Good morning, everybody. My name is Catherine Keogh, and you're very welcome to the results presentation for Kerry Group for the year end of 31st of December 2018. Welcome too, to those who are joining via conference call and those tuning in via webinar. A couple of housekeeping notes. If you would, obviously, turn off your cell phones, and please note the usual disclaimer. What we're going to do is we're going to go through the presentation. Afterwards, I'll open it up to the floor for questions, and then afterwards to the conference call. With that, I will hand over to our Chief Executive, Edmond Scanlon.
Thank you, Catherine. Good morning, everyone, welcome to our 2018 earnings presentation. I'm joined here this morning by Marguerite Larkin, our Group CFO. I'm pleased to report that 2018 was another year of consistent performance for the organization in light of what is a rapidly changing marketplace. We continue to outperform our markets with volume growth of 3.5%, which is well ahead of our market growth rates at 1%. We made good progress in the enhancement of our Taste & Nutrition technology portfolio, like the further development of our TasteSense innovation platform, the continued deployment of our plant protein portfolio, and the development of our Clean Smoke technology, which is now delivering additional functionalities of both preservation and color.
I'm excited about the strategic investments that we made throughout the year to support our medium-term strategies, the investment in our first manufacturing facility in Russia, our footprint expansions in Indonesia, China, and Malaysia, and a major expansion of our fermentation capacity for natural preservation and food protection technologies in Rochester, Minnesota. We also had a very busy year on M&A, completing or announcing acquisitions with a total enterprise value of EUR 843 million. I'll touch on this a little bit later on in the presentation. The investments that we're making in our local capabilities are positioning us well as a holistic partner for our customers, looking to meet consumer demands much, much faster. Our success in 2018 and our confidence for the future is very much driven by Kerry's unique differentiators.
Our Taste & Nutrition business model, our unrivaled product technologies, our process technology capabilities, and our locally led, globally connected execution architecture. Now moving on to our high-level financial performance. Overall, we're pleased with our performance in 2018 from both a growth and a returns perspective. Firstly, we delivered volume growth well ahead of our markets. From a margin perspective, with good underlying margin progression, bear in mind the 30 basis points impact of currencies in the year. On earnings, we grew adjusted EPS by 8.6% in a constant currency basis. From a returns perspective, we delivered a return on average capital employed in line with our target, a free cash flow of EUR 447 million, which represents 72% cash conversion in the period, another year of dividends growing at double digits.
Looking at the overall marketplace overview in 2018, we look at this marketplace firstly in general and then highlight a few points on both developed and developing markets. The food and beverage industry and the end-to-end supply chain are experiencing unprecedented disruption, and the need for more and more Taste & Nutrition innovation increases. We continue to see supply chain and traditional business models being redefined. I'll come back to this a little bit later on in the future prospects. Speed of innovation is increasingly key to success, with smaller brands and private label continuing to gain market share. Moving on to developed markets, economic conditions were relatively robust, and we saw a continued evolution of authentic, clean label, food for well-being, and plant-based protein innovations, with premiumization and demand for new taste experiences being key drivers.
In developing markets, economic conditions were varied, but overall stable. Localization of new taste is driving innovation, but value for money still remains very much core to the overall proposition. Growth of home delivery and digital shows no signs of slowing down and continue to grow at a pace. Moving on and looking at revenue and margin at an overall group level. The group's overall business volumes grew by 3.5%, and with revenues totaling now just over EUR 6.6 billion. Taste & Nutrition delivered 4.1% volume growth with 20 basis points margin expansion, while the Consumer Foods business increased volumes by 1.1% and margins were backed by 60 basis points as a result of transaction currency headwinds. Move on and look at each of the businesses in a little bit more detail, starting firstly with the Taste & Nutrition business.
We saw volume growth of 4.1% for the year. This is reflective of 4.1% also in the quarter, which is very solid performance when you consider the strong comparatives from this prior year. We've given you a breakdown here on the right-hand side of the page of our overall volume growth by end-use market, reflecting our new commercial structures. We had a very good volume growth in meat, beverage, and snack end-use markets. Our pharma business also had very strong growth, achieving 9% volume growth in the year, while the cereal and sweet business continued to be challenging as traditional consumption occasions continued to decline. Our authentic taste and clean label portfolios are very important underpinnings of each of the end-use markets, but particularly in the case of snack and meat.
We achieved strong growth of 9.5% in developing markets, with the developing markets of APMEA and Europe achieving strong double-digit growth, and LATAM was at the mid-single-digit growth levels. Food service also performed well, with 5.8% volume growth, with a good growth in Europe against strong comparables from the prior year. In relation to margins, we continue to deliver good margin expansion, with portfolio enhancement playing a key role, with a greater depth of technology being deployed into new launches and into our solutions across the year. Moving on and looking at our performance across our three regions. What's particularly pleasing when you look at the volume growth by region is the broad-based market outperformance we achieved in the year.
The Americas, which represents 52% of the business, in revenue terms grew at 2.8%. In North America, we delivered good growth in meat, beverage, and snack end-use markets. In the North American market, we still see high levels of product churn as consumers' demand for clean label, new taste experiences, and new convenience formats continue to evolve at a pace in both the retail and food service channels. In Europe, we achieved good growth across beverage, meat, and dairy end-use markets, with Southern Europe and Russia delivering particularly strong growth. It was another very strong year in APMEA, where the Kerry business model continued to be successfully deployed with the selective rollout of our foundational technology portfolio to meet the rapidly evolving consumer needs in that region.
Southeast Asia delivered excellent growth. There was good performance also in China and Sub-Saharan Africa, with good progress also made in the Middle East. We continue to invest right across the region in the localized business development and in in-country marketing, as well as continuing to expand our manufacturing capacity to support our broad strategies and ambitions like I outlined earlier. Now moving on to the Consumer Foods business. It has been a year of strong underlying performance against the backdrop of a very challenging market landscape. We grew volumes by 1.1% overall, with excellent growth across our Food to Go and snacking ranges, which delivered high single-digit growth. With our core Everyday Fresh delivered strong growth, aided by the successful launch of Richmond chicken sausages during the year, while Convenience Meal Solutions had a difficult year, with category volumes being impacted by reduced promotional activity.
Within Food to Go and snacking, Cheestrings delivered really strong growth. We successfully relaunched Fridge Raiders to cover a broader range of snacking products. With that, now I'll hand you over to Marguerite, who will bring us through the financial details further.
Thanks, Edmond. Good morning, everybody. Over the next 15 minutes or so, I'll spend a little bit of time going through our financial performance in a bit more detail. Overall, 2018 has been a very good year of continued solid financial performance. Revenue at EUR 6.6 billion, trading profit EUR 806 million, and adjusted EPS at EUR 3.534 per share. Before I go into the detail on the financial performance, I just want to take a few moments to set the performance in the context of the rapidly changing environment and some of the key dynamics that are at play in our marketplace. Many of these will continue to provide economic uncertainty as a backdrop into 2019. Firstly, to our revenue growth, as Edmond mentioned, significant change in the environment, rapidly evolving customer preferences.
We continue to deliver strong volume growth of 3.5% in the current year, well ahead of our markets that are growing at circa 1%. We continue to manage input cost volatility effectively with our customer partnership pricing model. We have been managing through a very uncertain geopolitical and economic environment, particularly in the U.K., where uncertainty in relation to Brexit continues impacting consumer confidence, as we mentioned in November, and we see this continuing through 2019. Against this backdrop, we very deliberately invest our capital in the medium to long term in our strategic growth priority areas. Just turning to the financial highlights.
As I said, revenues of EUR 6.6 billion in the year, trading profits of EUR 806 million, which represents growth of 7% on a constant currency basis. We maintained margins across the year with good underlying margin expansion when you take into account a currency impact of 30 basis points. We grew adjusted earnings per share by 8.6% before the translation currency impact at EPS level of 5%. Basic EPS was down 8.3%, which reflects the effect of the one-off U.S. tax reforms deferred tax credit of EUR 52 million that we spoke to you about in 2017. We generated good cash flow of EUR 447 million, which represents 72% cash conversion and is reflective of investments. Just taking a moment to look at our revenue growth in a little more detail.
Our reported revenue grew by 3.1% in the year. In fact, 6.5% on a constant currency basis, taking into account a translation currency impact of 3.4%. Volumes grew by 3.5% with lower pricing of 0.5%, reflective of our customer partnership pricing model and deflationary raw material costs of circa 1% in the year. With acquisitions contributing 3.6%, including our U.S. acquisitions and our APMEA acquisitions. To take a moment to look at our revenue growth in the context of the markets. A strong outperformance, as you will see in the current year, revenues grew by volume growth of 3.5% versus market growth of circa 1% on the left-hand side of this chart. You will see a strong outperformance of market growth rates in excess of 2% over the last three years.
You will see the breakdown of the volume growth by business on the right-hand side. Strong growth, in particular from our Taste & Nutrition business, which delivered growth of 4.1% against a market that grew at circa 1.3%, with fourth quarter growth coming in at 4.1%. Very good performance, bearing in mind the strong comparatives in the prior year. Our Consumer Foods volumes grew with an overall volume growth in the year of 1.1%. A solid market outperformance, taking into consideration that in the half year, the market was back by circa 1% and overall back by 0.3% in the year. Turning to margins.
Group trading margin maintained at 12.2% on a reported basis, with good underlying growth, taking into account the effects of currency impact of 30 basis points at a group level, 10 basis points impact in Taste & Nutrition, and Consumer Foods being impacted by 70 basis points on transaction exposure. Looking at the right-hand side, you will see the steady margin expansion in our Taste & Nutrition business, a good performance over the last number of years and in line with our expectations, where we now have a trading margin of 15.1% in Taste & Nutrition, which equates to EBITDA margin of 17.2%. Taking a moment to look at the constituent parts of our group trading margin and bridging 2017 to 2018.
As I mentioned, excluding currency headwinds, we delivered very good underlying margin growth of 30 basis points in the year, driven mainly by operating leverage and portfolio enhancement. Good underlying performance as we continue to benefit from operating leverage additional volumes through our business with a similar overhead and fixed cost structure. A good performance in terms of portfolio mix enhancement as we extend greater depth of technology into new products as we continue to gain from the increasing churn and fragmentation in the marketplace. On our Kerry Excel Program, continuing to deliver efficiencies, generating manufacturing and supply chain savings offset by continued investment in local in-country business development and marketing, responding to the consumer preference for localization and increased investment, as we mentioned previously, with the continued rollout of Kerry Connect. In 2018, we completed the rollout of the LATAM deployment.
As I mentioned, currency cost us 30 basis points from a margin perspective, 20 basis points on transaction, and 10 on translation in the period, maintaining good overall underlying growth of 30 basis points. Now turning to free cash flow. Another good year of cash conversion. We generated free cash flow of EUR 447 million and cash conversion of 72%. I'll comment on a number of the key movements contributing to our cash flow. The investment in working capital has increased, as we indicated, reflective of an increase in business volumes, additional investments supporting the continued rollout of Kerry Connect in the current year in LATAM, and due to the integration and timing of acquisitions. Capital expenditure is similar to the prior years at EUR 285 million, which equates to approximately 4.3% of our revenues. We expect capital expenditure to be circa 4.5%-5% of revenues in 2019.
All in all, a good cash conversion of 72% for 2018. Moving to financial ratios and our debt profile. Overall, our return on capital employed is in line with targets, slightly back year-on-year as signaled due to the timing of investments made in the year and foreign currency movements. Our debt is at EUR 1.6 billion, giving us 1.7 times net debt to EBITDA ratio, and we've interest cover of 14.7 times, well within our banking covenants. Our debt profile is in good shape. No significant debt repayments until 2022. Debt profile from an aging perspective, 4.8 years. All in all, a very strong balance sheet. Finally, before I finish, I would just like to cover a couple of other financial matters. Firstly, finance costs, broadly similar to last year at EUR 67 million.
Pension deficit is down to EUR 44 million from EUR 102 million in the prior year due to our de-risked program and movements on discount rates. Taking a moment on non-trading items, two parts to the charge in the current year being acquisition, integration, and our Brexit currency mitigation program that we've spoken to you in the past on. Firstly on acquisitions, we invested circa EUR 33 million on the integration of acquisitions. Integration is well progressed and primarily relates to acquisitions completed in 2017. As I mentioned, we incurred a cost of EUR 15 million on the Brexit currency mitigation program, and you'll recollect that this was predominantly in relation to addressing manufacturing and sourcing between Ireland, the Irish markets into the U.K. markets. We've made good progress reducing our sterling-euro transaction exposure from 4% of group revenues to circa 2% of the group revenues as we planned.
As we look into the current year in the context of the significant uncertainty surrounding Brexit, while we do have mitigation plans in place to limit the potential exposure, and indeed have committed and incurred costs in the current year in relation to contingency plans, we currently anticipate that a managed transition will be the most likely outcome of the negotiation, notwithstanding the current uncertainty which will impact consumer confidence, as we've mentioned. Just moving for a moment on the remaining items on this slide, Kerry Connect, as I've mentioned, LATAM completed, and we've commenced building the program for the North America deployment, which is our most significant region and completion of the deployment program. Raw materials were deflationary in 2018, as I mentioned. As we look to 2019, we do see low input cost inflation at this point of the year.
Finally on currency, we've spoken about the translation currency headwinds in 2018, circa 5% at an EPS level. At this point, as we consider 2019, we estimate a translation currency tailwind north of 2% on EPS for 2019. I'll just wrap up the financial performance update before I hand back to Edmond. Overall, as I said, a very good year of continued solid financial performance as our business model continues to deliver in the rapidly changing and evolving market. Good revenue volume growth of 3.5%, well ahead of market growth of 1%. Strong underlying margin performance of 30 basis points, good cash conversion, and growth in our adjusted earnings per share of 8.6% on a constant currency basis. With that, I'll hand back to Edmond now to update more broadly on future prospects and outlook for 2019.
Thanks, Marguerite. Moving on to future prospects, I can say at the very outset that we operate in a phenomenal sector, so dynamic and so fast-paced. For us at Kerry, like we've said before, everything starts with the consumer. One of the biggest changes we're seeing is that consumers are continuously looking for food, not just for nourishment, but for how it supports their overall well-being. Whether that's reduction in salt and sugar and calories, an increase in protein intake, or improvements in the digestive health. All this is playing out in front of us across channels and categories right now. We call this food for life and well-being, and it can mean different things depending on what life stage you're at. Global innovation, new product launches are reflecting these changing consumer preferences across the different life stages.
On the right-hand side here of the page, we see that immunity and digestive health offerings have grown 14% and 8%, respectively, over the last two years, with plant-based offerings growing at 42% over the same time period. The breadth and depth of Kerry's capabilities position us really well as the innovation partner of choice in these specific areas. However, what is key to note is that while nutritional requirements and demands have elevated, it cannot be at the expense of taste. Now moving on to the next slide, and I'm going to spend a few minutes taking you through this page. This slide is important in that it covers the changes happening due to the relentless acceleration in consumer demands, which is impacting the entire supply chain in a profound way.
Although not everything here is completely new, it has been evolving over recent years, and the changes are becoming more and more pronounced. If you just stand back for a minute, take a look at this. It does give you an insight into what we have done, what we are doing, and what we will do out into the future, always ensuring that our business model is fit for purpose and fit for future. Now I'm going to touch just on a few points and highlights. Looking first through the lens of the consumer here on the left-hand side of the page. In addition to food for life and well-being that I just touched on, another major trend is made for me.
This is about consumers wanting individualization, tailored experiences, and we're seeing smaller brands and niche brands to the fore in this market as they seek to cater for this. Now moving on to the center section, let's consider how the customer landscape is being transformed as a result of these consumer dynamics. First and foremost, with the accelerating fragmentation, we're seeing increasingly shorter product development life cycles as consumers continuously want to try new things. Also, our customers are responding to consumer demand for great-tasting nutrition, but authentic products that combine elevated nutrition demands with more sophisticated taste preferences. Trust is absolutely paramount. Brands must be seen as ethical, as consumers seek socially responsible offerings that not only use clean and natural ingredients, but are also from companies that follow sustainable practices. How's all this now reshaping the industry?
Here I'll talk about these changes under the headings of organization agility, innovation, supply chain, and manufacturing. Today, organization agility is more critical than ever. Agility when it comes to integrated solutions, agility to tailor the business model to service different types of customers, be it global giants or virtual startups, and agility when it comes to mindset, having that culture of responsiveness and openness to changes in the environment. Now on to innovation. The accelerating pace of change is causing the industry to move towards more efficient integrated innovation processes. For us, this journey started 10 years ago with the establishment and rollout of our global technology innovation centers. This concept of integrated innovation was game changing industry. Since then, we've built out our global network to deliver on that promise of locally led, globally connected innovation across all our regions.
Moving on to supply chain. We know that supply chain models are being redefined. With greater collaboration across the supply chain, creating more potential opportunities to generate value for our customers and their consumers. For some time now, we've been working proactively with customers and suppliers with this holistic mindset to ensure that we focus on sustainable value creation for customers and consumers. What's been key to delivering this value is our understanding of the end-to-end supply chain, combined with our unique business model and our cross-functional customer engagement. Let's look at manufacturing and how these marketplace dynamics will fundamentally change how our industry will have to respond to best serve consumer needs of the future. Fragmentation demands a wider range of solutions through a multi-technology manufacturing network. This has to be strategically balanced with the end-to-end supply chain requirements of tomorrow's consumer.
It's not just about being able to produce a number of different technologies at one location, but also having the ability to produce a range of integrated solutions using complex process combinations in strategic locations. We at Kerry have been working on developing an integrated manufacturing network which will provide the manufacturing platform with process technology agility to meet those ever-evolving consumer needs. I will say that this has some parallels with the global technology innovation architecture that we put in place to enable that integrated innovation. We're also looking to bring a new level of automation and digitally enabled manufacturing processes to our plants that will further differentiate Kerry within the industry. This approach is key to Kerry's quest to be the fastest, most agile integrated solution provider in the industry, and this is an opportunity, I believe, to build in another level of differentiation for Kerry.
In summary, we have invested and we're continuously investing in building out our organization architecture to best serve the needs of our customers as they strive to meet the needs of their consumers. Moving on to our unique Taste & Nutrition positioning. It's clear that consumers are looking for different combinations of Taste & Nutrition depending on their specific life stage, and that our industry has to respond with products that meet their elevated nutrition demands and their increasingly sophisticated taste preferences. Elevated nutrition with no compromise on taste is exactly where we play.
Our Far Food, Farm Food ethos with our natural sourcing, authentic culinary processes, and our innovation platforms of TasteSense, Authentic Savoury, and Simply Nature, along with our sensory and consumer insights, are all integrated with our positive nutrition approach, creating products that are backed by scientific expertise, the Kerry Health and Nutrition Institute, white papers, our global research network, and various industry webinars, all designed to guide our customers and our industry. This Taste & Nutrition approach is underpinned by our Five Arc clean label strategy that I talked about in the past and enabled by our Taste & Nutrition discovery centers. This is very exciting for us at Kerry, as the intersection of Taste & Nutrition is growing and continues to present us with tremendous opportunities for the future.
When it comes to our Consumer Foods division, we'll be aligning for growth against the backdrop of the fundamental changes in the marketplace that I referenced earlier. For us, this is about building on the strategy we outlined at our capital markets day in October 2017. That strategy is about growing and outperforming in our core while investing and expanding our snacking, Food to Go, and out-of-home businesses. Acceleration of consumer and industry changes are having an impact right across the supply chain. Nowhere is that more evident than in the U.K. market. The pace of change of U.K. consumer preferences and the uncertainty that's come with Brexit are fundamentally changing the U.K. consumer and channel landscape. These changes in consumer and channel are transforming the customer marketplace.
With the retailer environment continuing to undergo major structural changes, with increased consolidation, with discounters broadening their offerings to include premium ranges, retailers examining their entire supplier base right across the board. What does all this mean for our Consumer Foods business? We're committed to our strategy. We have an excellent core with leading branded positions. Certain elements, namely in the private label space, need to be fundamentally repositioned in the short term to win in the longer term. We're committed to the U.K. consumer, we're committed to U.K. market for the long term. To optimize the core of our businesses, we'll be taking a number of actions that will be about simplifying our structures around the core and streamlining the footprint we have to service that core.
This program will incur restructuring costs of EUR 25 million-EUR 30 million in 2019. We're confident that this investment in realigning the business will reposition our Consumer Foods business and provide the agility we need to sustainably outperform the market in the medium term and well into the future. Moving on to M&A, when it comes to M&A activity, we have continued, we will continue to invest. I've mentioned some of the noteworthy organic investments in 2018 at the beginning of the presentation. These will continue throughout the course of 2019. Additionally, we'll continue to invest in acquisitions. Acquisitions aligned to our overall strategic priorities for expanding our technology portfolio, customer and channel access, and our geographic reach. In 2018, we've outlined here 10 of our acquisitions that we've completed or announced with a total consideration of EUR 843 million.
I'm delighted to say that our acquisition pipeline is healthy as we look into 2019. A couple of highlights from this page are the announcements of Fleischmann's and Ariake, leaders in their respective areas. The acquisitions of which will further enhance our group's foundational technology portfolio as well as strengthen our food service positioning in line with our strategic growth priorities. We're excited about the potential to further develop these technologies to deliver new functional capabilities, bring them into new applications, and where appropriate, take them into new geographies. As previously guided, the cost of integration of these acquisitions will be in the region of 5%-6%. All these acquisitions further enhance Kerry's extensive authentic taste and clean label portfolios, while complementing the group's far food, farm food heritage. Finally, looking specifically to our outlook for 2019, we expect continued performance ahead of our markets.
In the Taste & Nutrition business, we see good growth prospects in both developed and developing markets as we continue to partner with our customers, leveraging our unique business model, our unrivaled technologies, our processing capabilities, regardless of channel, category, or market. We've got really strong innovation pipeline, and we'll continue to evolve our unique business model aligned to the ever-changing market landscape. With respect to our foods business, bearing in mind the consumer environment we're witnessing in the U.K., we'll be building on our strategy of realigning the core and investing in adjacencies to outperform the market, while still of course navigating the uncertain environment. We'll continue to scale our business model through organic growth and M&A investment opportunities aligned to our strategic growth priorities. For 2019, we expect to deliver adjusted EPS growth of 6%-10% on a constant currency basis.
With that, I leave it, and I hand it back to the floor for Q&A.
Thank you, Edmond. Thank you, Marguerite. Does anybody have any questions for Edmond or for Marguerite? Maybe you just identify yourself and ask the question.
Fulvio Cazzol from Goldman Sachs. Thank you for taking my questions. The first one's for Edmond regarding the investments to expand into multi-technology sites and increase automation. How should we think about that longer term for Kerry? Is it to maintain, let's say, Kerry ahead of the curve, given that maybe some of your competitors may be catching up or even copying your model? Or is it to open up the gap further to your competitors, which may ultimately result in greater outperformance of market growth rates? My other question is a more technical one, a minor point, but I noticed that software amortization expenditure has come down in the second half. I think it was around EUR 14.9 million in the first half, and the EUR 25 for the full year implies only EUR 10 million. It's the first time we've seen it actually sequentially slow.
Could we maybe get an insight on how that's expected to trend going forward? Thank you.
Thanks, Fulvio. I leave the second part of the question to Marguerite, but maybe taking the first question first, Fulvio. I would say that we're not really concerned or hugely concerned about what our competitors are doing and what our peers are doing. Let that aside for a moment. I think it's important that standing in Kerry, we think about what's happening to consumer first. That very much drives what's happening at a customer level, and then ultimately how Kerry responds and tries to get ahead of the curve. That's really what we're thinking about here. We know that there's further complexity coming into the supply chain. Those supply chains are being, I would say, redefined, I would say, in an extreme way.
An example that I might give is we're looking at various processes by which we can deliver products to our customers, either in a dry format, in a liquid format, in a frozen format, or in a chilled format, all delivering the same functionality, depending on the particular supply chain dynamics that impact that customer. That's all we're thinking about it. I suppose it's work that we have been doing as we've been building out some of our newer facilities, and it's work that we're going to be continuing to do into the future. This is about future-proofing our business, making sure that our business model is always fit for future. That's really how we're thinking about it at this stage.
Fulvio, just to take your question on the software amortization. There's no particular call-out in terms of timing. It's in relation to the aging of the software amortization. I would say as we look forward into 2019, you could expect a similar level of amortization as we build capital expenditure out in the coming year.
Any other questions?
Hi there. James Targett from Berenberg. A few questions. Firstly, on the guidance, it's 6%-10%. I know you normally give a fairly wide range, but trying to understand what are the factors to get you to the bottom to the top end. I expect the U.K. generally is one of them, maybe timing of any future M&A, but maybe some other factors you think would make that difference between the 6% and 10%. Then on margins, in Taste & Nutrition in particular, I think you said the expansion over the last couple of years has been in line with expectations, which is 20 basis points. Your 2022 guidance, 40 basis points. I appreciate that's an average, but that does imply a very big acceleration going forward. Do you still feel happy with that 40 bips average?
Finally, maybe on the Consumer Foods portfolio. You mentioned a couple of times the growth of plant-based and how important it is, you mentioned trends for millennials and Generation Z. If you look at your portfolio, it's very much dairy based and meat based. I was wondering how you think that enables you to compete going forward. Thank you.
James, that could be a record for number of questions. Thanks. Maybe I'll take the last one first, James, actually, because it's quite topical. It's actually an area that we are looking at, and when we talk about our meat capability, we talk about in the context of non-meat meat alternatives and alternative proteins. That's how we think about that business, actually. We are very much in the process of, I would say, early phases of launching a significant, I suppose, drive forward into the whole meat-free area. Still early days, but we've committed the capital and we'll see how that plays out over the next several quarters. Certainly an area that we see our Consumer Foods business participating in. Very much supported by our technology capability that we have within our Taste & Nutrition business.
We feel that's a good approach, and we feel that the technology that we have and that we are going to be deploying into those products will be very much best in class, both from a taste perspective and a functionality perspective. We're focusing on the flexitarian consumer that likes the taste and texture of meat while looking to cut down their overall meat intake. That's on the Consumer Foods one and plant-based alternatives that we're looking at there. In terms of margins, I would say that the medium-term targets that we set out at our capital markets day in October 2017, we feel confident about them, confident about our position with respect to T&N margins going forward, and we feel confident that we're going to hit those margins over the lifetime of the medium term targets.
In terms of the guidance, the 6%-10%, I suppose the major call-out that we would say is the U.K. consumer. Obviously, there's a lot of uncertainty at the moment with respect to Brexit, we saw a slowdown coming into quarter four in the U.K. I guess that when we look at some of the issues maybe being talked about around Brexit, ultimately what we're most concerned about is the impact on demand from the U.K. consumer. If there's other tariffs and things like that, we'll work through those things. It's really the demand that we're most concerned about. Obviously, that has the biggest impact on our Consumer Foods business. Ultimately, it will have an impact on our U.K. sales and our Taste & Nutrition business as well. Again, very much dependent on what's happening at the U.K. consumer level.
Any other questions? Okay. Okay.
One more question.
Sorry, it's Lara from JP Morgan. Could you just give an update on the Tesco contract loss, sort of the impact on 2019, 2020, and sort of what you've done to mitigate those lost volumes, essentially? Thank you.
Thanks, Lara. Yeah, like we mentioned before, we talked about the convenience meal contract in Q3. One of the mitigating factors that we just talked about there in terms of our plant-based protein push, that's one of the mitigating factors. It does take a little bit of time to offset that sort of a scale of a contract. We see it very much as a Q3, Q4 impact on our business for 2019. What we said at the Q3 was that it would have about a 3%-3.5% impact on revenue at a Consumer Foods level. Again, we'll see that towards the back end of the year with a minimal impact on margins. Yes, there's a lot of work going on to mitigate that, but it's going to take a little bit of time.
One of the directions of travel is the plant-based business that we just touched on earlier.
Thank you. I think I can hand it over now to the conference call participants for questions.
Thank you. Your first question comes from the line of Heidi Vesterinen from Exane BNP Paribas. Your line is open.
Hi. A couple of questions, please. Could you explain what drove the strong growth in the pharma business, please? Do you think that's sustainable? In the cereal and sweets area, we've seen a decline for some time. Do you find any solutions? Can you think of ways to rejuvenate that business, or do you think it's just a structurally difficult category? Last question on Red Arrow. You had talked about that technology being deployed across some new applications. How much further do you think you can take that technology going forward? Thank you.
Thanks, Heidi. I would say our performance in pharma, albeit it's an end-use market we don't talk a huge amount about, has been quite consistent over recent years. We're well positioned both from an excipient standpoint and a Cell Nutrition standpoint to work with the top players both in branded and generic pharma. Yeah, it's reflective of pretty consistent growth over the last couple of years, and we expect that level of growth to continue. Moving on to your question, Heidi, on cereal and sweet. Yes, we've definitely called this out in the past. It's been a challenging end-use market for us. What we are seeing is that our customers that are in that space are out there. They're redefining themselves.
They're out there trying to position themselves as snack companies, we're very much well placed in supporting them to move and shift their focus more towards snacking, more towards, I would say, alternative ways of delivering nourishment to their consumers. We're very much assisting them as they change and try to evolve more towards snacking. In terms of Red Arrow, I mentioned our Clean Smoke technology. I mentioned the fact that we're taking that product and that technology into other application areas like preservation and also color. I would say there's further room there to take that technology. We're looking at several applications of this technology by combining it with the Fleischmann's technology that we just acquired, combining it with our fermented ingredient capability and our natural preservation food protection technologies.
While it mightn't be smoke on its own, we're certainly going to be looking at it in combination with other technologies and maybe moving things forward into different directions or different applications beyond maybe meat and bakery as it relates to food protection.
Thank you.
Thank you. Your next question comes from the line of Jason Molins from Goodbody.
Hi, good morning. A few questions from me, if you don't mind. Just on Taste Nutrition and the food service channel, I guess it looks like a small slowdown in the second half from the, I think it was just over 6%, 6.2% that you achieved in H1. Appreciate you had a difficult prior year comp, but just wondering if there was anything specific to call out on that. Then just with the streamlining of the Consumer Foods division, obviously the Tesco contract that you alluded to there, but maybe you can just expand a bit more on what you mean in terms of the options around the level of restructuring you're thinking about, particularly where the, I think, EUR 25 million you've highlighted. Is that all cash or is there an element of non-cash with that number?
Just finally, if you don't mind, just on M&A, appreciate you've been quite active in 2018 with a couple of deals closing in the first half of this year, just how we should think about your M&A pipeline for 2019. Thank you.
Thanks, Jason. Firstly, on the food service channel, I would say that, coming into Q4, it was very strong comparables, particularly in Europe. We see the food service channel being particularly robust. We'd specifically call out the APMEA region. I'd call out specifically China, actually, where the food service channel is particularly strong. I would ask you just to bear in mind, when we talk about food service, we talk about it across a number of levels. We look at it through the lens of global QSRs, global coffee chains, local and independent restaurants, convenience stores, the health channel, and contract caterers. We look at it across a very broad spectrum. Just bear that in mind.
Yeah.
We have different strategies for each one of the sub channels within the overall food service channel. Overall, we see continued robust growth in that channel out into the future. With respect to the Consumer Foods restructuring, we're looking there primarily at two things. Firstly, restructuring our business through private label and branded. That's a fundamental restructure on people. The second thing is looking at optimizing our overall manufacturing footprint. Moving on to the M&A pipeline, as you mentioned, Jason, very strong activity in 2018 and some announcements just at the end of 2018 that are coming into 2019. Clearly, there's a lot of activity going on in integrating those acquisitions right now.
We integrate these acquisitions fully, as you know, and I continue to believe, that it's a core competency within Kerry to be able to integrate these acquisitions, unlock I would say more upside and more opportunities out of those acquisitions over time. There's no change in our outlook and our view of our acquisitions. We're going to be continuing as we are. Again, the pipeline looks strong and healthy going into 2019.
Great. Thanks.
Thank you. Your next question comes from the line of Liz Cohen from Gávea.
Good morning. Thank you for taking my questions. Just two questions from me, please. Firstly, on LATAM. We note that Danone this morning called out a more optimistic outlook for LATAM, specifically Mexico and Brazil. Can you please provide us with an update on the region going into 2019? Secondly, we note that Ganeden and Wellmune continue to perform well, grow well, and you are continuing your geographic roll-out with a number of new launches in wider applications. If you could just give us a bit more color on that and where you see the growth in 2019, please and thank you.
Thanks, Liz. Firstly, in LATAM, I guess we always start out the year very optimistic about the LATAM geography. Obviously it is a market where there has been a fair bit of churn from a political standpoint, et cetera. We have a particularly strong team in LATAM. I personally spent quite some time down there over the last year, 18 months. A very strong team, very local team. Well-positioned in Mexico, Brazil, and [Cancar]. Also pushing business forward in the Andean region and the Southern Cone. We have achieved about mid-single digit growth in the course of 2018, and we expect that to be more or less the same going into 2019. We have a lot of capability there. We are established there a long time. Strong team. We have made a couple of small acquisitions there, and that was more about expanding our footprint into different geographies.
We'll continue to do that. I would be positive on LATAM and would see it performing more or less in line with 2018. In terms of Ganeden and Wellmune, and I would say maybe particularly Ganeden, for those of you that were at our Investor Day in Singapore, you saw that we've taken Ganeden into so many different applications. I've been blown away in terms of the robustness of that technology in terms of the end applications. Just as a reminder, it's a probiotic technology that's incredibly robust. It can withstand heating, cooling, freezing, and that allows us to take that technology beyond where we typically see probiotics. We typically see probiotics in the dairy cabinet, in the refrigerated cabinet. This is a product we can take into so many applications, from various types of beverages into chips and snacks.
It's something that we're really excited about. That business was very much a U.S.-focused business when we acquired it, we've also taken into various geographies all over the world. Very excited about it. As we continue to invest in developing that technology and take it into various applications, we're really pleasantly surprised about how robust the technology is, we're getting very positive feedback from customers.
Thanks, Edmond.
Thank you. We have no further questions on the telephone lines if you wish to continue.
Thank you very much for those who've joined via conference call. With that, unless there are any other questions here, One more question.
It's a quick one. Just on free cash flow, the outlook for this year. You've mentioned working capital investment in 2018, which I think was probably the main reason it was down year-over-year. Just how should we think about free cash flow generation for 2019?
For 2019, broadly similar levels to 2018 in terms of cash conversion.
Do you expect any difference in terms of working capital requirements?
On working capital, similar levels given the rollout of Kerry Connect into North America. Obviously that assumes an orderly exit in relation to the current conversations with the U.K. We will build and have built some stock into the working capital in response to Brexit.
Okay. Thank you very much. I think with that, we'll close it out. Thank you, Edmond, thank you, Marguerite, and thank you all for joining.