We are about to hand over to Unilever to begin the conference call.
Update. Let me hand straight over to Graeme Pitkethly, our CFO. Graeme?
Thank you, Andrew. Good 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 2,009, the forecasts for this year are now looking a little better.
Employment levels in the developed markets are improving, and many of our key emerging market currencies like India, Brazil and Indonesia appear to be bottoming out. Commodity inflation is returning. And 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, and that, I think, will remain a defining feature of the markets in 2017 at least. But 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 Q1, market value grew by just 2% globally, and 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 Q1 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% 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 frontline 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 trap capacity as we can do more with fewer layers and touch points and so fewer people. And the disruptive thinking that 0 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 has now been 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 2 months.
At the same time, flexibility in our model allows us to build scale in new segments and channels. Our prestige brands continue 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 hair care. 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 Q1, we introduced Domestos Acti Power 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 Brianta 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. And in China, we launched a millennial inspired Sakura variant.
Acquisitions are helping us to extend our portfolio into faster growing segments. 7th generation continues to grow well in the U. S. And is 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 Mealmakers 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 Calve brand.
And in the U. S, the new CCBT has launched 5 innovations in the Q1, 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 6 months. Our Food Solutions business, which caters to professional chefs, has had another quarter of good growth. Refreshment grew strongly in the Q1, benefiting from our strategy of premium innovation and building in higher growth segments.
In ice cream, we've launched a new Ben and 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 Carnetto 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 3 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. So 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, 7th Generation and Blueair, we have added well over €1,000,000,000 of turnover in the last 2 years. And individually, these businesses all have the potential to go on to become €500,000,000 businesses or more in their own right in time.
Now I'll hand over to Andrew to talk us through the development of turnover and the regional performance.
Thank you, Graham. Turnover increased by 6% in the Q1. Underlying sales growth of 2.9% was driven by pricing of 3%. Volume was virtually flat, including the effect of 1 less day in the calendar. For the past 3 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're 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% turnover, partly offset by a series of small disposals to give a net M and 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 balanced by the weaker sterling in the UK. If exchange rates were to remain as they are today for the balance of the year, we would expect a positive effect of 2% to 3% on turnover for the year as a whole and a little more than this on EPS. Now 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'll 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 4th 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% to 6%. And that's an improvement on the high single digit decline of the 4th 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 destocking in the Q2, 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 UK, 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. And with that, I'll hand back to Graham.
Thanks, Andrew. Let me conclude by briefly recapping the outcome of the review which we announced 2 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 multichannel, 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 Fronari 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. So 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 0 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 and A line with our strategic objectives for each category.
And we announced that we will be reviewing our dual headed legal structure in the remainder of this year with a view to simplifying it. This will give us greater flexibility for a 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% to 5% on average over the period. The accelerated savings, 2 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. And cash contributions to pensions will reduce by around €100,000,000 per year following a one off injection of around €700,000,000 which we will make to our funds during the Q2. We continue to target our return on invested capital, including goodwill, in the high teens. We will increase our leverage, targeting a net debt to EBITDA ratio of 2x, equivalent to 2.6x on the adjusted basis used by Moody's.
To make a start towards this new leverage target, we will launch a share buyback of €5,000,000,000 beginning in the second quarter. As I explained 2 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 get 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. And 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% to 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. And finally, since we announced the outcome of the strategic review 2 weeks ago, Paul, Marijn, Andrew and I have met with more than 100 of our investors, representing nearly half of our shareholder base. We 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. Now let's open the line to your questions.
And the first question is from Celine Panuti 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? And what do you think is the outcome for the year?
And 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 steel pricing pressure in Europe and in the U. S. Could you maybe dwell a bit more on that?
I think that pricing has returned to be negative in Europe, why is that? And comment on the overall environment you're facing in the U. S?
Celine, thanks for the questions. I'll maybe take the first one, Andrew, if you want to pick up the second one, that would be terrific. Or maybe we could do that together. Yes, sure. So you're absolutely right, Celine.
Industry growth rate in our markets in aggregate, is around 2 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. But 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.
Now the indicators that we look to for that are, 1st 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. Now 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, their economic crisis driving very high pricing. But 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.
Now 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. And I do think that is a turn in the trend.
And 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. But I extreme situation extreme situation that we saw. If I can hand to Andrew for the developed markets.
Yes. And exactly that the drivers of pricing for us are really the commodity costs and currencies. And bear in mind that to the extent that we add value through innovation, we put that through in volume, not in price. So that's worth bearing in mind. And for the developed markets, of course, for the majority, it's all about the hard currency commodity costs.
And with some pickup in the hard commodity currency hard currency commodity costs, we should expect to see a little bit more, either positive pricing or less deflation. 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 one way or 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. So I wouldn't read too much into 1 quarter for North America. And going forward, in terms of an outlook for pricing, we're not giving a pricing, a very specific price outlook. It will part of our 3% to 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 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. It was growing at between 1% 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 Q1.
And have you seen it improving through the quarter?
Through the course of the quarter, not really. It was fairly consistent. I think everybody
is 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, etcetera, to political a little bit of political angst. But by and large, it was quite consistent over the course of the quarter.
Thank you.
Thanks, Celine. Thanks, Jean. The next question is from Alain Oberhuber of MainFirst. Alain, go ahead please.
Thank you much. Good morning, Andrew. I have two questions. The first is regarding Latin America and particularly Brazil and Mexico. There's a diversion of development obviously with Mexico improving and Brazil is 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? And the second question is regarding the different effects we had, LEAP, BLA, these to early new Chinese year, which had an 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 tale of 2 halves in the Q1. We've seen just turning to Brazil, which we've spoken quite a lot about in Q4 as well, but we saw a 10% volume decline in Brazil.
Now the market was down between 5% 6%. Now encouragingly, that is an improvement from the negative 10% market volume decline that we saw in Q4. So there's been a slowdown in the rate of decline in Brazil, but the market is still declining between 5% 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 the within our distributors and wholesalers and within the trade is a bit of credit crunch, if you like.
You see a lot of tendency to put take money out of inventory investment and put it on deposit where you're making a 13% return against only 4% inflation. So it's quite a good place to invest at the moment. That has meant that we saw about 1 week of destocking in our Brazilian business. And so 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 would be great if that happened, but 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 have a double digit growth in Argentina, in Mexico and solid growth in Chile and Colombia.
Mexico, in particular, has had a couple of quarters now very, very strong growth for us. So very much a story of Brazil and the others.
Should I pick up the second part of the the question, I think, was around the overall Q1 growth and any impact of one offs and how you should read the Q1 growth. The first thing is always to remember that we do manage the business by years and not quarters. And let's so never to read too much into a single quarter. But clearly, we've been encouraged by the solid start that puts us on track for the 3% to 5%. Our markets at the moment are growing at around 2% in value.
We see and we see volumes slightly negative. I think if we look at our run rate, we would see ourselves as being about 1% a point ahead of the market. Now clearly, there will be some effect from the one less day in the calendar from the leap year that helped last year, but 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.
So 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 and similarly a negative effect when Easter is later. But of course, a lot depends on the weather in the latter part of March. And actually, we've had in Europe quite good weather in the latter part of March this time. So 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.
Now looking ahead for the rest of the year, Q2 will always have some weather impact comparator. You'll remember last year, we've actually had 2 years now of strong summers. So we do have a strong comparator there. But 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.
And 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. And 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. Whilst 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 very much.
Thanks, Alain.
Okay. And the next question is from Warren Ackerman of SocGen. Warren?
Good morning, Andrew. Good morning, Graham. It's Warren here. Two questions also. The first one is, can I get a bit more color on Asia, thinking China, Indonesia, Turkey?
I know you can't say too much on India, but 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 sort of flesh out some of those issues around the big beat on the Asia region, that would be great. And then secondly, I know this is just a Q1 sales release, Graham, but I mean, you do sort of hint around sort of 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. But I was hoping you might be able to walk us through any other moving parts on growth or margins. And can I just clarify as an add on, are you actually planning to put spreads into discontinued?
Thank you.
Good morning, Warren. Thanks for the questions. Just getting to Asia first, and 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. And 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. But just to call out a couple, I mean Turkey, which is somewhere between 2% 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 Q1, and it was about 25% over last year. So there has been quite a lot of price taken. And our business grew actually close to 20% in Turkey in the Q1.
But very encouragingly, about a third of that came from volume. So it's one of those situations where we're getting good growth from devaluation led price increase. But most importantly, a third of it comes from volume. I hate to generalize, but we said this before, the business is quite resilient. The mix of the categories we're in, the basic consumer needs that we meet and our ability to down trade and if 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.
And I think you're seeing that in our Turkish business, which again, it's a very local business. It's managed very locally. The people are on the streets. They understand the consumer well, and we're able to navigate our way through these situations pretty well in Turkey. Now turning to Indonesia.
We've seen a again, we had a decent quarter in Indonesia. Indonesia has been very strong for the last 2 or 3 quarters, a slight slowdown in the Q1. In fact, over Southeast Asia, in totality, we've got good levels of growth, low to midsingledigit 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, but we're doing nicely in Vietnam.
We've got high single digit growth in Vietnam. And 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, and 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 Q1.
We do think it's back and it sort of 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%. Now 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. And 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. But 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. And 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 expect that to be pretty consistent in H1 as well.
Okay.
And one of the reasons that we phased we guided to a lighter first half for margin improvement was the phasing of restructuring. Now we're not going to give any new phasing of restructuring today. But 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. So as Graham says, we're not going to give specific guidance on the phasing today.
You also asked about spreads being treated as a discontinued operation. And as you know, we did decide 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, but we're going through the process to see whether that's the right way of treating it. Anyway, we have, of course, as you see, given you more detail on the spreads business with the Q1.
And we would certainly give you full transparency on Spreads and intend to report it separately one way or another, probably is discontinued with the half year. And as we say, we'll give you the full restatements in advance of the half year, so you can adjust the models.
Okay. Okay, very useful. Thanks, guys.
Thanks, Warren. Thanks. Cheers. Next question will take from James Targett of Berenberg.
Hi, there. Good morning. Good morning.
I just
want to
come back to you on North America. You mentioned the softening in Q1. I'm just trying to get some more color on the difference between categories, particularly Food and Personal Care, where you're seeing that most. And 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?
James, well, let 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's 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's a lot of intense promotional activity in North America with you know who. And I think we're managing that battle very nicely. I think we're still gaining share, but it is an intense battle, and we think we've got the innovation and plans to compete very well through Easter and into the summer, barbecuing season, etcetera. So we're 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 in Procter and L'Oreal plus what used to be a local competitor in Vogue, which is OGX, and now owned by J and J. But we are competing very effectively in that market. It was a little bit softer market wise in the Q1, but we've maintained our number one position in daily hair care. And we're very pleased to see Tresumae jump up to be the number one brand in hair care in North America now, which was a real target for us. We hadn't talked about it, but we were internally really hoping to see that happen, and 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. And 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. And 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. So to sum up, Personal Care remains very, very competitive in North America, but we are winning share in Personal Care. In Foods, we are 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. And 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 the quality problem that they had. So that's the dynamic.
I hope that's helpful, James.
That's great. Thanks, Graham.
Okay, good. So we have just 2 more questions on the line as we'll take those and then wrap up. And the first of those is from David Hayes of BAML. David?
Thanks, Andrew. Thanks, Graham. Just one
quick one really for me. Just to get 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. But can you of quantify, is there a phasing of innovation in the business? Some quarters, there's lots of innovation, and then suddenly it's back it's quiet again in the second half.
If you're trying to talk outline that, would you say it was a particularly notably innovative period? Or would you say this is the new norm through the rest of the year? Thank you.
Hi, David. Andrew here. Yes, 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.
But again, I wouldn't read too much into that in terms of phasing of development of our growth. And the final question is from John Feeney of Consumer Edge.
Good morning. Thanks very much. I wanted to ask about your pricing strategy in developing markets and 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. So just maybe 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?
And my second question is on the exchange rate bridge. You commented briefly about you're expecting a 2% to 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 1 3 years as it's been a headwind? Thanks very much.
Hi, John. Good morning. So pricing strategy in emerging markets, you used the word 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.
So 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 and L and margin protection, repair, etcetera. And the choices we typically go through, and we could make any one of these choices in a particular situation around a particular brands. The reason we would choose to invest in the brands is because investing in 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. So it's a very dynamic environment. It's managed locally. They're the 2 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. And 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, etcetera, in order to establish things back because we need to remain competitive in those situations. But it's very dynamic.
It's 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, etcetera. But 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 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.
Yes, sure. So for this year, we said 2% to 3% positive impact on turnover, a little bit more. That would be 3% to 4% on EPS that we'd expect the 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 2 factors behind that. 1 is the weaker emerging markets we were seeing in previous years, weaker emerging market currencies. And the other was, of course, that we had in previous years had a stronger sterling, which pushed up our U. K.-based costs. Now hit today, we're really looking at the reversal of that sterling effect as being a significant impact.
So with a weaker sterling, that does have some effect on the EPS, But it's spread over 2016 2017. So 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. So with that, that's clear, then we'll wrap up there.
And thank you very much indeed for your time. And of course, if there are further questions, then Ansska, Bekki 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.
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