Jan 31, 2019
Operator
We are about to hand over to Unilever to begin the conference call. [Operator Instructions] We will now hand over to Richard Williams.
Richard Williams
Good morning, and welcome to Unilever's Full Year Results. I'm pleased to be here with our new CEO, Alan Jope; and our CFO, Graeme Pitkethly.
Alan will kick us off, and Graeme will cover the results in detail before Alan gives his reflections on the year ahead. We expect the prepared remarks to last for no more than 30 minutes, leaving plenty of time for Q&A.
First, I draw your attention to the disclaimer to forward-looking statements and non-GAAP measures. And with that, I hand over to Alan.
Alan Jope
Yes. Thanks, Richard.
And good morning to everyone who's on the call. I must say I am pleased to be here for my first results call since taking over as Chief Executive of Unilever at the start of the year, especially so with a solid set of results to report.
It's been a busy month so far. I've been out meeting with many of our investors and look forward to meeting many more in the days ahead.
I guess, as you'd imagine, I'm in very active listening mode at the moment to shareholders, of course, and also to other stakeholders in our business, including customers, our employees, business partner, government and so on. So I'll give a few comments on the overall shape of the full year results, and then I'll pass over to Graeme, who will cover in a lot more detail.
As Richard said, I'll then wrap up with some full reflections on what we see as the priorities for 2019 before we open the lines for questions. So we delivered 3.1% underlying sales growth, excluding spreads last year.
And this was led by our emerging markets business and, in particular, Asia. Volume made up two thirds of the growth, and as expected, pricing increased through the year as we saw commodity prices biting.
And I should mention that with Argentina becoming hyperinflationary, we've removed all the price growth of Argentina from our underlying sales growth number since the start of quarter three. And Graeme is going to deconstruct the Argentina effect in more detail in a moment because it has a big impact on our results.
Our margin delivery continued very strongly, up 90 basis points in current currencies, which has brought our underlying operating margin up now to 18.4%. And I'm pleased to say that this was led by good gross margin performance and tight control of overheads.
And that was driven by our flagship savings programs of 5-S Zero Based Budgeting and our restructuring efforts. The growth and margin that I've just mentioned translated into underlying EPS being up by 12.8%, that's at constant rates and 5.2% in current money with associated strong cash flow.
The underlying cash flow performance was better than this headline figure shown, and that's because of a significant working capital adjustment that relates to the sale of our Spreads business, which Graeme will talk you through in a second. So these results are solid.
They demonstrate our ability to continue to grow profitably and keep delivering in very challenging market conditions, with increased commodity inflation, currencies devaluing all over the place and a few significant challenges and important countries for Unilever along the way. So let me state, however, upfront that accelerating quality growth will be my number one priority.
We still have many untapped opportunities to keep developing our markets, bring purpose into all of our brands, and that will translate into more opportunities for growth right across our considerable geographic footprint. So with that, Graeme is going to now take you through the detail of the results, and I'll give you some more reflections and comments on the year ahead.
Over to you, Graeme.
Graeme Pitkethly
Thanks, Alan. Good morning, everyone.
We're still in January, so I guess I can still say happy New Year to you all. Let's start by looking at the scorecards of our priorities for 2018.
This is the same scorecard that we showed you back in April actually. We completed the integration of Foods & Refreshment into a single operating division based in The Netherlands.
That integration has gone well and is yielding the planned cost and innovation synergies, for example, gaining cross category insights to address consumer trends in areas like naturals. In the middle of the year, we completed the complex disposal of Spreads, and we're making progress to tackle the restructuring of stranded costs.
With our C4G organizational change bedding down well, we're seeing the benefits in a stepped up innovation rate, launching 18 new brands in 2018, improving our speed to market for local innovations by up to 50%, and we're rolling out locally developed innovations to more markets. That's good progress, but nevertheless, we think there is further opportunity here to accelerate growth and step up our competitiveness.
Our focus on tackling non-value added costs through the ZBB and 5-S programs has continued to help us deliver the strong margin improvements this year, and there's still plenty of headroom for more. We completed the share buyback of €6 billion at the end of November, which returned cash to shareholders following the Spreads disposal.
This means that, including dividends, we've returned over €10 billion to shareholders in 2018. Two other important events in 2018 were the announcement to acquire the Health Food Drinks portfolio of GSK, primarily in India.
That's been approved now by the Indian Competition Commission. And the acceleration of our digital transformation, which we talked through in detail at our Investor event in December.
Let's move on now to our markets. Currency devaluation was a feature of 2018 across many of our emerging markets, impacting consumer purchasing power, in particular, in markets like Brazil, Argentina and Turkey.
Commodity cost rose during 2018, although crude fell back in the last few weeks of the year. We expect commodity cost to continue to be higher in 2019, albeit with a better outlook than we saw at our Q3 reporting.
The news, of course, continues to be dominated by economic and geopolitical uncertainty, whether that's coming from real or threatened trade wars, uncertainty in government or popular protests. This is the new normal, and the impact in consumers requires a rapid and effective local response from our brands.
We have more than enough experience and knowledge in our local operations to manage this for the long-term, but there will undoubtedly be some bumps such as we saw with the Brazil transport strike of 2018 or the trip into hyperinflation for Argentina in the second half. Now this chart shows our quarterly trend and full year performance for volume and price.
Our full year growth, excluding Spreads, was 3.1%, with 2.1% in volume and 1% from price, which picked up as we expected in the second half. Full year volume delivery is ahead of the market, which we're pleased about.
Asia/AMET/RUB has undoubtedly been our standout performer for the year. This was led by India, which posted double-digit growth every single quarter, and reinforced by key growth markets like Pakistan, Bangladesh, Turkey and the Philippines.
The impact of removing all Argentina price growth from our reported underlying sales growth in the second half was a 50 basis points drag on the full year. In terms of channels, e-commerce continues to grow around 40% like-for-like with turnover up 50%.
We also continued to grow well in these counters, delivering mid- to high-single-digit growth across developed markets. In Q4, underlying sales growth was 2.9% against quite a strong comparator.
As we expected, price growth picked up at 2.1%, and that had some impact on volume. Our price increases were broad-based, but in high-inflation countries such as Argentina and turkey, we've seen significantly lower volume as consumer purchasing power falls in the context of some very substantial price increases.
For example, our Argentina volume in Q4 declined by over 20% with price increases of over 60%. We can expect this to continue throughout 2019 as we manage this business through a tough economic situation.
Now one of Unilever's enduring strengths is in emerging markets, and we now [ph] account for 59% of our turnover with indeed about 75% of that in Asia where there was a really strong performance, as I said, in 2018. Emerging markets growth was impacted by a much slower performance in Latin America.
But when we look in the aggregate, our emerging markets volume growth has increased now for the third year straight. This is encouraging, particularly as Brazil, one of our largest businesses, has seen two improved quarters of growth even after neutralizing the impact of the transport strike last year.
Let's take a little look at our divisional performance. Beauty & Personal Care grew by 3.1%, with 2.5% delivered through volume growth.
There was a step-up in pricing during the second half of the year. Skin care and skin cleansing delivered mid-single-digit growth.
And Dove, our biggest brand, grew by 7% with innovations such as the Dove Botanicals range and Anti-Stress Micellar Water, with market development driving the growth. Actions to shift our portfolio to faster growing segments are working.
Our Prestige unit grew by 11% with good performance on all of the 6 brands. Strong innovations are supporting growth with Dermalogica launching BioLumine vitamin C, Hourglass launching Caution Mascara, and Murad launching water gel.
Dollar Shave Club ended the year with double-digit growth. And we've continued to launch new brands such as Korea Glow and Purifi in China, which was developed in direct conjunction with Alibaba.
Korea Glow has been launched with an 8-episode web series in the style of a Korean drama, a great example of content-driven marketing. Home care grew by 4.2% with balanced volume and price.
Growth was broad-based coming from fabric solutions, fabric sensations and home and hygiene. Home and hygiene itself saw strong volumes across Asia with our hand Dishwash brand, Sunlight, developing the market through innovation and a relaunch across Southeast Asia.
In fabric solutions, we saw strong performance in India, in China and in Turkey. We launched the new Omo with recycled plastic packaging and natural ingredients across several of our markets.
In fabric sensations, we continue to see high demand for softeners and fragrance in the emerging markets. Comfort had yet another good year, helped by the launch of Perfume Deluxe and Ultra concentrated range across Southeast Asia and Europe.
Now our air purification unit, Blueair, declined sharply in China during 2018, with improved air quality in the major cities leading to significantly lower demand. This was a drag on Home Care growth of nearly 100 basis points.
Foods & Refreshment, excluding Spreads, grew by 2.3% with 1.6% from volume. Ice cream grew by 5% with growth across Europe and Asia.
Innovation such as Ben & Jerry's non-dairy and low-calorie products build on the health and wellness trend. Knorr grew by 2% in 2018, with double-digit growth in on-trend snacking as we rolled out mini meals across Europe.
This was boosted by new brand launches in the snacking space such as Red Red and Prepco. Tea growth was modest in 2018 with good performance in emerging markets, particularly with Brooke Bond in India.
But in developed markets, we had good growth from Pukka and our new Lipton organic range, but that was offset by challenges in black tea. Pukka itself grew by around 20% in 2018, most of it in the U.K.
We continue to evolve our Foods portfolio into the natural space with products such as Knorr Organic Real [ph], and we're further evolving and building scale in emerging markets through our planned acquisition of Horlicks and Boost in India and other markets. Let me turn now to our regional performance.
The full year performance in Asia/AMET/RUB was strong, with 6.2% underlying sales growth. This was led by India where you may have seen we reported double-digit Q4 volume-led growth.
Strength in the core and leading market development has enabled us to grow strongly across all divisions in India. In China, our full year performance was strong with fabric solutions, fabric sensations, refreshment and e-commerce doing particularly well.
Carver had strong like-for-like performance in the year, but the fourth quarter was impacted by changing regulations in the Diageo trade. In our big market of Indonesia, we finished the year with much improved momentum, growing mid-single digits through the second half.
Turkey, which has seen strong growth from many quarters, had a bit of a weaker Q4 as consistently high inflation started to impact consumption and hence, volumes. Latin America was certainly our most challenging region in 2018.
Looking at the quarters here, you can clearly see the impact of the Brazilian transport strike in the second quarter, which moved volumes out of Q2 and into Q3 and Q4. And the full year was greatly impacted, of course, by the removal of all Argentina price growth from Q3 onwards and the consequent drag on volume.
Brazil, in particular, had a stronger finish to the year with recovery from the transport strike and also lending price increases. We continue to grow ahead of the markets in the key countries of Brazil and Mexico.
Hyperinflation in Argentina has had a severe impact to consumer purchasing power, and that deserves a slide on its own. Now you recall that in Q3, we told you that we'd be removing all Argentinian price from our headline USG number, but that we would continue to be very transparent and detailed with you about the Argentinian numbers and their impact on reported Unilever growth.
The step-up in price in Argentina in both Q3 and Q4 reflects general inflation in the country. You can also see the significant impact that the high pricing is having on Argentinian consumers with our volume declining by over 10% in Q3 and by over 20% in Q4.
They are dark blue blocks on the pillars there. The negative volume effect is still included in our reported growth, and that has depressed volume growth at a global level by 30 basis points for the year.
The removal of pricing from Q3 onwards reduced of the full year group USG by 50 basis points. Now despite the volume impact, we've continued to price as necessary.
And whilst the environment will remain difficult for some time, we're very confident that our business in Argentina will come out stronger. We have been asked what the growth would look like if we included, let's say, a normalized level of Argentinian pricing, say, around 2% per month.
And if we apply this from Q3, it would add back 20 basis points to the global Unilever USG number. Turning to North America.
Full year growth in North America was 1%, excluding Spreads, mostly volume-driven with Q4 at 0.4% USG. We had a strong performance from deodorants and skin cleansing following the renewed purpose campaigns on Rexona and Dove innovations using micellar water.
Whilst it's not yet in the underlying sales growth, our natural deodorants acquisition, Schmidt's, is growing over 100% as again listing in many additional grocery retailers. Our Home Care business has performed well in the U.S.
with natural brand, Seventh Generation, growing double-digits. And following the success of Love, Beauty & Planet and Beauty & Personal Care, we've now launched Love Home & Planet in North America, which has started well.
In Foods, we saw stronger performance in Savoury. Dressings continues to face strong price and promotional competition.
Our growth in Foods was low single digit, but this is competitive versus other North American food players and what is a very heavy promotional market. As mentioned before, we took list price increases in Q3, but we increased our promotional investment in Q4.
In Europe, we finished the year at 0.9% USG, excluding Spreads, and that was delivered through volume growth. Though in Q4 growth, it was price-led as we lapped a heavy promotional Q4 in the back year of 2017.
We're pleased to be back to growth in Europe, with ice cream having delivered strongly off the back of innovations and warmer weather in Northern Europe. The U.K.
doing well in Foods and Beauty & Personal Care, and CEE delivering across all divisions and all markets. The retail challenges continue across Europe, particularly in France and Germany, as I'm sure some of you will have seen reported.
Turnover for the full year was €51 billion. Underlying sales growth added 2.9%, including Spreads.
M&A decreased turnover by 1.1% following disposal of Spreads and acquisition such as Carver and Quala. Currency translation reduced turnover by 6.7%.
This was mainly due to the weakening of key emerging market currencies such as Brazil, Argentina and India. The impact of foreign exchange has softened through the year.
And based on the latest spot rates, we actually expect a positive currency impact of around 1% on turnover and EPS in 2019. Coming to the underlying operating margin, we delivered an increase of 90 basis points to 18.4%.
Savings programs and improving mix from higher Beauty & Personal Care sales continued to drive gross margin, which increased by 50 basis points, 10 basis points came from brand and marketing investment. Their spend was up by €60 million in local currencies.
Most of that increased spend was in Beauty & Personal Care, where the majority of the increase was on media and point-of-sale activations, rather than advertising production costs. We saw a 30 basis point improvement from overheads.
Overall, we've delivered over €2 billion of savings in 2018, with about two thirds from supply chain and one third from BMI and overheads. Putting all that together, underlying earnings per share increased by 5.2% in current rates and 12.8% in constant rates.
Operational performance, the combination of growth and margin, contributed 8.1% to earnings. The 2018 share buyback and the carryover of the 2017 share buyback had a 4.4% impact on 2018 EPS, and we expect a further 2.8% impact of the 2018 share buyback to pull through into 2019, mitigating earnings dilution from the Spreads disposals.
Cost of financing net debt was slightly higher after adjusting for the preference shares in 2017, with the increase being driven by an increase in debt, offset by lower interest rates. We expect that interest rate on net debt to be around 3% in 2019.
Our underlying tax rate was 25.7%, and that was a small reduction on 2017s 26%. Looking ahead, we expect our tax rate over the medium term to continue to be around 26%.
Currency movements, as you can see, decreased EPS by 7.6%. Turning to the balance sheet.
Free cash flow of €5 billion was impacted by FX and higher working capital. Within working capital, €0.4 billion of the increase relates to the disposals of Spreads.
That was fully compensated by an increase in the proceeds that we received on disposal. Our overall cash conversion sits at 96%.
Our return on invested capital of 18.8% is broadly in line with last year. Looking out to the future, IFRS 16 on lease accounting applies from the 1st of January 2019, and we're working through the impact of this.
We do expect a small increase to underlying operating profit and a small decrease to ROIC as a result. Our net debt states sits at 1.9 times EBITDA, and we expect to continue to maintain this level of leverage.
We returned €10 billion to shareholders in 2018, with €6 billion of share buybacks and €4 billion of dividends. And with that, let me hand you back to Alan.
Alan Jope
Thanks, Graeme. I think you've earned a glass of water after that long stint.
So look, as you've seen, we did have a solid performance in 2018, but with frankly more to do on growth to get consistently into the middle of that 3% to 5% range. I want to talk a little bit more about the kind of growth that I'm going to champion, which is quality growth.
You'll consistently hear as reference the 4G growth concept that we've used before. We want to deliver consistent growth, competitive growth, profitable growth and responsible growth.
And to have consistent growth, we need to use the breadth of our portfolio to avoid or minimize the impact of onetime shocks. Competitive growth is simple, growing ahead of our markets.
Profitable growth is going to require that we get the right balance of price and volume mix in any period as well as keep delivering strong savings and efficiency programs. And finally, our growth will, of course, be responsible, which means putting purposes into our brands and making continued progress on the ambitious environmental and social roles that we set out in the Unilever Sustainable Living Plan.
Unilever's commitment to responsible business goes back to the very founders of the company. As a matter of interest, it was 130 years ago this year since William Lever boiled his first commercial batch of soap.
And he talked about things like making cleanliness, commonplace, lessening the load for women. And I'll be proud to carry this legacy forward, putting purpose at the center of our brands, making sure that all of Unilever's leaders are equipped to lead for sustainable living and ensuring that our winning business strategy and sustainability agenda are completely integrated.
It is not purpose ahead of profits. It's purpose that drives better profits.
Of course, as the clock speed of the world continues to pick up the speed and agility, Unilever must also accelerate. We'll be beating the drum a little bit faster to make sure that we build new capabilities at a pace that allows us to remain future fit.
So speed and the skills needed for our digital world will become a hallmark of Unilever. High quality of growth, of course, will always be our top priority, but we remain confident in our ability to continue to deliver sustained growth and margin improvement.
Underlying operating margin has already improved to 18.4% from 16.4% in 2016. There's more to go in the business, and we can see a very credible path to the 2020 underlying operating margin target of 20%, and that's why I reconfirmed our commitment to that goal at the Investor event that many of you would have been at in December.
So let me confirm now our guidance for 2019. Basically, we expect underlying sales to be in the lower half of our multiyear 3% to 5% range.
Of course, we'd prefer to the top half of the range, but in the current uncertain market conditions that Graeme talked about, the lower half is where I expect us to be operating next year. Our acquisitions will continue to contribute to accelerating growth through 2019, though will, again, be impacted by the drag from Blueair.
And as Graeme and I have stressed multiple times there is opportunity through further stepping up Unilever's speed and agility in our execution. We're going to continue our progress on the underlying operating margin through our relentless focus on saving programs and restructuring investments to take out costs.
This is what will fuel continued competitiveness in the levels of our brand and marketing investment as well as driving our bottom line. And we're going to target another year of strong cash flow while maintaining roughly our current level of gearing.
So thanks very much for your attention. That's the end of our prepared remarks.
And now we're going to throw it open for some questions. Richard?
Operator
Richard Williams
Okay, thank you, Alan. [Operator Instructions]
Richard Williams
So Rob, we have the first question coming in from Alain Oberhuber from MainFirst. Do you want to go ahead, Alan?
Alain Oberhuber
Yes. Alain Oberhuber with MainFirst.
All the best to you, Alan, also for your new job. Congratulations.
I have two questions. The first is regarding the outlook you gave, which looks like a little bit on the low side versus consensus.
Could you give us a little bit more insight regarding the volume growth rate or pricing? Is it more on the volume growth rate you're more concerned?
And second, also, which markets could be self-serve [ph] at the moment compared to 2018? The second question is just regarding net working capital.
Could you give us a little bit highlight there, if we could see a similar development of net working capital as we see in '18? Thank you very much.
Alan Jope
Okay. Thanks, Alain, and also thanks for the best wishes.
Yes, you're right, we have guided in the bottom half of our growth range for next year. And we have shown through 2018 that we're able to balance the business between volume and price, really dependent on what's happening on input costs.
Far be it from us to try and predict the future to - in too much detail in 2019, so we're going to stick with that 3% to 4% overall growth. I think for us to move up into the top half of our guidance range, we would need to see a sustained recovery in Latin America and continuation of the progress that we're seeing in Southeast Asia.
As Graeme mentioned, we don't think that the Latin American issues are going to write themselves in the short term. And if I had to give one single reason on why we're keeping on the conservative side for guidance on growth, I think it's because of Latin America and, to a lesser extent, the southeast Asian markets.
Now on the question about net working capital, maybe Graeme can come in on that one.
Graeme Pitkethly
Yes, sure. Hi, Alain.
Let me step out for a second and just talk maybe about the free cash flow result because the headline number of €5 billion, I make two adjustments to that before I compare it with last year. So the first is to add back €400 million of basically the negative working capital that we sold on with the Spreads business for which we were fully compensated, and an increased purchase price and that just happens to be reported in a different line of the P&L.
So that's the first adjustment. The other one is there was €300 million of foreign exchange.
So my sort of like-for-like is sort of €5.7 billion of free cash against €5.4 billion last year. That's the first point.
But then within the working capital, so we still get really healthy working capital, we're at minus 5.7% of turnover. But there were one or two adverse impacts this year.
The first one is that €400 million adjustment, which, as I said, is nothing really because we're fully compensated in cash for that, so set that to one side. After that, there has been about a - just under €0.5 billion increase in inventory, and that is really due to some specific strategic decisions that we've made to mitigate some specific factors in this topsy-turvy world.
We're building stocks for Brexit, obviously. And assuming the worst case scenario there, that is a buildup, similarly around sanction and other things.
We also - with the restructuring investment we're making, obviously a lot of that restructuring investment is focused in developed markets in some of our bigger businesses in Europe where we're structuring to take out the stranded costs of Spreads. We have big Spreads businesses in some of our European markets.
And to do that, that involves increasing some stock strategically as we're undertaking those restructuring projects just to make sure that we've got buffers there as we land the restructuring, et cetera. The final driver is the increased complexity of our portfolio because, as we said, there is a lot more specifics, many new brands coming into the portfolio, and that's having an impact as well.
We also saw some debtor increases in some of our challenging markets in Latin America and Turkey. And there, obviously, we have to be very disciplined and keep an eye on the levels of debt.
But Alain, they're the main drivers.
Richard Williams
Okay, thanks. Thanks for the question, Alain.
We can move to our next question, will be from Richard Taylor from Morgan Stanley.
Richard Taylor
Good morning. Richard Taylor here.
I'd like to dig into a little bit more about how you're thinking about your priorities. You said accelerating growth is your number one priority, but you've inherited a pretty challenging margin target of 20%, which you've committed to now twice, I think.
How should we think about those two things together in terms of people that Unilever on the ground making a decision between the two? I suppose I'm particularly interested in respect to investment behind brands and businesses?
Alan Jope
Thanks, Richard. Well, let me make this use as a third occasion to commit to our 2020 margin target.
I think it's important to explain why you can hear our relaxed tone on our margin target commitments, and it's because we've got these six flagship savings programs deeply embedded in the business. At a granular level on our company, people are working on the 5-S program, net revenue management, ZBB and restructuring projects.
And those are kicking off €2 billion a year and we see that continuing into 2019. So when you've got €2 billion of new money coming out of your efficiency programs, rule of thumb, we're able to put two thirds of that back into our brand and marketing investment or upscaling our people and one third trickle down to the bottom line.
So looking at our BMI changes, you have to factor in the underlying savings that are flowing into that line as well. And I would say that the efficiency programs are super well embedded into the company, and I've got a high confidence of those continuing.
The reason why I'm calling out internally and externally growth as our number one priority is because that's where all the uncertainty is. Markets are extremely dynamic.
But there's changes happening in our business model. Our old mass market model of driving consumer goods with mass brands sold in mass channels through mass distributions, systems and mass media is bit really being complemented by a very different type of marketing where we put purpose center of our brands.
We create content rather than advertising, and we use data and targeted digital marketing to get those messages to the right people at the right time. Re-unlearning the old ways of doing marketing and relearning the new ways of doing marketing is actually a bigger challenge.
There's a bigger change than the savings programs that are underway right now. And that's why I'm calling out quality growth as our overall priority because it's going to stimulate the business to put the attention on those changed areas that are so important in this madcap dynamic world that we're doing business in.
Sorry, a bit of a long answer, but it was a good question, and I wanted to flesh out a little bit.
Richard Williams
Okay. Thanks, Alan.
Thanks, Richard. Next question from Celine Pannuti at JPMorgan.
Celine Pannuti
All right. Thank you.
Good morning. And I have two questions.
The first one to go back on the outlook and I understand so the outlook takes into account a slightly lower market growth because of LatAm and Southeast Asia. At the same time, usually, I think you put it yourself in your slide that you are - you can outgrow the market.
Your target is to outgrow the market by 1%, plus you should have more benefit from the acquisition taking this year in 2019. Now I understand there is Blueair, but there should be about 2% of room above the market.
So what is it in those 2% that is not really delivering as expected for you to deliver more than the market? And would it be fair as well given the comparative to say that maybe your year would be in two halves and maybe more H2 weighted?
My second question is also on your priority, Alan, to accelerate growth as the number one priority. I was wondering given that it's 3 years in a row now that A&P as a percentage of sales has been down, and we hear from your competitors that they are increasing that level.
Is that - I mean, do you see any link between the fact that you have lowered your A&P and then maybe growth is coming a bit short of expectation? Thank you.
Alan Jope
Right. So let me try and decompose our guidance for next year a little bit.
We think that markets are bumping along probably somewhere between 2.5% and 3% real growth at the moment, and we're not confident to call that up for 2019. Specifically on acquisitions, we're going to see - or I should say, M&A, we're seeing - we will see, of course, the positive impact from the Spreads disposal.
That's probably about 40 basis points. And Blueair's under delivery means that we're going to be more in the 50 or 60 basis points impact from acquisitions and disposals than the longer term 100 basis points that we've talked about in the past.
And the second big changes, at the moment, we've got about 50% of our business in situations where we're winning market share. We have the ambition to get that back to 60% business winning.
When we do those two things, enjoy 2.5% market growth, contribution from M&A of, I don't know, 60 basis points or so and get our percent business winning up to around 60% of our portfolio, that squares with guidance in the 3% to 4% range. I do hope that the emerging markets pick up through next year.
But hopes allows you strategy, and we're trying to give you a straight call as we can. I think you might be right.
It might be that, through this year, we accelerate our growth, but that remains to be seen, and we certainly got stretching internal goals for the first half. As far as the link between A&P and growth is concerned, Celine, we watch the competitiveness of our spend like a hawk.
It is getting more difficult to measure because of the fragmentation of media channels, but all the measures that we have access to would indicate that we're investing behind our key brands and the key sales at exactly the right levels. We're not overspending.
We're not under spending. And 10 basis points up or down on BMI as reported is actually relatively trivial to the underlying investment that's going into our business when you factor in the ZBB savings that are coming through in that line.
So perhaps at some point, we should have a conversation about the - all the moving parts in BMI, but we believe that the reinvestment of savings and a small swing of 10 basis points here or there is allowing us to remain strongly competitive on the investment we're putting behind our brands.
Richard Williams
Okay. Thank you, Celine.
Our next question comes from James Targett at Berenberg.
James Targett
Hi, good morning. James Targett here.
Just a couple of questions. Firstly, on a couple of factors affecting organic growth.
Just maybe could you talk about the U.S. I appreciate you've got tougher comps in Q4, but generally, I think the impression is the category growth is improving in the U.S., which is - doesn't necessarily still reflect in your numbers.
And then also with - on the organic growth, you've called out Blueair. Could you remind when you lapped that content?
Are you expecting continued declines sort of after you've lapped that comp? And then my second question is on buybacks.
You've still got the two times leverage target. I just wonder what your thoughts are for buybacks this year.
Thanks.
Alan Jope
Graeme, shall I talk about the U.S., and you can handle the buybacks question?
Graeme Pitkethly
Yeah.
Alan Jope
James, Nielsen is indicating around 1% growth in the U.S., and we think that there's probably another 50 basis points of growth in non-Nielsen-tracked channels. All of our growth is coming from Beauty & Personal Care in North America, and that's basically, that external picture, is what I think is going to continue into next year.
I think we should be restlessly dissatisfied with 1% growth in North America. We should be looking at getting that into the 1% to 2% range.
And that seems to be consistent with what the market is doing. And if we can make sure that our growth is competitive, then we'll be in good shape.
So you mentioned declines. We don't see declines.
We see North America growing 1% last year with the same balance of volume and price interestingly as total Unilever at a global level. And of course, we have the ambition to get that up into the 1% to 2% zone, in particular, by going after some of the unmeasured channels that we don't see reported in the Nielsen growth rate.
On buybacks, I'll hand over to my financial specialist colleague sitting next to me.
Graeme Pitkethly
Thanks. Yes, James, so first thing to say I think is that no change really to the way we think about capital allocation and prioritization in the business.
As we said many times, our priority, and we think this is what our - what the owners of the company want, is that we would invest in the business for the long-term, try and improve our portfolio, try and position ourselves where our consumers are so we can continue to access growth long, long into the future. So our main priority is to maintain that sort of strategic flexibility for increase of acquisitions, and that is simply our bolt-on strategy that we've been executing.
But of course, we shifted the leverage last year up to two times net debt-to-EBITDA. We're sitting at 1.9 now, which is broadly there.
And the way to view this I think is we're looking over the long time to broadly be around that 2x leverage level. So the extent to which we don't execute as much M&A - so it's almost impossible to forecast M&A for us and for you, of course, to the extent that we're in that situation and we don't have those acquisitions, I think we would, of course, return the cash through share buybacks to get back down to that leverage level backup, I should say, to the leverage level of two times net debt-to-EBITDA.
Richard Williams
Okay, thank you. Okay, next question is from Alan Erskine at Credit Suisse.
Go ahead, Alan.
Alan Erskine
Yeah. Good morning, guys.
Two questions from me. One, just going back to the impact from acquisitions.
I think in 2017, the acquisitions that you've made, the like-for-like growth was 16%. You've given us the impact of the Prestige businesses being plus 11% in '18.
But across all of the acquisitions that you make, can you give us the like-for-like growth in '18? And then just a follow-up to an earlier question.
I was on the impression that Blueair had pretty much halved in terms of revenue in '18 and was now down to only about €100 million. So can it really have much of an impact going into '19?
And then my final question is just on Argentina. I mean, obviously, Unilever's been through a number of these devaluations over the years.
Can you give us some indications to what you think volume growth in Argentina will be in Q1 and the first half? Should we take the minus 20% from Q4 and just carry that over or how do you see that trajectory going through FY '19?
Thank you.
Alan Jope
Yes. Alan, let me do with the last one first, it's pretty straightforward.
It's a reasonable assumption that the impact on the Argentinian economy and the pricing that we're having to put through in local currency there will continue to impact volumes somewhere in the order of magnitude that we're seeing in Q3, Q4. So I think it will be in the 10% to 20% zone negative volume growth in Argentina.
On impact from acquisitions, well, let me try and let me give you two numbers. The first is that, collectively, all of the deals that we've done over the last three years are growing at double digits.
So we've got Prestige growing double digit. We've got Dollar Shave Club growing double digit.
We've got Carver Korea growing double digit. And yes, collectively, they're up into double digits.
Blueair is a problem, and we've not seen the end of the problems of Blueair because it really kicked in from sort of Q2 last year onwards. And so we've got at least a third of the coming year where we're lapping a decent growth on Blueair in China last year.
And so we're going to have to find a way of swallowing that. So we're not at the end of the road on - I mean, to cover the claims on Blueair yet.
Graeme Pitkethly
Just on your point, Alan, about how Blueair plays into the forward outlook. And you're right, on the size of the business, business was just over €100 million when we bought it back in 2015 and then doubled in a two year period, and is then halved again in a one year period, and it's back around about €100 million again.
But against that 100 basis points that Alan mentioned earlier, of course, when we made that estimate, the business was twice the size that it was today and was growing a very substantive rate. So although the impact isn't the impact into the market growth, it's the impact into that expectation we had when we sized the 100 basis points.
Richard Williams
Okay, thank you very much. Next question is coming from Jonathan Feeney at Consumer Edge.
Go ahead Jonathan.
Jonathan Feeney
Good morning. Thank you very much.
I guess one question in two parts. Could you comment about the development of your online e-commerce business globally, any sizing growth metrics?
Sorry if I missed that, but would love any comments and how that developed over the second half of the year. And specifically within that, you made a comment that Dollar Shave Club ended the year growing double-digit.
Could you give us - at the time you did that transaction, I think a lot of us were looking for, it's maybe being a lot about learnings and a lot about, not just selling a lot of razors, but a lot about learnings, developing that online channel in North America. Can you comment specifically about that, its progress and the opportunity there?
I'd appreciate it. Thank you.
Alan Jope
Right. Jonathan, great question here, I must say.
Our e-commerce business now represents just over 5% of Unilever. Last year, we saw 50% growth in our e-commerce business, which is, of course, ahead of the global e-com market growth.
And for the avoidance of doubt, it is a very high priority for us to maintain accelerated growth in that channel. And that especially includes in Asia actually where we're seeing e-commerce's relatively large part of our Chinese business and growing very quickly, even in markets such as India, such an important market for Unilever.
As regards Dollar Shave Club, we're really pleased with the development of the business there. It's growing double digit.
We have made very good progress on taking it from cheap razors to a full male grooming brand, and I'd encourage to join the club and you can enjoy the tremendous range of haircare, skincare and general male grooming products that are available. We've learned an awful lot about direct.
In fact, we've stopped a lot of wasted effort on direct-to-consumer business models. My own view is that with the technology that's available right now, direct to consumer really makes sense when either you can have a recurring revenue from the subscription model, ala Dollar Shave Club, or you can you have a very high basket - single basket with good margins such as with our Prestige business.
That's where direct to consumer is a big part of the business. Selling one bar of Dove soap direct-to-consumer online, that's not going to be - that's not an attractive outlook for the future.
I think where - what we've realized is that international expansion of Dollar Shave Club is definitely possible, but not straightforward because each market has its own characteristics on consumer habits and insights, different competitive context, different - we have delivery to people's doors. And so I'd gives us a green on overall Dollar Shave Club growth, a green on evolving to become a full male grooming brand, a bright green on learning's and probably a yellow on international expansion.
There you go, that's a pretty detailed decomposition.
Richard Williams
Okay, thank you. Next question is from Martin Deboo at Jefferies.
Go ahead, Martin.
Martin Deboo
Yeah. Morning, everyone.
It's Martin Deboo at Jefferies. Thanks very much.
I'd like take to the debate sort of down from the top line to the bottom line, particularly in H2. Graeme, can I just understand, and sorry if I missed this in the detail on the call, what spread dilution was in H2?
Because my presumption from the way you've reported the moving parts of margin is that the Spreads effect is somewhere buried within those individual line items of GM, A&P and overhead. And so broadening the question and touching on some of the themes Celine introduced, A&P was down 40 bps in H2.
In fairness to you, I think you'd guided to being down. But presumably, Spreads is dilutive to A&P.
So if we X Spreads out, it feels to me as if underlying core A&P could have been down more, which just goes to this question of why when market is slowing on you, why these investments in A&P in the second half, are you worried about what that does for your momentum in '19? Thanks.
Alan Jope
Hi, Martin. Graeme, you take the first part, I'll take the A&P part…
Graeme Pitkethly
I'll take the first part, you take the A&P part again. So in the constructs of the half two margin performance, Martin, there wasn't any impact in there from Spreads.
But I guess your question is around the underlying impact on the shape of that. Overall, what we said was Spreads is that we're battling 30 to 40 basis points last year and this year from the - in the margin line from exiting Spreads, and we've been working our way diligently on that by investing our restructuring money in order to get there.
And it's not really possible for us to identify in retrospect specifically how we're doing against that other than in aggregate, looking at what I think is a very strong margin delivery and a good step forward in - particularly in the shape of the GM coming in - of the margin coming in through the GM. There was, as you say, relatively low rate of BMI spend in Spreads.
It was somewhere between €100 million, €150 million, if memory serves, but in the half year, in the half year. But let's pass back to Alan for this fundamental point around sufficiency of brand and marketing investment because I think we really do have to get into the detail of where that money gets spent.
Alan Jope
Martin, I don't want to open up a whole new discussion, but I can't avoid going in the following direction, which is we're now in a position where more than 35% of media spend is on digital channels. And actually, it turns out that when you're shifting directly and aggressively into digital, the constraint is not money in the BMI line, it's people to run the digital campaigns.
And so we're building around the company, these digital hubs, with a whole new set of skills around the table. And the ability to manage the content driven, highly targeted, data-led campaigns needs new people with new skills.
And at the same time, as we've taken out a lot of rules in our supply chain, we're actually adding back heads in the marketing space. And so in a way, there is a shift from BMI into overheads to manage this new digital marketing world.
If we think for one second that our brands are being under-supported and that our BMI is insufficient, then we will react and we will prioritize growth and sufficiency of brand investment ahead of the bottom line. We just don't think that's necessary right at the moment.
Richard Williams
Okay. Thanks, Alan.
Right, we only got a few minutes left, so one, possibly two more questions. The next one is from Guillaume Delmas from BAML Go ahead, Guill.
Guillaume Delmas
Good morning, gentlemen. Couple of questions for me.
The first one is, during your presentation, you mentioned that most of the increase in BMI was in the Beauty & Personal Care division. Now looking at the growth of some of your European and U.S.
competitors that have reported so far, it looks like you've been going this year broadly in line, maybe slightly below category growth. So my question would be, are you happy with the returns you've got on this incremental investments?
And would that suggest that there's an increase cost of doing business in the beauty care area? Second question is on emerging markets X Latin America.
We've seen a sort of strong performance, but a sequential slowdown compared to Q3. We've seen good numbers from Hindustan in Q4, so what is driving that slowdown?
Is it a couple of air pockets like Turkey? Or is it more broad-based?
Alan Jope
Okay. The first thing I would say is we believe that the business in total and our Beauty & Personal Care business is growing at least at market levels.
Our ambition is to grow above market levels, which is why we guide from current 3.1% up to 3% to 4%. I don't want to comment on our competitors, but you can see from their results reporting so far that it's not an easy environment out there.
Beauty & Personal Care of our three divisions is the one that's most sensitive to investments in our brands. It's the one where A&P levels are by far the highest as a proportion of sales.
It is also, to be blunt, our highest priority division. So that's where we're deploying the extra money that's coming out of our savings programs.
And then there's the longer discussion, which we - which I started to get into with Martin around the shift from very traditional models of advertising into different new digital models. As regards the areas that are dragging on the business, I think we've covered that, to be honest, in quite some depth.
That's definitely - primarily Latin America, it show the macro situation in Argentina is terrible. The Brazil transportation strike, what happened there was there was a dramatic downturn in our sales in Brazil in quarter two.
It reversed out in quarter three, but it was also a moment where inventory came out of the system. So net-net, we lost about 15 basis points in Brazil on a full year basis for Unilever.
Asia is - there's no such thing as Asia, is there? And we have seen really sensational growth from South Asia, four straight quarters of double-digit volume growth in India with excellent performance from the surrounding markets of Pakistan, Bangladesh, Sri Lanka even Nepal.
We've seen north Asia as a steady contributor from China, especially if you guys exclude Blueair. And Southeast Asia is really the part where there's been volatility.
The biggest part of that we've had to deal with was through 2017 and the first half of 2018, a marked slowdown in Indonesia, which has been kind of decades long reliable performer for Unilever, even dating back to the days when Graeme was the CFO of our Indonesian business. So having survived Graeme as the CFO, I'm happy to report that we are seeing Indonesia starting to come back a bit in Q2 - in, sorry, H2 of 2018.
So long answer to a short story, which is Latin America is the most troubled part of the world, and we'd like to see a bit more coming out of South East Asia.
Graeme Pitkethly
Can I just put one number, Alan, and that's - I think your question was about Asia and not Latin America, but the specific impact of Argentina volume declined, which was in the low 20% in Q4. There was actually an acceleration from Q3, as I showed in the chart.
That's nearly 60 basis points of volume impact at Unilever level in Q4. So that really is the big driver of the volume in Q4, if you want to get that.
Other bits and bobs, if you are looking at the AAR numbers, I'll just remind you that Blueair - the Blueair volume decline also was up there. Carver, which we mentioned in the presentation also was up there.
As we also said in the presentation, there was a big Q4 dip in Turkey, which I think we have flagged over the last couple of quarters because of the levels of pricing in the marketplace there.
Richard Williams
Okay, thank you. Look, I'm looking at the clock and we're out of time.
I know that we still have two or three questioners on the line, but I think we're going to have to stop there. So if you want to contact us via on the phones afterwards, please, please do.
Thank you, Graeme and Alan. Alan, do you want to make one or two closing remarks?
Alan Jope
Yes, I do actually. I just want to highlight that even despite the trouble spots that we've gone into some depth on in the call, I fancy that Argentina alone could have a 60 basis points dilutive effect on total Unilever in one quarter.
Even despite that, we've really managed to print the set of results with 3.1% growth, excluding spreads, nicely balanced between volume and price. We've continued to march on, on the bottom line delivery, and we have a strong point of view that sustainable living, the core of our business, is a competitive edge that allows us to deliver the guidance that we put out for 2019.
So great to hear the questions and look forward to continuing to listen to and answer our investors in the coming days. Thanks very much, everybody.
Richard Williams
Okay, thank you. We'll close the call.
Please contact Laura, Becky and I if you have any further questions on the phone. And enjoy the rest of the day.
Thank you.
Operator
This conference has been recorded. Details of the replay can be found on Unilever's website and will be available shortly.
Thank you.