Apr 20, 2017
Operator
We are back to hand over to Unilever to begin the conference call. [Operator Instructions].
We will now hand over to Andrew Stephen. Please go ahead.
Andrew Stephen
Good morning, and welcome to this First Quarter Trading Update. Let me hand straight over to Graeme Pitkethly, our CFO.
Graeme?
Graeme Pitkethly
Thank you, Andrew. Good morning, everybody.
Let’s kick off if we can with the market context. I think it’s fair to say that the prospects for the global economy are looking a little brighter than they have done for a while.
While last year’s GDP growth was the lowest since 2009, the forecast for this year are now looking a little better. Employment levels in the developed markets are improving and many of our key immerging market currencies like India, Brazil and Indonesia appear to be bottoming out.
Commodity inflation is returning and well there is adds to the cost pressures for us particularly in the first half of this year. It will of course be better and use for the economies of the producing countries themselves, many of which contain large Unilever businesses as you know.
Needless to say there are still plenty of uncertainty and volatility out there both economically and politically and that I think will remain a defining feature of the markets in 2017 at least. But the overall, look in aggregate as I say thus seem to be improving.
However this is not yet translated into the market growth for our categories which is still quite subdued. Of course this is not unusual as we normally do see a lag between improving economic fundamentals and higher consumer demand.
In the first quarter, market value grew by just 2% globally and market volumes were slightly down. Turning to our own performance, we’ve delivered a solid start to the year.
Underlying sales grew by 2.9% which is once again ahead of our markets. That compares with the relatively strong first quarter last year when growth of 4.7% had some benefit from an extra day due to the leap year.
The comparators do get somewhat easier in the second half of this year. In the current market conditions, growth continues to be driven by pricing, relevant volume but again in aggregate, our volume growth was ahead of our markets.
Andrew will come back to this with a regional detail. Excluding spreads where we’ve announced our decision to exit, underlying sales grew by 3.4%.
Growth was broad based across the categories; personal care grew by 3.1%, and home care was up 4.1% both ahead of their markets. Food sales were flat.
Excluding spreads, foods grew by 1.7%. This includes some drag from the later Easter as well as one less day.
Refreshment had another strong start with growth of 5.4%. This first quarter performance puts us on track to deliver another year of underlying sales growth of between 3% and 5%.
There is no doubt that the organizational changes we’ve introduced as part of the Connected for Growth program are already making a difference and helping us to continue to outperform the market. The new country category business teams or CCBTs managed performance at a local level right on the front line where we serve consumers every day.
The drawdown on the global innovation program but importantly are now also able to innovate locally with more agility and ability to address local consumer trends faster. With now brought together our previous model of brand developers and brand builders into a single marketing organization within each of the categories.
The organizational change also unlocks trap capacity as we can do more with fewer layers and touch points and so fewer people. And the disruptive thinking this euro base budgeting brings provides the fuel for investment in growth as well as driving market improvement.
Connected for Growth also brings shaper category focus allowing greater differentiation between categories so that strategies land more effectively in our markets. In personal care, our priority is to continue growing the core of the business while building premium positions into the portfolio.
Innovation includes the rollout of global rangers like Baby Dove which is now been rolled out from Latin America to the U.S. and the UK in this quarter.
Now that the CCBTs are up and running, we’ve started to speed up the time from idea to launch and deliver more on trained innovation like Ayush, a brand of Ayurvedic remedies in India or Suave Naturals in the U.S. with ingredient led variants such as avocado and olive oil infusions.
In Colombia, the local CCBT was able to respond to a new entrant by launching a mini tube deodorant in just two months. At the same time, flexibility in our model allows us to build scale in new segments and channels.
Our prestige brands continue to perform in line with plans led by growth in Dermalogica and Kate Somerville, and Living Proof will be a welcome new addition in prestige hair care. At the same time, Dollar Shave Club which will contribute to underlying sales growth from the second half of this year is helping us to build further our male grooming business.
In home care, innovation is helping to drive both continued growth and margin improvement. In the first quarter, we introduced Domestos Acti Power with superior germ kill technology.
This innovation is a good example of the way the home care category are simplifying the formulation. In this case by introducing a humanized bleach formula worldwide helping to speed up future innovation as well as driving don’t cost through common specifications.
This is part of the 5A’s savings program we talked before as a key underpinning element of the margin journey for Unilever. Connected for Growth is also helping us to respond to a specific local needs.
In Latin America, we’ve launched a new pack size of Brilhante laundry powder in the space of just 27 days to help meet the needs of hard press consumers who are down treating from more premium brands. And in China, we launched millennium [ph] inspired Sakura variant.
Acquisitions are helping us to extend our portfolio into faster growing segments. Seventh Generation continues to grow well in the U.S.
and has now launched here in the UK. And Blueair is expanding strongly, particularly in its largest market in China.
In foods, our priorities are to build scale in immerging markets and to modernize the portfolio. Knorr and Hellmann's are most global brands continue to perform well.
We’ve extended the Knorr natural meal makers into salad dressings and the Hellmann’s organic ranges helping to attract those consumers who like Mayonez but don’t buy it frequently as they are seeking to avoid processed foods. In Turkey, we’ve launched Ketcap and Mayonez under the Calve brand.
And in the U.S. the new CCBT has launched five innovations in the first quarter including exciting side dish line from Knorr, smaller Hellmann’s squeeze packs and Hellmann’s organic range.
For all of these, the lead time to launch has been shortened by more than six months. Our food solutions business which caters to professional chefs has another quarter of good growth.
Refreshment grew strongly in the first quarter benefitting from our strategy of premium innovation and building in higher growth segments. In ice cream, we’ve launched a new Ben & Jerry’s line called Topped with a range of different toppings and Magnum has extended into pint tubs.
In the Netherlands, the local CCBT designed a Peanut Butter Cornetto within 24 hours and had the product really on-shelves in just 12 weeks. In tea, we are starting to see the results of our portfolio evolution into premium and specialty teas which are growing double digit on ahead of the market.
Most recently the launch of Lipton Matcha tea in the U.S. has been particularly successful.
At the same time, we are building on the acquisitions we’ve made rapidly expanding the distribution. We’ve more than doubled the sales of T2s since we’ve acquired it three years ago.
And by the end of this year, we expect to also have doubled the sales of Talenti in the super premium gelato segment. So if I can summarize the categories, we have very full innovation program.
This is helping us to sustain consistent growth ahead of our markets, navigating the challenges and opportunities presented by changes in consumer preferences and needs. The bolt-on acquisitions we’ve been making will better equip our business with brands that meet immerging needs.
We will run most of these largely separately to our core business while realizing synergies in those specific areas that are most relevant in each case. Between the Prestige brands, Dollar Shave Club, Seventh Generation and Blueair, we have added well over €1 billion of turnover in the last two year.
And individually these businesses all have the potential to go on to become half a billion euro businesses or more in their own right in time. Now I hand over to Andrew to talk us through the development of turnover and the regional performance.
Andrew Stephen
Thank you, Graeme. Turnover increased by 6% in the first quarter.
Underlying sales growth of 2.9% was driven by pricing of 3%. Volume was virtually flat including the effect of one less day in the calendar.
For the past three years, pricing has largely reflected the effect of devaluing currencies, particularly in Latin America. Commodity cost say in U.S.
dollars were relatively benign during that time. This meant in parts in Asia there was unusually no price growth, while in Europe there was sustained deflation.
We are now seeing the beginning of return to a pattern of pricing which is more normal by historic standards with less price growth in Latin America and more coming back into Asia. Acquisitions added 1% turnover, partly offset by a series of small disposals to give a net M&A impact of 0.7%.
Exchange rate translation added a further 2.4%. This is mainly come from stronger currencies in Brazil, South Africa, Russia, India and Indonesia.
The effect of a stronger U.S. dollar relative to the euro was exactly balanced by the weaker sterling in the UK.
If exchange rates were to remain as they are today for the balance of the year, we would expect a positive effect of 2% to 3% on turnover for the year a whole and a little more than this on EPS. Now turning to the performance by region and starting with Asia, AMET, RUB, which now represents well over 40% of our total sales.
Here underlying sales growth improved to 6.9% with volumes up 2.2% and the pickup in pricing to more normal levels. China came back to growth in the quarter and Turkey growing double digits with volumes up across all categories.
India where we have a stock market listing has yet to report its results for this quarter, so we’ll hold up from commenting on sales there until then. What we can say in the meantime is the market conditions improved after the sharp attraction in the fourth quarter.
Latin America grew by 3.5%. Price growth was 7% moderating from the double digit pricing of the last few years.
The decline in volume of 3.3% was entirely driven by Brazil which was down by 10%. Market volume in Brazil contracted by around 5% to 6%.
Now that’s an improvement on the high single digit decline of the fourth quarter. However with interest rates well above inflation, our customers are facing something of a credit crunch and have reduced stocks further affecting our sales.
We expect some further destocking in the second quarter but an improvement thereafter. By contrasting the rest of Latin America, we’ve seen double digit growth.
Mexico performed particularly well with volumes up strongly across the portfolio. In North America, underlying sales were down 1%.
This was in line with our markets which had a slow start to the year and were also down 1%. Our personal care business is doing well with growth and share gain driven by deodorants.
Foods volumes were held back by the impact of the later Easter on the spreads and dressings categories. And the decline in traditional black leaf tea is not yet compensated by growth from Pure Leaf and Matcha despite the encouraging start for both of those launches.
In Europe, underlying sales were down 2%. As with the U.S.
consumer demand is lower than last year. Our businesses grew in France, the Netherlands and in Central Eastern Europe but in the UK, volumes declined.
In part, this was due to spreads but it also reflects the lower level of promotions following the price increases we took in October last year as we explained with the full year results. We do expect this to normalize as we see more evidence that the on-shelf prices have competitors’ products are now also increasing.
And with I’ll hand back to Graeme.
Graeme Pitkethly
Thanks Andrew. Let me conclude by briefly recapping the outcome of the review which we announced two weeks ago and confirming our outlook for the year.
The environment we operate and is changing rapidly. We have faster changes in consumer trends at both our global and local level, or in our customer channels with the rapid rise with an online sales in convenience stores so progressively a little less reliance overtime on traditional big box retailing, or in media with a changing path to purchase now requiring multichannel digital mobile first approaches everywhere, or in the political environment with economic and political volatility.
At the same time, the competitive landscape is changing and challenging our industry. This is particularly the case in foods.
U.S. based foods competitors are rebasing costs to vary in degrees.
The Froneri combination brings a new competitive dynamic to ice cream and new entrance of developing so called foods of the future with agile and new models. So across the board, benchmarks are being reset.
It's in this context that we must ourselves continue to change, so that we can continue to compete with our model, but do so harder and faster. The strategic review, which with the board reconfirmed our commitment to our long term growth model.
This means simply that we continue to target growth ahead of our markets backed by sustained strong investment behind our brands. This model will continue to deliver attractive compounding returns for our shareholders.
The substantial investments that we've already made in Unilever behind brands, people, infrastructure and technology together with the Connected for Growth program give us the platform we need to accelerate our savings. By rolling out the 5A’s approach which is no well proven in home care to the other categories by extending zero based budgeting into logistics and by integrating foods and refreshment and implementing a new leaner business model for this unit.
At the same time, we will continue to evolve the portfolio, but more dynamically. We've announced the decision to exit spreads.
We're starting a sale process, which we hope to complete by the end of this year. In parallel, we will prepare for a demerger in the event that we do not realize a fair value through the sales process.
We will continue to pursue bolt-on M&A in line with our strategic objectives for each category. And we announced that we will be reviewing our jewel headed legal structure in the remainder of this year with a view to simplifying it.
This will give us greater flexibility for more strategic portfolio change if that becomes appropriate at some point in the future. This next chart summarizes our new financial targets.
There's no change to our target for underlying sales growth ahead of our markets, which we would expect to translate to 3% to 5% on average over the period. The accelerated savings two thirds of which will be reinvested together with a positive mix and volume leverage drive a targeted underline operating margin of 20% by 2020.
We expect cash conversion, which is currently around 90% to increase to 100% by 2020. Capital expenditure, which has been running at well above depreciation will normalize at around 3% of turnover.
And cash contributions to pensions will reduce by around €100 million per year following a one off injection of around €700 million, which will make to our funds during the second quarter. We continue to target a return on invested capital including goodwill in the high teens.
We will increase our leverage targeting a net debt-to-EBITDA ratio of two times, equivalent to 2.6 times on the adjusted basis used by Moody's. To make a start towards this new leverage target, we will launch a share buyback of €5 billion beginning in the second quarter.
As I explained two weeks ago, we will report progress against the new targets with more granularity. We will continue to report the individual category results, as well as combined totals for home care and personal care and for foods and refreshment.
To give a clearer picture of the business performance during a period of accelerated restructuring, we will report underlying operating profit and EPS. This will leave before all restructuring costs and other significant one offs whether they are positive or negative.
We will provide you with the exact amount of restructuring. We will also of course continue to report the GAAP operating profit by segment so you can see the results both before and after restructuring another one offs.
And for the full year, we will provide a breakdown of fixed assets and working capital and the return on assets by category. Our intention is to account for spread separately with effect from the first half year.
We’ll provide you with the appropriate restatements of 2016 before the full half year results so that you can incorporate them into your models. Let me conclude by reconfirming that we remain on track to deliver our objectives for this year.
These are 3% to 5% underlying sales growth, an increase in underlying operating margin of at least 80 basis points and another year of strong cash flow adjusted for the one off injection to pension funds. In view of our confidence in the outlook for a business, we're raising the dividend by 12% with effect from the next payment, which will be in June.
Finally since we announced the outcome of the strategic review two weeks ago Paul, Marijn, Andrew and I have met with more than 100 over investors representing nearly half of our shareholder base. With very much appreciated these interactions with you, I look forward to more over the next few weeks.
The feedback we've received has been overwhelmingly supportive of our long term model for growth and compounding returns on investment and equally supportive of the actions we're taking to accelerate the delivery of shareholder value. Now let's open the line to your questions.
Operator
[Operator Instructions] And the first question is from Celine Pannuti of JPMorgan. Celine?
Celine Pannuti
Yes, good morning. My first question is on the industry growth rate, you mentioned 2%, have you seen any challenging through the quarter on that growth rate and you know what you think is the outcome for the year?
And particularly also would like you to comment on Asia where we see an acceleration, you mentioned an exploration of pricing, but can you also comment on you know whether this acceleration is sustainable into the rest of the year both in volume and pricing? My second question is in developed markets where you mentioned still pricing pressure in Europe and in the U.S., could you maybe dwell a bit more on that, I seen that pricing as return to be negative in Europe while that and you know comment on the overall environment you’re facing in the U.S?
Thank you.
Graeme Pitkethly
Morning Celine, Thanks for the questions. I'll maybe take the first one, Andrew if you want to pick up the second one that would be terrific and maybe could do that together.
Andrew Stephen
Yeah, sure.
Graeme Pitkethly
So, you're absolutely right Celine, industry growth rate in our markets in aggregate is our own two percentage points with volume diving somewhere between 0% and 1% and probably in both the middle of that range. That's unchanged really that's been that situation from that from Q4 into Q1.
But I would call out that you know a number of economies are starting to show sign of improvement as I touched on in the presentation or at least let's call it normalization we were sitting in a relatively extreme and very volatile mix of different market growth rates and dynamics. Now the indicators that we look to for that are first of all currencies many emerging market currencies seem to be bottoming out, India, Brazil and Indonesia in particular.
Pricing is starting to normalize, we've got less pricing coming through in Latin America, and more elsewhere helped by commodities. Now that picks up your question really around the Asian economies where I think I call that in Q3 and Q4 that we were seeing an extreme mix of pricing very, very high pricing in Latin America led by the you know the downturn of the economy, the economic crisis driving very high pricing.
But that you know that was sort of masking the big story in Asia, which was basically that pricing in South Asia and Southeast Asia was really historic lows and that was driven by the fact of the commodity prices combined with inflation, combined with the competitive dynamic meant that the price growth was at very, very subdued levels there. We're starting to see that come back now.
You've still got stronger economies. You are seeing commodity inflation pushed through into those markets.
And that means you get back to a more normalized pricing dynamic. And I do think that is a turn in the trend and it will be a delay because as delay between the economic fundamentals, of course and it pulling through into consumer demand for us.
But I do think you know that it’s sustainable, because it is a return to normalization rather than the extreme situation that we saw. So if I can hand to Andrew for the developed markets.
Andrew Stephen
Yes, and exactly that that the drivers of pricing for us are really the commodity costs and currencies. And bear in mind that to the extended we had value through innovation we put that through in volume not in price, so that's worth bearing in mind.
And for the developed markets, of course for the majority it's all about the hard currency commodity costs. And with some pickup in the hard commodity currency - hard currency commodity costs, we should expect to see a little bit more either positive pricing or less deflation.
What we've seen so far is that in Europe across almost all countries, we've had continuation of low single digit price declines. The big exception of course is the UK where the currency has come into play where we have taken pricing and therefore price growth is up.
Price growth was flat in North America. I wouldn't read too much one way or in into that one way or the other of the previous quarters we've seen periods sometimes where price is up a little bit, sometimes it's flat sometimes is down.
So I wouldn't read too much into one quarter for North America. And going forward in terms of an outlook for pricing, we're not giving a price, a very specific price outlook, it will part of 3% to 5% outlook but we’re not going to go as granular today as forecasting what the price growth will be for the year.
Graeme Pitkethly
I would just I would just add Celine , that in the North America in particular the market has in our categories declined by about 1% in the first quarter, that it was growing at between 1% and 2% in the second half of last year. I think all players in the sector have started to see this, have been all sorts of reasons for why this been a slow start in North America but the 1% negative growth that we had in our North American business is very much in line with the market in the first quarter.
Andrew Stephen
Yeah.
Celine Pannuti
And opportunity moving through the quarter?
Graeme Pitkethly
And through the course of the quarter not really, it was fairly consistent and I think everybody is you know the various theories out there as to why the U.S. consumer is relatively subdued right ranging from you know tax, tax repayments to fuel price increases et cetera to political a little bit of political.
But by large it was quite consistent over the course of the quarter.
Celine Pannuti
Thank you.
Graeme Pitkethly
Thanks Celine.
Operator
Thanks. And the next question is from Alain Oberhuber of MainFirst.
Alain go ahead, please.
Alain Oberhuber
Thank you so much. Good morning, Graeme.
Good morning, Andrew.
Graeme Pitkethly
Good morning, Alain.
Alain Oberhuber
I have two questions. The first is regarding Latin America and particularly Brazil and Mexico, the region of development obviously with Mexico, improving in Brazil is still difficult, could you elaborate a little bit what happened in Q1 in both these markets and also give us an indication where these two markets should develop during 2017?
And the second question is regarding different effect we had leap year laid this to early new Chinese year which add adverse impact on the spread business in particular, could you say how much it was and if you still expect spreads organic growth will be positive this year?
Graeme Pitkethly
Okay, Alain. Let me tackle the Latin America question first.
You’ve hit the nail on the head really, the Latin America was really a tale of two halves in the first quarter. We’ve seen just turning to Brazil which you’ve spoken quite a lot about in Q4 as well, but we saw a 10% volume decline in Brazil.
Now the market was down between 5% and 6%. Now encouragingly that is an improvement from the negative 10% market volume decline that we saw in Q4.
So there’s been a slowdown in the rate of decline in Brazil but the market is still declining between 5% and 6%. Added to that we’re in a situation where I think interest rates in Brazil around about 13%, inflation is around about 4%.
What you see within the within our distributors and wholesalers and within the trade is a bit of a credit crunch if you like, you see a lot of tendency to put and take money out of inventory investment and put it on deposit where you make a 13% return against only 4% inflation, so it’s quite a good place to invest at the moment. That is meant that we saw about one week of destocking in our Brazilian business, and so overall volumes in Q1 were down at about 10%.
We expect that to improve over the balance of this year. I think we will struggle to get Brazil itself to positive volumes during the second half of this year.
It would be great if that happened, but we’re not planning and expecting that will happen. But we do expect that Latin America volumes overall will get back into positive territory in the second half of this year, that would be well worth looking for.
To go to the positive side of Latin America, which is every other country in Latin America really, we have a double-digit growth in Argentina and Mexico and solid growth in Chile and Colombia. Mexico in particular has had couple of quarters, now very, very strong growth for us.
So very much a story of Brazil and the others.
Andrew Stephen
Should I pick up the second part of the question.
Graeme Pitkethly
Go ahead.
Andrew Stephen
The question I think was around the overall first quarter growth and any impact of one offs and how you should read the first quarter growth. First thing is always to remain whether we do manage the business by years and not quarters and so never to read too much into a single quarter but clearly we’ve been encouraged by the solid start.
That puts us on track for the 3% to 5%. Our markets at the moment are growing around 2% in value.
We see volume slightly negative. I think if we look at our run rate, we would see ourselves is being about a percentage a point ahead of the market.
Now, clearly there will be some effect from the one less day in the calendar from the leap year that helped last year but you can you can never really specifically pick that out and put a number to that. You’d also get some effect of the later Easter, We certainly saw than in foods, spreads and dressings categories are typically affected by the Easter timing.
So there will be some effect again difficult to quantify. We normally also get a positive effect when we have or an early restart on ice cream and similarly a negative effect when Easter is later, but of course a lot depends on the weather in the latter part of March and actually we’ve had in Europe quite good weather in the latter part of March this time.
So any negative effect of Easter on ice cream has probably been outweighed or fully balanced by the better weather that we had or the good weather that we had towards the end of March. Now looking ahead for the rest of the year, Q2 will always have some weather impact on ice cream, it was a strong comparison, you remember last year we’ve actually had two years now of strong summers as we do have a strong competitor there.
But we do expect an improvement in growth overall in the second half for two reasons really, one is that we are looking for some improvement in market conditions in emerging markets, and secondly, the competitors do get a bit easier in the second half.
Graeme Pitkethly
I think, Alain, you had a question just to end there about spreads. And all I would say there is obviously this building what Andrew said the Easter impact, the foods is most impacted as a category obviously from the later Easter.
Whereas in aggregate we had strong start of the ice cream season that has probably offset that. In aggregate when you look at foods and within foods when you look at dressings and look at spreads in particular that’s where you see the impact of the late Easter on the volumes.
Alain Oberhuber
Thank you very much.
Graeme Pitkethly
Thanks, Alain.
Andrew Stephen
Okay. And the next question is from Warren Ackerman of Societe Generale.
Warren Ackerman
Good morning, Andrew. Good morning, Graeme.
Warren here. Two questions also, first one is can I get a bit more color on Asia taking China, Indonesia, Turkey, I know you can’t say too much on India.
There do seem that the bounce back overall in the region was much greater than consensus was expecting. Why was China positive after being negative you mean you were talking about local competition in laundry previously but now it’s positive.
What’s happening in Indonesia, I mean why is Turkey double-digit given political uncertainty, if you can just flush out some of those issues around the big beat on the Asia region that would be great? And then secondly, I noticed it is just a Q1 sales release Graeme, but I mean you do sort of hints around or facing in your prepared remarks especially market it sounds like you’re still calling out the margins will be less good in H1 then H2.
But I was hoping you might be able to walk us through any other moving parts on growth for margins? And can I just clarify as an add-on, are you actually planning to build spreads into discontinued?
Thank you.
Graeme Pitkethly
Hi, good mooring, Warren. Thanks for the questions.
Just getting to Asia first and I’ll try and construct some of the countries that you mentioned. In aggregate hopefully you picked up the message there that we had been seeing very subdued pricing growth.
And overall message for Asia is that we’re getting back. I think we’re starting to see the start of normalization back to more historic levels of pricing growth hopefully in Asia going forward and a nice balance of mix and volumes.
But just to call a couple, I mean Turkey which is somewhere between 2% and 3% of our overall global business. You’re right, it’s been a very volatile economic and the political system their situation continues to be one of high drama.
There was a 13% devaluation of the Turkish lira in the first quarter and there was about 25% over last year. So there has been quite a lot of price taken.
And our business grew actually close to 20% in Turkey in the first quarter. But very encouraging about a third of that came from volume.
So it’s one of the situations where we’re getting good growth from devaluation led price increase. But most importantly a third of it comes from volume.
I hate to generalize but we said this before the business is quite resilient, the mix of the categories we’re in the basic consumer needs that we meet. And our ability to down trade and if a consumer is stretched, have the portfolio that can continue to keep that consumer engaged with our brands and our products that means that we are pretty resilient when a crisis hits.
And I think you’re seeing that in our Turkish business which again it’s a very local business, it’s managed very locally, the people are on the streets, they understand the consumer well and we’re able to navigate our way through these situations pretty well in Turkey. Now turning to Indonesia, we’ve seen, again we had a decent quarter in Indonesia.
Indonesia has been very strong for the last two or three quarters, a slight slowdown in the first quarter. In fact over South East Asia in totality, we’ve got good levels of growth, low to mid single-digit growth across the market place.
As I said Indonesia has been strong started to slow a little bit. Thailand there’s still some weaker consumer demand pushed the royal succession in Thailand, but we're doing nicely in Vietnam.
We've got high single digit growth in Vietnam. And Philippines continues to be strong for this mid single digit growth with good share gain, nice to see still you had a strong start to the year as well.
We include that in Southeast Asia and Australasia and that growth in Australia came from volume growth also. Finally, if I can just pick up in China, we did see that laundry battle in laundry ease off a little bit in the first quarter.
We do think it's back in it's sort of shifted to fabric conditioner during April, but that ease slightly we still saw strong growth in the e-commerce channel that grew at about 35% now that's a slowdown from where it's been I think a couple of years ago it was about 60% maybe 45% last year, but still remains a strong growth area slowing down as it becomes a bigger proportion of overall market sales. And we actually saw a little bit of a return to growth in the bricks and mortar channels as well.
Just to pick up your point on margins, I very hesitant to see anything about margin in Q1 simply because we try anything now keep things focused on the top line, but I don't think we are particularly concerned about phasing between H1 and H2, I think that has improved since Q4 a little bit on commodities and a little bit on the on the focus that the business has in the drive that the business has after the strategic review, and again with connected for growth and the CCBT's really starting to kick in and get traction and drive faster pace innovation across our business, I think we feel that we're on track for that at least 80 basis points of margin deliveries of full year and we expect that to be pretty consistent in H1 as well.
Warren Ackerman
Okay.
Graeme Pitkethly
And one of the reasons that we phased we guided to a lighter first half a margin improvement was the phasing of restructuring. Now we’re going to give any new phasing of restructuring today, but of course, because we'll be reporting on the underlying basis.
We're guiding to at least 80 basis points on the underlying basis that that won't be a fact to now in the phasing. So as Graeme says, we're not going to give specific guidance on the phasing today.
You also asked about spreads being treated as discontinued operation, and as you know we did decide to take a decision to exit spreads, there are some technical things we have to go through to establish whether it classifies as a discontinued operation or not. Our intention would be to treat it as a discontinued operation going through the process to see whether that's right we're treating it.
Any way we have of course, as you say given you more detail on the spreads business with the Q1 and we would certainly give you full transparency on spreads and intend to report it separately one way or another probably as discontinued with a half year and as we say we'll give you the full restatement in advance of the half year, so you can adjust your models.
Warren Ackerman
Okay. Okay, very useful.
Thanks guys.
Graeme Pitkethly
Thanks Warren.
Andrew Stephen
Thanks. Next question we'll take from James Targett of Berenberg.
James Targett
Hi there, good morning. I want to come back to you on North America you mentioned the softening in Q1.
I just trying to get some more color on the different stream categories strictly do it personal care where you're seeing that most, I think we are seeing signsthat personal care is getting more competitive in the U.S. in particular and where see that market developing?
Thanks.
Graeme Pitkethly
Hi James. Well, let me just straight into the categories in North America.
We saw a greater slowdown in foods, we saw weaker consumer demand in foods, I think it was a bias in that switch of market growth going negative 1%, I think that is those more impacted by foods, of course, the impact of the lead to restart is more dramatic in foods, as I said earlier and it impacted dressings and it impacted spreads, volumes in particular. Just to drill into dressings there's a lot of intense promotional activity in North America with you know who and I think we're managing that battle very nicely, I think we're still you know gaining share, but it is an intense battle and we think we've got the innovation and plans to compete very well through Easter and into the summer, barbecue season, et cetera.
So we're looking forward to that. In personal care, if I can break it down a little hair care is undoubtedly the most intense category in North America with ourselves and Procter and L'Oreal Plus what used to be a local competitor in Vogue, which is OGX known by J&J, but we are competing very effectively in that market, it was a little bit softer marketwise in the first quarter, but we've maintained our number one position in daily hair care and we're very pleased to see TRESemme jump up to be the number one brand in hair care in North America, which was a real target for us, we hadn’t talked about it, but we were internally really hoping to see that happen and we’re delighted to see that pull through.
In deodorants where we’re market leader obviously we keep stretching our very competitive again, but we keep stretching our market leadership is now over 900 basis points, and the dry spray deodorant innovation that would be launched last year and talked a little bit about that goes from strength to strength, it's not a 6% share. And the big news towards the end of the quarter in North America and you probably haven't seen this yet, but it's it was on plastered all over the lead charts and our presentation for today was that we launched Baby Dove at the end of the quarter in North America that's pipelining and getting listing at the moment and that is going and nicely so far also into the UK.
So to sum up you know personal care remains very, very competitive in North America, but we are winning share in personal care. In foods, we are holding our ground, it's an intense battle that's been impacted by that weaker Easter.
Actually in ice cream, we saw some good growth in ice cream in North America, but we continue to stuff a little bit in our mainstream black tea business in North America, the powders business and the mainstream black Lipton business, which we’ve spoken about before. And we have seen an ice cream in particular the return of a local competitor which is, Bluebell who were out of action for a big portion of last year with the quality problem that they had.
So that's the dynamic, I hope that's helpful James?
James Targett
That's great. Thanks Graeme.
Andrew Stephen
Okay, good. So we have just two more questions on the line, as we'll take those and then wrap up.
And first of those is from David Hayes from BAML. David?
David Hayes
Thanks Andrew, thanks Graeme. Just one quick one really from me, just on the innovation themes because all of the discussion we’ve had this morning, obviously the CCBT start to seems you work in terms of making those innovations quicker, and so forth.
But can you kind of quantify is there a facing of innovation in the business some quarters there’s lots of innovation and suddenly is back is quite again a second half. You’re trying to talk outline that you say was a particularly notably innovative period or would you say this is the new normal for the rest of the year?
Thank you.
Andrew Stephen
Hi, David, Andrew here. Not especially so we have a lot of activities at any one time if anything when we look through and talk with the countries in the categories, we see if anything maybe it's a little bit later weighted this year than last year, but again I wouldn't read too much into that in terms of phasing of development of our growth.
David Hayes
Okay, thanks Andrew.
Graeme Pitkethly
Nice David.
Andrew Stephen
And the final question is from John Feeney of Consumer Edge.
Jon Feeney
Good morning, thanks very much. I wanted to ask about your pricing strategy in developing markets and this particularly Graeme you’ve touched on this in Brazil, but with currency turning around, could you been faster to discount maybe and drive more volume in a market like Brazil and certainly other developing markets where currencies have gone from headwind to tailwind you've certainly there are still getting some very significant pricing that was originally currency driven.
So just maybe you could comment about your thinking of what's going on there, that's a deliberate thing or that's just a mechanical think things work the way things worked out from the markets up? And my second question is on exchange - the exchange rate bridge.
You commented briefly about the expecting a 2% to 3% positive top line impact from foreign exchange this year, if rates don't move right now, I'm wondering you say a little bit better at the bottom line, how much better and why shouldn't that be a more pronounced impact to the bottom line, when it seems like it's been more of a more than that of a headwind at the bottom line over the past one and three years that it's better headwind? Thanks very much.
Graeme Pitkethly
Hi John good morning. So pricing strategy in emerging markets, you used the words there is it mechanical, it's definitely not mechanical, it's very much a choice, but we have some very systematic choices that we can make, so the first thing to say about how we manage pricing in the emerging markets, is that it's manage that a local level, and it's very much based on balancing consumer affordability with the needs of our P&L and margin protection, the payer et cetera.
And the choices we typically go through and we could make any one of these choices in a particular situation around a particular brand in a particular market. But where costs are lower, we might reduce pricing or we might invest in the brands.
The reason we would choose to invest in the brands is because investing in the brands allows the brand strength, allows you to take pricing when costs start to go up again, you have to have that brand strength obviously in order to take pricing in the future. And where costs are higher, we look at have to recover in pricing but we always do that as I said subject to affordability at a consumer level.
So it’s a very dynamic environment, it’s managed locally. There are the two typical choices that take place.
You will get situations such as you touched on in your question where commodity costs have gone up, there’s a lag on that obviously pricing goes into the marketplace in most of our big developing markets where we’re the price leader people look to us to move pricing forward. And we will then be very carefully looking to see if the marketplace and our competitors are forward.
Most often they do sometimes they don’t. There were examples in India in skin cleansing last year where we moved pricing up, the market did not follow and we had to adjust that in through promotions et cetera in order to establish things back, because we need to remain competitive in those situations.
But it’s very dynamic, it’s - obviously it’s a great place to be working in our emerging markets because this dynamism of constant pricing is just a fact of life and you get quite good at it over the years et cetera. But it’s very much around the decision to whether to maintain, whether you invest in the brand, whether you invest in making sure that the prices are affordable and then you will have periods of lag where you end up having raised prices but commodity costs come down and you get a little bit of margin expansion coming from that.
Andrew, if I can ask to pick up the question on the FX and earnings.
Andrew Stephen
Yeah. Sure.
So far this year, we said 2% to 3% positive impact on turnover, a little bit more that would be 3% to 4% on EPS, so we expect the benefit. You pointed out that in previous years, not last year, but in earlier years in that, we’d had quite a significant delta.
And that’s really driven by our overheads ratio and there are two factors behind that. One is the weaker emerging markets we’re seeing in previous years, weaker emerging market currencies.
And the other was of course that we had in previous years have the stronger sterling which boost up UK based costs. Now, here today we’re really looking at the reversal of that sterling effect as being the significant impact.
So with a weaker sterling that does have some effect on the EPS, but it’s spread over 2016 and 2017. So perhaps not as big an impact as you might have thought but it’s there, it gives us an extra 1% or so at that bottom line.
That’s to be clear the translation effect that we’re talking about are simply translating and reporting our numbers into euros.
Jon Feeney
Thank you.
Andrew Stephen
So with that that’s fair then we’ll wrap up there. And thank you very much indeed for your time.
And of course if there are further questions then Pitkethly and I will be happy to take them as soon as we get back to our desks. And enjoy the rest of your day.
Thank you.
Graeme Pitkethly
Thanks, everybody. Bye, bye.
Operator
This conference has been recorded. Details of the replay can be found on Unilever’s website and will be available shortly.
Thank you.