Good morning, everyone, and welcome to the Kari Group Interim Results 2019 Investor Call. I'm William Lynch Head of Investor Relations. And with me is Edmund Skam, Group Chief Executive Officer and Marguerite Clark and Group Chief Financial Officer. We are hosting today's call from our Global Technology Innovation Center in Ireland, Edmund and Marguerite will take you through a presentation, capturing the key points of this morning's results update, and following the presentation we will open the lines for your questions. Before we begin, let me please let sorry, please note the usual disclaimer regarding forward looking statements.
I will now hand over to Edmond
Thank you, William, and good morning, everyone, and welcome to our 2019 half 1 results presentation. So starting please on, Slide 4. I'd like to call out the 3 key highlights for me regarding the group's performance in the first half of twenty nineteen. First, the group continued to outperform our markets. Secondly, I'm excited about the good business development and progress we've made enhancing our portfolio to deliver on key consumer trends related to food for life and well-being, clean label, and made for me, and I'll touch on made for me again later on in the presentation.
And thirdly, in developing markets, we delivered strong growth while further pending our technology and strategic footprint. We're opened our new TAEUS Manufacturing Center in India to serve our Southwest Asian market, In China, we expanded our technology capabilities in the Hebei province to serve the Beijing and Northern China region, and our nontom complex to serve both Eastern And Southern China. And building on our ATCO 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 5 and the performance of the business. And we look at this performance through the lens of both growth and returns.
We delivered volume growth of 3 point constant currency basis is up 8.4%. And from a returns perspective, we delivered ROACE of 11.9% and free cash flow of 1,000,000, and we increased our interim dividend by 11.9%. Now moving to Slide 6 to look at our overall revenue and margin growth and the breakout by business. Group revenue grew to 3,600,000,000 This breaks down into taste and nutrition, which grew to $2,900,000,000, an increase of 3.8% and Consumer Foods, which grew at 0.6 percent to nearly 700,000,000. Now turning to Slide 7 and looking at Global Case Nutrition business.
This business delivered a very solid performance in the first half, and some note will highlight include good growth in meat, snacks, and beverage end use markets, strong performance from our nutrition and well-being portfolio. Our developing markets achieved growth of 9.1% and food service delivered growth of 5.3 percent, and margin progression for the business was 20 basis points. So now moving to Slide 8 and looking through the lens of our regions. And in the Americas region, volumes grew by 2.7% to more than 1,500,000,000. 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 1,000,000, with the beverage end use market delivering strong performance, including good performance in food service. And 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 CHF 600,000,000, and we saw a strong performance in the meat, beverage and snack end use market.
And 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 9, 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 food to go ranges with a number of new launches in both cheese rings and refrigerators. And 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.
So with that, I'll hand you over to Marguerite who will bring us through the financial highlights.
Thanks, Edmund, and good morning, everyone. Over the next ten minutes or so, I will take you through the financial highlights and financial performance for the first half of 2019 in more detail. And 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. $1,000,000,000, which represents volume growth of 3.3 percent and overall a strong performance with reported revenue 10.7 percent.
Trading profit was 1,000,000, representing reported growth of 12.6 percent, reflecting with trading margin up 20 basis points. And we grew adjusted earnings per share in constant currency by 8.4% and reported currency growth of 13.8 percent. Basic care earnings per share was up 5.6% and we generated million of cash, which represents 67% cash conversion, reflective of investments for growth and in line with our patients. So now turning to our revenue growth performance on Slide 12. Our reported revenue grew by 10.7 percent, as I mentioned, or almost 1,000,000 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 partners Ship 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 percent or $150,000,000 from acquisitions, most notably, Fleishman, South Eastern Mills, and ATCO with Ariake USA being completed at the end of quarter 1. So all in all, a very solid performance from a top line perspective. Moving now it.
And on the left hand panel of the slide, of the slide, our overall group revenue was 1,000,000,000 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 1000000 with volume growth of 0.6%, representing a solid market performance in the context of a soft UK market. Good solid performance from our Taste and Nutrition business in particular, which delivered revenue of 1,000,000,000, a volume growth of 3.8% versus the markets that grew volumetrically at just over 1% in the period. And you will see a further breakdown of taste and 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. So 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. We faced a nutrition margin progression of 20 basis points while we maintained our margins in Consumer Foods. So 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 carry 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 continued at group level of 10 basis points from the recent acquisitions.
And in the final column of the margin bridge, we've grouped 2 new items for presentation purposes that impacted our margin in the period. Firstly, we incurred Brexit risk management costs of 5,000,000 or just over 15 basis points in the period, which included upgrading our systems, investing in training, to deal with multi tar scenarios as well as costs associated with holding additional inventory. The second item is the accounting effects of the transition to IFRS 16 leases which had a positive impact on trading profit on a like for like basis of 1,400,000 or just under 5 basis points on trading margin. So 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 $195,000,000 and a cash conversion of 67 percent.
So to take a moment to look at the different components. Firstly, trading profit was up 1,000,000 to 1,000,000 depreciation increased to $94,000,000, reflecting increased capital expenditure and the impact of IFRS seen increased investment in working capital of $77,000,000, 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
1,000,000 was in line with expectations, including, as Edmund mentioned, investments in India and China, And as we said back in February, we expect capital expenditure to be circa 4.5% to 5% of revenue in 2019. So overall, we delivered $195,000,000 of free cash flow, which represents a cash conversion of 67% in line with our full year guidance at the beginning of the year. 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 $1,900,000,000, 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 on of 2023 with the weighted average maturity profile of our debt at 4 0.6 years. So all in all, we continue to have a very strong balance sheet to continue with our strategic investment programs. A number of other financial key driver of the increase is the impact of financing of acquisitions and the impact of adoption of IFRS 16, partially offset by cash and reduced interest rates. At pension deficit at 1,000,000, reflecting increase in movements and movements in discount rates, turning to non trading items, the charge of 34,000,000 comprises 2 main items Firstly, acquisition integration. We've invested 1,000,000 on the integration of acquisitions, which is progressing very well.
And secondly, we incurred a net cost of $21,000,000 on the Consumer Foods realignment program also progressing to plan. Moving on. Commencing deployment in North America in the coming months. Raw materials input costs overall were relatively neutral in the first half of twenty 19. Some increases in cereals, proteins, and decreases in spices, citrus and vanilla.
And we expect the second half of 2019 to be very similar, which takes the nutrition marginally higher. So as of today, overall, we are expecting a flat a small increase. And finally, on currency, the current outlook we estimate to translation currency tailwinds in the region of 2% to 3% on the earnings per share for 2019. I'll just wrap up the financial performance update briefly before I hand back to Edmund. 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 patent version and growth in our adjusted earnings per share of 8.4% on a constant currency basis.
So back to Edmund now to update more broadly on future prospects and outlook for the remainder of 20
Thank you, Marguerite. So before I share our updated outlook for 2019, like to take a few minutes to put some color around our growth strategies and how we deliver value in today's marketplace. Firstly, how we partner end to end with our food service customers. 2nd, how we deliver integrated solutions to meet the trend for the next generation plant based products And third, our M and A strategy generates value as part of our overall growth strategy. But 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.
So turning to Slide 19. Like we've said before, everything starts with the consumer. And so I wanted to begin by revisiting a slide we shared with you back in February. And looking down the left hand side of the page, today's consumer wants more from their food and beverages. In February, we looked at the first trend, food for life and well-being.
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 our 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 and food service, which is one of our 4 strategic growth priorities. But 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% 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 still faster than the retail segments in each of those markets. In this food service channel, Carrie is serving as the partner of choice for our food service customers, and we've a target to grow our foodservice business at 7% per annum in volume terms. We work with all customers cross this channel, from hospitality to institutional and contract caters 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 a accelerate their ability to match consumers' demand today. So 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 this menu, we can help them to expand into beverages and vice versa. Partly, we provide full end to end service help our customers introduce new consumer teens and seasonal offerings with greater speed and frequency. And we provide nutrition led innovation to help them deliver on their nutritional strategies from us. And now staying with the made for me team, let's look at the specific example.
So 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 CAF T, a product we partnered with our customers in China to bring to market. Now 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 models and our value creation engine in 3 key first, our food science expertise.
This includes the science of taste and 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 case, nutrition, and functionality into the finished products. 2nd, our dedicated beverage end use application expertise and third or extensive processing expertise to optimize the product in both our own manufacturing facilities and our customer's 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 customer's 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. So now moving on to Slide 22. Here's another example of how we deliver value and help customers to meet today's trend related to the 2nd generation of plant based offerings. From the plant based trend first emerged, we 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.
And 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 products and attributes that you see here on the left hand side of the slide. We delivered the flavor, the texture, and the nutrition. We delivered plant based solution with a cleaner label and better functionality.
This is what we mean by taste and nutrition. On the right hand side of the slide are just some examples of how through our business models and integrating case and nutrition. We're delivering greater value for customers driving growth for our business and generating returns for And before I close out, I just want to take a few moments to talk about Carrie's M and A strategy and how we deliver value from M and A as part of our overall growth strategy. Our business model allows us to deliver significant value when we combine both M and A with our carry existing capabilities. Value for our consumers through better food and beverage experiences, value for our customers through improved offerings in integrated solutions, value for our employees through added capabilities and new opportunities and value for our shareholders to improve 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 strategies. This is how we deliver sustainable growth for our business and deliver strategic value for customers and shareholders. The Canadian example here highlighted in the center of the page is a good example. We acquired the Canadian business less than 2 years ago. This was a great technology in the probiotic space, and we saw the profitability of the guidance business outside where the company already operates The carrying grenade and teams got together and began designing and deploying the technology.
And 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 Canadian, we're also looking to fully leverage our more recent acquisitions in similar ways to generate greater value. And over the course of the next 12 to 18 months, I look forward to providing dates as we further expand the technology's capabilities in its geographic reach related to each of these acquisitions So now turning to the outlook on Slide 24. We will continue to adapt 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 UK environment. The group will continue to invest in business development and pursue M and A opportunities aligned to our strategic growth priorities. So for the full year 2019, the group expects to deliver adjusted EPS growth of between 7% to 9% on a constant currency basis. So with that, I'll pass it back to the operator
Thank
you. All right. We have questions now. First question comes from the line of Jason Mollins from Goodbody. Your line is open.
Please go ahead.
Good morning. Evan, you talked a bit about the food service strategy and markets 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 and I guess, the 7% that you see is 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? And then on your deal advertising spend, appreciate the color you've given around, your M and A strategy, but given the macro uncertainty, can you just talk about your pipeline?
And obviously, you gave the example of Gannett and how that has worked within the carry model. Is that something that we should think about bolt on type strategy, rather than anything more?
Thanks, Jason. Maybe the first point on food service. But we're actually seeing throughout the course of the year, there's been an acceleration of our growth in food service, from 5.1% in Q1 to 5.5% in Q2. Rounding up to the 5.3% for the first half. It's the chance that we're particularly excited about.
I call out maybe a geography like of where we've had really strong double digit growth, in food service in the first half. And if you recall, we did draw your attention to the fact in Q1 that we had some softness in the foodservice market in North America And we saw that being primarily driven by the increase in pricing at a consumer level in North America. With respect to M and A, the pipeline remains very strong. As you're well aware, we've had a extremely busy last 18 months. On the M and A pipeline.
So I think, at this point in time, while we don't guide on M and A activity for the year. What would be fair to say and what we would expect is that, the M and A pipeline and M and 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. And your next question comes from the line of Arthur Reeves from Barclays. Your line is open. Please go ahead.
Placing Nutrition volumes 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%? And my second question is Consumer Foods. You seem to be drawing up 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?
Thanks, Arthur. So the first point in terms of growth, I think it's important to to talk about our growth rates in the context of, the market growth rates. So a performance of, 3.8 percent and, 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. And while, categories and end use markets like me, and snacks, are performing extremely well.
I would say I would also call out end use markets like, you know, sweet and 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 would say, I'd call out 3 areas. The whole area clean label, we're extremely well positioned.
The whole area of authentic case we're very well positioned. And the 3rd area I'd call out is natural preservation. And 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. So 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.
But in the medium term, we feel very confident. With respect to your question and consumer foods, I might just hand that over to Marbury.
Thank you, Edmund. And so, Arthur, just to take your question, while raw materials and foods were were flat to slightly deflationary, and 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. And I would say, as we look across that business, own label being more challenged in the context of that recovering.
Okay. I don't 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, it's, I mean, we look at that business in its entirety. There are things like shared asset this and all things, everything like that. And there's operating leverage across both businesses. So it's, I think if we take a step back from that business, you know, what we've decided to do is manage those businesses in a slightly different way. They're merits to be managed in a different way and that's we've done over the course of the last 12 months or so.
Thank you. And your next question comes from the line of Heidi Vesterinen from Exane BNP Paribas. Thank you. Please go ahead.
Good morning. So 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, and they were about a bit of a step down, especially towards the end of Q2. Is that a sort of trend that you see as well?
And then on North America as well, could you clarify what you saw in foodservice? I think in Q1, you had flagged that your started soft there was a little bit of a pickup. So what actually happened in Q2 and what is your outlook there? And then the other question on TNN Europe. So you talked about softness in consumer foods at the retail level.
How does that impact your UK business in TNN, please? And then last question on plant based, you talked about that as an site and growth opportunity? In which regions are you seeing this? And what does this mean in terms of margins?
Thanks, Heidi. I'm going to try and answer all these questions. The first thing maybe on North America, Roder maybe been 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, very strong for us. Consumer levels.
Consumers are seeing increased pricing and that is having an impact on demand. So Some of the softness we saw in foodservice at the beginning of the year was certainly impacted by that. Now that has picked up throughout the course of the year and through the remaining part of the second half. And I suppose the third point I'd make is the market is moving to areas that are very much in the, in the, our core competency areas. So what I mean by that is when we look at areas like clean label, when we look at areas like authentic case, the natural preservation, These are areas where we're extremely well positioned.
And I think in many respects, the market is moving, moving closer to us and closer to where we have really strong capabilities. So that's with respect to North America. With respect to the UK, In our TNN 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 is a good performance in Europe. I'd also mention that our Europe figures includes, Russian Eastern Europe as well.
So it's Europe, Russian, New York, all included together. But, we're not seeing any significant, impact on our Cat And Nutrition business, right now, driven by the concern. Last question on, PNP I would say overall, the, the scale of our plant based business is primarily being driven by North America and then by Europe. So that's really the two regions that we see can't face, really accelerating. And from a margin perspective, I would hope I would answer that question is that it very much depends on the deployment of the technology that we have into that particular sector.
So as we're deploying we'll say technologies that relate to clean label, natural preservation or authentic case, we don't see any margin difference between the deployment of those technologies into that sector, as opposed to any other are. So, if anything, we see a bigger opportunity to deploy those technologies into those types of applications, because there's various case issues, and there can be some issues around and challenges around the labeling of those products as well if our or looking for maybe sharp or cleaner labels in the 2nd generation plant based protein.
Thank you. Thank
you. And we should have questions on the phone. Next question comes from the line of praful Kenny from DB Research. Your line is open. Please go ahead.
Good morning, Marguerice, William and Edmonds. A couple of questions from my side. Just firstly, following up on the plant based question, within North American Europe, just from a channel perspective, where you see greatest opportunity. And secondly, I mean, do you have to deploy more capital organically to capitalize on that opportunity? Next question relates to the adoption of food delivery, Roche has seen that really, 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. And finally, Marguerite on working capital, we saw a significant outflow in first half, just interested in your comments, how we should think about that for H2 and in the context of breakfast?
So on plan based, Karl, I just got the second part of that question. With respect to CapEx CapEx, I think that was your question.
CapEx, correct. And then just from a channel perspective, where you see, the most significant opportunities
Okay. Sorry. So from a CapEx standpoint, we don't see any increased level of CapEx following this, I think we're very well invested and we're when we go to reach the technologies, we deal that we're well positioned from that standpoint. There might be some incremental investments 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 on the, 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. And I think it's a it's an opportunity where we feel we have the right suite of technologies to, to deploy into that channel, whether it's you know, the, the, the form that I touched on in the cheese, the cheese, mid tea earlier, or whether it's quoting for various types of proteins to ensure that the product stays fresh on delivery. So I think overall, we're well positioned. We see food delivery, I would say continuing to grow.
And I think, our business model, I think, is just 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 defined them into the other regions.
And Carl, I might just take the question on working capital. So in the context of H2, I would suggest think of H2 very similar to H1. Some of the dynamics at play in H2 2, it will be reflective of investments in Carey Connect as we commence rollouts in North America. And as you mentioned, in relation to Brex 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 bills in H1.
So overall, H2 very similar to H1 from a working capital perspective.
Thank you. Next question comes from the line of James Targett from Berenberg. Your line is open. Please go ahead.
Hello, good morning, everyone. So firstly, just on your volume growth in Taste Nutrition. I think at the start of the year, you are sort of expecting growth rates to accelerate in the second half of the year. And I was wondering if that's still the dynamic you're seeing. And then 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 some of your peers are saying that they are seeing some increased rate of volume erosion.
So I just wondered what you're seeing in your churn rates. And then just finally on Brexit, the deadlines looming. I just wonder kind of in terms of your planning, what scenario you're factoring in, both in terms of the inventory is how you're operating? And also, I guess, what kind of scenario you factor into your guidance?
Hi, James. I'll leave the Brexit question to, Marguerite, but maybe first on, the volumes Yeah. So we are going to be seeing a slight increase on overall volume growth rates in the second half. Probably a little bit more weighted towards the, 2, 4, but, certainly we do see an acceleration And probably for the full year, we've been seeing a growth rate for TNN 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.
And I might have said to you in the past that when we review our top 10 accounts and top 15 accounts today versus 4 or 5 years ago, there's new customers in those top 10, 15 accounts that didn't even exist maybe, 5, 10 years ago. And I think, while I wouldn't call out anything specific, around our term rates, I mean, 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 and product life cycles are a little bit sharper. That's just the factor of the market. I think the other point from carrier 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.
So like we've a very diverse spread of, of, of a customer base, there's very dynamic 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, can we see something happening in the market or where we can foresee something happening in the market? And 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 that we're putting into a specific project or a specific customer. And we set up a new function within our overall finance function called the commercial effectiveness to ensure that we're constantly reviewing this and allocating our resources, to the right areas they're going to give us the best of time.
So just, James, on Brexit, obviously, we've been planning various scenarios on breakfast for some time now. And specifically in the first half, you'll see the impacts of, some of the costs incurred in relation to structural changes in business in relation to risk management, around Brexit. And I guess as we think about the second half of the year, we'll see some continuation of, of Brexit costs slightly lower than the first half. We've already incurred structural investments around the system, etcetera. So slightly lower than the first half.
We will build, as I mentioned, some stated stock levels also. And this is something that we 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, from this call, but it is fair to say that, the impact of working capital and costs is, are reflected in our guidance. Clearly, if there were to be a hard Brexit, there would be an impact on consumer tensions in the UK.
And that's just something that will continue to monitor and update later in the year on.
Great. Thanks very much.
Thank you. And question comes from the line of Fahan Bieg from Credit Suisse. Your line is open. Please go ahead.
Good morning, team. Thanks for for allowing me some questions. I have 3, 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 slash peers call out a sequential softening of demand.
How do you see it? And in that context, you seem to be performing very well. Could I could we just understand whether it's significant market share gains, and in terms of penetration levels, where does carry stand versus the market? Secondly, I think you mentioned you expect a strong innovation. You expect you have a strong innovation pipeline in second half.
Are you able to discuss, what innovations you guys have planned, whether it's driven by Kari, whether it's driven by your customers, and in which categories, that would be helpful. And finally, a question on M and A, you mentioned, as part of the strategic priorities, you're always looking at new channels, new technologies, categories, etcetera. 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, Raham. I'll take those questions. So I mean, firstly, we're respect to emerging markets and specifically in China, I just actually just returned from a trip in China in the last few weeks And I think, I mean, what we've seen in that market over the last several years is it's incredibly dynamic I think with respect to how our business is performing there, I would specifically call out foodservice. I mean, we've had really strong double digit growth in our food service in, 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.
And 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 is positive, but it's very much driven by food service. And I think that's that's one of the reasons that you're seeing our performance in China. I would also call out that we've a very, very strong team there and a very well invested, facility 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 team label, natural preservation on authentic case has been 3 key areas for us where we continue to see excellent business development. And while in the past, that was probably more of a North America, and, and, and European phenomenon. And that's continuing. Again, going back to my most recent trip to China, we are certainly hearing, customers across both the food service channels and the retail channels being much more interested in talking about, those three areas of key neighborhoods, natural preservation authenticate And that there has been a significant acceleration in the level of interest, around that in recent times. With respect to M and A, I think, look, M and A has always been part of our strategy.
It's very much linked to our overall broad strategy. But that relates to, authenticate, developing markets, nutrition or food service. So any M and A that you see, Carrie participating in, or any acquisitions that we bring on board will be very much aligned doors for strategic growth priorities. And I wouldn't necessarily call out any specific gaps, but they, those 4 areas, anything that accelerates our penetration, brings new technologies, to us albeit, even it might be a small acquisition, it doesn't matter once we, once we can get our hands on a good technology, we have the case everything in house. So it goes far as there, 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 market even into different functionalities.
Thank you. And there are no further questions at this time. Please continue.
Okay. 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 revert to the Investor Relations team and we'd be glad to respond accordingly.
Thank you very much.