Good day, and welcome to the Keri Group Q1 2020 IMS conference call. Today's conference is being recorded. At this time, I'd like to turn the conference over to William Lynch, Head of Investor Relations. Please go ahead, sir.
Good morning, everyone, and we hope you, your families, and loved ones, are safe and well at this time. Given the current exceptional circumstance, we are hosting today's call from different locations. So please bear with us if things are not as quite as smooth as they would normally be. I'm joined in the call by our CEO, Edmund Scanlon and our CFO, Marguerite Larkin. Edmund and Marguerice will take you through a brief presentation, capturing the key points of our Q1 IMS release issued earlier today.
The presentation is available on the Investor Relations section of our website. Following that, there will be a question and answer session which will be facilitated by the operator. Before commencing the presentation, let me draw your attention to our usual disclaimer regarding forward looking statements I will now hand over to Edmonds.
Thank you, William. Good morning, everyone. Hope you and your families are keeping well and staying safe. It's hard to believe it's just 2 months since we presented at CAGNY. So much has changed in the world since then with the COVID-nineteen pandemic having such a profound effect on everyone's lives in such a short time.
With what has remained constant is the need for a safe and consistent food supply. And we at Cary are proud to play our part throat this crisis. So before I begin and on behalf of everyone at Cary, I just want to express our gratitude to all frontline staff and the amazing work that people are doing all around the world. In Kari, every day I'm seeing examples of great work being done by our own people, examples of courage, compassion, empathy, resilience, and enterprising spirit. So moving please on to slide number 4.
And I will take a minute to set the context for the quarter. And Marv, great, will bring you through the Q1 financials in more detail later on. With that, an overview level, we came into the year with really good momentum. With a strong finish to 2019, and strong growth through January February before the lockdowns and restrictions and movements were introduced North America had a very good quarter and our nutrition and wellness portfolio continues to drive performance in business development. COVID 19 has impacted and will continue to impact our business.
Particularly our important food service channel. We will provide as much transparency as is possible on its impact on our business, but as you can all appreciate, we're operating in a highly uncertain environment at the moment. On the strategic front, we made good progress in Q1. We announced a significant investment at our Roam, Georgia facility, and it will truly be a world class ingredients manufacturing facility for a wide range of protein applications. I'm also delighted to report that we've moved into our new state of the art technology innovation center in Shanghai, and we also acquired Techni Spice which is a savory case business in Guatemala.
And finally and most importantly, our people's response to solutions that are consumed by over 1,000,000,000 times a day, we are aware that keeping the food supply intact is more critical than ever. Our purpose and values have of our people. And I'd just like to take this opportunity to sincerely thank them for all their efforts. So then moving on to slide number 5, and our role and priorities. We have a multi stakeholder model and we run and manage our business accordingly.
Our 3 main priorities drove this crisis are our people, our customers and our community. From the outset of COVID-nineteen in China back in January, we've managed our response plans according to these 3 priorities. Safeguarding the safety and well-being of our people, ensuring continuity we have supplied for our customers, and supporting our local communities. A large percentage of our employees have been working from home for at least 6 weeks now. We've increased zoning, segregation, and we've increased the use of personal protective equipment Across our entire global footprint of 150 manufacturing facilities.
To reach customers and consumers around the world, supporting our customers with real time insights and helping them to adapt their offerings to address change in consumer demands. At a number of our facilities, we've shifted our production to making hand sanitizer, We continue to donate food, PPE, and sanitizer to frontline staff, and through the My Community initiative, we're also pledging 26000 days $1,000,000 to support local community initiatives. So moving on to slide number 6. Look, we've all experienced major changes in how we live our daily lives. And when it comes to the world of food and beverage, we're seeing significant short term shifts in market dynamics right across the N10 supply chain.
We've shown this slide many times in the past and I think it's really helpful to frame what's happening across our industry right now. What's really noteworthy for me is the absolute speed of change we're experiencing and the openness to change that exists at present. So looking first at the consumer on the left hand side here, All people are purchasing, where people are consuming and what people are purchasing and consuming have all been impacted. On whole people are purchasing, the changes in purchasing and shopping behaviors are clear to everyone. Habits are more like those of 10 to 15 years ago.
More people are doing the big shop in local supermarkets. Trips are much more functional and deliberate. We're sticking to shopping list, with a notable decrease in impulse purchases. If they're spending less time in the store, they have a planned route, which has seen the center of the store rejuvenated and the heat map from the perimeter significantly reduced. Keep are also turning to online and home delivery channels, many of which are struggling to cope with the surge in demand.
Where people are consuming has changed, but the vast majority of food and beverage now consumed at home. A really important point developed in our industry in recent weeks is the disconnect between what people are purchasing versus what they're consuming. And we've all witnessed the panic buying and pantry loading of long life products, leaving many shelves and supermarkets empty. Previously, retails would accurately track purchasing habits. What you were purchasing, and when you're consuming it.
But this almost overnight shift in the psyche of the consumer has had a huge impact on our customers. And needless to say, this disconnect between purchasing and consumption has meant much more volatility for our customers. An interpreting demand now has become absolutely critical and it's a challenge right across the board. So customers are having to be much in response to this rapidly changing landscape. So moving on to our industry.
The knock on effects from all these dynamics is profound. The robustness of supply chains is clearly being tested Having scale, being local, with experience and established ways of working our key. Redeployment of resources and more importantly, having the right capability across multiple channels and end use markets is a big challenge for some companies. The ability to redeploy resources effectively in an expedient fashion requires an organization to have the culture, the ways of working, the flexibility and the capabilities to make it happen. And customers are looking for suppliers with a full support model to help them address all these short term challenges.
And there is an openness to change now more than ever before. So moving on to slide number 7. And specifically, the impact COVID-nineteen has had in our business and the actions that we've taken to address this impact. As I mentioned earlier, we're giving you as much of a line of sight as possible right up to today. So starting first with our taste and nutrition business and specifically the impact in China.
You remember, we guided on the estimated impact back in February. Overall, volumes in Q1 we're pretty much in line with what we guided back then. So back over, 30% in the first quarter. And this was weighted towards February March when the impact of lock tone measures was most pronounced. But I am pleased to say that no for April, were in line with last year.
At a global level trading in our food service channel in the month of April is backed by 2 thirds from last year's level due to some form of restrictions being in place during the month of April, across the vast majority of our markets. As you're all aware, In fact, we've set production records in some of our facilities serving the nutritional beverage category, while other categories are seeing much lower demand. But from an overall taste nutrition retail viewpoint, we're seeing good mid single digit growth year on year in April. With regards to Consumer Foods business, After seeing a mid single digit growth tailwind in March, we're seeing volumes back mid single digit in April. Again, overall a high degree of variability and volatility by category.
Children meals are being impacted by less impulse purchasing and our snacking products have been impacted by school closures. We're also seeing positives in areas like spreadable butter and our Oakhouse Foods Home Delivery business which has delivered a huge number of meals that we've taken and are taking to mitigate the impact of COVID. In addition to the 8000 employees now working from home, We brought in additional protective measures across our entire footprint to ensure safety and well-being. We've reallocated resources from some of our facilities servicing the food service channel to other servicing a number of specific retail categories, and we've been able to see a doubling in production in some instances. We've implemented cost measures, including suspension of all non essential and discretionary expenditure, and targeted short term cost management initiatives, particularly in impacted business areas.
And finally, on what has really impressed me how we've been working in new and exciting ways that our customers through this period on a whole range of fronts. From our procurement teams, sourcing key raw materials to support our customers. To our integrated operations teams, sharing payables with our cost and how to put in place measures to ensure their operations can continue safely. And our nutrition and wellness teams partnering with customers to improve the immune functionality of their products. And we've seen the pipeline in our well known portfolio alone growing by 400% in the last few weeks.
We've also been working with some of our food service customers to pivot their offerings into retail, while also planning for post COVID product launches. So as I said earlier, this is a really dynamic marketplace. Things that took months are now taking days. And this is where we're seeing our people really stepping up to the place. I'll now hand you over to Marguerite who will take you through the Q1 financials in more detail.
Thanks, Edmund. Good morning, everybody. And just to echo Edmund's comments, I hope and your families are all safe and well. Now to update in more detail on our financial performance for the first quarter, turning to Slide 8. At a group level, our reported revenues are up by 3.4% which is reflective of organic volume growth of 0.2%.
Overall, as Edmonds mentioned, we had a strong start to the year which was impacted by COVID-nineteen in China and more broadly from March across parts of APMEA and Europe Our underlying volume growth in the quarter would have been 3.7% adjusting for the estimated net impact of COVID-nineteen and the impact of the previously reported ready meals contract exit. We maintained group trading margin year on year through enhanced portfolio mix and operating leverage offset by the impact from COVID 19 of circa 30 basis points in the first quarter. The COVID 19 cost primarily related to 3 key areas and included cost to ensure the safety and well-being of our employees incorporating zoning, segregation and other employee support costs, costs to ensure continuity of supply including additional labor and distribution costs and manufacturing on cost implications of reduced volumes in a number of our plants across the globe. Now turning to slide 9 and taking a more detailed look at the breakdown of our overall revenue growth. Of 3.4% for the first quarter.
Volumes grew by 0.2%, which I'll discuss by division momentarily. Pricing increased by 0.5%, which is mainly driven by higher raw material prices, in our Consumer Foods division. Translation currency.1% favorable in the period. Acquisitions contributed 1.3% to revenue growth, including the impact of the Ariake U. S.
Business, ISO Age Technologies and pervasive biotech We are very pleased with the performance of these acquisitions, which enhance our authentic taste nutritional and clean label technology capabilities. So overall, I would say a good start to the first quarter in terms of revenue growth given the impact of COVID-nineteen. Moving now to slide 10 and taking a closer look at our taste and nutrition business. Overall, volumes grew by 1.2%. Growth in the periods was heavily impacted by the lockdown in China initially and thereafter by the restrictions and movement from March in a number of countries across Africa and Europe.
Which resulted in a material decrease We estimate that volume growth would have been circa 4% excluding these impacts. The retail channel delivered a robust performance of just over 2% with good growth across the snacks beverage, dairy and pharma markets. Our nutrition and well-being portfolio performed strongly across a number of applications and in particular within beverage, where Carrie's positioning is the nutrition and wellness partner of choice is leading to strong business development opportunities right across the beverage landscape. Volumes in the food service channel declined by 0.7% and developing markets declined by 0.8%. Both were heavily impacted as a result of constraints in demand from the restrictions and movements.
From a trading margin perspective, we delivered good underlying growth principally through the continued enhanced product mix and operating leverage, which were offset by a 30 basis point headwind from the impact of COVID 19 in the period, as I mentioned earlier. Turning to slide 11 and looking at taste and nutrition performance from a regional perspective. So firstly to the Americas where we had a strong performance with volume growth of 3.2% in the period. We were very pleased with the performance In LatAm, Mexico delivered strong growth, while Brazil and Central America were solid. We made good progress in expanding our presence in the region with the acquisition of Technus by Guatemala as mentioned earlier, a leading savory taste business.
In Europe, the business overall performed well prior to the impact of restrictions on food service demand in March. Meach delivered very good growth in particular with clean label solutions and plant based innovations. Good growth was also achieved within meals and snacks, and we are pleased with the continued good performance and development of our business in Russia and Eastern Europe. In apnea, volumes in the periods were significantly impacted by the restrictions on movement in China initially, and thereafter from March in a number of countries in Southeast Asia. Excluding the impact of COVID-nineteen, we estimate that volume growth would have been at a high single digit level.
From an end use market perspective, we achieved strong growth in meat, dairy and bakery in the quarter. We continued to make good progress in expanding our capacity and deploying our technology capabilities in the region, most notably in China and the Middle East. And as Edmunds mentioned earlier, we moved into our new Technology And Innovation Center in Shanghai. This is a state of the art facility that will further advance our business development and future growth in China. So now turning to Consumer Foods on slide 12.
While overall reported business volumes were back 4.8% in the period, reflecting the resi mails contract exited as previously referenced, revenue volumes excluding this contract were up 2.8%. There was a positive impact in March of circa 1.5% from consumer stockpiling in some categories, when lockdown measures were introduced. The categories that benefited most were spreadable butter and frozen meals. Pricing in the period was 2.1%, reflecting increases in input costs and market pricing. Pork input cost inflation was the main driver in the period.
We of ten basis points with the benefits from efficiencies being largely offset by pricing. And finally, from a consumer foods perspective, We are very pleased with the performance of our recent meat free launches under both the Richmond and Naked Glory brands. Where these have been rolled out to date, they are performing very strongly, achieving category leading positions. So now moving on to Slide 13 and to update on a number of other matters, before I hand you back to Edmunds. Firstly, on Keri Connect, our deployment program in North America is on track with the successful deployment in 5 facilities as planned in the first quarter.
Clearly, we will continue to monitor the situation in light of current events, and we may decide showing slight inflation, primarily driven by raw materials we're looking at the remainder of the year being relatively flat within taste and nutrition based on our customer partnership pricing model. With continued input cost inflation within consumer foods driven by pork input costs. On currency, based on current rates, the outlook is for a neutral impact on EPS for the full year. On COVID-nineteen, the actions we are taking aligned to our 3 priorities, are resulting in substantial additional costs, including, as I referenced earlier, costs to ensure the safety and well-being of our employees, cost to ensure continuity of supply and the manufacturing on cost implications, including significant operational deleverage, as a result of reduced volumes in a number of our most impacted plants across the globe. As Edmonds mentioned, we are taking a series of sizes cost mitigation actions as we seek to partially limit the overall short term cost impacts These actions include the suspension of all non essential and discretionary expenditure.
And in addition, we have a number of targeted short term cost management initiatives, particularly in the most impacted parts of our business. While the situation is evolving on a daily basis, all costs are being tightly controlled as we see to minimize the short term financial implications for focused on ensuring sustained growth aligned to our strategic growth priorities. And finally, and importantly, in these times, We continue to have a very strong balance sheet with net debt at the end of March of 1,900,000,000 with an average maturity period of just under 6 years and committed undrawn facilities of $1,100,000,000. So to wrap up overall from a performance perspective, we continued to deliver solid performance in the first quarter. Considering the significant impact of COVID-nineteen.
The Americas in particular delivered strong growth, and importantly, we continue to make good progress in advancing our strategic priorities to underpin sustained growth in the future. So with that, I'll turn you back to Edmunds for the outlook.
Thanks, Margaret. So moving on to Slide 14 and looking specifically to our outlook for 2020. Firstly, as outlined in our release this morning, due to the uncertainty around the duration impact of COVID-nineteen, where we're withdrawing our full year 2020 guidance. Overall, as a group, we're very focused and managing the short term challenges to emerge as an even stronger customer partner. Our global team is mobilized to meet and reinforcing the value add that Carrie can offer.
Within taste and nutrition, If we look at while restrictions and movement are still in place. We're supporting customers to manage these challenges in a variety of different ways. Focusing on opportunities to more resilient areas of the channel like delivery, and we're also forward planning with customers for the removal of restrictions and how we will roll out new menu launches later in the year. The retail channel continues to deliver good growth across a number of categories as our full support model enables customers to react at pace. We have a strong innovation pipeline to drive growth post crisis as customers are looking to add functionality and better nutritional attributes their products.
Our consumer foods business continues to see challenges, and changes in consumer behavior which is driving significant volatility across categories. Overall, We would continue to invest for growth, both organic investments and continue to pursue M and A opportunities aligned to our strategic growth priorities. I believe that our unique business model, broad taste nutrition portfolio, and our integrated solutions capabilities are more critical now than ever before. Our purpose to inspire food in Irish life, continues to guide us on this journey. And we continue to be focused on fulfilling our role as our customers must valued partner.
And with that, I'd just like to thank you all for taking the time to dial into our call this morning. And I know hand you back to the operator for any questions you might have.
Thank you. Star 1 on your telephone. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment.
Session.
Carl Davy, please go ahead with your question.
Good morning all. I have two questions from my side. Farcy to Edmond. I'm just interested to know how the current dislocation you're seeing in the foodservice market kind of informs your medium term to long term strategy around that channel? And my second question is for Marguerite on margin.
Obviously, you've called out some substantial cost associated with COVID-nineteen and also the impact of negative leverage Would it be possible to translate that into some parameters around margin either for the first half or for the full year? Thank you.
Thanks, Tahal, and good morning. I just wanted to spend a little bit of time on the food service 1, because I'm sure a lot of people have a lot of questions on the channel. And what I might do is just talk about the channel in the context of maybe the macro elements, then maybe how we're positioned as Keri. And then what we're seeing right up to today from a customer perspective.
So I
would say firstly from a from an overall macro channel perspective, we feel that demographics are very much on our side, whether it's growth in the middle class organization and people continuing to be time poor. Obviously involved here beyond restrictions and what have you. I would say though that the channel will evolve, The dining experience will be different. Things like, you know, curbside pickup, take outs, you know, delivery will be a bigger factor. I would also say that, from a macro perspective, hygiene, trust, and clearly, nutrition, wellness and functionality will be much more important, I think, in channel.
From a carrier perspective, in terms of how we are positioned, And I mentioned a couple of times in the presentation that full support model. And I think that's even more relevant now than even it has been in the past. And as we've said before, with respect to this channel, we've a really strong capability, you know, expertise. We've got really strong customer relationships right across the channel. And this channel is made up of multiple sub channels, whether it's chains, fast casuals, QSRs, convenience, distributors and contract caters.
So it's a complex channel made up with many elements We have a strong expertise and capability right across each of those sub channels. And the other point I'd like to make from a carry perspective is that we have still only a small fraction of our technologies deployed into this channel. So we feel quite positive from that perspective as well. Now just looking at it from a customer perspective and what we're seeing and what type of activities and how we're engaging with customers right now, the reality is that customers are looking for help in so many areas. And again, it's really leveraging, you know, what we can bring and leveraging our full support model.
We have really strong customer engagement right now. Customers are looking for, help, I would say, first of all, with the nutritional aspects of their menu. And what we're seeing is they're not just looking at tweaks now. They're looking at real innovation. And with a recent webinar we had with the with our food service customers, it was primarily around nutrition and it was just a huge level of interest in terms of looking at real nutritional step change on the menu.
So that's really exciting for us. I would say we've had huge multi functional engagement customers in foodservice. If you just reflect a little bit on that channel, it's not a channel that has a huge amount of product development and kind of resources in that area. So, we've seen we've been working with a lot of customers in terms of their operations and things like social distancing and logistics. We've also been helping them out with things like sanitizers and PPEs and things like that.
So we've seen a huge amount of multi functional touch points. I would say more than we've ever seen before. So the way customers are looking at it is through a short term lens, a medium term lens, and long term lens. I touched on some of the medium term and long term lenses already, but right now, there's they're also preparing for the bounce back. And the rebound.
There's a lot of pent up demand out there. People have been locked on in lockdown for a long period of time. And there's a huge amount of preparation in terms of how do customers speed up food preparation? How do they quickly serve customers and we're working with them in terms of various types of, innovations in terms of how they can quickly serve customers. So there's a huge amount of activity going on.
And I do see ourselves emerging even with stronger and deeper and more embedded relationships with our customers in that channel. So overall, we feel really optimistic about it.
Karl, I might just take your question on margin for a moment. So Carl, firstly, as you can appreciate, and as Edmond has referenced, there just is a lot of uncertainty right at the moment. So it's quite difficult to be precise in terms of a view of the margin forward. And I guess to give you some context, firstly, as you know, we have a very broad portfolio right across all food and beverage end use markets. And it's fair to say that, we're seeing a high degree of variability within end use markets right now and over the last number of weeks, really as customers seek to interpret consumer demand, And I would say that, the level to which orders are changing daily really is abnormal and unprecedented as is the uncertainty on the duration of restrictions and consumer behavior, post restrictions.
To give you those some context, it's fair to say, the margin impact from the lower Q1 volumes is a good starting place. And the associated margin in we had from those reduced volumes with circa 30% primarily due to operating deleverage from reduced volumes in a number of manufacturing plants And also, the on costs incurred associated with safety and well-being of our employees clearly, the second quarter is just more complex. As the cost I referenced to earlier on, are more significant as we manage our way through the short term volatility and uncertainty. But the margin impact in Q1 gives you some perspective of right now appreciating that the Q2 impact should be greater. So, Carl, I hope that gives you a better line of sight.
Great. Thank you.
We'll now go to our next question from James Targett from Berenberg. Please go ahead. Hello.
Good morning, everyone. A couple of questions from me. Firstly, just coming back on, on food service. Then I'll another question on the retail side. So you mentioned, I think you said volumes are down 2 thirds in April.
Foodservice channel, please correct me if I'm wrong. So your view is that that that level of volume decline will simply continue during however long lockdown continues. But you're mentioning all the kind of the what you're doing in engagement with your customers. Do you expect any of that to, provide an offset to that during that period, or is it simply a question of waiting for the lockdown to to to to ease? And are there any redeployment capacity redeployment opportunities for you in food service towards the retail customer side.
That's my question of food service. And then on on more generally on, kind of your, your, your retail based customers. You talk about, you know, the, you know, a huge openness to change. And look looking to engage more with you. Can you just sort of highlight, you know, what is it that they're really valuing valuing from your proposition right now?
And do you expect ultimately to emerge from this crisis with significantly higher shares than you had previously?
Good morning, James, and thanks for the questions. So, yes, I mean, you touched a couple of good points actually, James, on the food service area. So you're right, yes, we did call out that, April as we stand on the target of April is, from a food perspective is back about, a food service perspective is back about two thirds. Maybe just to flick to China for a second, because it is an important point. Obviously, the pandemic hit China 1st.
And in the month of April, we're in line with, 2019. As we stand today at the end of April, our performance in China is in line with 2019, which is really positive. Now food service as a channel in China in our business is still in the zone of 10% to 20% back from last year and has obviously been offset by the retail channel in China. So I think that China situation and where we are today in China is certainly certainly gives us confidence and gives us a line of sight of how this thing might play out globally. I won't I'm not going to say it's going to follow it exactly.
But certainly it does give us, a view. Your point in terms of, redeployment of of, resources or manufacturing capacity or, you know, that's a really important point that I probably should have brought up in the first question. The reality is, is that we are seeing food service customers in many instances trying to, they're trying to find ways of co branding with retailers, actually. They're trying to find ways to how do they keep their brands in focus for consumers. And we are seeing examples, especially in North America where I would say, you know, maybe the medium sized chains, are trying to work with retailers and we're enabling that to, to help them to bring, you know, brands or co branding opportunities with retailers to consumers to make sure that they're that their brand continues to remain, top of mind.
The reality is from a people perspective, we're redefined resources and from a manufacturing standpoint, we're redefining resources. So that, that is an important factor. I would say that we're seeing in the in the food service channel. And it's quite interesting. I would say on the retail side, what we're seeing actually is that, retailers are looking at the food service consumer That's a new background for them actually.
And it's kind of really interesting. I mean, having conversations with retailers, engaging with retailers, and they're talking about that out of home consumer being the new background for them. And they're really, working hard and we're working with them to try and come up with creative ways of how do they, how do they actually gain market share here? This is a new opportunity for them It's an exciting opportunity for them. It's probably the most exciting opportunity they've had in quite some time because this is a new consumer cohort that they didn't believe they had access to before.
So there's a huge amount of work going on around ideating and developing new ways of how to engage with, with that new consumer cohorts. I don't know, William, do you want to add anything to anything I said there? Okay. We're having some technical difficulties there. Sorry.
Excuse me. Sorry, William. Go ahead.
Sorry, excuse me. No, I think, I think, you know, on, listen, on the food service side of it, the reality is there's restrictions in place. And we've seen the benefits of when the restrictions kind of move, how things move kind of at pace. So the question we have as a business, James, going back to the outset is, how long are the restrictions of and how is that going to evolve? And and listen, that that's a moving piece for us.
And and, hence, you know, the the withdrawal of the guidance. I suppose on the on the on the retail, but clearly, is transcending it across a number of categories. Is that underpin of that wellness and the nutrition and wellness? And the view that as things go forward into the medium term, in addition to all the things that Edmonton is saying that there is going to be a heightened focus in terms of people's well-being that will actually be more elevated So and we're seeing that with a heightened level of activity that Edmond referenced to earlier in the presentation. In terms of our wellness portfolio and how we can help customers pivot their offerings with added functional benefits.
So that's all I would add. Thank you.
I guess my, I guess one of the points I was trying to make to ask was are you seeing, levels of, I can get, sorry, are you seeing engagement with customers that you wouldn't normally have hoped and engaged with? For whatever reason, and if so do you, and do you expect that sort of business to be kind of sticky going forward and therefore kind of drive you could share gains for you
Yes, James. I might come back in there. So I would say what we're seeing is, where our custom are committed to make a change. They're making changes and launching products really quickly. I mean, we had an example in the last few weeks in Europe on the CanPay side, where a customer, made a decision they wanted to see products quickly and they made a decision to get products into the market.
They made that decision in a week that we're putting in orders for trial, trial products within 7 days. So I think it's I think what we're seeing is that our responsibility to quickly move to where the opportunities are and to engage quickly with customers and get products to them, the right products, to them that can enable them to to take something to the market really quickly. I think they're really appreciating it, though. And I think it's it's that full service model that we're holistically able to work with them, you know, whether it's on things like contract manufacturing partners, whether it's things like processing, whether it's insights. I mean, we've had a huge amount of engagement with customers around taking insights from what we've learned in, in China, taking insights from what we learned in our consumer foods business and taking that to customers and then working with them to come up with some new ideas.
And that particular example, it was actually in France, we saw things move at a pace that would in the past would have taken months and it took days. So that's, that's really exciting for us. And we wouldn't have seen that happen in the past. That's the reality.
Thank
you.
We will now go to our next question today from Jason Mullins from Goodbody, Francois, Chris. Please go ahead.
Yeah. Hi, good morning, guys. Look, I guess I'm just trying to get a sense of innovation and how, you see that unfolding. I guess it might have been a bit of a earned, given our CPG companies modern reactors, etcetera, that maybe they pause that, innovation pipeline discussion. But I guess from this call, I'm hearing maybe that's not necessarily the case, and you're getting a lot of engagement run across the piece even into the food service channel.
So maybe some color on that because clearly that's been a margin driver for your business in the last few years? And then just in terms of food service, Can you maybe just give us a bit more granularity in terms of your channel exposure, whether it's the QSRs, that you talked about and the various, chains that maybe can benefit and maybe return to the marketplace a bit faster than, some of the more casual dining AdWords. That would be helpful. Thanks.
Thanks, Jason, and good morning. And, you know, I'll touch a little bit and I'll spend a little bit of time on the innovation one because I think it's really important And I touched on it a little bit already in food service, but what I would say that it is varying a lot on a customer by customer basis. We certainly have seen in certain instances, developments being, being slowed down. There's no doubt about that. But on the other side of this, again, it's back to that point that we're seeing things happening in days that we're taking months.
And we've seen customers making really quick decisions. A customer jumps to mind on the frozen, the whole frozen category. And they're planning to launch a new range of products in the frozen category by the 1st September. And the only thing slowing and down is things like packaging and artwork and things like that. So we're seeing a huge amount of, I would say, a variation from customer to customer.
There's a heightened sense of nutrition, wellness and functionality amongst customers. They're looking for creative ways to, you know, impart functionality and nutrition into their products. I mentioned in the presentation that our wellmune technology, which is a yeast beta glucan technology that helps strengthen immunity, the pipeline has grown by 400% over the last kind of 4 weeks. So again, there's a huge amount of activity. It is very varied from a customer by customer basis.
But it would certainly, I'm quite encouraged about the level of activity and the level of innovation. I would say that, we have seen a cohort of customers cut the tail and what I mean by that is cut down a huge number of skews, reduced complexity from their manufacturing operation standpoint. So certainly we've seen that But at the auto play, we've seen customers say, okay, we're cutting all these skews, but now we want to come with some real innovation. A lot of those skews were minor flavor extensions or minor tweaks. Let's rethink now And let's really start thinking about a set of products that can replace that huge scale of SKUs that we have with products that have more meaningful functionality, are more meaningful nutrition and wellness, attributes.
So that's really exciting for us as well. And then I would say from on the foodservice standpoint, in the short term, Certainly, we're seeing things like LTOs being postponed and delayed. But that said, customers are still looking at launches later in the year. LTO launches, I mean, they're thinking about things like that are, they're looking back at launches they've done in the past that were super successful. We're bringing that type of insight to them that we're saying to them, Hey, look, These were these are really nostalgic type offerings.
Maybe you might consider bringing some of these nostalgic type offerings back later on the year. And that's some insight that they're, but they're really, responding positively to as well. That covered, Jason?
Yes, I just had another follow-up if you don't mind in terms of inventory. And I guess if we look at, potential impact on consumers and the economies, etcetera, to what extent is or maybe do you think you could see some pressure on sort of reduced inventories in the marketplace that that people try and manage working capital, etcetera, that maybe sees a bit of a slowdown and impact on volumes. Is that something you're thinking about at the moment or something that is a concern?
Absolutely, Jason. Keeping a very close eye on it. I mean, I think, we've built up some experience in China where, I suppose, we did see some, let's say, delay in some payments. But again, like we've worked with customers along in those lines. I mean, when stores are closed, when shops are closed, when there's full lockdown, you know, we've collaborated with our customers here and worked with them in terms, worked with with inventories.
I mean, it's been really collaborative. And I touched on it there earlier, like there has been a significant increase in the level of cross functional engagement. So a huge level of collaboration around, logistics supply chain, inventory levels, ordering. You know, Marguerite mentioned earlier, like that we've seen, you know, one day of the week, we see a doubling or a trickling of the orders. Next thing the next day we're seeing cancellations.
The next day we're seeing another change. So there's a huge amount of volatility. And that means we have to stay really close to our customers And it's we're aligned here, right? We're aligned with our customers in terms of managing some of the issues that you just mentioned.
Thanks very much.
Thank you. We'll move to our next question from Heidi Vesterinen from Exane BNP Paribas. Please go ahead.
Morning. So we talked about planning for a post restriction product launches. Aside from the nutrition aspects, that you highlighted, are there discussions about lower price points or reducing costs given that consumers are likely be economically challenged. And what does that mean for you? And maybe you could talk about the types of technologies that you offer to help customers achieve this?
Thank you.
Good morning Heidi and thanks for the question. I would say the short answer is we're not seeing that yet, but we do expect to see it. That is the reality I mean, I think, we do see a situation where there is going to be pressure on pricing. We are going to move into to a phase of, you know, economic, some economic hardship here for a large cohort of people. There will be an element of trading down.
But from a carry perspective, again, if you think about the breadth of technology that we have, and the process technology. And this is a really important lever that we have within our organization that process technology, innovation and capability that we have is a key lever that we pull when it comes to these times of pricing pressure. And we've seen pricing pressure come many times before back from the market, back through customers. We've tried, I would say, during the ZBB phase during various phases in the past. And all through this period, we've not only been able to defend our margin, but actually expand our margin.
So I would say, I'm not saying this, in any disrespectful way, but I would say that change for us and that kind of, the need for customers to relook at their formulations be it for taste, be it for nutrition, be it for functionality, or be it for cost. Frankly, we see that as an opportunity for carry. And, and, we've had times of economic hardship in the past, and we've, we've, as I said, we've tried through that, those times.
Thank you. We'll now go to our next question from Graham Hunt from Morgan Stanley.
Hi. Just two quick questions for me. Thanks. How should we think about operational deleveraging in the food service channel if you're switching volumes down significantly for the rest of the quarter. And also, what are your thoughts on the M and A land at the moment, are you seeing additional opportunities coming up?
Thanks.
Yes, I might take the M and A and I might Marguerite to, to, to come back to you, Graeme, on the operation deleverage. So from an M and A standpoint, Graeme, what we're I suppose maybe standing here today on the Turkey of the Bayfield, I would have probably said, if we're having this conversation in the middle of February, we probably would have expected ourselves to have maybe 2 or 3 other transactions completed, at, by now. The reality is just from a pure practical standpoint, whether it's site visits or different things like that, we haven't been able to get those transactions over the line. But that said, I would say from a pipeline standpoint, the pipeline is still robust. There's a lot of engagement.
I mean, you're aware of the way we engage with, with, potential targets. And continue to build relationships, with these targets. So I feel that from a, from an overall pipeline standpoint, I feel pretty good about where we're at. As always, it's hard to predict timing, but I'd be pretty confident that we will continue to do some bolt on transactions, in this time. So And I think also going through a time like this, I think some, some of the larger, I would say, private companies I think they will, they will take stock at a time like this and decide what they're going to do.
So, I don't see any a let off in M and A activity. I think M and A activity will continue during, during this phase. And certainly from our perspective, we don't see any change in our strategy from an M and A standpoint.
Hi, good morning, Graham. I might just take your, your, first part of your question. And so as we've referenced, given the food service reduction in volumes, there will clearly be a significant short term impact from an operating delever perspective in a number of our factories. I think just referencing some of the comments I made earlier, if one starts with Q1 as a starting place, the associations margin impact, as I mentioned, from the reduced volumes, was circa 30% and that was due the operating deleverage impact from reduced volumes, but also the on cost associated with the safety of our employees and the various measures that we've taken, but that is a sense of, it's a good starting place to consider the, the, how we're thinking about operating, deleverage currently.
Thanks very much.
Thank you. We'll go to our next question now from Arthur Reeves from Barclays. Case?
Good morning. Thanks for taking questions. There's 2. They're both about, taste and nutrition and that They're looking for a bit more clarity on the numbers, please. So first of all, could you give us some of the reconciling factors between the 1.2% volume that you delivered in quarter 1 compared to the 4% you would have done otherwise.
That's my first question. And then my second question is, is looking for a bit of clarity on trying to reconcile how a 0.7% reduction in food service, equates to 1.2% growth across the Placing Nutrition business as a whole. My my calculation suggests that means that outside food service, We've only seen a 2% growth. Is your business outside food service being negative be affected because of COVID 19, as well as your food service business. Thanks very much.
Thanks, Arthur, and good morning. And I might just kick off here and let, and let Mark read come in. I would say, looking at the month of April, which I think is really important because it's the, it's really the most up to date and the most transparent that we can possibly be, which is that we're seeing the retail channel, in April, in our TNN business overall growing at, at mid single digit. And I think that's an important context. And I think, So that is an acceleration.
It's an acceleration from 2019. It's an acceleration from Q1, and that's something that I would expect to see continuing, for the foreseeable future. So maybe Margaret, you can put some more color on that.
Yes, absolutely. Good morning, Arthur. Just in the context of giving you some greater visibility on the the estimated 4%. So taking a TNN, we've estimated that the impact of COVID-nineteen was a headwind of 3% to volumes in the quarter. And that breaks down to just over 2% in China.
So very much in line with how we guided earlier in the year. And just under 1% due to the impact in the food service on restrictions on movements that really occurred, from March in certain geographies in Asia and in Europe. And so that's really the, the, the, the rec on, on the overall movement.
Okay. So there was a no pickup in non food service in the first quarter?
No, a lot of moving parts are harder, I would say. I think clearly, there's been a lot of pluses and minuses in the quarter. Obviously, we had the China impact in the quarter as well, but didn't just impact food service. It also impacted the retail channel. So I think April probably gives a better visibility on, on, April gives a better visibility on all we're doing from a retail channel standpoint.
So, sorry to push on this, but I need to understand it. So in April, we're saying that 70% of your business is up mid single digit, and 30% of your business is down 2 thirds.
Correct. Yes.
That's what okay. That's what we're saying.
Right. On the retail side there, Arthur, I think that the 2% that we've referenced as the as the impact, I'm sorry, as the growth rate that you referenced there in terms of Q1, that was impacted as well within China because every geography, how this plays out as a country by country story, in terms of how the screens are playing out. Overall, we're seeing that benefit in April in terms of how that that is a mid single digit figure, a good mid single digit figure. In the first quarter, it was just about the 2%. But there was an impact from China, you know, and it would have been probably 3% outside of that.
But then looking forward, you need to be maybe at this juncture from April's perspective thinking it was good mid single digits,
the good mid single digit in 30 percent of your business and down 2 13?
No, no, good mid single digit is the 70%
Yes. And then down to 3rd June 30th. Yes.
Thank you.
From Credit Suisse.
Just have a couple of very quick ones. Quick ones. One's a follow-up, with regards to your innovation and utilization perspectives. Just physically, how is that possible at the moment given you have these locked down restrictions And I would imagine a lot of your sales force are working with customers going to customer factories, meeting customers. How are you managing to communicate with customers, etcetera.
And the second one is, yes, I gather there is this health nutrition and wellness trend, that is seeming to transpire post COVID and within COVID as well. Could you just remind us What proportion of your sales would be in the health and nutrition?
Segment. Thanks. Thanks, and good morning and thanks for the question. I would say on the innovation side, I mean, firstly, I would say that, in Cary, the vast majority of our technology innovation people or R and D people are working. They are, they are working in our facilities with, proper, social distancing and processes and procedures and taste.
So that's point number 1. The second point I would make is that from a customer engagement standpoint, we have seen, I would say, immense creativity in terms of customer engagement, leveraging digital technology, leveraging teams and different things to engage with customers, whether they're at their home, whether they're working or regardless of where they're at, So, we have participated or it's personally participated in sessions where we've had, you know, we've had shifts, cooking, we have already sent samples to our customers. They're tasting samples. We're cooking samples. We're giving the insights.
There is There is continuous feedback, a continuous feedback loop through, various voting systems that we've set up digitally So there is a lot of connectivity and people are stretching their imagination to the limit in terms of that that connectivity. And frankly, I've asked myself, is this going to be the new normal for us? Is there going to be, my sense is that this we will move more and more to this, digital engagement, virtual engagement. And I think it will take some time for face to face customer meetings to happen in particular, customer locations or even in our own locations. Think that's going to take some time.
But in the meantime, there's a huge amount of creativity. We've even seen customers auditing our lines, where we've used, cameras to take them around our facility, take them, talk them through our manufacturing lines. So I think where there's a will, there's a way And, I think customers are challenging their own processes and procedures. And a lot of our engagement with, with customers is not the typical, process. The typical, let's say, our traditional briefing process is being bypassed.
So that is not a process that is really you know, appropriate for times like this or for this moment in time. So that process has been abandoned And there's a far more, I would say, intense, creative and collaborative engagement with customers And I would say it traditional ways of working are being challenged and that's really exciting for us. And I think it's it's that full service model that's really coming to the 4 now where customers can see that we can do just so much more of our and they're really leading into that. We can help them with insights. We can help them with on the development application side.
We can help them on the process side. We can help them with contract manufacturing side, whatever it is, we can help them with so many areas. And it's they're really leaning into all that capability that we are that we have at our disposal. And I would say coming over this crisis, I think our relationship with our customers will be even stronger. Our relationships will be even more embedded And that's, that's an exciting prospect for us.
As we have no further questions at this time, I'd now like to hand the conference back over to William Lynn for any additional or closing remarks.
Yeah. Listen, I'd like to thank everyone for joining us on the call today. And as is usual, if there are any further questions, please don't hesitate and reaching out to us. So thank you very
much Thank you everybody.
Thank you. That would conclude today's conference call. Thank you for your participation. You may now disconnect.