Welcome to the Dan on 2018 Full Year Results.
There will be a presentation followed by a question and answer
must advise you that this conference is being recorded today, Tuesday 19th February 2019. And I
would now like to turn the conference over to your speaker today, Nadia Ventala Nicholas, Head of Investor Relations. Please go ahead.
Good morning to everyone. Welcome to Danone's 2018 Full Year Investor Call. This is Nadia Ben Salem Nicola speaking, Head of Danone's Investor Relations. I'm here in Paris with our Chairman and CEO, Emmanuel Faber, and our CFO, Cecile Cabanis. As usual, Emmanuel, we start the presentation with the highlights of the year and hand it over to Cecile for the financial review.
And will leave enough time to go through your questions in a second step. For the Q and A session, a kind reminder to keep your question to a maximum of 2 to allow everyone a us to feature. Before we start, I draw your attention to the disclaimer on Page 2 and the notes on a financial restatement And with that, I think we can start.
Thank you, Nadia. Good morning, everyone. Sitting here with Cecile and the team, happy to have you on board for this, important call for us. Update on our results, 2018, our guidance, 2019, the road map further. In a short few words before I enter in the presentation, I'd just like to say that I'm particularly proud of, the results that the teams of Danone have achieved this year because it's really, one of these years we have been able to balance the delivery of our short term commitments with, the roadmap for our midterm commitments and the preparation for the long term future, which, as you know, for Danone, is essential given the success that we want to have in fully participating in the huge transformation that's currently taking place in the food space.
So it's been a year of both delivery and construction. And let me go through a few charts with you to illustrate that. So maybe turning to Page 4. This is, basically, as you know, the framework of the goals that we have presented for 2030 for Danone, back in the AGM last year and which we have re discussed with a number of you during our Investor Day in London back in October. And it really stands about 3 main pillars: the business model, the brand model and the trust model that are guiding our transformation.
If you turn to the next page, page 5, a year of delivery for 2019, for 2018. Our guidance, as you know, was a double it recurring EPS growth at constant exchange rate. And we've delivered nearly 13% on that metric. So well into our guidance metrics. And page 6, immediately looking at the fact that how much we've actually also been preparing the longer term.
And you'll see, the 3 columns, again, the pillars of our models, the business, brand and trust models. On the business side, not only a short term delivery of significant and strong earnings, to our 30 to our becoming a B Corp, with 30% of net sales, achieved and certified as a B Corp already last year. So pretty well ahead of our plan, actually. On the brand side, huge transformation going on and I think in the next couple of days, weeks, we will discuss about one of the big changes, which has been Activia, and I'll come back to that. 20% of our brands are now in their manifesto journey and they grow faster than others, but also happy to report that, for the first time, we've been, best in class in carbon reduction on the CDP climate ranking last year, and we expect to continue that.
On the trust model side, with the food revolution going on all over the place, diversity, inclusiveness, people focus, are critical and on these aspects as well. Last year has been a great year of progress for us. See, if I turn to the next page, one aspect I'd like to highlight, a couple of aspects I'd like to highlight about our growth last year was first of all, it's been a very balanced growth, of sales growth and profitability development and sales You know the numbers, 2.9 percent, for the full year, 50 bps plus in terms of recurring operating margin. And better numbers if you would like to exclude the 1 off effect of the Morocco boycott. It's also been on Page 8 an important year because all our reporting lines have contributed to this this growth on a pretty broad base.
I'm particularly happy with nearly 6% growth of our specialized nutrition in a context in which Cecile will, of course, go into much more detail, later on. But of course, very happy about, and the U. S. Coming back to growth. And as you know, with some interesting acceleration, and again, Cecile will come back to that on the back end of the year.
And finally, the continued, very solid growth of our water business, with another plus 5% last year. All of that on Page 9, is fueled by the heavy focus that we're putting on higher return categories, organic, has been a big push for us again last year. No news. But continued delivery with 8 of our flagship brands starting, a, an organic business, an organic version. This picture of Bledina in France, we are already the number 2 organic brand in the baby food space in France.
Introducing another slate of a number of SKUs right now as we speak, in organic. Plan based, 15% of our total EDP sales. And as you know, we have a plan that that, is going to treble that plant based business by 2025 for us to 5,000,000,000. So it's a big investment. We can new to focus a lot on that after the Alpo and the WhiteWave acquisitions, probiotics, which is really completely, rejuvenated territory in terms of category now from the past where we were pioneers 30 years ago.
And now it's becoming an obvious, way of, dealing with a healthy diet for more and more people. We've innovated significantly to the tune where One third of our probiotics sales are now coming from innovation, and that includes Activia in a very successful manner. And finally, an important aspect, when it comes to the long term resilience of our businesses, reduce sugar where we've made a 10% progress of coverage of our volumes, versus where we want to be by 2020 in terms of lower sugar. And let me remind you that we are blessed with, categories and products that are recognized by health authorities as being for 90% of the volume that we sell daily consumption, authorizations and needs. Page 10 is another cut into the innovation paradigm that we have accelerated last year with a a number of, I think, important figures for the future.
In London, for those of you who are with us, we said, probably we'd be with innovation, for 2018 accounting for a bit more than 20%, 22%, maybe. We're coming from 16% from innovation by 2016. And actually, we've achieved 25% by the end of the year. So, you can see this huge acceleration of innovation. That is also a factor of a much faster time to market, nearly half the time to market of a number of important recent innovation from, their predecessors and driving value as we already discussed.
If you think that, food has no pricing power and it's a commoditized business, we don't think that's the case and the and the revolution is what it says. So if you embrace the revolution you end up with as we can see there in Waters with innovation driving 50 percent higher net sales per liter. And in EDP, which, again, is an area in which I know we had the proof of the burden. We're coming up with a number of a 25% higher than net sales kg. On innovation.
A longer term innovation is on Page 11, the continued investments that we're making with our denim manifesto ventures, a number of them we've discussed, I won't go into any detail here, but we're thrilled about the development of, probably the dozen of investment that we've made since we started that venture about 3 years ago. They really prepare the future of our categories, they are inspiring for us. As I already said, unlike many others, incubators, we are not running this completely separate and safe from the big corporate. We intend to, really make sure that, we inoculate the virus of these young entrepreneurship companies and models into our core business. And this is really where I think it makes a and much either, but, be sure that we are taking a lot of opportunities that we see in the social media, the digital space, user generated content, to engage much more efficiently, much broader, quicker, with our audience and the tribes, that are choosing our brands.
And there are several examples of this in the U. S, in Indonesia, where Aqua was a partner to Asian games, a very great lifestyle campaign, on social media in Spain, with El Futuroeste 360,000,000 impressions, and in Russia, another great, YouTube event that we organized last year. Other innovations and changing in paradigms with route to markets and channels. Nothing really new, but an update on the numbers. You know that, we want to double our e business to reach EUR 2,000,000,000 by 2020.
This is next year. Last year, 1,000,000,000. Most of you know that number, 1,000,000,000 sales. That's 40% progression versus 2019, 2017, sorry. And we've also highlighted on this chart that, one of the secret behind, the, stabilization and the restoration of the growth of our EDP business in 2018 has been the push on impulse channels, and I should also probably add to this, hard discounts.
So twothree of our growth has come from there. And this is not by chance, obviously, and this is also, thanks to the innovation that allowed us to bring the right products, packaging, formulations for the convenience, that's needed to address these channels. Couple of world 3 charts specifically on the very rightly so discussed, EDP performance overall One is on Page 14 to reassure you on why we continue and we are more excited than ever about the WhiteWave add in addition to our business. We are now back into a situation where Three quarters of White Wales former businesses are above 5% growth already. The synergies are flowing in nicely and according to plan, And most of them, as you know, are on cost side at this point in time, but we have added on the photos here and no numbers, sorry for that yet.
But a number of initiatives that illustrate how we are also creating value through volume synergies and revenue synergies by pushing into new moments of consumption, creating new brands like this, leaving old shots in the UK that we've launched. The fantastic growth that we have in Mexico for, our silk products there. The extension into Coffee, where we continue to push and to see a lot of growth as well. Page 15 is is a 2 short snapshot probably to a very long expected, outcome, which is the stabilization and the position for growth now of our essential dairy and plant base in Europe. On the back of a number of successful innovation that have turned our products on the shelves faster and on new shelves, but also a lot of work on local relevancy, execution and route to market.
And as I said earlier, about new moments of consumption as well, has led, as you can see on the right part of this page 15, from the very negative full year 2017 number first half of last year that was already by half cut in terms of, loss of sales, nearly flat in Q3. And positive in Q4. That would not have been possible without Page 16, which is, basically driving Activia back to growth. Through the disruption of this brand, I think we've shown that, there is no fate for large brands as long as they accept with no fear to self disrupt themselves. This is what we've essentially done after the failure of the big relaunch of 2016.
As you can see here in the center of this chart, page 16, which led to the very deep drop in sales of Activia across 2017 as we had announced back in December 2016. And you've seen gradually how we drove Activia back to growth during the year, the year 16 to the point where in many ways, the brand has been rejuvenated in terms of its consumer base Obviously, it's execution, organic, lactose free, even going outside of dairy with some plant based vegetable versions, still and always enjoying the 5 exclusive ferments and probiotics of Activia. If I turned for two pages on, the other side of why I think 2018 was a success for us and paved the road for the further success of our roadmap. As I said, it was a balanced year of growth and efficiency. I've been speaking a lot about growth.
So let me spend maybe a more efficient and shorter time on efficiency efficiencies have been delivered last year, Page 17. For those of you with us in London, we were shooting for about 200,000,000 of protein delivery in Tier 1. We've actually achieved a EUR 300,000,000 delivery, which bodes well for, the delivery of our 1,000,000,000 next year. And Cecile will come back to them again, but it's It's for us, as you know, it's a very new way of working. I think, the speed and the depth at which with which the Danone team have accepted to change the rules of the games and the way we work, together with more collective discipline, is, is a tribute to, we, to how the culture of the company is also adjusting to capture beyond, our great cultural folklore, which I think makes this company absolutely unique the ability to capture the right ideas when they make sense for us and apply, playbooks that we probably would I've tried to not apply a few years ago.
And I think this is also part of the transformation and why I felt I wanted to spend a few minutes with you on that particular chart, because it also talks about how Danone is changing. And talking about changes, we, we share with you this morning on Page 18, a couple of adjustments that, we are basically going through right now as we speak. One is that, in terms of organization, we're going to move really our specialized nutrition business as 1 integrated powerful global category. The more we go, the more we see the potential of putting, these 2 organizations together in a very careful way, to make sure that we protect and actually gain on the revenue synergies that we can gain when, for instance, our teams are addressing in ELN, early life nutrition, they're addressing a prevention of allergy with one brand talking to pediatricians and another team come from medical nutrition with NELCADE, which is a treatment of allergy, milk formula And that's another team that does that to the same pediatrician. I'm obviously taking and sharing with you the most obvious example but we have a number of examples of how we could be, or leverage better the expertise of our teams and their coverage of the market at a time where efficiency is obviously something extremely important, both for revenue and cost side.
So that's one thing that we are going to to do this year. We are we've been preparing this for the last 18 months. There are already a few pilots countries in place that show, the do then dance of that transformation. And, I'm, I'm totally confident about, the strengthening of our organization through this change. In the middle of this chart 2018, we We have finally another Danone change, couple of years ago, finally, got the organization to agree that there would be one single grid of geographies, irrelevant of the category in which you play.
So the 4 divisions by then agreed that there would be 7 regions and 30 clusters of countries when we started Wandanaan in 2015 and installed the region 2 years later. Well, we are moving this, one step further by de layering again our organization. As you know, we are obsessed and I'm certainly obsessed with, the ability of our teams to make decisions as close as possible to the reality where people live, eat, and drink. And this is not in Paris for the rest of the world or Skripola and Singapore. And therefore, we want to make sure that our teams can make the right decisions locally.
This is essentially, and as you know, I've shared that already in 2016 when or exactly 2 years ago where, when we announced the new organization for Activia and the same time as our full year 2016, we discontinued the global Activia team at that point in time and put it into the regions. Well, this is taking the same logic beyond. We are essentially cutting the 7 regions and the 30 clusters and all of this into a more flat organization of 13 regions under which a number of countries, some countries will be regions, But essentially, the objectives here is to clearly become, the most localized of all the large food and beverage companies because we believe this is how we can best serve the revolution that's happening all over the place and not stay as an old, yeah, archaeological pyramid company as we've all been traded a couple of decades ago. On the right side of the chart, a word to speak about our business services, the one that an organization, that Cecile is running, and you've known that for already 4 years now. Well, taking advantage of the first two moves that I just mentioned, we are going to take this organization to its level in the next 3 to 5 years, including on data and technology, in order to fully, take advantage of what technology can bring us in efficiency, in relevancy, in time to market and service.
So that we continue to best serve the local markets and the 13 regions, basically, as much as they did. None of this is going to be, a big restructuring charge somewhere. It's essentially a meant to enable us to continue to walk day by day, week by week, towards our 2020 commitments and the further acceleration of our strong and profitable growth, as you know, beyond 2020. 2 last words from me or 3 are just to, turn to a very exciting, page of the history of Danone on page 19. We have started, as you know, a program that essentially also celebrating the 100 years anniversary of the company this year in 29 18.
Last year, we created a program called 1 person, 1 voice, 1 share. We are strong believers that people and the younger generation absolutely wants to understand where, how, and why they work They want to have a voice. They want to have a share. And therefore, all our employees will be granted 1 share of Danone at the AGM of this year, but they've already expressed their voice through this, global consolidation that we run with them and which we, in turn, on Page 20, to turn into a routine where basically, they will be debriefed about our strat plans. They will work on the priorities against the 9 integrated 10 years goals that we have locally to en route these goals locally and make sure we make sense locally and not only in the big UN meetings.
And that is the blue part of the routine that is on page 20. Where for 4 months, they will work and participate in building a bottom up feedback to us to inform our track plan every year. And on that chart, again, you can see that they will have a direct interaction as you heard me shared already with our board, once in October, once in April to make sure and again that, we have a fully embedded governance with an entrepreneurship spirit, a participation spirit, in which people do not feel that They are obliged to do things, but they also do that because they really believe that they are part of the game. And to finish and before handing that over the session to Cecile. Let me simply say that, all of what I just shared, the short, the mid, the longer term that we've prepared, last year is giving us, giving me full confidence in the road map including this very important road map that we have with you by 2020, where we reiterate the commitment on this page 21 that we've made to you and that you can read on the page by yourself.
And with that, I'll turn over to Cecile.
Thank you, Emmanuel. Good morning, everyone. So let me go now through the details of the numbers. Starting on Page 23. As Emmanuel said, 2018 was another year of delivery.
We delivered our guidance and this achievement demonstrates again our ability to deliver on our commitments, which is based on a stronger and more agile business model, with greater discipline and efficiency. And despite what I will share just now, a challenging backdrop, including unexpected events this year. Moving to Page 24. Indeed, the external environment has not been favorable in 2018. We already shared that in H1.
Some headwinds were expected at the beginning of the year. Some of them were completely unpredictable. Inflation in commodity prices and cars overall has been around 7% for the full year, driven in part particular by PET, which increased by more than 20% and higher logistic costs in the U. S. The consumer boycott in Morocco was an unfortunate event that started, as you know, end of April and severely impacted Central on with a significant effect as well on our company performance.
As you have seen, around 70 bps in term of growth, and more than a EUR 40,000,000 EBIT of impact. Finally, we suffered from emerging market currencies that devaluated significant this year against the euro and mainly the case, as you can see on the chart, for the Argentinian peso. Moving to Page 25, I will go quickly through it because Emmanuel commented on that. We can proud to have delivered on all our strategic priorities in 2018. We accelerated growth.
And as Emmanuel highlighted, we did that notably through, plant based accelerations, who innovation significant step up, and also an acceleration of the shift in our channels. 2nd, we deliver more than a million of efficiencies, namely thanks to the 1st year of delivery of savings of protein, 1,000,000 and the 2nd year of synergies of WhiteWave, which is continuing exactly according to plan. And finally, let me comment on capital allocation. We are exiting 2018 with a much stronger balance sheet that we exited 2017, ending the year with a level of net debt to EBITDA of 2.9 times ahead of our deleveraging plan, And this has been achieved through a strict discipline in capital allocation and great delivery of free cash Moving now to the indicator. I will start on Page 27 with the Q44 sales growth bridge.
So if you look at the bridge in Q4, like for like sales grew by +2.4 percent, driven by value with volumes that were continuously penalized by the situation in Morocco. If we consider the impact and the sales growth overall would have exceeded 3% both for Q4, but also for the full year. The value growth was driven by both pricing fees and positive product mix. The currencies had a negative impact of 4.4%, mainly driven by what I commented on currency depreciation. And especially the Argentinian peso.
If we go now through our different entities, First, if you look at the overall performance, it's important to note that both Waters and Specialized Nutrition have grown more than 5%, which make 50% of our portfolio that is growing over 5%. If I start with Waters on Page 28, the water business continued, as you know, for around 20% of demand sales in 2018, delivered a consistent mid single digit growth all along the year, lending at 5.3 percent growth on a full year basis and posting it 6 consecutive quarter at mid to high single digit growth. As you'll recall, the margin was under pressure, while he may around 11%. It decreased by 82 bps in 2018, but it improved in H2 versus H1. The PET inflation was massive and the team did a real great job to deliver both on its valorization strategies who accretive innovation and to register a record high level of productivity to limit the impact of input cost inflation and be able to improve margin in each If we go through the Q4 numbers, for Waters, Q4, I'm on Page 29.
Q4 has been another quarter of strong growth at 5.6 percent, which is basically in line with the 1st 9 months of the year. In Europe, the growth was moderate, facing a high base of comparison, in particular, in the UK, where last year we were very successful in the activation around Star Wars. This year, the Evian campaign around the Mickey Mouse 90th anniversary as well as another quarter of very strong goals for our local brands in both Nordy and Poland drove the performance in Europe. North America, Evian registered a very strong quarter with sales up more than 20%. That includes the first benefits of the new distribution agreement recently signed with Cheerig Doctor.
Peter. In Asia, growth was mid single digit positive, mainly driven by Indonesia, Aqua, our local brand strong quarter. In China, the Q4 performance was penalized by the consequence of the weak summer season that I described already Q3. That said, our volume market share remained stable and Mizone was broadly flat for the full year. And finally, Turkey is also doing very well.
Latin America contributing to the growth of Waters, in particular, globalization, while volumes in that region remain weak. For 2019, we expect the growth of Waters to be solid on the back of strong fundamentals. Percent, as I was saying, for 2018 for both medical nutrition and Early Life Nutrition. This was coupled with an exceptional improvement margin 139 basis points, lending close to 25% margin expansion that was triggered by positive mix both from a product and a country perspective as well as huge effort in delivering efficiencies, including the proteins things. Moving to the next page, Page 31, for the last quarter of the year, specialized position posted positive growth at 1.1%, improving versus the Q3.
Medical Nutrition registered high single digit growth in Q4, leaving the year with a growth above 5%. All regions we are growing and China registered a strong double digit growth, mostly on the back of an excellent performance of allergy treatment products. And Europe continued to post a solid quarter. Early Life Nutrition, the growth was slightly negative of the year impacted by a negative growth in China, overall minus 10% and less negative than Q3. And I will come back on China in the next slide, in more details.
Outside China, so we're talking 70% of ELN Portfolio. The growth was solid and broad based. Europe saw a material acceleration in Q4 versus Q3 in most of the countries and in UK, in particular, as we saw a progressive recovery with the Atamil plan to restore our brand performance. Elsewhere, the growth was high single digit, especially Africa and Middle East and double digit in the U. S, we're happy family, the leader in organic baby food has become now the 2nd largest player in total baby food category.
Moving on Page 32 and coming back to Early Life Nutrition, China. The results in Q4 have been once more the outcome of a mixed performance by channel, while the growth of our direct sales was more than 20%, indirect sales continued to decrease sharply. The mix generated the negative growth in China overall in Q4, But it's important to highlight that beyond the quarterly volatility, ELN sales in full year 2018 in China where high single digit, positive in terms of growth. And if we look at despite the demographic slowdown, the IMF category has been very dynamic in 2018, supported, especially by an within penetration, consumption per capita, notably on gum, a strong premiumization effect keeps supporting also the industry. And also, as you've seen, the CBC regulation has now been clarified and is effective since the beginning of the year, which will leave less marks for the future.
If we look at 2018, for our business in China, we progressed on our strategic objective, which is around reducing our exposure to indirect sales that represented in 2018 onethree of total sales versus twothree from direct channels. We gained market share in the most dynamic direct channel and in popular mom and baby stores, and we almost tripled the sales of Atamil Platinum, which is today our biggest brand in the country. Looking forward, we confirmed the outlook that we have given in London at the investor seminar for China with an IMF category growing in the midterm 3% to 5%, continuously led by trading up with increased consumption and which would offset the decreasing in term of number of birth. You recall that new babies were down 12% in 2018 versus 2 17. And for Danone, H1 2019 will remain negative due to the exceptional base of comparison as well as expected continuous shift in channel mix.
We are confident to bring early life nutrition in China back positive growth in H2 on the back of further expansion in Ultra Premium And Lower Tier Cities. The reason will also depend on speed of innovation regulations. So overall, the results of Specialized Nutrition give us confidence in our ability to achieve our growth target of about 5% in 20. While in 2019, the year will be unbalanced across semester, including a negative start of the year as a result of the growth profile of Early Life Nutrition in China in 2018. Let me now move to EDP.
And, I think we can say that for EDP 2018 was a very important step. That I would qualify as the year of the growth turnaround. So starting with EDP Norham on Page 33, Growth for 2018 stood at 1.5% with sequential improvement in the back half of the year. On a full year basis, operating margin improved by 25 basis points to 11.7%. With a clear acceleration on the second half of the year by 90 basis points with good progresses on synergies some targeted price increases in July to offset also the strong increase in transportation costs.
If we look at Q4, growth in Q4, EDPENORAM registered another 3 quarter of sales growth, more than 3% if we exclude fresh food, plus 2.2% in total with positive volumes. Our segments overall outperformed food and beverage category that is slowing down. And going through the segment in details, we have Our Yogurt business in North America that posted a moderate growth in Q4 in a very highly categories in the U. S, especially in the Greek segment, while Canada grew solidly, we continued to leverage our positioning in dynamic yogurt segments, kids probiotics and plant based. Activia post is high single digit growth on the back of solid demand for probiotics.
Plant based growth, as you know, is still small, but growing very strongly at more than 30 for the continues to decline. In this segment, our pipeline of innovation remains very strong, extending the range of plant based ingredients. Viga keeps being under pressure, slowly recovering from the unsuccessful recent reformulation of VegaONE organic. Coffic streamers continued to deliver strong growth in Q4, fueled by a large and growing coffee consumption in the U. S, impacted our ready to drink coffee under the stock brand is a key contributor to growth, continuously gaining market end.
Premium Dairy posted positive growth in Q4 for the first time since why it was closing. Which is driven by increasing volumes and gains in market share in an improved category trend This positive evolution is driven by the success of what we described all along the year on the valorization strategy on value added offers the grass fed milk and single serve drinks that are dedicated to kids. As part of our margin enhancement initiatives, we will start to continue some non core loss making SKUs in Q1, which will represent a small portion of this business. Finally, fresh food sales were down impacted by a 1 off FDA alert because of a risk of equally on the category of Roman salad for which the sales were stopped in the U. S.
For 1 week. Moving to EDP International. The acceleration of EDP International across the year has been very strong, exiting it at more than 4% growth, excluding Morocco. Despite the impact of Morocco the operating margin improved by 29 basis points, 9.1%. Thanks to the value added innovation, good delivery of Protein Savings, excluding Morocco, like for like margin improved by 60 basis points.
Moving to the Q4 growth. So the reporting entity posted 2% growth in Q4 and 4.5%, excluding Morocco, exceeding expectations, As explained by Emmanuel earlier, we can proudly say that today, Europe has stabilized both in volume and in value. Which is confirming the consistent progress since the beginning of 2017, driven by improved execution, local relevance and value added innovation. Activia is roughly flat in Europe and then on brand consistently posting positive growth since 2, supported also by a strong innovation pipeline. Alpro continue to grow very fast at more than 10% in Q4.
The geographical expansion is successful with notably very good results in Spain, where Alpro is now the branded leader in plan days with 8 percent plant based yogurt volumes being incremental governance. CIS posted another quarter of strong growth, closing the year at mid single digit. Latin America posted strong growth in Q4. If we go through the region, Mexico registered high single digit sales growth, the highest in several years, driven notably by drink cable and single serve innovation, but also, but turn based product acceleration under the brand seal Brazil was back to growth this quarter and is regaining market share, thanks to a big revamp in the distribution network and product offering. In Argentina, price increases offset the impact of the inflationary environment and the negative volumes.
In Morocco, the sales training Q4 was in line with the previous quarter, down approximately 35% year on year. We are, however, slowly recovering market share compared to the bottom level we reached in June. The introduction of affordable product starting to pay off, and the mix is positively driven also by fresh dairy products. The boycott in the country will keep impacting EDP International on all top and bottom line in the 1st part of 2019 until the boycott will be lapped by next April, 20 So if we look at 2019 for EDP, you know that first, we will combine the 2 EDP in a single reporting entity. We will remove Argentina from our like for like growth definition.
So if we take this new combined EDP including Argentina, it would have posted a growth of 1.5% positive in Q4 2018. For 2019, we expect a further acceleration of EDP and knowing that the Moroccan boycott will be lapped April, we assume an H1 to be roughly in line with Q4 2018 and then an acceleration throughout the year. Moving to the margin, going through the margin bridge on Page 38. So as we said, point 58 basis points, if we exclude the impact of the boycott in Morocco, the reporting margin for the full year stood at 14.45 And if we go from left to right, the performance is a combination of a negative 28 basis point impact as a result the dilution driven by the bid effect from the integration of WhiteWave, a scope effect that was slightly positive 6 bps resulting from the divestiture of Spanish field. The currency that had a negative impact minus 10 V.
And this include a minus 9 V. Effect from the application of the new norm IIS 29 hyperinflation accounting standard for Argentina. If we turn now to the underlying per performance and driver of the like for like margin expansion, the 51 basis points improvement is a result of a negative evolution of our margin acquisition, 72 basis points, which is the combination of more than 1,000,000,000 of cost linked to inpatient of raw material, manufacturing and logistic costs, a significant external volatility and inflation has been mitigated through, what we said already, clear delivery in term of portfolio valorizations through innovation and mix and some targeted price increase, and record high efficiencies. Moving to sales and marketing expenses. The impact on margin was positive, 79 basis points.
It's the result of the over delivery of protein savings and also WhiteWave synergies as well as the discipline in investment that are focused on high return campaign, including an increase in E and P spending in several trees in ELN China, EDP Russia, Evian, in the U. S. And some others. We finally had a 45 basis points favorable impact overheads and others. That is here as well, coming from, efficiencies and the 2nd year of synergies from WhiteWave as well as continuous adaptation of the organization in a number of countries.
Overall, we are happy to report Ozaria of margin improvement, the 4th in a row and in a tough backlog, including unexpected headwinds. One more word and efficiency on Page 39. In 2018, we have delivered over 900,000,000 of efficiencies, which exceed our expectation. Protein was ahead of plan with million savings achieved. This, together with our usual productivity initiative and 2nd year synergies from WhiteWave, we continue, of course, to be a key lever in achieving our 16% target margin, for 2020.
Going now, page 41, on the EPS bridge, recurring EPS closed at percent on our guidance perimeter, 2.2% on a reported basis. If we go through the bridge from left to right, the main elements are the impact of the disposal of part of our stake in Yakult, minus 1.5%. The impact of the consolidation of WhiteWave in the first quarter, plus 1%. Our operational performance which is both the combination of our like for like sales growth and our recurring margin improvement that contributed for 6 point 7%. Our financial costs contributed positively that slightly decreased versus last year.
As a result of the early redemption of senior notes on WhiteWave balance sheet last year. Tax and my affiliate contributed 4.3%, thanks in part to our underlying tax rate that decreased from 30% to 28%. This is the result of both the tax reform in the U. S. An improvement overall in the geographical mix of our taxable income.
The reported EPS also include a very minor negative scope impact minus 0.3%. Currencies had an important negative effect of minus 9.2% since, as we said, Euro appreciated against all main currencies. And this also included 2% impact linked to the application of the ES29 accruiting standard for Argentina. Moving to Page 42. Even if there is no new news versus H1, important to look at the reported EPS that lending the main nonrecurring events, including, were already disclosed in H1 communication.
It's namely the impairment as part of the goodwill and of the Santander brand in Morocco for 1,000,000. And on the other hand, a capital gain registered at as an outcome of the partial divestiture of our stake in Yakult for around 1,000,000. It also includes some costs that are linked to the integration of WhiteWave and station of our organization, namely in some country in EDP International. Moving to free cash flow, page 44. Again, Danone's ability to generate strong free cash flow is perme by the 4th consecutive year in which we registered a free cash flow improvement, again, a challenging reason because in 2017, the free cash flow included some exceptional reinvestment, Fontera, and the insurance for the COGS factory.
So today, the free cash flow is reaching 9% of net sales. We've been able to improve the working capital after the negative impact of WhiteWave integration last year. And the progress came mainly from EDP in Iran, And we continue to be focused on improving this level. In term of CapEx and net sales, we were in the same order of magnitude than 2017, 3.8% of sales. Moving to Page 45, change of net debt.
So the very strong cash flow conversion, coupled the process of the divestiture of a part of our stake in Yakult has allowed a further acceleration in our objective of deleverage deleveraging the company after the acquisition of WhiteWave. As you can see on the bottom part of the chart, today, the balance it is significantly stronger. We have a net debt to EBITDA ratio of 2.9 times, And this is really the proof that we've been very disciplined and rigorous in term of capital allocation. It's important to keep all in mind that our deleverage objective also include maintaining a strong investment grade with our credit rating agencies. And from 2019, there will be the application of IFRS 16, where we're willing through operating lease into our net debt, and this is going to mechanically increase the overall debt.
But, we can say that we are very happy and proud of the work done on the quick deleverage, which is allowing us to our next page, propose to the next AGM, a dividend to be paid in cash, 1,000,000, dividend per share at 3% versus last year, in line with the progression of DPS. I'm concerning a 10 year trend of continuous increase. I take the opportunity on Page Four 7 to remind everyone on our capital allocation priorities, which are unchanged We continue to be focused on, deleveraging the company, including strengthening the balance sheets through FCF improvement, an active portfolio management, and M and A will continue to be focused on accelerating our denim, beneficial bench deployment and targeted bolt on acquisition. We will also step up in term of our CapEx, we've been for several years at the bottom part of the range, that we gave you between 4% to 5%. We will, move to the high end of the range to support our plan based strong acceleration plan particular.
And of course, continue to remain ahead our shareholders through a dividend. To close on, I felt important to stop on the page 48 because it's not only that 2018 has been a year of delivery. But if we step back to our performance and we look at it since 2014, we have regularly and progressively year of terrier improved on all parameters. We've been able to deliver year after year while continuing to transform the model to make it both more agile and local, but also more efficient and stronger in, ensuring consistent and sustainable delivery. So I thought it was important to show that.
Then let's go to 2019, starting with the context Overall, in term of raw materials, the indicator shows that milk price will be up single digit this year. And it's already the case. It was already the case for SMP in January. The oil price has been quite volatile. All in all, we expect frozen packs material to be up mid to high single digit year.
When we think about Early Life Nutrition in China into 2019, we need to keep in mind that the growth will unbalance between semester as a consequence of 2018 gross profile. The boycott of on Halbanon in Morocco, as I said, will be lapped, at the end of April, easing significantly the base of comparison thereafter. And finally, regarding Brexit, it's still too soon to comment and gain precisely on potential impact. As long as the final deal ident that we can continue to face this volatile environment, continue to strengthen our business model and deliver against our strategic priorities again in 2019. We will be very focused on gross margin improvement through both top line value growth acceleration, continuing to unlock efficiency in the way we operate.
And adapting the organization, we expect restructuring costs to be in the magnitude of what we had in 2018. And lastly, of course, allocate our resources with a strict discipline and managing very actively our overall portfolio. So when we say that, agility and discipline will continue to be key to safely and success deliver, especially towards our 2020 objective. As I mentioned, 2019 won't be a linear year. We expect to have a low start to the year in the first half and in particular, in the first quarter, including less trading days due to Easter phasing this year versus last year and a much stronger second half growing in Q4 consistently with our 2020 top line objective.
Accordingly, we will continue to increase our occurring operating margin. It will accelerate in H2 to ensure that we progress towards our 2020 commitments. So if we move to Page 51, you remember that few years ago, we decided to guide on EPS to make sure that, we had the right flexibility to manage growth and efficiency our sustainable deliveries. And we committed to deliver a consistent EPS growth year after year. For 2019 and in order to help you understand better our path towards 2020 commitments, we have decided to guide more precisely on growth and margin.
So for 2019, our guidance will be the following: around 3% like for like sales growth, which will be accelerating versus a base of 2.6% in full year 2018, excluding Argentina. And at least 15% of recurring operating and margin. 2019 will be another step towards both our 2020 commitments and our 2030 goals. We are confident that we are taking the right step to strengthen our operating model. To wrap up, I would say that we are overall very happy and proud of the results.
With another year of delivery as we continue to transform our model to make it more local, more agile and more efficient. At a pace that will ensure sustainable value creation and progress towards our long term goal. With that, I'm finished and I hand it over to you for turns where Emmanuel and I will be happy to answer.
Our first question comes from the line of Eileen Koet from Morgan Stanley. Please go ahead. Your line is now open.
Good morning, Emmanuel, Cecile and Nadia. Two questions from me. The first one is on margins. I wondered if you could give us more color on the degree of reinvestment of your cost savings in 2018? And how does it compare versus your guidance, which was I think 70% reinvestment at least for the protein side of things?
And what would you expect the level of reinvestment to be going forward? And then what gives you the confidence in being able to achieve the above 16% margin by next year, which implies more than 100 bps improvement next year? That's the first question on margins. Secondly, on EDP International, Congratulations on a strong performance, particularly achieving stability in Europe. Given that in 4Q, you were already above your 3% to 4% mix and guidance for that business.
Can you give us some color on how sustainable that 4.5 run rate is once Morocco is in the base? And also some color on where you are in terms of your geographic expansion plans for Alpro? And then in terms of the rate of new innovations this year, whether we should expect that to be at the same level as last year? Thanks very much.
Okay. I will answer on your question regarding margin and reinvestment. The first thing we can say is that by accelerating innovation by 25%. We've been reinvesting significantly in our product and innovation acceleration, which, I think, has proven to deliver an acceleration in term of growth. So that's the first thing.
The second thing, as I mentioned, we've been reinvesting, being very disciplined in order make sure that we were reinvesting behind growth and high return campaign in terms of A and P. And we've been advancing quite significantly in our precision marketing rollout. Overall, as you know, we had, some unexpected headwinds. So the fact that we were able to deliver more than putting savings has enabled us both to mitigate these extra headwinds and continue to reinvest Now when we talk about our path towards 2020 16% I think everything we've been able to deliver, both in terms of value growth acceleration and efficiency is boding well to our ability to continue to accelerate and strengthen our model. We will continue, of course, to maximize our efficiency.
Remember that by 2020, protein saving is a target of 1,000,000,000 in total. We continue to have synergies of WhiteWave that will come, activity that we continue to maximize. Then around gross margin, it's so true, but everything we do in term of growth and value growth. As I said, innovation have been accretive or in Aquadrillings, we've been having innovation that are 50% price than the usual range. We are also working on targeted price increase and improving our overall mix optimizing all for our spectrum.
So there are many, initiatives. And finally, a very strict portfolio review and management, which also contribute to, fulfill our month on our 16 percent objective of margin for 2020.
I'll take the question EVP. Thanks for the question. Where I think we are is that, the, we see the growth today of, of EDP, also international, also a function of, very strong performance in countries like, Russia, CIS, but also Latin America, Mexico, Brazil, that has improved significantly. And therefore, it means that, these engines are already working very efficiently, and we don't expect them to accelerate. So, of course, there is a Moroccan effect that will support the second half of the year in terms of growth for EDP International.
But really, what needs to continue to be happening and confirmed is, beyond the stabilization, the growth of Europe. So in a way, most of the first of this year for ADP International in terms of what needs to be executed properly is the senued, gradual reacceleration of Europe, on which we are very confident, but, you know, it's only 1 quarter that we have been positive, and we need to repeat that every quarter this year. And as Cecile said, it's going to start with a slower start because of trading days and a number of other factors in, in Europe on that front. So that's for, EDP International, overall, the acceleration is a good one as well in the EDP Noram, Cecile commented on all topics. We continue to see a plan based significantly above the average of food and beverage.
In, in the U. S, several points of growth higher than this, percent growth in Q4 for the category compared to the 1% to 2% only for the total food and beverage in the U. S. And so we see that traction, the same happens with coffee creamers, premium dairy as Sassy said has been recovering, but that's only 1 quarter. So we also need to confirm, the solidity of these numbers with, volume and pricing.
So there's still a lot of work to be done, but, we are very confident indeed that, the Q4 numbers, the acceleration of the back end of the year is a great milestone the equation that we want to be at for, next year. When it comes to Alpro, the acceleration of Alpro and geographical expansion, this year has really been sorry, 2018 has really been about, the 4 main market of Alpro Plus, a couple of markets like France and Spain where, we have been really successful in, in Spain, Cecile mentioned the numbers. In France, we are already the second And, we are, growing 50% of the category. So and in plant based yogurt. We are talking about the category growing 30% in France.
So, this, we are very pleased about the innovation and the push there. We, we have, as I said, also Mexico, and now we are going to work on more Latin American countries, in, in 2019, but as well as Russia, which has a long term, a great potential from a low base today and redesigning some categories, including, for instance, in Japan, where the category has been a very traditional one, and we believe it can be revived. So Japan is going to be another test for us to continue the Alpro expansion this year. Your question on innovation, mechanically, you will probably see some more, but this is not an objective that we have. I really believe that, with 25% quarter of our total sales in a, in a space like food.
What we need is now innovation that stick and act even before sticking, we need them to hit the road and therefore, being on the shelf available for, consumers. So, I think this was a huge step forward to bring the company to where it is today, from an innovation mindset standpoint, We, we now need to continue to adjust, all our organization and supply chain, to make sure that this innovation reaches its, its full potential. So in a way, there will be probably less inventions and more rollouts and executions in 2019 of most of the great stuff that you've seen in our presentations and hopefully in some of the shelves that you're visiting.
Your next question comes from the line of Arlene Oberhuber from MainFirst. Please go ahead. Your line is now open.
Good morning, Emmanuel, Cecile and Nadia, Alain Oberhuber. MainFirst. Two questions from my side. Could you talk a little bit more about the this business here, particularly in Mison, what was challenging last year and what we could expect for the next couple of quarters in my zone per se? And the second question is, obviously, congratulations for the very strong growth rate.
With WhiteWave brands. Could you also talk about the other 25% where we currently stand there, which are not growing at the moment.
Sure. So I'll take that 1. Mizone, I think we explained last year that, the we were not pleased with the way the season worked We had a good preloading, perspective, but the season wasn't as successful as We and our distributors anticipated. It wasn't bad, but it wasn't good. Market shares were sort of holding.
In a company in a category that continues to transform, to switch We, we did not expect to have the breakthrough for the innovation of the future. So essentially, we've been navigating that transition without an ambition to be able to provide the future formula for success, for another big success The back end of the year, including in a situation where a lot of innovations have actually come to the market beyond our own brands, of course, has led distributors to, reduce their inventories significantly. And therefore, this is hitting the December 4th quarter performance of Mizone, which, as you know, in any case, is a very seasonal business. So it's not a big part of the year, but it's an indication of the fact that it's been a good year, but certainly not the year that's really building the future, yet for Maison in China. When it comes to the next couple of quarters, my easy answer would say, would be to not expect much impact from Mizone in on the total company.
As you know, especially the first quarter is a very low quarter. This is where the sales conference happens in China with all the distributors and the beverage companies, etcetera. There will be loading in Q2, and this is what we will monitor carefully this year again, make sure that we have the right amount of, product in the pipe, but not too many. And we'll see for the next season, really. We're coming up with a few interesting changes and some of the potential future recipes for success, but not all of them.
So we do not expect, any spectacular year for Mizone this year. Again, it would be another, I would say, positive year of transition but not a huge contribution for a or a significant contribution of Mizone to the overall strong profitable growth of water, for the year. To your question on WhiteWave, the other, 25%. Well, if you look at the full year, they're really made of, One is premium dairy on which we are, as I just said, we are now in a situation where we feel that volumes of supply and demand are gradually becoming better. We have started to diversify the portfolio with innovations like grass fed that have allowed us to get traction, at a valorized, with a valorized option, basically, on the under the Horizon and Other brands actually, with the grass fed option, that has been rolled out gradually last year.
And That's one of our probably pruning a bit of the SKUs and the brands that we are using, which are encompassing premium organic dairy, in the milk, sorry, in the, in the U. S. In order to make sure that we really focus on the higher growth and potential opportunities that we have. So that's one. Another one is bigger, where, we had the stellar performance, literally since the brand was created and acquired by WhiteWave and then, by us through WhiteWave.
They went through a formulation, an organic that was not a consumer success. Basically. So we had to very quickly and win that, back to the previous formula. That's what happened in last summer, basically, but the result is that the brand hasn't recovered yet. Its potential is in touch but we, we are managing that transition.
In a way, it's a little bit what happened with Silk, 2 years and a half ago when there was a pretty poor execution before we acquired the company in terms of rebranding and and relooking of the brand, which we turn back very quickly thereafter. And therefore, we expect Veda to go through a transition year, the this this year in 2019. Again, still very excited about what this brand is and its potential for expansion beyond the U. S, actually. The last bit is one that you know well, that's Earthbound Farms, which, Cecile has commented, the company is the leader in the organic salad business in the U.
S. It's a very specific market. In which in particular this year, the company has made a good operational progress on its efficiency. Still loss making, still not growing. And in particular, have been hit by this E.
Coli outbreak in the category that did not directly, or did not actually concern our product, but hit the whole category with some inability to supply, for at least 1 week that, didn't go without consequences overall. So, this is a specific situation. As you know, this is not a company that's integrated as part of the WhiteWave or the Dental North America business now, which we manage separately because it's got a separate dynamics. And it's obviously a matter of intent strategic scrutiny by us on this. And so that's, basically, the topics that we still need to resolve out of the 25% of the business.
That's not going beyond 5% at WhiteWave at the moment.
Our next question comes from the line of David Hayes from Societe Generale. Please go ahead. Your line is now Thank
you. Good morning, all. So especially just on the sales growth outlook, you're talking about circa around 3% growth in 2019, which obviously includes a bit of bounce back on Morocco. I'm just trying to understand really if that comes in at, let's say, 3% you're looking then growing that to over 4% for the target for 2020. I guess a broad question in terms of What really sets up between those 2 years to take you from this circa 3% in 2019 to over 4% in 2020 And I guess, related to Morocco, can you just give us, the last couple of months, run rates of sales decline?
Obviously, it was running at 35%, 40% I just wonder whether you can give us a bit more context in terms of how much that's improved. And then the second area of questions on China infant formula, Obviously, we've got these new rules now on the cross border market, which kind of feels like you can still sell let's call it gray market product from Europe and other countries into China. But can you just be specific again about what your standing is that the regulatory change in terms of what it does for your business coming out of Europe and what you're seeing in terms of stocking or restocking over the last couple of months or so? Thanks very much.
So I'll take, thanks David. I'll take the first one on the overall growth. To understand it, you really have to step back on the path that 1,000,000,000 AR in 2019. So overall, we are guiding in, for the full year, like for like sales growth around 3%. But with an unbalanced profile.
And I said that the exit growth rate of the year should be compatible and in line with our 2020 growth objective. If we go, entity by entity over all, I mentioned Waters will be solid next year, throughout the year. In term of easy we said that the start of the year will be low on both ground that indeed, the Morocco boycott won't be lapsed until the end of April. And also, we have some less trading days overall in Q1 due to the Easter phasing. And then EDP will accelerate for the rest of the year.
In a consistent manner. And on specialized nutrition, impacted by the growth profile of Early Life Nutrition in China, for DuPestures, we will have here as well a Nense balance profile on where we will have a start of the year that will be negative and a second part of the year that will Overall, we assume that early life nutrition, growth in China will be around flat for the full year. So this is a 3% guidance in term of like for like salesforce for the year. But is with an acceleration pattern that will be built throughout the year.
Hi, David. The, your question on China, essentially The confirmation of this of the new regulation is, protecting us, from the hard landing of China scenario that at some time we discussed, saying that it was not in our assumptions. And so, without commenting on the current trading, we believe that there will be a continued opportunity for CB, imports in China of non China labeled formulas, as we have mostly focused on when it comes to indirect So that will be an element of continuity in our business model, which is significantly more, I would say secure now than it was probably a year ago in terms of, again, regulation. Having said that, this is China and the government might again change their mind, but at least that's the position in which they have clarified it. And I think they gave visibility, in order for that channel to continue to work properly.
So that's where, so that's where the situation is right now.
Okay, thank you. Just on the ROCE specifically, I just don't know if that's the first question. In the last couple of months or or maybe the end of last year versus the minus 40 percent of the business. You talked about market share improving. I was wondering if you can quantify a little bit the exit rates.
Yes. The exit rate of last year was minus 35%, in line with Q3. And for next year, we expect that after the lapping, it will grow double digit. Thank you, David.
Okay, thanks a lot.
One last question, David.
Thank you. Your final question comes from the line of John Cox from Kepler. Please go ahead. Your line is now open.
Congrats on the top line there, particularly in that dairy business. Just I wonder if you could just talk a little bit more about the margin, though, where you came in slightly lower than expectations. Just on the gross margin you were talking about, can you give us an indication what the gross margin, what I happen to gross margin because I think, raw material costs, particularly maybe in that water business had an impact and maybe also dairy? And if you can give us a bit more granularity on that. Second question, just on the EPS, you're obviously didn't want to really give any guidance, but just wondering if you're more or less comfortable with consensus at the moment, which is sort of mid high single digit growth in EPS for the year.
Because if you add up everything you said, that's probably where we're more or less going to end up. Thank you.
Thank you. Thank you. So first of all, on the margin, I don't think we came low versus expectations. First, we gave a guidance on EPS. 2nd, if you look at it, when when we were building the overall performance, ES 29 was not, part of the story.
And there is a 9 basis points of margin impact from EIS 29. So overall, if you remove that, your closer to the 14.60. But in any case, this is not what really matters. What really matters is that despite significant headwinds, both in term of inflation and the Moroccan boycott impact, We've been able to make significant progress in continuing to improve our overall margin in term of basis points and progress. And it came also through a record high put activity and efficiency.
So this is not by chance, and this is really showing that we are able to continue improve our business model despite significant headwinds. So the gross margin overall is really the result of both the headwinds. And as I said, inflation was there, but, we were hidden by stronger inflation, both in term of PET and logistic costs in the U. S. And we commented that in H1.
So there is no new news. And we've been able to mitigate that through our difference. So overall, we are not we are not today in a position to say that we are lower than expectation. We've been progressing well. We have all the levers that it takes in order to continue to improve safely towards our 2020 margin objective.
And on, EPS. So this year, I'm not guiding an EPS, so you want any guidance? Which is fair. EPS will be the consequence of the delivery of the model. So and we continue to commit to have a consistent year after year, maybe on the more technical items on the PS, we expect in term of tax to continue to be in the range of 28% to 29%.
The associate would be roughly in line with 2018. Overall, the minorities will increase given the great performance of Aqua in Indonesia. There will be no sweep dividend, as you have heard, And overall, in term of ForEx, there will be a minor impact subject to the EIS 2nd year impact of Argentina. So this is what I can tell you so that you can compute sure your numbers for your model.
Thank you. Thank you, John.
Thank you, Manuel. Thank you, Cecile. Disclose this course. Gonna be a long day. Thanks a lot for your attention.
And I'm available with the team here to follow-up rest of
the day. Thank you very much.
That does conclude our conference for today. Thank you for participating.