Good morning, ladies and gentlemen. Welcome to the presentation of Keri Group's interim management report for the half year ended 30th 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 Edmonds Gadlin, 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 Meagan, our group CFO, and Margaret 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, And this really comes to life when we talk about the clean label opportunity, and I'll get into a little bit more detail on clean label later on in the presentation. And our far food from food, Ethos, is even more relevant today than it ever has been in our history. We continue to leverage our business model, and 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 broad acquisitions, and also through the opening of a new manufacturing facility in Russia, in quarter 2. We also opened a new center of excellence for meat technology in Thailand that would support that technology for the entire Asia Pacific region. So moving on to the performance of the business. And Kari is a performance focus organization, and 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 percent 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. And we achieved 201,000,000 of free cash flow in the period, reflecting a 79% conversion rate. We've announced an interim dividend $2.1 per share, reflecting an 11.7% increase.
So now I'd like to talk to you about the H1 market overview. And 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. And our business model continues to be an important enabler in this fragmented environment.
Supply chains are being redefined due to their relentless hunger for new and nutritionally better products from consumers. And 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. And again, I'll 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. And I believe that, as Keri, we're well positioned. So moving on and before I get into the detail of each business, just let's look at total group. We achieved revenues of $3,200,000,000, just over $3,200,000,000, reflecting a 3.6% volume growth. Case and Nutrition business achieved 4.1 percent volume growth and our Consumer Foods business achieved 1.3% volume growth.
Now moving on to our global case and nutrition business. And our business, our TNN 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 percent 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. And from a technology standpoint, our clean label technologies, our natural extracts and our TASense sugar Reduction technology, continue to drive growth. The food service channel continues to grow, delivering 6.2% growth and developing markets are delivering really strong growth at 9.6%. Now looking at our business, our case nutrition business through the lens of the regions. And firstly, the Americas, at 1,300,000,000, reflecting 2.8 percent volume growth.
There is a continued high level of product churn in the market, which brings both its opportunities and challenges. To be a That time performed well, notwithstanding the issues we experienced in Brazil, which did impact growth in Q2. And then moving on to Europe, it continued to perform well with a volume growth rate of 2.7%. And the Foodservice channel delivered good growth with a number of new menu launches underpinning that growth. From a subregions standpoint within Europe, both Southern Europe and Russia, in particular, performed well.
We did not our 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 subregional standpoint, within the APMEA region, Southeast Asia had an excellent performance, put good growth in the Middle East and a strong growth performance in Sub Saharan Africa. Strategic expansion continues both from an organic an acquisition standpoint in this region, with the acquisition of CS in China and season to season in South Africa, as well as the footprint expansion in China, Indonesia and, in Malaysia also. So now moving on to our Consumer Foods business, which represents about 20 percent 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, and our Brexit mitigation plan is progressing well. In terms of categories, Richmond performed well with the successful launch of chicken sausages. But the overall meal category was negatively impacted by reduced promotional activity of retailers and the weather here in the UK.
Our snacking brands performed well with both fridge raiders and cheese strings achieving good growth. But as far as overall in relation to our Consumer Foods business, we believe the new strategic plan and the new structures that we have put in place we continue to deliver growth. And 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. So with that, I'll hand you over to Brian to bring us through the financial highlights.
Thanks, Edmond, and good morning, ladies and gentlemen. And indeed, welcome to our incoming CFO, Margaret 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. And I think it's fair to say that as Edmund has said, we've continued momentum going through 2018. And that is in the 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 and changes at supply chain level where we see new emerging routes to market. All of which represents significant opportunity for Curry 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. So to move on and look at the performance in the period. And you can see from the financial highlights that it reflects continued momentum in the business.
3.6 percent volume growth, 8.7 percent 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 impacts as well as NTIs in the period. And free cash flow coming in at a very strong 201,000,000 in the period, representing 79 percent conversion of our profit after tax into cash in the period. So to take each one of those metrics individually and starting with revenue growth and the revenue growth analysis, You can see that the 1.4% on this slide reported increase to 1,000,000,000 reflects a significant 3.6% to volume growth in the period when accounts is taken of a 6.6% transaction currency negative, 0.1% from translation was 6.6% negative, transaction 0.1% negative, price was positive 0.6%, reflecting a full recovery of the inflation in the period of one point 2% in our raw material bill and acquisitions that at disposals contributed 3.9% in the period.
Looking at that metric and volume growth on a division basis, you can see the taste and nutrition increased 4.1% volumetrically in the period against the marketplace that was growing by 1.5% And that was in excess of 2% outperformance across the three regions where we outperformed in both the Americas and Europe to a significant extent. And then in particular, in the Asia Pacific and APMEA region, where we delivered in excess of 10% growth against the marketplace that was roughly 4% up in the period. Consumer Foods in addition, at 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%. So to move on and focus on trading profits and for a moment, just to explain the currency impact on our profitability in the period, And 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 twenty seventeen versus the first half of twenty eighteen.
And 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 percent, which, stripping those impacts out The currency neutral growth in taste and nutrition comes in at 11.2% in the period, and consumer foods comes in at 3.7%. So good underlying growth despite the currency headwinds in terms of trading profit in the period. And 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 twenty basis points from each. Pricing in the period was neutral in terms of we had a full recovery of the 1.2% inflation or raw material bill through the 0.6% price increase I referenced earlier. And carry Excel and the carry Excel program continues to deliver good savings through the rollout of a 1 carry operating model in the carry connect program and 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 Keri Connect 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.
So overall, underlying growth and margin of 30 basis points, offset by the 40 basis points currency headwinds. This leaves us at 13.1 percent margin in the first half in the taste of 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. So to move on and look for a moment at the free cash flow delivery, as I said, 201000000 dollars 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 18, as I said previously, were in the top decile in terms of our peer set in terms of our working capital level.
So 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 Keri Connect program. And in relation to capital expenditure of 12,000,000 over the same period last year. And that reflects the guidance we gave for the full year of somewhere in the order of 250,000,000 to 300,000,000 on a full year 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 ratio is in pretty good order. Debt to EBITDA at 1.5 times.
Pretty good in relation to a plenty of headroom in relation to our covenants there, slightly up on last year due to the investment in acquisition in the second half of twenty seventeen into twenty eighteen and the interest cover at 14.8 times in pretty good order as well. The maturity profile of our death, 5.5 times or sorry, 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 So 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. So finally, just to cover a number of other financial matters, just to mention the fact that the pension deficit is now down. $67,000,000 to $35,000,000, at the end of June, which is a pretty good order driven by the increase in discount rates and inflation rates.
Non trading items in the period come in at 15,000,000 net attacks. 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 Keri Connect 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 2 biggest markets in Latin America. CACR 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% to 3% which will show maybe a minus 1% overall deflation on a full year basis. And then 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. And at current rates, we now see that for the full year at roughly 5% on translation and 2% on transaction. So with that, I'd be glad to take any questions.
At the end, then I'll hand you back to Edmond.
Thanks, Brian. And now just moving on to our outlook and future prospects A key team that I would like to share with you this morning is localization. And localization continues to drive innovation and capture market share. Of course, at Kari, we work right across all customer types be its global regional or local players in both the food service and retail channels. We talked about this in the past, the shift in market share from global brands to local brands, especially in the North American market.
But 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 lot more back to their partner suppliers and are expecting a lot more from suppliers looking for better solutions and more nutritious solutions to cater the market much, much faster. We believe that we have the right business model to thrive in this new environment.
And for Carrie, everything starts with the consumer. And start with consumer insights. And 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 carry compass, whether it's eat the street, which is part of a rapid fire development program, whether it's carry focus, consumer first or transpating. These tools were developed so we know what's happening at a consumer level so that we understand the trends.
And we can distill down those trends into the key insights and in working with our customers, convert these insights into growth opportunities. These insights inform and guide are 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 customer's product development lifecycle at the earliest possible point. Our local applications, marketing, and business development teams also work on globalizing our technologies and ensure that our technologies are deployed appropriately the market relevant applications. We have an unrivaled breadth of Process Technologies, which is in part element of the value that we bring to our customers.
But it's not only the process technologies that exist within our own facilities But it's also the debt and breadth and knowledge and understanding we have of our customers' processes and our supplier 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. Now moving on to clean label. And I referenced earlier, the clean label is an important underpin of our growth. Consumers everywhere are paying more attention to ingredient lists and health claims.
And with our far food from food heritage, carry leads in this space. We use our 5 hour approach to work with customers Across the Globe, with our reduced reposition, re invent, remove and replace approach, we work right across the clean label spectrum. And 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. I'd like to share with you some points from our research.
And incidentally, we will be releasing another white paper in this space in the coming weeks. But 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.
And 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 represents 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. And 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 percent rise in high or added protein products in the last 5 years, in Europe and North America. 71% of consumers view protein from plants to be healthier. I know we see that we are at the intersection of 3 megatrends.
Producting consumption is increasing, plant based protein consumption is increasing due to trends of veganism and flexitarianism and stratification is driving consumers to look for new protein alternatives. We believe we're uniquely positioned to take advantage of these three trends and Cary has been working in the space for quite some time, but our Series shred meets alternative capability. Our Pro DM TNT functional plant protein capability for BAR applications, the Oya investment that we made at the beginning of the year, and Pro DM refresh a technology developed for beverage applications. And this is just one example on the right hand side of a protein drink containing our taste Sense technology, our ProDM 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 halalz.
And, of course, tastes fantastic. Now if that's not untrained, even all that is. So Moving on to the outlook for 2018, we see continued performance ahead of our markets. With respect to our taste and nutrition business, we continue to believe that our unique business model will continue to deliver on strong innovation, And we have strong momentum going in to the second half of the year in both developed and developing markets. From a consumer food standpoint, we continue to see that our business is well positioned to deliver against the cautious consumer outlook.
We will continue to that take advantage of the growth opportunities that we see in front of us. And our business model is built for continued organic growth and further M and A investments. 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. So before I hand it over to Fluor, I'd just like to draw your attention to just two things. Firstly, this is Brian's last safe performance in his current role.
So from my perspective, I'd like to just thank Brian for his contribution to the as group CFO. For the last 20 years. And, I hope you'll indulge me in just showing some appreciation. So 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 Margaret and I would 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 on that day. Well, I believe we're only really at the start of our journey in that exciting region. So looking forward seeing you, in Singapore and October.
So now I'd like to hand it over to the floor for questions.
Good morning. I'm Jay Simone from Goodbody. A few questions, if you don't mind. And just on Thermatics previously, you've called out limited time offerings. Just wondering if there were any change in dynamics during the period on that.
And then maybe just digging in terms of the volume performance in the Americas, you called out Brazil and the impact industrial strikes. You maybe put a bit more color around that impact and whether that's ongoing in that marketplace. And then just sort of a couple of modeling questions, if you don't mind around working capital, the performance in the period, appreciate you had a tough comparative, but how should we think about that for the second half of the year? And then also on tax rate, you had quite a strong tax improvement with your effective tax rate down 60 bps again, how should we think about that for the full year performance? Thanks.
Thanks, Jason. I'll take someone then. I'm going to let you take the rest of them. Look, firstly, on the LTO point, LTOs continue to be an important factor within the food service channel. So 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 LCO is those that timing can shift between quarter to quarter. So we have some good performance in Europe, with LTOs in the period, but it can shift from quarter to quarter. But the headline here is that LTOs can used 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.
You had a 20 basis points impact at a TNN level for Q2. Brian, do you want to pick up on the
working capital question? It's in relation to working capital. I think it's fair to say that the deployment of our Keri Connect program has been quite successful over the last 6 or 7 years in terms of delivering further efficiencies in terms of our working capital levels. And 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.
But in the meantime, as we grow volumetrically, as we roll out Careconnect, there are there is the level of investment. And 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. So that is our estimate that it'll be in that order for 13.13 by 1% on a full year basis, reflecting the, tax rates and the relevant changes in tax rates in the U.
S. And in the other in which we operate. So yes, I mean, that will be our forecast for the full year at this point in time.
Hi. Millie I work with Fulvio, Goldman Sachs. Just on M and 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, Mili. I would say that our M and A pipeline is as strong as it ever has been. We spent about $120,000,000 to date in Q or in the first half. On a full year basis, we see it maybe coming in more or less at our cash flow. But having said that, we are looking at some good upper is that could come into, to 2018.
So it could end up being double that. But very much we have, we're very happy with where we are in terms of our M and A pipeline is as strong as it ever has been. And 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
We will now take our first question from Liz Cohen from Davy. Please go ahead.
And just a few questions from my side, please. And the firstly, I have the ability to just give us an update on your acquisition book and aims and maybe red arrow and how the rollout of the technology is progressing globally. Secondly, in regard to China, are you seeing any regulatory led cost pressures in China? And then thirdly, just in terms of the, of the retail channel in APMEA, how meaningful is that channel for you in that region, please. And thank you.
So firstly, in terms of, some of the most recent, more recent acquisitions, Canadian and Red Arrow, through 2 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. And we have found, even more applications for that technology as we understood and continue to understand that technology into multiple applications. So very excited about that and very happy with it. In Aden, 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 So it's a very interesting technology. It's an excellent technology, and it's also very, 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.
We're also finding other applications for that technology and 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 FBA region, Certainly, the retail channel is a very important channel for us in that market. And in terms of our split between retail and the food service channel, The I suppose our percentage of business in foodservice is pretty much the same globally on an overall basis. So the retail channel does represent the biggest proportion of our business in the Acmeo region.
Thank you. If I can just follow-up then with 2 questions, please, Edmonds. So going back to China and I suppose my question is more related to service and China. Recently, we saw a slight slowdown in some of the QSR operators that are like the Starbucks and Yum China. Is that is there anything there to be concerned about in terms of volume growth or in terms of the general outlook for food service in China?
And then secondly, and maybe it's a more a point for Brian, just on working cap So 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.
So firstly, on China, with respect the food service channel. Absolutely, the food service channel continues to grow in China. Certainly, some of the headlines we're reading in 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. And we believe we're as well positioned with the local players.
And we called out that specific strategy towards those local players at our Capital Markets Day in last October. So we 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.
And then, good morning, Liz. And 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. So we call out is more around commercial teams and the localization of product development teams relevant those local marketplaces.
So I don't see it being a significant feature from a working capital perspective, Liz.
We will now take our next question from James Charcus from Berenberg. Please go ahead.
Hi. Good morning, Ed, and good morning. Just a couple of questions for me. Firstly, on Foodservice, actually in the U. S, hearing some different things from different companies about food service growth in the second quarter.
So I just wondered how how you see the foodservice market in the U. S. In Q2? And then secondly, just on the Brexit mitigation program, any more color you give on given this, where you are on it, how long it will take, etcetera? Thank you.
So with respect to the question on, the U. S. Markets 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 change, the global U.
S.Rs, the global coffee chains, then the more local regional players. We also look at it in terms of convenience stores, and independence. So when we look at that channel, we look right across the spectrum. And we have different strategies for each of those subchannels. So from time to time, there might be a little bit of a shift in growth between one sub channel to the other.
There might be some trading up or trading down. From a carry perspective, we feel we're well positioned across all those channels and those sub channels. So 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, to consumption of food outside of home will continue to outpace in home consumption of food.
And good morning, James. In relation to your Brexit question, the Brexit mitigation program in our Consumer Foods business is progressing well. There's 3 elements to it in relation to a location of sourcing, and that's significantly evolved. And obviously, there's some uncertainty as to the tariff regime that will come out of Brexit, but from transferring to UK sourcing for UK needs and euro sourcing for euro needs. That's well progressed.
Production, location changes have been well progressed as well as support services, efficiencies have been well progressed as well. So I see that program being well complete by the end of the year.
That's great. Actually, 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?
Yes, I mean, we're obviously watching that very closely and our global sourcing team continually monitors whether it is whether related issues or tariff related issues or whatever in terms of the optimal location to source raw materials on behalf of our customers. So at this point, we don't there's some positives in terms of it'll drive prices down in some areas. And we'll see inflation in other areas, but we don't see it at this point as being a significant feature that we couldn't manage.
Okay. Thanks, Brian, and good luck in the next row.
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're talking about, you're highlighting that. And I'm just wondering what effect that is having on 3 things. 1, the churn rate within the business now?
I mean, how long is a typical product lasting on the market? Is that increasing sorry, decreasing in its length? Secondly, the stickiness of clients, I mean, are you having to win over more business or are they kind of SMEs as a loyal as maybe some of your larger global clients And also the impact on margins, are you finding it's maybe slightly more cost to service the SMEs and I 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. And this was, if I look at the apnea region, our rate of churn there is very, very low. That doesn't mean that product life cycles are long.
It just means that that constant churn out of, I suppose, that's called the center to store products, and replacing them with more, I suppose, healthier, more nutrition, nutritious product products. Isn't really a major factor in the apnea region. So our win rates are more or less the same across regions. The churn rates that we are seeing and experiencing are much higher in developed markets. So that center the store, that recycling of, of, of products out of more, into more products that are perceived to be more natural and more local, etcetera, at the expense of, I suppose, bigger brands and brands that are again, perceived to be less healthy.
So that it's the rate of churn is the big increase 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, on stickiness. I think the way we engage our customers, and at the point at which we enter the product development lifecycle, which is very, very early for the majority of our customers, especially the medium and size customers and more local customers, if anything, that increases the level of stickiness that we would see with our customer base.
I don't know, is there another pack next year? In relation to margins in, certainly, as we've said, the costs 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. But we can charge more. Obviously, we're it's a really good partnership model from a margin perspective.
And we search see it as a positive development over time.
Okay. Thank you. And, thanks for everybody's attention and hope to see you in Singapore.