Earnings Call: Q1 2017

Apr 20, 2017

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 conference 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 high-quality audio experience, please ensure you're calling in from a landline 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 Andrew Stephen. Please go ahead. Good morning, and welcome to this first quarter trading update. Let me hand straight over to Graeme Pitkethly, our CFO. Graeme. Thank you, Andrew. Morning, everybody. Let's kick off, if we can, with the market context. I think it's fair to say that the prospects for the global economy are looking a little brighter than they have done for a while. While last year's GDP growth was the lowest since 2009, the forecasts for this year are now looking a little better. Employment levels in the developed markets are improving, many of our key emerging market currencies like India, Brazil, and Indonesia appear to be bottoming out. Commodity inflation is returning, while this adds to the cost pressures for us, particularly in the first half of this year, it will, of course, be better news for the economies of the producing countries themselves, many of which contain large Unilever businesses, as you know. Needless to say, there's still plenty of uncertainty and volatility out there, both economically and politically, that, I think, will remain a defining feature of the markets in 2017 at least. The overall outlook in aggregate, as I said, does seem to be improving. However, this has not yet translated into the market growth for our categories, which is still quite subdued. Of course, this is not unusual as we normally do see a lag between improving economic fundamentals and higher consumer demand. In the first quarter, market value grew by just 2% globally, market volumes were slightly down. Turning to our own performance, we've delivered a solid start to the year. Underlying sales grew by 2.9%, which was once again ahead of our markets. It compares with a relatively strong first quarter last year, when growth of 4.7% had some benefit from an extra day due to the leap year. The comparators do get somewhat easier in the second half of this year. In the current market conditions, growth continues to be driven by pricing rather than volume, but again, in aggregate, our volume growth was ahead of our markets. Andrew will come back to this with the regional detail. Excluding spreads where we've announced our decision to exit, underlying sales grew by 3.4%. Growth was broad-based across the categories. Personal care grew by 3.1%, and home care was up 4.1%, both ahead of their markets. Food sales were flat. Excluding spreads, foods grew by 1.7%. This includes some drag from the later Easter as well as one less day. Refreshment had another strong start, with growth of 5.4%. This first quarter performance puts us on track to deliver another year of underlying sales growth of between 3% and 5%. There's no doubt that the organizational changes we've introduced as part of the Connected for Growth program are already making a difference and helping us to continue to outperform the market. The new Country Category Business Teams, or CCBTs, manage performance at a local level, right on the front line where we serve consumers every day. They draw down on the global innovation program, but importantly, are now also able to innovate locally with more agility and ability to address local consumer trends faster. We've now brought together our previous model of brand developers and brand builders into a single marketing organization within each of the categories. The organizational change also unlocks trapped capacity as we can do more with fewer layers and touchpoints and so fewer people. The disruptive thinking that zero-based budgeting brings provides the fuel for investment in growth as well as driving margin improvement. Connected for Growth also brings sharper category focus, allowing greater differentiation between categories so that strategies land more effectively in our markets. In personal care, our priority is to continue growing the core of the business while building premium positions into the portfolio. Innovation includes the rollout of global ranges like Baby Dove, which is now being rolled out from Latin America to the U.S. and the U.K. in this quarter. Now that the CCBTs are up and running, we've started to speed up the time from idea to launch and deliver more on-trend innovation, like Ayush, a brand of Ayurvedic remedies in India, or Suave Naturals in the U.S. with ingredient-led variants such as avocado and olive oil infusions. In Colombia, the local CCBT was able to respond to a new entrant by launching a mini-tube deodorant in just two months. At the same time, flexibility in our model allows us to build scale in new segments and channels. Our prestige brands continued to perform in line with plans led by growth in Dermalogica and Kate Somerville, and Living Proof will be a welcome new addition in prestige haircare. At the same time, Dollar Shave Club, which will contribute to underlying sales growth from the second half of this year, is helping us to build further our male grooming business. In Home Care, innovation is helping to drive both continued growth and margin improvement. In the first quarter, we introduced Domestos ActiPower with superior germ kill technology. This innovation is a good example of the way the Home Care category are simplifying the formulation chassis, in this case by introducing a harmonized bleach formula worldwide, helping to speed up future innovation, as well as driving down cost through common specifications. This is part of the 5S savings program we talked about before as a key underpinning element of the margin journey for Unilever. Connected for Growth is also helping us to respond to specific local needs. In Latin America, we've launched a new pack size of Brilhante laundry powder in the space of just 27 days to help meet the needs of hard-pressed consumers who are down-trading from more premium brands. In China, we launched a millennial-inspired Sakura variant. Acquisitions are helping us to extend our portfolio into faster-growing segments. Seventh Generation continues to grow well in the U.S. and has now launched here in the U.K., and Blueair is expanding strongly, particularly in its largest market in China. In Foods, our priorities are to build scale in emerging markets and to modernize the portfolio. Knorr and Hellmann's, our most global brands, continue to perform well. We've extended the Knorr natural meal makers into salad dressings, and the Hellmann's organic range is helping to attract those consumers who like mayonnaise but don't buy it frequently as they're seeking to avoid processed foods. In Turkey, we've launched ketchup and mayonnaise under the Calvé brand. In the U.S., the new CCBT has launched five innovations in the first quarter, including an exciting side dish line from Knorr, smaller Hellmann's squeeze packs, and a Hellmann's organic range. For all of these, the lead time to launch has been shortened by more than six months. Our Food Solutions business, which caters to professional chefs, has had another quarter of good growth. Refreshment grew strongly in the first quarter, benefiting from our strategy of premium innovation and building in higher-growth segments. In ice cream, we've launched a new Ben & Jerry's line called Topped with a range of different toppings, and Magnum has extended into pint tubs. In the Netherlands, the local CCBT designed a peanut butter Cornetto within 24 hours and had the product ready on shelves in just 12 weeks. In tea, we're starting to see the results of our portfolio evolution into premium and specialty teas, which are growing double digit and ahead of the market. Most recently, the launch of Lipton Matcha Tea in the U.S. has been particularly successful. At the same time, we are building on the acquisitions we've made, rapidly expanding their distribution. We've more than doubled the sales of T2 since we acquired it three years ago, and by the end of this year, we expect to also have doubled the sales of Talenti in the super premium gelato segment. If I can summarize the categories, we have a very full innovation program. This is helping us to sustain consistent growth ahead of our markets, navigating the challenges and opportunities presented by changes in consumer preferences and needs. The bolt-on acquisitions we've been making will better equip our business with brands that meet emerging needs. We will run most of these largely separately to our core business while realizing synergies in those specific areas that are most relevant in each case. Between the prestige brands, Dollar Shave Club, Seventh Generation, and Blueair, we have added well over EUR 1 billion of turnover in the last two years, and individually, these businesses all have the potential to go on to become EUR 0.5 billion businesses or more in their own right in time. I'll hand over to Andrew to talk us through the development of turnover and the regional performance. Thank you, Graeme. Turnover increased by 6% in the first quarter. Underlying sales growth of 2.9% was driven by pricing of 3%. Volume was virtually flat, including the effect of one less day in the calendar. For the past three years, pricing has largely reflected the effect of devaluing currencies, particularly in Latin America. Commodity costs in U.S. dollars were relatively benign during that time. This meant that in parts of Asia, there was unusually no price growth, while in Europe there was sustained deflation. We are now seeing the beginnings of a return to a pattern of pricing which is more normal by historic standards, with less price growth in Latin America and more coming back into Asia. Acquisitions added 1% to turnover, partly offset by a series of small disposals to give a net M&A impact of 0.7%. Exchange rate translation added a further 2.4%. This has mainly come from stronger currencies in Brazil, South Africa, Russia, India, and Indonesia. The effect of a stronger U.S. dollar relative to the euro was exactly balanced by the weaker sterling in the U.K. If exchange rates were to remain as they are today for the balance of the year, we would expect a positive effect of 2%-3% on turnover for the year as a whole, and a little more than this on EPS. Turning to the performance by region, and starting with Asia AMET RUB, which now represents well over 40% of our total sales. Here, underlying sales growth improved to 6.9%, with volumes up 2.2% and a pickup in pricing to more normal levels. China came back to growth in the quarter, and Turkey grew in double digits with volumes up across all categories. India, where we have a stock market listing, has yet to report its results for this quarter, so we will hold off from commenting on sales there until then. What we can say in the meantime is that market conditions improved after the sharp contraction in the fourth quarter. Latin America grew by 3.5%. Price growth was 7%, moderating from the double-digit pricing of the last few years. The decline in volume of 3.3% was entirely driven by Brazil, which was down by 10%. Market volume in Brazil contracted by around 5%-6%. That is an improvement on the high single-digit decline of the fourth quarter. However, with interest rates well above inflation, our customers are facing something of a credit crunch and have reduced stocks, further affecting our sales. We expect some further de-stocking in the second quarter, but an improvement thereafter. By contrast, in the rest of Latin America, we've seen double-digit growth. Mexico performed particularly well, with volumes up strongly across the portfolio. In North America, underlying sales were down 1%. This was in line with our markets, which had a slow start to the year and were also down 1%. Our personal care business is doing well with growth and share gain driven by deodorants. Foods volumes were held back by the impact of the later Easter on the spreads and dressings categories, and the decline in traditional black leaf tea is not yet compensated by growth from Pure Leaf and matcha, despite the encouraging start for both of those launches. In Europe, underlying sales were down 2%. As with the U.S., consumer demand is lower than last year. Our businesses grew in France, the Netherlands, and in Central and Eastern Europe, but in the U.K., volumes declined. In part, this was due to spreads, but it also reflects the lower level of promotions following the price increases we took in October last year, as we explained with the full-year results. We do expect this to normalize as we see more evidence that the on-shelf prices of competitors' products are now also increasing. With that, I'll hand back to Graeme. Thanks, Andrew. Let me conclude by briefly recapping the outcome of the review, which we announced two weeks ago, and confirming our outlook for the year. The environment we operate in is changing rapidly. Be it faster changes in consumer trends at both a global and local level, or in our customer channels with the rapid rise both in online sales and convenience stores, so progressively a little less reliance over time on traditional big-box retailing. Or in media, with a changing path to purchase now requiring multi-channel, digital, mobile-first approaches everywhere, or in the political environment with economic and political volatility. At the same time, the competitive landscape is changing and challenging our industry. This is particularly the case in foods. U.S.-based foods competitors are rebasing costs to varying degrees. The Froneri combination brings a new competitive dynamic to ice cream, and new entrants are developing so-called foods of the future with agile and new models. Across the board, benchmarks are being reset. It's in this context that we must ourselves continue to change so that we can continue to compete with our model, but do so harder and faster. The strategic review with the board reconfirmed our commitment to our long-term growth model. This means simply that we continue to target growth ahead of our markets, backed by sustained strong investment behind our brands. This model will continue to deliver attractive compounding returns for our shareholders. The substantial investments that we've already made in Unilever behind brands, people, infrastructure, and technology, together with the Connected for Growth program, give us the platform we need to accelerate our savings. By rolling out the 5S approach, which is now well proven in home care to the other categories, by extending zero-based budgeting into logistics, and by integrating Foods and Refreshment and implementing a new leaner business model for this unit. At the same time, we will continue to evolve the portfolio but more dynamically. We've announced the decision to exit spreads. We're starting a sale process, which we hope to complete by the end of this year. In parallel, we will prepare for a demerger in the event that we do not realize a fair value through the sales process. We will continue to pursue bolt-on M&A in line with our strategic objectives for each category. We announced that we would be reviewing our dual-headed legal structure in the remainder of this year with a view to simplifying it. This would give us greater flexibility for more strategic portfolio change if that becomes appropriate at some point in the future. This next chart summarizes our new financial targets. There's no change to our target for underlying sales growth ahead of our markets, which we would expect to translate to 3%-5% on average over the period. The accelerated savings, two-thirds of which will be reinvested, together with a positive mix and volume leverage, drive a targeted underlying operating margin of 20% by 2020. We expect cash conversion, which is currently around 90%, to increase to 100% by 2020. Capital expenditure, which has been running at well above depreciation, will normalize at around 3% of turnover. Cash contributions to pensions will reduce by around EUR 100 million per year following a one-off injection of around EUR 700 million, which we'll make to our funds during the second quarter. We continue to target a return on invested capital, including goodwill, in the high teens. We will increase our leverage, targeting a net debt to EBITDA ratio of two times, equivalent to 2.6 times on the adjusted basis used by Moody's. To make a start towards this new leverage target, we will launch a share buyback of EUR 5 billion beginning in the second quarter. As I explained two weeks ago, we will report progress against the new targets with more granularity. We will continue to report the individual category results, as well as combined totals for Home Care and Personal Care, and for Foods and Refreshment. To give a clearer picture of the business performance during a period of accelerated restructuring, we will report underlying operating profit and EPS. This will be before all restructuring costs and other significant one-offs, whether they're positive or negative. We will provide you with the exact amount of restructuring. We will also, of course, continue to report the GAAP operating profit by segment so you can see the results both before and after restructuring and other one-offs. For the full year, we will provide a breakdown of fixed assets and working capital and the return on assets by category. Our intention is to account for spreads separately with effect from the first half year. We'll provide you with the appropriate restatements of 2016 before the half year results so that you can incorporate them into your models. Let me conclude by reconfirming that we remain on track to deliver our objectives for this year. These are 3%-5% underlying sales growth, an increase in underlying operating margin of at least 80 basis points, and another year of strong cash flow, adjusted for the one-off injection to pension funds. In view of our confidence in the outlook for our business, we're raising the dividend by 12% with effect from the next payment, which will be in June. Finally, since we announced the outcome of the strategic review two weeks ago, Paul, Maureen, Andrew, and I have met with more than 100 of our investors, representing nearly half of our shareholder base. We've very much appreciated these interactions with you and look forward to more over the next few weeks. The feedback we've received has been overwhelmingly supportive of our long-term model for growth and compounding returns on investment, and equally supportive of the actions we are taking to accelerate the delivery of shareholder value. Let's open the line to your questions. Thank you. 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 do keep your questions to a maximum of two. The first question is from Celine Pannuti of JPMorgan. Celine? Yes, good morning. My first question is on the industry growth rate. You mentioned 2%. Have you seen any change into the quarter on that growth rate? What do you think is the outcome for the year? Particularly, also would like you to comment on Asia, where we see an acceleration. You mentioned an acceleration of pricing, but can you also comment on whether this acceleration is sustainable into the rest of the year, both in volume and pricing? My second question is in developed markets, where you mentioned still pricing pressure in Europe and in the U.S. Could you maybe dwell a bit more on that, seeing that pricing has returned to be negative in Europe? Why is that? Comment on the overall environment you're facing in the U.S. Thank you. Morning, Celine. Thanks for the questions. I'll maybe take the first one. Andrew, if you want to pick up the second one, that'd be terrific. Maybe we could do that together. Yeah, sure. You're absolutely right, Celine. Industry growth rate in our markets in aggregate is around two percentage points, with volume down somewhere between 0% and 1%, probably in about the middle of that range. That's unchanged, really. That's been that situation from Q4 into Q1. I would call out that a number of economies are starting to show signs of improvement as I touched on in the presentation, or at least let's call it normalization. We were sitting in a relatively extreme and very volatile mix of different market growth rates and dynamics. The indicators that we look to for that are, first of all, currencies. Many emerging market currencies seem to be bottoming out. India, Brazil, and Indonesia in particular. Pricing is starting to normalize. We've got less pricing coming through in Latin America and more elsewhere, helped by commodities. That picks up your question really around the Asian economies, where I think I called out in Q3 and Q4 that we were seeing an extreme mix of pricing, very, very high pricing in Latin America, led by the downturn in the economy there, economic crisis driving very high pricing. That was sort of masking the big story in Asia, which was basically that pricing in South Asia and Southeast Asia was at really historic lows. That was driven by the fact that the commodity prices, combined with inflation, combined with the competitive dynamic, meant that the price growth was at very, very subdued levels there. We're starting to see that come back now. You've still got stronger economies. You are seeing commodity inflation push through into those markets, and that means you'll get back to a more normalized pricing dynamic. I do think that is a turn in the trend. There'll be a delay because there's a delay between the economic fundamentals, of course, and it pulling through into consumer demand for us. I do think, inshallah, that it's sustainable because it is a return to normalization rather than the extreme situation that we saw. If I can hand to Andrew for the developed markets. Yes. Exactly that the drivers of pricing for us are really the commodity costs and currencies. Bear in mind that to the extent that we add value through innovation, we put that through in volume, not in price. That's worth bearing in mind. For the developed markets, of course, for the majority, it's all about the hard currency commodity costs. With some pickup in the hard currency commodity costs, we should expect to see a little bit more either positive pricing or less deflations. What we've seen so far is that in Europe, across almost all countries, we've had continuation of low single-digit price declines. The big exception, of course, is the U.K., where the currency has come into play, where we have taken pricing, and therefore, price growth is up. Price growth was flat in North America. I wouldn't read too much into that one way or the other. Over the previous quarters, we've seen periods sometimes where price is up a little bit, sometimes it's flat, sometimes it's down. I wouldn't read too much into one quarter for North America. Going forward, in terms of an outlook for pricing, we're not giving a very specific price outlook. It'll be part of our 3%-5% outlook, but we're not going to go as granular today as forecasting what the price growth will be for the year. I would just add, Celine, that in North America in particular, the market has, in our categories, declined by about 1% in the first quarter, that it was growing at between 1% and 2% in the second half of last year. I think all players in the sector have started to see this. There have been all sorts of reasons for why there's been a slow start in North America, but the 1% negative growth that we had in our North American business is very much in line with the market in the first quarter. Yeah. Have you seen it improving through the quarter? Through the course of the quarter, not really. It was fairly consistent. There are various theories out there as to why the U.S. consumer is relatively subdued right now, ranging from tax repayments to fuel price increases, et cetera, to a little bit of political angst. By and large, it was quite consistent over the course of the quarter. Thank you. Right, Celine. Thanks, Celine. The next question is from Alain Oberhuber of MainFirst. Alain, go ahead, please. Thank you very much. Good morning, Graeme. Good morning, Andrew. Morning, Alain. I have two questions. The first is regarding Latin America, and particularly Brazil and Mexico. There is a diversion of development, obviously, with Mexico improving, and Brazil still difficult. Could you elaborate a little bit what happened in Q1 in both these markets, and also give us an indication where these two markets should develop during 2017? The second question is regarding the different effects we had, leap year, late Easter, early New Chinese Year, which had adverse impact on the spreads business in particular. Could you say how much it was, and if you still expect spreads organic growth will be positive this year? Okay, Alain. Let me tackle the Latin America question first. You've hit the nail on the head, really. Latin America was really a tale of two halves in the first quarter. We've seen, just turning to Brazil, which we've spoken quite a lot about in Q4 as well, we saw a 10% volume decline in Brazil. The market was down between 5% and 6%. Encouragingly, that is an improvement from the negative 10% market volume decline that we saw in Q4. There's been a slowdown in the rate of decline in Brazil, but the market is still declining between 5% and 6%. Added to that, we're in a situation where I think interest rates in Brazil are around about 13%. Inflation is around about 4%. What you see within our distributors and wholesalers and within the trade is a bit of a credit crunch, if you like. You see a lot of tendency to take money out of inventory investment and put it on deposit where you're making a 13% return against only 4% inflation. It's quite a good place to invest at the moment. That has meant that we saw about one week of destocking in our Brazilian business, our volumes in Q1 were down at about 10%. We expect that to improve over the balance of this year. I think we will struggle to get Brazil itself to positive volumes during the second half of this year. It'd be great if that happened, we're not planning and expecting that that will happen. We do expect that Latin America volumes overall will get back into positive territory in the second half of this year. That would be well worth looking for. To go to the positive side of Latin America, which is every other country in Latin America, really. We've a double-digit growth in Argentina and Mexico and solid growth in Chile and Colombia. Mexico, in particular, has had a couple of quarters now of very, very strong growth for us. Very much a story of Brazil and the others. Should I pick up the second part of the- Go ahead, yes please The question I think was around the overall first quarter growth and any impact of one-offs and how you should read the first quarter growth. I think the first thing is always to remember that we do manage the business by years and not quarters, never to read too much into a single quarter. Clearly, we've been encouraged by the solid start that puts us on track for the 3%-5%. Our markets at the moment are growing at around 2% in value. We see volume slightly negative. I think if we look at our run rate, we would see ourselves as being about a percentage point ahead of the market. Clearly, there will be some effect from the one less day in the calendar from the leap year that helped last year, you can never really specifically pick that out and put a number to that. You'd also get some effect of the later Easter. We certainly saw that in the food spreads and dressings categories are typically affected by the Easter timing, there will have been some effect, again, difficult to quantify. We normally also get a positive effect when we have an earlier Easter on ice cream, similarly a negative effect when Easter is later. Of course, a lot depends on the weather in the latter part of March, actually we've had in Europe quite good weather in the latter part of March this time. Any negative effect of Easter on ice cream has probably been outweighed or fully balanced by the better weather that we had, or the good weather that we had towards the end of March. Looking ahead, for the rest of the year, Q2 will always have some weather impact on ice cream. It was a strong comparator. You'll remember last year, we've actually had two years now of strong summers, we do have a strong comparator there. We do expect an improvement in growth overall in the second half, for two reasons, really. One is that we are looking for some improvement in market conditions in emerging markets, secondly, the comparators do get a bit easier in the second half. I think, Alain, you had a question just at the end there about spreads. All I'd say there is obviously just building what Andrew has said, the Easter impact, the foods is most impacted as a category, obviously, from the later Easter. In aggregate, we had a strong start to the ice cream season that has probably offset that in aggregate when you look at foods, and within foods when you look at dressings and look at spreads in particular, that's where you see the impact of the late Easter on the volumes. Thank you much. Thanks, Alain. The next question is from Warren Ackerman of Société Générale. Warren. Good morning, Andrew. Good morning, Graeme. It's Warren here. Two questions, also. The first one is, can I get a bit more color on Asia? I'm thinking China, Indonesia, Turkey. I know you can't say too much on India. It does seem like the bounce back overall in the region was much greater than consensus was expecting. Why was China positive after being negative? You were talking about local competition in laundry previously, but now it's positive. What's happening in Indonesia? Why is Turkey double-digit given political uncertainty? If you can just flesh out some of those issues around the big beat on the Asia region, that would be great. Secondly, I know this is just a Q1 sales release, Graeme, but you do hint around phasing in your prepared remarks, especially margins. It sounds like you're still calling out that margins will be less good in H1 than H2. I was hoping you might be able to walk us through any other moving parts on growth or margins. Can I just clarify as an add-on, are you actually planning to put spreads into discontinued? Thank you. All right, morning, Warren. Thanks for the questions. Just getting to Asia first, I'll try and deconstruct some of the countries that you mentioned. In aggregate, hopefully, you picked up the message there that we had been seeing very subdued pricing growth. Overall message for Asia is that we're getting back, I think we're starting to see the start of a normalization back to more historic levels of pricing growth, hopefully, in Asia going forward and a nice balance of mix and volumes. Just to call out a couple, Turkey, which is somewhere between 2% and 3% of our global business. You're right, it's been a very volatile economic and the political situation continues to be one of high drama. There was a 13% devaluation of the Turkish lira in the first quarter. There was about 25% over last year. There has been quite a lot of price taken, our business grew at actually close to 20% in Turkey in the first quarter, very encouragingly, about a third of that came from volume. It's one of those situations where we're getting good growth from devaluation-led price increase, most importantly, a third of it comes from volume. I hate to generalize, we said this before, the business is quite resilient. The mix of the categories we're in, the basic consumer needs that we meet, our ability to downtrade, if a consumer is stretched, have the portfolio that can continue to keep that consumer engaged with our brands and our products means that we are pretty resilient when a crisis hits. I think you're seeing that in our Turkish business, which again, is a very local business. It's managed very locally. The people are on the streets. They understand the consumer well, we're able to navigate our way through these situations pretty well in Turkey. Now, turning to Indonesia. Again, we had a decent quarter in Indonesia. Indonesia had been very strong for the last two or three quarters. A slight slowdown in the first quarter. In fact, over Southeast Asia, in totality, we've got good levels of growth, low to mid-single digit growth, across the marketplace. As I said, Indonesia has been strong, started to slow a little bit. Thailand, there's still some weak consumer demand post the royal succession in Thailand. We're doing nicely in Vietnam. We've got high single digit growth in Vietnam. Philippines continues to be strong for us, mid-single digit growth with good share gain. Nice to see Australia had a strong start to the year as well. We include that in Southeast Asia and Australasia, that growth in Australia came from volume growth also. Finally, if I can just pick up in China, we did see that laundry battle in laundry ease off a little bit in the first quarter. We do think it's back and it's shifted to fabric conditioner during April, but that eased slightly. We still saw strong growth in the e-commerce channel. That grew at about 35%. That's a slowdown from where it's been. I think a couple of years ago it was about 60%, maybe 45% last year, but still remains a strong growth area, slowing down as it becomes a bigger proportion of overall market sales. We actually saw a little bit of a return to growth in the bricks and mortar channels as well. Just to pick up your point on margins, I'm very hesitant to say anything about margin in Q1, simply because we try and, as you know, keep things focused on the top line. I don't think we are particularly concerned about phasing between H1 and H2. I think that has improved since Q4 a little bit on commodities and a little bit on the focus that the business has and the drive that the business has after the strategic review. Again, with Connected for Growth and the CCBTs really starting to kick in and get traction and drive faster paced innovation across our business, I think we feel that we're on track for that at least 80 basis points of margin delivery for the full year, and we'd expect that to be pretty consistent in H1 as well. Okay. One of the reasons that we phased, we guided to a lighter first half for margin improvement was the phasing of restructuring. We're not going to give any new phasing of restructuring today. Of course, because we'll be reporting on the underlying basis, we're guiding to at least 80 basis points on the underlying basis. That won't be a factor now in the phasing. As Graeme says, we're not going to give specific guidance on the phasing today. You also asked about spreads being treated as a discontinued operation. As you know, we did take a decision to exit spreads. There are some technical things we have to go through to establish whether it classifies as a discontinued operation or not. Our intention would be to treat it as a discontinued operation, we're going through the process to see whether that's the right way of treating it. We have, of course, as you see, given you more detail on the spreads business with the Q1, we would certainly give you full transparency on spreads and intend to report it separately one way or another, probably as discontinued with the half year. As we say, we'll give you the full restatements in advance of the half year so you can adjust your models. Okay. Very useful. Thank you for that. Thanks, Warren. Thanks. Cheers. Next question we'll take is from James Targett of Berenberg. Hi there. Good morning. Morning, James. I just want to come back to you on North America. You mentioned the softening in Q1. I am just trying to get some more color on the difference between categories, particularly food and personal care, where you are seeing that most. I think we are seeing signs that personal care is getting more competitive in the U.S. in particular, and where you see that market developing. Thanks. Hi, James. Well, let me just straight into the categories in North America. We saw a greater slowdown in foods. We saw weaker consumer demand in foods. I think there is a bias in that switch of market growth going negative 1%. I think that is more impacted by foods. Of course, the impact of the later Easter is more dramatic in foods, as I said earlier, and it impacted dressings and it impacted spreads volumes in particular. Just to drill into dressings, there is a lot of intense promotional activity in North America with you know who. I think we are managing that battle very nicely. I think we are still gaining share, but it is an intense battle. We think we have got the innovation and plans to compete very well through Easter and into the summer, barbecuing season, et cetera. We are looking forward to that. In personal care, if I can break it down a little, hair care is undoubtedly the most intense category in North America with ourselves and Procter & L'Oréal, plus what used to be a local competitor in Vogue, which is OGX and now owned by J&J. We are competing very effectively in that market. It was a little bit softer market-wise in the first quarter, but we have maintained our number 1 position in daily hair care. We are very pleased to see TRESemmé jump up to be the number 1 brand in hair care in North America now, which was a real target for us. We had not talked about it, but we were internally really hoping to see that happen. We were delighted to see that pull through. In deodorants, where we're the market leader, obviously, we keep stretching our Very competitive again, but we keep stretching our market leadership. It's now over 900 basis points. The Dry Spray deodorant innovation that we launched last year and talked a little bit about, that goes from strength to strength. It's now a 6% share. The big news towards the end of the quarter in North America, and you probably haven't seen this yet, but it was on plastered all over the lead charts in our presentation for today, was that we launched Baby Dove at the end of the quarter in North America, and that's pipelining and getting listing at the moment, and it's going in nicely okay so far. It also went into the U.K. To sum up, personal care remains very, very competitive in North America, but we are winning share in personal care. In foods, we're holding our ground. It's an intense battle. It's been impacted by that weaker Easter. Actually, in ice cream, we saw some good growth in ice cream in North America, but we continue to suffer a little bit in our mainstream black tea business in North America, the powders business and the mainstream black Lipton business, which we've spoken about before. We have seen in ice cream in particular, the return of a local competitor, which is Blue Bell, who were out of action for a big portion of last year with a quality problem that they had. That's the dynamic. I hope that's helpful, James. That's great. Thanks, Graeme. Okay, good. Thank you. We have just two more questions on the line, as we'll take those and then wrap up. The first of those is from David Hayes of Baml. David. Thanks, Andrew. Thanks, Graeme. Just one quick one really for me. Just Keep on the innovation theme through the whole of the discussion we've had this morning. Obviously, the CCBT structure seems to be working in terms of making those innovations quicker and so forth. Can you quantify, is there a phasing of innovation in the business? Some quarters there's lots of innovation, then suddenly it's quiet again in the second half. If you're trying to outline that, would you say it was a particularly notably innovative period, or would you say this is the new normal through the rest of the year? Thank you. Hi, David. Andrew here. Yeah, not especially so. We have a lot of activities at any one time. If anything, when we look through and talk with the countries and the categories we see, if anything, maybe it's a little bit later weighted this year than last year. Again, I wouldn't read too much into that in terms of phasing of development of our growth. Okay. Thanks, Andrew. Thanks, David. The final question is from John Feeney of Consumer Edge. Hi. Good morning. Thanks very much. I wanted to ask about your pricing strategy in developing markets, this particularly, Graeme, you touched on this in Brazil, but with currency turning around, could you have been faster to discount maybe and drive more volume in a market like Brazil and certainly other developing markets where currencies have gone from a headwind to a tailwind? You certainly are still getting some very significant pricing that was originally currency driven. Just if you could comment about your thinking of what's going on there, if that's a deliberate thing or that's just a mechanical thing, things work the way things worked out from the markets up. My second question is on the exchange rate bridge. You commented briefly about expecting a 2%-3% positive top line impact from foreign exchange this year if rates don't move right now. I'm wondering, you say a little bit better at the bottom line. How much better, and why shouldn't that be a more pronounced impact at the bottom line when it seems like it's been more than that of a headwind at the bottom line over the past one and three years as it's been a headwind? Thanks very much. Hi, John. Good morning. Pricing strategy in emerging markets. You used the words there, is it mechanical? It's definitely not mechanical. It's very much a choice, but we have some very systematic choices that we can make. The first thing to say about how we manage pricing in the emerging markets is that it's managed at a local level, and it's very much based on balancing consumer affordability with the needs of our P&L and margin protection, repair, et cetera. The choices we typically go through, and we could make any one of these choices in a particular situation around a particular brand in a particular market, but where costs are lower, we might reduce pricing or we might invest in the brands. The reason we would choose to invest in the brands is because investing in the brands allows the brand strength that allows you to take pricing when costs start to go up again. You have to have that brand strength, obviously, in order to take pricing in the future. Where costs are higher, we look either to recover it in pricing, but we always do that, as I said, subject to affordability at a consumer level. It's a very dynamic environment. It's managed locally. They are the two typical choices that take place. You will get situations such as you touched on in your question, where commodity costs have gone up. There's a lag on that, obviously. Pricing goes into the marketplace. In most of our big developing markets, we're the price leader. People look to us to move pricing forwards. We will then be very carefully looking to see if the marketplace and our competitors have followed. Most often they do. Sometimes they don't. There were examples in India in skin cleansing last year where we moved pricing up. The market did not follow, and we had to adjust down through promotions, et cetera, in order to establish things back, because we need to remain competitive in those situations. It's very dynamic. I have to say, it's a great place to be working in our emerging markets because this dynamism of constant pricing is just a fact of life, and you get quite good at it over the years, et cetera. It's very much around the decision to whether to maintain, whether you invest in the brand, whether you invest in making sure that the prices are affordable, and then you will have periods of lag where you end up having raised price, but commodity costs come down and you get a little bit of margin expansion coming from that. Andrew, if I can ask you to pick up the question on FX and earnings. For this year, we said 2%-3% positive impact on turnover. A little bit more, that would be 3%-4% on EPS that we'd expect to benefit. You pointed out that in previous years, not last year, but in earlier years than that, we'd had quite a significant delta, and that's really driven by our overheads ratio, and there are two factors behind that. One is the weaker emerging markets we were seeing in previous years, weaker emerging market currencies. The other was, of course, that we had, in previous years, had a stronger sterling, which pushed up our U.K.-based costs. Today, we're really looking at the reversal of that sterling effect as being the significant impact. With a weaker sterling, that does have some effect on the EPS, but it's spread over 2016 and 2017. Perhaps not as big an impact as you might have thought, but it's there. It gives us an extra 1% or so at that bottom line. That's, to be clear, the translation effect that we're talking about, is simply translating and reporting our numbers into euros. Thank you. If that's clear, we'll wrap up there. Thank you very much indeed for your time. Of course, if there are further questions, Aneka Souben and I will be happy to take them as soon as we get back to our desks, and enjoy the rest of your day. Thank you. Thanks, everybody. Bye-bye. This conference has been recorded. Details of the replay can be found on Unilever's website and will be available shortly. Thank you.