I must also advise you that this conference is being recorded today. I would now like to hand the conference over to Mr. William Lynch, Head of Investor Relations. Please go ahead.
Thank you, operator. Good morning, welcome to Kerry's Full Year 2020 Results Call. As in our previous calls, we are presenting from different locations, so hopefully things run smoothly again. Please bear with us in the event of any technical issues. On the call is our CEO, Edmond Scanlon, and our CFO, Marguerite Larkin. Edmond and Marguerite will take you through the presentation, and we will then open the lines for your questions. Before we begin, please note the usual disclaimer regarding forward-looking statements. I will now hand over to Edmond.
Thank you, William, and good morning, everyone, and thank you for dialing in today. We'll get right into it and turning please to slide four and the overview for the year. 2020 was a truly unprecedented year, where all our daily lives changed overnight, and we're really proud at Kerry to have played our part through the pandemic. When we spoke this time last year, we highlighted the impact we were seeing in China from COVID-19. As it spread globally, it had a profound impact on our customers and on consumers. What's been most impressive for me is the strength of our recovery through the year. If you look here at the left-hand side of the slide, you can see the trajectory of our recovery.
After the significant impact in the second quarter, our volumes improved strongly in Q3 and returned to growth in Q4, in line with our guidance on our last results call. The key dimension to get an insight into our performance and Taste & Nutrition is to look at our business by channel. Our retail channel, which now accounts for three quarters of our Taste & Nutrition revenues, had sustained volume growth, strong volume growth, through the year at 4%, primarily through growth in authentic cooking, plant-based offerings, and health and wellness products. Volumes in our food service channel decreased by 19% overall.
What I'd highlight here, in particular, is the continued recovery we made through the second half of 2020, with volumes back 8% in Q4, representing a significant market outperformance and really emphasizing that proactive nature of our business model as we continued to work closely with our customers right through the period. On strategic developments, we made really good progress across a number of strategic fronts in the year, despite the challenges posed by COVID-19. We commenced the strategic development of our Georgia, U.S. facility, which will have a world-leading manufacturing capability for integrated solutions across a variety of protein applications. We also moved into our new innovation center in Shanghai, where we've seen really strong in-person customer engagement and innovation with both international and local customers, especially across the second half of 2020.
I would like to commend our people for how seamlessly they have adapted to virtual engagement with our customers globally, again, right through the year. I must say, personally, I can't wait to get back out there to meet customers face to face in the not too distant future. We also officially launched our new sustainability program, Beyond the Horizon, which is centered around innovation enabling sustainable nutrition. We're really excited about the drive for sustainability from our customers. Again, very much in line with the evolving consumer demands, which we'll talk a little bit more about later on.
This provides a fantastic opportunity to showcase Kerry's true breadth of capabilities, and we're presenting at CAGNY in a couple of days, and we're going to show you exactly what sustainable nutrition means for Kerry and how we're working from ideation right through to launch, and now beyond this, right through to impact. Finally, we made a number of strategic acquisitions in the year. We previously announced the acquisitions of Jining Nature in China, Tecnispice in Guatemala, and Bio-K Plus International, based in Canada. I'm pleased to say that the integration of these businesses is progressing well. We've just announced our intention to acquire Biosearch Life, which is a leading biotechnology company based in Spain.
We're really excited about the capabilities that these companies bring to Kerry, and we'll give you a little bit more color on each of them later on in the future prospect section. With that, I turn to slide five and the overview of Taste & Nutrition. Reported revenue for Taste & Nutrition came in at 5.8 billion EUR, which represented an overall 3% reduction in business volumes in the year. Most notably, a return to volume growth of 0.7% in Q4, which you can see here on the chart on the right-hand side.
Trading margin at 14.2% was back on the prior year due to operating deleverage and net COVID related costs, which Marguerite will go into in a little bit more detail later on. As I said in the previous slide, our food service performance recovered strongly through the second half of the year, and our retail channel delivered sustained growth, particularly in beverage, snacks, meals, and pharma. We had a really strong performance across our nutrition and wellness portfolio through solutions incorporating our broad range of protein solutions, fermented ingredients, probiotics, and immunity enhancing technologies. Finally, business volumes in developing markets were backed by 1.2% in the full year and up 3% in Q4, led by performances in China, Brazil, and also in the Middle East. Turning to slide six and the performance by end-use market.
As we said back in Q1, we've tried to give you as much of a line of sight as possible of our business performance right through the period. This slide gives you the breakdown of our performance by end-use market. As restrictions and lockdowns impacted our performance across our EUMs in the food service channel, we've also included the volume performance by end-use market for the retail channel on the slide here, just to help you to understand the dynamics of the year. Just to call out a few highlights from my perspective on the retail channel. Beverage had an excellent performance through nutritional plant-based and low or no alcohol innovations in the Americas and Europe. Snacks had a very strong growth through an increase in demand for healthier snacking options and also, of course, increased at-home consumption.
Meals had a very strong growth through clean label innovations, incorporating our natural stocks and broths capabilities with also a number of plant-based launches in the year. Our pharma business had strong growth driven by cell nutrition and immunity enhancing technologies. Moving to slide seven and our regional performance within Taste & Nutrition. The Americas region reported revenue of EUR 3.1 billion, which represents an overall volume reduction of 2.5% and a return to volume growth of 0.5% in Q4. Performances in North America was led by beverage, snacks, and meals. Within LATAM, Brazil also returned to growth, while market conditions in Mexico and CACAR remained a little bit more challenged. Reported revenue in Europe was EUR 1.4 billion, with overall business volumes back 5% in the year.
The region recovered well through Q3 and Q4, but at a slower pace than the other regions, with Q4 back 0.4%, as growth here in retail was offset by the impact of restrictions on the foodservice channel close to the end of the year. APMEA reported revenue of EUR 1.2 billion, representing an overall volume reduction of 1.9% in the year. Volume grew by 2.8% in Q4, with the region having already returned to growth in the previous quarter. The retail channel performed well, particularly in China and the Middle East, while foodservice continued to recover strongly and ended the year with the strongest exit rates of each of the three regions. Finally, we made good progress in expanding our capacity and deploying our technology capabilities both in China and the Middle East. Turning to slide eight and our Consumer Foods division.
Reported revenue for the year was just under EUR 1.3 billion, which represented an overall volume reduction of 2.6% and underlying volume growth of 2.2%, excluding the ready meals contract exit. This growth included a particularly strong last quarter, with volume growth of 8.8%, driven by a good performance right across the portfolio and some retailer stocking at the end of Q4. Trading margins in the division increased by 20 basis points, with efficiencies partially offset by COVID-related costs. Finally, we had really strong growth in meat-free categories, and we're particularly excited about the upcoming new plant-based innovations under both the Richmond and Fridge Raiders brands. With that, I'll hand you over to Marguerite to give you some more detail on the financial performance.
Thanks, Edmond, and good morning, everyone. Over the next 10 minutes or so, I will take you through our financial performance. We delivered a resilient performance in the year with revenues of EUR 7 billion, trading profits of EUR 797 million and adjusted earnings per share of EUR 3.454 despite the challenges posed by COVID-19 during the year. To look at our financial overview in more detail on slide 10. Reported revenue of EUR 7 billion reflected a reduction in volumes of 2.9%. Trading profits of EUR 797 million and trading margin of 11.5% were lower year-on-year, which I'll expand on when we look at the margin bridge shortly. This resulted in an adjusted earnings per share of EUR 3.454, which was a reduction of 9.4% in constant currency terms. Return on capital employed was 9.8%, and we generated EUR 412 million of cash in the year.
Now turning to our revenue performance on slide 11, and taking each of the components in turn. Overall reported revenue reduced by 4% in the year, comprising a number of elements. Reduced volumes of 2.9%, which I will give you more detail on momentarily. A translation currency impact of 2.3%, and a transaction currency impact of 0.1%. Price increases of 0.3%, principally driven by increases in our Consumer Foods business, and a positive impact overall from acquisitions of 1%. Moving to slide 12 and the breakdown of our revenue volume performance. On the left-hand side, you will see our overall group revenues by business. On the right-hand side, you will see Taste & Nutrition's quarterly volume performance by channel across the year.
I am pleased to say that the retail channel has continued to perform strongly over recent quarters, supported by launches in immune health and plant-based products across a number of end-use markets. Within the food service channel, you can see from the trend line the trajectory of recovery since Q2. Key to the continued recovery in volume performance through the second half has been a number of new innovations with customers, targeting evolving consumer needs within the channel. Now turning to our margin performance and the group trading margin bridge. Overall, group margins were down 100 basis points in the year due to the impact of COVID-19.
Given the impact on our volumes due to our food service customers having to dramatically reduce their operations, particularly during the initial period of lockdowns and restrictions, we incurred significant operating deleverage in the second and third quarters, resulting in an overall decrease of 60 basis points in the year. The net effect was neutral from a portfolio mix perspective. During the year, we incurred additional costs in relation to COVID-19, including costs on PPE, zoning and safety protocols on our sites, additional labor to cover absenteeism, alternative sourcing, and stockholding and distribution costs. These were partially offset by a number of short-term cost management initiatives, including the suspension of all non-essential and discretionary expenditure, resulting in an overall net impact of 30 basis points.
There was a 10 basis point reduction on margins due to pricing, driven by our Consumer Foods business, and a net positive margin contribution of 10 basis points from our Kerry Excel program. We incurred 10 basis points reduction from currency, driven principally by U.S. dollar weakness in the second half of the year. This resulted in overall margins being 100 basis points lower in the year, comprising 140 basis points in the first half, 70 basis points in Q3, and 40 basis points in Q4. With the return to volume growth in the fourth quarter, the driver of the 40 basis points reduction was the ongoing net COVID cost. As we look out into 2021, we're looking forward to good margin progression. Turning now to free cash flow on slide 14.
Overall, we generated a free cash flow of EUR 412 million, with a cash conversion of 67% in the year. Firstly, with lower trading profit as a result of the impacts of COVID-19, average working capital increased by EUR 103 million in the year. Our inventories increased due to carrying additional security stock for our KerryConnect deployments in North America. We also invested raw materials and finished good stocks during the year to ensure continuity of supply throughout periods of highly fluctuating customer demand. Our receivables increased in the first half of the year, in particular, as we supported a number of customers in navigating short-term challenges.
Finally, we had capital expenditure of EUR 311 million, which included the continued expansion of our technology capabilities in China and the Middle East, as well as the commencement of our investment at our Rome, Georgia facility in the U.S., which Edmond referenced earlier. The overall cash conversion for the year of 67% represents an improvement in performance across the year, with a cash conversion of 46% in the first half and a good recovery with 81% in the second half of 2020. Moving to our debt profile and credit metrics on slide 15. Net debt was EUR 1.9 billion at the end of the year. We have a good net debt to EBITDA ratio of 1.9 times, and our overall debt profile continues to be in very good shape with no significant repayments until 2023, with the weighted average maturity profile of our debt at 5.2 years.
Overall, we have a very strong balance sheet with a long maturity profile, which will enable future strategic developments. Moving now to slide 16. I would like to outline our plans to evolve and extend the scope of Kerry Global Business Services. A key part of our vision is to be our customer's most valued partner and to further advance our business enablement strategy and support optimal resource allocation. We will be expanding the role of Kerry Global Business Services. There are three main elements to the increased scope to drive added value to our customers and our business. Firstly, for our existing Kerry GBS finance and HR activities, we will broaden the current services to integrate more knowledge base and decision support activities.
In finance, this will provide real-time performance analysis to support our commercial and supply chain teams in resource allocation and value-enhancing activities in an agile way. We will further enhance our employee experience through HR self-service delivery. Secondly, we will build next-generation customer experience services revolving around regulatory and marketing initially, as well as procurement and supply chain. An example within our regulatory system is product technical documentation provision in real time to our customers via self-service portals. Thirdly, we will further invest in innovative digital and analytical solutions to ensure that the expanded activity scope is delivered through optimized processes and enabled by technology, delivering insights and analysis to support decision-making as well as deepening virtual ways of working. Kerry Global Business Services will primarily operate from two locations in Malaysia and in Mexico, where we will leverage the skills and experience of teams already in place.
The cost of the program will be circa EUR 30 million in 2021 and EUR 20 million in 2022, with an anticipated overall payback period of three years. We see this very much as a step change in Kerry Global Business Services and a logical next step in leveraging our KerryConnect platform and key to enabling our business, enhancing continuous excellence and building and developing talent for Kerry in the future. Finally, before I finish, I would like to cover off a number of other matters on slide 17. On KerryConnect, I'm pleased to say that our deployment in North America is progressing well. We completed deployment at 22 locations in 2020, and we have plans to go live in a further 20 locations in 2021.
We will continue to review the go-live dates at a number of facilities in 2021, as we did in 2020, to ensure that we safely enable ways of working in light of prevailing COVID restrictions and conditions. Finance costs decreased by EUR 9 million, primarily due to lower interest rates, with cash generation being largely offset by acquisition spend. Our pension deficit of EUR 44 million increased in 2020 as a result of lower discount rates. On non-trading items, we had a net charge of EUR 16 million, primarily due to acquisition integration costs. Raw materials had minor input cost inflation in the year. On currency, the translation impact on adjusted earnings per share in 2020 was a headwind of 2.9%, we are currently estimating a translation currency headwind of circa 4% on earnings per share for 2021.
Finally, on an unrelated matter, last Thursday, a short note was published on Kerry Group. The note is full of inaccuracies and errors, we strongly refute the points raised. We have reported the note to the relevant financial regulators, the Central Bank of Ireland and the FCA in the U.K. We look forward to engaging with our shareholders over the coming weeks, if any shareholder would like to discuss in more detail, please contact our investor relations team. To conclude on the financial performance before I hand over to Edmond, I'm pleased to say we delivered a resilient financial performance and strong recovery through 2020, especially given the impact COVID-19 had on our food service customers in the year. With that, back to Edmond to take you through future prospects.
Thanks, Marguerite. Moving on to slide 19, like we've said many times before, at Kerry, we always start with the consumer. Today, food is playing a more important role than ever in consumers' life's experiences. We're seeing an acceleration of many of the pre-COVID trends, consumer diets continue to shift at pace to include more environmentally friendly and sustainable food practices. Today, 85% of consumers want to know what their food's products contain. They may want to learn more about how their food is made, this is leading to an increased desire for locally produced products. Consumers are also mindful of nutritional benefits of their food, trust is more important than ever, with 60% of consumers influenced by how trustworthy the product feels. Demanding consumers seek socially responsible companies that not only use clean and natural ingredients, but also follow ethical and sustainable practices.
If we look at the right-hand side of the slide and some of the opportunities that these changes present, consumers want to see evidence of the food industry players taking clear steps to reduce food waste and carbon footprint. There are also increased expectations around supply chain integrity and community involvement. Our customers are looking for partners on this journey, and Kerry is leading with our Beyond the Horizon sustainability strategy. As consumers demand more, customers are reassessing how they best meet these evolving needs to win in the market. Despite the challenges our industry has faced, we have witnessed a renewed focus on innovation.
To conclude on this slide, our industry continues to evolve at a pace, and what's key for Kerry Group when co-creating with our customers to meet these changing consumer demands, is having the technology capability, the business model, and the local capabilities to deliver for them. Turning to slide 20, this slide details how we've enhanced both our technologies and local presence in 2020. M&A is a key part of our strategy, and we will continue to create significant value from M&A. We completed three acquisitions in the year for a combined consideration of EUR 280 million. Now taking a minute just to look at each of these businesses and their strategic fit for Kerry Group. Firstly, Jining Nature, based in the Shandong province in China.
This business brings us leading capabilities in the area of savory taste for the local meat, snacks, meals, markets, and we see great potential to enhance Kerry's savory taste capabilities in China, which will continue to be a key market for us going forward. In LATAM, we acquired Tecnispice, based in Guatemala, and also its sister company, Global Spice in Costa Rica, as part of the transaction. This is a strong fit for us in the region, and similar to Jining Nature, a local leader in savory taste, providing us with strong capabilities to further grow our business in the CACAR region. Moving on to Bio-K Plus International, based in Canada. This is a leading biotechnology company with a number of probiotics in beverage and supplement applications. It has a really strong science foundation with a number of clinical trials and unique claims around digestive health.
It currently serves the North American market. We see significant potential to expand this business and leverage it into a broad range of food and beverage applications. This brings me on nicely to Biosearch Life. This business, based in Spain, is a leader in the nutraceutical and functional food sectors with an extensive portfolio of capabilities spanning probiotics, botanical extracts, and omega-3 ingredients. The portfolio is underpinned by a range of clinical trials that support its strong positioning to address a number of consumer need states, which I'll touch on here on the next slide. Moving on to slide 21. I want to talk for a moment to you about Kerry's proactive health positioning, particularly in the functional food and beverage category, where we've been investing in and adding to our capability in recent years.
Today, almost 40% of global consumers are actively seeking out functional food and beverages to help satisfy their specific health needs, which means they're twice as likely to look for a food and beverage option over a nutritional supplement. We're seeing this drive for functional food with consumers across all life stages and demographics. These functional claims are also a key driver of growth across mainstream food and beverage products. Just to touch briefly on the five different need states on this slide, and to give you some examples of how and where we are working. Firstly, we support our customers in a variety of ways under digestive health, using our ranges of probiotics, hydrolyzed proteins, and enzymes.
There's been a huge demand for immune health, particularly this year, where we've supported customers in launches within snacks, ice cream, tea and coffee, just to name a few applications using our Wellmune technology. In women's health, Biosearch, as I mentioned on the previous slide, adds strong capabilities in the areas of natural extracts and omega-3s. These technologies also support cognition, stress, and mood, along with our beta-glucan across all life stages from infants to the elderly. Under healthy aging, which includes heart, joint, and muscle, just to call out a few areas in particular. We recently agreed a strategic partnership with PFI in Japan, enabling us to leverage their leading joint health technology for food and beverage applications, which helps reduce discomfort and stiffness in knee joints and benefits people with osteoarthritis.
Just one final point that I'd like to highlight is a white paper we recently published on the area of protein absorption, which is particularly important for the aging category. The study found significantly greater quantities of amino acids in those who had consumed our GanedenBC30 ingredient versus those who had not, thus supporting protein absorption. These examples of technologies, partnerships, and research give you a feel of what we're doing in the space, and I'd recommend our Kerry Health and Nutrition Institute website for anyone that's interested in the science behind healthier food. To close out in this slide, what's key for our customers is the combination of our technologies and our expertise in working across all food and beverage categories to enhance their offering.
The area of functional foods and proactive nutrition is one that we will continue to focus on, and you'll see further developments here in the coming years. Finally, turning to slide 22 and future prospects. As we've outlined in our release this morning, we're conducting a strategic review of our dairy-related businesses in Ireland and the U.K., and we'll update you with further communication in due course as appropriate. Now moving on to the outlook. In Taste & Nutrition, we see strong growth prospects in the retail channel with continued recovery in food service, underpinned by a very good innovation pipeline and strong customer engagement. In the short term, given COVID-19 is continuing to impact the food service channel, we're expecting flat to positive volume growth in the first quarter. We have an overall outlook for strong recovery and good growth in the full year.
Within Consumer Foods, we expect continued category variability and strong performances within the portfolio. Finally, we will continue to invest for growth and enablement of our business model while continuing to pursue M&A opportunities aligned to our strategic growth priorities. With that, I'll turn it back to the operator for your questions.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. As a reminder, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the hash key. Once again, please press star one if you wish to ask a question. Your first question comes from the line of Cathal Kenny from Davy Research. Please ask your question.
Good morning, all, thanks for taking my question. Three questions. Firstly, can you elaborate on the outperformance of your food service business, particularly into the back end of 2020? My second question relates to M&A. If we take the three deals completed in 2020, can you outline the P&L impact from a revenue and profit perspective as you see it in 2021? Final question is just on current trading. Just wondering, could you provide some added commentary around what you're seeing in your key end markets within T&N at the moment? Thank you.
Thanks, Cathal. Good morning. I'll take the first and the third question. Marguerite might take the middle one. Firstly, on food service, yeah, we're back 8% in food service. I guess the market consensus on food service is probably in the zone of 15% on a like for like basis. As you say, a significant outperformance. What I would, I suppose, remind us of is that when we were here back at the half year in Q3, we did talk about that, I suppose the proactive nature and the corrective nature of our engagement right through the COVID crisis. That then subsequently led to a strong performance in LTOs and seasonal limited-time offerings as we kind of transitioned there towards the end of Q3 and into Q4.
I think it's important to say that we have seen significant uptick in engagement, especially with the global food service operators as it relates to clean label opportunities, improvement of the nutritional quality of their offerings, and also plant-based offerings. The third point that I'd make is that we're seeing food service in China growth almost back to pre-COVID levels, primarily driven by a combination, I would say, of health and wellness opportunities and authentic taste opportunities in the channel. Right at the core of what we're good at. In terms of, let's say, the beginning of the year and how the beginning of the year is shaping up, we've had a solid start to the year. What might be most useful maybe is to share a regional perspective, perhaps starting with North America first, where we have seen a softer start in the food service channel.
Happy to say, though, that this is being offset by a stronger performance in retail due to some new launches kicking in, especially in the snacking and beverage side. In Europe, we are having a slightly slower start, again, due to food service, which effectively is a continuation of what we saw in December due to the restrictions being reintroduced in December and those continuing. In APMEA, we've had a really strong start to the year. Strong recovery and good growth in both food service and retail.
Good morning, Cathal. I might just take your question on the financial impact of the acquisitions. In respect of the three acquisitions, we spent a total consideration of EUR 280 million, and in the context of the impact on the profit and loss account, on a full year basis, looking to revenue first, the revenue contribution is circa EUR 75 million. We expect the FY 2021 impact to be approximately EUR 50 million. From a margin perspective, the margin for these businesses are broadly in line with the Taste & Nutrition margin, and we expect EPS accretion of 0.5% in 2021.
Thank you.
Thank you. Your next question comes from the line of James Targett from Berenberg. Please ask your question.
Hello. Good morning, everyone. Three questions from me. First, just starting off with current trading. Sorry, not current trading, sorry, the full year outlook. You haven't given a sort of, I guess, quantitative guidance for the full year. I'm just trying to understand if that's just based on your uncertainty over the rate of unlocking in different countries throughout the year, or is anything else giving you a bit of caution on guiding an absolute level of growth at this stage? Secondly, on the dairy business strategic review, could you just give us some idea of the reminders of the size of the business and the rationale for this review? That would be helpful. Finally on M&A. Thanks for the detail on the financials for the deals done in 2020.
I think in the past, you've outlined your rationale for combining M&A transactions rather than detailing the individual purchase prices and financials. Could you perhaps remind us of your reasoning for still doing so, particularly as that strategy now appears to be affecting market sentiment on the company? Thank you.
Good morning, James, and thanks for the question. I might take the three questions in the order that you have asked them, James. Firstly, on guiding. I think you should think about it just on the basis that we're being pragmatic in terms of our approach to guiding. The reality is that we just don't have the same level of visibility that we would normally have at this time of the year. Obviously, that's COVID related. We're trying to be as helpful as possible by giving guidance for Q1 on the volume side. We do remain optimistic about the year. I'm sure I get into reasons around that later on. It's really about taking a pragmatic approach. There isn't the same visibility as there normally is. We will resume guidance as soon as is practical.
In terms of the dairy business, I suppose there's two elements of the dairy business. Firstly, the business has revenues of about EUR 900 million. The business breaks down roughly 50/50 between Taste & Nutrition and Consumer Foods. I would say from a rationale standpoint, maybe just to give some context on that, clearly within our Taste & Nutrition business, our strategy has been centered very much around that value add co-creation partner that we've talked about today and talked about in several of our sessions, and having that technology capability to enable that strategy. You've seen that again today from the recent acquisitions and investments that we're making, and you continue to see that. Clearly the dairy processing activities have a different profile.
I suppose the rationale of combining, let's say, the milk processing assets with Consumer Foods dairy business, there are some synergies there. That's why we've put that perimeter around those two elements. Back to your question in terms of our approach to M&A. I think the first point I'd make is that our M&A activities should not be seen as standalone independent transactions, but they're an element of a well-thought-out, multi-step, systematic approach to get from point A to point B in executing against our strategy. We'd have laid out for ourselves maybe a 10-step approach to get from point A to point B. Those steps might entail organic innovation investments or reallocation of resources or hires or CapEx, and perhaps five or six different acquisitions.
Clearly, we always don't get the number of acquisitions done that we want to do, but we do have a high success rate. I come back to that point again, but we have shared with you this approach in the past when we brought you through our clean label preservation journey back at the half-year results, and we touched it again briefly when we touched on our proactive health journey here in the presentation. Look, based on my own time in M&A and I suppose my experience over 25 years now, the way we conduct ourselves before, during, and after any transaction is critical. I've said many times in the past that the majority of our transactions are bilateral in nature, and we've built up strong relationships with owners. Many times, they are individuals and they're family members.
In many times, they've asked us not to disclose different aspects of the deals, whether it's the consideration, the earn-outs, the non-competes, the employment agreements, whatever it is. They understand and respect the fact that we have to make certain disclosures, but we also respect their wishes as best we can. I would suggest that this approach has not only unlocked opportunities for us, but also led to, I would say, subsequent transaction opportunities coming our direction. From my engagement with shareholders, I believe they understand this, they support our approach, and encourage us to continue doing what we're doing. I'm sure I'll have the opportunity over the next days and weeks to discuss this topic, and I'm sure other topics in the upcoming roadshows. I hope, James, that helps.
Yes, thank you.
Thank you. Your next question comes from the line of Graham Hunt from Morgan Stanley. Please ask your question.
Thanks. Thanks, and good morning. Just two questions from me. Again, on M&A. Maybe I will just ask slightly differently, whether you could talk about some of the deals that you haven't done over the last few years, and maybe what the main reasons for walking away from those were. Into that, what your process is for maintaining capital discipline. Then second question on returns. I just wondered if you had any sense of what the path back to your target level of around 12% is, and what your expectations are for 2021. Is this just a case of volume recovery or are there some other moving parts to that we should be thinking about? Thank you.
Thanks, Graham, and good morning. I think there was three questions there, I think what you're asking is effectively how does M&A work in Kerry, and what are the reasons we walk away from deals. Maybe to take the second part first. Look, we walk away from deals for many reasons, I would call out the strategic fit being the number one reason. That rules out the vast majority of, let's call them unsolicited approaches. Perhaps 90% of what we see where entities approach us get ruled out of this hurdle. We might look at more than 200 opportunities in a year, and 90% of them are ruled out on the basis of strategic fit. Other reasons could be culture, financials, environmental, customer relationships, IP issues, and regulatory in our space is probably the other significant watch-out for us.
I think the main point here is, and I have my own personal experience from working in that, specifically in M&A transaction management for the company is that, look, we have built up a significant capability, a very strong capability over the decades as it relates to the identification, evaluation, and integration, and subsequent value creation as it relates to acquisitions. In terms of, I suppose, how it works, I would say it's very much a bottom-up process. I'm talking here now more in the context of bolt-ons. It's very much a bottom-up process.
At the local business entity level, whether that is at an end-use market level, a sub-end-use market level, a country level, a sub-region level, region level. The management teams are absolutely mandated to know the market, to know their peers, their competitors, the players in adjacent areas, and those potential opportunities then are discussed in the normal monthly cadence. Acquisition targets or candidates are identified during that process. Look, from a governance standpoint, I suppose the identification of targets sits with the local management teams. The evaluation of transactions is co-owned between local management and central regional strategy and M&A teams, within oversight and engagement as required from a global level. The integration then is also co-owned. The execution of the integration plan, as well as the targets, are owned by the local management team.
We feel that this approach has served us well over the years. Perhaps, Marguerite, you can touch on the returns question.
Sure, thanks, Graham. Just on returns were impacted during the year by trading due to COVID. As we look to 2021, we're looking at returns on capital employed of somewhere between 10% and 11% zone. We look to build on that in 2022 and going forward.
Thanks very much.
Thank you. Your next question comes from the line of Alex Sloane from Barclays. Please ask your question.
Yeah. Hi, morning all. Just the first one on cash conversion. Good to see that stepping up in the second half as you laid out, but obviously for the year overall, we're 67% below the over 80% target that you have for the medium term. I just wondered if you could kind of flesh out the levers you see to getting consistently above that 80% level. When I look at your CapEx to sales level, it has been more elevated over the last few years than going back to the earlier part of the last decade. I guess there's been a heavy spend on KerryConnect and building out your R&D centers globally. I guess with that investment having taken place, do you see any scope for more moderation in CapEx to sales going forward? Will that be a lever to improving free cash conversion?
Just secondly, just for Marguerite, hopefully just a quick one, but useful to clarify, I think. Can you just confirm that the purchase of business line in your net cash used in investing activities over the past decade, I think it is cumulatively more than EUR 3 billion spend there. It would be useful just to maybe confirm that is a fully audited cash outflow. There has been no material revisions to this line historically, and it represents spend on brands, IP, and other assets that you legally own, in no cases represents prepayments. Thanks.
Good morning, Alex. Maybe on your last point first. Obviously, fully audited, included in our financial statements. Maybe just then to take the cash conversion point. Very much as we guided in terms of our performance in FY20, clearly cash conversion was impacted significantly as a result of COVID-19 and the conscious actions that we took in relation to investment in stocks, ensuring continuity of supply, and also the investment that we made in inventory and stocks in relation to KerryConnect. Our cash conversion, as you'll also have seen, improved as we anticipated in the second half with the recovery of volumes, and we delivered 81% cash conversion in the second half. As we look forward into 2021, we are looking at that continued significant improvement year on year and a cash conversion in the zone of 80%.
Just a couple of points that I would add to some of the comments that you made. You're correct in the context of us making investments in relation to the roll-out of KerryConnect, as we have done very much to de-risk the deployment of KerryConnect. You'll have heard from my earlier comments that we rolled out KerryConnect in 20 locations during 2020. It's important to remember that we will continue to roll out into a further 20 locations in North America during the course of 2021. We will continue to de-risk and hold investment in inventory. Hopefully, that gives you color just in relation to our future cash conversion.
Yeah. Thank you.
Thank you. Your next question comes from the line of Jason Molins from Goodbody. Please ask your question.
Hi, good morning. Edmond, firstly, two or three questions here, I guess the first one just on the dairy business, you mentioned EUR 900 million of revenues. Can you give us a sense of profitability for that business? Then in your closing remarks to the dairy business, I think you mentioned the remaining two parts of the Consumer Foods business. Can you just clarify, is that something that you're hoping to keep on within the broader business and the synergies that that has within the wider group? Second question is back to margins. Marguerite, I think, and your colleagues here referred to good margin progression expected in 2021. Can you maybe give us a sense of framework in terms of how we should think about that based off where you were in 2019 and typically the margins that you were able to deliver in that year?
Final question really is around M&A. I guess it's a year since you missed out on a pretty strategic acquisition for the business, and bearing in mind you look at 200 deals in a year, how should we think about size of deals that you're contemplating going forward? Is there anything within the pool that I guess could be seen more strategically or large scale? Thanks.
Thanks, Jason. It was hard just to hear the last element. I think it was about the size of the deals in M&A. Just back to your first question first, then I'll let Marguerite take the question on margins. In terms of the dairy business, the business has revenues of, like I said, of about EUR 900 million, split about 50/50. Look, from a margin perspective, I think it's important to say, first of all, that it's still early in the process. From a margin perspective, we're not going to get into specifics, but it's fair to say that margins overall are much lower than the group margins. That's probably as far as we go on that one. There is a mix.
There is a mix, as you can appreciate, because of different elements of the portfolio between the, let's say, the Consumer Foods branded element and, let's say, the more commodity type dairy ingredients that you'll be familiar with. In terms of Consumer Foods, like we've consistently said, Consumer Foods is a good business. It had a great last quarter, continues to perform well, and a good momentum coming into the year. We'll continue to selectively invest on the growth areas that we've outlined in the past, whether it's plant-based, whether it's the D2C element or snacking. That's as far as we're going to comment on that. In terms of M&A, I would say that the bolt-on strategy that we've been on over the last several years has delivered significant shareholder value.
I think the examples we have brought to life for you, both in the examples we give with our clean label preservation strategy, with our proactive health strategy, represent, I would say, a very strategic, systematic process of a combination of bolt-on M&As with, let's say, organic investments. Those platforms represent, in the region from a scale perspective, mid-single digit from a scale perspective, mid-single digit percentage of our business. Two really strong platforms from which we can really take on from. I think in terms of what you should expect from Kerry going forward is a continuation of that bolt-on strategy, while at the same time remaining open-minded to larger deals. As you were aware, we participated in larger deals in the past. I'm sure we'll continue to look at larger deals in the future.
We'll continue to retain our discipline as it relates to what we do. Nonetheless, we won't be found wanting to take advantage of opportunities that represent a very strong strategic fit. I think our shareholders expect us to do that, and we will continue to do that. Marguerite, I'll hand it over to you.
Good morning, Jason. Just on the margin question, yes, we do expect a significant improvement in margins in 2021 versus 2020. Obviously, we're not guiding at this juncture, we expect to have a number of moving parts within the margins. Firstly, we will have operating leverage as volumes recover significantly. Secondly, maybe some mix enhancements. Importantly to note, we will continue to have net COVID costs just in light of the current environment. We may have some incremental investments in some areas where we're seeing accelerating consumer trends and bigger growth opportunities as Edmond referenced. I'd say at this stage, our expectation that the net COVID costs will be more weighted to the first half of 2021. From an overall perspective, while we do expect a significant improvement in margins year-over-year, not quite back to 2019 levels in light of ongoing COVID costs.
Clearly, we'll give you more color on our expectation around margins as the year progresses.
Okay, thanks. Presumably then, again, if I was to think of your bridge for the year ahead, operating leverage is going to be the key bulk of what's going to drive that margin enhancement. From, I guess, a split H1, H2, given COVID costs, et cetera, it's still going to be very H2 weighted in terms of seeing that real margin improvement come through. Would that be a fair assumption?
Yeah, that's probably a fair assumption, Jason.
Thanks.
Thank you. Your next question comes from the line of Faham Baig calling from Credit Suisse. Please ask your question.
Morning, team. Thanks for allowing me questions. Most of them have been asked. I've got a couple remaining. I just want to understand the dynamic with regards to retail and the recovery in food service. I know you saw something similar in FY 2020. You're suggesting a continued strong growth in retail along with a recovery in food service. I just want to understand the dynamic. Should one not be offsetting the other? If consumption in food service increases, that's likely to put some pressure on retail, particularly in end use markets such as beverages. I just want to understand that dynamic and how we see it playing out in 2021. Is there a category mix that we should look out for, et cetera? Secondly, probably a shorter question. Could you just give us your commodities outlook for FY 2021 as well, please? Thank you.
Thanks, Faham, and good morning. I'm just struggling a little bit with the line here. I guess it's probably at our side. In terms of retail and food service, maybe just to put some color on that. I think firstly on the retail side, I think it's important that I kind of bring to light two significant developments that we've seen since the Q3 results. We've seen a significant acceleration in engagement around emerging brands. I would say especially in North America, we've seen a lot of PE money coming in behind emerging brands. I think we built an excellent reputation in North America to be a massive enabler of emerging brands and to help them bring products through right from ideation all the way through to launch.
A new term that I have heard in the last few months coming through from that cohort of customer is this concept of low risk rapid innovation. This level of activity I haven't seen before with this particular category of customer. It's really driven around that low risk rapid innovation, getting products to market really quickly, and we're extremely well positioned there. The second point I'd call out that we'd be really positive on in terms of the trajectory of the business on the retail side is what's happening on functional food and beverage. I think it's fair to say it's not new, but we've seen a huge acceleration in engagement. Again, I believe we're very well positioned here as well. We have built up a very strong portfolio of proactive health ingredients that incorporate functionality in a real meaningful way into food and beverages.
I think that's going to be a really important growth driver for us going forward. We have seen a step change level of engagement around that. On the food service side, I would say, maybe just to put some color on that, clearly we have been in recovery mode, but like I said at the very beginning of the Q&A session, we've been very consistent in trying to explain the proactive nature of our model. We were extremely proactive right through all the COVID crisis and really going shoulder to shoulder with our food service customers, especially the global food service customers who have been highly active.
We have a number of global approved launches for a number of global foodservice operators, both for new core items and upgrades to existing core menu items, very much around the areas of clean label plant-based and nutritional improvements, whether that's salt or sugar or calories or what have you. These platform launches have already actually been signed off. They've been agreed, ready to go. The reality is nobody has done these type of launches in a pandemic scenario, so the legacy processes for bringing these products to market don't necessarily work. We are seeing the timing of these launches being a little unclear. They will probably come in the second half. That's kind of our thought process on foodservice. We've a very strong pipeline.
We're excited about the fact that we have these global launches ready to go. We can't tell you exactly when they're going to come. We're, let's say, saying more second half at this stage, albeit that they're already signed off. Maybe I'll hand it over to Marguerite then to pick up the other question.
Yeah, sure. Just in terms of outlook on raw materials, the outlook is for low single-digit inflation as of today. Obviously, there's variations across the basket, and we'll update you as the year evolves with new crops as we move through the year.
Thank you. Your next question comes from the line of Ryan Tomkins from Jefferies. Please ask your question.
Yeah. Thank you. Good morning, everyone. Been partly covered already, but two questions. Just on the commodities one you mentioned there, low single-digit inflation. Is it fair to translate that through to pricing and have any kind of negotiations or that passing through begun already in the year? Secondly, just one on, again, being talked about, but capital allocation. In a scenario where perhaps you don't feel your strategy in terms of bolt-on acquisitions is being fairly rewarded, would you consider other capital allocation options? I know you've spoken about larger deals there, but anything else potentially, or are you quite set on your strategy for now? Thank you very much.
Thanks, Ryan. Good morning. I'll probably take the second part of the question first. I would say that our bolt-on strategy has been very robust. I think we have a long track record of capability here. I think we've a long track record of significant value creation. We have brought you through some of these examples at various investor days and in various presentations over the last several years. We're not calling out any change in capital allocation strategy at this time. Of course, we always remain open-minded to what's happening. We do have a strong M&A pipeline in front of us of various sizes and of various, I suppose strategic fits. We continue to execute against our strategy, and M&A will continue to be part of that bolt-on and larger as and when they come up.
Maybe just on your first point, you're correct. As you know, we've a very well-developed pricing model over many years with our customers, where we pass through the impact of those costs as I referenced.
Thank you. As a reminder, if you'd like to ask a question, please press star one. Your next question comes from the line of John Ennis from Goldman Sachs. Please ask your question.
Hi. Good morning, everyone. My question is a follow-up to Faham's question on the 2021 retail growth outlook. You mentioned that customer engagement and the innovation pipeline are big contributors to your 2021 growth for the retail segment. I just wondered, can you maybe break down what proportion of your future growth is related to these new product launches versus the underlying end market growth? Maybe to help us quantify this, could you give us the contribution from new launches to your growth in retail for a normal year or for 2020? Thank you.
Thanks, John, and good morning. I think that's the level of detail that I don't have right now in terms of, let's say, the % of new launches. In different aspects of our business, we would expect typically maybe a 10% churn rate from time to time. That's kind of, let's say, a very generic guidance there, John, that we would typically give out. It would vary from a technology-to-technology basis. In terms of, I suppose our underlying markets, we have shared with you our performance by end use market for the full year in the presentation. It's something we do every year. I'm happy to go down through that in any detail, we're not calling out any specific, let's say, weaknesses in terms of any market, any weakness of note, let's say, that we would call out that concerns us at this point.
There are always challenges from time to time within specific end-use markets that I touched on within the presentation. In terms of, I suppose, what's happening in the marketplace, the trends of sustainability, of value, of convenience, of nutrition, and we see customers, as they're looking at their opportunities, balancing and trying to get the right balance between those four, I suppose, trend areas. I believe we have the right technology portfolio, capability, and business model to be able to adapt and then actually really grow into those trends. If anything, I feel those trends are coming more in line with our capabilities. One shouldn't think of, let's say, when food service goes down, retail goes up, retail goes down, and food service goes up. I don't think that algorithm is the right algorithm for Kerry, frankly.
I'd be quite optimistic here in the medium term that the growth rates that we're achieving in our retail channel now, in the 4% zone, which are significantly ahead of, let's say, our historic growth rates in retail, can be maintained, will be maintained. I think our food service channel will continue to pick up. One of the reasons I'm very optimistic about that is what we've seen in China. China, I see, because it is of a scale now, as being a bellwether for the rest of the organization. Frankly, we saw food service performance in the mid to high single digit growth in China in Q4. We saw retail growth in the high single digits level, and we see continued momentum there. There's real platforms of growth for us in China emerging around nutrition, health and wellness, and around authentic taste.
I think it's a fair, I would say, bellwether for us for the rest of the organization as restrictions lift, as vaccinations get rolled out, and there's some return to, let's call it the new normal.
That's very helpful. Thank you.
Thank you. There are no further questions, so I will hand the call back to Edmond Scanlon.
Thank you all for joining our call. I'm sure we'll connect with many of you over the next few days and the next few weeks. I would like to take the opportunity just to remind everyone that we will be presenting at CAGNY on Thursday. Thank you, and all the best for the remainder of your day.
Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect.