Good day. Welcome to the Danone first quarter 2018 sales conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Nadia Ben Salem-Nicolas, VP Investor Relations. Please go ahead.
Thank you very much. Ladies and gentlemen, good morning. This is Nadia Ben Salem-Nicolas, Head of Investor Relations speaking. Thanks for being with us this morning for Danone's first quarter results. I am here with Cécile Cabanis, CFO. As usual, we will go through the presentation. Then a Q&A session. Please note that we are experiencing technical issues, unfortunately, this morning with our webcast provider. As a result, while you will be able to hear her, Cécile presentation slides will not be synchronized with her speech. She will therefore indicate each time you have to turn to the next page. We apologize for this inconvenience. Before I hand it over to Cécile, I invite you to go through our usual disclaimer on page two. I think we start now.
Thank you, Nadia. Hello, everyone. I am sorry that you are experiencing some issues. As I move along, I will make sure I mention the number of the slides so that you can follow easily. I am pleased to announce our results for Q1. As you have seen in the press release, Q1 is a strong start to the year with further progress in our transformation journey. We continue to execute on our three strategic pillars for 2020, mainly accelerating growth, maximizing efficiencies, and allocating capital with discipline. I would like to start this call by thanking our teams for their relentless focus on delivery and execution, demonstrated again by our strong results this quarter. On our first priority, I am on slide three, to accelerate growth, we deliver the like-for-like sales growth of almost 5%, outperforming most of our markets.
Importantly, this outperformance highlights the strength of our portfolio of categories and brands. It includes both positive volume and value contribution, coupled with our unique capability to adapt with a continuous focus behind innovation and execution. The performance reflects improvement across all of our four reporting entities and bodes well for our ability to accelerate towards 2020. The main growth engine this quarter was Specialized Nutrition, with 14.5% growth, supported by another quarter of exceptional growth in China for Early Life Nutrition. I am also pleased to report positive growth in Q1 for EDP International and very solid growth for Waters against this quarter. Secondly, our initiative to maximize efficiencies continues to be deployed across the company. We are progressing on track with the integration of WhiteWave and the rollout of Protein efficiency program and are confident to deliver the savings targets that we set for the year.
Lastly, we continue to ensure that we allocate capital with discipline and actively manage our portfolio. It was highlighted this quarter by the partial sale of our stake in Yakult, which closed at the end of March. The EUR 1.3 billion proceeds will be used to continue on our deleveraging path while providing us additional capacity to invest in our organic delivery and transformation agenda towards sustainable value creation. Overall, as I said, we are pleased with the strong performance during the quarter, and we remain committed to executing on our strategic priorities through the remainder of the year and beyond. Moving to slide four. In addition to delivering a strong quarter in terms of financial performance and strategic execution, we also made significant progress on our ambitions to lead the way in creating and sharing sustainable value for all stakeholders.
First, with the successful launch last month of an innovative EUR 300 million social bond, Danone became the first multinational corporation to issue a bond and that financing project that includes positive social impacts in line with the new social bonds principle. We are pleased to note that this bond insurance attracted significant interest from ESG investors, and we truly believe that creating a positive impact on our ecosystem is a key enabler to drive a sustainable value. Second, last week, we achieved a key milestone in our global B Corp certification roadmap with the B Corp certification of Danone North America, two years ahead of target and the biggest B Corp certified company in the world. It brings the portion of Danone business now B Corp certified around 30% of our global sales. Achieving B Corp certification is about more than being recognized as a sustainable company.
It is about having sustainable business practices, and it's a very important milestone for the company as it continues to reflect the company long-standing commitment to deliver financial success along with social and environmental progress. Let me go now through the details of the numbers. I will start with the classical sales bridge on page five. In the first quarter 2018, consolidated sales stood up at EUR 6.085 billion, reflecting sales growth of 10.8% on a reported basis. It includes from left to right on the bridge, first, the base effect corresponding to the contribution of WhiteWave from January 1st to March 31st, 2017, which contributed to a 16.2% sales growth. Second, a negative impact of 1.4% from other changes in the scope of consolidation, resulting primarily from the disposal of Stonyfield in August 2017.
Third, a very strong negative currency impact of around 9%, reflecting the appreciation of the euro against primarily US dollar, Argentinian peso, Indonesian rupiah, Russian ruble, and Brazilian real, which all depreciated by more than 10% in Q1 versus last year. Finally, like-for-like sales growth, 4.9%. Growth continued to be driven by value effect at 3.8%, with positive volumes contributing 1.1% to growth. On the volume side, the evolution reflects positive contributions from Specialized Nutrition, Waters, EDP Noram, as well as improvement in trends in EDP International. On the value side, results were driven by our continued efforts in enhancing mix in each category, with also some targeted price increase in specific inflationary markets like Argentina and Russia.
Going through regional dynamics, there continued to be mixed trends as observed over the last few quarters, with Europe and Noram being broadly flat versus last year, while rest of the world posted double-digit growth driven by China and continued positive dynamics in other markets. Let's now go in more detail through each reporting entity, starting with the overview on page six. If we start with Specialized Nutrition, Specialized Nutrition delivered another quarter of very strong growth in Q1, 14.5%, in line with the trends that we observed in H2 last year, balanced between positive volume effect of 5.6% and value contribution at 8.9%, supported by another quarter of exceptional growth for ELN in China, as well as positive dynamics in other markets. Essential dairy and plant-based activities continued to show a gradual improvement in Q1.
In EDP International, we delivered positive like-for-like growth of 0.8%, driven by an improvement in volume trends at -3.2% versus -6.1% in full year 2017, and positive value contribution of 4% as a result of our innovation efforts, as well as portfolio shift into more valorized segments and targeted price increase in Argentina and Russia. EDP Noram sales were nearly flat in the Q1, continuing its recovery trend. Volumes were up 1.7%, supported by plant-based category dynamics. Sales were impacted by a 1.9% negative price mix effect, which primarily reflects promotional pressure in regular and Greek yogurt, as well as continued challenging dynamics in premium dairy. Finally, Waters posted a very solid like-for-like growth, 4.2%, slightly better than anticipated. Volume were up 2.4%, growing in all regions except in LATAM due to weather condition in Mexico.
I will go now into more detail to go through the drivers of performance for each entity, I will start on page eight with Specialized Nutrition. In Specialized Nutrition, Early Life Nutrition first. Early Life Nutrition posted high teen sales growth in Q1 with a good set of results across regions, including another exceptional growth quarter in China, which was up over 50%. The performance includes also double-digit growth dynamics in Americas and solid performance in Europe. In China, the exceptional performance was driven by both volumes and value, supported by a strong market demand growing at double-digit rates, driven by the growing up milk segment as a result of the peak in birth in H2 2016, while the IF and stage 1 category started to normalize given the lower number of births in 2017.
Growth was also supported by market share gains in the fastest growing direct channel, both in e-commerce and mom and baby stores. There has been a continued expansion of Aptamil Platinum in the ultra-premium category, now representing 20% of our sales, which drove a positive mix contribution to sales growth. As we progress, we continue to focus on building a sustainable direct model of sales in China with also a positive value effect. In Q1, more than 90% of the growth came from the direct platform. We also benefited to some extent from a favorable year-on-year comparison in the indirect portion of the business with the low Q1 last year. Lastly, we ended 2017 with very low stocks given to higher than expected demand around the end of the year, and we have now rebuilt normalized level of inventory.
While we are posting exceptional performances, I would like to reiterate that China growth will normalize quarter after quarter given what we already commented on lower birth rate in 2017 and including a high base of comparison in the second part of the year. Indirect will continue to be a driver of volatility from one quarter to another until the regulation is fully implemented. Turning to Advanced Medical Nutrition. Advanced Medical Nutrition delivered a solid quarter with a high single-digit growth in the pediatric segment and slightly positive growth in the adult tube segment, partially offset by difficult comps, if you remember in China, due to the pre-loading of customer last year before SAP implementation. Brazil, Germany, and Poland have been strongly contributing to growth with double-digit growth rates.
With that, we now expect Specialized Nutrition at mid to high single-digit sales growth for the full year of 2018, with Q2 to be another quarter of still very strong growth, close to double digit, while the second half of the year should reflect for ELN China, a normalization of growth. Moving on page 10 to Essential Dairy & Plant-Based, starting with Noram, which, as you've seen, celebrated last week, the one-year anniversary of the WhiteWave acquisition with the great news of its B Corp certification. The gradual improvement of EDP Noram continued in the first quarter with a sequential improvement for the third consecutive quarter. Sales were nearly flat as expected and slightly positive at 0.5% if we exclude fresh food business, which as expected, was broadly in line with the dynamics that we observed in Q4 2017.
We are operating in an environment that remains challenging, and we continue to execute our competitive plans to expand market leadership and build a robust and relevant innovation pipeline, manage certain category-specific headwinds in yogurt and premium dairy, and of course pursue the synergies from the integration of WhiteWave. If we go through each segment, growth was driven in Q1 by coffee creamers and plant-based segments. Both of them represent about 40% of our sales in North America. Both categories posted strong sales growth with market share gains in dynamic categories and supported by the launch and the ramp-up of successful innovation. In coffee creamer, growth was strong in both whitener and refrigerated coffee creamers, along with double-digit growth in the ready-to-drink segment, benefiting from the continued expansion of coffee house-inspired brands STōK. On plant-based, Q1 confirmed the growth acceleration, reflecting successful effort to turn around Silk Plant-based Beverage.
Topline growth was notably driven by the ongoing rebound of the nut-based beverage category, as we observed already in Q4 last year, due to the impactful activation campaign and premium innovations. Plant-based ice creams and novelties continue to grow nicely. Vega continued its expansion outside valorized nutritional powders into adjacent categories like bars and ready to drinks. Moving to yogurt. In yogurt, sales declined marginally as we slightly outperform a category that deteriorated in Q1, penalized by adult, regular, and Greek products, while emerging segments such as kids, plant-based, and indulgence are growing. The outperformance resulted from growth initiatives and innovations with a favorable mix in those segments, while regular and Greek products suffer from increased promotional intensity. Premium dairy registered another quarter of strong sales decline in Q1, with both volumes and value down.
Market dynamics remains challenging as organic milk supply continue to outstrip demand, driving lower on-shelf price. Overall for the full year, we expect no change to the outlook, with the growth that continue to be broadly flat in Q2 and then gradually improve to be slightly positive in the second part of the year. On the margin side, while we are progressing on track with the integration of WhiteWave and the synergy delivery, H1 margin will be impacted by strong freight cost inflation, as already publicly flagged by most of our F&B peers in the U.S., and also high promo pressure in some categories. Moving to EDP International, I'm on page 12. In Q1, EDP International posted as anticipated a further improvement and was back to positive growth despite continued headwinds in Brazil. If we look outside of Brazil, we had a growth for EDP International around 2%.
All regions improved sequentially in Q1. In particular in Europe, sales trends have confirmed the improvement trend that we observe for the third consecutive quarter, while remaining slightly negative. Consumer demand improved in Europe, but at different regional pace, with U.K. and Eastern Europe being the main contributing regions to growth, while Spain and France remain still tough. From a brand perspective, Activia pursued its progressive recovery and continued to register sign of progress supported by the local rollout of innovation plans, especially France, Spain, U.K., and Italy. As well as a favorable base of comp. We will continue in the next quarters to pursue our local innovation and activation strategy and should record further progress. We continue to enjoy growth in young and local brands, driven by investment in brand support and product innovation, such as key version of Light & Free in the U.K.
Bio à Boire, a drinkable version of the organic brand Les 2 Vaches in France. Finally, in Plant-based, Alpro continued to maintain its high single-digit growth momentum, growing both in its core market and proceeding with its geographical expansion in France and Spain, and product diversification such as ice cream, organic beverages, and coffee drinks. Moving out of Europe, CIS posted a strong growth, another quarter of strong growth, reflecting the resilience of its growth model, with persistent positive effect of favorable brand mix related to high margin products. Danissimo and Danone performed well, supported by key innovation successes launched in H2 last year. In the other regions, we deliver overall slight positive growth despite Brazil decline. As expected, Brazil continued to post a double-digit negative performance that is counterbalanced by positive growth in markets like Mexico, Argentina, and others.
After a Q1 of great progress, we expect EDP International growth to confirm stabilization for the full year. This improvement versus last year will be driven by a gradual improvement in Europe. Sorry for that. Continued momentum for Alpro. Brazil is likely to remain under pressure as we flagged out already in previous quarters. Finally, Waters. Waters had a good start to the year, with sales up 4.2%, balanced across regions and segments, and supported by strong category fundamentals, successful premium innovation, and brand activation plan. Europe delivered low to mid single-digit growth. Local brands such as Font Vella in Spain and Żywiec Zdrój in Poland were the main contributors to growth. Asia posted strong growth both for aqua drinks and plain waters. Mizone in China was mid-single-digit in the low season with a stable market share.
Finally, North America delivered double-digit growth driven by the continued expansion of evian. For the full year, we continue to expect a solid sales growth close to the performance that we had in 2017, well-balanced among the geographies and categories. As mentioned in February, PET price and Brexit will be strong headwinds to the margin, and we are ramping up Protein savings program execution to mitigate as much as possible this impact. Let's move to page 15. Nothing really new there. Looking forward to the reminder of the year, I'd like to reiterate that the environment in which we operate continues to be challenging and volatile. As discussed during the full year earnings call, this year will be colored by crude oil price, very strong inflation, generating, now the expectation is double-digit increase in our PET cost.
Currencies such as GBP devaluation will be a headwind to the model. Since a few months, and that's probably the news since last time we spoke, as already highlighted by most of the other food players, we have observed a very steep increase in transport costs in the U.S. Moving to page 16, having said that, I confirm our 2018 guidance as well as our 2020 ambition. Q1 is another delivery step in that direction. For 2018, our guidance is to deliver double-digit recurring EPS growth at constant exchange rate and excluding the impact of the Yakult transaction. This will be primarily the results of our profitable growth model, including an acceleration in top-line growth on a full-year basis versus 2017, progressing towards our 2020 objective in all our reporting lines.
Probably with H1 stronger than H2, given the comment and the expectation on normalization of Early Life Nutrition growth in China. The sustained recurring operating margin improvement will be the second factor of the guidance. This margin improvement will be colored by strong inflation of freight cost in the U.S., as well as very high inflation in PET that will be mitigated by both synergies from the integration of WhiteWave and Protein rollout, where savings will ramp up all along the year. This will lead to an improvement in margin that will be stronger in the second half than in the first half. To wrap up, Q1 is another strong quarter of delivery on both our economic and social agenda, I would like to reiterate my thanks to the teams.
This performance gives us confidence to progress at the right pace on our agenda towards 2020 and continue to lead the way to creating and sharing sustainable value for all. Thank you for your attention. I hope with the slides it was not too painful, I will now answer your questions.
Thank you, Cécile. Before we open the line to your questions, a kind reminder to ask you to keep your questions to a maximum of two to allow everyone a chance to feature. Thank you.
If you would like to ask a question, thank you, please signal by pressing star one on your telephone keypads. We will now take our first question. It comes from Warren Ackerman from Societe Generale. Please go ahead. Your line is open.
Good morning, Cécile. Good morning, Nadia. It's Warren Ackerman here at Societe Generale. Firstly, congratulations, especially with the good volume performance today. My two questions are, firstly, on EDP International. I think I heard you saying, Cécile, that ex-Brazil EDP International was +2%, which is obviously very encouraging. I was wondering whether you can actually just split out for us what the actual performance was in Brazil, European dairy, and then Russia. Maybe some actual numbers on those three, and maybe you can actually dig into a bit more detail on the kind of drivers and the outlook for all three, particularly Brazil. How long are we seeing it, or how long should we still see it being double digit negative? Then on Activia, obviously big brand, good to hear performance improving in the U.K. and Eastern Europe. What about France and Spain?
Secondly, can you talk a bit more about the margin phasing? You gave us some hints by division, first half, second half, but there are some other things as well happening in terms of phasing of cost savings on WhiteWave synergies and Protein, and also the fact that WhiteWave was consolidated for one quarter versus two quarters this year. I guess that's going to have an impact on the first half. Any kind of color around the first half, second half margin phasing would be very helpful. Thank you.
Thank you, Warren. You're always the first to ask your question.
Trying my best.
On EDP International, I think the overall message to retain is that, outside of Brazil, there has been progress in all region in terms of the agenda. On the European part, we are making progress, but still having, on the dairy side, a slight negative growth performance in Q1. However, we have Alpro, as you know, that is continuing to grow high single digit. In Russia, I said strong performance, it's really a consistent solid to strong growth that we've been observing since the few quarters with negative volume, but having continued success in executing the plans around the brand mix and valorization. This continues to pay on results. In the rest of the world, if you take all other regions, it's slightly positive, including a double-digit negative performance in Brazil.
This means that the rest of the market is overall positive with a good momentum and dynamics of growth. That's overall the split that we have. Going forward for the remaining part of the year, we will continue to see progress and confirm stabilization quarter after quarter. Once again, we are being very careful not to push for tactical short-term improvement, but making sure that we are taking the stand to restore the growth in a sustainable manner. We will confirm that within the full year. As we said in Q4, and there is no change there, Brazil will continue to be impacted with headwinds for the remainder of the year with no real improvement. That's the overall EDP International dynamics. Moving to margin, let me make different comments.
First, last year we decided to move to a guidance on EPS because we wanted to make sure that we could decouple growth acceleration and margin efficiencies and have the flexibility to make sure that we would manage the right combination of both sales and margin in order to deliver short-term agenda, but also transform and go toward our 2020 path. What we committed is that there will be sustained improvement of margin year-on-year, and that at the end of the day, the contract we would pass would be on the EPS guidance. On the margin, we are committed to what we said, meaning that there will be a sustained improvement of margin for the full year.
There will be an improvement in H1, but given the strong headwinds, we said that the improvement in H1 is likely to be lower than the improvement in H2, where both synergies for Noram and Protein savings will ramp up and accelerate throughout the year. That's the overall message on margin. I don't want to guide more precisely because I don't think it would make justice to what we do every day in ensuring that we are managing the risk enough, we are investing at the right pace, and in an agile manner to ensure our growth pace as well.
Okay. Great. Thanks.
Thank you, Cécile. Thank you, Warren. Next question.
The next question comes from Eileen Khoo from Morgan Stanley. Please go ahead. Your line is open.
Morning, Cécile. Morning, Nadia. Two quick questions from me. First of all, in EDP International, it's encouraging to see your sales turn positive in one Q. For Europe specifically, on what you call your young brands, am I right in thinking it's a quarter of your portfolio in Europe now? Could you give us more color on what growth you're seeing here and how that strategy fits in with your Activia franchise? For example, is the growth adding to Activia or is there some cannibalization? That's the first question. The second question is on China ELN. Would you be able to give us some color on growth rates in the channel? Would it be fair to say that direct is still growing 100% for you?
How much of this 50% growth is actually coming from just a distribution rollout, sell-in rather than sell out of Aptamil Platinum? In other words, how much is actually sustainable for H2 and beyond? Thanks very much.
Okay, maybe I start with China. I think, to answer your question about how much is sustainable, it's overall what we said in term of the normalization of the growth. Meaning today you have a market demand that is still double digit, but as we already commented, you will start to recycle the births of H2, 2016, and then start to enter a period where you have an effect of the deceleration of births from 2017. There will be a normalization of the market, and we've said that mid-term we expect the market to grow somewhere low single to mid single digit. That's the overall outlook for the market. There will still be a strong Q2, and then we will start facing very strong comps from last year and the normalization will happen.
On direct sales, what we say is 90% of the growth is now from direct, and you know that we are rebalancing quarter after quarter, the weight between indirect and direct. I will leave you make your own math, but overall, the direct channel is a very important part of the growth. It's 90%. If we move towards distribution gain, yes, it's a part of the growth. It's also an impact from the mix of the growth, positive mix of the growth because we are in an ultra-premium segment with the premium valorization, so it has an impact on the overall mix of growth.
Here again, if you want to reconnect with the outlook and what to expect in the coming quarters, just take our outlook for the year, which is growth will normalize and we expect now Specialized Nutrition for the full year to be mid to high single digit. That will be supported by the strong dynamic of Chinese IMF demand, but also with very strong progress in the direct platform. This is where we are. There will continue to be volatility, so you also need to bear with us from the indirect part. Overall, this is the outlook that we have. Don't forget that at the time ELN in China will be normalizing, we will make further progress in the rest of the reporting line, mainly EDP. Overall, there will be a contribution to growth that will rebalance between the different categories of the portfolio.
On EDP International, your question on Activia and whether growth is adding. Before growth will be adding, the first part of the answer is that Activia, we are progressing towards recovery. It's not a brand that is yet recovered. Today, everything that we do and innovation is participating to that, is in order to stabilize sequentially the brand before we can grow it again. It's very important to understand that innovation is also because today you are in the middle of a disruption from consumer and from channels. There is a lot of growth that is coming also for format in new channels. Everything part of the plan is bringing improvement in the recovery and stabilization of the brand. It's very difficult to split on very precise effects in terms of cannibalizing.
The overall commitment is to recover growth in the brand, and all the teams are making everything they have to in terms of plans of activation and innovation to make sure it happens. Yes, there will be some change in the portfolio in terms of what is contributing to growth. Europe.
Thank you.
Eileen, you had another question on Europe, or it was Activia?
Yeah. It was just on the young brands, actually. How big a part of your portfolio in Europe is it now?
It's still small.
Okay.
It's less than 20% today.
Okay. It's very high single-
That's why
Yeah.
Sorry?
Oh, sorry. I was asking about is it still growing high single digit for you? I think that's what you were saying last time.
Yes.
Okay.
Absolutely.
Great. Okay. Thank you.
The next question comes from Martin Deboo from Jefferies. Please go ahead. Your line is open.
Morning, everybody. Two quick ones from me. The first one on China, baby, I maybe just like to ask Eileen's question a different way, which is, Cécile, can you remind me what your read is on the H2 2016 births in China versus the prior year, just so we can get clear on what the birth effect is? That is the question on that one. Secondly, I am just going to re-ask the question I asked at Q1, which is around mix dynamics. Are you prepared to say of the price mix component how much was mix and how much was price? Just in terms of mix drivers, you have called out Aptamil in Specialized, so I will not labor that point. Again, you have got very positive price mix in EDP International, a lot of which I think must be mix. What is driving that exactly?
You talked on the call last time, or Emmanuel did, about Russia milk declining and with positive mix, any color on mix dynamics, and particularly in EDP International, would be helpful. Those are my two questions.
Okay. Thank you. In terms of the birth for China in 2016, what we have observed is around 7% increase in birth, which mostly occurred in H2, where we had around 13% increase in birth. In 2017, we saw an overall decrease in birth. That's the overall dynamic. Given the fact that you have both IF milk and then growing up milk, it takes some time to recycle over the different stages. On vol mix price, overall, you're right to say that most of the price effect is in EDP International, given the dynamics on both Argentina and Russia. Overall, if we take Medical especially Nutrition, there is no price impact. In EDP International, you have a bit more than 50% that is linked to price. That's the overall impact.
We continue to be at company level, driven more by mix than price.
Thank you for that, Cécile. Thank you.
Thank you, Martin.
The next question may come from Alain Oberhuber from MainFirst. Please go ahead. Your line is open.
Good morning. Good morning, Nadia. Alain Oberhuber, MainFirst. I have two questions. Regarding the waters business, this decline we've seen in Mexico, could you tell us how much water would have been up if we hadn't seen this decline? When do you think a recovery in Mexico waters? The second question is regarding FX impact, which was At today's constant currency, what will be the full year negative impact on currencies?
Your second question, Alain, was on the EPS or on something else?
No, just on group sales.
Okay
You're down on page eight and nine. If you look at currency for [inaudible] for Q1.
Yeah. I take this one. Sorry, the line is on top of the platform not working. The line is pretty bad, I don't hear all of you very well. On sales, we expect effects to be mid to high single digit negative on the full-year top line, driven still by the appreciation of EUR against our main foreign currency, U.S. dollar, Argentinian peso, Russian ruble. The impact will be unbalanced high single digit in H1. You've seen Q1 being very strong. We will see around the same pattern, maybe slightly less in Q2, low to mid single digit in H2. As we speak now, we will have, of course, to monitor it quarter after quarter. Your other question-
Water side, sorry.
Yeah. I think we need to be very relaxed, so to say, on Mexico because there was a short-term impact linked to weather conditions. It will be restored in Q2. The overall performance of water has been very solid, again, on the back of very strong category dynamics, strong plans. We will continue to have the same outlook as the one we said in releasing our full-year number in 2017. On that, there is no change in trend, there is no change in dynamics, no change in confidence to have another great year of growth for waters.
Great. Thank you very much.
Thank you. Thank you, Alain.
Our next-
Next question
Next question goes to Jon Cox from Kepler Cheuvreux. Please go ahead. Your line is open.
Hey, good morning, guys. Congrats as well from my side. A good set of figures there. I wonder, I have two questions, one on just the margin one, just to come back to that. If you look at consensus, it is around 15% underlying operating margin for this year. Given what you are saying, are you comfortable with that figure still, or you think it is maybe a little bit too high? Second question, just on the North American business. I am just wondering, give us a bit more granularity about what is happening there, particularly any thoughts on maybe divesting the fresh foods business, because obviously that remains a big drag. Also about organic milk overhang. You said you were trying to develop new products. That is still weighing.
Just wondering how the development of new products in organic is maybe going to try to help get rid of that sort of oversupply situation with organic milk. Thank you.
Thank you. As you saw in February, I did not guide on margin except sustained improvement in margin. My commitment is to deliver full-year guidance 2018, which is around the double-digit recurring EPS growth at constant exchange rate and outside the impact of Yakult transaction. I have committed that margin will bear an improvement that will be consistent and sustained year-on-year in order to reach into 16%. We are still aiming to do that. I will not comment further at this stage. We have been having recently very steep increase in freight cost that we are working on mitigating through the synergies, through the acceleration on our Protein delivery. There is still a volatile environment out there. We need to keep the flexibility to manage our risk and opportunities, and continue to invest at the right rhythm behind our growth. On that, I will not compromise.
We need to make sure that, within all that, we are delivering on our objective. I can tell you that we will deliver on our objective. On North America and on fresh food, it is true that I didn't comment fresh foods. We continue to see, in terms of top line, negative development. We continue to turn around the business as well as making sure that we are adapting and rebuilding the cost base and the supply. That is in process. As I said to you, this is our first priority regarding this business. We will decide on, is there any strategic options that need to be looked at? If we are the best operator to operate this business going forward, acknowledging that we continue to believe that there is a strategic value in this business.
On premium dairy and organic milk, yes, we continue to innovate into premium milk. Given the price range between what used to be organic, what is conventional, we are looking at products that are better than conventional, but still driving mix down versus organic milk. We continue to work on plans. It is an overall industry supply issue, which is long to recover, but we are working on that. The overall organic category and dynamics, we have no doubt about, and Horizon Organic is a great brand. We need to face this cycle and rebuild the overall growth dynamic.
Many thanks.
Thank you, Jon. Maybe two last questions before we end the call.
Certainly. The next question comes from Jeremy Fialko from Redburn. Please go ahead. Your line is open.
Hi, good morning. It's Jeremy Fialko at Redburn. Just following up on Jon's question on the U.S. market. Can you talk a little bit more about the yogurt and the Greek side? Clearly, you signaled some greater promotion in that market. Do you think there are some more structural issues within that side of the business, given the fact that there's been such a big shift towards the plant-based products, which I guess you're benefiting from on the other side of the business? Could this promotion be sustained as demand declines? Secondly, if you could just split out the contribution of pricing in Argentina to the organic growth within the EDP International, given there was about a 30% currency devaluation quarter-on-quarter in there. Thank you.
Thank you. In terms of the U.S. market yogurt dynamic, our sales declined slightly in Q1, in a soft category that was a low single-digit negative. We continue to have a market share that is up, an all-time high at 33.6%. What we commented in the previous quarters on the yogurt category is that overall in the pastures, the shelf space had increased, there had been attraction to the overall category, and we continue to believe that there is potential of growth in this category. The per capita is still low. Now, this shelf has been getting quite crowded given the Greek dynamics that have been observed, and regular yogurt, also given the performance of some competitors. We are in a time where we need to manage better the shelf. We need to go through these dynamics around regular and Greek.
Overall, if you look at other segments of yogurt like kids, plant-based, other emerging trends, and indulgence, this is a dynamic market. There is a kind of shift of growth on the shelf, and we also need to make sure that we are managing the overall crowded part of Greek shelf, increasing velocity, and managing that. For the time being, there has been, especially in Q1, a high promotional intensity around Greek and regular. We don't see that as a fatality going forward, and we continue to see that there is a lot of space and potential for yogurt going forward, and we have great plans to come through the remaining of the year. That makes us confident. We have great innovation across formats, well-performing around Activia Dailies, Happy Family.
We continue to activate the portfolio to put good innovation and work with the trend on the category. On EDP International, I will not go further to what I said. One way for you to look at is to look at the impact that we posted last year in terms of removing the adjustment we made on the overall inflation. It's probably the best way you can get an overall estimation on the impact of Argentina on the impact of the overall inflation of Argentina to the overall equation in terms of top line.
Thank you very much.
Last year was around 0.45% to company.
Thank you, Jeremy.
Thank you.
Our final question.
One last question.
The final question comes from Alex Smith from Barclays. Please go ahead. Your line is open.
Hi there. Good morning. Just firstly, on Specialized Nutrition, are you able to say how much of the growth benefited from the inventory restock in China? I think you said you had low levels of inventory Q4, normal in Q1. I think you were guiding to Q2 being high single digits. Is that difference effectively coming from the inventory restock, if I'm not mistaken? I appreciate you talk about the market beginning to slow as we get into the second half. If I look at the last few quarters, you talk about the market being up double digits. This quarter, your own growth was over 50%, pretty much all coming from direct. It seems like you're really taking a significant amount of market share. This is not a criticism, obviously. I'm just trying to understand where it's coming from.
Are your brands differentiated compared to your other international competition, or is it something in the execution or channel mix? Understanding that dynamic would be helpful. Just a quick question. Sorry, go ahead.
No, go ahead. Last one.
Okay, sorry. I had another quick question on EDP Noram. Obviously, the cost synergy is beginning to come through. Just wondering where we are on the revenue synergy side of the story in terms of combining WhiteWave with your legacy yogurt business. What sort of timeframe can we begin to see some of those growth benefits beginning to come through? Thanks.
I'll start with the second one on EDP Noram. Revenue synergies are coming through. You remember that when we announced the transaction, we were quite conservative on the revenue synergies, making sure that we were only talking about parts of the regions where we had both portfolio in place. The synergies are coming through. According to plan, we aimed and announced that we would do EUR 75 million worth a bit of revenue synergy. We are in this plan, and we will have the first chunk, obviously, this year, for both Alpro in Europe, coming into France and Spain more strongly, and also North America, given the portfolio, and Mexico, to some extent. It's coming through, it's there, and it's according to plan.
On Specialized Nutrition, probably the best way is really to list all the impacts, because, for example, if you take inventory, it's a minor part of the impact, but it's part of the impact. When you need to reconfirm, and I'm sure for you it's been quite tough to reconfirm the market growth together with our growth, it's important to make sure that you have the full list of impact, because each of them, some are bigger than others, but each of them is counting. I will go again through the list, so you can make sure that you have all of them, and then I will let you follow with the team, if you still need to follow up on that. When you look at the performance in China for Q1, it was overall two-third volume and one-third value.
It was supported by the strong market demand. We commented several times, it's double-digit growth. It's driven by primarily growing up milk segment as a result of the peak in birth in H2 2016, while stage 1 category started to normalize given the lower number of births in 2017. That's the first item, which is already double-digit. The growth was supported, as you mentioned, by market share gains, and market share gains especially in the fastest-growing segment, in the direct channel, both in e-commerce and mom and baby stores. There was a continuous expansion of the Aptamil Platinum in the ultra-premium category, which is now representing 20% of our sales and which is driving positive mix to the overall contribution of sales growth. The other thing is that we benefited from a year-on-year favorable comparison on the indirect part of the business.
If you remember, second half of 2016, the indirect part of the business starting to bear negative volatility because of the announcement of the regulation that was going to come in several quarters. Last year, if you remember, as from Q3, we started to observe that even the indirect part was growing again on the base of very low comps. You have also a part which is driven by low comps on the indirect part of the channel. Lastly, there is the STōK impact. Also, it's minor. Don't think that we are getting a big impact from the inventory, but it's there, so I wanted to mention it. We ended the STōK very low in 2017 at the end because of higher demand than expected, and we are rebuilding a healthy and normalized level of inventory. It plays partly in the overall growth.
You really need to take all this impact to make sure that you reconcile properly the growth rate that we've seen in the market and our very great performance. I think it's also a tribute to the work that is done by the team and the fact that we have a very strong brand that attract market demand, and we can also be very happy of this performance. Not by chance.
Okay. Thank you. That's helpful.
I think we went through all your questions, Alex. With that, I propose we close the call. We remain available with Tommaso to follow on later in the day. Thank you very much for your attention. Have a good day.
Thank you all. Have a good day.
That will conclude today's call. Thank you for your participation, ladies and gentlemen. You may now disconnect.