Danone SA (OTCQX:DANOY) Q1 2016 Sales Conference Call April 19, 2016 3:00 AM ET
Regis Massuyeau - IR
Cecile Cabanis - CFO
Warren Ackerman - Societe Generale
Eileen Khoo - Morgan Stanley
Cathal Kenny - Davy
Adam Spielman - Citi
Jeremy Fialko - Redburn Partners
Jon Cox - Kepler
Martin Deboo - Jefferies
Good morning all. Basically it's Regis Massuyeau, Head of the IR team speaking. Welcome everybody to the Danon’s First Quarter 2016 webcast. I am here with Cecile Cabanis, CFO of Danon and Celia, part of the IR team. Before we go through for the presentation and your question in the second step, I would like you to go through the Safe Harbor and read it, page two.
You’re very familiar with it. So I think we can stop now, and I hand it over now to Cecile.
Thank you, Regis. Good morning everyone. Thanks a lot for your attendance. I prefer that we start on page three and maybe before getting into the details, I would like to summarize our Q1 results that we have published this morning. And I will start by the bottom of the chart just to remind that our agenda continues to be balancing our model of rules and making progress in our journey towards 2020. Which means, as you are familiar, being on one side drive to grasp all opportunities for growth because ultimately growth will be the main element for the long-term value creation and on the other side being disciplined in resource allocation to make sure that we fuel appropriately and at the right pace short, mid and long-term initiatives. Q1 results overall fully in line with our expectations of course at the low range of the guidance with some situations that were better than expected, as the case for Russia which continues to display a very strong resilience and we still have complex environment in Brazil.
So overall that is changed that is our expectation. We are progressing on our key priorities, across businesses and across geographies. On the chart I stated four of our key battles. The first one is the U.S. daily platform which confirms a solid reacceleration of growth. The second one is both our European and dairy platform which continues to move positively on its agenda, and lastly regarding China the continued transition of Mizone and another step towards sustainable growth for our ELN business in China. So, overall what I can say is that I am pleased with this first quarter which is fully in line with our short term but also our mid-term and long-term agenda.
So let me now go to the details of the performance and I will start on page four by the sales bridge. So on a reported basis we are delivering a negative growth of 3% for Q1, as you can see currencies have an unfavorable impact of 7.2% as expected with negative impact mainly on the Russian ruble, the Brazilian real and Argentinean and Mexican peso. The corporate tax is positive 0.7% mainly due to the integration of Fan Milk at the end of 2015. And then moving back to the organic growth the delivered 3.5%, it is a combination of a positive volume effect of 0.8% and a positive value effect of 2.7%. The value path continued to be the result of the work we do on improving our overall mix. So this reflects different dynamics between category and region. But overall continues to build our agenda toward sustainable positive growth.
Now, let’s move into regional dynamics on Page 5. And I will start with Europe, which is as expected flat this quarter this is a mix of different realities depending on each of our business, but let’s say that globally the underlying trends are unchanged. If we look at dairy, the results are comparable to Q4 2015. We keep managing the portfolio and we are now entering into a period of the relaunches of our global brands. That will support progressive and sequential improvement and I will come back on that in a minute.
In Europe, in water division we still have strong growth both in volume and value and we have the same in medical. And still in Europe but for early life nutrition the growth is flat and we are closing the loop with high days of comparisons driven by the Chinese demand on international brands that you remember strongly accelerated at the same period last year.
Moving to NORAM CIS. We have strong 5.1 percentage growth which reflects constant and successful acceleration in the U.S. where our initiatives keeps on delivering strong results. And at the same time, in CIS Danon continue to show extraordinary resilience in a persistent difficult consumer environment. The efforts to enhance the portfolio mix more than offset once again declining volumes in the low parts of the value added segments.
Finally, moving to ALMA, strong growth of 6.3% which confirms very solid dynamics of growth despite expected softness in some country especially Brazil where the context continue to be a drive mainly in dairy. We continue to transition Mizone brand in China and the rate of our businesses are growing strongly at high single digit.
I propose that we move to regional dynamics on Page 6, and I will start with dairy. So dairy is delivering for the second quarter in a row growth about 2% which is well on track with its journey towards 2020 destination, which is to restore sales and sustainable profitable growth equation. To that extent we're focused on pursuing our efforts in improving gross margin because this is what will enable to first structurally and consistently create good conditions for investment and second deliver every year a margin improvement. So despite still negative volume on the back of the CIS region, Brazil and Europe the continuous effort and portfolio and price is bringing a good value equation and I will come back on the U.S. and Europe regions in more details.
In water the growth remains really strong, we are around 10% excluding China, mainly in volume. Each region is growing strongly and the success of our aquadrinks continue to be positive contributor to the mix of the division. At the same time we progress in the transition of Mizone fully on track with our plan. In early life nutrition with a growth of 4.8% the start of the year is impacted by the high rate of comparison that I mentioned earlier on from 2015, but the underlying trends aren't changed. Fundamentals remain very solid and quite profitable, Q2 to that extent should accelerate. In China Danone continues to work on building a sustainable gross model for its international brand and I will come back on that. In the rest of the world for early life nutrition there is strong growth in countries like Brazil, Indonesia as well as country like New Zealand and Australia taking benefit here as well from the Chinese demand.
Finally the medical division delivered another quarter of solid growth, relying on the well balanced model of growth in between region and still taking advantage of the very successful pediatric platform around the brand Neocate. So all in all results across division showed good momentum, each of them moving ahead at the right reason on the agenda 2016 and what I will do now is to go into our key battles and I will start with dairy. And moving on Page 7 with one of our key events of this month in dairy which is building on product [ph] demand with here one illustration of the new digital campaign around the platform StayStrong which already received some positive feedback from consumers. So going into our dairy key battle I will start with the U.S.
In the U.S. Q1 2016 I confirm the acceleration that started in Q4 2015, with mid-single digit growth, it feels like the success of our plants to accelerate the growth in this important market. Our plan and you have it on the left part of the chart Page 8 includes strong and disciplined allocation of resources to make sure that we invest behind the right bet for accelerating the growth. In the store very close dialog with retail, where in a growing category we continue to increase the size of the shelf, and very strong innovations, you have here few example with Oikos Triple Zero which continues to be very successful, Activia Fruit Fusion and the Light & Fit Greek Crunch.
So overall in the U.S. efforts to soup up the development of the category and investment behind brands bring very strong results. We continue to improve market share with a leading position at more than 35% market share at the end of March. As a result we can say that U.S. dairy has successfully reaccelerated growth towards solid mid-single digits and this trend should continue in the quarters to come.
We are very focused on continuing growing this market because as you know it's a market where we still see a big potential for the future. So let's turn to Europe, in Europe we continue to progress in our agenda to return to self-profitable growth and for that it is important to make sure we take the time to build solid and sustainable solution behind our global brands. What I put on this slide is an overall summary of our plan and our journey most of which you're familiar with because this is a journey that started in 2014 with our global plan for adaptation of our cost and followed by our intensive profitable revenue growth management program on our portfolio optimization. Also moving to the middle of the chart I started building an efficient model. We have set-up global purchasing organization called DanTrade. And in addition of course and being clear that milk is a key strategic resource for dairy, boost for license to operate and competitive advantage, we have started to change the way we source milk, with for example one initiatives around the cost plus model that is currently being deployed, and that we had the opportunity to share with you.
Moving down and I'm here really but 2016 key focus which is the re-launch of our global brand. So Actimel launch has started it's in progress, you've seen one visual from the digital campaign on the previous page. The campaign is starting well we have good feedbacks, but it's an early stage and we're still on key preparing the re-launch of Activia that will come at the end of the year.
Today it's also an important day for Danone you know because we are launching the Danone campaign around the platform [indiscernible], so in term of performance we have some good sign of progress. The trends are moving in the right direction on our global brand and we are fully aligned with the plan. 2016 will be another year of investment behind our global brands and we think we have what it takes in order to complete the transformation of dairy in Europe and stabilize sales by the end of 2016. I will now switch to water, and on Page 10 I will start with a nice picture of our new packaging of Evian Prestige which is about avoiding plastic cover wrap and allowing to bring together on a full water bottles in a very innovative adhesive system.
So going on Slide 11, Water, on water division we have another solid growth quarter based especially on 6.4% of volume growth and despite the impact of continued transition of Mizone in China, that we continue to manage according to plan. The solid performance relies on various concepts on the growth and is a result of a permanent focus on innovations and activations of our brand. So on the left part of the chart outside China the global performance of water is strong again at 9%, well balanced across region and across segment. Plain bottled water of generic in more than 9% growth and continued to deliver a strong pattern of growth both in Europe and outside Europe. You can see an illustration of one of our last initiative with the new grown image of Bonafont in Mexico. Aquadrinks remains still key engine of growth for the division with more than 10% of growth and keeps outperforming plain water improving the mix of the division. And here you have also two illustration, the first one which is the recent launch of Avion food and plant and the renovation of the Aquadrink we by sale in Argentina.
Moving to the right part of the chart in China, we are pursuing the transition of Mizone in fact with our plan and as you know we have three clear priorities, the first one is to finalize the adjustment of the level of inventories in the Chinese distribution network and on that things are progressing in line with our agenda and growth should gradually improve in H2 and the year at a new normal rate of growth. The second one is of course to continue to leverage activation plan and reinforce and protect our brand equity while making sure we maintain a strict control of cost, and you have here an example of our last activation with a new packaging identity for Mizone and this one is to leverage innovations to make sure we continue to capture growth opportunities in the market.
So overall for water it is another solid quarter which posts strong results and water continues to execute efficiency all the plans set for 2016. Q2 should show the same trend but with even a higher base of comparison in China with last year preseason loading. So let’s move now to the early life nutrition. On Page 12 quick stop on one of our main innovation this quarter which is the Jewel Box packaging innovation which is supporting the premiumization of our portfolio, the first launch was in November '15 in Germany and we are currently hauling it out in UK and Ireland.
So moving on Page 13, as mentioned early life nutrition growth at 4.8% was impacted by high basis of comparison, but overall the underlying trends are the same and the fundamentals of this category continue to be very strong.
I would like to focus on China where many news has been out recently and I will start by reminding the consumer dynamics. The consumer dynamics remains solid, on the left you have the different trends. First the mom and baby stores which is 50% of the category, still dynamic and represents for us a key driver of growth for our international brand. We have continued to develop our acquisition on this segment where we are accelerating our sales growth.
The second one is the ecommerce which rely on continued positive underlying trends. It is still predominantly consumer-to-consumer but business to consumer is getting traction. The conversion has started and is now in progress. As you know new elements on regulation has been communicated by the authorities over the last few weeks and days. So basically it was expected, now although this news on regulation only confirms that the Chinese government is moving towards more control, consistency with their key priority around food safety and tough competition.
It is both positive and unexpected move for us and our interests are fully relying. It will strip out the rationalization of the market and will protect the consumers. Now you have to keep in mind that there will be other measures this is not yet the end game and it is still work in progress.
What is important for us at Danon is that we continue to adapt and design the relevant distribution by supply channel model in order to channel efficiently and properly our international brand to China which is what we’ve been discussing with you since the beginning of last year.
Regarding tax, we do not envision any major impact in consumer behavior. The reason to buy on ecommerce remains trust in our brands and origin of the product, it’s not price or tax by itself. And finally, on China, just one word on Dumex, we continue to prepare the transition of Dumex to Yashili, which would happen around the end of May.
So let's turn now to the advanced Medical Nutrition division. And on Page 14 you heard that the levels of an independent EU funded clinical trial Souvenaid that was presented at the International Alzheimer Conference in March in Athens and it shows that there is some evidence that Souvenaid helps mild and early Alzheimer patients in maintaining their short term memory. This is very important not only from Souvenaid, but this is very important because it is the first time that there is evidence that the nutrition product can do that.
So moving on Page 15, another strong quarter for Medical Nutrition with an organic growth of 6.6% and the consistent volume and value contribution. We have mentioned many times how important innovation and R&D are to fuel future growth and make it sustainable. On the left part of the chart you see one of our recent innovations in Q1 ’16 with the launch of NeoForte in Brazil. It is a product for children with cow milk allergy.
At the same time we continue to work on establishing advanced nutrition as an integral part of healthcare. Indeed, nutrition still does not have its rightful place on the healthcare system and we are pioneers and we are battling to make sure that doctors are better educated on what nutrition can offer. And to that extent, the new on Souvenaid are a progress to that.
As a result of all our initiatives, we are able to generate quarter-after-quarter strong balance growth across geographies in Europe, CIS NORAM where the growth is around mid-single digit and in ALMA being around low teens.
That’s it for the category dynamic highlights and following that it will be no surprise for you that I do confirm the 2016 guidance, meaning the sales growth within a range of 3% to 5% and the solid margin improvement. On sales we expect sequential improvement quarter after quarter with still some effect of days of comparison in waters for Q2 as I mentioned earlier.
On the margin we expect the year to be de-balanced with H1 being significantly above the full year ambition the reason for that is simple and it's mainly linked to the specific elements of H1 last year especially on ELN if you remember the big negative effect on demands in China and the fire that we have in one of our ELN plant in Cuijk last year.
Just on Dumex, as we are moving closer to the transition of Dumex to Yashili, we now expect the closing of the transaction to be completed by the end of May around end of May and therefore it means that it will create the favorable scope effect that we foresees around 15 business points now compare to the 20 business points mentioned at the full year results. It's purely linked to the timing effect of the completion of the transaction.
Lastly and before turning to your question, I really would like to reemphasize 2016 is a step in our journey to our 2020. And to that extent we here to continue to build the more balance and resilient model of profitable growth, so this is where our attention is placed every day, in ensuring that we keep confirming the Company, that we keep taking this step and relevant initiatives along this path. That is what ultimately of course will create value long-term for all stakeholders and making sure that on one side we invest highly short-term, mid-term long-term any other side we make sure that we will deliver the commitment we made to you.
So that is for the presentation, thanks a lot for your attention and I propose that we move to questions.
Thank you, so Gillian if we can go for the question now.
[Operator Instructions] We will now take our first question from Warren Ackerman from Societe Generale. Please go ahead.
Good morning, Regis. Good morning, Cecile. It's Warren Ackerman here at SocGen. Two questions, please. The first one is on dairy volumes for the Q1. It came in at down 2%, which was quite a big difference versus consensus. I'm just interested in -- are you able to say what the volumes were in dairy between Europe, ALMA and NORAM? It seems like if the European trends are unchanged and the U.S. is still confirmed to be good, it must be Brazil that was much weaker in the first quarter. Are you able to say what Brazilian dairy volumes did in Q1 to help us understand the variants on dairy volumes versus consensus? That's the first question.
And then just secondly, just going back to Mizone, thank you for your comments about your plan. Are you able to isolate what the Mizone volumes did in the first quarter? And do you still confirm that you think that Mizone volumes will be back to 5% to 10% once we get through the destocking? Thank you.
So on your question and I will start with dairy volume in Q1. You right to mention that there has been different dynamics. First we continue to have volumes that are under pressure in CIS, even if we've been extraordinarily resilient with the very major work on our portfolio mix, which has more than offset these volumes, but it has an impact overall on the Q1 volume from dairy. In term of Europe basically the trend was in line with Q4 and remember that all that re-launches of our global brand are starting now and we should see sequential improvement in Q2 then in NORAM, the volumes were stronger, mid-single digit positive and you right mentioned that Brazil was negative and weighing overall on the volume of dairy.
So basically there is absolutely no alarm versus the plan and versus the agenda on which we're committed, whether it's Europe or global dairy and you should see the volume trend improving in Q2 in dairy. Now moving to your question on waters, so Mizone is still negative obviously in volume because we're continuing the destocking and we continue to address the level of stock. With that it will probably and somewhere at the end of the Q2 and then it will reaccelerate progressively. So to your point we still see indeed that we will exit the full year 2016 at a rhythm of volume growth that will be in line with the new normal pattern of growth. So that's basically on your questions one.
And just to follow up on that quickly, if I may, just on the value elements within diary, which was higher than consensus, can you confirm that all of that value element is mix and that there was no in-quarter additional pricing in Q1? I'm just trying to understand. Mix seems to be getting more and more positive, I guess because of Russia and because of what you've been doing in Europe. Just can you confirm? What I'm trying to get out is what is the difference between the price and the mix?
Yes, it was very mostly mix and exactly what you said around improving the mix in China and in Europe.
We will now take our next question from Eileen Khoo from Morgan Stanley. Please go ahead.
Good morning, Regis. Eileen Khoo here from Morgan Stanley. A quick question on ELN. Obviously 4.8% like-for-like in Q1, the comp was tough. But can you give us a sense of what kind of run rate you expect for the remainder of the year and also give us more color on the actions you are taking in order to prepare for the transition to business and consumer sales? For example, how are you dealing with the retailers, for example, whether stock-outs are still an issue in Europe? And also just update us on how much of your sales are actually coming from Australia and New Zealand now because it seems like your European sales are coming down a little bit. Thanks very much.
Yes, so I think that two questions in your question Eileen, thanks for that. So first overall once again under the dynamic and the fundamentals behind year-end growth have not changed, so what you see in the deceleration is really about the basis of comparison of last year. So, to that extent you should see an acceleration in Q2 around the business. Then in China basically we continue to do what we commented in the previous quarter because what has been going out from the Chinese regulation is an output of what we did expect and what we were working on in working around the conversion of the indirect business into more direct business.
So today we continue to work on that, as I said the conversion has started. So there is a conversion that is happening between both. For us it's important that we make sure that we build an efficient and competitive distribution system and supply chain. And again on China the trend and the underlying dynamics has not changed meaning that our international brands are still are in demand and we continue to have successful brand demand. So the other part of the work is to continue to build the equity of our brand. And yes we are working with retailers you’ve seen that we have signed partnership with Alibaba, with one of our preferred supplier and that will be also key in the way the conversion is happening.
So we are moving ahead. There is nothing that is different than I would say in previous quarter except that now it's some use after this and again it's still work in progress, so we are moving quarter after quarter to make sure that we are moving in the right direction and securing our supply chain in order to make sure we create a more sustainable growth for our business and successful brands in China. On your last question around the split between Europe and New Zealand, on New Zealand and Australia we have strong double digit growth coming from the Chinese demand and it's still around our brand equity mostly.
Next question Gillian?
We will now take our next question from Cathal Kenny from Davy. Please go ahead.
Good morning, Regis. Good morning, Cecile. Just one question, if I may, just back on Russia. Has the volume environment deteriorated relative to Q4? And just a little bit of commentary on the pricing environment, because I think raw materials, in terms of milk, is still increasing.
So overall, the volume is around what it was in Q4 on around mid-single digit negative. So, it has not materially deteriorated but it continues to be negative. However, together with all the work that was done on the mix of the portfolio, the value part is more than offsetting the negative volume on the low end of the value added part and hence creating value and sales growth for this quarter still. But the price of milk, it continues to be up, but of course much less than it used to be, remember in 2014 it has raised 20% increase, but we are more into mid-single-digit increase type of range.
That’s very helpful. Thank you.
We will now take our next question from Adam Spielman from Citi. Please go ahead.
Thank you very much. I have two questions. The first one is on the water business. And relative to my expectations, your sales growth like for like was well ahead. And as far as I can work out, that was because there was probably less destocking in China than I had projected and I guess if there's any way you can quantify actually how much that destocking was and I guess related to that, do you expect the destocking in 2Q to be more or less than it was in Q1. So that's the first question.
The second question concerns dairy in Europe, now you said that sequentially it was a little bit better than Q4. And yet the Nielsen ratings show that it was worse. You've often said Nielsen isn't a good indicator, it wasn't a good indicator, but if you can just explain why do you think Nielsen was wrong. Did it show things getting worse when the reality was it was getting slightly better, thank you.
Okay, thank you Adam. So on water I don't think we can say that there is more or less destocking regarding Mizone, I think Mizone is totally in the range of the plan and what we have set as an agenda, so basically the impact is really, but acceleration on some of the country like Mexico which was very strong and Indonesia as well and you've seen on the chart on the left part that we had 9% and more than 10% growth on the Aquadrinks. So it's not so much the fact that we had less destocking of Mizone it's really, but stronger performance of the rest which is really moving in the right direction and saying that all the fundamentals and all the work that we do on water is successfully bringing us to a strong level. So that's for water, for Europe overall I will say three things.
Overall as I've been saying, we need to be clear that in Europe it is important that we take the time to have the right and solid and sustainable solutions for our global brand. And that's why we have set up an agenda of re-launch of our three global brands, it has just started for Actimel a few weeks ago around the platform StayStrong and a full re-launch and it will be deployed casually. It is starting today for Danone you know and here again it will be deployed gradually and we do expect Activia which is big one at the end of the year well starting September as we mentioned in the full year.
So overall in Q1 sequentially the volume performance is around the same than in Q4 moving in the right direction that around the same and it will accelerate in Q2. Today we are fully in line with the plan to stabilize sales at the exit of 2016. Now the Nielsen, every time someone reads it he has not the same conclusion than the other. So I don't think you can really draw a conclusion based on Nielsen reading. But okay, so the plan on Europe is what I said and then we have still good news in the overall trend of our brands that we monitor every day. So that's what I can tell you for that.
Thanks Adam, so [indiscernible] we have still some people online queuing for question, can you switch to the next one.
We will now take our next question from Jeremy Fialko from Redburn Partners, please go ahead.
Good morning it's Jeremy Fialko, Redburn here. So a couple of questions on dairy. The first one is on pricing within Europe. Can you talk about the pricing promotional trends there, whether there are any markets where you're seeing deflation, whether that's changed from where you were at the year end? And then just coming back to this point on the dairy volumes from Warren's question, so you're saying that Europe pretty similar to Q4, Russia pretty similar to Q4. So does that mean it is just down to a huge volume decline in Brazil? Or are there one or two other markets where your dairy volumes have been sequentially weaker? Thanks.
So on the pricing of Europe the negotiation with the retailers are now fully completed, we have not seen a very different dynamic from what we've seen in previous years. So we have not seen particular event relating to pricing pressure this year. And we continue to really be convinced that today our price positioning is the right one and that we don't expect for all the reasons we detailed earlier which are because the situation in the milk price is not here to stay and because of the overall market dynamics and the fact that dairy is not a commodity we do not foresee any material impact on prices and on overall value path for our business in Europe dairies.
Then on the volume yes you’re right to say that Brazil was highly negative and it has weighed on volume. Now once again Q2 will improve because Europe will sequentially improve, so this is basically where we are but overall in the rest of the country now to make sure I answer fully your points there was not a peak around volumes so it's really Brazil, its Russia and its Europe.
And so, you said that Brazil should be better in Q2 or just the overall division, just to -- or both?
No, the overall division driven by Europe being [multiple speakers] in Q2.
We will now take our next question from Jon Cox from Kepler. Please go ahead.
Yes. Good morning guys, Jon Cox, Kepler Cheuvreux, here. Just a couple of questions for you, one is probably the obvious one. You're saying that organic sales will accelerate as we go through the year. You came in at 3.5% in Q1, but your guidance is 3% to 5% for the year as a whole. Just wondering why you haven't actually increased your guidance band given the fact you're telling us that sequentially organic sales will actually improve. That's my first question.
Second question just really on what's happening in China with the B2C, C2C. You were talking a lot about free trade zones being the fastest-growing category within the e-commerce channel. Is that still the case? And I presume that the taxation, the new tax measures, won't actually be applied to the free trade zones. I wonder if you can just -- I understand that your brands are super-strong so pricing shouldn't make much of an impact. But if it's still duty free from those free trade zones, then I assume that's where most of the growth will come, because obviously the Chinese will be looking to get the cheapest, even if it is the best brand. Thanks very much.
Thank you, Jon. On the sales, first of course the 3.5 that we have in Q1 is exactly in line with what we say when we said Q1 will be at the bottom of the range. The main difference is that there is some countries where it's went better than expected and basically Russian overall sales. And some countries that are complicated as expected which is like Brazil. But overall, you know for us 3.2-3.5 this is the low end of the range, it's not like 3.5 is any different from what we expected. There is some volatility happening in between quarters because of comparison basis or because of different topics. I don’t think it puts in question our guidance and our agenda, so we have absolutely no reason today to change the guidance of the agenda on which we committed ourselves in the full year and we continue to be committed behind that.
So when I said it will accelerate sequentially Q2 will accelerate and then it will accelerate but a bit less and then stable in Q4. But overall today we are spot on with our agenda and our guidance and there is absolutely no reason to change that. On your question in China in fact there has been a bit of mixing in using the different terms, so yes you’re right that we mentioned a lot free trade zone. It's not what we call the cross bonded ecommerce now, so this is the same thing and it continues to be a channel on which we are converting from indirect to direct.
And on this channel there is some tax impact with the new tax regulation. However, we do not believe this is material for the consumer and it is today not growing we believe to drive a change in behavior in terms of brand purchasing because they were paying tax already, so it's the differential that will matter and we do not think it's too material.
Thank you, Jon. Gillian I think we go for the last question, so okay.
We will now take our last question from Martin Deboo from Jefferies. Please go ahead.
I had a question on China early life but your answers to Eileen and Jon Cox pretty much answered my questions. I've just got one small one which is I just wanted to talk about FX. FX in Q1 was quite a bit worse than consensus was looking for. And I wonder if you're going to give any full-year guidance based on what you'd expect FX to be for the full year based on current spot rates? And whether there is any particular currencies that you think the market is under-scoping because the FX line was quite a bit worse than consensus was looking for. That's the question. Thanks.
To answer your question, basically talking about sales on a full year basis, if we look at the rate as they are today and they can move, but if we look at the rates as they are today -- we expect around 6% negative effect for the full year in sales, you have to keep in mind that given the geographical mix there will not be a negative impact on margin, and regarding EPS still based on today's rate we expect mid-single negative digits in fact that it will be mitigated by the scope impact that will be sublevel. So overall the EPS will translate the profitable growth equation that we will deliver for the year end.
That's very clear, thanks Cecile. Thank you.
Thanks, thanks to all of you, thanks Gillian for the coordination, thank you for the call and obviously Cecile and myself are here to follow up on your question so I wish you a good day.
Thanks a lot and have a good day.
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