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Nestle Sa Reg Shrs S (OTCPK:NSRGY)

April 18, 2013 2:30 am ET

Executives

Roddy Child-Villiers

Analysts

Celine A.H. Pannuti - JP Morgan Chase & Co, Research Division

Warren Ackerman - Societe Generale Cross Asset Research

Jon Cox - Kepler Capital Markets, Research Division

Eileen Khoo - Morgan Stanley, Research Division

Alain-Sebastian Oberhuber - MainFirst Bank AG, Research Division

Alan Erskine - UBS Investment Bank, Research Division

Jeremy Fialko - Redburn Partners LLP, Research Division

Patrik Schwendimann - Zurcher Kantonalbank AG, Research Division

Robert Waldschmidt - BofA Merrill Lynch, Research Division

Jeff Stent - Exane BNP Paribas, Research Division

David Hayes - Nomura Securities Co. Ltd., Research Division

Roddy Child-Villiers

Good morning. Welcome to the Nestlé First Quarter Sales Conference Call. I am Roddy Child-Villiers, Head of Investor Relations, and I'll take you through the details today. First though, I'd like to remind you that the call is being recorded. I will now take the Safe Harbor statement as read and move to the group numbers and outlook.

The sales were CHF 21.9 billion, up 5.4%. This is similar to a level of growth of 5.6% reported in the first quarter of 2012. The organic growth was 4.3%, achieved on the tough 2012 comparative of 7.2%. Real internal of growth was 2.3%. Pricing was 2%, considerably down from last year, reflecting the rather different raw material cost environment. Acquisitions, net of divestitures, added 2% due to the inclusion of Wyeth Nutrition. Wyeth is not in our organic growth, but its inclusion within the group means that the emerging markets now represent about 45% of sales. Foreign exchange was negative 0.9%. The first quarter of the year has been characterized by volatility, and I will touch on this as I go through my presentation.

Looking beyond the first quarter volatility, our expectations for the rest of the year, we expect our growth to be weighted to the second half of the year. And the same is likely true of our margin. For the full year, we expect to deliver the Nestlé Model with an improvement in the margin and in underlying earnings per share in constant currency and in our capital efficiency, and with organic growth likely coming in at the lower end of our 5% to 6% guidance. The consensus on organic growth is 5.5%. So clearly, our guidance is confirming what the number of you are already expecting.

The next slide shows our performance by region for total Nestlé, including our globally managed businesses. And I will start with an overview of trading conditions. The emerging markets have slowed down since the first quarter of last year, and there is volatility in Asia and the Middle East. But they continue to provide opportunities for good growth. The environment in Latin America has also slowed somewhat in recent months but remains buoyant. The North American market has picked up a little recently, but it continues to be sluggish. Europe continues to be characterized by the great impact of austerity programs, the worsening crisis in Southern Europe, food price deflation, weak consumer sentiment and reduced consumer spending on food. Our performance is consistent with previous periods in that we have grown in all 3 regions of the world.

I'll now go through the numbers in detail, beginning with Zone Americas. North America continued with the trend seen in 2012, reporting positive real internal growth and pricing. I'll start with frozen food. The pizza market returned to growth in the first quarter, and we saw a good growth in DiGiorno, helped by a strong start from the Pizzeria! launch. Stouffer's and Hot Pockets both gained share. Sales of Lean Cuisine fell in the quarter, impacted by continued weakness in the diet category, increased competition and promotional activity. More positive for Lean Cuisine is the early performance of the launch of Salad Additions. Ice cream also had volume growth helped by the Häagen Dazs Gelato launch in the super premium segment. Nescafé continued to perform well, particularly Clasico. Coffee-Mate also achieved share gains. These in powder and Natural Bliss remained a highlight. Confectionery had a very strong start to the year. Skinny Cow performed well, and the launch of Butterfinger Bliss king-size pack looks like being a success. The PetCare market has been very competitive, but we grew overall and had a strong market share performance in cat.

Turning to Latin America. We saw high pricing due to currency-related inflation. Both Brazil and Mexico continued to grow. Kit Kat performed well in Brazil 1 year after its launch. Ambient culinary and Ambient Dairy were highlight in Latin America, contributing to a generally good performance across the region. PetCare was outstanding, continuing to grow double digit.

Next is Zone Europe. The zone continued to deliver growth in Western Europe. It has also seen accelerated growth in Central and Eastern Europe. I'll start with a few general comments on the environment and the particular volatilities in the quarter. There is intense competition between the players in traditional retail and between them and the alternative channels and new channels such as e-commerce. This has led to tough negotiations in the quarter between them and us. Aspects of volatility include the number of trading days, the industry horse meat scandal and our voluntary pizza recall. The weather was generally poor, including over Easter when the ice cream season would normally start with the placement of freezers in the in-house channel. So all in all, a challenging environment for the zone but one in which it has performed well, as reflected by both its positive organic growth and its market share performance in many categories. In Eastern Europe, we had a good start to the year following our reorganization in Russia last year.

Let's now look at the zone business in more detail. Ambient culinary had a slow start but should see improving momentum through the year, following customer relistings in March in Germany. The frozen business was negative for the quarter, and we did not expect to see positive growth this year. Chilled culinary also had a slow start. Soluble coffee continued to be a key growth driver. The Nescafé Dolce Gusto system, the premium freeze-dried Nescafé and the refill packs are all doing well. There were strong performances in the big British and Russian markets, among others. Confectionery also had a good start to the year, with the Russian business continuing to pick up momentum. France and Germany also performed well. Ice cream had a slow start to the year, generally, in contrast to 2012, with Southern Europe particularly weak. Russia, on the other hand, was a highlight. One innovation in ice cream was the launch of cones under the Mövenpick brand, helping that brand to start the year well. PetCare had a strong start to the year across the zone, including double-digit growth in the emerging markets due to the continuing impact of our successful innovation and to the expansion of our presence in specialist retailers.

Next is Zone Asia, Oceania and Africa. First, a general comment. Our market share performance is mixed by country, as you would expect, where our market shares are up as a whole at the zone level. In view of our level of growth, this supports my earlier statement that the trading environment in the emerging markets has slowed even if we still have double-digit growth in some countries, including China. The most immediate impact of the slowdown has been on our downstream distributors, who have found themselves with too much stock. This stock needs to be disbursed before their order level with us normalize. A further issue for us has been the destruction of our factory in Syria, which was a supplier for several categories across the Middle East. The Middle East is an important region for the zone. We have put in place our business continuity plan for that region. The developed markets had a good start to the year. Japan continued to perform well, and Oceania picked up momentum after a slow 2012.

Now let's have a look at the categories. Ambient culinary, Maggi, had a slow start to the year due to some short-term supply disruption in Central West Africa region, Maggi's biggest market in the zone. It was also impacted by the loss of our factory in Syria. More positively, culinary continued to grow double digit in China and India and performed well, generally. Ambient Dairy had a strong start generally, with good performances in China, including from Yinlu and in Indonesia and parts from Africa. There are challenges for dairy in this zone though, including in the Middle East and the Philippines. Globally, we have had real momentum in the dairy business, and this applies in Latin America, too. Our innovation, delivering enhanced nutritional benefit and supported by compelling communication, touches the whole range, from kids offerings to adult nutrition solutions and is clearly resonating with consumers. You will be aware that the global milk price has been on the rise. There is a risk that this will impact demand amongst low-income consumers in the coming quarters.

Back to Zone AOA. The soluble coffee market has been competitive, particularly in the mixes business. On the other hand, Nescafé Dolce Gusto performed very well. Amongst other beverages, the ready-to-drink are growing double digit. And powdered, also, are growing, but slightly less fast. Ice cream had a very strong start to the year. Particular highlights included China, Egypt and Israel. A note of caution here is the lack of foreign exchange in Egypt is likely to impact our growth as it will be difficult to import raw materials. Confectionery started the year well, with strong performance in South Asia and China even if the Chinese New Year celebrations were more subdued than normal. Hsu Fu Chi performed well.

Nestlé Waters is next. You might remember that Nestlé Waters had a very strong start to 2012; well, not so in 2013. The weather has been poor in Europe and North America, where we have 80% of our sales, and the situation in both regions has been extremely competitive. More positively, we have continued to achieve double-digit growth in emerging markets. In North America, we grew marginally despite the tough comparative of near double-digit growth in 2012 and despite increased price competition in 2013. The regional waters were most under pressure, whilst Nestlé Pure Life continued to perform well. Just to put my earlier comment on the weather in context, in March 2012, 6 U.S. states had snow on the ground. In March 2013, 26 had snow. The North American market, as a whole, is continuing to grow around mid-single digit, and our international brands are performing well. I have already discussed the environment in Europe in my zone comment. Nestlé Waters saw a sharply increased promotional activity there from its main competitor in contrast to our efforts to improve profitability. The sparkling portfolio is performing well in Europe, particularly Perrier in its 150th anniversary year. And we continue to see good growth in the U.K.

Next, Nestlé Nutrition. Infant Nutrition has started the year strongly with double-digit growth and broad-spread share gains. The business grew in all 3 regions and was double digit in AOA and Latin America, as well as Russia, with infant formula the highlight. There was good growth, too, in North America. Infant formula had a strong start there due to the innovations launched late in 2012, whilst in meals and drinks, Gerber Graduates and Gerber Organic pouches also performed well. Meals and Drinks also had a good start to the year in France and Russia. The Infant Cereal business continued to grow double digit as the 3 key innovations were further rolled out. The innovations are around immune protection and incorporating the appeal of yogurt into Infant Cereals. The consistent themes in Infant Nutrition are high level of innovation and renovation; strong, appropriate communication; and a good pace of geographic rollouts. Infant formula was a particular highlight, as I said, with double-digit growth in many countries, such as China, the U.S.A., India, Russia and Indonesia. This growth was driven very predominantly by RIG with only a little price. Performance Nutrition started the year under competitive pressure, including an increased presence of private labels. Weight Management experienced a further erosion of business to its centers and saw a decline in sales. We are not expecting an immediate improvement.

Next is other. Nestlé Professional is the biggest business within the segment. The business had a strong performance in 2012, as you might remember, with high single-digit growth. The first quarter of 2013 has been rather slower, but growth is still positive. Importantly, the 2 areas of strategic focus, the beverage systems and solutions business and food solutions, have held up well; beverage solutions, in particular, with continued double-digit organic growth. The trading environment has been impacted by food safety concerns and quality issues and by austerity programs in Europe and Asia. Performance in the Americas and AOA has, however, remained good. Nespresso has started the year with growth in all regions despite having a lower intensity of launches than in 2012, as well as increased competition. The quarter was marked by limited edition capsules, celebrating the different coffee cultures in Italy, as well as further boutique openings. Nestlé Health Sciences had a slow start in terms of growth but is seeing good progress in terms of business development, closing the acquisition of Pamlab and getting approval for Nutrition Sciences Partners joint venture.

Next is the chart summarizing the categories. All are positive except Prepared Dishes and Cooking Aids. I think I have given a full account to their performance as I ran through to the zones. I'm happy to discuss them further in the Q&A session.

That concludes my presentation. It has been a challenging quarter in many ways. Whether you look from a macro perspective from the context of the tough 2012 comparative and the volatility in parts of Africa and the Middle East, or if you just remember the weather and the headlines about food quality. For all of that, we have delivered growth in all regions. We will continue to manage the shorter-term challenges whilst doing the right things to ensure long-term profitable growth. And as we look beyond the challenges of Q1, we are confirming our full year outlook for 2013 of delivering the Nestlé Model, with a possible second half weighting of both growth and margin improvement.

And that brings us to the end of the presentation. Let's now open up for questions. Over to you, operator. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question is from Celine Pannuti from JPMorgan.

Celine A.H. Pannuti - JP Morgan Chase & Co, Research Division

My 2 questions, first -- the first one is on Asia. Early on this year, you were talking about your normalization of growth to high-single digit in Asia. Do you think that's possible this year? And then could you give us a bit more -- thanks for your explanation on that, but I -- could you give us a bit more color on why you say the trading environment has slowed? Where is that? And especially, could we give -- could you give us a bit of color on what happened by countries? I understand that China seemed to be double digit. Oceania and Japan have picked up. So are we inferring that Southeast Asia is weaker? And, exactly, which countries are doing badly? And then if you could as well tell -- help us understand where is the destocking is. Is it a country-specific issue or a category-specific issue? My second question is on the outlook. I think earlier on in March, you talked about the impact from the leap year, which, I assume, would be 1% on Q1. So that would mean the underlying trend is 5-ish for Q1. Is that what we should be looking at for coming quarters? Or effectively, there would be issues that will recur in the second quarter that you're already seeing in April?

Roddy Child-Villiers

Many thanks, Celine. So AOA, first of all, yes, we have said that we expect the long-term growth in AOA to be around high-single digit. As you know, Q1 is a very tough comparative. Actually, Q2 is an even tougher comparative for AOA. And then the comparatives, obviously, eased off somewhat. We would certainly expect to see a good acceleration in AOA from where we are today. My one caveat on that is that clearly, last year, we had some quite considerable pricing even if that also eased during the year. We don't have the same cost pressures in 2013. So therefore, we may not have the same level of pricing contribution to our growth in '13. But certainly, we would expect to see a pickup in RIG and a meaningfully higher level of organic growth than we are today. Where we slowed, we have slowed -- if I talk about it by region, tough start with Africa. First of all, South Africa has been quite weak. And I think you're aware that there have been some issues down there. I mentioned CWA, Central & West Africa region. This is a region where we've been doing comfortable double-digit growth and we are, in Q1, struggling for any growth. We think that will pick up a bit as the year goes on, though, as part of that relates to us changing some distribution and networks in the region. Northwest Africa region has continued to perform well. Then if you look at the Middle East, I mentioned the loss of our Syrian factory. This was a major regional manufacturing center for us. And we've clearly had to put in place continuity plans to replace the lost volumes, and that's clearly not going to be an immediate recovery. Middle East was actually growing around 20% last first quarter. This quarter, again, we had barely any growth at all. We expect that growth to pick up in the rest of the year as things improve. Asia, we had a slightly slow start in India, relating somewhat to our chocolate business and bringing new manufacturing on stream. Philippines was very tough, very competitive. China, as I said, continues to perform double digit. It's growing well. I would say that there has been some slowdown even in China relative to the first quarter of last year. Where else? Indonesia has continued to perform very well. Indonesia seems to be maintaining its momentum; Indochina, on the other hand, rather weaker. I think that really comes off of the whole of the zone. In terms of outlook, I mean, yes, obviously, the trading day has an impact on Q1. But as I have mentioned earlier, there are lots of impacts in Q1. Some are positive. Some are negative. And we factored that into our guidance that we've given for the rest of the year. I hope that answered the questions, Celine.

Celine A.H. Pannuti - JP Morgan Chase & Co, Research Division

Yes. Just one thing on the destocking, was there any particular country that this happened? Was it what you mentioned on -- in Africa? Or was it as well in Asia you saw destocking and whether -- which country was that?

Roddy Child-Villiers

No. It was not in Africa. It's where -- in Africa, the issue -- or in Central West Africa region, the issue was more of our changing our distribution over. The destocking came in those markets where there's been a slowdown in consumer demand and where the middlemen have effectively bought stock, assuming a similar level of consumer demand. Consumer demand has come off a bit. They are holding more stock than they would expect. They need to move that stock downstream before we start to resupply them with our usual levels of stock.

Operator

Your next question is from Warren Ackerman from Société Générale.

Warren Ackerman - Societe Generale Cross Asset Research

Roddy, it's Warren here at SocGen. My question is just around -- the Powdered & Liquid Beverage division grew 4.4% in the quarter. I mean, usually, we expect that to be kind of high-single digit or maybe low-double digit in a decent year. You talked a little bit on the call about more competition. I think you mentioned that in reference to Nespresso. I just wondered whether you can maybe just elaborate a bit more on what you're seeing, the kind of quantum of price competition and whether you are able to give us an indication of -- I know you don't give the specific numbers anymore in Nespresso but -- so an indication on the direction of growth and maybe where you are seeing more pressure. That's the first question. And then secondly, Roddy, just your comment about input cost. Obviously, we are seeing skim milk powder price is up very significantly in recent months. And you did say that, that may have some impact on demand, particularly on Zone AOA, where milk powder's a big part of the portfolio in some countries. I'm just wondering maybe you can give us a bit more color as to how you kind of see that playing out, what you expect to do in terms of your pricing strategy. And how big a drag might that be come the second half of the year?

Roddy Child-Villiers

Thank you, Warren. Thanks very much. Okay, powdered and liquid, first, this is a big category. It incorporates, obviously, the Nescafé coffee business, powdered business such as Milo and Nesquik, the liquid business and also Nespresso. I'll start with Nespresso. Yes, Nespresso had a slower start to this year than to last. I mentioned increased competition. That was a reference. I mean, you know about the competition, generally, in Europe. The difference between Q1 '13 and Q1 '12 is the introduction of competitive capsules in [indiscernible] and Switzerland, which is clearly a big market for Nespresso. Nespresso does expect, however, to pick up its growth during the course of the year and to deliver in line with the targets that we talked about in the past of around an incremental CHF 0.5 billion of sales in 2013. Then moving to Nescafé. There are 2 aspects -- well, there are 3 aspects to the Nescafé business. Dolce Gusto is continuing to perform very well, growing double digit. We have the out-of-home business. And we have seen a pretty much slowdown in the legacy out-of-home business, which is those food and jar ingredient business, albeit we're still seeing good growth in the systems business and out-of-home as well, Nescafé Milano, Alegria and such. So a slowdown in the big ingredient business, out-of-home, in Nescafé. Then retail Nescafé, I mentioned some highlights on my -- in my speech; some challenges, too, quite competitive in the Philippines, as well as in a number of countries in Western Europe. We had a relatively flat year in China -- I'm sorry, flat start to the year in China. But interestingly, our market shares in China are at all-time highs. So we expect that, probably, to pick up again in the rest of the year. The liquid business is performing well. This is, for example, the Nescafé Smoovlatte business in China. It's Nesquik Ready-to-Drink in other markets. And then we had a slightly slower start in the powdered beverages business. And also, of course, as a whole, this is a category that's got less pricing than it had last year. Turning to milk, I think that one thing worth mentioning is that there is a -- we have adapted our sourcing strategy since the last peak in the milk price 3 or 4 years ago and that in those days, we were very weighted towards New Zealand in terms of our milk sourcing for AOA. In the years in between, we've increased our sourcing capabilities in Latin America. And so we now have a broader geographic source for AOA than we used to have. And I think that is good news going into the current inflationary environment in milk. I think also the -- you will start to see us taking some pricing, but we're not concerned about this from a profit perspective. But we've seen it in the past and hence, my note of caution. When you do take pricing, you do tend to see some of the PPPs come under pressure in terms of volumes. And that was my note of caution.

Warren Ackerman - Societe Generale Cross Asset Research

And Roddy, just to clarify your comment on the call about the margin phasing being a bit more second-half-weighted, maybe a bit low in the first half. Is that just purely an input cost reflection that comps get easier in the second half? Or is it also an issue because the growth is a bit low or you're going to have slightly lower operating leverage in the first half? Just wondering what's behind that comment?

Roddy Child-Villiers

Yes, I think that -- I mean, the latter point about the leverage is really the key driver of the guidance.

Operator

Your next question is from Mr. Jon Cox from Kepler.

Jon Cox - Kepler Capital Markets, Research Division

Roddy, Jon Cox with Kepler. A couple of questions for you. I think at the start of the call, you said that you expected -- sort of seemed to be guiding organic sales growth at the lower end of the 5% to 6% range. And then you said -- but you're comfortable with consensus, which is 5.5%. I'm just trying to square the circle there. Secondly, just on this whole dividend issue announced at the -- with the AGM last week, I wonder if you could just give us sort of a bit of an update or sort of clarity on the company's thinking on that. I think it looks like Peter Brabeck gave maybe a board view that the payout ratio should come down from where it has been towards 55% from over 60%. And if I can, just a last one on the whole horse meat issue. You talked about frozen in Europe likely to be weaker or down this year. Is that really on the back of the whole horse meat issue? And maybe you can just give us some sort of granularity on that horse meat issue from Q1.

Roddy Child-Villiers

Thanks, Jon. Thanks very much for your questions. So on the guidance, first of all, what I said was that the consensus is 5.5%. And therefore, clearly, for the consensus to be 5.5%, a number of you, the analysts, are already expecting us to have low -- to have organic growth at the lower end of the 5% to 6% range, thus below 5.5%. That's what I was saying. I didn't say exactly consensus. I said that if consensus is 5.5%, a number of you are already expecting us to have organic growth a little bit above 5%. On the dividend, yes, I mean, basically -- first of all, my apologies for the mistranslation that happened on the instantaneous translation to English, which clearly confused a lot of people getting the wired services. And we'll, obviously, do our best to make sure it doesn't happen again, but on the dividend policy, our intention is to have a sustainable dividend policy, such that we can continue, hopefully, to have a year-on-year improvement in the absolute Swiss franc payout, which, of course, has been the case in more than 50 years. The ratio might come down, but each year, the dividend will be proposed by the board in view of our results, our prospects, the external environment and the relative competitiveness of our payout. But our focus is very much on increasing the absolute rather than running a specific ratio, okay. Your third question was on frozen. Yes, I mean, the frozen business in Europe was down high-single digit in Q1, relating both to the horse meat scandal but also to our recall in pizza. So if you combine those 2 issues, we had a fairly big impact in Europe. And I think, again, all credit to Europe, who are continuing to produce growth despite these issues, we had to be realistic. And on the -- in the case of pizza, the factory that was involved supplied all of Europe except France. And it's obviously taking time France to rebuild the stocks in the retailers in Europe. And in the case of the food quality issue, we have to accept it's going to take time for consumers to rethink their purchasing decisions. So we're not expecting any particular -- we're not expecting to have positive growth in the full year. I should say also, by the way, that this impacted Nestlé Professional as well, the big debenture of frozen business that we have in Nesquik Professional. So it's a fairly meaningful impact. Is that okay, Jon?

Jon Cox - Kepler Capital Markets, Research Division

Right, yes. I wondered if I could just have -- just a quick follow-up on the Infant Nutrition. You talked about double-digit growth there in China. I'm just wondering about Wyeth. You talked about things going as expected. I'm just wondering, can you give us a bit indication of Wyeth in China? Or I guess that's growing very strongly. I guess, that's included in the net M&A rather than organic sales because you've only just started to integrate that?

Roddy Child-Villiers

Yes, exactly. Yes, I mean, for sure, infant formula in China has performed extremely well. Now if you look at the total infant formula business in China, so including Wyeth, our total sales in China in Q1 in infant formula are bigger than our total sales for the full year last year in China in infant formula. So the business has made a -- has been significantly changed by the acquisition of Wyeth. Now when I talked organic growth, the organic growth in China in infant formula relates only to the legacy Nestlé business. The growth there is around mid-double digit, and it is almost wholly volume-driven. We were also seeing extremely strong growth from Wyeth as well. But as I say, that is not included in the organic growth, okay.

Operator

Our next question comes from Ms. Eileen Khoo of Morgan Stanley.

Eileen Khoo - Morgan Stanley, Research Division

Eileen Khoo here of Morgan Stanley. I have just a couple of follow-ups really from the earlier questions. The first one is on the destocking that you mentioned. Could you tell us how -- which particular countries you're seeing this issue? And how long might this -- might you expect this to last? And the second one is on nutrition. I mean, you actually just quantified that you said is mid-double digits. Does this, therefore, imply a really big weakness in the rest of this performance of Weight Management? I mean, was there some kind of impact there from discontinuation of some businesses? Or was that just purely organic?

Roddy Child-Villiers

Eileen, thanks very much. No, to be clear, the mid-double digit is on infant formula. Infant Nutrition also includes Infant Cereals, the baby food business. It's a much bigger business than just infant formula. Infant Nutrition, thus including in the other businesses, also grew double digit. But having said that, yes, you're right. There is clearly a weak bit performance from the Weight Management business. The destocking is -- I mean, it's -- really, it touches the countries that I referenced earlier, where we've had a slowdown in growth. So it's fairly broad across the zone.

Eileen Khoo - Morgan Stanley, Research Division

Okay. And how long would you expect this to last?

Roddy Child-Villiers

Well, hopefully, it will resolve itself in the coming quarter. But I mean, as I said, we still have a tough comp in that quarter. So I wouldn't expect an immediate bounce back.

Eileen Khoo - Morgan Stanley, Research Division

Okay. And then just on the performance Weight Management, so that was not because some of the businesses have been discontinued or phased out. So I think, in the U.K., you've ended up the Jenny Craig business there. So that wasn't what was driving that weakness there?

Roddy Child-Villiers

No. I mean, the U.K. -- actually, the U.K. business was only started last year, I think -- or even late year, before, I think, last year. So it's tiny. So it didn't really had any particular impact on the overall number. The weakness is very much North America.

Operator

Your next question is from Mr. Alain Oberhuber from MainFirst.

Alain-Sebastian Oberhuber - MainFirst Bank AG, Research Division

Yes. Roddy, Alain Oberhuber, MainFirst. Two questions. The first question is about Latin America coming back again, 2 questions specifically there. Latin America, did you see double-digit growth? And could you elaborate more on the development in Brazil? And the second question is about Health Science. Could you let us know what happened, why the growth was weak? Was it specifically because of Europe, or did you lose some tenders with your customers?

Roddy Child-Villiers

Thanks, Alain. On Health Science, the issues that are most relevant to the performance are the ongoing reimbursement situation in Southern Europe. And also, there's been a change in the competitive set in -- for Carnation Instant Breakfast in North America with the entrants to the market to 2 branded players, Kellogg's and General Mills. And that's clearly impacted, obviously, the shelf space availability. So there are 2 particular issues on -- for Health Science. In terms of Brazil and Latin America, I mean, Latin American growth as a whole is heavily weighted towards price. And this is also true for Brazil. But we are seeing positive volume growth in Brazil, positive volume growth in Latin America. In fact, actually, the real internal growth in North America and Latin America is fundamentally about the same level, low-single digit. And then you've got heavy pricing in Latin America. You've got a little bit of pricing in North America. Brazil, more specifically the big businesses, dairy, is performing very well, double-digit growth, strong pricing; biscuits, slightly weaker. Chocolate had a good Easter, so it performed well. Market share performance is about -- is pretty mixed. Does that, Alain, answer the question?

Alain-Sebastian Oberhuber - MainFirst Bank AG, Research Division

Yes, that's fine.

Operator

Your next question is from Alan Erskine of UBS.

Alan Erskine - UBS Investment Bank, Research Division

Just on the sort of back-of-the-envelope calculation and the difference between the Zone AOA and the geographical region, am I right in thinking that the sort of Infant Nutrition business in Zone AOA grew? You mentioned double digit, but maybe even beginning with a 2. And if that was the case, can you give us any color on what happened to Infant Nutrition in Europe because you implied the U.S. had a reasonable performance as well? So was Infant Nutrition negative in Europe?

Roddy Child-Villiers

Thank you, Alan. No, I think from my back of the envelope, I think you'll find that Infant Nutrition is mid-teens in AOA. Water, of course, is also very strong in AOA. In Europe, Infant Nutrition was about mid -- it was between 4% and 5% positive organic growth in Europe. So it performed well really everywhere.

Operator

Your next question comes from Mr. Jeremy Fialko of Redburn.

Jeremy Fialko - Redburn Partners LLP, Research Division

Jeremy from Redburn here. A couple of things, first of all, on this destocking point, I know you touched it already. But can tell us how much visibility have you got on your distributors' inventories so that you'll kind of know when they are back of what you would term as sort of a normal level? And then the second question is on Southern Europe. I mean, is that kind of -- I know it's a very difficult market, but would you say it's kind of stable but difficult at the moment or have you seen a further deterioration there during the first quarter?

Roddy Child-Villiers

Yes. Thanks, Jeremy. If I can add to my previous destocking comment, the -- it will take as long as it takes for the consumer demand to meet, to exhaust the existing stocks. As I say, I think we'll see a little bit of benefit in the coming -- in the current quarter. But we have tough comps. And then hopefully, things will be normalized for the rest of the year. On Southern Europe, if we're talking specifically about Portugal, Italy, Greece and Spain; Greece, we're about flat. And further, the picture, as a whole, we were down about 5% in the first quarter, so a worse performance than you're used to from us. But I would highlight here again the frozen food issues I mentioned, pizza issues I mentioned, and, of course, the ice cream performance with the poor weather. Is that okay, Jeremy?

Jeremy Fialko - Redburn Partners LLP, Research Division

Okay. So you'd look for that 5% not to be repeated in subsequent quarters?

Roddy Child-Villiers

Well, I mean, it's clearly very difficult. And I've said that the frozen business issues are not going away. So we'll see. And again, I think it's credit to the team that they're delivering great in Europe despite these issues. And the performance -- their performance in Greece is, I think, outstanding in this environment.

Operator

Your next question is from Mr. Patrik Schwendimann of ZBK (sic) [ZKB].

Patrik Schwendimann - Zurcher Kantonalbank AG, Research Division

Patrik Schwendimann, Zurcher Kantonalbank. Roddy, I have 2 questions regarding your outlook. You were mentioning that you see some strong momentum in key emerging markets. Which emerging markets do you mean there? That's my first question. And secondly, you were mentioning in your outlook that you're seeing some progress in the North American business. What was the organic growth in quarter 1 in the U.S. maybe compared to last year? And also, what do you expect here from the U.S. for the full year? Do you see an acceleration in growth? And why?

Roddy Child-Villiers

Thanks, Patrik, very much. On the outlook, the emerging markets, I think, we would hope to see, as I said, a pickup in Middle East as we -- as our continuity plans pick up momentum. We would hope to see a recovery or a pickup in CWA as our distribution comes on stream. I think those are the 2 big swing factors, if you will. On the U.S., we had positive organic growth, as I said. And we're not expecting any particular acceleration in the U.S. It's positive. Our share gain performance is improving, but the environment remains tough. So I think we're expecting, in our guidance, a similar performance as in Q1.

Patrik Schwendimann - Zurcher Kantonalbank AG, Research Division

But does it mean really low-single digit?

Roddy Child-Villiers

Yes. And as I said, it's positive both for RIG and for price as well in North America.

Operator

Your next question is from Mr. Robert Waldschmidt of Merrill Lynch.

Robert Waldschmidt - BofA Merrill Lynch, Research Division

A couple of questions, if I may. Coming on to Europe again, you mentioned France is seeing some slowdown. I mean, is it still in positive territory? And how do you see the shape of France trending over the upcoming quarters? And then two, when you speak about ice cream and the impacts we have from weather, can you speak more specifically about the U.S.? In particular, we know that the market environment has been pretty competitive and perhaps a bit less impacted by weather. And what's going on there?

Roddy Child-Villiers

Thanks, Robert. France, as a whole, was slightly positive. The impact -- I think the big issue in Q1 was that we had some quite tough negotiations with retailers. They've been resolved. Hopefully, things will pick up a bit following those negotiations for the rest of the year. In U.S., yes, I think the environment is tough. In Water, we're clearly seeing price competition from the private label players. Frozen -- the issue, I think, for frozen now is really Lean Cuisine. The rest of the business has picked up pace. The whole diet segment is really struggling, and Lean Cuisine has lost share. Ice cream, actually, there's a bit of a change in the trend there in that we're seeing some share gain in premium, where last year, we've been losing share. We need to get the momentum into the super premium, hence, the Gelato launch, and that's going well. And we're still -- we still think we have a competitive advantage in terms of the snacks channel with our cones business and the other activities we're doing there. On soluble coffee, I mean, there has clearly been a change in the competitive set with the entry of a new branded player. I think that's been good for the segment, and we are looking at our communication strategy around Nescafé to see how we can continue to benefit from the growth in that category. I think those are the key categories. Nutrition, I talked about earlier on. Infant Nutrition doing very well. And that covers really -- infant formula doing well, and the baby food business also doing well. And then, of course, the other businesses, Purina, we've seen -- as you know, we've had a number of years of very strong market share performance in North America. And we've seen the inevitable sort of fight back by the competitors. And that's brought shares under pressure in dog, but we have plans in place to readjust the balance. And in cat, we are still gaining share and, in fact, had nearly double-digit growth in cat in North America. So that's the sort of a more detailed review of the U.S. business. Does that address the question, Robert?

Robert Waldschmidt - BofA Merrill Lynch, Research Division

Yes.

Operator

Your next question is from Mr. Jeff Stent of Exane.

Jeff Stent - Exane BNP Paribas, Research Division

Roddy, just a quick one. You said, when talking about Chinese and the milk formula, that your sort of legacy Nestlé business grew around mid-double digit and you achieved share gains, does -- can I take it then that your view of the market is that the Chinese IMS market grew at less than mid-double digit in Q1?

Roddy Child-Villiers

Well, I guess so. We grew share. Well, I think the -- it's...

Jeff Stent - Exane BNP Paribas, Research Division

I think, do you feel without [indiscernible] some peers have been making some pretty lofty comments in terms of sales growth in China?

Roddy Child-Villiers

Yes. Well, I think mid-double digit is quite lofty. But I think the thing you need to appreciate is that we are present in all segments of the market. So we are seeing growth. I mean, everybody talks about the super premium brand. But we are seeing growth in all the different categories not just in the super premium. So yes, I mean, we're comfortable that the market is growing nicely and we are growing faster.

Operator

Your next question is from Mr. David Hayes of Nomura.

David Hayes - Nomura Securities Co. Ltd., Research Division

Just 2 quick follow-ups, I guess. It's actually just on the AOA region. I think one of the things, at end of last year, you had an issue with was the Australian retailer negotiations. I just wondered whether we could clarify if that's all been resolved and you're fully restocked. And also, just with China New Year, clearly, you said it was a less exuberant celebration this year. But I just wondered whether there was some kind of benefit from the timing of the New Year, which we, obviously, saw impacting some others in the quarter. And then secondly, on the prepped dishes side, I know there have been a little bit of some plans, generally, to, I think, rationalize the portfolio maybe a little bit there in some areas, perhaps in the U.S., specifically. I just wondered whether that was taking place [indiscernible] a little bit of the impact of that in the first quarter and whether that, timing-wise, means that recovers through the rest of the year?

Roddy Child-Villiers

Thanks, David. Yes, the Australia business grew in the first quarter. So I think we've resolved the issues. And hopefully, we can continue to work constructively with the retailers. China New Year, yes, I think, I mean, clearly, the fact that we have one is a benefit. But it wasn't, I think, as big a benefit as one might have hoped. But it was certainly a benefit. Prepared Dishes, I don't think there's anything that's going on in terms of business reorganization above the normal. So I wouldn't say there's any impact. I mean, clearly, there is some sublines that have come out. There is new innovation coming in. There's nothing out of the normal going on -- and I don't think, David, in North America.

Operator

Your next question is from [indiscernible].

Unknown Analyst

I have 2 questions regarding your business in the Central and West African region. First of all, I would like a little bit more color on what's happening, currently? You mentioned that Maggi -- there was a bit of slowdown in the uptake of Maggi. And you also mentioned that you face some challenges regarding -- surrounding the reorganization of your distribution network. So I was just wondering when do you expect the pickup in the CWA region? The second question is regarding the impact -- the possible impact inflationary pressure of milk is having in that region. My understanding is that milk is mainly sourced locally. Is that the case? If not, would you be able to give us a little bit more color on the impact from that region?

Roddy Child-Villiers

Yes, certainly. Thank you very much. In Central West Africa region, CWA, the 2 issues are related. The reason that Maggi is struggling in CWA in the first quarter is because of the reorganization of the distribution in the region. So they're 2 of the same issue, effectively. And as I said, we hope to see that pick up in the coming -- in the current quarter and then thereafter. In milk, it's not entirely correct to say that milk is -- most milk is sourced locally. We have spent many years building milk districts in a range of countries. However, we still source a lot of milk from New Zealand. Fonterra is the biggest supplier of milk in the world. So there are 2 different dynamics. You have the global milk price on the one hand, and then you have local milk prices on the other. The 2 are not entirely disconnected, but they are -- they can -- the rate of change and the trends can be a bit different. But they are connected. So as I said -- as I also said, what we've been doing over the last few years is increasing our own milk-sourcing capabilities particularly in Latin America. And this has reduced our exposure to that global milk price and to New Zealand. Does that answer the question?

Unknown Analyst

Yes.

Operator

There's no more questions in the queue.

Roddy Child-Villiers

No more questions, okay. Well, many thanks for your questions. My team and I are looking forward to seeing many of you in our coming roadshows. Thank you very much for your interest in Nestlé, and goodbye.

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