Good morning, everyone, and welcome to the Kerry Group Interim Results 2019 Investor Call. I'm William Lynch, Head of Investor Relations, and with me is Edmond Scanlon, Group Chief Executive Officer, and Marguerite Larkin, Group Chief Financial Officer. We are hosting today's call from our Global Technology Innovation Center in Ireland. Edmond and Marguerite will take you through a presentation capturing the key points of this morning's results update. Following the presentation, we will open the lines for your questions. Before we begin, please note the usual disclaimer regarding forward-looking statements. I will now hand over to Edmond.
Thank you, William, good morning, everyone, and welcome to our 2019 half one results presentation. Starting please on slide four, I'd like to call out the three key highlights for me regarding the group's performance in the first half of 2019. First, the group continued to outperform our markets. Secondly, I'm excited about the good business development and progress we've made in enhancing our portfolio to deliver on key consumer trends related to Food for Life and Wellbeing, Clean Label, and Made For Me, and I'll touch on Made For Me again later on in the presentation. Thirdly, in developing markets, we delivered strong growth while further expanding our technology and strategic footprint, where opened our new Taste manufacturing center in India to serve our Southeast Asian market.
In China, we expanded our technology capabilities in the Hebei province to serve the Beijing and Northern China region, and our Nantong complex to serve both Eastern and Southern China. Building on our AATCO acquisition, we also made strategic investments to expand our local platform presence and capabilities to fully deploy our business model and deliver growth in both the Middle East and North Africa. Now turning to slide five and the performance of the business. We look at this performance through the lens of both growth and returns. We delivered volume growth of 3.3%, group trading margin is up 20 basis points, and our adjusted EPS on a constant currency basis is up 8.4%. From a returns perspective, we delivered ROACE of 11.9% and free cash flow of EUR 195 million, and we increased our interim dividend by 11.9%.
Moving to slide six to look at our overall revenue and margin growth and the breakout by business. Group revenue grew to EUR 3.6 billion. This breaks down into Taste & Nutrition, which grew to EUR 2.9 billion, an increase of 3.8%, and Consumer Foods, which grew at 0.6% to nearly EUR 700 million. Turning to slide seven and looking at the global Taste Nutrition business. This business delivered a very solid performance in the first half, some notable highlights include good growth in meat, snacks, and beverage end-use markets, strong performance from our nutrition and wellbeing portfolio. Our developing markets achieved growth of 9.1%, food service delivered growth of 5.3%. Margin progression for the business was 20 basis points. Now moving to slide eight and looking through the lens of our regions. In the Americas region, volumes grew by 2.7% to more than EUR 1.5 billion.
North America achieved good growth in our meat, snacks, and dairy end-use markets against the broader market, where volume growth was impacted by increased pricing at the consumer level. In Latin America, the business achieved good growth in Mexico with solid performance in Brazil and Central America. In Europe, the business grew by 2.2% to just over EUR 700 million, with the beverage end-use market delivering strong performance, including good performance in food service. The meat and snacks end-use market also delivered good growth. In the APMEA region, we outperformed the market right across the region, delivering 9.6% volume growth. This region is now in excess of EUR 600 million, and we saw strong performance in the meat, beverage, and snack end-use markets. As I mentioned earlier, we continued our strategic investments in China, India, and the Middle East. Now moving on to the Consumer Foods business on slide nine.
The business delivered a solid performance led by our brands business. Revenue growth was 0.6%, and trading margins were flat after incurring Brexit-related costs. In the period, we've expanded our Food-to-go ranges with a number of new launches in both Cheestrings and Fridge Raiders. Overall, we continue to execute our strategy to realign around our core business, invest in the adjacencies while continuing to deliver on our realignment program, which is progressing very much in line with our plans. With that, I'll hand you over to Marguerite, who will bring us through the financial highlights.
Thanks, Edmond, good morning, everyone. Over the next 10 minutes or so, I will take you through the financial highlights and financial performance for the first half of 2019 in more detail. In particular, I will update on revenue performance, trading margin performance, and returns. Overall, the period saw a continuation of our consistent delivery and a very solid financial performance for the period in line with our expectations. Now turning to the financial highlights on slide 11. We had revenues of EUR 3.6 billion, which represents volume growth of 3.3%, and overall a strong performance with reported revenue up 10.7%. Trading profit was EUR 383 million, representing reported growth of 12.6%, reflecting underlying growth and contribution from acquisitions and currency.
We delivered good solid margin progression with trading margin up 20 basis points. We grew adjusted earnings per share in constant currency by 8.4% and reported currency growth of 13.8%. Basic earnings per share was up 5.6%. We generated EUR 195 million of cash, which represents 67% cash conversion, reflective of investments for growth and in line with our expectations. Now turning to our revenue growth performance on slide 12. Our reported revenue grew by 10.7%, as I mentioned, or almost EUR 350 million in the period. This growth was driven by a number of key elements, including volume growth of 3.3%. Overall pricing was neutral in the period reflective of our raw material basket and customer partnership pricing models.
Translation currency was a tailwind in the order of 2.7%, and we had strong revenue contribution in the period of 4.7% or EUR 150 million from acquisitions, most notably Fleischmann, Southeastern Mills, and AATCO, with Ariake USA being completed at the end of quarter one. All in all, a very solid performance from a top-line perspective. Moving now to slide 13 for a moment to look at our revenue growth performance versus the market. On the left-hand panel of the slide, our overall group revenue was EUR 3.6 billion with volume growth of 3.3% compared to market growth of 0.8%. A continued consistent outperformance of market growth by more than 2%. Consumer Foods revenue was just under EUR 700 million, with volume growth of 0.6%, representing a solid market performance in the context of a soft U.K. market.
Good solid performance from our Taste & Nutrition business in particular, which delivered revenue of EUR 2.9 billion, a volume growth of 3.8% versus a market that grew volumetrically at just over 1% in the period. You will see a further breakdown of Taste & Nutrition by region on the right-hand side of the slide. We are outperforming across all of our regions and particularly in APMEA, where we continue to deliver very strong performance versus the overall market growth. Now turning to slide 14 and to our margin performance and group trading margin bridge. We are pleased to report group trading margin expansion of 20 basis points in the period with Taste & Nutrition margin progression of 20 basis points, while we maintained our margins in Consumer Foods.
Now to look at this in a little more detail, there were a number of drivers in our margin progression. Firstly, operating leverage and portfolio mix contributed in the order of 30 basis points. Good operating leverage from economies of scale as we grew our volumes and we continued to enhance our portfolio mix as we extended greater depth of technology into new products aligned to the evolving consumer preferences across the globe. Both operating leverage and portfolio mix continue to be key parts of our overall margin expansion outlook. Within our Kerry Excel program, we continued to deliver efficiencies, which generated supply chain logistics and functional cost savings, and this was more than offset by further investments in the localization of commercial leadership and the strengthening of our technology expertise in developing markets, as well as investment in the continued rollout of Kerry Connect.
Currency was a net tailwind of 10 basis points. We had a positive margin accretion effect at group level of 10 basis points from the recent acquisitions. In the final column of the margin bridge, we've grouped two new items for presentation purposes that impacted our margin in the period. Firstly, we incurred Brexit risk management costs of EUR 5 million or just over 15 basis points in the period, which included upgrading our systems, investing in training to deal with multi-tariff scenarios, as well as costs associated with holding additional inventory. The second item is the accounting effect of the transition to IFRS 16 leases, which had a positive impact on trading profit on a like-for-like basis of EUR 1.4 million or just under five basis points on trading margin.
In overall terms, a number of moving parts contributing to a good solid group margin progression of 20 basis points for the period. Turning now to slide 15, to our free cash flow. We generated free cash flow of EUR 195 million and a cash conversion of 67%. To take a moment to look at the different components. Firstly, trading profit was up EUR 43 million to EUR 383 million. Depreciation increased to EUR 94 million, reflecting increased capital expenditure and the impact of IFRS 16.
Increased investment in working capital of EUR 77 million, reflecting the investment in stocks in advance of the initial March 31st Brexit deadline, which we started to unwind in the second quarter, and the increased working capital effect due to the integration of acquisitions and higher revenues with the scale of the business. Finance and tax were both up, reflecting the increased size of the business and timing of payments and recent acquisitions. Capital expenditure of EUR 135 million was in line with expectations, including, as Edmond mentioned, investments in India and China. As we said back in February, we expect capital expenditure to be circa 4.5%-5% of revenue in 2019. Overall, we delivered EUR 195 million of free cash flow, which represents a cash conversion of 67%, in line with our full year guidance at the beginning of the year.
Moving now to our financial ratios and debt profile on slide 16. Overall, our return on capital employed was 11.9%, which is reflective of acquisitions and investment for growth, as mentioned. Net debt of EUR 1.9 billion, giving us a 1.9 times net debt to EBITDA ratio, while we have interest cover of 14.4 times, which is well within our banking covenants. Our debt profile is in good shape with no significant debt repayments until 2023, with the weighted average maturity profile of our debt at 4.6 years. All in all, we continue to have a very strong balance sheet to continue with our strategic investment programs. Finally moving to slide 17, I would like to cover off a number of other financial matters. Finance costs are EUR 39 million and are up EUR five million year-on-year.
The key driver of the increase is the impact of financing of acquisitions and the impact of adoption of IFRS 16, partially offset by cash generation and reduced interest rates. Our pension deficit is at EUR 64 million, reflecting increase and movements in discount rates. Turning to non-trading items, the charge of EUR 34 million comprises two main items. Firstly, acquisition integration. We've invested EUR 14 million on the integration of acquisitions, which is progressing very well. Secondly, we incurred a net cost of EUR 21 million on the Consumer Foods realignment program, also progressing to plan. Moving on, our KerryConnect rollout is on track and will be commencing deployment in North America in the coming months. Raw materials input costs overall were relatively neutral in the first half of 2019. Some increases in cereals, proteins, and decreases in spices, citrus, and vanilla.
We expect the second half of 2019 to be very similar, with Taste & Nutrition marginally higher. As of today, overall, we are expecting a flat to small increase. Finally, on currency, the current outlook, we estimate a translation currency tailwind in the region of 2%-3% on earnings per share for 2019. I'll just wrap up the financial performance update briefly before I hand back to Edmond. Overall, a period of good, consistent, solid performance as our business model continues to deliver in a rapidly changing environment. Consistent solid revenue growth of 3.3%, well ahead of market growth of circa 1%. Good margin expansion of 20 basis points and solid cash conversion and growth in our adjusted earnings per share of 8.4% on a constant currency basis.
Back to Edmond now to update more broadly on future prospects and outlook for the remainder of 2019.
Thank you, Marguerite. Before I share our updated outlook for 2019, I'd like to take a few minutes to put some color around our growth strategies and how we deliver value in today's marketplace. Secondly, how we partner end to end with our food service customers. Second, how we deliver integrated solutions to meet the trend for the next generation plant-based products. Third, how our M&A strategy generates value as part of our overall growth strategy. To set the context, let's start by looking at today's marketplace and how the consumer revolution is driving customer transformation and reshaping the industry. Turning to slide 19. Like we've said before, everything starts with the consumer. I wanted to begin by revisiting a slide we shared with you back in February.
Looking down the left-hand side of the page, today's consumer wants more from their food and beverages. In February, we looked at this first trend, Food for Life and Wellbeing, and today we look at Made For Me. This trend is about personalization, and this spans many dimensions. For example, consumers want products that provide a multi-sensorial experience. They want next generation snacking to meet their individual dietary needs. They want positive nutrition and cleaner labels, and they want more personalized meal kits and better delivery experiences. This is all driving change for our customers, specifically in food service, and we're serving as their end-to-end partner to meet this change. Turning to slide 20, let's look at the value we deliver for customers in food service, which is one of our four strategic growth priorities. Before we get into the slide, let me just set some context.
In 2018, the top 25 food service markets grew collectively at a rate in the region of 3% in volume terms, with consumer spending in the region of $3 trillion in those markets. Emerging markets like China, the Philippines, and Malaysia are booming. While more established markets like the U.S., Canada, and Europe are showing slower levels of growth, but still faster than the retail segments in each of those markets. In this food service channel, Kerry is serving as the partner of choice for our food service customers, and we've a target to grow our food service business at 7% per annum in volume terms. We work with all customers across this channel, from hospitality to institution and contract caterers, to coffee houses and convenience stores, from global QSRs to fast casual restaurants and independent operators.
As their end-to-end partner, we perform a variety of roles to accelerate their ability to match consumers' demand today. Now looking at this slide, and first to look at it from left to right, we partner on menu development to create new applications right across everything menu categories. Secondly, we help customers expand into new food and beverage platforms. For example, if they have more of a food-focused menu, we can help them to expand into beverages and vice versa. Thirdly, we provide full end-to-end service to help our customers introduce new consumer themes and seasonal offerings with greater speed and frequency. We provide nutrition-led innovation to help them deliver on their nutritional strategies right across their menus. This is how we deliver value for our food service customers. Now staying with the Made For Me team, let's look at the specific example.
Here in slide 21, we have an example of how we bring our capabilities together to help our food service customers deliver personalization and a better delivery experience. I'd like to draw your attention to the right-hand side of the slide, where we have a cheese cap tea, a product we partnered with our customers in China to bring to market. Cheese and tea might sound like an unusual combination, yet it's one of the fastest-growing trends in China. Consumers love it as it allows them to create new personalized beverages. The value is in how we leverage the agility of our business model and our value creation engine in three key areas. First, our food science expertise. This includes the science of Taste & Nutrition and the science of how they interact with each other and within the application.
This is critical to solving the technical challenges related to infusing taste, nutrition, and functionality into the finished products. Second, our dedicated beverage end-use application expertise. Third, our extensive processing expertise to optimize the product in both our own manufacturing facilities and our customers' back-of-house operations. This is all underpinned by our suite of capabilities, including insights, sensory and analytics, regulatory, and supply chain, which all expand our customers' capabilities. We bring all of these capabilities together to deliver a specific and fully integrated solution that delivers taste and nutrition and functionality and cleaner labels. This is where we excel and how we partner with our food service customers end to end to bring new products to market much faster. Now moving on to slide 22.
Here's another example of how we deliver value and help customers to meet today's trends related to the second generation of plant-based offerings. When the plant-based trend first emerged, customers were focused on getting products onto the shelf quickly. Today, the consumer revolution is accelerating demand for better and more variety of plant-based products. This is driving customers to expand their product range by improving existing products and introducing new applications and formats. This is where we add value. We have the capabilities to deliver on all of the product attributes that you see here on the left-hand side of the slide. We deliver the flavor, the texture, and the nutrition. We deliver the plant-based solution with a Clean Label and better functionality. This is what we mean by Taste & Nutrition.
On the right-hand side of the slide are just some examples of how, through our business model and integrating Taste & Nutrition, we're delivering greater value for customers, driving growth for our business, and generating returns for our shareholders. Turning to slide 23. Before I close out, I just want to take a few moments to talk about Kerry's M&A strategy and how we deliver value from M&A as part of our overall growth strategy. Our business model allows us to deliver significant value when we combine both M&A with our Kerry existing capabilities. Value for our consumers through better food and beverage experiences, value for our customers through improved offerings and integrated solutions, value for our employees through added capabilities and new opportunities, and value for our shareholders through improved returns.
We have a clear set of strategic priorities listed here on the left that we use to deploy our capital in a very deliberate way to advance our technology capabilities, expand our local presence in developing markets, and enhance our overall offerings aligned to our end-use markets and food service strategies. This is how we deliver sustainable growth for our business and deliver strategic value for customers and shareholders. The Ganeden example here highlighted in the center of the page is a good example. We acquired the Ganeden business less than two years ago. This was a great technology in the probiotic space, and we saw the possibility of expanding the business outside where the company already operated. The Kerry and Ganeden teams got together and began designing and deploying the technology.
As a result of the success we're having with customers, we accelerated the integration of this new technology into our taste and functional systems, into new applications for ice cream, snacking, breakfast cereals, confectionery categories, as well as a variety of beverages. As with Ganeden, we're also looking to fully leverage our more recent acquisitions in similar ways to generate greater value. Over the course of the next 12-18 months, I look forward to providing updates as we further expand the technologies, capabilities, and geographic reach related to each of these acquisitions. Now turning to the outlook on slide 24. We will continue to adapt to the rapidly changing marketplace, investing in and further developing our business model to consistently outperform our markets and respond with industry-leading innovation.
Our Taste & Nutrition business has a strong pipeline with good growth prospects, particularly in developing markets where we continue to expand our footprints and roll out our consumer-led in-country approach. Within the Consumer Foods business, we continue to realign the core and invest in adjacencies while navigating the uncertainty of the current U.K. environment. The group will continue to invest in business development and pursue M&A opportunities aligned to our strategic growth priorities. For the full year 2019, the group expects to deliver adjusted EPS growth of between 7%-9% on a constant currency basis. With that, I'll pass it back to the operator for questions.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. As a reminder, if you have questions, just press star and one on your telephone keypad. If you wish to cancel your request, just press hash. Press star and one for any question. All right. We have questions now. First question comes on the line of Jason Molins from Goodbody. Your line is open. Please go ahead.
Good morning. Edmond, you talked a bit about the food service strategy and market overall for yourselves. In terms of the performance, I guess 5.3%, I think you mentioned in the first half, looks to be a bit softer than previous periods. I guess the 7% that you see is the sort of long term and medium term growth. Can you maybe talk about the drivers there and what's really going on behind that performance in the first half? On your deal appetite, I appreciate the color you've given around your M&A strategy, but given the macro uncertainty, can you just talk about your overall pipeline? Obviously you gave the example of Ganeden and how that has worked within the Kerry model. Is that something that we should think about the bolt-on type strategy rather than anything more?
Thanks, Jason. Maybe the first point on food service. What we're actually seeing throughout the course of the year is there's been an acceleration of growth in food service from 5.1% in Q1 to 5.5% in Q2, rounding out to the 5.3% for the first half. It's the channels that we're particularly excited about. I call out maybe a geography like China, where we've had really strong double-digit growth in food service in the first half. If you recall, we did draw your attention to the fact in Q1 that we had some softness in the food service market in North America. We saw that being primarily driven by the increase in pricing at a consumer level in North America. With respect to M&A, the pipeline remains very strong. As you're well aware, we've had an extremely busy last 18 months on the M&A pipeline.
I think at this point in time, while we don't guide on M&A activity for the year, what would be fair to say and what we would expect is that the M&A pipeline and M&A activity would be quite reflective of the last 18 months for the next 18 months going forward.
Okay, that's helpful. Thanks.
Thank you. Your next question comes on the line of Arthur Reeves from Barclays. Your line is open. Please go ahead.
Good morning. Two questions from me, please. Taste & Nutrition volume's up 3.8%. I think that's what we were roughly expecting, but it's still at the bottom end of your midterm target. What do you have to do to get this volume growth up near the top end of 6%? My second question is Consumer Foods. You seem to be drawing a clear distinction in Consumer Foods between branded and own label, and you also say you didn't recover your input costs. I'm not clear whether that was branded or own label. Would you ever completely consider pulling out of own label? Thank you.
Thanks, Arthur. The first point in terms of growth, I think it's important to talk about our growth rates in the context of the market growth rates. A performance of 3.8% in the period is something that we're pleased about. I think it's also important to keep in mind that we work right across the food and beverage landscape. While categories and end-use markets like meat and snacks are performing extremely well, I would also call out end-use markets like sweetened cereal, fine bakery, that are quite challenged and have been challenged for some time. Having said that, we do see opportunities to accelerate growth in those categories as customers are looking to reinvent themselves in those categories. I think we will see an acceleration in the growth of our business. I think we're extremely well-positioned from, I call out three areas.
The whole area of Clean Label, we're extremely well-positioned. The whole area of authentic taste, we're very well-positioned. The third area I'd call out is natural preservation. As those requirements, I think, continue to be a direction of travel for developing markets, that will enable us to deploy more technology into those regions as well. I do see further acceleration of growth over time. There are some market dynamics that are always going to be impacting the business from time to time. In the medium term, we feel very confident. With respect to your question on Consumer Foods, I might just hand that over to Marguerite.
Thank you, Edmond. Arthur, just to take your question, while raw materials and foods were flat to slightly deflationary, pricing in foods was slightly lower, as you mentioned. There were some input costs that were inflationary in nature, where we did not fully recover the inflation through pricing. I would say, as we look across that business, own label being more challenged in the context of that recovery.
Okay. Obviously, you don't give a split between own label and branded profitability, but would you ever consider pulling out of private label?
I think, Arthur, we look at that business in its entirety. There's things like shared assets and everything like that, and there's operating leverage across both businesses. I think if we take a step back from that business, what we've decided to do is manage those businesses in a slightly different way. They merit to be managed in a different way, and that's what we've done over the course of the last 12 months or so.
Okay, thanks very much.
Thank you. Your next question comes to the line of Heidi Vesterinen from Exane BNP Paribas. Thank you. Please go ahead.
Good morning. A few, please. Could you first talk a bit more about North America, please? We've heard this result season from a number of peers that there was a pronounced softness with multinational customers in particular. They were talking about a bit of a step down, especially towards the end of Q2. Is that a sort of trend that you see as well? On North America as well, could you clarify what you saw in food service? I think in Q1 you had flagged that year started soft, but there was a little bit of a pickup. What actually happened in Q2, and what is your outlook there? The other question on T&N Europe. You talked about softness in Consumer Foods at the retail level. How does that impact your U.K. business in T&N, please? Last question on plant-based.
You talked about that as an exciting growth opportunity. In which regions are you seeing this, and what does this mean in terms of margins? Thank you.
Thanks, Heidi. I'm going to try and answer all these questions. The first thing maybe on North America. Rather maybe than getting into the detail from a customer level, I think when we look at our business, we're seeing end-use markets like snack, beverage, and meat performing very strong for us. What I would say, though, is from a pricing perspective at a consumer level, consumers are seeing increased pricing, and that is having an impact on demand. Some of the softness we saw in food service at the beginning of the year was certainly impacted by that. That has picked up throughout the course of the year and through the remaining part of the second half. I suppose the third point I'd make is, the market is moving to areas that are very much in our core competency areas.
What I mean by that is, when we look at areas like Clean Label, when we look at areas like authentic taste and natural preservation, these are areas where we're extremely well-positioned. I think in many respects, the market is moving closer to us and closer to where we have really strong capabilities. That's with respect to North America. With respect to the U.K., in our T&N business, the performance of our business was quite strong. I call out the fact that what we've said before, that any growth rate that's in the 2% zone is a good performance in Europe. I'd also mention that our Europe figures includes Russia and Eastern Europe as well. It's Europe, Russia, and Eastern Europe all included together. We're not seeing any significant impact on our Taste & Nutrition business right now driven by the EU concern.
The last question on plant-based, I would say overall, the scale of our plant-based business is primarily being driven by North America and then by Europe. That's really the two regions that we see plant-based really accelerating. From a margin perspective, how I would answer that question is that it very much depends on the deployment of the technology that we have into that particular sector. As we're deploying, we'll say technologies that relate to Clean Label, natural preservation or authentic taste, we don't see any margin difference between the deployment of those technologies into that sector, as opposed to any other sector.
If anything, we see a bigger opportunity to deploy those technologies into those types of applications because there's various taste issues, and there can be some issues around and challenges around the labeling of those products as well if our consumers are looking for maybe sharper, cleaner labels in the 2nd generation plant-based protein.
Thank you.
Thank you. We still have questions on the phone. Next question comes on the line of Cathal Kenny from Davy Research. Your line is open. Go ahead.
Good morning, Marguerite, William, and Edmond. A couple of questions from my side. Just firstly, following up on the plant-based question within North America and Europe, just from a channel perspective, where you see the greatest opportunity? Secondly, Edmond, do you have to deploy more capital organically to capitalize on that opportunity? Next question relates to the adoption of food delivery. For us, we've seen that really take off in the last couple of quarters in particular, and that's a global phenomenon. Just interested in how that impacts your business model. Finally, Marguerite, on working capital, we saw a significant outflow in the first half. Just interested in your comments, how we should think about that for H2, and in the context of Brexit. Thank you.
On plant-based, Cathal, I just got the second part of that question, with respect to CapEx. I think that was your question. Cathal, can I just clarify?
Sure. CapEx, correct. Just from a channel perspective, where you see the most significant opportunities?
Okay. Sorry. From a CapEx standpoint, we don't see any increased level of CapEx following this. I think we're very well invested. When we go through each of the technologies, we feel that we're well positioned from that standpoint. There might be some incremental investment around people, but not significant in the scheme of things. From a channel perspective, I would say that a lot of our activity to date has been more on the retail channel, retail CPG, but we do see an acceleration in recent times in the food service channel. In terms of food delivery, I would say yes, absolutely. It's an area that is a significant focus for us. I think it's a factor in our business that we've been focused on quite some time in China.
I think it's an opportunity where we feel we have the right suite of technologies to deploy into that channel, whether it's the form that I touched on in the cheese milk tea earlier, or whether it's coating for various types of proteins to ensure that the product stays fresh on delivery. I think overall we're well positioned. We see food delivery, I would say, continuing to grow. I don't think we're in a situation where we need to readjust our business model. I think for us, it's an area that we have had a lot of focus for quite some time in China, and we're taking those learnings and deploying them into the other regions.
Cathal, I might just take the question on working capital. In the context of H2, I would suggest think of H2 very similar to H1. Some of the dynamics at play in H2, it will be reflective of investments in KerryConnect as we commence rollouts in North America. As you mentioned in relation to Brexit, we will build some risk management stocks in advance of the Brexit October deadline, something that we'll continue to monitor, likely lower than the build in H1. Overall, H2, very similar to H1 from a working capital perspective.
Thank you.
Thank you. We still have a question. Next question comes from the line of James Targett from Berenberg. Your line is open. Please go ahead.
Hello. Good morning, everyone. Firstly, just on your volume growth in Taste Nutrition. I think at the start of the year, you were sort of expecting growth rates to accelerate in the second half of the year. I'm just wondering if that's still the dynamic you're seeing. Within your kind of customer base in Taste Nutrition, I guess particularly in North America, are you seeing any big change in churn rates? Because as some of your peers are saying that they are seeing some kind of increased rate of volume erosion. I just wondered what you're seeing in your churn rates. Then just finally on Brexit, the deadline's looming. I just wonder, in terms of your planning, what scenario you're factoring in, both in terms of inventories, how you're operating, and also, I guess, what kind of scenario you factor into your guidance. Thank you.
Hi, James. I leave the Brexit question to Marguerite, maybe first on the volumes. We are going to be seeing a slight increase in overall volume growth rates in the second half. Probably a little bit more weighted towards the Q4. Certainly, we do see an acceleration, and probably for the full year, we'd be seeing a growth rate for T&N in the zone of 4%. With respect to your comments on North America, I would say, look, fragmentation continues to be a very significant factor in the North American market. I might have said to you in the past that when we review our top 10 accounts and top 15 accounts today versus four or five years ago, there's new customers in those top 10, 15 accounts that didn't even exist maybe five, 10 years ago.
I think, while I wouldn't call out anything specific around our churn rates, it is a factor of the market for the last several years that reference sizes when we look at our wins are a little bit lower and product life cycles are a little bit shorter. That's just a factor of the market. I think the other point from Kerry perspective is that we work right across the food and beverage landscape. Small, medium, and large-sized customers, right across all the channels, and the sub-channels. We've a very diverse spread of a customer base. There's various dynamics happening within each of those segments of customers, and I think we're very well positioned to be able to shift resources one way or the other when we see something happening in the market or where we can foresee something happening in the market.
The last point I'd make on it is that, for us, what's critical is our return on investment in terms of the amount of time and resources we're putting into a specific project or a specific customer. We've set up a new function within our overall finance function called Commercial Effectiveness to ensure that we're constantly reviewing this and allocating our resources to the right areas that are going to give us the best return.
Just, James, on Brexit. Obviously, we've been planning various scenarios on Brexit for some time now, and specifically in the first half, you'll see the impact of some of the costs incurred in relation to structural changes in the business in relation to risk management around Brexit. I guess as we think about the second half of the year, we'd see some continuation of Brexit costs, slightly lower than the first half. We've already incurred structural investments around systems, et cetera. Slightly lower than the first half. We will build, as I mentioned, some safety stock levels also, and this is something that we'll continue to monitor. It's fair to say that we've planned for numerous scenarios and looking at the business across business protection, trade facilitation, and tariff mitigation. Given the uncertainty, it's difficult to get into all of those scenarios on this call.
It is fair to say that the impact of working capital and costs are reflected in our guidance. Clearly, if there were to be a hard Brexit, there would be an impact on consumer sentiment in the U.K., and that's just something that we'll continue to monitor and update later in the year on.
Great. Thanks so much.
Thank you. Our next question comes on the line of Faham Baig from Credit Suisse. Your line is open. Please go ahead.
Good morning, team. Thanks for allowing me some questions. I have three, if that's okay. Firstly, on emerging markets, is it possible to zone in on China and how the market is developing from a food and beverage standpoint? We've had a couple of your customers/peers call out a sequential softening of demand. How do you see it? In that context, you seem to be performing very well. Could we just understand whether it's significant market share gains? In terms of penetration levels, where does Kerry stand versus the market? Secondly, I think you mentioned you have a strong innovation pipeline in the second half. Are you able to discuss what innovations you guys have planned, whether it's driven by Kerry, whether it's driven by your customers, and in which categories? That would be helpful. Finally, a question on M&A.
You mentioned as part of the strategic priorities, you are always looking at new channels, new technologies, categories, et cetera. Where would you say currently you would be the most underexposed and would like to increase your presence, be it by channel, geography, technology? Thank you.
Thanks, Faham. I'll take those questions. Firstly, with respect to emerging markets and specifically in China, I just actually returned from a trip in China in the last few weeks. I think what we've seen in that market over the last several years is it is incredibly dynamic. I think with respect to how our business is performing there, I would specifically call out food service. We've had really strong double-digit growth in our food service in China, driven across primarily meat and beverage into the food service channel. I think a dynamic there is that the food service channel is growing substantially faster than the retail channel. There's certainly some shift there, especially when I look at the beverage end-use market. I would say the beverage end-use market at a retail level, I would say is under significant pressure.
The beverage end-use market at a total level is positive, but is very much driven by food service. I think that's one of the reasons that you're seeing our performance in China. I would also call out that we've a very strong team there and a very well-invested facility to take advantage of the growth and a very strong business model that we've talked about many times that enables us to deploy technology into that market. With respect to our pipeline, it's not unrelated to the point in China. I would call out areas like Clean Label, natural preservation, and authentic taste as being three key areas for us where we continue to see excellent business development. While in the past, that was probably more of a North America and European phenomenon, and that's continuing.
Going back to my most recent trip to China, we are certainly hearing customers across both the food service channel and the retail channel being much more interested in talking about those three areas of clean label, natural preservation, authentic taste. There has been a significant acceleration in the level of interest around that in recent times. With respect to M&A, I think, look, M&A has always been part of our strategy. It's very much linked to our overall growth strategy, whether that relates to authentic taste, developing markets, nutrition, or food service. Any M&A that you see Kerry participating in or any acquisitions that we bring on board will be very much aligned towards four strategic growth priorities. I wouldn't necessarily call out any specific gaps.
Those four areas anything that accelerates our penetration, brings new technologies to us, albeit even might be a small acquisition it doesn't matter. Once we can get our hands on a good technology, we have the capability in-house. I would go as far as to say we have a core competency in taking that technology and deploying it right across our business, whether that's geographic, whether it's into different channels or whether it's across end-use markets or even into different functionalities.
Thank you.
Thank you. There are no further questions at this time. Please continue.
Okay, thank you very much. I think this brings us to the end of the call. We'd like to thank our participants very much for joining us this morning. If you have any further follow-up, please refer to the investor relations team, and we'd be glad to respond accordingly. Thank you very much.