Thank you. Dear investors and analysts, good morning from Dusseldorf, and welcome to our earnings call for the first quarter of 2018. I'd like to begin by reminding everyone that the presentation, which contains the usual formal disclaimer to forward looking statements within the meaning of relevant U. S. Legislation, can be accessed via our website at henkel.com/ir.
Presentation and discussion are conducted subject to the disclaimer. We will not read the claimer will propose we take it as read into the records for the purpose of this conference call. Today, I'm going to lead you firstly through the key developments of the first quarter in 2018. Then Carsten will comment the detailed financials for the quarter. After that, I will close my presentation with the guidance for the fiscal year 2018, our focus areas for the remainder of the year and the key takeaways.
And finally in our businesses. Henkel overall operates in a continuously heterogeneous environment. Global GDP grew moderately by around 3%. The industrial production continued its growth momentum with IPX increasing by more than 3.5 end in Q1. The difficult conditions in the consumer goods market persisted.
We faced a decelerating volume growth momentum while at the same time, the price and promotion process remained high. This was fueled by further consolidation of retailers in some markets. Looking at FX, we have been confronted with an exceptional situation with most of our currencies having devaluated against the euro. Especially important currency like the U. S.
Dollar or the Russian ruble devaluated double digit compared to the prior year quarter. At the same time, commodity headwinds persisted, substantial feedstock price increases were mainly driven by crude oil price inflation as well as market shortages and force majeures. Lastly, geopolitical uncertainties within political and economic tensions remain. In this environment, Henkel delivered positive organic sales growth and further improved the adjusted EBIT margin and adjusted earnings per share. Organic sales growth at 1.1% in the first quarter was driven by the very strong performance of Adhesive Technologies, NT Emerging markets contributed with an overall proportional growth rate of 6.9%.
As we announced already in March, our results were adverse affected by delivering difficulties in the consumer goods businesses in North America. Sales reached 1,000,000,000, nominally 4.5% below the prior year. FX headwinds had a significant impact on the quarter with minus 8.6%. This is the highest impact we have seen in more than a decade. Adjusted EBIT came in at 1,000,000 despite the challenges we continued on our profitable growth path, increasing the adjusted EBIT margin to 17.4% up 50 basis points supported by our strong cost management focus.
Adjusted earnings per preferred share amounted to and thus grew by 1.4%. Carsten will talk about the significant FX impacts on our P and L later on. Before moving on to the business units, let me give you a short update on the current status of the delivery difficulties in North America. As you know, we faced problems in the supply chain due to change in the transportation and and logistics processes and systems for our Beauty Care Retail And Down In Home Care Businesses in the beginning of the first quarter. Athesive Technologies and Hair Professional were not affected.
The delivery difficulties were caused by issues in interaction between the workflows in the supply chain and the logistics system. The problems are curved when using the system under full load. Shortages in the US transportation market added to these difficulties. As a result, we faced disrupt across the supply chain from production, planning, order process, productions, storage and transportation to our customers. We immediately took action to identify the courses and defined countermeasures, while at the same time actively engaging with all our customers As a result, service levels already improved significantly, and we have not lost a single customer.
Working through these imbalances in the supply chain take some time. We are on track to return to the usual service level in the course of more details later. Let me now go through our business units starting with Adhesive Technologies. The business unit continued its profitable growth path and delivered a strong performance, with very strong organic sales growth of 4.7% Ahesive Technologies continued to outperform its markets and relevant pairs, driven by innovative high impact solutions for its global customer base. All business areas contributed to the strong momentum in particular electronics with significant growth and general industry with very strong growth.
In a challenging environment with ongoing raw material headwinds, the business unit achieved a good balance of volume growth and continued pricing measures. Together with the implementation of our fund growth initiatives, this resulted in a continuously high adjusted EBIT margin level of 18.1%. This strong performance was driven by our high impact solutions. For example, in the industrial assembly business, we achieved double digit growth with new solutions for manufacturers of appliances and white goods. We also achieved double digit growth with our infrastructure electronic business, driven by solutions for the protection, bonding, connection and thermal management of electronics in sectors such as solar and telecommunications.
We also achieved significant growth with innovative and sustainable solutions across the food packaging value chain. Our broad portfolio for flexible packaging, for example, enhances the efficiency of manufacturers while ensuring the highest food safety standards for consumers globally. Summing up, Adhesive Technologies has shown an excellent quarter outperforming competition With this strong performance the business unit is well positioned to continue its profitable growth trend. Impacted by the delivery difficulties in North America, Beauty Care recorded an organic sales development of minus 4.3%. Excluding this impact, Beauty Care would have been on the previous year level.
In retail, in addition to the noticed the ongoing weakness of the mass beauty market impacted our growth in the mature markets. The emerging markets had a good start into the year. Our global market share, excluding North America, remained stable. Hair Professional Business continued its successful development and achieved strong organic sales growth further strengthening its global number 3 position. Thanks to our strong cost management focus, we were able to maintain our margin level of 16.7% Let me highlight that in Beauty Care, some categories and businesses showed a compelling performance.
In Eastern Europe, we delivered strong growth in retail, driven by all categories: successful launches of new variants, for example, under the fund. Also, our coloration business continued its significant growth momentum and further expanded market shifts. This was driven a successful base portfolio as well as professional business continued its strong organic growth momentum further enhancing its market position. Growth was especially driven by our schwarzkopf innovations, such as Oil team, and our acquired brands, Kendra and Alterra. In summary, the performance of Beauty Care continued to be characterized by top line challenges in retail, and a strong performance in Hair Professional.
Under the new leadership, the team is focusing on strengthening our global and local brands, launching exciting innovations and driving sales across all channels. Laundry And Home Care showed a slightly negative organic sales growth of minus 0.7%. Affected by the delivery difficulties in North America. Excluding these, the business unit showed a good underlying development. Growth in Laundry Care was negative while Home Care recorded a good organic sales growth.
The adjusted EBIT margin displayed an excellent increase of one point 2 percentage points and reached 18.5 percent. The improvement once again reflects the very good progress in the integration of the Sun business as well as our strict cost management. Let me come to the highlights in our lounge and home care business units. In Germany, we delivered a strong performance driven by Laundry as well as Homecare. For example, Persil grew double digits, thanks to liquid and caps.
Middle East Africa delivered double digit growth in the first quarter of 2018, thanks to a successful Persil relaunch throughout the region and the strong development of our PRIL brand. The Toiled Care category continued its strong momentum and delivered double digit growth driven by successful innovations, with the exception of North America, a very sound performance of Laundry And Home Care in the first quarter. And with this, I now hand over to Carsten.
Thank you very much, and good morning, everyone. Let us now have a look at the financials of first quarter of 2018 in more detail. We achieved a sound underlying performance and made good progress with our fund growth initiatives as well as the integration of our acquisitions. However, this was contrasted by 3 topics: the delivery difficulties in North America, the significant FX headwinds and the ongoing material cost inflation. So overall, we generated sales with 1,000,000,000, 4.5 percent down on previous year level mainly due to FX.
We delivered a positive organic net sales growth of 1.1%. The adjusted gross margin reached 47.5% compared to 47.9% in the prior year quarter. And I will come back to that later during the presentation. We continued to increase the adjusted EBIT margin now to a level of 17.4%. This is 50 basis points up compared to the prior year level.
And finally our adjusted earnings per preferred share increased by 1.4% now to a Looking now on our cash management and be precise on our cash KPIs, they were also affected by the mentioned challenges before. The ratio of net working capital to sales increased to 6.2 percent, 130 basis points up versus the prior year quarter and also here, I will come back later in the presentation. The free cash flow was Also here I will give you later detailed explanations. And lastly, our net financial position remained robust at minus 1,000,000,000. Before now taking you through the P and L, Let me also comment on the impact of the delivery difficulties Hans has already pointed it out, we have quickly identified the courses had already improved the service level significantly.
We are on track we would have recorded a good organic net sales growth of more than 2.5% for the Henkel Group. With this, Hankel would have achieved in the first quarter on organic sales growth for the group, in line with our full year guidance. We have introduced countermeasures to partially offset the negative effects in the full year 2018. And lastly, also net working capital in percent of sales was affected and would have been at about 5% almost on par with Q1 2017. With that, now coming back to the group performance in the first quarter, and let's start to take a closer look at our sales bridge.
Organically, we delivered, as already said, a positive growth of 1.1%, driven with a balanced composition of 60 basis points increase in volume and 50 basis points increase in prices. The net effect of our acquisition anti vestments had a positive impact of sales of 3.0 percent. So adding the organic plus the inorganic growth This amounted to 4.1% and with that very strong increase. This was overcompensated 4, by significant currency headwinds of minus 8.6 percent, the strongest negative headwind we have seen over a decade for a quarter. As a result, sales decreased nominally by minus 4.5 percent to 1000000.
To give you a better and their respective group sales exposures. As you can see, 2018. The biggest headwinds in absolute terms came from our 3 biggest non euro countries which is U. S, China and Russia. The United States account for almost 1 quarter of our group sales and with that, represent our biggest currency exposure.
Already in the second half of twenty seventeen, we saw weakening of the U. S. Dollar, which continued also in the first quarter of 2018. So the $1.23 to euro on average in the first quarter 2018 correspond to a roughly 15% devaluation year on year. At current rates, we will continue to see a headwind, especially in Q2 substantially softening than in the second half of twenty eighteen.
However, currency remained very volatile And that is what we had also reflected in our adjusted EPS guidance for the full year if you remind if I can remind you on that. Let me now come to the organic performance On the group was driven by the emerging markets with a very strong growth of 6.9%, almost amounting to 1,000,000,000 sales, representing with that about 41% of HANCO Group sales, slightly above the level of the prior year. Sales in the mature markets came in at EUR 2,800,000,000 organically minus 2.8 percent below the prior year. This was, as already mentioned, due to the delivery difficulties in North America resulting in a negative organic growth for the region of minus 6.5% for North America. Looking at Western Europe, sales were organically stable at 0.2% as a result of the ongoing price and promotional pressure in the consumer goods businesses.
Eastern Europe recorded a significant sales growth, organic sales growth of 7.6% here driven, especially by a double digit development in Turkey. Latin America recorded a significant organic sales growth of 7.3% and Africa, Middle East achieved a significant organic sales growth of 8.6% despite the continuing political and social unrest in some of the countries. Asia Pacific showed a very strong increase with organic sales growth of 4.2 percent here, India contributed double digit and China delivered a very strong growth. With that, now let me move on to our business unit. And starting with Adhesive Technologies.
The business unit posted a very strong organic net sales growth of 4.7%, mainly driven by volume, 3.6 percent up and also a positive price component of 1.1% and also here We are exactly delivering on what we told you over the last couple of quarters. I may remind you, we started Q1 of 17 with slight negative pricing were flat in Q2 at a 50 basis points price component positive in Q3 100 basis points price component in Q4 and now 100 and 10 basis points in Q1 2018. We continued with the implementation of the price increases the biggest one in our Adhesives Technology group. Acquisitions contributed with 3.0% and Adhesives Technology was impacted by currency effects amounting to minus 8.8% with that resulting in nominal sales decrease of minus 1.1%. All business areas contributed to this very strong organic sales growth development The power performance was driven by a significant increase of electronics and a very strong growth in general industry, The other three business areas: transport metal, packaging and consumer and craftman delivered a strong growth.
Looking at the regional perspective, and in North America. The emerging market showed a significant organic sales growth. And this development was driven by a double digit development in Eastern Europe and very strong growth in Asia, excluding Japan. Latin America and Africa, Middle East also contributed with a very strong growth. Moving to the right the price increases as well as our strong cost management focus.
The adjusted EBIT margin remained on the high level of the prior year of 2018 0.1%. And with this, now moving to Beauty Care. Overall, a difficult quarter. Organic sales growth was negative at -4.3percent, driven by a decrease in volume by -3.6percent, and a negative pricing component of 70 basis points. Excluding the impact from the delivery difficulties in North America, the growth would have been roughly flat.
Acquisitions contributed with 8% to the growth and currency effects for the division were at minus 8.3 Therefore, sales in nominal terms came in at -4.6 percent. The organic sales growth was negative in retail and in Hair Professional, again, a strong organic sales growth as you have been used over the last really 10 quarters, 12 quarters of the past. The mature markets were negative due to delivery difficulties in North America. In Western Europe, the performance was mixed. Germany showing a positive development while France was negative.
Emerging Markets posted a very strong growth here, mainly driven by Eastern Europe. Profitability wise, despite the challenges, Beauty Care maintained its good profitability level of 16.7%, which you can see also here on the right side of the chart. Finally, now let's move on to our laundry and home care business. The business unit delivered a slightly negative organic sales growth of minus 0.7%, with volumes being down minus 110 basis points, while prices were positive at 0.4% up. Excluding the delivery difficulties also here, Laundry And Home Care would have shown a better performance and to be precise a good performance.
Acquisitions contributed with 0.3 percent to the growth negative currency effects for the division amounted to 8.7%. So that in total, the nominal growth came in at minus 9.1%. Laundry Care showed a negative organic sales development. The Home Care business delivered a good growth. Looking at the mature markets, there were negative due to development in North America, while Western Europe showed a positive growth and the mature markets of Asia Pacific grew double digit.
The emerging market here showed a significant organic sales development. Africa Middle East delivered a double digit growth and also Eastern Europe contributed with a very strong growth. Despite the challenges, The Laundry And Home Care business delivered an excellent increase in adjusted EBIT margin now to a level of 18.5% from 17.3% in Q1 to 2017. And this is mainly driven by 2 factors. On the one side, the continued realization of the sun synergies, and our fund growth initiatives, which we have explained to you, over the last couple of quarters.
Let's now move back to the Henkel Group and in particular to our adjusted income statement. Our adjusted gross margin was at 47.5 percent compared to the 47.9 percent in the prior year, so minus 40 basis points. But excluding acquisitions, the adjusted gross margin would have been at 47.6, so only 30 basis points below the prior year. This development was driven by a continued headwind from higher direct material prices and that impacted in particular our Adhesives Technology division. The decline was smaller compared to prior year quarters, also as a result of our pricing measures.
Despite all these headwinds, we were able to further increase our adjusted EBIT margin. In percent of sales, Marketing and selling and distribution, they improved by 30 basis points now to 23.6%. We continued to realize efficiency gains through our 1 new project, which is a part of our fund growth initiative, and we adapted also our marketing spend to the current business environment, especially in North America, while we continue to adequately support and invest behind our brands. R and D expenses were stable at 2.4%, Our admin expenses, we were able to reduce again. And in percent of sales, they remained at they came in at 4.5% and this is an improvement of 20 basis points.
At 1,000,000, the balance of other operating income and expenses remained at the low level and was above prior year due to numerous individual transactions relating to other operations. Overall, our adjusted EBIT came in at 1,000,000 and the adjusted EBIT margin as pointed out earlier continued to increase now to a level of 17.4% and this is an increase of 50 basis points. Earlier on, I already highlighted the significant impacts on of the FX on our sales growth. This, of course also impacted our adjusted EPS growth, with a strong FX headwind of minus 6.4% even above the Q4 2017 impact which had been in quarter 4 with a minus 3.9%. Excluding FX, we continue to deliver a strong operating EPS performance of 7.8% despite the delivery difficulties we faced in the quarter in North America.
So overall, adjusted EPS came in at 1.4% came in 1.4% higher with a level of And let me now move to our cash KPIs more in detail as pointed out at the beginning and let me start with net working capital. Net working capital of Adhesives came in at 11.9%. This is an increase of 40 basis points, but adjusting for acquisitions, roughly 20 basis points net working capital would have been very close to the prior year level. In Beauty Care, net working capital increased by 2 forty basis points to 5 0.8%. This significant increase is due to 2 facts, both effects being more or less equally in terms of weight the delivery difficulties in North America amount to roughly 120 basis points and also the impact of the just done acquisitions has an impact of roughly 160 basis points.
Net working capital in laundry increased by 120 basis points to a level now reaching in Q1 twenty eighteen of -1.2 percent. Also here, the development was driven by the delivery difficulties, excluding those would have shown an overall improvement. As a result, the group recorded, as already pointed out, 6.2% And with that being above the prior year comparison with 130 basis points. So excluding the effects from the delivery difficulty our networking capital would have been almost on par with prior year level. Nevertheless, and to be very clear, we are not satisfied with this development We are putting high emphasis on getting back to a lower level and we will report on the progress we make now for sure as you always use quarter by quarter.
Moving now to our free the lower operating results and the net working capital development impacted our operating cash flow, which came in at 1,000,000 EUR51 million below the prior year. The other side capital expenditures significantly increased by EUR 227,000,000 now to EUR 345,000,000 for the quarter. And this was due to an acquisition of a technology Our net financial position remained largely unchanged at minus EUR 3,200,000,000 versus year end 2017. The increase compared to the prior year is due to the acquisitions of Beauty Care And Adhesives Technology over the last 12 months. Summing up.
We continue to have
Thank you very much, Carson. Let me now conclude with our guidance for 2018. Our priorities for the remainder of the year the key takeaways before we move on to the Q And A. We expect the high volatility and uncertainty of the business environment to persist. GDP forecast indicate a moderate growth with a positive momentum of industrial production expected to continue.
However, we anticipate challenges in the consumer goods markets to prevail. As Carsten illustrated, FX continues to show an unfavorable development, especially the U. S. Dollar. We continue to expect an increase in raw material prices throughout 2018.
In this environment, we confirm our 2018 outlook. For 2018, Henkel expects to generate organic sales growth of 2% to 4% with Adhesives Technologies and Laundry And Home Care within this range and Beauty Care between 0% 2%. For the adjusted EBIT margin, HECL anticipates an increase versus the prior year to more than 17 point 5% with all three business units contributing, reflecting the uncertainties in the currency markets, especially in the U. S. Dollar trends, Henkel expects an increase in adjusted earnings per preferred share in euro of between 5% 8%.
We are committed to deliver We are working hard to maintain our strong growth momentum adhesive technologies and continue to outperform competition. We are fully on track to get back to a normal service level in our North American consumer goods businesses in the course of Q2. We are accelerating innovations in our consumer goods businesses to drive short investments and our bottom line. We are focusing on getting our networking capital back to a lower level, and we will successfully complete the integration of our acquisitions. Let me summarize In the first quarter, Henkel delivered positive organic sales growth, driven by a very strong performance of Athesives Technologies.
Delivering difficulties in North America affected our Q1 results, but we are on track to get back to a normal service level in the course of the second quarter. FX had a significant impact on our top and bottom line performance. Thanks to our continued cost management focus, we delivered a very strong improvement of our adjusted EBIT margin and higher adjusted earnings per share. And we are fully committed to achieve our guidance for 2018.
Ladies and gentlemen, We will take The first question comes from the line of Christian Faitz from Kepler Cheuvreux. Please go ahead.
Good morning, everybody else in the
room.
Two questions or actually three questions if I may. First of all, can you explain the significantly higher CapEx year on year, I. E. The technology you mentioned you acquired, in the call, Then second of all, your SG and A costs are down quite markedly year on year. How much of that is attributable to the weaker US dollar And how much of that is active cost cutting?
And then, 3rd question, can you talk about demand trends in key customer industry in your Adhesive Technologies business, I. E. In automotive, electronics. Thank you.
Thank you, Christian, for your 3 questions. 2, concern and more deep dive into financials. Which customer will do. And let me take the question on some demand trends, which we see in our industry in our TD Technology business. First of all, I mean, as we pointed out, I mean, supportive and good news is that we see the industrial production index, the so called IPX index, which we see as quite a representative on showing how production globally develops shows a very good momentum.
And as we said, a 3.5% growth is a very healthy growth momentum, concerning global industrial production. As we also see, reflecting our business within this, of course, we see some businesses which have over the proportional growth. And what jumps out of course is for us, our electronics business, as you know, it's a business meanwhile for us, which we built up quite fast to more than 1,000,000,000 size. And also again, in Q1, we saw up to a double digit growth in this business. So and demand is there driven by different industries.
That's also why we pointed out the more industrial part of this also where also we serve a lot of businesses has an overall proportional growth index. In automobile, I mean, as we And I'm pretty sure you also followed that. The global market in automobile is not growing that much, but in the segments in which we are, which is a strong focus both on electronics and for example, also weight reduction. Also autonomous driving in these segments, we have strong And these are within automobile also over the proportional growth drivers. And general industry itself is also quite healthy.
And here, of course, we serve different industries and different segments in which we're well positioned. So overall, I think quite good momentum as we also pointed out within packaging, well, of course, there is some price pressure. We find some good segments like, we have our food packaging in which we take care that also we find sustainable solutions for our customers and also this had quite a good momentum in Q1. Hope you just give some flavor on the different segments.
Good morning, Christian. So First of all, thanks that you are raising the question related to CapEx. As I pointed out, we reached a level of CapEx 345000000 in quarter 1. This is an increase of 1,000,000. Out of this 227,000,000 roughly EUR 200,000,000 amounted to the investment, I related to the acquisition to this technology.
I fully understand that you would like to learn more about that. But as a part of our country and fidelity agreements, which we have agreed on, We cannot provide further information at this point of time. I hope you also understand that it's also relevant for competition and we don't want to lose a competitive advantage on that, but that's what I can say at this point of time. So therefore you see the normal development of our CapEx. The extraordinary part comes due to this acquisition of this technology.
Can you point this to any of your three segments, this technology? Or For
sure, I for sure, Christian, I could. That's exactly what I would like to stay confidential because that would also give a significant hint to competition, which we don't want to do at this stage. But you can be assured that we have handled this project as disciplined as we are doing that with our M and A project. And by that, I think you can imagine that with this investment, we also expect a certain impact. Otherwise, we would not be willing to pay such an amount.
That's the CapEx part. Now your second or third question was related to the development of our admin costs. Yes, it's correct. We have a good development of our admin costs reported down more than 8% adjusted down double digit. So minus 10%.
And yes, it is also clear, when we were talking that FX effect are affecting us quite significantly negative on our top line side. We also have related to our footprint, also a positive impact when it comes to this area and to be very, yeah, to be clear on that, roughly 50% of that impact or the decrease, what you have seen could be accounted to the influence of the currency the rest is, the cost measurement measures, which I've also related to the fund growth initiatives being it on efficiency in terms of how we develop with our shared services, be it the brand new activities in terms of a new flexible cost set up. So this is roughly fifty-fifty in terms of impact helping us to decrease the costs on the admin part.
Okay, great. Very helpful. Thank you.
You're welcome.
The next question comes from the line of Ana Oberhuber from MainFirst. Please ahead.
I have 2 questions. First is regarding the commodity price input costs you mentioned. Could you give us a guide and how much you expect for this year that input costs could go up? And the second question is regarding the beauty care in particular about the cycle. Now obviously, organic growth came down faster than we were expecting, but you had a very good margins giving this decline we have seen, is it mainly because you have taken out some promotion marketing costs or the other way could we expect now a gradual improvement of the Beauty Care organic growth as well as EBIT margin improvement for the rest of the
perhaps we start with the commodity.
For sure, Hans, I can do. So what we already pointed out, we saw negative impact from increasing direct material prices in all business units the highest impact, as I have pointed out, was seen in Adhesive's technology The gross margin of adhesives by that was below prior year to the significant direct material increases. We have partly offset set by our strong saving initiatives and the ongoing implementation of the price increases and in our consumer goods business the gross margin was on the level of the prior year quarter. On top of your question was more related then to the full year of 2018. And as you know, we have given the guidance on that beginning of the year where we said we expect a moderate increase for the the whole company and this maintains, and by that, I think that's all what I can say at this point.
As I said, the strongest impact also for the full year in A, lower in the HPC overall moderate increase.
Thank you, Carsten. Alain, let me give you some insights then in your question concerning margin development in Beauty Care. I mean, what first is, indeed quite supportive that we see that despite some challenges we have in top line, the market stays quite healthy. And this is also linked, to some, supportive effects out of mix. I mean, as we report, you see the professional business, up in quite well.
Also, meanwhile, getting also in court, it's quite interesting to see that we get to 1 quarter of the beauty business now is professional, also now that all I solutions are getting integrated. So getting up to 1,000,000,000 sites for the year. And this business has a structural higher margin in the way also higher growth, gross margin. As I also have been describing within Beauty, some businesses do very well. Our hair coloration business double digit growth in Q1.
And also here, these are businesses with a structural significant higher gross margin. So mix effects help to secure the gross margin because on the other hand, what we do see is that within our retail business, especially in Europe, markets are down quite also because of significant negative pricing. I mean, if I look at the market statistics, and I've been managing beauty myself. I mean, I never saw in Western Europe such negative developments in some markets, take some Aflac France where we see up to nearly double digit market development in our businesses, by severe pricing. And of course, in this environment rebalanced out.
I mean, good news for us also in Q1 was, for example, Germany, where in Germany, I mean, we have been winning significant market share because balancing out again pricing, versus also margin. What also has been on EBIT margin, up to now a negative margin is the 2 acquisitions, which we still have to integrate. I mean, before integration out, they are somewhere dilutive in the total margin. And going forward, of course, this is a further potential. Once we start working on to the full integration, capturing the synergies, we also see further margin potential there.
Hope this gives some flavor on your question on margin beauty.
The next question comes from the line of Ian Simpson from Societe Generale. Please go ahead.
A couple of questions from me if I may. Firstly, pricing and beauty looks to improve significantly. I think it was sort of negative 2% in the 4th quarter 'seventeen, but negative 0.7% in the first quarter. Wondered if you could give us some more color on this please. Are there any particular geographies where promotional intensity has improved?
And then secondly, on Iran, think this is one of your bigger Middle East markets. Are there any consequences for you if we see U. S. Sanctions reintroduced? Many thanks.
Thank you, Ian, for both questions, customer pricing beauty. You can give some flavor on the regional topic, I think we talk mostly on the Western Europe topic, where we do see also in market, Western Europe market, as I've indicated before, I have some heavy pressure and especially pricing. So the negative pricing in duty comes mostly out of the European. U. S.
Now is difficult to judge perhaps now I'm also already in the answer. So because if we look at the split, it's clear that the negative pricing comes completely out of the mature market and they're mainly France.
No, thank you Hans for the answer.
So that's the advantage when you think I talk and then we Now back to the question, your second question on Iran, I mean, since this night, I mean, this news is out, but what it means specifically, I mean, it's not clear at all yet. So of course, we do actively monitor what's happening there and I mean, we are globally in a lot of countries with our business. And we in all businesses, we do of course, we respect all regulatory risks. And going forward, I mean, not clear yet what it means, and I mean, quite hot news and we will monitor it in all details. Thank
you very much. Yes.
You said it's a big market for sure, but overall, it's not really a big impact on Henkel overall.
Thank you. And on the thank you for the color on the pricing. Was there any regions that have improved over the last few months? Because your pricing in beauty looks to be getting better. I just wondered if there were any regions or countries that were driving that improvement or if it's just that you're lapping previous competitive intensity?
This must be emerging. We were checking it, but this must be emerging markets.
Overall, emerging, improved, but also North America. So that's North America. Yeah. But as you know, North America is also impacted by the current delivery situations. So therefore, I would wait on that.
But overall, it's more the emerging market side.
Great. Thank you.
Now at least I could say a little bit too pricing.
The next question comes from the line of Richard Taylor from Morgan Denley. Please go ahead.
Good morning. Thanks for the questions. So first one for me, a really quick one. Just on the distribution issues in the U. S, are you already at a normal service level or are you still working your way back?
I'm just wanted a bit of clarity on that. And then secondly, I'd like to understand your strategic priorities a little bit better. I think in your strategy presentation back in November 2016, you made clear that driving growth was your number one strategic priority team. I think you said it was very deliberately chosen and that driving growth was your first priority. Clearly driving growth in adhesives is working really well.
45% like for like pretty much every quarter since. But in both consumer businesses, growth has slowed, I think, around 1% in Laundry and obviously negative in beauty. At the same time, your margins keep churning out record highs. So I want to understand a little bit more about the priorities in that consumer business. Is it margin development or is it top line growth?
Outside of Germany, do you need to reinvest significantly in the laundry and beauty businesses to get them to grow or is it more of a scale issue? Thank you.
Richard, that's not the question. That's really a presentation of what you're giving.
Good. On distribution, U S?
Yes. Richard, I will start with the distribution question. As we have pointed out, we are improving. We have significantly improved our service level and as we have pointed out, we expect to get back to normal in the course of Q2. That means we expect no material impact in terms of on our KPIs negative in Q2.
And you know that we normally don't give anything in terms of trading of the actual quarter, but we are very confident get or that what I said before is right based on what we have seen in April.
Coming to your question on the priorities to drive growth. For sure, I mean, our ambition and that's also our financial ambition is to deliver both on further strengthening growth and margin, strengthening. I mean, this is for sure, it was a challenge, but I mean, this is a challenge which we see as quite healthy to continue our profitable growth path. Putting more emphasis on growth, even when growth is more difficult to capture, I mean, is for us the right priority. As you indicate yourself in Adhesives Technologies, we are now getting to a best in class growth in the industry which is also because, I mean, putting in this priority, we focus even better and more on our customers on innovation, which is in adhesive technology, extremely close developed with our customers.
But also in retail, I mean, we put the organization by far more focus on non customer. Of course, another indicator is market share. I mean, also now in Q1, if we look at our market share developments, I mean, we have a good start in market share, Both our consumer businesses, in beauty, if we exclude U. S, it's flat, but we see some highlights. And in Laundry, we have, in general, a very good start in per share.
So we feel with this balance. I mean, we're doing quite well in the way that, of course, we have to fuel investments, and that's why the force that parities, they are linked together because as we last call, we brought some transparency in our ambition to save costs our fund growth initiative. And we see significant cost, leverages on which we work and which also we see during Q1 are the mean, resulting in both potential to invest in bottom line and during the year, we see a strengthening of those initiatives and within this mix, I mean, that's also our financial ambition. And that's why we think we have the right priorities here. On top in driving growth, we come also to digital.
I mean, digital sales in Q1 also had a good development and that's another priority, of course, for the company to further strengthen our position in the digital world. Good. We'll go to the next question.
The next question comes from the line of James Targett from BNP Please go ahead.
Hi, good morning, everyone. A couple of questions from me. Firstly, on beauty, I just wanted to sort of have your thoughts on how organic growth develops during the year, because obviously excluding the U. S. Effect, said organic growth was a broadly flat in the first quarter, but obviously your guidance, it does imply even at the bottom end there's acceleration during the year.
So I'm just to get an idea of what you think is going to drive that acceleration in growth outside the U. S. And also within a beauty, China, You mentioned that the group level strong growth in China, but just wonder what how beauty growth was developing in China with the destocking issues that you've seen from the channel shifts. And then in Laundry Home Care, you mentioned a strong growth in Middle East Africa, but I know that Egypt's been a big drag on the business over the last few quarters. So I just wondered how the developments were going on in Egypt, in Laundry And Home Care.
There may be one quick final one just on restructuring, which I think was it come up quite a lot in Q1 that you've done about a third of your annual restructuring budget in Q1. So I just wonder confident that you are that it comes in within your guidance for full year? Thanks.
Thank you, James, for your three questions. Concerning beauty, I mean, as you indicate yourself indeed, to get to our year ambition, it means we will need to strengthen And we see some positive developments. The fact which also will play a role is, of course, and that will happen, especially in Q3, forward that our comparables get substantially weaker. And that, of course, also in the course of the years, of course, in our performance, driving this portal also will help. On China, it's quite interesting to see if we go more in detail in China.
The total business and beauty has had a slight growth in Q1, but with e commerce being very strong double digit, and now the e commerce part is getting to half of the business. And this means of course that the destocking topic is not yet over mean, because of course, you can imagine the other business, if one is growing and nearly getting to half, clearly double digits, the other business has some pressure. So this will still continue. On the laundry, indeed, I mean, happy for us to and also we reported this that Excluding U. S, we had a very good quarter at a meeting and we also, elaborate on that.
That's one of the highlights that Middle East Africa is back to strong growth. And this of course is also helped by a strong Egypt business. I mean Egypt is one of our core countries and we had a good start of the year. They are mainly also linked to MatthewWinds. I mean, Apner just tells me it's in detail, a double digit growth we had in Egypt for the first quarter.
So We see we had the relaunch of Persil, Brazil is doing well. So, end the market itself, hopefully, I mean, is it recovering? Let's now see. Mean, we all have oil price now, which also we see, but let's hope that also oil price recovery also brings back some growth into those markets and those country And on restructuring question, you can help us.
Thank you for the question also related to restructuring. You know, how we operate, we're trying to be proactive, we're always trying to be in a way continuously adapting our structures to the market. That's also why you have seen in Q1 an over proportional share of the amount of restructuring related to if you would multiply that with 4. It is related to projects the which trying to optimize, not trying, which will optimize our production footprint and our sales and distribution. Structures.
And by that, we were, for sure, impacted in Q1 with a higher amount. But we stick very clear to our guidance, which we have given to you beginning of the year, which means 1000000 to 1000000 most probably more, at the higher end than at the lower end, but the guidance is the guidance. And this means roughly between 2250.
Thanks a lot.
Welcome.
The next question comes from the line of Jeremy Fiaco from Redburn. Please ahead.
Hi, good morning. It's Jeremy Thiago at Redburn here. So two questions. Firstly, just delving a bit deeper into the working capital. You had a very big out flow in your trade accounts receivable.
Can you talk a bit about how the delivery delivery delivery difficulties in the U. S. Affected that number? And whether there were any other facts at play such as longer payment terms for your customers, And then secondly, if you could just give some greater quantification on the likely raw material pressure that you're going to face later in the year, that would also be very forward. Thanks.
Thank you, Jeremy. I think Karsten both questions, for some insights in reporting capital.
Related to networking and starting, journey with networking capital. As I pointed it out, excluding the delivery difficulties in North America, our net working capital would have been more or less flat that means flat compared to prior year level around 5% and furthermore companies we acquire usually have a higher net working capital compared to ours and we work on bringing those to the level of Henkel. In Q1 that was roughly 50 basis points related to this acquisition effect and So therefore, on that, we will work. And I pointed out that we are not satisfied overall and Therefore, we will also, for sure, trying to get back even to lower levels than before. Related to your question more in the receivables area.
End of Q1, there were certain bank holidays and with that related lower payments, but I would not over evaluate that too much that's more a seasonal effect which I mentioned before are the leading topics, the delivery, topics in North America impacted us by 120 basis points. We had acquisitions, which we are still working in with roughly 50 basis points impacting us. And on top, we see improvement potential on operating items, which are related to all major components, which is inventories, receivables, but also on payables. And on that, we are working. Your second question was related to Ross.
But here, I think we had a similar question already before. We remain confident in in this respect that the moderate increase we will see for the full year we will see no significant change to Q1 in the upcoming quarters. Sorry, and therefore, I would say with these statements, as I said before.
Okay. Thank you very much.
You're welcome.
Fries. Please go ahead.
Yes. Good morning, everybody. Martin Deboe at Jefferies. Just a simple question for me, really. Just why were margins so good in Q1?
You know, supply chain was a headwind on top line and therefore lost you contribution plus there were incremental fixed costs plus commodities presumably started to turn upwards in Q1 and yet margins were ahead of consensus and it was particularly strong in laundry. I guess the question is, is that all coming from fund growth initiatives and some product synergies, or are you taking down A and P? Is And just a supplementary, was transactional FX an influence on margin in Q1? And will it be for the full year? Thanks.
Thank you, Martin. A simple question often needs a more in-depth answer. Yes.
So simple, it's a question. Thank you, Hamzah, for giving me the honor. Martin. So, coming to your margin question, you have seen, and we have pointed that out that adhesives and beauty were stable in terms of margin and that we have seen a very good development of the laundry and home care margin development. And here, we have 2 points.
The one point is related to the consequent implementation of our integration path when it comes to the Sun acquisition. This is well on track and we plan to achieve our synergy targets, you know, that we commented on that higher than 10% in relation to the former sun sales and this is really working exactly. And that has nothing to do in parallel with the delivery difficulties, what we have. So here we are really progressing and and I have shown you the update on that quarter over quarter. And the second part, which is not only related to laundry, but it's for sure impacting the whole company is the whole topic of our fund growth initiatives and to be very specific here, our bond view, the new cost management approach.
I pointed that out also during the last call, and presentation that we are really doing a good progress on that. And we have a consequent implementation of these strong fund growth initiatives and our cost management initiatives. And by that, we see this upside, which you also see in our admin costs we had a question also before on that, where we had the double digit improvement and half of that was related to currency half related to really the execution and implementation of the measures we are having. And then your second part of the question It's a simple question. What's related to, the transactional FX impact and the answer is yes.
Yes, there is an transactional FX impact on our gross margin, which is not a significant one, but it is impacting us negatively And most probably, and I don't know the future, but it may be will also remain during the year, but let's how to see and how to come what the next quarters are will give us related to these topics. Hope that clarifies.
Very good. Thank you.
You're welcome. Thank you, Carson. Also, thank you, investors and analysts. Thank you for joining and also thank you very much for your questions. Last but not least, please be reminded of our upcoming events.
Our next event at next event, Carsten and Bruno will be pleased to welcome you to the Investor and Analyst Day this year on Laundry And Home Care in Dusseldorf on May 29. Please contact Investor Relations in case you have not registered yet. Thank you very much for listening in. Wish you a good day. Goodbye.
Thank you.