Ladies and gentlemen, thank you for standing by, and welcome to the Cara Group Interim Results Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation there will be a question I must advise you that this conference is being recorded today. I would now like to turn the conference over to Mr. William Lynch, Head of Investor Relations.
Please go ahead sir.
Good morning, everyone, and welcome to Curi Happier Results Call. As per our first quarter updates, We're hosting today's call from different locations. So please bear with us if things are not quite as smooth as they would normally be. I'm joined in the call by our CEO, Edmund Scanlon and CFO, Margaret Darcon. Edmund De Marjorie will take you through a brief presentation caption the key points of this morning to Valdez.
When following the presentation,
we will open the line
for questions. Before we begin, please note the usual disclaimer regarding forward looking statements. I will now hand over to Edmonds.
Thanks, William, and good morning, everyone, and thanks for dialing in this morning. We're going to spend the next 25 minutes, target minutes or so updating you on our H1 performance. And as we did in April, Today, we're going to try to give you as much of a line of sight as possible on our business performance as we continue to manage through these unprecedented times. Before we get into the slide, I just wanted to touch on a few important points from my perspective. Firstly, our foodservice business continues to recover well, while our retail business had a strong Q2 performance.
Secondly, the nature of engaging with our customers has been at a different level than we've seen before. And finally the absolute pace of change in the last 2 to 3 months has been truly incredible. COVID has accelerated a number of key consumer trends from natural authentic cooking to online and delivery and also the acceleration of the proactive health trend. So just to summarize, a really dynamic marketplace, a lot of change going on, which to me present many opportunities for carry as we emerge from this pandemic. So moving on to Slide number 4, and the H1 overview.
Firstly, let me start by saying I'm immensely proud of the tremendous efforts of our COVID response teams. And indeed of all of our people in supporting our customers and sporting in our local communities over the last 6 months. Very much aligned to our values and guided by our purpose of inspiring food and nursing life. So looking at the performance of our business by channel. Foodservice was backed by 2 thirds in April, as you can see on the trend line here on the slide.
And this has been recovering well across the 2nd quarter, corresponding to the lifting of restrictions and was back 26% as we exited the quarter. And we've seen further sequential improvements in stent with volumes back in the mid teens in July. Our retail channel had a strong performance in Q2, with a 5% volume growth, which was a significant improvement in Q1, where we had the impact from COVID in China. This growth was also above our average in the channel for the last couple of years. This strong performance was driven by our solutions incorporating our broad protein portfolio, including plant based offerings, authentic aid solutions, fermented ingredients and immunity enhancing technologies.
And we've continued to perform well in this channel in July with growth at the lower side of mid single digit. So moving on to Slide 5. Our key priorities throughout this period have been our So then to give you a status update on the impact of COVID on our business. In North America, We've seen our strongest rate of recovery in the food service channel as restrictions were lifted sooner. And many of our customers were able to pivot their offerings pretty quickly, for more drive thru, curbside pickup and delivery options.
Our retail channels delivered a very strong performance with increased demand for health and wellness and also our anti cooking products. For Europe, the rate of recovery has been slower than it was in North America. With the lifting of restrictions being more on a phased basis. However, I would note that there was a good improvement in the region in June. In APMEA, we had a steady improvement in China, while India and South Africa were significantly impacted later on in the period.
There also has been some resilient performance as another part of the region, but overall, it's very much on a country by country basis with quite a bit of volatility and variability. On our Consumer Foods division, It has seen some impact from COVID, but it was limited relative to what we've seen in our taste and nutrition business. On margins, we've seen a pretty significant short term impact in the second quarter as many of our facilities are set up for multi technology manufacturing, serving both the retail and food service channels. We kept all of our plants running throughout this period. Albeit many plants were running at a much lower capacity resulting in significant operating deleverage as we still had to incur the fixed costs.
This impact will be greatly reduced in the third quarter as we continue our volume recovery. We have taken a number of actions around the safety of our people and the security of supply for our customers. And we've also implemented cost actions to try to mitigate some of the impact. And we've also been working with our customers on a number of different fronts manage through the short term and also to plan for launches for the new norms. So to conclude on this page, and I'll talk to this in a little bit more detail later, COVID is having an impact on our entire industry, with the robustness of supply chains being more important than ever.
Customers are currently reviewing their product portfolios and changes in new product development, meeting new challenges for our industry and more importantly, meeting significant new opportunities as we work through farmers in H1. Revenue for taste and nutrition was $2,800,000,000 in the first half. While trading margin at 11.6 percent was 170 basis points lower due to the operating deleverage I just referenced. Overall, volumes were back 5.6% in the half. And this was driven by lower volumes in food service, in the food service channel of 27% which you can see from the panel on the right hand side, but these have been recovering well as we've moved through the second quarter.
The retail channel delivered good growth through Q2 after being particularly impacted in China in Q1. Performance was best in beverage, meals and snacks with good demand across our nutrition and wellness portfolio. Developing markets declined by 3.8% as a result of the restrictions in various countries in APMEA. And pricing was pretty flat in the period, reflecting relatively neutral input costs. So now turning to Slide number 7 and looking at our case of nutrition performance from a regional perspective, First ATD Americas, which had reported revenue of $1,500,000,000 in the period, with overall lower volumes of 3.9% due to the impact of COVID.
Foodservice in North America was affected particularly in April. Which has been recovering well since then. We had strong mid single digit growth in our retail channel, driven by our broad beverage offering, increased demand for natural stocks and broughts in the meat category, while snacks continued to perform well through healthier options. LatAm was impacted later in the period with Brazil being more challenged. And in April, we completed the acquisition of techie Spice in Guatemala, which is a local leading savory case business serving both the meat and snacks end use markets.
So moving on to Europe, we reported revenue in the period of 657,000,000 with volumes 8.8% lower with a more pronounced impact from restrictions here. The retail channel performed well, driven again by beverage and snacking along with meat, where we had a number of successful plant based launches. Russian Eastern Europe continued to deliver very good growth in the period. In APMEA, we had reported revenue of $566,000,000 in the period with lower volumes of 5.9% as the impact from COVID in China extended to another, a number of other countries in the region. On the retail side, SSA Sub Saharan Africa and India were also challenged due to local conditions, oil performance in Southeast Asia and the Middle East for more robust.
On the strategic front, we've continued to make good progress in expanding our capacity and deploying our technology capabilities in the region, most notably in technology Innovation Center in Shanghai, a state of the art facility, which will be a key enabler of future business development for us, in the China region. So now turning to Consumer Foods on Slide 8. Reported revenue was at $647,000,000 in the first half, with the volume decline here primarily reflecting the ready meals contract exit in the prior year. Quit had a positive impact on some of our categories earlier in the period, but this was offset by lower snacking and impulse post purchases in some categories in the second quarter. Trading margin was maintained as of efficiencies offset any COVID and pricing impacts.
And we're very pleased with the performance of the recent meat free launches under both the Richmond and Naked Glory brands, Where they've been rolled out today, they're performing very strongly and achieving category leading positions. And with that, I'd hand you to Margaret give you a little bit more detail on the financials.
Thanks, Edmund, and good morning, everyone. Over the next 10 minutes or so, I will take you our financial performance for the first half of the year, which was clearly impacted by the global pandemic In the periods, we delivered $3,400,000,000 of revenue, trading profits of 316,000,000 and adjusted earnings per share of 132.1 Now to look at our financial overview in a little more detail on Slide 10. As expected, we had a reduction in reported revenue which amounted to 4.3%, reflecting the impact of COVID-nineteen. Our trading profit of 316,000,000 and trading margin of 9.3 percent were lower year on year, which I will expand on when we look at the margin bridge shortly. This resulted in an adjusted earnings per share of $132.01, which was a reduction of 19.8% in constant currency terms.
Return on capital employed was 10.5% and we generated 107,000,000 cash in the period. Now turning and taking each of the components in turn. The reduction in reported revenue of 4.3% was driven by a number of elements. Reduced volumes of 6%, which I will give you more detail on in the next slide. From the increases of 0.4% principally driven by increases in our Consumer Foods business.
At inflation currency impacts of 0.1% and the positive impact overall from acquisitions of 1.2%. Moving now to Slide 12, and looking at our revenue volume performance by business. And to the right is the taste and nutrition monthly volume performance over the last 6 months. The trajectory volumes within the food service channel were back 2 thirds. And this was the driver of overall taste and nutrition volume.
Being back 17% in the month. We have seen volumes recovering well since then, very much aligned. It's the lifting of restrictions in the food service channel. And we have exited the quarter with taste and nutrition volumes down 5% in the month of June. Turning now to our margin 40 basis points in the period due to the impact of COVID.
Given the impact on volumes in the period, We incurred significant operating deleverage of 110 basis points, which reflects the settlement referenced earlier the impact of reduced the net effect was neutral in the period. During the first half, we incurred costs in relation to COVID-nineteen, the impact of which we thought to minimize by actioning a number of short term cost management initiatives. And overall, the net impact was 30 basis points. The additional COVID related costs can be classified into 2 main categories. Firstly, to ensure the safety and well-being of our employees, including personal protective equipment, zoning, segregation and other employee support comp.
And secondly, to ensure continuity of supply, including additional labor, raw material costs, stockholding and distribution costs. We took a number of decisive short term actions to reduce the suspension of all non essential and discretionary expenditure, reallocation of resources and optimizing production runs, while continuing support our customers with planned stocking arrangements. Moving the 10 basis points reduction here was driven by our Consumer Foods business. And finally, there was a net positive contribution of 10 basis points our carry Excel program. So just to summarize where we are from a margin perspective, as we expected, Clearly, our margins were materially impacted in the second quarter.
As we look forward, Given the good business momentum and the continued recovery trajectory, we expect operating deleverage to significantly reduce in the second half of twenty twenty. The actions we have taken to ensure continuity of supply in the short during the last number of months are reflected by a number of factors, including lower trading profit as mentioned, increased working capital in the period of $116,000,000, with the key drivers being inventory and trade receivables. We invested in additional raw material and finished goods stock, to carry contingency stocks of key raw materials, while we also worked with our customers and carry contingency finished goods to ensure continuity of supply through a period of highly fluctuating demand. In addition, aligned to our Keri Connect deployment in North America, we have plans to carry additional security stocks at this time. Our receivables increased in the period as we supported a number of our customers in navigating short term challenges.
Finally, we had capital expenditure of $129,000,000, which included the continued expansion of our technology capabilities in China, the Middle East, as well as the commencement of our investment at our Rome, Georgia facility in the U. S, where we are creating a world's leading manufacturing facility to meet the increasing demand for integrated solutions across the variety of protein applications. As we look at the second half of the year, we expect free cash flow to be much improved as volumes continue to recover Now moving to our debt profile and credit metrics on Slide 15. Net debt was just under $2,000,000,000 at the end of the period. We have a good net debt to EBITDA ratio of two 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 point 6 years. So all in all, we continue to have a very strong balance sheet with a long maturity profile to enable future strategic development. And finally, before I finish, I would like to cover off a number of other matters on Slide 16. On Carey Connect, I am pleased to say that our deployment in North America is progressing well. We have pushed out the go live dates by 1 or 2 months at a number of facilities to safely enable ways of working during current restrictions.
We have proposed an interim dividend of $0.259 per share on raw materials we had low to mid single digit inflation within our consumer foods business, while raw materials in taste and nutrition were broadly neutral. And at this stage, the overall group outlook for relatively neutral input cost inflation for the remainder of the year with low single digit inflation within Consumer Foods. And finally, on currency, we are currently at on the full year. And in summary, before I hand over to Edmunds, our financial performance in the first half and most notably the second quarter, reflects the significant volume impact of COVID 19, most notably in our food service channel. With an encouraging sequential improvement in volume from April through the second quarter.
So now back to Edmunds to update more broadly on future prospects.
Thanks, Margaret. Before I turn to the future prospects, I'd just like to take a few minutes to look at the evolving marketplace and industry landscape and how we're engaging and partnering with our customers. So moving on to Slide number 18. We've always said that everything starts with the consumer. And this slide gives you a good framework of how we look at our marketplace.
Here, you see some noteworthy current market dynamics and one point I wanted to highlight at the outset. Is that sustainability has now become a primary factor there are 4 key consumer trends outlined in the slide, and I touch on a couple of them in more detail in the following slides. Firstly, online and food delivery in the food service channel has seen a step change over the last few months. There's been an increased consumption with existing customers, but more importantly, a large number of new consumers are experiencing food delivery for first time. Customers are responding at a pace.
And while this is a major opportunity, there are challenges to be addressed. And food service customers are looking to partners for support to overcome these challenges. The second consumer trend is plant based. Plant based has continued to establish itself. And is proving very resilient, even through this pandemic.
We've seen a step change in plant based innovation. As customers who are previously monitoring this trend have cracked the line and are now planning new launches in this space. Next, we have a heightened focus on reducing food waste, leading to natural shell site extension coming even more to the core. Customers are reassessing their offerings with a lot of engagement of how they can renovate their portfolios. And the other trend I just wanted to touch on is well-being and immunity.
And this has become very much top of mind for consumers and has been a major focus from an innovation perspective, so far this year. So to conclude in this slide, and as I referred to earlier, there are a lot of changes happening in our marketplace, meaning new challenges for our industry to address, but also providing significant new opportunities. So turning now to slide 19 and looking at the growth of online and food delivery in the food service channel. Customers here are fundamentally relooking at their businesses and the growth opportunities ahead of them for the next 3 to 5 years. They're reviewing their footprint and their operating models with a good example being operators investing more in the life of cloud kitchens.
They're also looking at their menu offerings. And how they can address the multitude of challenges to deliver a winning home delivery consumer experience. And if I take the example here in the middle of the page and the challenges here apply to almost all delivery products, whether it be stability, consistency, taste, or texture. And what's key for our food service customers is that Carrie has the broadest technology portfolio to address these requirements with our holistic partnership model, we developed solutions to meet our customers' needs and the needs of their consumers. So moving on to slide number 20 and just taking a moment on the important trend we've seen accelerating through COVID, which is the increased demand in and reduced the overall environmental impact.
Over the last 10 years or so, we've been building out our capability through systematic strategic investments, both organic and true acquisitions, to become the leader in clean label food protection. Keeping food safe over a long shelf life is a complex and multifaceted challenge. It's never just the case are simply switching or adding an ingredient. And our core focus is on enabling customers to keep their food safe, while at the same time cleaning up their labels by replacing chemical preservatives with cleaner alternatives. We've outlined our clean layer of the strategy to you in the past under our 5 hour framework where Carrie, we believe, have a distinct advantage.
Our clean label food protection portfolio comprises 5 technology platforms, as you can see here on the slide. Fermentation metabolites, protective cultures, smoke distillates, vinegar antimicrobials, and bioprotective plant extracts. Each of these technologies has unique mechanism of action that can be used individually or in combinations that can offer protection across multiple applications and in multiple environments. The value we bring to our customers is very much how about how we deploy our food protection portfolio with our broad taste and nutrition technology capabilities to create solutions for a variety of applications across the food and beverage landscape. And I'm particularly excited about the potential here as we see this as an area that will continue to grow on in partners for consumers and for our customers in the car for the coming years.
So turning to Slide 21 and future prospects. Within case nutrition, firstly in our food service channel, I'm very encouraged by the progress we've made, and we're continuing to partner with our customers on new menu developments. Our retail channel continues to deliver strong growth and we have a strong innovation pipeline and enhanced customer engagement to meet the demand the post COVID consumer. Overall, in our case, Nutrition business, we're seeing continued good recovery in momentum. And based on the current prevailing environment, for the third quarter, we're estimating lower year on year volumes in the range of low single digit to flat.
Our Consumer Foods business is currently seeing some short term changes in Consumer Purchasing behavior, with variability across some categories as we continue to selectively focus on growth opportunities. We'll continue to invest for growth and pursue M and A opportunities aligned to our strategic growth priorities, and our unique business model, broad taste nutrition portfolio and industry leading integrated solutions capabilities. Are more critical now than ever before as we support our customers through this changing environment. So with that, I'll hand you back to the operator and we'll be glad to take any of your questions.
Questions. And your first question comes from Cathal Kenny from Davy. Please go ahead. Your line is open.
Good morning, Marguerite, Edmond and William. Two questions from my side. Firstly, to Marguerite on your comment on margin. I think you spoke about a significant reduction in operating leverage in the second half. Perhaps you could maybe quantify that a little bit more, please.
2nd question relates to emerging markets, one for Edmund. It looks like a mixed picture there. I think overall volumes down close to 4% in the first half. I just wondered, could you give us the drivers behind that volume, I'll turn And secondly, I guess, has the whole dislocation in emerging markets related to COVID, has that influenced your kind of thought process on the region? Note over the medium term.
Thank you.
Thanks, Karl. I might just jump in there first and then hand it hand it back to Marguerite. So like you said there, Carl, yes, we said in the presentation, our developing markets was backed by about, about 3.8%. And, it's been very much a country by country story. Maybe just to put some color on that first.
Maybe starting off with China. If we go back to February, we had we said that at the Q1, wheat volumes down by more than 80% by the time we got to April, volumes for the month were similar to that of last year. And now as we stand here at the end of July, we're looking at a month where we're looking at volumes being positive year on year. So clearly over the last 5 or 6 months, we've seen, continued recovery in our business in China. The decline in APMEA was greater than the average, while the decline in LatAm was less.
So the impact from COVID was greater in apnea in the first half, whereas in that time, we were kind of more into the second quarter before we start to see the impact. In apnea, like I said, India and South Africa, remain the most impacted, while in LatAm, Brazil is the most impacted. So as we stand here today, pretty much all of our developing countries that we operate in have turned the corner at this stage, with Brazil really being the only one, the only call out where we're later in the cycle. Maybe just on the second part of your question, and maybe taking an overall kind of higher level look at developing markets you know, clearly the requirements in developing markets are going to evolve in response to COVID. And maybe two areas I'd like to call out in particular is, the whole area of localization.
I think localization will be, even an accelerated trend. It was their pre call, but we've talked about in the past, but clearly supply chain did get exposed during the COVID crisis. So I do see an acceleration in localization. And the second area I'd like to call out is the whole area of nutrition and wellness. And already in a very short amount of time, we're seeing a significant acceleration in, projects and innovation around nutrition, around immunity, across both retail and food service channels.
So from our perspective, we continue to see great growth opportunities ahead of us, into the future. Maybe, maybe the last point before I hand it over to Margaret I believe that our in country strategy, our local footprint, that whole strategy is a proven strategy. I believe it would be more important than ever. And I believe our ability to execute against that localization strategy, nothing has changed there. So I still continue to believe we have a strong ability to execute against that strategy.
The second point is from an overall business model standpoint. Our business model is very appropriate. It works effectively. In supporting, right across customer segments and developing markets, whether it's global customers, whether it's regional leaders or whether it's local giants. So I believe we're well placed to support those customers there.
And the third point is Look, we're still very early days in our overall journey in terms of rolling out technology into developing markets. And COVID crisis could be, could be a potential catalyst there for some step change opportunities. I touched it briefly on the slide there on delivery. I also touched it in food protection. And on plan pays, there are three areas where we've seen an accelerated, level of interest from coming from developing markets.
So look at an overall level, there's no change to our strategy. There's no let up in our drive forward in our overall developing markets journey.
So, Kajal, I will take your question on margins and deleverage. So as we currently think about margins for the second half, And in the context of the continued recovery trajectory that I spoke about earlier, we do expect operating deleverage to significantly reduce in the second half. And we are looking at a significant improvement in margins. On the back of the continued recovery. So as we see things today, we would expect margins to be slightly negative in the second half.
And the change in operating leverage will be the key driver of this improvement.
Thank you. Your next question comes from James Target from Berenberg. Please go ahead. Your line is open.
Good morning, Margaret. Good morning, Edmund. A couple of questions for me. Firstly, on Foodservice, maybe you could thank you for giving us that color of the exit rate. It's very helpful.
But I wonder maybe if you could talk about that June figure or the July figure you gave, how that was trending by the regions, just to get an idea of where the food service was down in the 3 regions. That'd be very helpful. And then secondly, on innovation, Evan, thanks for your comments on sort of where your focus is and and then opportunities that you're seeing right now. But I guess specifically a lot of the CPG companies have been flagging a couple of things like rationalized approach innovation, less scattergun approach, fewer figure innovations and also talking a lot about SKU reductions, we're talking 20%, twenty five percent SKU reductions. What specifically does that sort of strategy or mean for carry?
Are you still to get some color there, and particularly if there's a big difference between what you're seeing on innovation with your local versus your global customer? And maybe just one second, just on Consumer Foods. You actually, sorry. Yes, honestly, you say there was no big impact from COVID, but ultimately, volumes swung from being up in the first quarter, so I think, down 4 excluding the Tesco contract. So, is that just due to, if footfall issues and schools being closed, etcetera?
Or is there something fundamentally changed for demand for your products that you expect to see weaker growth in consumer foods going forward?
Thanks, James. And, maybe taking your first question first, James, on food service, And if you don't mind, I might just take this opportunity just to maybe frame our foodservice business. And then I think I'll answer your questions specifically. So like we said before, our food service channel represents, 12% of our taste nutrition business, with and all of that about two cards is with chains. So, and that's made up of QSRs, coffee chains, fast casual casual dining and contract catheters.
And we're primarily weighted towards QSR or coffee chains and fast casual from a sub channel perspective. So that's about two cards. The next 20% is orientated towards independent operators, where we have the specific targeted strategy. And then the remaining 10% is orientated towards convenience stores. And 75% of the channel is orientated towards larger players being convenience stores and QSRs and coffee chains.
So, and the profile is quite similar by region. So then just moving in specifically to, to give some color on each of the regions. Look, North America was recovering strongly as we moved through May June, very much aligned with the lifting of restrictions. So that's been that that has accelerated pretty quickly. The impact in LatAm commenced later than North America, and has continued to be significantly impacted in May June.
And in Europe, the recovery has been slower than North America. Firstly, I would say that lockdowns were more severe. And secondly, the lifting of restrictions in Europe had been slower and had been done in a more phase basis. So there's a lot of variability, country to country. And in the apnea region, as we've, kind of moved through the quarter, we have continued to see a lot of variability country by country.
Again, it's very much aligned to, movements on restrictions. And like I said, we saw China continuing to improve across the quarter, while countries like India and South Africa had more, more significant impacts in, in May June. So then maybe to come to your question on innovation. And absolutely, James, we've seen what you just referenced there. In terms of SKUs.
But I think the story for us here is, it's very much a customer by customer story, frankly. You're correct. Especially at the earlier phase of COVID, there was a significant reduction in the number of SKUs by many players. And I suppose the reality is that as customers were looking at these skews, I think there was a bit of a realization that the level differentiation that we're seeing amongst these skews at a consumer level probably wasn't there. So as we are engaging with cost now.
And I have to say that the level of openness and transparency with customers has gone to a new level We're kind of seeing 3, let's say, kind of big buckets of factors influencing, innovation at this at this stage. The first one is we are seeing more, like I said, more openness, more collaboration towards innovation, and more partnership type discussions going on. The second point is we're seeing more meaningful, purposeful innovations being talked about. So So a number of customers, they're talking about, real in inverted commas initiatives as it relates to their new product development approach. So real, meaning real functionality real nutritional improvement, real clean label.
So it's the point there is, I think, bigger, more impactful, more purposeful, innovation. And the third point is, localization just has, has, has just really accelerated in terms of that that, that whole push because, the reality is COVID, you know, did, you know, did did show up some weaknesses and supply chain. So localization has been a factor. From a carry perspective, frankly, we're pretty indifferent as it relates to, the types of approaches that customers take in innovation, If I was to go back maybe 10 years ago, it was about bigger innovation. It was about more purposeful innovation.
It was about bigger reference sizes. And over the years, and in recent times, it was probably more incremental innovation, And from a carry perspective, we're somewhat indifferent in terms of how that plays out because I believe we have an inbuilt agility in our business model that we'd be able to pivot. And we have that track record of being able to pivot to to where the opportunities are at. And for us, we look at every project on a stand alone basis to understand the level of investment in resources versus the return. So more perspective, this wouldn't be a bad outcome, and I think I think overall, I believe we're actually well positioned to enable customers to continue to bring innovations to market that are aligned to consumer requirements.
And then maybe moving on to your last question on consumer foods. Look, there's been a lot of move parts there over the last 6 months. Like we said, we had, several of the categories that we operate in Q1 accelerated. Was a little bit of a pullback in Q2. I would say as we look at July, it's kind of it's let's say it's a little bit more normalized where we've seen one of the we'd say the ready meals category improve and, maybe some of the tailwinds that we're there in our sausage category and in the sprints category, ease off a little bit.
So a lot of moving parts, I mean, we're it is a fast moving set of categories that we're operating in. So it's harder to predict how things will play out. But, the view that we've given, we stand by that H2 will be somewhat similar to H1 when you factor out the ready meals contract exit that you mentioned.
Great. I
hope that's useful, James.
Your next question comes Graham Hunt from Morgan Stanley. Please go ahead. Your line is open.
Good morning, Hedland and Marguerite. Just two questions for me if possible. First one is on M And A. I just wanted to ask how you're thinking about capital allocation priorities today after maybe what you've seen over the last 6 months? Whether the demand online implies some kind of investment or if it's going to be additional spend?
And then on deals going forward, expect them to come at a similar run rate as you've had in the past? Or has there been a kind of shift in priority there? And then on second question is on plant based. I just wondered if you could give some color on how the radical platform performs in the half and how that might have been against your expectations where they were in January? Thanks.
Yes. So, thanks Graham for those questions. In terms of M and A, What I would say here is that there's no change in our strategy here. You shouldn't think about carrying a different way as it relates to M and A. We continue to have a strong pipeline there ahead of us.
We haven't, put in place any south imposed restrictions as it relates to M And A. They're practical issues. They're practical issues as we as we stand here today and look back over the last 6 months, just in terms of the obvious travel restrictions and what have you, But, it's not something that I'm concerned about. Look, as it relates to our M and A strategy, we'll do the best thing for for our shareholders and all stakeholders as it relates to, long term value creation. So no change there on our strategy or no change in our ability to execute against our M and A strategy, I believe, and the Python remains, strong.
So in terms of plant based, meat alternatives and the radical platform that you mentioned, Frankly, it's an area we're very excited about. Like I mentioned on the prepared remarks, there has been an acceleration in plant based launches. We did see several customers that were standing in the sidelines, maybe coming into 2020, that we're kind of thinking about, well, should is this a real trend? Has this got really staying power? And clearly, what we've seen during, COVID is that there's a lot of resiliency here in this category.
And those customers, and it maybe goes back to the innovation question that, that I answered previously, where our customers have made a decision to do something. And this plant based area is a good example. We've seen customers be very focused, prioritize the launch, allowing resources behind it, and really drive forward. And that's been a change, and that's been a really positive change. So launches that would have maybe historically taken 12 to 18 months or even longer, those launches being done in 3 months I think the plant based area is a good example for us where, customers made a decision in kind of April, May timeframe and are targeting launches here in September.
So that's the first point. The second point that I'd like to just touch on is that We started to see plant based, alternatives move into new categories. Categories like desserts categories like meals, both frozen and chilled. And the third point is that we've seen a step change engagement in developing markets as it relates to plant based meat alternatives. Frankly, if we were having this discussion 6 months ago, I just didn't see that happening as quick.
So overall, we're really excited about that erratic platform. We will be relaunching a radical two point oil here in the coming month or 2 So it's an area we're really excited about and have significant, customer engagement here.
Thank you. Your next question comes from Jason Mollin from Goodbody. Please go ahead. Your line is open.
Hi, good morning guys. I mean, just looking to clarify your comments in terms of the trajectory for Q3, just did you say low single digit to flat, if you can just clarify that in And also in terms of the split within the Tyson Nutrition, obviously, food service, you've gone into a bit of detail, but how should we think about the retail channel or how are you thinking about retail channel development over the coming quarter? Maybe one for Margaret in terms of COVID costs. Just wondering if you could put a quantum on the additional costs you have to absorb in the year so far. And then just sort of finally on the consumer foods, obviously, the CEO's met that business recently, has been mounting speculation around the dairy processing business, perhaps some of the dairy elements of your consumer foods, business.
Just wondering how we should think about that with setting up a JV that's been mentioned and speculated would that make sense in your own? Maybe some comments right now would be helpful. Thanks.
So maybe the last point first, Jay, and thanks for your questions. I would say, 1st of all, we're not going to comment on any immediate speculation that's out there. Maybe just moving on to your other questions. I would say in terms of the retail channel, look, we've We're pleased with the performance in the retail channel in Q2. On the zone of 5%, I would say that it's an accelerated performance from Q1.
Like I said, the Q1 performance was impacted by China. Maybe just to put a little bit of color on that, take a place like China where we've only been in China for the last 20, 25 years. And we didn't have an exposure or a significant exposure to the, to categories, traditional categories like, fry noodles, which had a bounce in Q1 in a place like China. So that wasn't an area of focus for us. So we didn't see that bounce in China.
So our or because of that under indexation in that category, it impacted the retail channel for us in Q1. And when you compare Q2 performance to the last couple of years, clearly, that's an acceleration as well. So that's something we're pretty pleased about. In terms of overall performance, maybe just to to take a Turkey thousand foot view there just because there's an awful lot of detail there. In our case of nutrition business, In April, we were back 16% from a volume perspective.
As we move to June, we were back 5%. And as we look at July and just to clarify the comments on that I made in Q3, we're talking to about flat to low single digit back. So this is the recovery. This is the progression, and that's why we're pleased with this progression. And just from a margin perspective, it's very much linked to that volume story, because the margin is is, is all about the, the deleverage.
And maybe just to put a, just a little bit of color on that because they've touched it brief in the presentation, we made a very conscious strategic decision about 3 years ago to set up our manufacturing footprint print for multi technology manufacturing. That very much enables our our integrated solution strategy. It is the right thing to do for our customers. It enables faster innovation. It enables faster, deployment of technology into those solutions.
And, I suppose, therefore, we didn't have the option really to, to, to, close down facilities in this phase or anything like this, because because we have those multi technology facilities, they work right across end use markets and they supply right across, channels. So one should think about, our volumes and our margins very much linked in terms of that deleverage. So I thought that's useful, Jason, in terms of giving some color.
And maybe Jason, I'll deal with the additional COVID costs. So to give you a little bit more detail on the COVID related costs. They can be classified really into 2 main groupings. Firstly, cost to ensure the safety and well-being of our employees and costs in this category include personal protective equipment, zoning, segregation, and other employees support costs. And secondly, and importantly, cost to ensure continuity of supply, including additional labor, raw material costs, stockholding and distribution costs.
So they're the primary components of the additional COVID related costs. And obviously, we took a number of short term actions to reduce the impacts of these costs And that included, as I referenced earlier, suspension of all nonessential and discretionary expenditure. Reallocation of resources and stocking agreements with customers to facilitate longer production runs. And the net impact of the additional costs with the reduction of 30 basis points. So hopefully that gives you, Jason, the color that you need.
Thank
you. Your next question comes from Arthur Reeves from Barclays. Please go ahead. Your line is open.
Good morning. A couple of questions for me, please. Could you scope out how big your farm based and food protection businesses are compared to the whole thing of these. And then looking beyond this year, do you do you think that overall COVID is going to be good for Carrie, or do you see some fundamental changes that mean that you will have to change your 4% to 6% volume growth midterm forecast, please. Thanks.
Yes. So I'll take that on, Arthur. I would say in terms of plant based first, Like we've said in the past, that business represents about 1% to 2% of our overall taste nutrition business. And it's, and it's growing strong, double digit. And, like I said earlier, there are a lot of under getting factors there that we see in the marketplace that I believe that, that growth will continue, well into the future.
I would say in terms of the, the food protection preservation, that business is I would say substantially larger than our than our plant based business. And again, it's an area that we're really proud of, really proud how we've put together, you know, systematically and strategically a really strong portfolio, a breadth of portfolio and a, an ability to be able to work right across a broad breadth of, in use markets and channels. And I think we're just at the early phase of that whole area. And I think linked to your question on COVID, and whether that's going to be an accelerator or what or decelerator. I think when we look at the the underpins of our strategy, be it, authentic taste, I think as we look at the trends that were there pre COVID, as we look at the trends that were underpinning our strategy pre COVID, If anything, those trends have accelerated as a true call of it, So I think in terms of where we look at our 4 strategic growth priorities, while we have reviewed, in terms of should we be doing anything different from a strategic perspective, I think we've landed that it's about doubling down.
We believe we're on the right track. We believe we have the right strategy. There's nothing changed in terms of our ability to execute against that strategy. In terms of the the 4% to 6%. Look, the reality is that we are in the midst of a worldwide pandemic If you ask me that question back in January or February, we were absolutely on track.
I would say in the midst of a worldwide pandemic, I think we need to get through, 2020 and then see what the future holds. But, a really important point here is that we're pleased with the progression. I've outlined our progression from a performance perspective been very much aligned to restrictions, restrictions easing. And from an overall trend standpoint, We haven't seen anything to change our mind as it relates to the underpinning of our strategy going forward.
Thanks. Very helpful. Thanks.
Thank you. Your next question comes from Farhan Baig from Credit Suisse. Please go ahead. Your line is open.
Good morning, guys. Thanks for the opportunity, most of my questions have been answered. But being a bit more precise on Q3, Have I correctly, heard and calculated that, you said June taking attrition volumes were were down 5%. And July, it improved, relatively substantially and was down about 2%. And also, in the current sort of period, with increasing number of cities, particularly and state in the U.
S, seeing COVID cases and going into lockdown, Is that impacting, the business? And is the impact anywhere near what you guys saw in the March April month. So the second question is just to better understand the dynamic from a consumer standpoint and a customer standpoint and how that might be impacting your business. Are you seeing a rapid shift in your customer portfolio with regards to smaller and bigger players? Are the bigger players currently winning in the market versus the smaller players given their supply chain footprint and strength And similarly from a product standpoint, are you seeing, consumers trade down, to lower value propositions versus higher value proposition And how do so how should we think about those 2 different elements impacting, Carrie's fundamentals?
Thanks, Faham. I think you've got the record for most, most questions. So, so, thank you, thank you, though. I'll in. I mean, I would say first of all, in terms of the performance that you've outlined right there, I mean, your calculations are correct.
And it's as we look out into Q3 and we're a month into Q3, what we said is that, our farmers will performance will be in the zone of low single digit to flat, low single digit back to flat. I suppose maybe a couple of points on that. While you're absolutely correct, there is continues to be a lot of volatility out there, a lot of variability. I mean, we have no we can't see into the future in terms of what's going to happen with COVID. What we can say is that based on restrictions being, being lifted, our progress has followed has progressed as those restrictions have been lifted.
So that's the first point. The second point as it relates to Q3 is, we do have visibility near in of some significant launches in the mid, middle or towards end of Q3 that we know we're going to have some pipeline fill. And this goes back to and it's somewhat related to your the next part of your question about, the whole customers are operating during this phase. And it's back to and I'll give 2 examples. I mean, the first example is that maybe about 3 months ago, we had a significant engagement with a customer in North America where they wanted to quickly launch a nutritional dry beverage, right across the U.
S. Market, in many, many locations, that had an immunity, functionality. And in the space of 3 months, we're going to go from ideation all the way to launch. And this product is going to be launched in, in, in, towards the end of August. And like that speed of launch with that particular customer at the scale that they're talking about is unprecedented.
So that's a very specific response to, to, to, to COVID. And we have We have the portfolio as it relates to immunity. We have the portfolio as it relates to TAE and we have the business model from a speed perspective to enable that customer to achieve what they want to do. That's one example. A second example, and again, if we were here 6 months ago, I wouldn't have foreseen this, is that we have a C store customer in developing markets, that's launching a dispense beverage, with immunity claims where the consumer will have the opportunity to choose whether they want an immunity shot into their coffee, into their latte, into their tea, And again, if we were sitting here 4 months ago, I just didn't see that as an opportunity for Keri.
So again, it just goes to the to the speed and the kind of the dynamic nature of what's happening in the marketplace at the moment. And again, this will be a significant launch for us in Q3. And so that kind of gives us kind of some sense of what's going on Q3. And I hope it gives you some sense in terms of what's happening from a customer perspective. Specific or to your point, though, in terms of the larger players versus the smaller players, clearly, we have seen, say, a kind of almost a revert back to, consumers going back to bigger brands, a lot of center to store brands, pantry filling and what have you.
So we certainly have seen that the same as everybody else. But the reality is from our perspective is that we do feel that there is, opportunities for any customer regardless of size to launch products that are, appropriate and that meet the demands of consumers and meet the trends that consumers want to, want to, want to, want to, want met. So I think and from a carry perspective, frankly, we're indifferent in terms of whether it's larger players that are winning or more local players or regional players, from our perspective, we have that ability to pivot. We've shown that through the through our history. That we can evolve and move quickly to support customers regardless of size, regardless of location, And your last point in terms of trading down, I would say we haven't seen that yet.
We do expect to see it though. I would say that, that we do expect recession to kick in here at a point in time. We're probably a bit early for that yet. But again, I suppose there will be a difference from food standpoint, a food and beverage standpoint in this recession than the last recession in our opinion. Because if you go back to the last recession and compare that to no from a food standpoint and a food and beverage consumption standpoint consumers are a lot more, let's say, sophisticated as it relates to our food and beverage consumption.
And I don't believe they'll be paired to compromise to the same extent that they compromised back in 10 years ago or so. Time will tell. But again, from a carry perspective, we do have the ability, we do have the model, we do have the portfolio to be able to work with customers to, value engineer their products if that's what's required. But I wouldn't say that as we go into this recession, I wouldn't expect to see the same trends as we saw time. I think that level of sophistication from a consumer standpoint is a factor.
Your next question comes from Heidi Vesterinen from Exane. Please go ahead. Your line is open.
Hi, good morning. Just one clarification question, please. In Q2, it was surprising that food service improves, but retail didn't decelerate to compensate for that. To me, it suggests that Wells we're either eating more, which is possible, or that there's some inventory effect or maybe you're taking share in retail. How do you explain the trend?
And what do you see so far in Q3, please?
Thanks, Heidi. And I suppose your question certainly is talk provoking in that one would expect a shift. Frankly, it's very hard to the specifics of that at a macro level. I suppose what we're trying to do is to share exactly what we're seeing. So you're absolutely right.
There could be some, I would say, parts of the supply chain that are seeing a little bit more volume. There is a lot of moving parts. There is a lot of variability, a lot of volatility, and it's not a perfect science here in terms of kind of keeping a watching that transfer between, in home consumption and out of home consumption. So that's kind of a general point. What I would say though is that, if we were to go back and look at the momentum that we brought into 2020, I suppose, and especially the momentum that we brought into 2020 in North America, and I suppose the breath of our business in North America, there are a few underpins there in terms of the whole area of authentic taste colonary foundations, authentic cooking methods, flavors and what have you that have underpinned or retail performance, coming into 2020 and have continued, through the last 6 months.
Because they're kind of pretty foundational fundamental trends that have, that were there pre COVID and have kind of accelerated through COVID. Look, it's one that we're keeping a very close eye on. Clearly, we'll be we're highly motivated to keep this performance in retail going. I touched on a couple of examples of new product launches, one in retail and 1 in food service that we see coming here in the third quarter. So look, at an overall level, right now, we're, we're, I suppose fighting on all fronts, We're driving forward in all fronts.
We're looking to we are looking to gain market share in this phase. We believe we have the the right to do that. We believe we have the fire power to do that and we have the strength to do that. And we have the ability to continue to execute against our strategy to achieve that. So look, time will tell.
There continues to be a lot of volatility and variability but I would go back to the kind of resiliency that's been built into our business model, our ability to pivot, our ability to shift, our ability to evolve I think culturally, these are all important attributes that exist within the company that will that will see us through this crisis.
And your last question comes from Charles Eden from UBS. Please go ahead. Your line is open.
Hi, good morning, admin Marguerite and William, thanks for sneaking me in. Just one quick follow-up. So in terms of the key consumer trends, which you highlighted in your prepared remarks, Edmond, and we've discussed them a little bit. But just particularly with respect to food delivery, Do you see this as a core competency for Kari already, or will this require additional investments to meet these needs I guess the context of my question is just trying to understand the potential upside to TNM margins over the medium term.
Thanks, Charles. And I, yeah, I should have probably rounded back on and clarified some of those comments. I mean, there's no doubt that that delivery will be a bigger factor in the new, kind of re imagined food service channel. I suppose in places like China, in places like the Middle East, frankly, where odiprant consumption or sorry, delivery delivery was a significant factor of our customers' business pre COVID. And in other regions, that has a clearly accelerated So in some of the regions that we operated in pre COVID, our customers had up to 40% of their menus that were already or 40% of their business that was already a delivery.
So there's no doubt we're taking, learnings we're taking examples from places like China, from places like the Middle East to other areas. And what's exciting for us about it really is the fact that it enables us actually to accelerate, well, to potentially accelerate the deployment of technology into applications that are challenged. Like I said in the presentation, whether it's taste, whether it's texture, whether it's just the visual of a particular product I gave the beverage example on the presentation. That specific example is a China example, whereby to have to try and bridge the gap between the older form dining experience and the at home experience. Customers are really trying to bridge that gap.
So they're really open now to, I suppose technologies and ways of trying to bridge that gap because those customers in the past relied heavily in their dining experience being a differentiator for them. Now they have to relook at that and reimagine that. So there's an openness there, there's an engagement there. We talked about some of these technologies in the past as it relates to crispiness and we've talked about the savi French fries and things like that. And the fact that we have technologies to deploy into those applications.
So it's something that we feel we already have the technology. We already have the holistic partnerships that that are required in a situation like this. We believe we're experts in that three way, relationship between the end user, the operator, and, Carrie and the processor. So look, overall, we feel well positioned We don't foresee at this stage any further investment to be made. This food service channel will continue to be quite dynamic going into the future.
It's not really easy to predict how it will play out, but the we believe that demographics are on our side here. We continue to be optimistic about the channel, but how it plays out from a week a kind of a week to week month to month quarter to quarter, perspective will be harder to predict. But overall, we feel good about it. And we feel we're well positioned to enable customers to, to achieve their goals.
That's great. Thanks very much.
Thank you. As this is our last question, we will close the call and thank you for dialing in today.