaks to good momentum in the zone as we go into 2011. The zone EBIT margin improved by 20 basis points. This reflects our growth in significant savings in manufacturing, distribution and administrative costs and was struck after increased investment in brands and promotional spend.
Our ability to drive growth in Western Europe is a clear differentiator. How do we do this? Let's have a look at this performance in a bit more detail. 1st successful innovation. You've heard about some of these before, Nescafe Dolce Gusto, Nescafe Green Blend and Maggi Juicy Chicken to name 3 of them.
The reason you have heard about these before is that these are innovations that started in a few markets and are now increasingly pan European. That is what successful innovation is about. It's not about 1 quarter story. It's a multiyear build. Our pipeline for 2011 is also strong.
Nescafe Dolce Gusto is the fastest growing coffee system in Europe. It sold 2,000,000 machines in 2010, 400,000 of which in the peak Christmas season. These 2,000,000 new machines are the enlarged base for our 2011 capsule sales and the European and global rollout continues. Nescafe Dolce Gusto sales were about CHF450 1,000,000 in 2010 mainly in Europe and its organic growth is over 50%. Nescafe Greenbend has also contributed its success in its successful rollout in Europe.
An interesting side effect of the rollout has been a beneficial impact on the Nescafe brand as a whole from Greenblend's messaging around nutrition, health and wellness. Maggie's Juicy Chicken is a leader in its market. Its rollout continues and we have new innovations coming in 2011. Juicy Chicken has already annual sales over CHF 100,000,000. The second reason consistent and appropriate levels of brand support, ours increased in 2010.
3rd, the ability to drive category growth and increase category value and to create new consumption occasions. We have been cited by 1 major customer as one of the 2 1 of only 2F fast moving consumer goods company that can do this. 4th, market share gains and the ability to grow faster with our trade partners helping them improve their competitiveness. This is important. Relationships are easier if you're a willing supplier creating value for both parties.
This is particularly relevant in times of increasing cost pressure. 5th, a highly efficient operating structure. In 2010, we reduced our fixed distribution costs and our administration costs as well as improving our manufacturing efficiency. During 2010, we opened a pan European shared service center in Lviv in the Ukraine. 6, customer service levels.
We are hitting world class level in many European countries 99.6% in the U. K. As an example. As I'm sure you have realized, these six areas are closely linked to each other. Increased efficiency drives customer service levels, innovation, brand support and the ability to enhance value of categories drive growth and outperformance in those categories.
The Zone Europe performance is a great example of what we mean by a total performance approach at Nestle. Zone Asia, Oceania and Africa achieved 8.7 percent organic growth and real internal growth of 7%. The EBIT margin improved by 20 basis points to 16.9%. 2010 was a good year for the zone. It outpaced the GDP growth of its emerging markets to grow double digit in them.
It grew in all of its developed markets. It approached 20% growth in PPPs. It improved its market shares in key categories and countries and it is managing a significant step up in capital expenditure as it plans for future growth opportunities. One example of that growth potential is the zone in the zone is that it is targeting an additional 1,000,000 retail outlets by 2012. The 2010 growth reflects good momentum in all areas of the zone.
Within Asia, I would highlight Greater China, Indonesia, Indochina and India. Africa also had a strong performance. By category, the performance was broad based, but ambient dairy, ambient culinary and ready to drink beverages stand out with good performances also by powdered beverages, chocolate and ice cream. Next is Nestle Nutrition. Nestle Nutrition achieved 6.7% organic growth and ReLentura growth of 5.5%.
The EBIT margin improved by 70 basis points to 18.1%. Let's have a look at the divisions starting with infant nutrition, which had a good year at about 9% organic growth. From a brand perspective, there was good there was double digit growth from the 3 big brands Nestle, NAND, Sirilac and Gerber. From a divisional perspective, there was double digit growth in the infant cereals and infant formula businesses. From a geographic perspective, there was double digit growth in Zone AOE and in emerging markets such as Brazil and Russia.
Also a good performance in the U. S. And in Canada where we have taken leadership in formulas. As you would expect the emerging markets deliver the bulk of the growth in the division. Our market share performance has also generally been good.
It has improved during the year in our key markets. We have seen a turnaround in share gains in France and an improvement situation in Germany, though we don't consider it job done in either market. We have gained share in all categories in Spain and other big European market. Jenny Craig's growth was flat in 2010. This actually represents a good year relative to its listed competitive set and the weight management industry in North America.
There were 2 drivers of this outperformance. 1st, Jenny Craig is being successful in keeping its clients for longer periods. And second, its smaller at home telephone based service is growing double digit. The European launch is meeting early expectations. The launch costs have impacted the division's EBIT margin.
Healthcare Nutrition built on the improving momentum seen already in 2,009 with positive growth and an improved EBIT margin. The recent launches such as Resource Active are performing well. The 70 basis points improvement in Nestle's Nutrition EBIT margin reflects the benefit of portfolio mix as well as efficiency gains and was achieved despite increased brand support. Nestle Waters achieved 4.4% organic growth and real internal growth of 4.8%. The EBIT margin improved by 40 basis points to 7.4%.
There was good growth in all three zones with momentum building throughout the year as growth returned to the industry in the developed world and continued to be very strong in emerging markets. In North America, the market was helped by hot weather in the summer, but there was underlying growth driven by bottled water's improved value proposition by promotional activity and by consumers switching from other beverages. This in this positive environment, we improved our market shares. Among brands, the regional waters such as Poland Spring, Ozarka Deer Park and Ice Mountain were highlights as well as Neste Pure Life. In Europe, all markets improved their growth levels over 2,009 and it was double digit in the U.
K. France. France where Vitell and contracts performed well saw mid single digit growth. We gained share in Europe as a whole in our key markets there. The emerging markets achieved double digit growth and now represent 15% of water sales, up from 12% just last year.
Again, we gained share in most countries where we are present. The acquisition in China announced early in early 2010 is performing well. I've already mentioned a few of our brands. Nestle Pure Life, the biggest water brand in the world had another year of double digit growth globally. There were good performances also from premium brands Perrier and San Pellegrino.
The EBIT margin improvement was driven in part by the return to growth in the developed world. Significant improvements in efficiencies both in manufacturing and distribution also contributed, enabling increased brand support despite increased input costs and reduced pricing. 2011 looks as being another tough year for the beverage industry with oil price impacting distribution costs. Also there is a shortage of capacity in pet as well as increased demand from pet from non beverage industries, which is driving prices up and resulting in a decoupling of pet from oil price. The one positive in this is that our industry leading light weighting capabilities are even more of a bottle by bottle competitive advantage in a time of high pet costs.
Finally, among our segments in other food and beverages. This includes Nestle Professional with about CHF6.1 billion of sales in 2010 Nespresso with about CHF3.2 billion of sales and joint ventures CPW and VPW with about CHF1.5 billion of sales between them. In 2010, auto food and beverages achieved 9.8% organic growth and real internal growth of 8.5%. There was a slight acceleration in the final quarter in both real internal growth and pricing. The EBIT margin increased by 70 basis Professional delivered mid single digit growth and grew in all three zones.
Its growth was double digit in Zone AOA, mid single digit in the Americas and slight in Europe. The business is outperforming its industry and so it has set its own objective to be accretive to the group's organic growth. It achieved this in emerging markets with growth in the low teens and in North America. The beverage business has performed well with good growth in its proprietary Netscape system solutions. The recent launches of premium and super premium machines have been well received by customers.
The Vitality acquisition in the U. S. Has gone off to a good start conforming itself as a highly complementary addition to our beverage business. The food business performed well in the emerging markets. The customer innovation sent in America is proving to have been a very worthwhile investment and we are looking to replicate the concept in Europe.
Growth in food was led by Maggi and the Neste Milk brands. Nespresso had another good year above 20 percent organic growth and passed the CHF3 1,000,000,000 in annual sales for the first time. Growth was strong around the world and continued to be double digit in its 1st tier markets France, Germany and Switzerland. During 2010 Nespresso opened 36 new boutiques taking the total to 215, grew its share in the coffee system market to about 20% and increased its club membership by 35%. It also started its expansion in the Avances facility to be able to meet future demand for its capsule in the segment, which now represents 8% of the total coffee market and continues to grow rapidly.
To give some idea of that growth, the consumption of Nespresso capsules increased from 10,000 a minute in 2,009 to 12,300 a minute in 2010. Importantly, Nespresso's commitment to sustainability continues In a backdrop of significant increased purchases of green coffee, the share of that coffee that was sourced from the Nespresso AAA Sustainable Quality Program grew from 50% in 2,009 to 60% in 2010. Cereal Partners and Beverage Partners Worldwide both achieved good growth in 2010. The core CPW global brands such as Nestle Fitness, Nesquake and Cheerios grew 3 times as fast as the market. The business achieved double digit growth in many emerging markets as well as strong performances in more developed cereal markets such as Mexico, France and Australia.
BPW achieved mid single digit growth and share gains in many of its markets. I'll now turn to the product groups. Powdered and liquid beverages had another strong year for growth with 8.5% organic growth and 6 0.8% real internal growth. These numbers lapped 9.5% and 5.6% respectively in 2,009. So this is a great example of driving growth on top of growth.
Also I hope the acceleration in the final quarter of 2010 delays the concern that some of you have at the apparent slowdown in the Q3. The 2010 growth was strong across all segments. Salvo Coffee grew mid single digit in 2010, very predominantly due to real internal growth. I would like to highlight the consistency of our performance in SORVA coffee. Over the last 5 years, the real internal growth of our retail business has been between 4.6% 5.3% every year.
The secret of success here has been a compulsive focus on doing the basics right, continued renovation, disruptive innovation and consistent brand support. In 2010, the growth was truly broad based around the world being positive in both developed and emerging markets where the PPPs are growing double digit. I'd highlight Latin America, the Middle East, Greater China amongst emerging markets as well as France, Japan and the U. S. Amongst developed markets.
Our market shares were up in our biggest five markets as well as in many others. Innovations include the launch of 3 in-one in the U. K, initially only into the discounted channel the launch of a super premium Nescafe in Japan with bean micro grinds, the further geographic rollout of Nescafe Green Blend and of Nescafe Dolce Gusto as well as a new Dolce Gusto machine the Piccolo. There are more innovations and rollout lined up for 2011. The Japanese business had a good year with our 2 coffee systems Barista and Dolce Gusto selling about 500,000 coffee systems there.
Globally, Nescafe Dolce Gusto exceeded our expectations in 2010. I'm also pleased to report that in January of this year, we passed $1,000,000,000 of cumulative sales since its launch at the end of 2007. This is a great achievement by the Dolce Gusto team at the center and in the 39 markets where it is now present. Powdered beverages grew nearly double digit slightly weighted to price. Growth was almost double digit in Zone AOE and was double digit in Americas and in Neste Professional.
There was growth too in Europe. Milo continues to perform well in its key primary emerging markets such as Central West Africa and Asia. France continued to be the highlight for Nesquik, which is also performing well in the U. S. And U.
K. As well as Russia amongst others. Neste Litro, a PPP also continues to perform well and is gathering additional momentum through its geographic rollout. The ready to drink business grew in the mid teens, very predominantly due to real internal growth. The business is growing double digit across Africa, Asia, China and Latin America.
Nescafe Ready to Drink is performing really well as it is in the Brazilian business brands such as Nescau and Alpina, which we have launched in PET. The Japanese business is also performing well, again predominantly the Nescafe brand. The key brands in the product group performed well. Espresso, Milo and Neste grew double digit, whilst Neste was mid single digit and Nesquig grew low single digit as you will see in the Billionaire Brands chart. By geography, I would highlight in particular Africa and Latin America.
Powdered and liquid beverages EBIT margin fell 70 basis points to 21%. The EBIT margin in soluble was down. This reflects the continuing success of the mixes products, cappuccinos for example, Trane 1s and so on, which are growing faster than pure salvo coffee and are higher value products. Their EBIT margin however is below that of pure salvo coffee, but higher than that of the group's average. The reduction in the product group's margin also reflects increased support for our brands across powdered and liquid beverages as well as launch costs including for Dolce Gusto going global.
Next is milk products and ice cream, which achieved organic growth of 6.6% and real internal growth of 3.9%. Our milk products business achieved organic growth of almost 10%. This was more modest growth in ice there was more modest growth in ice cream and cereals. Milk is predominantly an emerging market business saw double digit growth in both Latin America and AOA as well as in Nestle Professional. Its performance was weighted meaningfully to real internal growth through though pricing has been picking up during the year.
We increased our market share in Nido and its regional brand variance on a global basis enhancing our global leadership in shelf stable dairy. Coffee maintained its leadership in its key markets with mid single digit growth. There has been increased competition in the U. S. From private label.
Its response saw its performance pickup during 2010 and they are further initiatives to be rolled out in 2011. Carnation and Lalitire are performing well supported by strong communication around retail culinary milk sector where we offer 95% less fat than there is in cream. Culinary milk is a niche is a good niche category, which we lead globally. Our all family cereals business is also performing well generally growing double digit. The rollout of fortified liquid milks alongside powdered in Brazil has been a great success with sales exceeding CHF 100,000,000 in its 1st year as a national offering.
We have plans to take the product broader in Latin America as well as to extend the range offering. PPPs performed well with growth in the high teens. Among markets I would highlight Brazil, Central West Africa, Indonesia, India and Pakistan, we are building new capacity to support growth. The ice cream business had a good year overall with positive real internal growth and organic growth and improvement in EBIT margin and increased market shares on a global basis. This was despite a difficult year for the ice cream industry both from weather perspective in Europe and due to pressure on the bulk market from private label in the U.
S. Let's look regionally starting with the Americas. The EBIT margin improved in North America. The Dreyer's brand did not grow as you will see in the billionaire chart though it held its market share. The total dryers business did grow however and has increased its market leadership with a particularly strong performance from our snack business which grew double digit.
Snacks include our drumstick cones as well as the better view products such as Nestle Food Bars, which are high in antioxidants and the low calorie Skinny Cow brand. There is good traction also at Haagen Dazs helped by the high profile Haagen Dazs 5 and Haagen Dazs Honey Bee Extensions. Another success has been the rollout of cups, which are single serve variations of existing products. These provide a more affordable eating opportunity and also encouraging sampling from potential new consumers. The growth is positive for a mix.
The cup model is also working well in Europe. This performance in Latin America has been strong. And I would highlight in particular Brazil where we see double digit growth. One innovation there has been the launch of Moleco into the ice cream market. Moleko is a very strong brand in the chilled dairy market.
In Europe, the picture remains much as it was early in the year. The trading environment is tough in some of the Southern European markets where the consumers are under pressure and spending less on discretionary pleasures such as ice cream. Equally tourism was down in a number of those countries. Our shares performed well in our key markets Switzerland, Germany and Austria even if the market demand was subdued. We had a very good year in France.
Again, our co owned business was a highlight this time on the Nestle Extreme brand, which is becoming the leading ice cream brand in that market. Growth was particularly strong in Extreme Naturales. Also going well is L'Alatier, another brand that straddles dairy and ice cream. The ice cream brand was relaunched with reinforcement around its brand promise of natural pleasure as well as recyclable packaging and variants focused specifically in nutrition health and wellness. Finally, in Europe, there was a good performance in Russia.
As you know, there was a heat wave, but we believe that there was a good underlying performance as well. The business in EOE achieved good growth and I'd like to highlight Indochina, Israel and Egypt among the countries there. The product group's margin improved by 90 basis points to 12.9%. Dairy, ice cream and CPW all contributed with ice cream improvement being the strongest despite its tough year from a growth perspective. Marketing spend was up in all areas.
There was a good level of efficiency achievements and positive mix in both ice cream and dairy as well as a leverage from growth in dairy. Prepared dishes and cooking aids achieved organic growth of 2.6% with real internal growth of 2.1%. This reflects a slower final quarter after positive momentum early in the year. Key to the quarter were the closure of our big Maggi factory in Cote D'ivoire during the unrest there, increased competition in ambient culinary in Europe and tough comparatives from 2,009 in China. Looking now at the year as a whole, we have discussed earlier this year the issues around the nutritional single serve segment in the U.
S. Frozen food, which has been suffering as a result of weak economic environment and category decline. We gained share in the family and value segments of the market with Stouffer's, but lost share in the nutritional area with lean cuisine. We are working on a number of initiatives to address the issues in U. S.
Frozen we expect a gradual turnaround. More positive in the U. S. Is the performance of butony, a relatively new entrant to the market at the premium end. It is growing share in both the chilled and frozen markets.
Also positive is the development our PPP range in frozen dishes like lasagna and macaroni cheese, which grew well in 2010. The U. S. Pizza business grew during the year and gained share, but growth in the out of in the in home market slowed during 2010 due to increased price led competition from home delivered pizzas. A quick word on the distribution synergies between pizza and ice cream business.
We will not see any cost benefit until 2012 and their actual and are actually bearing integration costs in 20102011 with no corresponding benefit. We expect the growth synergies to come through in 2012. This is in line with our expectation at the time of the acquisition. The European frozen is a good story with growth led by Butoni and Wagner Pizzas and share gains. Also in Europe, the chilled business, which includes Bitoni pasta and sauces and Horta had good growth.
In ambient culinary, we saw double digit growth for Maggi in Zone Americas and AOA despite the issues I mentioned earlier in Africa and China. Among regions in emerging markets, I would highlight Central West Africa, despite the 4th quarter slowdown India, where we saw real strong growth despite having over 90% market share and in Brazil. Innovations in emerging markets were focused around PPPs, which are often locally adopted products. Overall, PPPs grew in the teens during the year. Maggi Juicy Chicken was launched outside Europe into some emerging markets during the year and is performing well.
There was growth in ambient culinary in Europe as well. We gained share in key markets including Germany and France. There were good performances also in Switzerland and the Iberian region as well as in Poland, the Ukraine and Russia. The regional brand Tommy performed well in Switzerland and Germany. Innovations in Europe have been meaningful contributions to growth.
These include Maggi Juicy Chicken as well as Jelly Bullions again under the Maggi brand, which has become market leader in this segment in France. The EBIT margin was down 60 basis points to 12.3%. This is partly due to the reduced volumes in frozen U. S. And increased brand support both in frozen and ambient.
It also reflected integration costs related to the Pizza acquisition. Confectionery achieved organic growth of 7% in 2010 with real internal growth of 3.5%. The growth was balanced across segments all performing well with share gains in many markets. Among the brand performances, it is interesting to note that the confectionery market in countries such as U. K.
And U. S. Enjoyed mid single digit growth in 2010 despite the tough economic environment. This supports our view that affordable treats have a big role to play in consumers' lives in the developed world regardless of the economic environment. Perhaps in tough times confectionery is a source of affordable pleasure.
I've already touched on most of the drivers of the product group performance in my zone comments. A few additional points. The U. K. Had a strong year end and also good performance during the year from KitKat, which was bolstered by activities around its 75th anniversary.
We had growth in excess of 20% in India and 30% in China, driven by strong PPP activities around respectively Munch and shark. PPPs generally have a great success for the product group. In Russia, towards the end of the year, we sold our generic confetti business. This business has been dilutive to growth in EBIT margin in that market. The Product Group's EBIT margin improved by 20 basis points to 13.8%.
Again, it is a story of good cost management in the business, leveraged some growth and increased marketing spend. Next is Pet Care. It has been another good year. The Pet Care business accelerated in the final quarter to achieve 4.9% organic growth for the year and 3.6% real internal growth. It is noteworthy that this growth was achieved while discontinuing some lower value brands.
This discontinuation had a negative impact of 180 basis points on the organic growth. In North America, all our segments dry dog and dry cat, wet dog and wet cat, dog snacks and cat treats as well as Golden products grew during the year. Snacks, treats and Golden products were all double digit. Among brand performances in North America that I would highlight are Friskies, Wet Cat, Pro Plant, Tidy Cats and Biggen. Successful innovations in the U.
S. Including Purina One Shreds and Fancy Feast Gravy Lovers. In Europe, there was strong growth in the U. K, Spain and France and double digit organic growth in emerging markets including Russia. Our market share performance has been good with gains in key markets and categories.
Among brand performances in Europe that I would highlight are Gourmet Wet Cat, Purina 1 Dry Cat, Pro Plan, FELIX Wet Cat Single Serve. Successful innovations include FELIX Sensations and gourmet a lacarte as well as Purina 1 Actylia, which helps reinforce cat's natural defenses. I would like to highlight our strong growth 7% in cat foods and treats globally as these are higher value margin segments which represent about half of the overall pet category in value. The 2010 pet care EBIT margin increased by 100 basis points to 17.3%, reflecting the strong delivery of efficiencies around the world, improved product mix, raw material savings and increased investment in our strategic brands. So it was a good performance in 2010 confirmed by the fact that is in the 4th year in a row that we have increased our global market shares based on Nielsen and IRI data.
Looking forward, things continue to look positive for our pet care business. Globally, we are number 1 in 3 segments, which together represents 79% of the category value dry dog, dry cat and wet cat and we are number 2 in the 2 other segments wet dog and treats. Our 2010 acquisition of Waggon Train should strengthen our competitive position in treats. Our global market shares increased in all areas in 2010 demonstrating the good momentum in our business. As I have said, we are number 1 in Wet Cat and number 2 in Wet Dog.
Wet Cat segment is almost twice as large as Wet Dog is significantly more profitable and growing faster than Wet Dog. The dog food business is 75% dry, 25% wet. And again, as I've just said, we are the leader in dry dog. So in essence, we lead the more exciting segments of the category. The pet population continues to increase running about 2% growth per annum for both dogs and cats.
Our portfolio optimization that has been ongoing since our friskies per unit margin is complete, so there will be no longer hindrance to growth from pruning our products. Indeed, we are now better able than ever to leverage our capabilities for profitable growth globally. Our exposure to the emerging markets continued to grow supported by substantial capital investments in Brazil, Mexico, Russia, China and the Asian region. In conclusion, therefore, PetCare is a great business with a great future. I will now wrap up the business review with a quick look at our Billionaire Brands.
We had a good performance from Billionaire Brands in general. I've touched on this in my product group review. So just a few general comments. 9 grew double digit. 11 grew between 5% and 7.5%.
3 did not grow in 2010, but with initiatives in place to improve them in 2011. So good performances with a great majority of our billionaire brands. And as a group, they achieved organic growth of 7.1% ahead of the continuing operations number. On this slide is a selection of our 2010 innovations either new products or products that have been launched into new markets all aligned with our growth pillars. Our major 2010 corporate innovations contributed 80 basis points to the organic growth.
The 80 basis points includes only the sales of those innovations that we monitor from the center and that were launched during 2010. And if a product such as Dolce Ghosted entered a new market in 2010, the sale that is achieved in that in the new market. The 80 basis points does not include any of our local innovations and renovations launched in 20 10. So to summarize our segment performance, it was strong pretty much across the board. The market conditions have been uncertain and raw materials volatile.
Our response has been to deliver the top line and in terms of EBIT margin improvement. We have done that by focusing on optimizing our performance our operating performance in our markets to better leverage our scale and exploit our competitive advantages elsewhere everywhere we operate. Our ability to do this has resulted in market share gains around the world in the measured channels. We have also deepened our distribution in the non measured channels, for example, in rural communities in emerging markets. And of course, whatever those challenges have been and they are not the same in each category or in every country or people have remained aligned behind the Nestle roadmap, so that we could deliver the Nestle model making progress globally.
Let's now look at the financials starting with EBIT bridge for continuing operations. The cost of goods sold improved by 40 basis points. This is smaller improvement than at the half year, reflecting the increase in raw material costs in the second half, particularly over the levels in the second half of twenty nineteen. The impact of cost increases were more than offset by the ongoing benefits of our savings program, product mix and pricing actions. We also reduced our distribution costs by 20 basis points, again a smaller improvement than in the half year.
Good work here during the year by Waters and Pet Care as well as ice cream all of which have relatively high distribution costs. Marketing spend increased by 100 basis points during the year and it is increasing Swiss francs both for the first half and the second half and the year as a whole. Our spend on consumer facing media was up 13.2% in constant currency for the full year, a similar level to the first half increase. Administration costs were down 70 basis points. The main contributors are the leverage from growth combined with a rigorous management of our fixed costs.
We also had a reduced pension expenses somewhat compensating the increase in 2,009. R and D costs were unchanged for the year. All of the above gave an improvement of 30 basis points in continuing operations EBIT margin. You have already heard about Nestle Continuous Excellence or drive for more efficient and effective operations at all step along the value chain. We beat our $1,500,000,000 savings target in 2010.
This benefited all the cost items that I've just discussed. Importantly, the benefits go beyond cost with for example reduction in environmental performance in areas such as energy, water and packaging usages. Equally at the same time as achieving these cost savings, we have reduced our level of bad goods, improved our freshness levels and our customer service levels and reduced our lost time injury rate. This is why we talk about efficiency and effectiveness. Our aim is not just to become more efficient.
It is to combine improved efficiency with increased effectiveness. This is how we are targeting sustainable competitive advantage at each stage of the value chain. Next is the income statement from EBIT to net profit. And obviously, I'm now going to take the group numbers. As I've said, the group EBIT isn't comparable, but it increased to 14.8%.
The net income and expense includes profit under disposal of Alcon of CHF 24,500,000,000. Other points of note are restructuring charges are up CHF469,000,000 from CHF 222,000,000 in 2,009 and an increase impairment of goodwill from CHF 337,000,000 up from CHF 57,000,000 in 2,009. The key impaired items are in the European HOD Water and PowerBar. The net financial income and expense shows a 10 basis points increase in expenses. So it's basically unchanged from 2,009 despite our significantly lower year end net debt.
This is because we significantly geared up the balance sheet in the 1st 8 months of the year through the share buyback, increased dividend and acquisitions including Pizza before receiving the Alcon proceeds in August. Taxes are up slightly. Nothing much to say here. It's just the business mix as well as increased corporation tax in some countries. The share of results of associates basically L'Oreal is up 10 basis points.
The profit attributable to non controlling interests or what we used to call minorities fell by 30 basis points a result of Alcon being consolidated only until August 2000 until August. The net profit increased enormously due to the profit of the Alcon sale. Our underlying earnings per share increased by 7.4% to CHF3.32 and by 10% 10.3% in constant currency. Next is cash flow and working capital. Our cash flow or operating cash flow was $13,600,000,000 compared to $17,900,000,000 in 2,009.
The big impacts here were working capital normalization after 2,009 reduction currency and fewer months contribution from Alcon. We improved our trade net working capital as a percentage of sales and reduced our cash conversion cycle by 3 days. There you can see the trade net working capital trend in our continuing business. We have been continuously consistently improving our performance as a percentage of sales. It currently stands at 7.5% measured quarterly during the year.
On the next slide is the evolution of our net debt. This is mainly self explanatory. I just pointed out that the net debt of $3,900,000,000 excludes $2,600,000,000 of Alcon proceeds that have been invested in longer term securities. So including this would result in a net debt of CHF1.3 billion. Here you can see the trend in our dividend and payout ratio both of which have been consistently increasing.
The Board of Directors will request shareholder approval for a dividend of CHF1.85 per share. This will represent a 55.7 percent payout ratio based under underlying earnings per share and is a 15.6% increase over the dividend paid in 20.10 of CHF1.6 per share. This proposal this proposed increase reflects the confidence we have in our company prospects. Next, I'll summarize our cash return to our shareholders, which amongst the CHF 60,000,000,000 between 2,007 and 2011. Assuming our proposed dividend is approved and that we complete our current share buyback program.
I think it's important to look at this in conjunction with the Aureus side that I've showed highlighting our increased CapEx. We spent CHF 10,000,000,000 on CapEx and acquisitions in 2010 as well as CHF 10,000,000,000 on share buyback. In 2011, we expect to spend an additional CHF 1,000,000,000 on capital over the amount spent in 20.10, bringing the total for 20.11 to about CHF 5.5 1,000,000,000. So we have been returning cash to our shareholders at the same time as taking opportunities organically and through acquisitions to strengthen our market positions around the world and to grow the business profitably in the long term. The gradual disposal of Alcon allowed for significant value creation approximately CHF 4,000,000,000 to CHF 5,000,000,000.
Through our share buyback program started in 2,005, we have returned CHF 39,000,000,000 close to 90% of the Alcon proceeds when we complete the current program. Over the last 5 years, we have purchased 718,900,000 shares. The 4 share buyback programs have contributed about CHF 35 centimes to the earnings per share in 20.10. Without the share buyback, the cumulative annual growth rate would have been 6.5% in terms of our underlying earnings per share rather than the 9% achieved. I am now coming to the end and this slide really puts together much of what I've been talking about.
Simply put, we have been focused on 210 on getting the basics right efficiently and effectively. We continue to work on simplifying our business. We continue to invest for growth. We continue to achieve scale benefits and we delivered an improved performance in each of the elements of the Nestle model. We created Nestle Health Science and sold Alcon creating significant value for our shareholders.
So to summarize, 2010 as we started the year with a good understanding of our challenges and we met those challenges successfully. Our people did so by staying aligned with our roadmap of competitive advantages, growth drivers and operational pillars, whilst also being fast, flexible and entrepreneurial in their individual markets around the world. We delivered on the financials top line and bottom line and did so whilst continued to give our brands and innovations the appropriate level of support. This performance was reflected in a very strong showing in our market shares. So in conclusion, we outperformed our industry in 2010 and that has set us up well for 2011.
Let's have a quick look at 2011. 2011 is another is of course another year of challenges. And the good news is that every challenge brings the opportunity for outperformance for differentiation from our competitors. And this will be our aim to outperform our peers. One particular issue in 2010 that I know you're keen to hear about is input costs.
Our expectation is to have an additional cost between CHF 2,500,000,000 CHF 3,000,000,000 during the course of the year. We will manage this cost pressure again in 2011 by a continuation of several actions including driving our cost savings deeper across the company, benefiting from value adding innovations, leveraging our growth on our fixed cost base and benefiting from market and product mix and pricing. Finally, we carry strong momentum into 2011. You could see that from all the from the final quarter of 2010, we're despite tough 2,009 comps our growth performance prevailed. Also the growth of our more profitable geographies and categories is outpacing the growth of the less profitable ones.
In conclusion, therefore, it is our objective to deliver the Nestle model again in 2011. I'd now like to take your questions. And Roddie,
Ladies and gentlemen, your question and answer session will now begin. And you will be advised when you ask your questions. All other lines will remain on listen only. Your first question is from Mario Mastinani, NSE. Please go
ahead. Yes. Good morning, everyone. Good morning, Jim. Good morning, Ronny.
Mario Montanani, NSEB and Deutsche Bank. Just had two questions for you guys. The first one is about these raw material inflation you mentioned about 2011. And just looking back at your margin expansion in your core activities continued in food and beverage, just a clarification on this one. Can you confirm you had roughly 60 basis point expansion in H1 twenty ten, while in the second half of the year, we had something flat on a continued basis?
Also in food and beverage, just looking at food and beverage, can you confirm you have 60 basis points in H1 and minus 4 basis points in H2? Probably related to this one, just to finish up, in your key division, powdered beverages, We saw a massive acceleration in organic growth, I think close to 10% in Q4. Has been this related to a sales push, a new channel? Do you see that sustainable for 2011? And also probably you can elaborate on that division on the margin drop by nearly 160 basis point in H2?
That was all my questions. Thank you so much.
Thank you, Mario. Thank you. First of all, raw material inflation. We did say that we expect an acceleration in the cost increases in the second half. Now as a general comment, I want to say that we manage the business for the long term.
And the actions we take are not looking at managing the bottom line quarter by quarter. Whatever we do in our business is for long term sustainable growth. So there are going to be times when in 1 quarter and one half year there is going to be higher profits or lower profits. I mean, our focus is making sure that we drive momentum year after year, which is our Nestle model. So the raw materials inflation, we had a significant uptick in the second half of the year.
As you know in the first half, it was virtually marginal. We did guide the market at the beginning of the year that our input cost basket will go up at about 3% and in fact that is about where we ended up. On powdered beverages in Q4, I think yes, we had a good performance coming to the end of the year, driven primarily by innovations. Innovations across the category in different product formats and including our systems execution in the geographies around the world. So here again, it's bringing products to market as fast as we can possibly do regardless of what time of the year.
Yes. The part of the liquid beverages piece, the acceleration in the final quarter was consistent and that it was in each of the 3 zones and it was in each of the sub segments of the product group. So soluble, powdered and espresso, they all contributed in the final quarter. So it wasn't a particular push in an area. It was just a general good performance across the group.
And the drop you had in terms of margins, divisional basis was on the back of gross margin pressure on a divisional basis mostly in that case. Marketing costs have got sharply?
This is an area where we have spent significantly to support the brands primarily to launch innovations across the world. I would say that in this category, we've seen a significant step up in consumer facing marketing spend towards the second half of the year when the innovations became available. One example of that
would be the October or November launch of Deutsche Gustaf in the U. S. For example. Clearly that's going to be a major expense and we're not going to see the benefit coming through in 2010.
Right. Otherwise, the margins, food and beverage and continued separation, you can't confirm this flattish margin in H2 and minus 4 basis point in food and beverage in H2 of same period?
Mario, I'm not going to comment on quarterly mixes. What you've seen the guidance we've given, again in 2011, we expect to progress our margins across the company.
There's no material difference between Food and Bever and continuing operations in the margin. No material difference whatsoever. But what you've done is you've just taken you've done a rule of 2 and divided the full year to get your conclusion.
Okay.
We'll go to the next question.
Thank you for your question. Your next question is from David Hayes, Nomura. Please go ahead.
Thank you. Good morning all. Just firstly on the cost saves. I was trying to give you a bit more specific about the 10 level. You said it beat 1,500,000,000.
And I guess looking forward to 2011, I see your restructuring charges were up from 222,000,000 euros to €469,000,000 in 2010. Does that mean we should expect an even bigger performance on cost saves in 2011? And could you take that? And then just on the emerging markets, we've heard other companies talking about emerging market tailwind in terms of macro and consumer sentiment perhaps being a little bit less helpful this year versus last year. Is that something that you would say is something we should be aware of in terms of the development?
Obviously, the strong performance in emerging markets. And then just pushing my light, just following up actually on the first question in terms of that beverage margin, 160 basis points down in the second half, up 20, I think, in the first. Just to kind of put together what you just said about investment phasing, etcetera. For 2011, is it more like the minus €160,000,000 because the investment continues? Or with the benefit of that coming through to your point where do we issue margin in beverages should be flattish as in the first half?
Thanks very much.
On the restructuring, I think as you have seen over the last number of years, the average if you take the average restructuring over the last 5 years, it's about 50 basis points. And that's basically where we ended up this year. Last year was a bit lower and this year is more or less in line with the average going forward. Surely the restructuring allow us to have greater productivity as we go forward. And we expect that the investments and the provisions we made will help us continue to achieve the benefits of restructuring that we have done in the past.
In terms of the margins on beverage, we continue to see we believe that this category will be will continue to be a high margin business. Of course, the swing in margin from one period to the other period is influenced, I would say, primarily by 2 things: by the input cost, the timing of the input cost and the timing of the investment to support innovations and different brands across the world. I'd like to say that we do not manage our cost of goods on a 6 months basis. We have a total annual view of our cost of goods and that is what drive our pricing decisions. And in terms of consumer marketing consumer facing marketing, we will spend the money wherever we see the opportunity during the course of the year.
I think overall, no business category is exempt from the Nestle model. We expect each of our categories to perform on an annual basis continually improving. However, in beverages, we also have to understand that there are some cases where you already have a margin business in the 20s. There are going to be opportunities where the margin in a particular segment may be dilutive to the category, but accretive to the group. So we have to look at both of the benefits to the category and to the group.
At the end of the day is putting the consumer force in our thinking and execution, we have to deliver good value in order for our categories to grow profitably.
Okay. Thank you. Just on the just came back to the productivity. I mean in terms of the cost saving of 1.5 percent that you beat, I mean was that 1.6 percent, do you think it will be more than that in 2011? Just trying to see if there's any quantification on that.
And then there was the emerging market question
as well. I think we will likely do about another €1,500,000,000 this year in 2011. The emerging market,
I mean the previous comment that I at least picked up on the call in emerging markets was about the macro numbers and the macro numbers are what they are. So we see the same macro numbers as everybody else does. But you can see it from our reported numbers that our momentum in emerging markets remains very strong. And as we said on the conference call, we have been significantly outpacing GDP growth in the emerging markets, more than double GDP growth in some emerging markets. So this is really about even in emerging markets growing value in our categories as well as having a lot of success with the PPPs.
Okay. Just to finally come out to the quantification of the cost savings. Sorry, just to sort of finish the circle on that. You're obviously guiding for raw materials that you gave. I just want to make sure my understanding is that that's about 7% to 9% inflation of because I've got the base on the raw materials correct.
Is that about right?
Well, the base of our raw materials about the input costs not I'll be careful. It's the input cost basket is about $30,000,000,000 So we're saying we're going to have about $2,500,000,000 to $3,000,000,000 in increased price or input or increased cost on that basket.
Okay. That's great. Thank you very much guys. Thank you.
Thank you for your question. Your next question is from John Cox, Kepler. Please go ahead.
Yes. Good morning, guys. Thanks for taking the question. I have a couple of questions for you. First question is just on the state of the buyback, etcetera.
Jim, I think you previously have said you've got no desire to go back to a AAA credit rating and have said that, consummate with that, you need net debt of somewhere around CHF 25,000,000,000 to CHF 30,000,000,000. Obviously, you're now net debt around CHF 1,000,000,000 odd. I'm just wondering what your plans are on that. And it just seems inevitable that you need to actually do more buybacks in the future? That's the first question.
2nd question, a little bit following up on the emerging market story. When I do the backing out on the AOA, it looks like there was a slowdown in Q4, I think about 7% growth from around 9% in Q3. I wonder if there's anything behind that at all. And then last just more of a nuts and bolts question. I'm wondering when you're going to give us the restatement for the non trade spend.
Would that be issued today at all? Or would that come out closer to Q1 figures? Thanks very much.
Okay. Thank you, John. Just first of all, the restatement, as I stated at the beginning that we will provide those numbers at our roadshow presentations next week Tuesday in London. And immediately after that, it will be put on the website. So now let me come back to the buyback.
We have we completed in 20 10 the $25,000,000,000 we started in 2,007. And then we started a new program which we announced was $10,000,000,000 We did slightly over more than $5,000,000,000 in the second half of last year. So we have slightly on the $5,000,000,000 to do this year to complete that program. So when that is finished then the Board will have to make a decision as to what we do. But let's finish that first and then we will deal with that perhaps in the half year.
Yes, the AA, AA plus rating we said we always wanted to be a gold standard credit quality as a company. And we believe we had guided the market that by the end of 2012, our net debt should be somewhere between where we were at the end of 2,009, which was about CHF 15,000,000,000 CHF 18,000,000,000. So I think we are on track to achieve that. I don't the numbers whether it's CHF 15,000,000,000 or CHF 18 $1,000,000,000 those are the numbers we are working to John not $20,000,000,000 to $25,000,000,000 to $30,000,000,000 And you have seen that we have been very responsible in managing our balance sheet over the years and that will continue. I think you want to say something, Ravi?
Well, just on AOA. I mean, the big change on AOA, John, or the big impact is simply the comparative. We had about 4.5% rig in Q3 of 2009 and about a 9.5% rig in Q4 of 2009. So not surprisingly with that comparative the number looks a bit slower, but that is not reflective of a slowdown in It's growth upon growth essentially. Yes, exactly.
Thank you for that. Why don't we just push a little bit on the to get to CHF 18,000,000,000 net debt by the end of next year. It seems obvious that there has to be some way to give cash to shareholders whether that's a buyback or a dividend. I just want to make sure you're leaving those options open, because some people seem to be taking today that there wasn't an announcement on a new buyback like once this program is completed currently that's it. There'll be no more.
I'm sure that's not what you intended.
Well, John, first of all, as I said, we have about €5,000,000,000 of buybacks yet to complete. So let's complete that and then we will tell you what we're going to do at a half year. The Board will have to consider what we move forward. And in terms of dividends, if you look at our dividend pattern over the last 4 years, every year it has been 15%. If you take the last 4 year dividend, our dividend has increased by 15% per year.
And this year again, we are axing we've asked the board and the board will present to the general assembly another increase of 15.6%, which is nearly 56% payout ratio of our underlying earnings per share. So we have been I would say, we have been a bit aggressive in terms of our returns to our shareholders. I mean CHF 15, CHF 1.85 per share will be about 3.5% return on the weighted average share price last year, which I think is a very good highly competitive return to our shareholders. So we'll continue to do what we think is right for our business organically and through M and A activities around the world. And we're also going to be responsible on how we manage returns to our shareholders.
So it is that balance we have to maintain. And you're right, we are not ruling out anything at this stage. We have to consider it as we progress.
I think also if people are taking no comment on the share buyback as a negative, they should look to our pattern of communication. We've never announced a share buyback when we're only halfway through a current share buyback. And I don't suppose any other company has either frankly. So we are simply communicating on this the way we've always communicated on it. We're not setting a precedent.
That's it.
Okay. Many thanks and congratulations on the figures.
Thanks, Jan.
Thank you for your question. Your next question is from Warren Ackman, Evolution. Please go ahead.
Good morning, Jim. Good morning, everybody. It's Warren here from Evolution. I've got a couple of questions as well. The first one, Jim, could you flesh out the performance in each of the 4 brick markets?
Obviously, a very good performance. I remember meeting you and you're saying in China, it was still work in progress as it was in India. But I'd be interested to hear your views on each of the brick markets. And secondly, just going back to this dividend payout issue, obviously, you're now up to 57% payout ratio. But if you keep paying a dividend of 15% increase a year, you quickly get to a situation where the payout ratio exceeds 60% a few years down the track.
Is that a percentage that you're comfortable with? And just finally on working capital, obviously, 2,009, we had a €2,400,000,000 inflow in working capital. Just looking at the cash flow statement, you've got €600,000,000 outflow in 2010. Just be interested in your views on the working capital for 2011 given the current state in commodities. Thank you.
Thank you, Arren. First of all probably you have the numbers in the brick markets. Yes. Yes.
Yes. I'll just run you through the bricks quickly. Brazil, as we said, I mean, double digit growth and double digit growth in the big category dairy there. We mentioned in the conference call the launch of fortified liquid milk alongside the pound of milk going very well. Strong performance both in the chocolate business Nestea and Grota and biscuits.
And really throughout all the categories very good performance in Brazil, so double digit growth in Brazil. China, Greater China including Hong Kong double digit. If you exclude Hong Kong even higher double digit as you would expect. Again, very strong growth really across the big categories. And I'm just talking the zone businesses here, not the globally managed businesses.
Very strong growth across all the big categories there. India we report as part of South Asia. We mentioned on the core 30% sorry, 20% growth in chocolate in India, but double digit growth in the big categories culinary, dairy, chocolate as well as in sugar. So again, very broad based. Russia was the if you like the one the laggard of the bricks and we had mid single digit growth in Russia.
Really this relates to economic environment there and to weaker performances in the impulse categories chocolate particularly chocolate. Good performances there in dairy and soluble coffee in Russia. And those comments are broadly true of the globally managed businesses because the nutrition business grew double digit in all of the brick countries. The water business where we have a water business in the BRIC countries did well. It was very, very strong in Brazil where we launched Neste Pure Life.
We mentioned the Neste Professional business growing double digit in AOA. It was also double digit in China and India. I don't have the Brazil performance for Professional in my head. So very strong performance by the BRI sorry by the BIC weak performance by Russia, but Russia was coming back quite well at the end of the year. Okay.
Okay. Just on Warren the question on dividend, yes. I think where we are is a good level. I think where do we go beyond that we'll have to see at the end of next year. But the reason why we have granted this increase at this time already two reasons.
First of all, we have great confidence in our company to continue to perform well in spite of the general economic conditions which vary from markets to markets. And secondly, we have a very strong balance sheet. So I think this is a reflection of the continuation what we have done over the last 3 or 4 years. As we go forward, then we will have to think, but we are not targeting as such a dividend payout ratio. I think we would like to have an increase in the dividend, the absolute dividend year after year to our shareholders.
And yes, that may have a creep in the payout ratio, but that is not really the objective. The objective is to give our shareholders dividend gradual increase year after year with a good reflecting a good return on their investment in the company.
Jim, the payout ratio is not 1,000,000 miles away from tobacco companies these days?
Well, we are a food and beverage company focused in nutrition, health and wellness. But we have I don't want to comment on another industry. I think we do what we think is right for our company and our shareholders. And I'm sure you appreciate that Warren.
Yes.
On working capital, yes, your observation is right. Our working capital did increase marginally 600,000,000 dollars in 2010. I think that is in line with our growth. As a matter of fact, when you take the 5 quarter average per year, our trend is down and our focus is trying to get that trend even lower. So yes, in 2,009, we did have nearly $2,500,000,000 of inflows by significantly reducing our working capital.
But we said at the time there would be a correction as we move forward. And that is what you're seeing, a marginal correction in working capital.
But Jimmy, given commodity inflation is running in the high single digits, would you not expect the working capital outflow to be exceeding CHF 1,000,000,000 in 20 11?
I don't want to give a I think the way we manage our working capital is based on standard covers and days. And yes, I mean, it depends on where the working where our inventories are valued at the end of the year. So, yes, if the commodity costs go up, we would likely have a higher value. But our objective is to every year being able to report a reduction in terms of percentage cover or percentage holding of inventory of working capital to sales. So yes, both may go up and hopefully the ratios will at least stay at a constant level and not necessarily go up.
Thank you, guys. Cheers.
Thank you.
Thank you, Oren.
Thank you for your question. Your next question is from Alan Oberholt, May 1st. Please go ahead.
Yes. Good morning, Jim. Good morning, Roddie. Two questions. The first is, could you give us a guidance for potential acquisition?
I remember that in the past you said EUR 2,000,000,000 to EUR 3,000,000,000 of transaction and the second in that. Where do you still see weakness, weak categories? Where could we expect where you're obviously opening on to improve some of your category by external growth? And the second question is on PPP. Can you tell us how much was it overall in CHF 6, the revenues in PPP?
Yes. First of all, on the M and A guidance, we're not going to give you a number. I think given our existing presence in the various markets, we still see some opportunities to do some filling acquisitions as we have done over the last couple of years. Wherever there's an opportunity, we surely want to pursue them. But last year we spent CHF 5,600,000,000 on acquisition primarily the bigger one being Kraft Pizza, which was about CHF3.8 billion.
So there are going to be some smaller acquisitions around the world that we can do. We have to do acquisitions in a way where we retain value for our company. So wherever there are opportunities we will. I think our focus would be driving M and A activities in the area of nutrition. Anything that gives us reinforces our position along our strategic pathways of nutrition health and wellness.
I would say with the announcement of Nestle Health Sciences, we're surely going to be looking for opportunities there and we are. We're very active. You've seen we've already announced some very small deals. But we are very actively looking for opportunities in those areas. So wherever there are good acquisitions that advance our strategic agenda in the various categories, we will be looking at that.
On PPP, our PPP total revenues in Swiss francs is about CHF 11,000,000,000 at the end of last year and it grew approximately 13% around the globe.
Okay. Thank you very much,
James. Thank you for your question. Your next question is from Alan Erskine, UBS. Please go ahead.
Good morning, guys. A couple of quick questions. 1, just going back to the coffee business. I just want to get a feel for where you are in terms of taking, I guess, the inevitable pricing? And just wanting to double check that some of the growth wasn't a function of the trade buying in ahead of pricing.
That's my first question. But my second question is, can you give us an indication, Jim, what we should be using as a sort of cost of net debt when we look into 2011? Because obviously you've got a relatively small net debt, but behind that a gross debt number and a cash number and probably different rates of interest on those. So maybe if you could do that. And then thirdly, sort of a bit pedantic really, but I think in the report in the kind of last year, the SEK 10,000,000,000 sort of became at least SEK 10,000,000,000 buyback.
And I just wonder just how closed ended is this existing buyback? Or how do you have the opportunity to roll it on? Thank you.
Okay. Thanks, Alan. On coffee pricing, I think as you know the pricing actions are taken at a local market level. We are very clear and transparent and frequent in our communication in as much detail as possible. So the pricing actions are being implemented So the pricing actions are being implemented around
the world in
the various markets depending on the timing and the magnitude of the pricing that is taking. I don't think our coffee sales were influenced by potential price increases that are coming down the pike. So I don't think there was a significant impact on our performance in the 4th quarter. Using the cost of debt, in the past, we would say it's about CHF 1,000,000,000 or slightly under. I think over the last 2 years, you've seen the cost of debt around CHF 600,000,000 to CHF 700,000,000 dollars We may be slightly below that because of our net debt position.
But it's I don't want to give you a number here, but I would say it will be somewhere around CHF 500,000,000 to CHF 600,000,000.
I think on the share buyback, I'm looking at what with me. But I think we the at least was our commitment in 2010 to buy at least €10,000,000,000 and our commitment in 2011 to buy at least €5,000,000,000 I think that was the at least rather than the actual share buyback amount itself.
Yes. Okay. And so just to get back to
the debt thing. So I mean presumably is that a function of your you sort of not getting as a higher rate on your deposits if you like as you're paying on your debt and that's why despite the big reduction in net debt, you're not seeing a big that big reduction in the interest payable?
No. I think as we explained in 2010, the first we didn't get the proceeds from Alcon until perhaps in the 8th month of the year. And during the 1st 8 months, we saw the heavy up on the share buyback and of course we paid the dividend. So you had a significant increase in your debt and therefore the cost went up. Now so that's the reason why we still have slightly higher debt in 2010 versus 2011.
So but going forward, I think our objective to the extent that it's possible is to replace 3rd party debt in our markets by intercompany debt, which I'm sure you understand there is an advantage of doing that both for the markets and for the group. I don't really necessarily want to get into the details of that, but it is part of our funding strategy. And yes, the objective in the end is to reduce the net after tax cost of our debt for the company.
The other point Alan just to remember is where we do have third party debt, if it's in emerging markets, if it's in Brazil for example, the interest rates there are they are double digit. There's not a European interest rate. So when you think about the gross debt we have, the amount the ticket we're paying is perhaps higher than you might imagine.
Sure. Thank you. Thank you for your question. Your next question is from Patrick Swanderman, ZKB. Please go ahead.
Patrick Swendell, Zurkantenal Bank. Good morning, King. Good morning, Roddie. Regarding price increase for 2011, you were mentioning to this 2.5% to 3%. No, I mean, you have to call this input costs increase, you probably would have to price increase of 2.5% to 3%.
Do you think this is achievable in this environment of still quite high unemployment at least in the Western Hemisphere? That's my first question. And secondly, regarding your EBITDA margin target for 2011, you want to increase again it in local currencies, bearing in mind the current ForEx headwind, what do you think is possible in Swiss francs for the EBITDA margin? Thank you.
Thanks, Patrick. First of all, the price increase in 2011. We have always said that we do not or we will not only depend on pricing to deal with input cost pressures. There's no doubt that there will be pricing. But we have said as I said in the conference call, we this year as we've done last year, we are deepening our cost savings initiatives across the company not only in manufacturing and supply chain.
And here again, we expect to see the benefits of that coming through during the course of 2011. In addition to that, I think our product mix or product and geographical mix in the business itself is contributing a significant amount of leverage beneficial leverage in our margin structure. The other thing is that we have a very active R and D platform that yes, does require relocation or reallocation of our consumer facing marketing spend, but they tend to be higher margin businesses. So we have other options in addition to pricing to deal with the cost pressures as we have done in the past. So I would not be able to tell you what the pricing will be.
The pricing decisions will have to be at a market level category by category in a way that preserve the value of our business or products to the consumer. On the EBIT target, of course, Patrick, the EBIT guidance we give you is in constant currency and it is in Swiss francs.
Barry, in the minds of the current headwinds from ForEx, would you say it could be also achievable in Swiss francs? Or would you say that's rather an optimistic estimate?
No. I think the guidance we give is in constant currency. So we feel comfortable with the guidance we give.
All right. Thanks.
Yes. And we are not we do consider the impact of the currency volatility.
Patrick, there was amazing volatility in 2010 in currencies and yet there was no currency impact on our margin in 2010.
For the continuing business.
For the continuing business, okay? So it's not as simple as just because there's currency volatility our EBIT margin gets hit. It depends on what happens with the currencies. And what we saw in 2010 was weakness in the dollar and euro against the Swiss francs And because they were both weak, there was no impact on the EBIT margin for the continuing operations. So far in 2011, we've seen what we've seen, but it all depends what happens for the year as a whole.
And if we have weakness in both those currencies for the year as a whole, the impact is going to be very different than if we have a strong dollar and a weak euro for example. Okay?
Sure. It's just I mean because the impact 2011, if the currency stays at current levels then the impact will be much more negative than 2010. That's why I'm asking
Yes. Patrick, the other thing is that the margin is a percentage of a percentage. So yes, this last year we lost nearly $4,000,000,000 in top line sales because of the negative currency effect. So the margin is a percentage of the percentage. Unfortunately, I have to leave for a press conference, but Roddie will stay on for another 10 minutes to take your questions.
And we will catch up with most of you next week. Thank you. Okay. Next question please.
Thank you for your question. Your next question is from Julian Harwick, RBS. Please go ahead.
Hi, Ravi. Just looking through your financial statements, am I correct in saying that in addition to your buyback, you also bought back CHF2 1,000,000,000 worth of stock, which you've put into treasury?
Yes. I think it's CHF1.7 billion, but yes.
Okay. And how much I mean how active should we expect you to be in that sort of repurchase above and beyond your share buyback this year?
Well, I can't comment on that. I mean, we've always if you remember, we used to always buy treasury shares before we were doing share buybacks. And that's what we're doing. We're just using it as part of our the management of our the proceeds from Alcon. I'm not going to guide on the level of treasury budgeting we're going to do in the current year.
We should assume that that's likely to be an ongoing activity?
Well, yes, it's part of the way of managing our capital structure at the moment, yes.
Okay. That's great. Thanks a lot.
Thank you for your question. Our next question is from Sarah Welford, Citi. Please go ahead.
Hi, Sarah.
Sorry, you just canceled the question.
A couple of questions. The first one is on the EBIT margins in 2011. You've given the margin bridge for 2010. I was wondering whether you could just qualitatively talk through a few components and in particular whether you'd expect the gross margins to be down and lower marketing as a percentage of sales? And then also anything on the margin phasing of the year in particular, whether you think it's likely margins will be down in the first half?
Then the second question is on your pension expense. What sort of benefits and margins did you get from the lower pension expense in the year? And again, is that likely to be a positive or a negative in 2011? Thanks.
Thanks, Jeremy. I unfortunately don't have the 2011 EBIT margin bridge yet. But on the marketing side, if you remember in 2,008, we had this discussion as well. But I mean it's clear that if there's an environment of higher pricing then one's marketing spend might fall as a percentage of sales because you don't increase your marketing because you're taking pricing. Your marketing is more driven by your volume than your pricing.
So the marketing spend might come down as a percentage of sales. But as Jim said earlier on, these marketing decisions are made in the markets, not bounced at the center. So frankly, I don't know. What I do know is that there's no reason why the absolute spend in marketing should come down or why the marketing the media facing consumer sorry, the consumer facing media spend in Swiss francs that we give you 13.2% up in 2010, why that should come down. So in terms of what we are doing to give our brands appropriate support in the markets, there's no reason why that should diminish.
I'm not going to go through and guide on all the individual lines of the P and L for 2011. But on the raw material piece since you mentioned the gross margin, I mean, obviously a lot of the conference calls recently have been focused on raw materials and on the percentage inflation that the different companies are going to suffer on their raw materials. I do think this is slightly academic. We're telling you we're going to have €2,500,000,000 to €3,000,000,000 of raw material cost increased raw material cost pressure in 2011. Now that is a number that we've worked out through our procurement people and their forecast for raw materials and through our treasury people and their forecast on currencies and how that's going to impact our raw material bill.
Now if I'm sitting in the U. K. Managing our chocolate business that number is completely irrelevant to me. I care about my cocoa bill, my sugar bill, my milk bill and I care about the U. K.
Sterling. That's all I care about. What matters to me is that I have been given good advance warning of what's happening in those commodities that I know what I'm doing with my pricing, that I know what I'm doing with my innovations, am I going to price my innovations at the right price in view of the coming wave of increased cost pressure, Is my timing of those innovations right? And so on and so forth. And it's that guy in the U.
K. Getting his chocolate decisions right and his colleagues in milk in Pakistan and everywhere else around the world getting their decisions right that will drive our operating performance and will drive our margin improvement not whether or not the €2,500,000,000 to €3,000,000,000 is precisely the right number or not. It's what the guys in the markets are doing to manage the cost pressure that will drive our operating performance.
And on the pension Please play.
And on the pension bit, it was a marginal contribution. It was about 10 basis points, but it was a much greater benefit the year it was much greater negative the year before than it was a benefit in 2010.
And anything on the phasing of the margins?
No. I mean, we've said we will deliver Neste model for the year as a whole and that's what we will do.
Okay. Thank you very much.
Thank you for your question. Your next question is from Robert Wortzmann, Bank of America Merrill Lynch. Please go ahead.
Good morning, Ravi. It's Bob Weltzmann here at Merrill's. Hi, Robert. Just a couple of clarifying questions. One on your input cost guidance, the $2,500,000,000 to $3,000,000,000 is that inclusive of packaging as well?
And secondly, what inflation are you seeing in wage bills and the rest of the cost base would be one question. 2, also can we get some comment on the North America business in terms of pizza? You've mentioned dilution in terms of that and the cost savings being pushed into 2012. Can we get some color in terms of why the savings take so long to come through? Thank you.
Sure. The 2.5 percent to 3 percent does include packaging, yes. In terms of the wage inflation, I mean, this varies enormously around the world. And I don't have a group average number for it. But again that's something that the business manages locally rather than from the center.
In terms of pizza, I'm glad you asked the question, because I think that deserves some clarification. What we said is that the pizza business was dilutive to the Zone Americas margin. The Zone Americas margin is 16.5% or you said it was 16.8% in the previous year. So it's dilutive to 16.8%. We're not saying it's dilutive to the group margin.
And it is not dilutive to the group margin. So the dilution is simply against the very high margin we have in the Americas. That's the first point. 2nd point, the cost synergies are there's okay. The distribution synergies, the big piece of the story if you remember was we were going to merge our direct store delivery of ice cream and pizza.
Now not surprisingly to do that you need to have bigger trucks for example because the trucks aren't running half full. So we have costs upfront of merging this distribution. Now what we're saying is we're going to see the full benefit of that investment in 2012. We're not saying there's no benefit in 2011, but the full benefit the job will be done if you like in 2012. Equally as you would expect, if you buy a business there are acquisition costs, there are integration costs related to the cost synergies that we are also attributing.
But there's nothing that's happened that has changed our expectations or our message on this business from the time of the press release and presentation that we did. We always believed it would be accretive to group and dilutive to the Americas. Does that answer your question?
That's helpful on that. So just on the input costs just to come back and make sure I confirm. So the total inflation here is going to be around 8% to 10% on the cost base, if we look at about a $30,000,000,000 cost base.
Yes. It's $2,500,000,000 to $3,000,000,000 on $30,000,000,000 yes.
Yes. Okay. Thank you for your question.
Your next question is from Sarah Welford, Citi. Please go ahead.
Hi, Roddie. Sorry, I don't know what happened there. Just one quick question in terms of the tax rate. You've indicated that it did go up in 2010 because of corporation tax rates going up in various places and because of business mix. Do you see that trajectory continuing for 2011 beyond?
Well, we're not changing our guidance on the underlying tax rate. And the business mix, it's frankly to some degree anyone's guess because it does grow year to year. But our guidance 27% to 28% on underlying the continuing operations.
Okay. Thanks very much.
Thank you for your question. Your next question is from Chris Wickham, Matrix. Please go ahead.
Yes. Hi. Just two quickies. I was just wondering on NHS, at what point you'll be giving us sort of more information or when we'll ever when we might be having a sort of look at sort of the financial impact of that? I was just wondering also given some of the comments that Jim made about a year ago talking about some of the frustrations of M and A in emerging markets, whether or not you've seen perhaps any shift in bargaining power either way from vendor or to purchaser?
Thanks, Chris. NHS, I'm not really sure what you mean by the financial impact. I mean, basically what is happening is that we are taking the Healthcare Nutrition business to have sales of €1,700,000,000 in 2010 and that is the kernel from which we will grow the Nestle Health Science business. So it's an existing business. It is making money.
Of that business, we will rather onto that business we will bolt on acquisitions that we make in the space. And you saw we made a small one a couple of weeks ago. So there's no sort of financial impact as such. Now when we see your or when you dial in to listen to us on Tuesday, we will when we give you when we talk to you about the whole net net sales, we would also show you how we're changing the operating segments to take what is currently Healthcare Nutrition out of Neste Nutrition and put it in the other area other food and beverage area and what else we're doing. So you'll get a bit more clarity there.
But fundamentally, our communication plan on Nestle Health Science for the moment is to let them get on and build their business. And as and when they have something to say to us and to you that is material in terms of the investment community to communicate it?
Yes.
And on emerging markets sorry. On M and A and emerging markets, I think I'm not sure whether it's frustration. I think it's just the fact that we spend it takes longer to build I mean, emerging market M and A tends to be much more relationship built than developed market M and A is. And it takes longer to build those relationships. And then of course, yes, there are people who want to sell businesses who have curious ideas of value relative to our idea of value.
But you saw we've made an acquisition in China, an acquisition in Ukraine last year, an acquisition in one of Latin American countries last year. So we are making them, but it just takes a bit longer.
Excellent. Thank you. Congratulations.
Okay. Thanks, Chris. I think that's all we have time for. Thank you very much for your questions. Just one little technical point I've been asked to point out to you.
Those of you who have downloaded the those of you who have seen our app, but cannot download it because you aren't using an iPhone or an iPad, We have now launched an Android version of the app. So that's now also available for those of you who use Android based systems. And then at 10 this morning, Swiss time, so in about 2 minutes, the press conference is starting. Paul will sorry, Jim will give a bit of a repeat of a shorter version of today's conference call. And then Paul will talk or Bilke will talk more strategically about the business.
Thank you very much indeed. Thanks for your attention and hope to see some of you or many of you on Tuesday.