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Unilever N.V. (OTC:UN)
Q2 2019 Earnings Call
July 25, 2019, 3:30 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Richard Williams -- Investor Relations Officer 

Good morning and welcome to Unilever's half-year results. Alan will begin with an overview of the results and performance in each of our three divisions before passing to Graeme to cover the regions and results in more details and wrap up with our outlook for the year. We know it's a big day for results, therefore we'll keep the prepared remarks to within 30 minutes, leaving plenty of time for Q&A. First, I'll draw your attention to the disclaimer to forward-looking statements and non-GAAP measures.

With that, I'll hand over to Alan.

Alan Jope -- Chief Executive Officer

Thanks, Richard. Good morning, everybody. It's nice to be back again talking about Unilever results. I've been in the role for six months and I'm pleased to report that again this quarter, we have delivered growth within our guided range. And of course, meanwhile, we keep working on the transformation of Unilever into a fully purpose-led and future fit organization.

At a high level, we are pleased with some of the strong performances that we've seen in our emerging markets, especially across Asia and in the Africa region, also, the fact we're seeing 30% growth in e-commerce, which is definitely our most important growth channel. Having said that, there are some hot spots. Those are typically in the developed markets -- for example, here in dressings and North America, where growth has been short of aspirations.

With all that said, we do remain on track officer a full year delivery of 3% to 4% growth and remain committed to continuing to accelerate that top line by, as I've said many times, evolving our portfolio, continuing our progress in developing the faster-growing channels, and by fully leveraging our unique geographic presence. So, let me get into a little bit more detail if we can go to the next chart, please.

So, we delivered 3.3% underlying sales growth in the first half, balanced between price and volume and this was very much led by emerging markets, which grew 6.2% in the half, accelerating to 7.4% in the quarter. We increased our underlying operating margin by 50 basis points, including some good gross margin improvement. That combination of topline and margin progression has translated into an underlying EPS increase of 5%. Our underlying free cash flow performance as $1.5 billion, which is half a billion down versus prior year. All of that is some clear result of the spreads disposal.

So, digging in a bit more on growth, we delivered 3.5% in quarter two with a volume of 1.2% and price of 2.3%. Asia and the region that we call AMET/RUB delivered a strong 6.3% in quarter two and we saw China, India, Southeast Asia, and Turkey all growing strongly. Price growth picked up across many parts of the world and basically, that's because we continued to take price where commodity inflation or currency devaluation requires it.

When we look through these headline numbers through the underlying growth, it is a more complex picture. I should call out a couple of items in particular. First, you know, we are lapping a weak quarter two in 2018, where we had the truckers strike in Brazil. Our best estimate is that the positive impact of that year on year in quarter two of 2019 is around 100 basis points.

Secondly, many of you living in Europe will know that we did not have a repeat of the long heatwave of 2018 in quarter two. So, weather impacted market growth, especially for ice cream, and that resulted in about 50 BPs lower USG for Unilever in the quarter and it has not escaped me the slight irony to be talking to you about poor weather in Europe on what is predicted to be the hottest day ever recorded in the UK. Then even more pacifying is the effect of Argentina pricing, where we've removed 80 basis points of price. Graeme will explain that in more depth later on.

I think the best news in our results is the continuing strengthening of emerging markets, both in the quarter and in the half. India saw good growth of 7.6% in the half, though the Indian market growth has moderated a little as we flagged earlier. In Indonesia, our strengthening execution and also some good innovation in beauty and personal care and ice cream has led to another strong quarter of growth.

In China, we definitely are growing ahead of the market, delivering strong offline and online growth. In Latin America, the environment in Brazil continues to normalize and even when we strip out the truckers' strike, our business has improved on an underlying basis.

So, before we look at the divisions, let's take a quick look at some of the market conditions that we are operating in. We do continue to see unusual volatility country to country and period to period. We estimate that globally, growth has been around 3% in the markets that we operate in, but for example, in the last 12 weeks, this has definitely dropped back. Europe drove a good chunk of this slowdown with value growth in the last 12 weeks actually turning negative. While weather is part of it, Europe does remain challenging with continued price deflation.

Looking ahead, Oxford Economics predicts that GDP growth in the next 12 months in emerging markets will accelerate slightly, while markets like the US are likely to slow down. So, definitely continued volatility. On the other hand, when we look at currencies, they have been rather benign. The US dollar to euro has been pretty stable after a weak first half in 2018. As you can see on the right-hand side of this chart, the currencies of our other major markets have also been more benign than usual over the last year. But of course, there are some hot spots -- Pakistan, Argentina, and Turkey I would call out as being the most difficult right now.

So, moving on now to our three divisions -- beauty and personal care grew by 3.3% in the half, balanced almost equally between price and volume. Within that, deodorants and skincare have delivered good growth, driven by things like the launch of new clinical deodorants really with great new technology in Latin America. That's going well.

Growth in skincare has been well supported by the marketing shift that we've talked about to a more data-driven marketing approach, also being used in China where we're seeing strong growth of Ponds, Dove, and Vaseline, all of our core brands. Skin is also benefiting from some good local innovation, such as a new brand that you can see here called Nameera, a skincare brand tapping into modern Muslim sensibility in Indonesia.

The growth of premium personal care and the ongoing importance of naturals is simply a secular trend. We continue to shift our portfolio toward naturals and toward the premium segments. For example, you can see this Lux Botanicals range. It started in Brazil. It's now been rolled out across Asia. I think these are the Chinese packs. It's been a very successful innovation. Again, the brand communication has been led by very deliberate and data-driven audience segmentation, precise targeting, and a programmatic approach to our media buying.

Worth mentioning that our prestige unit has again grown double digit with Dermalogica, Living Proof and Hourglass as the brands that are leading the charge. We've recently acquired Garancia and Tatcha. Those we think we'll complete during Q3 and we'll add two more strong, purpose-led, fast growth brands to our prestige portfolio that, of course, are not yet being reported in our USG.

However, as I mentioned in the introduction, our performance in haircare has been disappointing, especially in North America, and we will be scaling up the innovation and stepping up investment in this most important category for our beauty and personal care business.

I must say home care is turning out to be a bit of a star. It's put in a great performance, growing by 7.4% with 4.5% price. The growth was very broad-based across the three homecare categories of fabric solutions, fabric sensations, and home and hygiene.

In fabric solutions, our market development activity is working well, off course, in our core powders business, but actually, also with capsules and liquids growing very well. In both South and North Asia, we've had a strong first half and are gaining significant share. The strong growth of liquids in India with products like this Surf Excel Easy Wash is a good demonstrated that as consumers move to urban areas and their disposable income improves, we are able to trade them up from the lower margin powders and bars.

And our hand dishwash brand, Sunlight, is turning out to be a key driver of growth in home and hygiene. Actually, this brand is also leading the way for Unilever in the space of recycled plastic. It's now using 100% recycled resin in its bottles as well as building premium ranges. In the UK, we've just launched this Cif ecorefill. It's a 10 times concentrated refill that allows shoppers to mix it at home with water to reuse their existing Cif spray bottles. It results in 75% less plastic use. It's of course, extremely convenient to shop and carry home and we hope will drive good consumer appeal.

Not pictured here but worth the mention is our clean and green home care brand Seventh Generation, which saw continued excellent growth in North America and is now being rolled out across Europe.

So, moving now to foods and refreshment -- foods and refreshment did deliver growth, 1.3%, 1.4% of that coming from price. After, as I mentioned, two very much above average years, we saw a significant slowdown in the ice cream market in Europe, particularly in the first two months of the quarter, April and May, and a slowdown in North America in May.

Despite the relatively poor weather, our ice cream business grew globally at 2% and that was really driven by innovations like the one shown here, Solero, where we've actually completely eliminated the plastic wrapping. Magnum continues its strong run of growth with things like a new white chocolate and cookies product and a whole new chocolate innovation with ruby chocolate.

It's fair to say that savory delivered more modest growth. Interestingly, bouillons, which has been picked up by the trend toward scratch cooking, and snack meals catering to the convenience trend, those really highlighted how important it is to continue to get more of our foods business into on trend segments and it's one of the reasons why Germany remains a tough market for our savory foods business. There's a number of reasons there.

Our acquired businesses like Sir Kensington's and Pukka continue to deliver very well, though the core North American dressings market and things like developed market black tea have remained challenging. We are shifting in North America dressings to a strategy that focuses more on consumer innovation and brand investment rather than damaging promotional pricing.

I'm going to take a second to show you a couple of examples of how purpose at the center of our brands is helping to drive growth, one from each division. We've got hundreds of examples. We've just picked three here.

So, on the left, you can see an example from the Philippines, where as part of our commitment to reduce plastic, we ran a pilot, Refillery, where consumers have the opportunity to buy their favorite Unilever shampoo and conditioner, refilling the packs that they already have and without packaging waste. So, we're working with local industry and government and taking these learnings to other pilot markets. Although this is a pilot program, interestingly, our Philippines haircare business is growing double-digit in the first half.

Then in Indonesia, where I've just returned from, I've learned about this program where we're using our home care brands for the third year running in a very extensive program during Ramadan to clean mosques. We were supported by thousands of volunteers and managed to cover 2,000 mosques in 13 cities all in the same day. I don't think it's a coincidence that our Indonesian home hygiene business is up high single-digits in the first half.

Of course, one of our most-loved brands, Ben & Jerry's continue with various social justice campaigns, creating dialogue around those issues that have followed following the legalization of marijuana in the US. Specifically, they're campaigning for criminal justice reform and addressing racial bias, where along with our partners, we aim to build safe and thriving communities and divert people away from incarceration.

So, if purpose is part of our agenda as a purpose-led business, so is future fit. An example of that is what we're doing on data-driven marketing. We now have 24 digital hubs up and running with more to come this year. These hubs are responsible for delivering our data-driven marketing campaigns. We've now got well over 600 and that will grow quickly.

Increasingly, the audience segments that we're identifying in our digital efforts are turning out to be relevant across multiple categories and brands. So, we have now got 1.5 billion consumer connections and we're identifying some super segments such as vegans or fashionistas that we can leverage across all three of our divisions.

In the middle, I'm happy to show our Axe Music partnership with Martin Garrix. It's creating content where the brand interrupts less and converses more with our young audience. The digital campaign that surrounds the music videos has massively amplified viewership of the videos. We've just released the second Axe Music Martin Garrix video for Europe and the Americas this week. I know I won't have to tell this audience that Martin Garrix, of course, is the world's number one DJ.

And then another example from Indonesia, where we're supporting the biggest Indonesian food festival, growing our first-party consumer data by engaging and collecting information through targeted ads. In this case, in this example using our iconic soy sauce brand, Bango, which happens to be growing 7% year to date.

Before I wrap up and hand over to Graeme, we were very pleased to see that in Kantar's most recent Global Brand Footprint Report, which was published in May, Unilever has fully three brands in the top ten most chosen global consumer brands. Actually, we have 13 in the top 50, really reflecting the breadth and depth of our global footprint. The closest competitor has just 6 in the top 50.

Furthermore, Unilever has two of only four brands that have growth consumer reach points every year since the first edition of this brand footprint report in 2013. Those two brands are Dove and Vim. So, really making a point that big, purpose-led brands can stay relevant and continue to grow penetration share and sales.

On that note, Graeme, over to you.

Alan Jope -- Chief Executive Officer

Thanks, Alan. Good morning, everybody. Let me start by giving you a little bit of color on what's happening in the geographies. Performance in Asia/AMET/RUB was strong. We had 6.2% underlying sales growth in the half. China, India, the countries of Southeast Asia, and Turkey all grew strongly, with Africa also improving in the second quarter despite being impacted by some economic and political uncertainty in Nigeria.

Pricing increased as we passed on cost increases. As expected, in India, we saw some moderation and market growth. That was led by a slowdown in the rural consumer. Overall, however, our growth remains strong for the first half.

In China, home care and foods and refreshment led the growth, with e-commerce the main driver of both. The step up in Indonesia continues in the first half with more pricing and more volume versus prior year and Turkey continues to grow in volume, despite inflation there remaining very high.

Turning to Latin America, we saw sales growth of 4.9% in the half. Mostly, that was led by price. Looking at the quarters, you can see clearly here the impact of the truckers strike in the second quarter of 2018 and the rebound in the latest quarter. We estimate that excluding this, we delivered 1.6 percentage points of growth in Latin America in Q2, which is the strongest growth result in some time.

There are reasons for optimism in Latin America, even though the low GDP growth in Brazil is still depressing overall growth in the region. For example, the launch of Omo concentrates in Brazil is driving very strong growth in fabric solutions.

In Argentina, well, the ongoing crisis continues, although the currency has been a little more stable in the latest period. We are continuing to shift our portfolio to ensure that we're able to offer products to consumers at all of the price tiers and we're really confident that we're gaining share in what remains a tricky economy.

Here's our usual Argentina chart. You recall that from Q3 2018, we've taken frankly the most prudent approach and removed all Argentinian price from our headline USG number due to the hyperinflationary status of the country from a GAAP perspective.

Pricing remains significant in Argentina and its removal from our USG has reduced Unilever's underlying price growth by 80 basis points in the half. With normalized levels of Argentina pricing, which is about 2% per month, we would add back 30 basis points to the half one USG result.

With a full year of Argentina hyperinflationary accounting now in place and frankly, little sign of that changing in the midterm outlook, we do plan to review the treatment of Argentinian price within our underlying sales growth calculation.

The volume decline in Argentina is improving a little. It was just at minus 7% compared to markets which are declining by close to 20%. So, we're very clear that we're gaining a lot of ground competitively in Argentina. And of course, the negative volume remains a drag on the reported group UVG of about 10 basis points in the quarter and about the same in the half.

Turning to North America, we grew by just 0.1% with price growth of 0.7% and volume of minus 0.5%. This is in the context of a weakening market in the last 12 weeks and an expected GDP slowdown amid trade tensions.

Mass ice cream was impacted by the market decline, in part due to the weather. Despite this, our premium brand Talenti continues to do well with the Talenti layers innovation surpassing our expectations.

As Alan mentioned, the hair category in North America has been very competitive in the first half, both in terms of pricing and in terms of media. We're the number one in daily hair care in North America. So, this is a key hot spot for us and a turnaround sale. Good growth in deodorants was driven by Dove and Schmidt's Naturals, which continues to expand the retail footprint. Skin cleansing performed well led by the new Dove liquid handwash range and the Dove for Men sports range.

In foods, we saw stronger performance in savory led by sides and bouillon growth, while dressings has been impacted by a promotionally heavy market again. In the premium dressings market, Sir Kensington continues to perform very well supported by on trend innovation.

In Europe in aggregate, we declined by 0.6% with quite a varied growth performance across each of our European markets. The primary driver was ice cream, where as Alan explained, we did not benefit from the same hot weather pattern as last year and as a consequence, the overall European market was negative in the last 12 weeks.

Home care in Europe delivered growth with strong performances across CEE, Southern Europe, and Benelux. CEE, Italy, and Spain started the year strongly on ice cream, led by innovation, and in the Netherlands, innovations in the space of snack meals are driving good growth. The retail challenge in Germany persists and that has resulted in a decline in the first half. Ecommerce and the discounter channels grew strongly as our divisional strategies become ever more channel focused.

Overall, our turnover for the first half was 26 billion euros. Underlying sales growth added 3.3%. Acquisitions and disposals decreased turnover by 5% following disposal of spreads in July 2018 and currencies have been more benign this year, increasing turnover by 1.1 percentage points. This is mainly due to the strength of the US dollar versus the first half of last year. Based on the latest spot raise, we continue to expect a positive currency impact of around 2% on turnover and a little more on EPS for the year.

Turning to our margins, we delivered an increase of 50 basis points in underlying operating margin to 19.3%. Gross margin increased by 30 basis points held by efficiencies from our 5S program and pricing. Brand and marketing investment decreased by 30 basis points as we continue to make efficiency savings throughout the organization.

This came as a result of applying new disciplines on digital advertising and real time spend optimization. Additionally, to be sure that our investment is effective, we have strong safeguards to mitigate any risk associated with fraudulent media activities. Looking at industry benchmarks, we strongly believe that we are ahead in managing and mitigating this risk across our markets.

Most of our savings are reinvested in brand campaigns, as you know, and in innovations around the world. Examples of that are Omo in China and Lakme 9 to 5 in India. Our overheads increased by 10 basis points as we continue to invest in the ongoing digital transformation of Unilever. Our organizational change programs are addressing the impact of the stranded costs following the disposal of our spreads business.

Underlying earnings per share increased by 5% in current rates and 3% in constant rates. Operational performance, which is the combination in growth and margin contributed 5.2% to earnings. The earnings dilution from the spreads disposal was mitigated by the 2018 share buyback which had a 4.3% impact on H1 EPS. We expect a full year impact of the 2018 buyback to be 2.8 percentage points.

Finance costs impacted EPS by minus 0.1% as a result of a 40 million impact from the revaluation of trapped cash balances in Zimbabwe following the devaluation of the new Zimbabwe dollar. We expect the interest rate on net debt to be around 3% in 2019, which is aligned with previous guidance we've given you. Our underlying tax rate was 26.2%. We expect our tax rate over the medium term to continue to be around 26%. Currency movements increased EPS by 2%.

Turning to the balance sheet, we delivered free cash flow of 1.5 billion euros. The decrease versus last year is down to the sale of spreads. Our net debt sits at 2.1 times EBITDA, which is flat to the beginning of the year. We expect to continue to maintain our leverage around 2 times. Our pension deficit is reduced by 0.4 billion to 0.5 billion as a result of rising equity markets.

Finally, let me reconfirm the guidance for 2019. We expect underlying sales growth to be in the lower half of our multi-year 3% to 5% range. We will continue our progress on the underlying operating margin through a focus on waste and inefficiencies and through restructuring investment to take out cost. We'll also continue to ensure that we competitively support our brands both in BMI and in building new capabilities. We'll target another year of strong cash flow while maintaining roughly our current level of gearing.

Our outlook on all the other items remains the same. Thanks very much for your attention. That's the end of our prepared remarks. I think Richard, we're now going to take some questions.

Questions and Answers:

Richard Williams -- Investor Relations Officer 

Yeah. Thank you, Alan and Graeme. As a reminder, if you want to ask a question, please press *1. If you wish to cancel your question, press *2. Please, if you're listening to the conference on a speakerphone, use the handset while asking your question. Finally, please keep your questions to a maximum of two.

So, just looking, I think our first question is from Richard Taylor at Morgan Stanley. Go ahead, Richard.

Richard Taylor -- Morgan Stanley -- Analyst

Good morning, gentlemen. One question from me -- when I look at the original 2020 margin targets given by division back in April 2017 versus where you are now, you're well ahead on personal care versus target. Then on home care, it's a decent gap still but very good momentum.

Then foods and refreshments is probably the one with possibly the least momentum and the biggest gap. Some of that is, of course, due to the sale of spreads with the dilution and [inaudible]. However, for that division specifically, are you opting to spend more to support the business than what is probably a tough environment and how should we think about the mix between the divisions from here?

Alan Jope -- Chief Executive Officer

Yeah, thanks, Richard. So, the first thing I would say is we absolutely are prioritizing growth and when the growth comes, continuing to make progress toward the 2020 margin target. I shouldn't understate it, but it's relatively straightforward. The stretch that we put into homecare and foods was quite remarkable when we made the commitments in 2017, they really were eye-popping stretch ambitions in foods and in home care. We always knew that we had a little bit of a hedge in the beauty and personal care margin.

So, we will dynamically allocate resource across the divisions through the year, but that will be much more driven by pursuing optimal growth across the portfolio than necessarily being laser focused on a margin target by division. That's how it is, where we have a bit of sleeve in beauty and personal care and tremendous stretch in the other divisions. They're making good progress. They're not quite on track from where we said they would be by division in 2017. We'll keep dynamically allocating, but the overall priority would be growth.

Alan Jope -- Chief Executive Officer

Just on food and refreshment in particular, Richard, back in 2017 when we set the broad vision of how the margin progression would break down across the division, we also announced we were setting down food and refreshment, bringing those two big category organizations together and basing the in the Netherlands. I think it's fair to say the footprint that we have in food and refreshment has a higher proportion in the European region.

The time to appropriately restructure our supply chain footprint in Europe, which disproportionately impacts the FNR portfolio, we've got to make sure we do it the right way. We've got to make sure we do it effectively and responsibly while we've got lots of plans and proposals and good activity taking place within our change program, I'm thinking it's taking a little bit longer than we envisaged back in 2017. There's maybe a bit of a time shift there, specifically when it comes to the food and refreshment margin.

I just remind everybody that when we set the original vision, it was based on 6 billion of savings. We're well into that now. We've got another 2 billion that will come in 2019. That 6 billion delivered 1,100 basis points of margin benefit to us. We only needed 360 basis points to get to the 20% number. So, we knew we had two thirds that we could choose to invest back in the business and that's what we've been doing very consistently. So, on a macro level, very much on track and very pleased with the savings delivery and the reinvestment of those savings.

Richard Williams -- Investor Relations Officer 

Thanks, Graeme. We've got a lot of questions coming in but we'll try and get through them. The next one is from Jonathan Feeney at Consumer Edge. Go ahead, Jonathan.

Jonathan Feeney -- Consumer Edge -- Analyst

Good morning. Thanks very much. In your release you mentioned e-commerce and discounters grew strongly in the Europe region versus a challenged broader retailer environment. I think, Graeme, you covered that in your remarks. How would you say your growth in each of those channels compares to your peers?

In other words, would you say you're winning or losing relatively in those channels in Europe. What inherently does that change in mix due to margin, if anything. And if I may, broadly speaking, can you make a migration to faster-growing e-commerce without a negative impact on margins? Is that a plus, minus, or neutral, broadly speaking as you think across regions.

Alan Jope -- Chief Executive Officer

Thanks, Jonathan. Let me be quite direct in answering those questions. First of all, there are some channels that are showing consistent high growth and it is things like e-commerce, out of home eating, actually proximity stores in emerging markets, beauty stores, and discounters. What we know specific to your question on e-commerce and discounters is that we have a slightly lower than fair share in both, that we are growing faster than the market in both, and particularly in the case of e-commerce, the faster we grow our e-commerce business, the better it is for our margins. We have accretive margins in e-commerce. I think that answers your questions directly, right? We'll assume silence is agreement.

Richard Williams -- Investor Relations Officer 

Let's assume so. Let's move on because we have a lot of interest. Next question is from Alicia Forry at Investec. Go ahead Alicia.

Alicia Forry -- Investec -- Analyst

Hi, good morning. I'm detecting slightly more urgency in the tone around the underperforming areas in the business. Are you considering further disposals beyond spreads if you're unable to improve the performance of certain brands or categories? Secondly, related to this, are you happy for food to remain more skewed to its mass market price positions in developed markets or should we look for you to spend more to bring food up the price ladder as you have already done with the household and personal care side of the business.

Alan Jope -- Chief Executive Officer

Okay, Graeme, you think about the foods question and I'm going to address this underperformance question. So, first of all, thanks, Alicia. Your interpretation of our tone is exactly right. I am, we are dissatisfied and impatient on big parts of the business where they underperform.

However, the solution is almost always not disposal or exit. For those types of decisions, we look at the long-term attractiveness of categories and something like hair care, we are super committed to hair care. So, there's not a thought from disposing from something like our North American haircare business. Our efforts there will go into turning around that particular hot spot. So, as you think about disposals, think about things like spreads, where we just viewed the long-term growth prospects were not great.

Whilst we could talk about the areas we've called out like development market and black tea, North American mass ice cream, hair US -- those are the hot spots that we're definitely going to be addressing. I've got in front of me a long list of extremely high-performing cells, but I'm not going to bore you and drag you through all of those. I think I've answered the question of how we think about resolving the underperforming hot spots through intervention rather than disposal when they're in a core market.

Graeme, you want to talk about foods?

Alan Jope -- Chief Executive Officer

Hi, Alicia. I think before coming at it from the context of the European landscape, worth just mentioning the makeup geographically overall of our F&R portfolio as a reminder that business is about 40% of our food and refreshment business is in the emerging markets. I wish we didn't call them the emerging markets, to be honest, but that broad suite of markets where the opportunity for packaged foods, for snacking, for ice cream occasions, etc. is still just at the starting part of the growth curves and the hierarchy of preference, etc. So, that makes it very exciting overall from a foods portfolio perspective.

To your question, yes, I think, is the answer. We have been actively trying to make sure that we're addressing the more premium parts of foods. Foods categories are growing -- foods is a fast-growing area around the world, but it is fragmented. Local tests and preferences really matter and there's really strong opportunity to premiumize if you have a portfolio that can address that.

We've been trying to do that, for example, in ice cream, specifically just to come back to Europe. Grom in gelato is an example of that. Within the tea category, the acquisition of Pukka. Within dressings in North America now rolling out into other geographies -- Sir Kensington's dressing business, Graze in snacking is another example. Even within existing categories, within Knorr, we're having a lot of success with we soups, etc., which are quite premium.

The answer is yes. The challenge we have is getting scale to those parts of the categories that we're in and getting it to show up in our overall reported growth number in our European foods result because it's there but it's still a relatively small part of the overall portfolio that we have.

Richard Williams -- Investor Relations Officer 

Okay. Straight to our next question, which is from Warren Ackerman, Barclays. You're on, Warren.

Warren Ackerman -- Barclays -- Analyst

Good morning, guys. Two for me as well -- the first one is, I guess, for Graeme. You didn't mention, Graeme, global market share this quarter. I think you said in Q1 it was 50%, 40% in food, and I think 60% in HPC more on the volume side. What was in Q2? Then related to that, do you actually think getting to 60% sustainable share gains and growing 200 BPs ahead of your markets is realistic longer term?

Then secondly, just some hair care, since you shut the lights out in Q2, 8.9% underlying sales growth, obviously, half of that is price, half of that is volume -- can you maybe just split out what home care did by region? I'm trying to get an understanding of where you saw the big outperformance and what you think the run rate is in the back half. I don't expect you to say 9% is a sustainable growth rate. I'm just interested to hear why it's done so well and what you think about the back-half. Thank you.

Alan Jope -- Chief Executive Officer

Hi, Warren. Let me pick up the question then directly on share. I might spend a bit of time on this because I think it's important to just ground a few things. So, ways of looking at competitiveness in aggregate for any big business now -- it's getting increasingly difficult over time because more and more of the volume is moving into unmeasured channels -- out of home, e-commerce, the discounters, cash and carries, etc. tends to be more unmeasured, but of course, on a sequential basis, it's still very relevant. So, it's still a critical measure.

The first way we look at things is to look at the total growth of the market. We think our markets are growing about 3% and against that, we grew 3.3% in the half and 3.5% in the quarter with a few ups and downs in there, but broadly, that's sort of a wash. We're growing at around about the rate of growth in the market. That correlates with another measure you can use, which is the percent of your business that's winning.

You're right, we were a couple of years ago sitting about 60%. It's a good result, I think, for any business. I'm not sure that you would necessarily sustainably go further than that. We dropped below that over the course of the last 18 months, two years or so. We're getting back now toward 50%. So, we're around 50%.

Now, we're on an upwards trend here. A couple of things I want to call out -- first of all, from a volume share perspective -- real consumer consumption -- across all of our emerging markets of 60% of Unilever, we are at that 60% volume share gain across the emerging markets on an MET basis. So, that's a good positive sign. We're also at 60% volume share gain in our home care business and of course, there's quite an overlap between the home care business and the emerging market business. It's not quite almost the same thing. Also, we're almost at 60% winning volume share and beauty and personal care on an MET basis as well.

So, we're getting close to that 60%. Again, we're on an upwards trend and more competitive. We have got a few hot spots. We just call it a few North American ice cream in the mass market. Our developed markets tea business is not competitive. Our North American dressing business and North American here, which Alan mentioned in his initial remarks, etc. But they're in a quite focused number, half a dozen, a handful to half a dozen of key sales, where we know we have to turn around on competitive performance and that will give us the jump back up into the 60s although we're making good progress on that.

Just a final point, the broad correlation is that if you're gaining share in 60% of your turnover, that's around about a 1% outperformance of market growth, not 2%, which you mentioned. Alan?

Alan Jope -- Chief Executive Officer

Yeah. Home care is performing well right now. I think it's important to remind that 80% of our home care turnover comes from emerging markets. So, it is in a way a microcosm of Unilever. It's structurally advantaged because of its footprint because of emerging markets.

Actually, within that 60% is in Asia, Africa, and the Middle East. Then where we have business in North America is basically Seventh Generation. So, it's a super on trend brand. We've got this nice combination of strong position, strong shares in the emerging markets, and in North America, we've got a lovely portfolio that comprises mainly Seventh Generation. Now, we're adding to that in North America with things like Love Home and Planet.

The second thing I would say is that because home care is more exposed to commodity markets, it is a matter of survival to be quite blunt on pricing pass through. You can see that in the very good job that home care have done on passing through pricing. We need to do that in order to have a healthy home care business.

The final thing I would say is we're actually in a very strong innovation program. Especially in home and hygiene but also some of the introductions that we've made in Latin America and Brazil and the growth we're seeing in, for instance, capsules has been very good. So, it's a blend of things. But if I had to put my finger on one thing, it's a very strong footprint we have with home care in Asia, Africa, and the Middle East.

Richard Williams -- Investor Relations Officer 

Thanks, Alan. The next question is from Pinar Ergun from UBS. Go ahead, Pinar.

Pinar Ergun -- UBS -- Analyst

Hi, thanks for taking my questions. First, has the Quala acquisition now come into the organic sales growth base? Could you please tell us how that acquisition is doing given that it's a fairly sizable one? Secondly, Unilever's growth rates in the US in the personal care division have been fairly muted for much of the last two or three years now.

Could you please talk about your plans on how you're intending to improve your performance in the face of competitive challenges? Would you consider abandoning your EBIT margin target if that meant you'd achieve a significant step up in your competitiveness by perhaps reinvesting more of the 6 billion savings. Finally, a really quick cheeky one -- would you consider mature market black tea categories to be attractive in the long-term? Thank you.

Richard Williams -- Investor Relations Officer 

I think that's more than two questions, Pinar, but let's see what we can do.

Alan Jope -- Chief Executive Officer

To be honest, I missed the second -- just repeat the second one, Pinar. I was writing them all down. I missed the second one.

Pinar Ergun -- UBS -- Analyst

The second one is -- so, the growth rates in the US in the personal care division have been fairly muted for much of the last two or three years now. How are you planning to respond to the competitive challenges there and would you consider abandoning your EBIT margin target if that meant you'd achieve a step up in your competitiveness by perhaps reinvesting more of the 6 billion cost savings.

Alan Jope -- Chief Executive Officer

Okay. Graeme, why don't you take the first one on Quala?

Alan Jope -- Chief Executive Officer

Hi, Pinar. The Quala business, when we bought it, it was around 350 million. It's now about a 400 million business. That completed in March. So, we've included the USG from March. It is growing strongly. By the way, it's secured our number one position globally in daily hair care. I'm not sure what a global number one position is, but nonetheless, it took us there.

What we have done very successfully with it so far is extend the brand across into other categories in which we play, such as deals with eGo and Savile and we did that very quickly after closing the acquisition. Yes, it's in our numbers. Yes, it's performing strongly and we're happy with the rollouts that we've had.

Alan Jope -- Chief Executive Officer

Let me try and tackle the second point there. First of all, BPC growth is competitive. We're growing slightly ahead of the market. As Graeme said, we're now up to about 60% of our volume growing share in beauty and personal care, but am I satisfied with 3.5% growth in the latest quarter in BPC? No, definitely not. It's going to require us to continue to evolve our portfolio, build out position in the fast-growing channels, and take advantage of our emerging markets' footprint.

An example of what I mean by evolving our portfolio is Prestige. Prestige is becoming quite a meaningful business. This year, it will be over a 600-million-euro business. It continues to grow at double-digit and it's making a nice contribution to our BPC growth. In the US, we need to decompose it. It's becoming quite polarized. We're struggling in things like tea, ice cream, and hair care in North America. We hope to see that turnaround.

We're very determined to get hair in North America back into share growth. But if you look at some of the other categories like deodorants, we continue to see the beautiful portfolio we've built up and deo is growing quite well. I think the US will remain an absolute highest priority market for us -- world's biggest economy, source of a lot of innovation and tech developments. BPC is definitely our highest priority division.

If I thought that the key to unlocking better growth in BPC or the US was to give up on the 20% margin target, of course, we would sacrifice margin for quality long-term growth, but I'm afraid it's not that simple. We're well on track for delivery of the margin target and that's not the trade-off that we're looking at. We're looking at stepping up investment. We've got the ability to step up investment in North America and here, for example, and we will do that.

Oh, and your cheeky question about mature market black tea -- the answer is no, that's not a structurally long-term source of growth and that's why we are very quickly pivoting our portfolio in tea into green herbal infusions both within Lipton but also by acquiring things like Tazo and Pukka to put our portfolio more in the fast-growth segments bluntly. By the way, there's still room for a nice cup of PG tips every now and again, my personal favorite.

Richard Williams -- Investor Relations Officer 

Okay. Thank you. Straight to Celine Pannuti at JP Morgan. Go ahead, Celine.

Celine Pannuti -- JP Morgan -- Analyst

Good morning. Apologies, I've missed the beginning of your call, but I understand that you were talking about market growth about 3%, but there seem to have been highlights that were not so great about Europe/US and that's even excluding the bad weather. Could you comment on what you think the market growth is at and are you taking maybe a more cautious view on what the development would be in the second part of the year? If you could comment on that by geography, I'm not sure whether hair care in the US, is this market slowing or is it you underperforming?

My second question is on the margin performance. You have said that you will reincrease A&P in the second half of the year. We have now seen 50 basis point margin increase in the first half and if I look at the past couple of years, you've been running at 90 basis points to 100 basis points. Is 50 BPs this year or next year the new run rate that would get you to 19.6, which I think is a rounding level at 20, would that be a right level to look at?

Alan Jope -- Chief Executive Officer

Hi, Celine. Let me take the first question of market growth. I used a question from Warren to give a bit of a broader view on market share and competitiveness, but let me do the same with you on the question of market growth, particularly the slowdown. We think our markets are growing at around 3%. We did a slowdown in the last 12 weeks driven by a couple of things, obviously, the European weather had an impact on the slowdown in Europe and a little bit in North America there as well.

We also saw a moderation of growth which we expected to see in India, which is a consequence of some constraints on the rural consumer. We're seeing a slowdown in the rural consumer in India. We've had a weaker monsoon where there's food pricing inflation lower. That means a little bit less spending power with the rural consumer in India who broadly work in the agricultural sector.

And in North America, market growth has slowed down from what was between 1% and 2% in 2018. It's slowed down quite a lot in the last 12 weeks and from that 2018 point. It's now only slightly positive. That's driven not just by the poorer weather but by a slowdown, particularly we see it in the BPC category.

The specific competitive challenge that you mentioned in haircare, yes, there's a slowdown in BPC and the haircare category in North America, a slowdown in growth, but the particular performance hot spot that we have is around competitiveness in US hair care. As Alan said, we will be putting more investment, innovation, and communication funding behind that particular sale. We're the leader there and it's very important we recover our competitiveness.

Alan Jope -- Chief Executive Officer

Thanks, Graeme. Celine, look, on A&P, over the last couple of years, we've stepped up our investment in media by about 310 million euros. It is a complex area, where rather than looking at headline number, let me give you a sense of some of the things that we are very focused on. The first is we continue to shift our media mix into channels that are growing their audience, not shrinking their audience, specifically digital.

So, digital channels now represent 40% of our media spend. We're absolutely preoccupied with message relevance, asset quality, segmentation, and targeting. We're getting significant step up in ROI from our media investment from that approach. And it's a step up in effectiveness, actually, not a cost-driven exercise.

Thirdly, we are miles ahead of the pack, I think, on eliminating ad fraud. It's definitely there, but we think it's very low single digit levels in our media spend compared with up to 20 or 30% for some of the industry. And lastly, we sort of now have to look at A&P and overheads together because at the moment, the bottleneck on some of the great work we're doing is warm bodies to run our digital campaigns rather than just absolute media spend.

That's actually why you see -- there are two reasons why you see a small increase in our overheads. One is a lot of the acquired businesses like Prestige Beauty come with a higher level of overheads as part of their business model. The second is we are putting marketing people in place to run these more complex digital campaigns.

You snuck in a third question there about progress toward the 20% UOM. Graeme has repeatedly answered this by saying anything between 19.6% and 20.4% is 20%. I don't care to choose right now where on that range we'll land. It could be at the bottom end of it. It could be at the high end of it. There would be a certain elegance of landing it on the nail, but it will be somewhere in that zone, Celine.

Richard Williams -- Investor Relations Officer 

Thanks, Alan. I think looking at the time, we've got to make this the final question. So, it's from Alain Oberhuber at MainFirst.

Alain Oberhuber -- MainFirst -- Analyst

Thank you. Good morning, Alan and Graeme. I have two questions -- just regarding the US again, could you give us some kind of a guidance when you expect that turnaround? Looking into Q2, obviously, that deteriorated. When could we expect the bottom out in North America regarding the growth rate? The second question is regarding group pricing. Could we expect an acceleration in group pricing or do we expect for the second half a similar pricing we have seen in the first six months?

Alan Jope -- Chief Executive Officer

Thanks very much, Alain. We definitely will not be providing guidance country by country or market by market looking forward. First, we don't want to box ourselves in and secondly, I think you should be highly suspicious of anyone who predicts country level market activity. I think in the US, we're relying on two things. One is the overall market growth, which has been muted. In fact, in the last 12 weeks, it has been very muted.

We're a little bit bearish on US market growth. The second is resolving some of the competitive issues that Graeme highlighted. So, we will be much more focused on making sure that our ice cream portfolio and our hair care business in the US have really excellent plans for the second half and are properly invested. The market growth will be what the market growth is. If I had to comment on the rearview mirror, the last 12 weeks of market growth in the US have been quite soft.

Alan Jope -- Chief Executive Officer

Alain, just to pick up your question on pricing and the outlook on pricing, just to see what we did in Q2, we got price away in most countries, particularly in home care, which Alan talked a little bit about earlier where we saw the highest inflation driven by organics and the highest emerging market footprint.

We also took some pricing in North Asia and Africa and across five or six categories in North America. We could put a bit of price in there in Q2, which is why pricing was a little bit ahead versus Q1. Now, I won't comment on pricing outlook going forward, but I will tell you what we expect from a commodity inflation perspective and that is in the second half, we expect broadly similar to H1, we've got better visibility now.

We've locked in a fair bit with our covers, etc. and we think that will be around mid-single-digit commodity increases, a little bit higher in organics and petrochemicals, a little bit more through into home care again, but we've got good visibility on the year and the really good news and it could change, but relative to the strong currency devaluations that we saw last year, currencies really have been relatively stable with the notable exception of Argentina, but by in large, that gives us more visibility on where we think cost inflation will be and therefore where we think pricing will be.

Richard Williams -- Investor Relations Officer 

I know everyone's got a very busy day today. So, we need to stop on time. A number of you still have questions. If they haven't been answered, please feel free to give anybody in the IR team a call today or tomorrow, whenever you manage to get to the phones. Alan, would you like to make any closing remarks?

Alan Jope -- Chief Executive Officer

Yeah. Thanks, Richard. Sorry, I'd forgotten you were going to ask me to do that. We've delivered, I think, a good balance of top and bottom line growth. It's well within the range that we've guided. Meanwhile, of course, we continue to work on the more important task of ensuring that we have a purpose in sustainability at the core of our brands and our business model as we prepare Unilever for a fast-changing future.

We're particularly pleased to see the sequential pickup of our growth in emerging markets and our guidance hasn't changed. So, thanks, everyone, for dialing in. Thanks for your support, and I look forward to talking to you in the coming days.

Richard Williams -- Investor Relations Officer 

Thank you, Alan. Cheers. Bye, bye.

Duration: 61 minutes

Call participants:

Richard Williams -- Investor Relations Officer 

Alan Jope -- Chief Executive Officer

Graeme Pitkethly -- Chief Financial Officer

Richard Taylor -- Morgan Stanley -- Analyst

Jonathan Feeney -- Consumer Edge -- Analyst

Alicia Forry -- Investec -- Analyst

Warren Ackerman -- Barclays -- Analyst

Pinar Ergun -- UBS -- Analyst

Celine Pannuti -- JP Morgan -- Analyst

Alain Oberhuber -- MainFirst -- Analyst

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