We are about to hand over to Unilever to begin the conference call. For those participating on the teleconference, you may indicate your desire to ask a question at any time during the presentation by pressing star one on your telephone touchpad. Should you wish to cancel your question, simply press star two. If you need to speak to me, press star zero. To ensure all participants receive a high-quality audio experience, please ensure you are calling from a landline telephone and not a mobile phone. Please avoid using a speakerphone to ask your question. Use the telephone handset to minimize background noise. If you experience bad quality audio, please try redialing. We will now hand over to Graeme Pitkethly.
Good morning, everybody, and a warm welcome to this first quarter trading update. First, let me draw your attention to the usual disclaimer relating to forward-looking statements and non-GAAP measures. Here it is. With that, let's kick off this brief update with a little bit of market context. Global GDP growth stepped up last year, the latest forecast for this year indicates some further improvement. This is expected to come mostly from the emerging markets, in particular from Brazil, India, and the Middle East. Underpinning this, the high levels of currency-driven inflation that have been impacting consumers in some emerging markets have abated. This is a very welcome development as it takes inflationary pressure off of consumers and allows them to spend on their everyday needs more confidently. Looking at our own markets, we see market growth in aggregate of slightly less than 3%.
There have been some small improvements in parts of Europe. However, the forecast GDP upturn in some key emerging markets, like Brazil, South Africa, and Indonesia, has yet to fully impact the market growth for Unilever's categories in those countries. This is quite normal. There's always a time lag, to some extent, between GDP in general and the impact in our specific markets. The welcome slowdown in the high levels of price growth has, however, helped overall consumer demand, after having been low for a year or so, market volume growth has now picked up to a little over 1%. For Unilever overall, Q1 has been a good start. Underlying sales growth, excluding spreads, was 3.7%. The quality of delivery has been strong in the first quarter, with virtually all growth coming from volume and mix.
Volumes were helped by a very strong start in North America, driven by front-weighted phasing of innovations and promotions, as well as good performance from the acquisitions. There were soft volume comparators in India, the U.K., and in Brazil as we lapped the aftereffects of demonetization, trade issues, and retailer destocking in the back year. There may also have been a little benefit from an earlier Easter. Nevertheless, we feel we are off to an encouraging start, especially considering a slow ramp-up to the ice cream season in Europe and North America. That comes after a long winter that went well into late March and April. As expected, pricing was muted. This was driven by low commodity inflation, by the impact of GST in India, and from negative pricing in Latin America.
Richard is going to come back to this in more detail when he covers the regions. Q1 growth was very nicely broad-based across the three divisions. Beauty and Personal Care grew by 3.9%, Home Care was up by 4.9%, and Foods and Refreshment grew by 2.7%. In Emerging Markets, the headline underlying sales growth number is 5.1%, more importantly, volume growth in Emerging Markets has been maintained at 4% for a second consecutive quarter. Price growth, however, of 0.1%, is lower than we have seen for quite some time. This was expected. This is actually the chart we showed you on the full-year results call, but updated this time for Q1. We expected little contribution from price, and the reasons were given then. As a reminder, our reported price growth measure is pure price and does not include mix. Mix comes through in our underlying volume growth measure.
We're not concerned about relatively low pricing in aggregate. Pricing decisions are made locally, and we see positive pricing in places such as Turkey, Mexico, the Netherlands, Eastern Europe, and offsetting negative price in others such as Brazil, North America, and the U.K. What is important in making pricing decisions is that we balance the needs of the consumer and the shape of the P&L. We remain confident that our savings programs keep us on track to deliver a step-up in margin consistent with the trajectory of our 2020 margin targets. If we look a bit more closely at the divisional performance now, in Beauty and Personal Care, we want to grow the core of the business while strengthening the portfolio in emerging growth segments like naturals and by building prestige. The division grew 3.9% in Q1, with all of the growth coming from volume.
Skin Cleansing had a strong quarter after several new launches, like our new aerosol shower mousse, which was launched across five different brands in Europe ahead of being rolled out globally. Baby Dove continues to expand its footprint and is on track to be in 30 markets in 2018, with at least a 5% share position in all of its key markets. In hair, Sunsilk continued to grow well, driven by the continued success of last year's relaunch and further expansion of the Naturals range. Continued momentum on 2017's Dove relaunch, which is now across 65 markets, contributed to a strong pickup in deodorants volume growth. Rexona was also helped by innovations such as the new Stay Fresh range with antioxidant technology, which was launched in Latin America.
Love Beauty and Planet and ApotheCARE, the two new naturals brands launched in the U.S. last year, although still in early days, are off to a good start. Our prestige business continues to perform well. It was up mid-single digits with online sales growing strongly at 30%. Dollar Shave Club has now launched here in the U.K., and more recent acquisitions such as Carver Korea and SheaMoisture are doing well, but are yet to contribute to our reporting underlying sales growth. Home Care has continued to grow at around 5%, again, nearly all volume. Emerging Markets have performed well for Home Care. In particular, India, Africa, and Turkey all saw strong growth. Premiumization in India is delivering for us with mixed benefits from consumers trading up to Surf Excel, which is growing very nicely, and the successful launch of Comfort Pure.
Sunlight Dishwash was relaunched in Indonesia, and the Omo brand had a good first quarter with strong momentum showing from the global relaunch last year and the introduction of new variants such as the Naturals range in China. We continue to see home care growth in Europe with a number of launches this quarter, including Persil Triple Chamber Capsules, and the introduction of the Comfort Deluxe Fabric Conditioner in the U.K. market. Seventh Generation is now in our reported underlying sales growth numbers and continues to perform well in North America whilst building out its presence in the U.K. Our water purification business had a good start to the year. Our Blueair business in China has suffered a slowdown in momentum since the Chinese authorities introduced strict air pollution controls in the big cities of China, which is Blueair's biggest market.
While we unreservedly welcome, of course, improvements in air quality and hence the quality of life for those that live in Chinese cities, we must now respond by focusing on the many other opportunities offered by Blueair's product range. Turning to Foods and Refreshment, the priority for our newest division is to grow its presence in emerging markets, to modernize the portfolio, and to continue to build growth in alternative channels such as food service and out-of-home impulse occasions. Excluding spreads, overall growth in Foods and Refreshment was 2.7%, nearly all of which came from volume. Ice cream grew by 3%, helped by the recent launch of Magnum Pints in the U.S., and Ben & Jerry's non-dairy in Europe. Breyers Delights has been rolled out at speed and is now available in nine European countries, as well as North America, where it's continuing to gain distribution.
As I mentioned earlier, those in Europe or indeed in the East Coast of the U.S. will know that the weather has not been ice cream friendly so far in Q2, in contrast to 2017, when there was a European heatwave through much of the quarter. Knorr had a good quarter, launching a range of natural mini meals in 11 countries across Europe, and in North America, a new range of organic meal starters has gone into the market. Wyons continue to be a strong growth driver in our emerging markets. Mãe Terra, our recent Brazilian acquisition, is building from a small base, but beginning to capture consumers in both the naturals and premium segments of the market.
The Foods and Refreshment division is now fully operational, and this should open up more opportunities to develop the portfolio further and drive our margin enhancement programs such as 5S across the newly combined division. With that, let me hand over to Richard to take you through Q1 growth in a little more detail.
Thank you, Graeme. Let's take a look at what has happened to turnover in Q1. Underlying sales growth was 3.4%, with volume contributing most of this. Price growth, as we flagged to you with our full year results call, was low. There are four reasons for this. First, the impact of GST in India. Second, the negative price from economic resets in Latin America, which I'll come back to in a moment. Third, strong price-driven competition in Europe and North America. Finally, low commodity inflation overall. Acquisitions, the largest of which are Sundial and Carver Korea, have contributed 1.5% to turnover. Turning to currency, we saw a significant translational currency drag of 9.8%. This is a result of the euro strengthening against almost all of our major currencies. This depresses our sales, which is purely a reporting impact from consolidating our global numbers in euros.
Against the USD, U.S. dollar, most emerging market currencies have been stable. This reduces imported inflation, which helps consumer affordability. This is the main driver for an improvement in market volume growth and lower price growth. If exchange rates were to remain as they are today for the rest of the year, we would expect there to be a negative translational impact of 6%-7% on turnover, and a little more on EPS. We now turn to the regions. The emerging markets grew by over 5% with most of this coming from volume. Billions of consumers in our emerging markets are back to using and buying more of our products every day, the quality of our growth there has certainly improved.
In Asia/AMET/RUB, our biggest region, growth has continued at around 6%, volume has been gradually picking up over the last year and is now over 5%. Our business in China grew strongly was adversely affected by the sharp decline in air purification, as Graeme mentioned. We can't say too much today on the performance of India, as HUL have their own results update in May. After 12 months of disruption, consumer demand is picking up and offtake has been good. Pakistan and Turkey grew at double-digit rates, while sales growth in Indonesia, South Africa, and Russia were adversely affected by challenging market and competitive conditions. Whilst the pickup in volume in AAR is reassuring, overall growth was impacted by lower pricing.
Pricing should pick up in the second half as we annualise the implementation of the Indian Goods and Services Tax, we expect a higher level of commodity cost inflation. In Latin America, the return to volume growth we saw in Q4 has been maintained with Brazil, Argentina, and Mexico all contributing. Volumes in Brazil, now positive again for a second consecutive quarter, were notably strong in Q1, helped by a very weak comparator. Price was negative. We expect price to turn positive in Brazil as the year progresses, for volumes to slow from current levels as the comparators normalise. Turning briefly to developed markets, which grew 1.1% in the quarter. We were pleased with the 2.9% that was delivered in North America, helped by the timing of some innovations and promotions, strong performance of the acquisitions. Europe was flat overall.
We see an encouraging improvement in market growth as price deflation continues to ease, but the retail environment remains tough, particularly in places like France, which weighed on our growth for the quarter. Aside from France, most of our countries grew modestly, with good volume-led growth in Germany and the U.K. Overall, trading conditions in North America and Europe continue to be challenging. With that, I'll hand back to Graeme.
Thanks, Richard. Let me summarize how we see the first quarter. The overall performance is strong, and we're very pleased to see a sustained return to volume-led growth. Our business model is working well, and we're seeing more confidence and stability in many of our emerging markets. When looking at overall performance, remember this is just one short quarter. Let's turn our attentions back to the priorities and the guidance for 2018. The priorities that Paul showed you at the beginning of the year remain unchanged. I don't plan to talk through all of these other than to say that everyone in Unilever remains very focused and on track to deliver each one. The only additional news here is the planned share buyback, which we announced this morning.
We'd indicated already that with the successful sale of the spreads business and absent any significant acquisition, we would deliver the estimated €6 billion of sales proceeds back to shareholders. We intend to do this by starting a share buyback program from the beginning of May. Our full-year outlook remains unchanged, and we're happy to be off to a good start. As we've discussed, strong volume has already come through, and we've explained the drivers behind that. We don't expect price to pick up just yet. As a result, with spreads still in our numbers, we can expect growth for the first half of the year to be around the lower end of our 3%-5% multi-year range. Our savings programs continue to progress well, and the significant work to complete the spread separation and deal with the stranded costs is on track.
We're also on track for 100% cash conversion target by 2020. With that, let's take your questions.
Thanks, Graeme. As a reminder, if you want to ask a question, please press star one. If you wish to cancel your question, press star two. If you're listening to the conference call on a speakerphone, please use the handset while asking your question. Finally, please keep your questions to a maximum of two. Our first question I see is from Warren Ackerman from Société Générale. Go ahead, Warren.
Good morning, guys. Good morning, Graeme. Two questions, please, from my side. The first one is on this weak pricing. Richard, you called out four factors just now, GST, LatAm price competition, low commodity inflation. Would you be able to help us by elaborating on each of them and maybe trying to quantify them if you can? Perhaps give us a feel for how you see each of them sort of trending in the back half to give us a feel for what kind of recovery and pricing might be realistic in the back half. That would be very useful. Secondly, just back on the volume, are you able to maybe just sort of try and split it for us in terms of mix versus real volume, just to try and understand, because obviously, your pricing is pure pricing, as you said, Graeme.
What's happening to mix? Where are you seeing the premiumization happening most within your portfolio? Thank you.
Thanks, Warren. If I may, I'll take a little bit of time on this because I think the pricing one is well worth digging into, and Richard Boll means chip in and build on this. As Richard said in the talk there are four key drivers of the pricing being muted in the first half as we expected. First of all, most of the emerging market currencies are stable or appreciating against the weaker US dollar. I know we've got big translational and consolidation accounting-driven impact of foreign exchange into EUR, as Richard said on the presentation. The most important one for us economically is the dollar, and most of our currencies are either stable or appreciating against the dollar. There's actually quite limited commodity pressure in local currencies in the first half.
We think that will start to ramp up in the second half, that's one driver. Second one is the impact of GST in India. That depresses pricing by about 30 basis points a quarter. Until we lap the impact of GST, which is in Q3 and Q4, that will drop away. Third factor is that inflation is starting to ease off in Latin America. Argentina is now down to low double-digit inflation. Price growth in Brazil has been negative. That hardly ever happens. We expect that that will start to stabilize and be a little bit more price growth in Brazil in the second half. Of course, Venezuela is now out of our price growth from Q4 2017 onwards, and it's still sitting in the back period. The final point, as Richard mentioned, promotional intensity remains really strong in Europe and North America.
We're very happy with how we're competing in both markets. Example would be North America dressings, which has gone very promotionally intense, but we're engaging toe to toe there and winning that battle. Home care in the U.K. would be another example of that. I want to be clear that it looks like we've had zero price growth for a second consecutive quarter here, but that aggregate 0% price growth doesn't mean in any way that there's no price growth anywhere. In fact, there are plenty of our markets where pricing is strong and there's good balance between volume and pricing. Turkey, the Philippines, the Netherlands, Mexico, et cetera. I could go on with examples of it. There's a big counterbalance to that, which is big markets for us. India, where you've got the effects of GST just depressing pricing until we lap it.
Brazil has relapsed several years of high inflation and the economy resets, and the U.K. has relapsed trade issues in the back here. That's a big factor. I think it's really not worth overthinking price growth in any given quarter. We expected price growth to be muted first half. We're clear on the drivers behind that. I think if you step out a little from it, and you think about 3%-5% being our multi-year range of growth delivery, and we go to look at the full year for 2018, to us, the consensus growth for 2018 looks stretching but achievable for us. As we said, we should see a more balanced mix of price and volume in the second half within that.
We're probably a little bit more cautious on Q2, simply because of the impact of the ice cream season, the fact that we'll still have the impact of India GST, and spreads will still be on our numbers for the second quarter, et cetera. A little bit more caution there. That's how I would, Warren, think about the totality of the price landscape. Moving to volume, and your question about mix within volume. We don't separate it out for you, so I'll not do that here, but I want to give you a very clear example of it, which is the Brilhante brand in Brazil, which I know we've mentioned on a couple of other calls, but it's a really good example. Our home care business in Brazil really needs to shift with the consumer.
Omo, which is the biggest single country brand sell that we have in Unilever, isn't down in the tertiary tier 3, tier 4 positioning. We brought the Brilhante brand in to catch a down-trading consumer in a very stretched market. It's a great example of what an agile business plugged in and close to its consumers on the ground can do. It doesn't happen overnight, of course, but we've had strong growth in that Brilhante brand. That is mix that shows up in our numbers in volume, but of course, it's actually the right thing to do because you're maintaining the consumer relationship. The consumer in Brazil has moved into the cash and carry channel, and that's the brand that we're using to reset our portfolio with more tier 3 and tier 4 positioning. That's just a great example of that.
Thanks for the opportunity to call it out because I think that the fact that we've got mix alongside our volume, which means that our price number is a pure price number is always worth calling out, Warren.
Graeme, can I just clarify one quick thing? Just on this pricing again, when you get these big E and D valuations, in the past, Unilever would have taken a lot of pricing. This quarter, we've had 30% devaluation in the Argentinian peso against the euro. I don't really understand why you're not taking more pricing. Is there something structurally changed now relative to five years ago in that you're just more reticent to take pricing because of local competition or something else going on?
Absolutely not, Warren. The key there is that it's actually the movement of the peso against the U.S. dollar that's important, not against the euro.
Okay.
The euro is only relevant for consolidation and GAAP reporting, one single set of numbers. The currency which is most important in the markets where we're big in our emerging markets is movement against the U.S. dollar.
The U.S. dollar, okay.
The peso is actually down a bit against the U.S. dollar. It's one of the few currencies that is. Most of our currencies are stable or appreciating against the U.S. dollar. You're not seeing that local pressure when you actually are importing materials in for the purposes of where the real action is within your markets. That's a good thing, because where you've got stressed consumers, we would rather have more muted pricing and the ability to get our brands into more hands and get real volume growth in those markets. Especially when you think about the four or five quarters we had preceding that, where you've had quite a lot of imported inflation in those markets because of the reverse. We've got this.
I know it looks as if FX and everyone's going to reset their models today based on the translation FX, but that doesn't have an impact on our business. I want to be really clear about that. What has an impact on our business is currencies versus the U.S. dollar, and it's quite a benign environment. That's where you're seeing the more muted pricing. The good news is when you have more muted pricing, more consumers buy more of your brands. It's a good thing.
Yeah, you've seen a lot of devaluation in Brazilian real against the USD, you're not taking pricing in Brazil. Just on that point again, sorry.
Well, that's more of an economic reset. We've spoken more about that in the past, there's been a lot of pricing in Brazil over many years. There's a complete reset of the economy. As I said, consumers, I think the cash and carry channel now has 25%-30% of the volume in Brazilian shopping. Big shift away from the hypermarkets. You've got a channel shift and a fundamental reset. What we do there, as I mentioned earlier, is think about our portfolio and the relevance of our portfolio to make sure that we are in the right channels for shoppers and consumers with affordable products that they can afford as an economy goes through a reset. That's the most important thing. Richard, did you have something there?
Yeah, no, just because I can assure you that in Argentina that we have been taking strong price. It's not as high as in the past inflation in Argentina, we continue to take a strong price in reaction to the peso as you called out.
Okay.
Thanks. We've gone on a wee bit on this. Sorry about that, Warren, I think it's a really important point that we're not in a situation where we've suddenly gone from all price growth, no volume to all volume growth, no price. It's much more dynamic than that. It's much more granular than that. We happen to have three or four big markets, which mean that mathematically it looks like we've only got 0.1% price, the dynamism in the markets, the way the businesses are performing, they're all doing the right thing. There's plenty of price growth in individual markets. It just doesn't show up in the aggregate reported numbers.
Okay. All right. Thank you very much.
Thanks, Warren.
Thank you. Okay, next we have Eileen Khoo from Morgan Stanley. Go ahead, Eileen.
Morning, Graeme. Morning, Richard.
Morning.
A quick question for you on emerging markets, actually. If I look at your organic growth run rate from last year, you've had a sequential slowdown, and I know it's just one quarter, but basically, your volume growth has stayed unchanged even though pricing has come off quite a bit. Would you have expected a bit more of a volume boost, perhaps? I was wondering if there were actually any EMs where you've seen a deterioration, and perhaps you could give more color on the dynamics in some of your key markets, and also what your expectations are for the remainder of the year. That's the main question. Then I've just got a quick question on Food and Refreshment, whether you're able to split that 2.3% like for like into the two categories. How did they do?
I know you report them together now, just curious on that. Thanks.
Thanks, Eileen. Let me maybe tackle the first one, and Richard, if you want to have a think about the second question on food and refreshment. On my crib sheet, one of the things which I keep a little running total of is the sequential volume growth in our emerging markets, Eileen, and we went from, I think it was 2.7 in 2015. It dropped down to 1.1 in 2016. Went up to 1.6 in 2017. The fourth quarter of 2017 was 4.2, and now Q1 of 2018 is 4.3. There's a clear uptick now in emerging markets volumes. I think that's very significant strategically for Unilever, because the 25-year average, as I've probably bored people with for a while now, it has been 5% as a long-run average.
The key question is, do you get back to 5% or does it go back to 3% or 4%? What I keep saying is, our growth algorithm works very well if we just come off the historically very low levels that we've got at the moment and get back to normalcy. If you think about demographics and all the things we know about where population growth is and where income growth is in this world, you've got to believe that that is going to be just a fundamental law of nature. Good to see that start to come through, but you don't want to call things too early, we're very happy with that step up. Now, your question on specific markets, I'll just run through a few.
I think the one that's the biggest standout for us, not least given my own career history, is Indonesia. Indonesia has had negative volumes. That's in the marketplace, and negative pricing in the marketplace. Negative price in the Indonesian market hasn't happened in a very long time, if ever. There's lots happening in Indonesia in terms of the government trying to support the poor, and the mix of where people spend money has pulled through as well. That is definitely having an impact. Our Indonesian marketplace is not really looking like the normal Indonesia that we've had over several years, and what's happening there at government level to boost consumer spending, particularly with low-income consumers. That's well worth calling out. Other emerging markets which are in negative volume, South Africa doesn't have a lot of growth overall, but it's a couple of percentage points negative in volume.
Again, 25% unemployment in South Africa. Some good things happening in terms of changes, but a big market for us, which is obviously challenged. Brazil, of course, which was negative volumes through that period that you referenced. We had a period of negative volumes in Brazil. Actually, one of the other numbers we've been tracking is when does Brazil return to positive volumes, and this is the second consecutive quarter of positive volumes in Brazil, which is good news. Albeit, as we said in the talk, that there's a little bit of price deflation in Brazil which shouldn't persist for a long time. Other two markets in the emerging world which are weak for us would be Russia and Thailand. Thailand's got a little bit of volume growth, but no pricing growth, so it's been flat overall.
Russia was down mid-single digits with a little bit of negative volume. Emerging markets, there's a lot of volatility, a lot of differences as you go market by market. The really good news, I think, is in aggregate, we're sitting on 4% volume for the second quarter.
Sorry, Graeme, can you just clarify on the market share performance as well, in emerging markets? Would you say that you're tracking ahead of the market there?
In all of those markets, we are by and large, doing very well. Take Latin America, first of all, good gains in Argentina. In Brazil, we're actually gaining share in all of the price tiers. When we look in aggregate in Brazil, we're losing a little bit of share overall, but only because we're underrepresented in the more affordable tier 3 and tier 4 price tiers, which is why I was mentioning brands like Brilhante earlier. Competitive wherever we compete, but we've got a little bit of a portfolio mismatch there we're working to address with the tier 3 and tier 4 brands. India, off to a very strong start. All categories are growing ahead of the marketplace in India. I won't say much more on India because they haven't reported yet, but a good strong start there.
In China, we are very happy with the performance online, in particular. There's 3 categories where we measure share in the online e-commerce market in China, we've made significant gains there. In Turkey, we're winning very strongly against competition. Turkey's had very strong growth and balance with both price and volume. The soft spot that we've got is Southeast Asia. We're not so competitive in personal care in Southeast Asia. Indonesia would be an example of that. It continues to be the local players who are winning in home and personal care there. We are making good gains in foods in Southeast Asia, we're winning share for the first time in a long time in Australia. Small market for us, but good to see.
SEAA is, I think, the place where, in home and personal care, we continue to lose a bit of share to local players.
Eileen, I think you wanted a little bit of what's going on underneath the label of FNR. Let me give you a feel for some of the things. Ice cream, savory, tea, they're all growing something around 3%. We're very pleased with that performance. Ice cream is largely driven by innovation. We've mentioned Magnum Tubs in North America. There's a new Magnum range out in Europe. Ben & Jerry's non-dairy also going well in Europe. Ice cream is about that level. Savory, the same sort of level. That's more of an emerging markets that's driving that. Cooking products, especially in savory. Tea is also about that level, which is a continuation of the momentum we saw last year. The one that's a little bit lower than that is dressings, which is driven by pricing, the negative pricing in the U.S.
We know there's a mayo battle, which we think we're winning in. The negative pricing there is keeping the dressings overall sales growth number down. That's just a little bit of color of what's going on beneath the FNR banner.
Thank you. That's really helpful.
Thanks, Irene. Next we have Jeff Stent from Exane. Morning, Jeff.
Hey, Jeff.
Morning, gents. Just a quick one, and I am not really looking for prescriptive guidance, but would you expect, Graeme, that gross margin would expand this year?
I think so, yes. Very much the 5S program that we have and net revenue management, Jeff, both are designed to get the best part of the margin improvement overall coming through gross margin. Yes, that is definitely a feature for us.
Okay, thanks, Graeme. Thanks.
Thanks, Jeff.
Thanks, Jeff. Next on line we have James Edwardes Jones from RBC.
Good morning, all. Two quick questions, if I may. Sticking on Jeff's point about gross margin, is that before or after freight costs? In particular, obviously in the U.S., there's all this pressure on freight costs. What are you seeing there? While on the subject of costs, can you give any sort of indication about what you're thinking in terms of marketing to sales in the full year? Secondly, on the share buyback, given what's happening with the domicile of the business, how's that going to be split between NV and PLC?
Good morning, James. Let me tackle the freight costs in the U.S. in particular, I guess, is where everybody is seeing an increase in freight costs. Very interesting dynamic with both higher demand for more frequent deliveries. As retailers focus on working capital management, you get a lot more sort of granular supply chain. Also supply constraint with employment rates high in the U.S. and good job opportunities in other industries and all that sort of thing. Also diesel costs are up. I think everybody's feeling this a little bit. Of course, our freight costs, they sit in our distribution costs, which are about 7% of turnover sitting within our cost of sales number. We think overall that they're going to go up sort of high single digits to high teens in the marketplace. We are having some success in mitigating that.
We've got a particular ZBB cost segment we manage this as a sort of a discrete effort with two of our senior business leaders cross-functionally within the company working on logistics, particularly along with Marc Engel and the supply chain team. That has delivered quite a lot of benefit for us. There have been issues with some cost inflation. There's also been issues on availability. It's been more the question of availability that's been, I think, one of the challenges. There's been some stock left on dock, et cetera, but we didn't actually have that material effect as in the first quarter it was a bit of a watch out going into the quarter, but it didn't actually pull through. Just on your question of the BMI spend, I think we are still seeing strong delivery from our savings programs. That's good news.
We do think we'll have competitive BMI. We know our BMI spend was very competitive in the first quarter as it was in Q4 of last year. We think we'll have a step up in absolute spend in BMI in H1 in local currencies. With good visibility of it, we're happy to say that now. Finally, on the share buyback that we've announced, we will do that in the marketplace over the course of the balance of this year in NV and PLC. Then depending on progress with simplification of the company, that can then move across into the new parent company.
Brilliant. Thank you. Can I just check, the comment on freight costs are high single low double digits. Is that U.S. specific or does that apply to the group as the whole?
That's U.S. specific, James.
Brilliant. Thank you very much, Graeme.
Thanks a lot. Cheers.
Okay, well, we got no more questions. I suggest at that point that we close the call.
All right, well, thanks everybody, and enjoy the rest of the day. The IR team are here to take any other questions and dig into things in a little bit more detail, and we look forward to that. Have a good day.
This conference has been recorded. Details of the replay can be found on Unilever's website and will be available shortly. Thank you.