Good morning, ladies and gentlemen. Welcome to the presentation of Kerry Group's interim management report for the half year ended 30th of June 2018. May I also welcome participants on our conference call. At the end of the presentation, we will firstly take questions from the floor, and then we will take questions from conference call participants. May I also ask you to note our usual disclosure notice. I now hand you over to Edmond Scanlon, Chief Executive.
Thanks, Frank. Good morning, everybody, and welcome to our 2018 H1 results presentation. I'm joined here this morning at the podium by Brian Mehigan, our Group CFO, and Marguerite Larkin, our Group CFO Designate here in the first row. Firstly, let me start off by saying that I'm very pleased with the performance and the progress that we have made as an organization in the first half of the year. I'm very pleased with the progress that we've made in terms of volume, with strong volume growth versus our markets at 3.6% versus a market growth rate of 1.3%. Delighted to say that our customers continue to respond very positively to our promise of taste and nutrition integrated solutions. This really comes to life when we talk about the clean label opportunity. I get into a little bit more detail on clean label later on in the presentation.
Our Farm to Fork ethos is even more relevant today than it ever has been in our history. We continue to leverage our business model. We continue to make progress deploying our technologies into new applications, into new categories, into new customers, and into new geographies. We've expanded our fermentation capability in the North American market, and that's to support the clean label opportunity globally. We've also expanded our manufacturing footprint through both acquisitions and also through the opening of a new manufacturing facility in Russia in quarter two. We also opened a new center of excellence for meat technology in Thailand that will support that technology for the entire Asia Pacific region. Moving on to the performance of the business, Kerry is a performance-focused organization. We look at this performance through the lens of both growth and returns.
From a growth perspective, we continue to outperform our markets with a volume growth rate of 3.6%. Group trading margin at 10.5% reflects good underlying margin expansion of 30 basis points and adjusted EPS growth on a constant currency basis of 9%. In terms of returns, our return on average capital employed of 12.4% is above our medium-term targets. We achieved EUR 201 million of free cash flow in the period, reflecting a 79% conversion rate. We've announced an interim dividend of EUR 0.21 per share, reflecting an 11.7% increase. Now I'd like to talk to you about the H1 market overview. I think it's fair to say that the world of food and beverage continues to be a very exciting place to be, with the pace of change providing tremendous opportunities.
Fragmentation continues to be an important factor. Our business model continues to be an important enabler in this fragmented environment. Supply chains are being redefined due to the relentless hunger for new and nutritionally better products from consumers, as our customers try and figure out and adapt to those challenges and opportunities. Moving on to developed markets, authenticity and healthfulness are important factors, and there's a growing trend of plant-based proteins finding their way into multiple applications. Again, I touch on this a little bit later. With regards to developing markets, although varied, we do see, generally speaking, economic conditions are positive and demand is strong. Although we do see continued currency variation. Localization and speed are very important critical success factors for these markets, I believe that as Kerry, we're well positioned.
Moving on, and before I get into the detail of each business, just let's look at the total group. We achieved revenues of EUR 3.2 billion, just over EUR 3.2 billion, reflecting a 3.6% volume growth. Our Taste & Nutrition business achieved 4.1% volume growth, and our Consumer Foods business achieved 1.3% volume growth. Moving on to our global Taste & Nutrition business, our T&N business continues to perform well and well ahead of our markets, with solid growth rate of 4.1%. Trading profit increased by 10.6% on a constant currency basis with a 13.1% trading margin, reflecting 30 basis points of margin expansion coming from a combination of operating leverage, portfolio enhancement, and efficiencies being partially offset by currencies. Raw material inflation was 0.6% for the period and was fully recovered. From an end-use market perspective, meat, beverage, and snack end-use markets continue to perform well.
From a technology standpoint, our clean label technologies, our natural extracts, and our taste and sugar reduction technology continue to drive growth. The food service channel continues to grow, delivering 6.2% growth. Developing markets are delivering really strong growth at 9.6%. Looking at our Taste & Nutrition business through the lens of the regions. Firstly, the Americas at EUR 1.3 billion, reflecting 2.8% volume growth. There is a continued high level of product churn in the market, which brings both its opportunities and challenges. The clean label opportunity continues to be a strong driver of growth in North America, across all end-use markets, and also across channels. LATAM performed well, notwithstanding the issues we experienced in Brazil, which did impact growth in Q2. Moving on to Europe, it continued to perform well with a volume growth rate of 2.7%.
The food service channel delivered good growth with a number of new menu launches underpinning that growth. From a sub-region standpoint within Europe, both Southern Europe and Russia in particular performed well, with another excellent performance in the APMEA region, with a 10.1% volume growth. Thanks to our local development application capabilities, our consumer insights, and our agility and speed to market. From a sub-region standpoint within the APMEA region, Southeast Asia had an excellent performance with good growth in the Middle East and a strong growth performance in Sub-Saharan Africa. Strategic expansion continues both from an organic and acquisition standpoint in this region with the acquisition of SIAS in China and Season to Season in South Africa, as well as the footprint expansion in China, Indonesia, and in Malaysia also. Moving on to our Consumer Foods business, which represents about 20% of group revenues.
We continue to achieve good volume growth ahead of our markets. Volume growth was led by growth in food to go and snacking. Trading profit increased by 3.7%, excluding the impacts of currency. Our Brexit mitigation plan is progressing well. In terms of categories, Richmond performed well with the successful launch of chicken sausages. The overall meals category was negatively impacted by reduced promotional activity at retailers and the weather here in the U.K. Our snacking brands performed well with both Fridge Raiders and Cheestrings achieving good growth. I suppose overall in relation to our Consumer Foods business, we believe the new strategic plan and the new structures that we have put in place will continue to deliver growth. I am happy to report that our snacking, food to go, and out-of-home strategies delivered high single-digit growth in the first half.
With that, I'll hand you over to Brian to bring us through the financial highlights.
Thanks, Edmond, and good morning, ladies and gentlemen. Indeed, welcome to our incoming CFO, Marguerite Larkin, who joins us this morning. I'm just going to take about 10 to 12 minutes to take you through the financial highlights in the first half of our year. I think it's fair to say that, as Edmond has said, we've continued momentum going through 2018, and that is in a very dynamic marketplace. Certainly dynamic from a consumer perspective with continued fragmentation, change, personalization, localization going on in the consumer end of the market, driving significant change at customer level with winners and losers and new emerging product categories and product offerings.
Changes at supply chain level where we see new emerging routes to market, all of which represent significant opportunity for Kerry as a business partner to the food industry and to the beverage industry and helping them to manage that change and the innovation required to respond to that change. To move on and look at the performance in the period. You can see from the financial highlights that it reflects continued momentum in the business. 3.6% volume growth, 8.7% increase in our trading profits on a constant currency basis. Trading margin back 10 basis points reported, but 30 basis points improvement on an underlying basis. Adjusted earnings per share up 9%, constant currency, and basic earnings per share up 0.5% when account is taken of the negative translation impact, as well as NTIs in the period.
Free cash flow coming in at a very strong EUR 201 million in the period, representing 79% conversion of our profit after tax into cash in the period. To take each one of those metrics individually, starting with revenue growth and the revenue growth analysis, you can see that the 1.4% on this slide reported increase to EUR 3.2 billion reflects a significant 3.6% volume growth in the period when account is taken of a 6.6% translation currency negative, 0.1% negative. Transaction 0.1% negative. Price was positive 0.6%, reflecting a full recovery of the inflation in the period of 1.2% in our raw material bill, acquisitions net of disposals contributed 3.9% in the period.
Looking at that metric and volume growth on a division basis, you can see that Taste & Nutrition increased 4.1% volumetrically in the period against a marketplace that was growing by 1.5%, that was in excess of 2% outperformance across the three regions where we outperformed in both the Americas and Europe to a significant extent, in particular in the Asia-Pacific and APMEA region, where we delivered in excess of 10% growth against a marketplace that was roughly 4% up in the period. Consumer Foods, in addition, had 1.3% volume increase, significantly ahead of the market in GB and Ireland, which increased by 0.5%, reflecting overall our business growth of 3.6% against the global market of 1.3%. To move on and focus on trading profit, for a moment, just to explain the currency impact on our profitability in the period.
You can see from the chart on the left-hand side of the page there that there's a significant delta between the average exchange rates in the first half of 2017 versus the first half of 2018. That delta represents itself in terms of, in the table on the right, a translation currency headwind of 8.2% and a transaction currency headwind of 1.9%. Stripping those impacts out, the currency neutral growth in Taste & Nutrition comes in at 11.2% in the period, Consumer Foods comes in at 3.7%. Good underlying growth despite the currency headwinds in terms of trading profit in the period. To move on and look at that from a margin perspective and the drivers of our margin and the underlying margin growth of 30 basis points that I referenced.
40 basis points in the period comes from operating leverage and portfolio mix, roughly 20 basis points from each. Pricing in the period was neutral in terms of we had a full recovery of the 1.2% inflation in raw material bill through the 0.6% price increase I referenced earlier. The Kerry Excel program continues to deliver good savings through the rollout of our KerryOne operating model and the Kerryconnect program. Offsetting this is our continued investment in our localization strategy, where we're putting more commercial and product development resources into market and into country to reflect the dynamism that's happening in the marketplace that I referenced at the start, as well as an additional 10 basis points investment in Kerryconnect in the period, offset by the currency headwind, of which 30 basis points represents transaction in the period and 10 basis points impact from translation.
Overall, underlying growth in margin of 30 basis points offset by the 40 basis points currency headwind. This leaves us at 13.1% margin in the first half in the Taste & Nutrition business, up 10 basis points reported, 30 basis points underlying, and Consumer Foods at 7%, down 60 basis points reported and up 10 basis points underlying. To move on and look for a moment at the free cash flow delivery. As I said, EUR 201 million, 79% conversion, decent performance in the period, delivering good cash flow. Looks a little bit down on last year when you take into account the significant delivery in 2017 in terms of average working capital, which wasn't repeated and couldn't be repeated again in 2018. As I said previously, we're in the top decile in terms of our peer set, in terms of our working capital level.
We have to invest as we grow the business volumetrically, as well as putting additional buffer stocks on the ground in Latin America to facilitate the deployment of our Kerryconnect program. And in relation to capital expenditure, up EUR 12 million over the same period last year. And that reflects the guidance we gave for the full year of somewhere in the order of EUR 250 million-EUR 300 million on a full year basis. In relation to the debt and financial ratios, return on average capital employed coming in at 12.4% in the period, ahead of our target at 12%, down slightly from the previous period, but significantly impacted by the currency translation impact. Banking ratios in pretty good order. Debt to EBITDA 1.5 times. Pretty good in relation to plenty of headroom in relation to our covenants there.
Slightly up on last year due to the investment in acquisitions in the second half of 2017 into 2018, and the interest cover at 14.8 times, in pretty good order as well. The maturity profile of our debt, 5.5 years on average in terms of the average profile of our debt. But you can see from this chart that there's no significant debt repayments due until 2023. I think it's fair to say that in terms of our ratio and our debt, our balance sheet is in pretty good order to continue with our strategic investment programs. Finally, just to cover a number of other financial matters, just to mention the fact that the pension deficit is now down EUR 67 million to EUR 35 million at the end of June, which is in pretty good order, driven by the increase in discount rates and inflation rates.
Non-Trading Items in the period come in at EUR 15 million net of tax, which reflects the successful deployment of our integration program in relation to the acquisitions, and indeed the successful deployment of our Brexit mitigation program in our Consumer Foods business as well. The Kerryconnect program continues to roll out successfully during this year in Latin America, where we've completed the rollout now in Brazil and Mexico, which are our two biggest markets in Latin America. CACAR and some of the other smaller countries will happen in the next number of months, and then we focus very much on commencing the North American rollout in 2019 in the back end of the year as we build up for that. In relation to raw material inflation, we've seen inflation, as I said, on average in the first half, but declining of 1.2%.
That should transition to deflation in the second half of roughly 2%-3%, which will show maybe a minus 1% overall deflation on a full year basis. Just finally, in relation to currency, the guidance we gave at the start of the year in terms of the translation transaction impact on our earnings per share was 7% at translation level and 2% at transaction. At current rates, we now see that for the full year at roughly 5% on translation and 2% on transaction. With that, I'd be glad to take any questions at the end, and I'll hand you back to Edmond.
Thanks, Brian. Now just moving on to our outlook and future prospects. A key theme that I would like to share with you this morning is localization. Localization continues to drive innovation and capture market share. Of course, at Kerry, we work right across all customer types, be it global, regional, or local players in both the food service and retail channels. We've talked about this in the past, the shift in market share from global brands to local brands, especially in the North American market. We do see this as being a global phenomenon, and we're sharing with you some insights across several geographies. We see smaller, more local brands growing, particularly in categories like soft drinks, prepared meals, and snacks. We see private label is also gaining market share in certain geographies, with retailers targeting category leadership across certain categories.
In this environment, these local customers are pushing a lot more back to their partner suppliers and are expecting a lot more from suppliers looking for better solutions and more nutritious solutions to take to the market much faster. We believe that we have the right business model to thrive in this new environment. For Kerry, everything starts with the consumer and starts with consumer insights. We've developed an in-house suite of digitally enabled tools to allow us to be at the forefront of these trends. Whether it's Kerry Compass, whether it's Eat the Streets, which is part of our rapid fire development program, whether it's Kerryfocus, Consumer First, or Trend Spotting.
These tools were developed so we know what's happening at a consumer level, so that we understand the trends, we can distill down those trends into the key insights, in working with our customers, convert these insights into growth opportunities. These insights inform and guide our in-market development and application scientists in the development of great tasting, consumer relevant products for our customers. This ensures that we're entering our customers' product development life cycle at the earliest possible point. Our local applications, marketing, and business development teams also work in globalizing our technologies and ensure that our technologies are deployed appropriately in a market relevant applications. We have an unrivaled breadth of process technologies, which is an important element of the value that we bring to our customers.
It's not only the process technologies that exist within our own facilities, it's also the depth and breadth and knowledge and understanding we have of our customers' processes and our suppliers' process technologies. This capability is particularly invaluable to small and medium-sized customers as we see more and more of them wanting to take their brands into adjacent categories. Moving on to clean label. I referenced earlier that clean label is an important underpin of our growth. Consumers everywhere are paying more attention to ingredient lists and health claims. With our farm food heritage, Kerry leads in this space. We use our 5R approach to work with customers across the globe. With our reduce, reposition, reinvent, remove, and replace approach, we work right across the clean label spectrum.
Our ability to develop integrated solutions combining both taste and nutrition means that we can provide clean label solutions without compromising on taste. We've done a lot of research into clean label, and I'd like to share with you some points from our research. Incidentally, we will be releasing another white paper in this space in the coming weeks. Some points, the clean label movement is a global movement, and clean label has positive relevance globally. However, has different manifestations depending on the sub-region or region that you might be in. The willingness to pay for clean label is also rising. In addition to consumers' positive opinion of clean label, over 70% of consumers believe that clean label helps them to live a healthier lifestyle.
Globally, clean label products represent 36% of new product launches, and this is even a higher percentage, more than 50%, in the U.S. market. As I said earlier, it's important that we stay ahead of the trends. While meat consumption continues to grow, there's also a growing demand for plant-based protein across multiple categories and across multiple channels. Our research shows that there's been a 267% rise in high or added protein products in the last five years in Europe and North America. 71% of consumers view protein from plants to be healthier. Now we see that we're at the intersection of three mega trends. Protein consumption is increasing, plant-based protein consumption is increasing due to trends of veganism and flexitarianism, and snackification is driving consumers to look for new protein alternatives.
We believe we're uniquely positioned to take advantage of these three trends, Kerry has been working in the space for quite some time. With our series shred meat alternative capability, our ProDiem TNT functional plant protein capability for bar applications, the Ojah investment that we made at the beginning of the year, and ProDiem Refresh, a technology developed for beverage applications. This is just one example on the right-hand side of a protein drink containing our TasteSense technology, our ProDiem Refresh, and natural citrus flavors. We work with a customer to deliver a protein drink that's vegan, allergen-free, soy-free, non-GMO, clean label, dairy-free, collagen-free, gluten-free, kosher, and halal, and of course, tastes fantastic. If that's not on trend, I don't know what is. Moving on to the outlook for 2018. We see continued performance ahead of our markets.
With respect to our Taste & Nutrition business, we continue to believe that our unique business model will continue to deliver on strong innovation, and we have strong momentum going into the second half of the year in both developed and developing markets. From a Consumer Foods standpoint, we continue to see that our business is well-positioned to deliver against the cautious consumer outlook. We will continue to invest for the fragmented marketplace and to take advantage of the growth opportunities that we see in front of us. Our business model is built for continued organic growth and further M&A investment. We've updated our guidance for the full year and now expect to deliver an adjusted EPS growth of between 7% to 10% on a constant currency basis. Before I hand over the floor , I'd just like to draw your attention to just two things.
Firstly, this is Brian's last set of performance in his current role. From my perspective, I'd like to just thank Brian for his contribution as Group CFO for the last 20 years, and I hope you'll indulge me in just showing some appreciation. After embarrassing Brian, the second thing I'd like to draw your attention to is that we're hosting an investor day in Singapore on October 25th, and Marguerite and I would like to invite you to that event in Singapore. Singapore is our HQ for our APMEA region. It's a region I'm particularly excited about. It's a region that we've achieved tremendous growth to date. But I'd like to share with you on that day why I believe we're only really at the start of our journey in that exciting region. Looking forward to seeing you in Singapore in October.
Now I'd like to hand it over to Flor for questions
Morning. Jason Molins from Goodbody. A few questions, if you don't mind. Just on thematics, previously you've called out limited time offerings. Just wondering if there were any change in dynamics during the period on that. Maybe just digging in in terms of the volume performance in the Americas, you called out Brazil and the impact industrial strikes. Can you maybe put a bit more color around that impact and whether that's ongoing in that marketplace? Just sort of a couple of modeling questions, if you don't mind, around working capital, the performance in the period to pre-say you had a tough comparative, but how should we think about that for the second half of the year? Also on tax rate, you had quite a strong tax improvement with your effective tax rate down 60 basis points.
Again, how should we think about that for the full-year performance? Thanks.
Thanks, Jason. I'll take some of them. Brian, I'll let you take the rest of them. Look, firstly, on the LTO point, LTOs continue to be an important factor within the foodservice channel. It's still very much part of our strategy to deliver on LTOs for our customer base. They rely on us to help them with LTOs. The nature of LTOs, though, is that timing can shift between quarter to quarter. We had some good performance in Europe with LTOs in the period, but it can shift from quarter to quarter. The headline here is that LTOs continues to be an important part of our strategy, and we're well positioned to deliver against that. In terms of the effect of the Brazil logistics issues and strikes and what have you, it had a 20 basis points impact at a T&N level for Q2.
Brian, do you want to pick up on the working capital question?
Yeah. In relation to working capital, I think it's fair to say that the deployment of our Kerryconnect program has been quite successful over the last six or seven years in terms of delivering further efficiencies in terms of our working capital levels. As I said in the presentation, we believe that we're in the top 10% in terms of working capital efficiency in our industry. However, there is more to go. In the meantime, as we grow volumetrically and as we roll out Kerryconnect, there is a level of investment. Indeed, in 2018, I'd expect the second half to be similar to the first half. In relation to the tax rate, at this point in the year, it's just an estimate on what it will be for the full year.
That is our estimate that it'll be in that order, 13.1% on a full-year basis, reflecting the tax rates and the relevant changes in tax rates in the U.S. and the other jurisdictions in which we operate. Yeah, that would be our forecast for the full year at this point in time.
Hi. Milly, I work with Fulvio at Goldman Sachs. Just on M&A, can you give any more color around how you're thinking about that going through the rest of the year, particularly 1H versus 2H? Thanks.
Thanks, Milly. I would say that our M&A pipeline is as strong as it ever has been. We've spent about EUR 120 million to date in the first half. On a full year basis, we see it maybe coming in more or less at our cash flow. Having said that, we are looking at some good opportunities that could come into 2018. It could end up being double that. We're very happy with where we are in terms of our M&A pipeline. It's as strong as it ever has been. It's just a matter of timing of when those acquisitions get done.
We now hand over to the operator to take questions from conference call participants.
Please press star one to ask a question over the telephone. We will now take our first question from Liz Coen from Davy. Please go ahead.
Good morning. Just a few questions from my side, please. Firstly, I suppose if you could just give us an update on your acquisition, Ganeden and maybe Red Arrow and how the rollout of the technologies is progressing globally. Secondly, in regard to China, are you seeing any regulatory-led cost pressures in China? Thirdly, just in terms of the retail channel in APMEA, how meaningful is that channel for you in that region, please, and thank you.
Firstly, in terms of some of the more recent acquisitions, Ganeden and Red Arrow, two tremendous technologies that we acquired over the last couple of years. I would say with respect to Red Arrow, we've made a tremendous amount of progress in terms of globalizing that technology, in terms of integrating it into other parts of the organization, combining and layering other technologies that we had within our organization To deliver both from a taste standpoint and a nutrition standpoint. We have found even more applications for that technology as we understood and continue to understand that technology into multiple applications. Very excited about that and very happy with it. Ganeden, I will say it's still early days, and we're still, I suppose, learning about that technology. The business is performing extremely well.
This product is a go-to product for a lot of the functional beverage, the smaller functional beverage players in North America. It's a very interesting technology. It's an excellent technology, and it's also very good entry point for us into the smaller beverage manufacturers, but not only beverage manufacturers in the North America market. We are starting to globalize that technology, and that work will also continue for the foreseeable future. That work continues, is ongoing. With respect to China, I suppose it's a region that I'm reasonably familiar with. Our business continues to perform well. It's not performing as well as Southeast Asia at this moment in time, but the regulatory environment, as you mentioned, continues to evolve there.
We see that potentially bringing more opportunities rather than challenges to us at this point in time, but we'll continue to monitor the situation. With respect to the total APMEA region, certainly the retail channel is a very important channel for us, in that market. In terms of our split between retail and the food service channel, I suppose our percentage of business in food service is pretty much the same globally on an overall basis. The retail channel does represent the biggest proportion of our business in the APMEA region.
Thank you. If I can just follow up then with two questions please, Edmond. Going back to China and I suppose then, just my question is more relating to food service in China. Recently we saw a slight slowdown in some of the QSR operators, so the likes of Starbucks and Yum China. Is there anything there to be concerned about in terms of volume growth or just in terms of the general outlook for food service in China? Then secondly, and maybe it's more a point for Brian, just on working capital. I know you've already answered a question on it, but in terms of your localization strategy, does that have any material impact on working capital? Thank you.
Firstly on China, with respect to the food service channel, absolutely the food service channel continues to grow in China. Certainly some of the headlines we're reading on this side of the world might suggest something a little bit different, but on the ground, the food service channel is extremely buoyant. We see local players getting stronger and stronger in that market, we believe we're as well-positioned with the local players, we called out that specific strategy towards those local players at our capital markets day in last October. Again, whether it's the global players, the regionals or the local, we feel very well positioned, and we feel confident about where we're going from a food service channel standpoint in the China market.
Then, good morning, Liz.
Good morning.
In relation to the working capital in relation to our localization investments, I don't see it having a big impact on working capital. We're manufacturing today in 30 countries around the world. We're generally manufacturing locally. The significant investment we called out is more around commercial teams and the localization of product development teams relevant to those local marketplaces. I don't see it being a significant feature from a working capital perspective, Liz.
Okay. Thanks, Brian. That's very clear. Thanks, both.
We will now take our next question from James Targett for Berenberg. Please go ahead.
Hi, good morning, Edmond. Good morning, Brian. Just a couple of questions from me. Firstly, on food service actually in the U.S. Hearing some different things from different companies about food service growth in the second quarter. I just wondered how you see the food service market in the U.S. in Q2. Secondly, just on the Brexit mitigation program, any more color you can give on this, where you are on it, how long it will take, et cetera. Thank you.
With respect to the question on the U.S. market with respect to food service, the way we look at the food service channel globally and in the U.S. market is we look at it through the lens of the global chains, the global QSRs, the global coffee chains, then the more local regional players. We also look at it in terms of convenience stores and independents. When we look at that channel, we look right across the spectrum, and we have different strategies for each of those sub-channels. From time to time, there might be a little bit of a shift in growth between one sub-channel to the other, and there might be some trading up or trading down. From a Kerry perspective, we feel we're well positioned across all those channels and those sub-channels. It's not something that we would call out as a concern.
If anything, with the employment rate as it is in the U.S. market, we feel that overall consumption of food outside the home will continue to outpace in-home consumption of food.
Good morning, James. In relation to your Brexit question, the Brexit mitigation program in our Consumer Foods business is progressing well. There's three elements to it in relation to location of sourcing, and that's significantly evolved. Obviously there's some uncertainty as to the tariff regime that will come out of Brexit. From transferring to U.K. sourcing for U.K. needs and EUR sourcing for EUR needs, that's well progressed. Production location changes have been well progressed as well as support services efficiencies have been well progressed as well. I see that program being well complete by the end of the year.
That's great. As you mentioned tariffs, are you seeing any potential impact from what's going on in the U.S. at the moment in terms of tariffs?
Yeah. We're obviously watching that very closely. Our global sourcing team continually monitors whether it is weather related issues or tariff related issues or whatever, in terms of the optimal location to source raw materials on behalf of our customers. At this point, there's some positives in terms of it'll drive prices down in some areas, and we'll see inflation in other areas. We don't see it, at this point, as being a significant feature that we couldn't manage.
Okay. Thanks, Brian. Good luck in the next role.
Thanks, James.
As a reminder, please press star one to ask a question. We will now take our next question from Ian Hunter from Investec. Please go ahead.
Good morning, Edmond. Good morning, Brian. Maybe just a quick question on localization that you were talking about, you were highlighting that. I'm just wondering what effect that is having on three things. One, the churn rate within the business now. How long is a typical product lasting on the market? Is that decreasing in its length? Secondly, the stickiness of clients. Are you having to win over more business or are the kind of SMEs as loyal as maybe some of your larger global clients? Also the impact on margins. Are you finding it's maybe slightly more cost to service the SMEs and that could see some pressure on margins going forward?
Okay. I'll pick up that. I would say when we think about churn, I suppose the way we look at it is through a regional lens. I suppose if I look at the APMEA region, our rate of churn there is very low. That doesn't mean that product life cycles are long. It just means that that constant churn out of, I suppose, let's call the center of the store products, and replacing them with more, I suppose, healthier, more nutritious products isn't really a major factor in the APMEA region. Our win rates are more or less the same across regions. The churn rates that we're seeing and experiencing are much higher in developed markets.
That center of the store, that recycling of products into more products that are perceived to be more natural and more local, et cetera, at the expense of, I suppose, bigger brands and brands are, again, perceived to be less healthy. The rate of churn is the big difference across the region. The win rate is more or less the same. With respect to stickiness, we haven't seen any big shift in terms of stickiness. I think the way we engage our customers, and at the point at which we enter the product development life cycle, which is very early for the majority of our customers, especially the medium and sized customers and more local customers. I don't know, was there another part to that question?
In relation to margins, Ian, certainly, as we've said, the cost to serve of the smaller, more medium-sized customers is higher, and we do more for them in terms of their product development and insights and the whole partnering and helping them with their manufacturing and supply chain challenges. We can charge more. Obviously, it's a really good partnership model from a margin perspective. We certainly see it as a positive development over time.