About to hand over to Unilever to begin the conference call. Please ensure you are calling from a landline telephone and not a mobile phone. Please avoid using a speakerphone to ask your We will now hand over to Andrew Stephens.
Good morning, and welcome to Unilever's full year results presentation, which will be given by Paul Polman and Graeme Pitkeffley. Paul will take us through the headlines of the results and progress against our strategic objectives. Graeme will review the financial performance and the outlook for 2017. We will then take your questions and Paul will wrap up with some concluding remarks. As usual, I draw your attention to the disclaimer relating to forward looking statements and non GAAP measures.
With that, let me hand over to Paul.
Well, thank you, Andrew. And as we're still in January, may I wish you a Happy New Year to you and your loved ones. After the unpredictable events in 2016, this year promises to be more of the same. The upheaval and accelerated change I talked about before that is actually shaping the environment that we operate in is set to continue. So due to economic growth, geopolitical tension, the resultant backlash against globalization and technology, a planet under increasing environmental stress and the fragmentation of consumer trends, shopping channels and media.
Brexit and the U. S. Elections, in my opinion, have further added in the medium term to these uncertainties. For a business like ours, many of these challenges also represent opportunities. Each year, we see more clearly the benefits from having made an early start with the Unilever Sustainable Living Plan as a builder of reputation, trust, talent attraction as an important contributor to cost savings in derisking the supply chain and most importantly, as a driver for innovation and long term growth.
Looking forward, it's the pace of change and related uncertainties that make the Connected for Growth transformational program particularly important. We're already starting to see the evidence of how this next stage in our change journey will ensure we stay ahead in this fast moving world, making us more agile, faster, more connected with our consumers and customer base, and ultimately, freeing up the funds to accelerate innovation and growth. In 2016, our business once again demonstrated a good all round performance despite I would call very challenging market conditions in some of our larger markets specifically, notably India, Brazil, Turkey, especially over the latter part of the last year, which we expect to continue over the first half of twenty seventeen. For the year as a whole, we have met each of our three priorities, with the growth ahead of our markets in both volume and sales Secondly, accelerating improvement in margin despite absorbing higher restructuring costs and another year of strong cash flow, equaling a very strong year in 2015. At the same time, we continue to strengthen delivery against each of our 4 category strategies.
I will come back to the results in a moment, but first, I think it's important to understand the market context in which these results have been achieved. Global GDP growth was downgraded to an estimated 2.3%, the weakest since 2009. Consumer confidence dropped further in most major geographies. A number of markets where we have some of the largest businesses saw the effect of unique country related shocks. Be it the unexpected and immediate demonetization in India, the deepening economic crisis in Brazil, sharp currency devaluations in the U.
K, Turkey, Egypt and many others. Now Graeme will talk more about the impact of these and how we are managing through them in a moment. But the big picture is that the global market growth in our categories in terms of volume was flat for the year. Including pricing, value market growth was between 2% and 2.5% for the year. In the Q1 in the 4th quarter, value market growth slowed down to just 2% with volume slightly down.
Against that background, the 2016 results again demonstrate the 4 gs model of growth that we're looking for, consistent, competitive, profitable and responsible. Underlying sales growth of 3.7% was well within our target range. The growth was ahead of our markets and 60% of our business actually winning share. The subdued volume growth of close to 1% reflects the unusually dynamic environment and was again ahead of the market growth. We increased core operating margin by 50 basis points.
This represents an acceleration of the steady 20 to 40 basis points per year of the last few years and is ahead, obviously, of the targets we have set after absorbing the 30 basis points higher restructuring costs associated with the connection for growth program. And again, we see the evidence that sustainability is increasingly a long term driver of growth. Consumer interest and demand for responsible brands is consistently increasing. And those of our brands which meet the highest standards that we set for social and environmental impact are more resilient than the rest of our brands in 2016. The fundamentals of our business also continue to strengthen behind consistent strategy and investment.
Our portfolio is more focused and increasingly more aligned to the long term, more attractive categories and segments. Our brands continue to strengthen. The last Kantar World Panel report showed that Unilever had 12 of the top 50 global FMCG brands compared to 7 for the nearest competitor. Strong innovation and consistent investment in brand equities underpinned the improvement in our gross margin, which was up, as I mentioned, another 50 basis points in 2016. Discipline and execution is also getting better.
The efficiency of our supply chain was recognized externally, taking the top spot in the Gartner ranking for the first time last year. More importantly than this are the internals. Customer service is at an all time high, and at the same time, we have our lowest ever level of stock and working capital. And our people are more engaged than ever. With 91% proud to say they work for Unilever, this is well above the benchmark level.
We are benefiting from increased diversity, with 46% of our managers now women, up from 38% in 2010. The new reward framework that will be put to the AGM in April will reinforce, in my opinion, this high level of engagement. It will be a further major step in aligning rewards for all of our managers with the performance and objectives of the business, and I will return to this in a moment. In 2016, results demonstrate clear progress against the strategic objectives that we have set for each of our 4 categories. In Personal Care, our priorities are to grow the core whilst building the premium segment.
Underlying sales grew 4.2%, and our premium brands, those with a price index more than 20% above the average of the market, now represent 30% of the portfolio. And yes, we continue to build our prestige business with all brands growing in line with our plans. Now for food, our objectives are to accelerate growth whilst maintaining the strong cash flow. Underlying sales growth improved again to 2.1%. Savory and dressings again grew competitively well above this.
Spreads continues to drag on the total growth of food. You may remember that last year, we said that the performance of the BCS unit, the spreads unit, should be assessed through the course of 2016. While the rate of decline of spreads driven by rapid market contraction has continued in mid single digit. However, through the new unit that we've set up, we've been able to more than offset the operating impact of the losses of volume with savings, and we increased the cash profit that we have by over $80,000,000 As long as we continue to generate more value as owners of this business than we would receive through any other options, we should continue to manage this business and protect our value. In Home Care, the priority is profitability, and core operating margins improved by a further 2 10 basis points to nearly 10%, almost achieving our medium term targets of double digits and yes, well ahead of time.
Home Care growth remains robust at 4.9%. And finally, refreshments. They also made good progress against its goals whilst delivering a USG of 3.5% on the back of a very strong year in 2015. Our return on invested capital in ice cream has increased by more than 300 basis points over the last 2 years and is now 15%. Over the same period, cash flow has also stepped up.
We have strengthened our portfolio with onethree of our ice cream sale now in premium positions. Tea had another year of solid growth as we extend into the more attractive premium segment where we outpaced segment growth to particularly compensate for the low growth in the bulk of our business, which is still the regular black tea segment of the market. In volatile and difficult markets, the role of innovation to deliver consistent growth becomes even more important than ever. In 2016, innovations have again been the engine of our growth, and I'm encouraged by the fact that we again are delivering more innovation with truly differentiated product benefits and rolling them out faster to more markets. At the heart of our strategy is product superiority.
Products which outperform key competition or bring new distinctive consumer benefits. A very good example of that is the launch in the U. S. Of dry sprays across our deodorant portfolio. With a growth of 40%, they have further widened our market leadership in this segment.
More importantly, they're also driving growth for the category as a whole, which is good for our customers as well as our trade partners. In Home Care, a focus on margin accretive innovation has led us to develop some of the best innovations yet like Surf Sensations, the first ever fabric cleaning product to deliver a superior sensorial experience, helping to drive double digit growth for the brand. We're also getting better at innovations that we can scale faster, like the Rexona antibacterial, which is now rolled out to more than 50 markets. Our Helman squeeze packs now in more than 30 countries. Key to developing meaningful innovations and outperforming our markets is the need to pick up and respond quickly to trends, whether they are local or global.
I'm pleased with the progress we've made to evolve our portfolio towards higher growth segments. And here, you can see just a few examples. Although the full effect of some of these examples will be seen more over the second half of twenty seventeen. The Natural segment is one of the fastest growing segments in most of our categories, and we have introduced many innovations, some on the global brands like Trussme and Knorr and some as local brands. I use as an example of that a brand of Ayurvedic medicine and remedies in India, using natural ingredients to treat skin, hair or oral problems.
In the Q4, we rolled out a range of new variants across Personal Care, the largest multi category launch we've ever undertaken in India. And the launch of Lipton Matcha is just one of a number of existing new variants in green tea. In male grooming, we often talk about X. But Dove Men Plus Care, a brand which we created from scratch only 7 years ago, with many skeptical at that time about its success, is now well over €500,000,000 and yet shows another year of strong growth. To spot these trends, it's key to be close to our local markets as well as consumers, not only to react fast in market, but also because trends that first appear in a particular market now go global faster than any time before.
There is indeed a premium on speed. So we are building greater flexibility in our organization to bring innovation to market faster than ever before. And I'm pleased that we are already starting to get early benefits from the mindset shift that comes with our Connected for Growth program. The chart shows many examples where we have more than halved the innovation time for some of our launches. Let me just point out a few.
Luxe Luminex is a silicone free shampoo which went from idea to launch in only 5 months, taking us to the number one position in Japan. It's now also in China and doing well. In the U. K, we launched the veins of Hellmann's barbecue sauces, just 6 months after the initial idea. And one of our larger innovations in 2016 is Tresemme Botanique, which went from idea to launch in only 10 months.
Increasingly, as we're implementing Connected for Growth, we will have the mindset of launch fast, fail fast and scale the successful ones even faster. We complement our innovation program with acquisitions, which further strengthen our overall portfolio. Last month, we announced the acquisition of another brand in prestige with Living Proof, which supplies truly breakthrough science to solve people's hair problems. Dollar Shave Club expanded our presence in male grooming with a strong brand that is particularly appealing to millennials. It grew around 50% last year, although this is not yet in our underlying sales growth, of course.
Blueair marked our entry into the air purifier market with a bias towards China at this point in time. Again, that brand was growing 80% for the year. It's a huge opportunity in a world where 8,000,000 people die prematurely every year of air pollution effects. And finally, 7th generation in home care. It brought us a well established and increasingly relevant brand in the fast growing natural segment in the U.
S. At the same time, we're developing new channels, both organically as well as through acquisitions. In refreshments, we're finding new ways to build the equity of our brand through our retail operations. This applies to brands like Brad and Jerry's or Magnum as well as recent acquisitions of T2 and Grom. Dollar Shave Club brings experience of a very different direct to consumer subscription model and a high level of 1 to 1 engagement with the brand and its growing product range.
And we are building our capabilities with e retailers like Amazon, gd.com or Alibaba. In fact, in total, we now have an e commerce business of well over €1,000,000,000 growing at 50% per year. In most businesses, our online shares are similar or higher than our offline shares. In China, the U. K.
And the U. S, our online shares are similar to our offline shares. In India, we are amongst the innovators in this channel. And not surprisingly, our online shares are actually higher than offline. I've talked about innovation, evolving the portfolio and developing new channels.
These are some of the building blocks of Connected for the Growth Change program, which Graeme took you through at our Annual Investor Day at the end of November. At the heart of Connected for Growth is the organizational and core process changes that help us to become faster, simpler and more agile, with fewer decision points and more resources placed directly in our markets, an organization that is more consumer and customer centric and more competitive for the connected world. We're now well into the implementation phase and aim to have it largely in place by the Q3 of this year. Speed of implementation is key to ensure that we deliver competitive growth, but equally important is obviously to implement it well. Underpinning these changes are 3 programs to build our agility and capabilities: net revenue management, 0 based budgeting and digital 2.0.
The latter one delivering consumer centric, data different, multichannel media with a mobile fast approach. The final enabler will be the proposed new reward framework that I referred to a little bit earlier. The full details of the plan, which follows consultation with our largest shareholders, will be shared ahead of the AGM. For now, let me just outline the key points. The new framework is simpler with fewer components to the total packets.
It will encourage greater share ownership. There will be a greater requirement to invest in Unilever shares in order to receive the same level of target reward. Starting at the most senior levels, we will extend this approach to all of our 15,000 managers worldwide over the next 2 to 3 years. The annual performance targets are unchanged, underlying sales growth, core operating margin and free cash flow. It will also be a longer term plan.
2 existing plans will be replaced by a single co investment plan, realized over a 5 year period instead of 3. The targets will be clearly aligned to the drivers of long term shareholder value creation, underlying sales growth, core EPS, sustainability and for the top level of management, return on invested capital. Finally, the plan is designed to be cost neutral, with the total amount of compensation maintained at the current level. I'll now hand over to Graeme for the 2016 financial results and the outlook for 2017 in more detail. Graeme?
Thank you, Paul. Good morning, everybody, and let me also wish you a very happy and successful New Year. Let's start as usual with the development of our turnover. Underlying sales growth of 3.7% for the year was 0.9% from volume and 2.8% from price. M and A turned positive for the first time in 5 years, contributing 0.6%.
And movements in exchange rates had an impact of negative 5.1%, leaving turnover overall down 1%. The largest currency impacts were in Latin American countries and the U. K. Looking forwards, if today's exchange rates were to remain unchanged for the rest of this current year, then the currency translation effect on 2017 would be neutral on turnover and slightly positive on earnings per share. As usual, we're focused here on the full year, but it's worth reflecting a little on the reasons why underlying sales growth and volume growth in particular was stronger in the first half of the year and weaker in our second half.
Now there are two parts to this. Firstly, the comparators from 2015 when our growth was weighted to the second half of the year. And secondly, the impact of the country specific external shops, which Paul referred to. These particularly affected volumes in some of our largest markets in the Q4. In India, on the 8th November, the government removed the 2 most frequently used currency notes from circulation.
This was an important and indeed a welcome move for the medium and longer term, but in the short term, the resulting liquidity crunch put huge pressure on consumers and on wholesalers in the Q4. The effects of this will continue to be felt for a while yet. In Brazil, rising unemployment and reduced consumer confidence meant that the contraction of consumer spending power and down trading accelerated through the second half of the year. In fact, in the 4th quarter, market volumes declined by almost 10%. Our own business is holding up well in these conditions, benefiting from the work we've done to strengthen our lower tier brand propositions to capture some of the down trading as it happens.
We are gaining share in laundry, but ice cream suffered in the Q4 in Brazil from both the economy and a poor summer. In a number of countries, we faced disruptive increases in the cost of the materials that we use to make our products. In some cases, this is from sharp currency devaluations, around 20% in the U. K, Turkey and Mexico and 60% in Egypt, for example. In other cases, it comes from increases in commodity costs.
Brent crude, Pan Kerner Oil and LAB are up by between 60% 70% over the last 12 months. We see the impact of this particularly in categories like skin cleansing and laundry. These sharp cost increases require pricing and sometimes a temporary decline in volumes as consumers and retailers adjust. In emerging markets, the key points we watch are the affordability of our products for consumers and the actions of local competitors. In some cases, as was the case in skin cleansing in India, the impact of the transition to the new consumer price levels can be significant.
In developed markets, the bigger impact generally comes from the retail dynamics. As cost increases are put through, there's often a reduction in promotional activity for a period of time. If competitors increase their promotions during the transitional period, it impacts our volumes. And we see that at the moment in Laundry in the U. K.
And France, for example, and skin in the U. S. In all cases, our model is one of consistent investment to protect and build our brand equities. And if you manage through commodity and currency cycles, there is no change to our focus on competitiveness measured through both volume and value share. It is by focusing this way and having a broad portfolio that we are able to deliver consistent returns through these challenging markets.
Our core operating margin increased by 50 basis points. Gross margin was also up by 50 basis points with mix improving as a result of both margin accretive innovations and M and A. Supply chain improvement programs again delivered more than €1,000,000,000 of savings and were again largely reinvested in offsetting cost inflation to maintain competitiveness and affordability in markets where real consumer incomes are under pressure. Commodity costs in local currencies increased in 2016 by lowtomidsingledigits, largely driven by currency devaluation. At today's commodity prices and exchange rates, we would expect a mid single digit rise in commodity costs in 2017, with a bigger increase than this in the first half of the year.
Brand and marketing investment was maintained in absolute terms in local currencies and reduced as a percentage of turnover by 40 basis points. A little over half of our 0 based budgeting program is directed at brand and marketing investment, and we're starting to see some encouraging early results here. Our overheads increased by 40 basis points. Now there are two reasons for this. Firstly, the implementation of Connected for Growth brings higher restructuring costs, which were up by 30 basis points in 2016 and which we fully absorb within our overheads.
This will continue in the first half of twenty seventeen. The savings from this restructuring investment will be progressively realized during this year. As a reminder, the total savings, including the organizational changes and ZBB, are expected to be at least €1,000,000,000 by 2018 across both brand and marketing investment and overheads. The program will extend beyond this as we take it to further countries and deeper into our supply chain. The other reason for the increase in overheads last year is that several of our acquisitions and new business models like retail operations have very different cost structures to a traditional model.
They typically have higher overheads and correspondingly higher gross margins. Our base overheads, reflecting the underlying cost base of the business, showed a further reduction in 2016. Core earnings per share increased by 3 percentage points at current exchange rates to €1.88 At constant exchange rates, the increase was 7%. Operational performance, which is the combination of growth and margin, contributed 7.5%. Financing costs reduced core EPS by 1.5%.
This came in part from the higher net debt following acquisitions It also reflects reduced interest income on cash deposits, particularly in Argentina, following the relaxation of restrictions on remittances, and in India, where rates have come down. Looking ahead to the next few years, net financing costs are expected to reflect an interest rate on net debt of around 3.5%. The tax rate was slightly lower than last year at 26.1% and included some favorable tax audit settlements. This added 0.7% to core EPS. Our expectation for the tax rate going forward is around 27%.
Finally, currency translation reduced core EPS by 3.7%. Free cash flow for the year was €4,800,000,000 in line with the strong delivery in 2015. The average working capital ratio for the year improved yet again and is now negative 6.6%. Capital expenditure at 3.6 percent of turnover continues to reduce as planned. This follows earlier years of catch up investment, and we expect to bring it down further to a range of between 3% and 3.5% going forwards.
Looking briefly to the balance sheet. Net debt at the year end was €12,600,000,000 which is an increase of €1,100,000,000 During the year, we invested €1,700,000,000 in acquisitions. This includes the businesses that Paul referred to earlier and further investments to increase our shareholdings and subsidiaries. In Nigeria, we raised our shares further to 60%, and we bought out the minority shareholding in Egypt and surrounding countries. Goodwill has increased as a result of the acquisitions we've made and the strengthening of the U.
S. Dollar during the year. This has brought our return on invested capital down by 1 percentage point to 17.9%. Over the medium term, we aim to maintain return on invested capital in the high teens. The IAS 19 pension deficit increased in the year from €2,300,000,000 to €3,200,000,000 This is a result of lower corporate bond rates used to discount our liabilities compared with those at the start of the year.
The higher deficit means the pension financing charge will increase by some €20,000,000 in 2017 to around €110,000,000 At the investor event in November, I explained that we will be carrying out a funding review of our pensions. This could include a onetime cash injection to reduce future cash requirements, and we'll update you on this once a firm decision is made. Finally, a few words on the outlook for this year. Our priorities are unchanged. Firstly, volume growth ahead of our markets.
We expect this to translate into underlying sales growth in the range of between 3% 5%. The Q1 is likely to be slower than this. The country specific factors, which affected the latter part of 2016, are likely to persist to varying degrees at the start of 2017 before progressively improving in the remainder of the year. Q1 will also be affected by the later Easter and one less day in the calendar. Secondly, further improvement in core operating margin.
We expect this to be in the lower half of the new 40 to 80 basis points range, and it will also be back weighted. Now there are three reasons for this. First, the increase in commodity costs is likely to be higher in the first half of the year. Secondly, the higher restructuring costs we absorb as we implement Connected for Growth will also be front weighted. And thirdly, while the savings from this restructuring and zero based budgeting come through and will be rigorously delivered throughout the year.
The 3rd priority remains strong cash flow. Over time, we expect the ratio of free cash flow to core net profit to be around 90%, although this will, of course, vary year to year given the high sensitivity to year end working capital positions. And with that, let's move on and take your questions.
Thank
And I see the first question is from David Hayes of Bank of America Merrill Lynch. David, please go ahead.
Good morning. Thanks, Andrew. So just 2 for me then. So firstly, just in terms of the organizational change that you talked about back in December and obviously you talk now about implementation. Just wondering whether there's any kind of disruption that comes from that kind of shift, whether the business is slightly defocused or refocused on not getting that in place and whether that kind of also falls away through 2017 as the implementation gets completed?
And then secondly, sort of picking up on some of the comments around Dollar Shade Club performance and so forth, obviously, some of the new prestige personal care businesses like Dermalogica and Murad came into the base in the Q4. I wonder if you could just be specific about what kind of performance you might be seeing in those acquisitions? And I guess more generally on those, how those businesses look different a year on following the acquisition and being part of Unilever? Thanks very much.
Yes. Thanks, David. On let me just take each of them in sequence. On the disruptions on Connected for Growth, it's no doubt that Connected for Growth is one of the biggest organizational changes we've made in the company. And you see the effects coming through even earlier than we expected with the 50 basis points operating expense despite having invested 30 basis points in restructuring.
And we'll do the same still over the next 6 to 9 months maximum as we put the whole program in place. Would you like to have done it a year earlier or 6 months earlier? Possibly, but we're not in that situation. We're implementing it with prudence because it requires most people to take new jobs, new responsibilities. Processes need to be changed.
And as a result, we prefer to implement it properly than rushing it. There, the question is with the slower sales growth that we're seeing over the last quarter, is that result is that related to connected for growth? And that's a fair question, but I don't think so. I think if you really look at the slightly softer growth that we're seeing over this period, it really traces back to some of the elements that we need to deal with as one offs in a very tough environment. The demonetization in India, which we can undoubtedly talk about later, is a key effect that has really softened the markets there, and we just simply have a big business there.
And the same in Brazil. In both markets, we're outperforming competition. We're reporting performance actually that is better than competition as far as we can see. But we have to get through this and continue to do the right thing for the long term. I personally don't think they're related to our move to Connected for Growth, which is absolutely needed, And certainly, we'll put the company in a better position as we move forward.
On the Prestige businesses, we're actually doing pretty well. We're pretty happy with the businesses that we bought, as you are well aware of. We have enormous fortune with our Prestige businesses in the last NPD data, for example, the Unilever Prestige brands all outperformed the market. Murat growing double digit in that data. Dermalogica growing double digit.
Kate Somerville growing high single digit. Now adding Living Proof to that, which is a very healthy brand. So we think that the acquisitions of our prestige brands have been very good, and market reporting on how they are doing are fine. And we're actually more or less in line with acquisition economics. If you look at Dollar Shave Club, which was your specific question.
Like for like sales are up again about 50%, and we're very pleased with that. And the member acquisition, which we look at closely, is in line or without being too optimistic, slightly ahead of what we expected there as well. So we believe that not only have we integrated these crucial acquisitions at the right time for us, but we believe that we also have the skills to actually drive them higher. And the same will be true for the ones that come in later like 7th generation. But frankly, we haven't seen the full effects yet, but I'm convinced that putting them through the Unilever network and including the global network will increasingly make these acquisitions very attractive ones.
Thank you. And just to be specific about the rollout of this brand, if you look at, I guess, thinking Dermalogica and Miretta as the larger of the actions that came into the base, I mean, is it have you had success in terms of rolling those brands into new markets? I mean, if you look at Dermalogica a year ago versus now, have you gone from
Yes. So Dermalogica no, that's right. Doctor. Murad, I wouldn't call that the biggest one. But let's focus on Dermalogica for a second.
We obviously spent time on bringing that business into the Unilever systems and focusing it. There was a lot of gray market that we had to deal with, which frankly had come in before we bought it. But the underlying business is expanding in all countries. And Dermalogica already had a global presence, and we are rapidly building on that. So we had a head start here.
On the other brands, we still have to do more to make that global because obviously, the first priority within the first 9 to 12 months has been to integrate it into our Unilever systems, Dollar Shave Club being a good example of that.
The next question comes from Halal Oberhuber of MainFirst.
Yes, good morning, gentlemen. I have two questions. The first question is regarding refreshment. Could you give us a little bit more insight why volume was low and what we could expect during the year? And second is going back to the business on the Personal Care, why we've seen such a low volume despite the good outlook you gave.
Could you highlight that a little bit more, please?
And I have to congratulate you on the wires. You were the first one issuing your report this morning. So the congratulations with the speed in this case. On refreshments, if I just take refreshments first, the low last quarter, I wouldn't worry about it in total. The total refreshments, obviously, the 2 different units, you have to talk ice cream and tea.
Ice cream, again, a stellar year. As you know, we focus on free cash flow, again, an enormous improvement. Return on invested capital, which was unacceptable 5, 6 years ago, is now more or less getting close to the company's return on invested capital. That business is doing very, very well for us. And the tea business is actually also consistently improving.
The tea market is rapidly moving to the premium, hence the fast growth of tea2 or matcha and some other things we are working. But the underlying, call it historical, bulk of the market has shown slow growth. But we feel fairly confident on the results of the refreshment unit, and we see the next year again being a solid year what you have now. The last quarter, if you go only to the 90 days, again, we can go into the details, but the 2 there are 2 or 3 big markets that we have. Brazil, where the economy collapses, where we are absolute market leader by far and have built an enormous business over the last few years.
Brazil has the out of home business especially has not done very well on ice cream, not surprisingly. These are products that are easily being cut as discretionary. On top of that, they had a lousy weather, if that's any excuse. And the same we saw in Turkey, where actually we are outright market leaders. And in both of these markets, we're talking market share is well above 50%.
In Turkey, it's the tourism and the season as well as the weather. So if you take these two countries out on ice cream or refreshment in the last quarter, we don't see any reasons of concern. In fact, the opposite. The initiatives that we have made on the Double Crunch or the cookies of Ben and Jerry's or the Magnum recent relaunches are actually doing very well for us. Then the PC, the lower volume in the last quarter, obviously, we've dived into that as well.
And again, the 2 markets that have heavily skewed PC businesses in the total for us are again back to India and Brazil as the main ones. The India demonetization, and that is a really highly PC driven business, has not helped us, and we've seen the same in Brazil. Looking at our innovation programs once more and the projections moving forward, I think we'll just have a little blip that we're dealing with there, but we see the businesses there also picking up again. So I hope that gets to your question, Alan.
Yes. Thank you very much, Karl.
Thanks, Alan. Thank you. And the
next question is from James Edwards Jones of RBC. James, go ahead please.
Yes. Good morning. Diageo just reported results this morning, actually report some pretty decent results in India. I'm not going to ask you to comment on a competitor's performance. But I wonder, is there any reason why your categories in India should be particularly hard hit by this demonetization?
Yes. I haven't seen Diageo's results, and I'm happy to hear that. We really have looked at the demonetization and what our business in India is, is an enormously well distributed business, both in rural India and in urban India. We have that as an enormous strength. And the main effects of demonetization have been in the regions where you don't have a banking sector that is well developed like Central India.
So better developed in the South and the West, but underdeveloped in the Central India. And secondly, in the distributed trade, wholesalers and small trade, where there's really been a cash crunch, lots of daily cash transactions. So we have come down in volume, mid single digit, overall more or less flat. You saw us announcing the Indian results, which actually were positively received despite all of this. Most of our competitors in our categories have high single digit.
In fact, Nielsen estimates that the rural market over October, November December was down by about 60% even, which was quite a surprisingly high number for us. Diageo has a different mix. They must be more obviously in the higher income with their brands. They must be more the in the central trade, the more modern trade, if I look at from my own memory their footprint. What we look at is our shares in India.
We don't see anything to worry about. We have just seen 2 competitors report, one from the United States, which mentioned high single digit decline. We are flat in total with a minus 5% volume component. And more importantly, although the Q1 will still be recuperating in my opinion, we see some positive news moving forward. So now in India, just to get the whole story finished, we are getting through this demonetization, which we believe is a right thing to do long term for India.
We think that will be to the benefit of our business. And the next thing that comes in July 1 is the general sales tax. And that's also, again, a very big change in India that we think is right for the long term, but we have to see what the consequences are as we are working our way through it. So we don't think that the performance that we're showing there is that bad relative to what others are doing and in full respect to the actual results, James.
We have the next question from Jonathan Feeney of Consumer Edge. Please.
Good morning. Thanks very much. Just two questions. I guess following up, Paul, on India, does the demonetization create any kind of maybe pent up demand? I know a lot of consumers have a lot less inventory than in developed markets.
But if it's impeded shopping over a period of time, does that disruption result in a super compensation at any point in the first half? And second question would be on the aligning reward program. What are some examples 1st of all, what percent of your managers will be covered by this proposal that you're going to make the Annual General Meeting? And what are some examples of maybe recent behavior you've seen across your company that you'd feel like you'd like to incentivize differently? Like what sort of drove this program?
Why right now?
Jonathan, I apologize because you came in and out on the so I hope I heard you right. So let me try and if not, come back to me. Apologies for that. So the first thing is what you see in India under demonetization, definitely that people are going towards essentials and downstocking what they don't need. So for example, looking at the telephone sector and we have Vittorio from Vodafone on the board, people will still buy their telephone cards or start to buy them a little bit quicker whilst they run down their bottle of shampoo.
So I agree, and our Indian organization that is obviously very close agrees that we will see a certain restocking again as we come out of this over February, March, April, in my opinion, and that is we're obviously prepared for that. So I hope that answers India as I heard it.
That does, yes. Thank you very much.
Sorry. Then on the second thing on the compensation plan where you come back with, this is quite a change in the compensation plan because it will do a few things. What we are trying to do is drive, obviously, in the organization, the biggest change we want is the owner's mentality. We want more people to be directly linked to the results in the marketplace and being held accountable for that. We want to have fewer people in the company that support, and we want to have more people directly linked to the output and being closer to the market.
So the bigger change will be faster decision making, more empowerment, but also holding people more responsible. The second thing that we're trying to do with this plan is moving from a 3 year to a 5 year plan is to increase share ownership. This is really requiring our managers to put their short term bonuses into the long term share plans if they want to keep the same compensation and then benefit from the upward share movement to get more compensation over time. So it's really the ownership mentality once more that we're trying to drive next to this speed and proximity to the marketplace. And that will be to our benefit because we've seen too many changes happening too fast in the marketplace and we're actually seeing that the local competitors are the ones that are gaining share.
Unilever globally is gaining share as one of the few global companies, 60% of our business is gaining share, and you've seen some recent public reports around that. But the biggest competitor, as I've always said, has become our local competitors. And this organizational change will address that. We will start this year, subject to approval by our shareholders, we will start this year with the top 500 people simply because of our capacity to expand this and to implement this. We want to focus on that first.
And then in the next 2 to 3 years, roll that out to the remaining 15,000 people, which will be all of our managers in the company. And that's obviously an enormous would be an enormous boost to get them aligned to the ownership agenda as well in the coming 2 to 3 years. Again, I want to check if I answered your question.
Very much so.
Thank you very much.
Okay. Thanks, Jonathan.
And Happy New Year.
Same to you.
And the next question is from Warren Ackerman of SocGen.
Good morning, guys. It's Warren here at SocGen. Related to Happy New Year to you as well. 2 from me. The first one is for Paul.
It's more of a strategic one, Paul. I mean, you say that global volume growth in your categories was negative in Q4 and value growth more like 2% in Q4, which I guess is starting to get pretty concerning. But what does it say about your categories? Because I guess it means that you have to take market share to grow volume. Now I know you're trying to premiumize and you make good progress in Personal Care, but do you think your portfolio is still too mass market with too many $1,000,000,000 for millennials who tend to prefer smaller brands?
That's the first question. And then the second one for Graeme is on margins. I note that Home Care did most of the heavy lifting this year sorry, last year, 2 10 basis points. And with higher oil and lab costs this year, and I saw India margins did step back on higher input costs in the last quarter, which categories, Graham, or geographies do you expect to do more of the heavy lifting for this year to get you to the bottom end of that 40 to 80 bps guidance?
Warren, these are good questions. And obviously, we're working that all the time. I do believe that you have to continue to evolve your portfolio in this market because what has definitely changed is that the consumers are changing faster than at any time in, at least, my history in this category. So we think the overall 3.7% growth and 60% building share and comparing that with our competitive set, not on a 90 day basis, but I'm really talking again the last 12 months that we are well positioned with our strategy. Having said that, you need to really accelerate continue to accelerate the transformation of your portfolio.
So you take, for example, ice cream as one. We were very much in the bulk segment in retail, and we've really worked hard over the last 4 or 5 years to move that to the premium segment out of home, and that has really done very well for us. You look at the Personal Care segment, which has continuously had growth of 5% or more in overall results. This year, again, if you take Personal Care, it's a 4.2% year, but it's solid growth compared to our competitive set. We have done that by expanding into new markets into new categories.
Dove Menpers Care is a good example of that. The prestige that we are now adding to it is a good example of that. So we keep these categories fresh. The two challenges that we have, if I may say, which are not surprising, I think any business deals with that. We have is in food, you have a bulk of a market that is very big for us or in tea, black tea where you have a bulk of a market that is very big for us or spreads, which is a market that is very big for us, that these markets are so rapidly changing in tea to the premium side, in food to the organic or bio or health side with a lot of small competitors coming in, or in spreads, obviously, the market itself going down because of habit change.
So when you have a bulk of a business in the, call it, the historical segment, you can't run away from that. So it works on your numbers. And whilst we are growing in tea very fast in the premium segment, faster than our competitors, we have to go through that transition. On food, which we prioritized, as I mentioned before many times, we have made this business now more global, and we have very rapidly compared to our competitors in food, moved to the more natural segments. A brand like Knorr or Hellmann's now growing 4%, 5%, 6%, in some quarters even higher, when most of the major food companies report food declines is actually a very good relative performance.
So we do need to continue to accelerate the refreshment of our portfolio with these different strategies, be it premiumization, be it entering the new segments or be it changing your portfolio with Dollar Shave Club type things and others. And you will see us becoming increasingly more aggressive in that. And I think the last 2 or 3 years have already started to show signs of that. The new organizational design, the Connected for Growth, is exactly again once more done to be effectively dealing with that. With that, I'll hand it over to Graeme for the second part.
Yes. Warren, On margin, so first of all, obviously, we're pleased with the 50 basis points we delivered this year, especially after absorbing 30 basis points of additional restructuring for Connected for Growth, which is an investment that provides a return further on down the line. But to your question about the balance of it and in particular, the impact of commodity costs, I mean, it's not really the case that we look to any particular category to do heavy lifting and disproportionate heavy lifting from a margin perspective. But the improvement of margins in Home Care is a very strategic and specific category objective given the balance between growth and margin historically in that category. And it's only a fraction.
We think about onethree of the benefit in the Home Care margin this year actually came from commodities. The bulk of it comes from end to end savings and higher value innovations and rebalancing how much of the savings go to margin than in the past going forward. So it's much more really than just a commodity cycle in Home Care, allowing us to deliver the higher margin. And just thinking across the categories because all of our categories improved their margin last year with the exception of foods. And in fact, the foods margin only went back, which really because of the exposure it has to Europe and the head office costs, where we obviously had a higher element of the restructuring, that 30 basis points of restructuring impacted foods as a category a little bit more than the others.
But more fundamentally, what are we what are the things that we look for each category to deliver in terms of margin improvement? Fundamentally, margin improvement comes from mix, and that is driven by margin accretive innovation. It's innovation and mix driving high quality margin improvement. Now supporting that, you have cost savings, and we have our ZBB program focused on overheads and brand and marketing investment, but with a significant proportion of reinvestment and changing the mix of investment through the ZBB program. So that's the philosophy of it.
We don't think there's a disproportionate gain from any one particular category. The only caveat I'd say to that is that our Personal Care model is focused on premiumization. As Paul said earlier, 30% of the business in Personal Care now above 120 price index. It's the same in ice cream actually with about a third of the business in more premium positions, and that definitely helps them and growing faster. So by growing those premium positions, which are slightly higher margin faster, that benefits the mix in a very healthy way.
Okay. Thanks a lot.
Thanks, Warren.
So we'll take two more questions. First from Robert Jan Voss of ABN AMRO.
Yes. Hi, good morning. I have two questions, please. First on spreads. Based on your comments, is it fair to conclude that you still see the value of spreads within Unilever as clearly higher than its value in alternative scenarios?
And when will you evaluate this again? And my second question is on pricing in North America. After 3 quarters of positive, albeit modest pricing in the region, it turned materially negative in the Q4. Is that purely, as you mentioned in the press release, the high level of promotions? Or are there some other reasons for this pricing in the Q4?
Thank you.
Well, thanks, Robert John, for the questions. And I'm glad the spreads question comes from a fellow Dutchman. The we continue to assess the spreads business. There's no question about it. This is an ongoing process that doesn't have a time line.
And what we indeed see is that although the market continues to be down mid single digit, that we are able to hold share within that context. And with the new organizational structure, we've been able to improve absolute cash profit by about €80,000,000 So this discipline that we're bringing in and that agility, call it a forerunner of connected for growth, if you want to, is actually very good for us. In America, we've actually seen the market pick up a little bit, and there are signs in Europe with the increase in the milk prices now again and related butter prices that the tension that we've had, which was really unprecedented in the history of Spreads, that tension is becoming a little bit less. Having said that, we will have our organization focus 100% on making this business successful. We've become faster.
We've introduced the plant based products. We're seeing really some benefits behind that. But at the same time, we maintain our responsibility to look at other options where that needed. But the conclusion right now is that for our shareholders, it's better that we continue to manage this business in the way we're doing. And the second part of the question is really related to pricing of North America.
So let me briefly ask Graeme to touch on that. Robert, jump.
Yes. Hi there, Robert. So you really hit the nail on the head. There was a lot of promotional intensity in North America in the 4th quarter, And we've and we stepped up on that. A lot of activity on skin cleansing and also the continued heavy promotional activity and a tough battle in hair.
We think we're doing good things there. We've gained market leadership in hair globally in the year, and the TRESAME brand is now the brand leader in the United States, which we're delighted about. Also in deodorants, we widened our leadership in the United States to about 900 basis points in Degree, is now the brand leader in the U. S. So yes, there was heightened promotional intensity.
You see that in the price growth in the Q4. One other thing I would mention, it's slightly technical, but we launched tea ready to drink tea brand Pure Leaf in the U. S. And we incurred some slotting fees just getting that on shelf.
All right. It's very clear. Thank you.
Thank you.
And the final question comes from Martin Deboo of Jefferies. Martin, go ahead please.
Martin, can you repeat that? We couldn't hear you.
Hello? Can you hear me now?
Yes, we can hear you now. Sorry.
I'm sorry about that. Okay, I'll start again. I just want to ask you a couple of questions on LatAm because I think the way that evolves in FY 'seventeen is key to your guidance. So first question is, in case I missed it or if you didn't say, can you give some color on Argentina as opposed to Brazil in terms of pricing and volume? And secondly, just looking into '17, just in terms of how you've built up your view of the year, how do you feel you're going to manage, Graham, you called it out at Port Sunlight as an issue, how are you going to manage the transition from the high inflationary pricing we've seen in 2016, which you're now starting to lap in Q4?
And then the hopeful rebuild of volume off the back of that? How do you see that evolving and what's baked into your thinking for the year?
Yes. Martin, these are 2 good questions. In let me go to LATAM very, very quickly. Brazil, negative volumes in a deepening recession. Volumes are down for the year.
I don't think that will change in the near future. We have strong price growth there to recover the devaluation related cost increases. And not surprisingly, we benefit from having a full portfolio. Our value brands, let's take some examples like Surf or Sunsilk or Briante do extremely well. So in our Brazilian environment, we feel that this is actually to our advantage, and we're strengthening our market positions.
But the overall market dynamic itself need to be dealt with. Argentina is performing well in, again, a challenging economic reset. I was with Marci not long ago. It's a market again where volumes are down 4% to 5%, actually more down than Brazil, believe it or not, on the volume side. A low consumer confidence, squeezed disposable income as they move through this transition.
Here again, because of our full portfolio and long presence, we see strong market share gains driven by our continued focus on innovation and sustained investment. For example, one of our key competitors has gone out totally of the powdered detergent market, and our market shares have benefited from that enormously. Mexico, different story because of some recent geopolitical events that you might be aware of in North America. We've seen that market under pressure with the peso that obviously has taken a hit. We are doing well ourselves with still good growth in our markets, but that is a market that is definitely also stressed.
And in fact, the only what I call business as usual more or less is Colombia or Central Latin America for the time being. So this is a good example of a region that is a reflection of some of these challenges that we have now in most places in the world that we and our competitive set need to deal with. If you look at your 2017 view, and I think you mentioned it well, what Unilever has to deal with, and that's why we always look at it on a 12 month basis and don't get too sidetracked by 90 days. If you take 0.5% on 90 days, you're really talking just a few tens of 1,000,000 of dollars in turnover on a €50,000,000,000 business. So we have to keep these things in perspective.
The first half of the year, we're up against a stronger base from last year. We have some issues in these big geographies that we talked about that we have to work our way out, Brazil and India being key ones. We have skewness of some of our innovations towards the second half. So that's why we are rightfully flagging to the market that the whole year will be between 3% to 5%, but it will be skewed towards the second half this time, much like it was skewed towards the first half last year, if you want to. So we have that little swing in the forecast.
The second thing that we're doing to further strengthen the volumes, which I'm well aware of, and I think most of our competitors struggle with that as well in the markets that we are currently dealing with. Besides what I mentioned to you before, I think it was to Warren, what I mentioned in terms of managing our portfolio and containing accelerating our innovations, etcetera, it boils down to the Connected for Growth program. As Graeme has mentioned and as you have seen now already, the Connected for Growth program will give us €1,000,000,000 additional savings, And the intention is not to bring that all to the bottom line. The intention is then obviously to take some of that money and invest it in an organization that is more agile and drives our innovations better and faster across the world than we're even doing today. So if we don't do this connected for growth and see our way through it, as I mentioned in Port Sunlight, we in 1 or 2 or 3 years' time would be in a more difficult situation in my opinion.
So it's time to stay ahead of the way I read the market by going through these organizational changes. Difficult as they might be because the organization says, well, you've just finished a good year again, why do we need these things? But I think that is leadership in action, so that it prepares us well. For that reason, we think next year, we maintain our guidance of trying to be between 3% 5% on the top line, having a bottom line acceleration that I talked about in Port Sunlight, of which you already see now some of the signs with the 50 basis points. And then we continue to positively surprise you on working capital.
This year, again, you've seen our capital spend go down from what was slightly north of 4% to 3.5% now. We think we can do slightly better. And despite being 2nd best in class in working capital the way we see it, we also see still, honestly, a lot of opportunities to continue to drive that down. In fact, we are slightly disappointed that we haven't driven it down more in 2016, may I say. So we continue to drive these elements on a model that has as a base the consistency of performance.
I believe that you'll see far more volatility in the global markets. You see it already now. We got some good news today, some bad news tomorrow. Some people are monopolically focused on the stock market index, but there is far more going on than that. And we want to be sure that our company is, on the one hand, resilient.
And you see that we are dealing now much better with these shocks than ever before, but at the same time also agile enough to jump on these new growth trends that are emerging. And that is what we're preparing the company for. We're going through the next 6 months still with an enormous effort from everybody in the organization to implement that. I'm very confident that we will do that very well. And then hopefully, we'll start to see a little bit more tailwind and the effects of our changes that we've just implemented coming through in the second half.
So that's how we see 2017 unfolding. And in fact, by having given the answer to you, Maarten, I think that's also a good summary without repeating myself of this conference call. I want to thank everybody again for the support that you've given us through 2016. Thanks for helping us make this a successful year. And I look forward to seeing you again in 2017 with the same enthusiasm and passion.
Thank you very much.
Thanks, everybody.