Kerry Group plc

Good morning and welcome to Kerry Group's 2023 half-year results call. I'm joined on the call by our CEO, Edmund Scanlon, and our CFO, Marguerite Larkin. Edmund and Marguerite will take you through today's presentation, and following this, we will then open the lines up for your questions. Before we begin, please note the usual disclaimer regarding forward-looking statements. I will now pass over to Edmund.

Thanks, William, and good morning, everyone. As ever, we appreciate you joining our call and your interest in our company. So beginning with slide four and my overview comments for half one. We're pleased to deliver a good overall performance in the first half of the year, considering the varying conditions across our markets. Firstly, on volumes, we saw an incremental improvement in volume growth in the second quarter, which is significant considering the record comparisons we achieved last year. and the pricing we've seen across our industry. Our volumes in the first half were driven by strong performances in APMEA and Europe, led by food service, with the retail channel in North America reflecting customer inventory management. And while these dynamics have continued beyond Q2, we're currently seeing a lot of innovation activity, which is why we expect our volumes to continue their upward trajectory. On margins, we saw a significant improvement in the second quarter. We had benefits from cost initiatives and portfolio developments coming through in the first half. And with the inflationary environment beginning to moderate and showing deflation in places, we feel good about the cadence of our margin improvements through the rest of the year. From a strategic perspective, we made good progress across the business in the first half. I would particularly like to call out the expansion of our presence in emerging markets through a combination of organic and inorganic investments. We opened a new taste facility in Indonesia and also made acquisitions in Colombia and China, which I'll give a little bit more detail on later on. And as previously announced, we completed the disposal of our sweet ingredients portfolio as we enhance and refine our portfolio to areas where we can add the most value. Moving next to our taste and nutrition overview on slide five, where growth was driven by a strong performance in food service. Revenue for the division increased to $3.5 billion in the first half of the year, which reflected 6.8% organic growth. Volumes are up 1.4%, with overall pricing of 5.4% as we continue to manage input cost fluctuations. EBITDA margins were back 20 basis points in the half, with Q2 up 40 basis points. From an end-use market perspective, volume growth was led by a strong performance in dairy applications, in snacks through savory taste, and in meat in taste and texture systems. Looking at our channels, as mentioned, food service delivered another strong performance with volumes up high single digit, while volumes in the retail channel were back in H1 due to customer inventory management in North America. And in emerging markets, we had 6% overall volume growth led by a strong performance in the Middle East in particular. Turning to slide six and taste and nutrition's performance by region, Firstly, the Americas, where revenues increased slightly to $1.9 billion, with overall volumes back 2.2% driven by the dynamics I mentioned, primarily in the retail channel. And also not forgetting our strong volume comparative of over 9% in H1 last year. We achieved good volume growth in snacks in the first half, with authentic taste-led innovations with global leaders and emerging brands. The area EUMs also performed well with functional and case system innovations. That time delivered solid overall growth in the first half. We did undertake extensive maintenance work at a major facility in Mexico, which reduced operational capacity across the second quarter. And this facility is now back up and running again in the last few weeks. Looking across the broader region, growth was led by strong performances in the snacks and beverage end-use markets. Moving to Europe, where reported revenue increased to €771 million, with volume growth of 4.6%. This was supported by excellent volumes in food service through menu enhancement activities, seasonal products, and ongoing nutritional profile improvements. Growth was led by the dairy, snacks, and meat end-use markets, with strong performances in the UK and Ireland in particular. In AFMEA, reported revenue increased to 813 million euro, with volume growth of 7.1%. And this was led by meat, meals, and snack markets, and very strong growth in food service. Within the region, growth was strong in the Middle East and South Asia Pacific, with overall performance in China improving through the half. Moving to slide seven in Dairy Ireland, where performance reflected overall market conditions. Revenue in the first half decreased to 675 million euro as a result of H1 volumes being back 2.5%. Pricing in the first half was 0.4%, reflective of dairy markets. EBITDA was lower at 29 million, with EBITDA margins also reducing as a result of the significant reduction in dairy market sales prices. Within the division, the lower volumes in dairy ingredients principally reflected softer market supply, while dairy consumer products performed well, with volume growth led by Kerry's branded cheese ranges and private label spreads. With that, I'll pass you over to Marguerite to give you some more detail on the financial performance.

Thank you, Edmund, and good morning, everyone. Turning now to slide nine and the financial overview for the first half of the year. Group revenue increased to 4.1 billion euro, with group volumes up 0.6%. Group EBITDA of 518 million was in line with last year, while EBITDA margins were back 20 basis points. Adjusted earnings per share of 180 cents was up 2%, Return on capital employed for H1 was 10.1%, with growth being offset by portfolio developments and foreign exchange. And free cash flow was 232 million, representing 73% cash conversion. Turning next to our group revenue bridge on slide 10. Group reported revenue was up 1.6% in the first six months of the year. This comprised a volume increase of 0.6% and pricing of 4.5%, as we managed year-on-year input cost inflation through our pricing model. Foreign currency translation was relatively neutral in the first half, while the effect of disposals net of acquisitions was adverse 3.4%, with a contribution from acquisitions of 1.1%, more than offset by the impact from divestments of 4.5%, primarily relating to the recent disposal of the sweet ingredients portfolio and our businesses in Russia and Belarus last year. Moving to slide 11 and our revenue analysis by division. On the left-hand side, you can see the breakdown of revenue with group organic and volume growth driven by the performance of taste and nutrition. On the right-hand side, you can see the regional analysis of taste and nutrition's 1.4% volume growth in the first half. This breakdown of overall volume growth highlights the varied dynamics across our markets, with very good performances in Europe and Daphnia in the first half of 2023, partially offset by the Americas. Our overall growth in the period was achieved against an exceptionally strong comparative performance across all our regions in the prior year.

Turning now to our group margin bridge on slide 12.

Group EBITDA 518 million in the first half was in line with last year, with overall margins back 20 basis points and up in the second quarter, as Edmund referenced. Looking at the key moving parts, Firstly, operating leverage and mix were neutral from a margin perspective, given the volume dynamics in the first half of the year. As anticipated, pricing was net dilutive in H1, driven principally by the mathematical impact of recovering the absolute increase in raw material input costs through pricing. Our expectation is this effect will be significantly lower in the full year, given the current outlook for input costs. We were pleased to see that cost efficiencies contributed 30 basis points to EBITDA margin in the first half, driven by benefits from our Accelerate Operational Excellence program. Foreign currency was net neutral from a margin perspective. Acquisitions and disposals contributed a net 20 basis points, primarily resulting from the disposal of our sweet ingredients portfolio. And for the full year, we are currently expecting to deliver overall margin expansion. Moving next to free cash flow on slide 13. We generated free cash flow of $232 million in the first half of the year, which was up on last year with average cash conversion on earnings of 73% and higher on a point-to-point basis. The main drivers of free cash flow were as follows. EBITDA of $518 million, as I mentioned. We had a lower average working capital year-on-year investment of $61 million, and this investment was reflective of revenue growth partially offset by benefits from the ongoing management, managed reduction of inventory, and capital expenditure of $106 million was higher, reflecting the timing and commissioning of capital projects. For 2023, we are on track to deliver improved year-on-year cash conversion of above 80%. Turning to our debt profile and credit metrics on slide 14, net debt at the end of June was $1.8 billion, As you can see, the profile of our debt is good with a weighted average maturity of 5.3 years. Our credit metrics are strong with a net debt to EBITDA ratio of 1.6 times. And we have a very strong balance sheet which will continue to support the further development of our business. Finally, to cover off a number of other financial matters on slide 15. Finance costs of 27.5 million were lower primarily due to higher cash deposits and interest income. Non-trading items was an overall net credit of $65 million, primarily relating to a net profit on disposals and costs relating to our Accelerate Operational Excellence program. On the input costs in taste and nutrition, we had double digits year-on-year inflation in the first half, and in Dairy Ireland, input costs went from inflation in Q1 to deflation in Q2. In taste and nutrition, we currently expect modest deflation in input costs in the second half, while remaining overall inflationary in the full year. In dairy, Ireland, we expect continued deflation in the second half. And on currency, based on prevailing exchange rates, we are forecasting a translation headwind of circa 4% on adjusted earnings per share in the full year. To summarize on financial performance, we are pleased to deliver a good financial performance in the first half, especially given the market backdrop. We continued to deliver volume growth with good EBITDA margin progression in the second quarter, and we are on track to deliver our cash flow commitments for the full year. And with that, I'll pass you back to Edmund.

Thanks, Marguerite. Before I move to the outlook, I just want to update you on some of our recent strategic developments, in particular across our emerging markets footprints. So if you turn to slide 17, you can see our strong track record of growth in emerging markets, including 9% average volume growth across the past five years, which we're pleased with considering the macro challenges over this timeframe. We have a leading presence in emerging markets with 2.2 billion of revenue, 40 manufacturing facilities, 35 R&D centers, and 9,000 colleagues spread across over 20 countries. Key to our success in emerging markets has been our localized strategy. Focus on supporting customers to innovate and operate in market to meet dynamic and evolving local consumer needs. Aligned to this strategy, we have significantly developed our presence, our local presence and capabilities in these markets through a combination of organic footprint expansion and acquisitive development. We've highlighted here in the slide our developments over the past couple of years, which you can see were well spread across Latin America and Africa with a good balance of newly built manufacturing facilities and acquisitions. I'm going to spend a moment in the three most recent developments on slide 18. Firstly, in May, we completed the acquisition of Proxcar, which produces clean label functional proteins and strengthens our capabilities and leading position within the Latin American meat market. The business is located in Colombia with 120 employees and provides a platform for further strategic growth within the Andean region. In June, we opened our new state-of-the-art authentic taste facility in Karawang in Indonesia. And this expands our local footprint and applications capability in the important Indonesian market, while also supporting customers in key end-use markets across Southeast Asia. And we have just announced the acquisition of Great Tang, which further builds on our leading authentic taste position in China and strongly complements or Jinning Nature business. The business is located in Shanghai and is the leading producer of authentic and innovative taste solutions for local food service chains as well as the meals and snacks markets. This acquisition will strengthen our capability and positioning as an innovation partner for local and international customers in China. These three strategic developments are strongly aligned to our specific local strategies in each of these markets. Our performance in emerging markets will continue to play an important role in the group's overall growth and development. And these recent investments will support our growth aspirations in these markets. So finally, before we move to Q&A, I'd like to close out with our full year outlook. While market conditions remain uncertain, we remain strongly positioned for growth with a good innovation pipeline and expect to achieve case nutrition volume growth in the 2% to 3% zone for the full year. We will continue to manage through the current input cost environment in collaboration with our customers. We will continue to invest capital and develop our portfolio aligned to our strategic priorities. And today, we are reiterating our constant currency earnings guidance of 1% to 5% growth, which reflects an expected net dilution of 2% from portfolio development. But with that, I'll hand you back to the operator, and we look forward to taking your questions.

Thank you. At this time, I would like to remind everyone, in order to ask a question, please press the star followed by the number 1 on your telephone keypad.

Our first question comes from the line of Charles Eden from UPS.

Your line is now open.

Hi, good morning. Thanks for taking my questions. Two for me, please. Firstly, Edmund, you mentioned the inventory management in the retail channel in North America. Could you comment on whether you expect to continue to see this being a headwind in Q3, or if you've seen any signs of improvement since the end of Q2? And then, Second question, cash conversion remains strong in the first half at 73%, so broadly in line with the first half of last year at 72%. Marguerite, does this give you confidence that 2023 will once again be a year of free cash flow conversion above 80% as it was last year? I think you did hint at this in the prepared remarks, but I wanted to confirm that I heard that correctly. Thank you.

Thanks, Charles. So I'll kick us off. I would say with respect to customer inventory management activities, I think it's fair to say in the North American market, there's a lot of different dynamics. We have seen customers reducing inventory levels. We've seen shrinkflation as a factor across the market as well. But we've also seen a significant level of churn. which brings with it the opportunity for us to win market share in the churn. And we really targeted, I would say, that churn that has probably increased over the course of the last few years, with a notable increase certainly in the last six months, and we've targeted that churn for new wins. I would say specifically on destocking, It varies by customer. For us, it has been centrally or primarily centered around the retail channel in North America, more limited in the food service space. It's hard to get a clear read on where we are exactly in the cycle, but for sure, we have seen a number of customers that have effectively finished their inventory reduction activities, and we're basing that on the level of engagement we have with customers. We do expect a continued easing of those destocking dynamics as we move through Q3.

And Charles, just on your cash conversion question, yes, our cash conversion of 73% at the first half It's very much in line with our expectations, 77% on a point-to-point basis. It does reflect the usual seasonality at this time of year, but no change to our outlook for the full year. We're pleased with the progress we're making, and we expect to deliver cash conversion above the 22 levels of 82%. on an average working capital basis.

Thank you, Greg. Thank you. Our next question comes from the line of Alex Sloan from Barclays.

Please go ahead with your question.

Yeah, hi. Thanks, all. Good morning. Two questions from me. The first one just on the full year. expectations unchanged at the EPS level if we could sort of zone in on taste and nutrition can you talk to you talked about you know continued improving volumes in the second half can you maybe frame that in terms of where you see a full year volume growth for taste and nutrition in light of destocking and high pricing and clearly given those factors you know I guess it's likely that volume is going to be lower this year than the medium term guide of four to six. Is there any reason at this point why you wouldn't be able to get back onto the algorithm in 2024? That's the first one. Second one, just on China in taste and nutrition clearly improving through the first half. We've heard some mixed messages on this front from customers and peers in terms of performance in China. How has performance been in Q2 relative to your expectations? and maybe what's the expectation in H2 for China, and specifically on the Great Tang acquisition. You talked about some conditions to pay more for the acquisition if those are met over the next three years. Could you shed a bit more light on what those conditions are based on and maybe how Great Tang has been growing and how you expect that to grow going forward? Thanks.

Hi, Alex. I'll take those questions. Firstly, on EPS and how we're thinking about it and the guidance, on taste and nutrition, we're planning for volume growth in that 2% to 3% zone. with slightly better margin expansion than maybe we would have initially expected. I think then as we look into 2024, I think it's important for us to say that we do have a strong innovation pipeline that will lead to a, I would say, momentum going into the second half of 2023 that we do expect to continue into 2024. So while it's too early to talk about, you know, 2024 in any meaningful way, we do, as we sit here today, we do feel good about volume growth as we look out into 2024, you know, back in that 4% to 6% range. And I would say that margin looking into 2024 as we sit here today looks positive as well. So look, obviously we'll be giving a better read on that as we move through the year and get closer to the end of the year. Then on China, I would say overall we're pleased with the performance that we're seeing in China. We have had a good progression in volume over the last couple of quarters. We do expect to see another step up in growth over the coming months. We continue to be excited about the opportunity in China. You saw the acquisition of Great Tang. It's effectively a doubling down of our already strong positioning position. in the local Chinese authentic savory taste base. Great Tang has its primary focus in the local food service market, but it is perfectly complimentary to our ginning nature business, which we acquired in 2020, which had more of a retail focus. And now we can bring the same level of authentic local taste to both channels, both the retail channel and the food service channel, by leveraging the capabilities of both businesses. We also see the opportunity going forward over time to layer in our salt reduction technology into those areas as well. And we have mentioned in the past that, let's say, expectation management as it relates to M&A has been a factor over the last year or so. So we have, let's say, in the last two transactions that you've seen us make, there has been an error note element with you know, let's say significant, I would say stretchy, let's say, earn-out metrics. And that's been, let's say, the tactic to kind of, let's say, bridge the gap between, you know, between, let's say, expectations. So we're happy with the structure of those deals with, I would say, a significant portion of earn-out based on stretchy targets.

Thanks very much, Edmund. Thank you.

The next question comes from the line of Jason Mullins from Goodpity. Please go ahead with your question.

Hi, and good morning. Edmund, you mentioned there in terms of North America that you were seeing a bit of churn in business in that market. Is that mainly in the retail channel or in food service is my first question. And then in terms of China and the improved performance that you've seen, where's the business now compared to sort of pre-COVID levels and where do you see it and how long will it take to get back to, I guess, that normal run rate that you've seen in previous years? And then final question really is around the margin performance in taste and nutrition. You called out efficiency plans that are progressing well and obviously have helped drive some of that margin benefit. Can you maybe just elaborate a bit more on what that actually is and what you're driving through the business there? Thank you.

So, Jason, firstly, on the churn in North America, I would say we're seeing it more in the retail channel. We would call out, let's say, beverage as an area, snacking as an area where we've seen significant churn. And when I talk about that churn, it's getting back to 2019 levels actually. And that has kind of, let's say, evolved over the course of the last six months. So the level of churn over the last few years was less, and now what we're seeing for the first six months of 2023 is more akin to 2019. And it's an area that we really target to win market share and really target with our innovation and proactive engagement with customers. So I guess while retail has been, let's say, softer in North America, at the same time, we're seeing quite a number of, let's say, new launches into the market. We do have a strong pipeline there, and we do expect to be back in growth in the retail channel in North America, or at least in positive territory by the end of the year. Then in China, as you're well aware, it's been a... you know, pretty dynamic environment over the last number of years. I think it'll be, you know, let's say probably out into 2024 before we get back to, let's say a kind of a more normalized kind of a China scenario. Food service has been performing very well for us in China. Let's say a more kind of, I would call it more Western, let's say orientated food service business has been performing quite well for us in China. And now with the acquisition of Great Tang, we have more of an exposure to the more local food service chains, which we think is going to give us a good balance in terms of how we look at our overall business in China. So as we look out to the coming years and the medium term, we would continue to be pretty optimistic about, let's say, the medium term and long term. It is a huge market. We're still, we believe, under-penetrated in that market. We see a lot of upside over time. We have invested... significantly over the years, both from an organic investment standpoint and an inorganic investment standpoint. We feel we're well positioned both in retail and in food service. We believe we have a particular strength as it relates to savory taste, an authentic savory taste. And I think with the combination of Great Tang on top of what we already have, we'd be looking out fairly optimistically into the future and getting to a more normalized probably performance in China maybe in 2024.

And then the margins, we had good improvements in margins in the second quarter driven by mainly, as I mentioned, from benefits from the cost initiatives and also portfolio developments. In terms of the cost initiatives specifically, we expect margin expansion of circa 30 basis points from the program this year, and that's slightly ahead of our expectations from a timing perspective. The benefits of the cost initiatives are coming through our Accelerate Operational Excellence program. It's progressing very well, and it's delivering on operational efficiencies in two main areas that I would call out. Firstly, manufacturing excellence through our plant transformation program, and secondly, supply chain excellence focused mainly on warehousing and logistics.

Thank you very much. Thank you.

Our next question comes from the line of Fulvio Cazor from Berenberg. Please go ahead with your question.

Yes, good morning, and thank you for taking my questions. So I just wanted to sort of ask one on the Americas. Just given that we've seen that deceleration in Q2, just wondering if you can somehow quantify what the destocking impact was because it sounds like with all of the churn opportunities and the strong performance in food servers, your growth will be well above the 4% to 6% targeted range if it wasn't for the destock. So I just wanted to understand if you can quantify what the drag from destocking was. And then my second one is on Europe, where we actually saw an acceleration in Q2, So just wondering if you can say a few words on the sustainability of that growth rate, because that's certainly doing a little bit better than what we would have expected over the medium term. So again, if you can just comment a little bit on what's driving that, please. Thank you.

Hi, Fulvio. So firstly on North America, I think it's key to note that while volumes in the Americas are lower in Q2 versus Q1. On an underlying basis, there's actually been very good progress between the quarters given the year and year comparatives. And as I said in the prepared remarks in H1 2022, we had 9% volume growth in the Americas. And that customer inventory management has been a significant feature in the retail channel. It has eased in the first half as we've moved through the first half, and it will continue to ease here as we progress through Q3. Shrinkflation has also been a feature and has become a feature over the last 12 months. And the last point I would just touch on in the Americas is that while we did have a solid performance in LATAM, We did have significant maintenance work which restricted our capacity in Mexico in Q2. And this could have had a low single-digit impact on sales in that time in the quarter. And that won't be a feature in Q3 and beyond. And then switching to Europe, The strong performance in Europe was due to a very strong food service channel growth, primarily driven by new launches in, you know, for new summer launches for beverage and, you know, the subsequent or related, you know, stocking build up in the supply chain in advance of the summer. and the retail channel then was similar to last year. I suppose, like we said back in April, we expected Europe to be more muted in the second half of the year, and we're not calling out any change in that outlook.

Thank you for that. Thank you. Our next question comes from the line of Lauren Molyneux from Citi.

Please go ahead with your question.

Hi, good morning, Edmund and Marguerite. Thank you for taking the questions. Just a couple. I was wondering if you could elaborate on the food service panel and just kind of what you're seeing there, any color on the frequency of purchase or the amount of purchases or kind of the basket size in that channel. And then after quite a strong Q1, sorry, H1 with high single-digit growth, what's your kind of best guess for volumes or how to think about volumes in H2 in that channel. And then secondly, just, I'm sorry if I missed this, but I was wondering whether you reconfirmed that kind of 3% growth, volume growth for the TNN level for the full year, whether you're still happy with that or whether you're a bit more cautious on that. And then also just on pricing expectations for the full year given that see a lot of the deflation, just how to think about pricing for the full year and then the ability and kind of the confidence in passing that through and also what you're seeing in terms of non-more material inflation within your P&L and cost inflation there. Thank you.

So I'll take the first two questions there. Firstly on volume and volume outlook, I think it's Maybe looking at it a high-level perspective and how we're thinking about our business at the moment, we are very pleased with our overall performance and believe we're executing well. And we're positive about the second half. And we are delivering volume growth against a challenging backdrop where volume growth is hard to come by. We do expect a volume uptick in the second half and expect to be in that 2 to 3% zone for the full year. So that's how we're thinking about the full year from an outlook perspective and volume. And then on the food service channel, Maybe, I suppose, how we look at it by region. Firstly, I think it's fair to say we're extremely well positioned as it relates to the food service channel, and this is something you've been hearing from us for quite some time. We've had very good launch activity across regions. Volume growth in the Americas was low single digits. Europe and APME achieved good double-digit growth. And the volume was supported by innovations, both in QSR chains and in coffee chains, probably on three areas, new menu items, the nutritional enhancement of menus. seasonal products, and of course, then solutions to enhance back of house operations. So I think for us, one of the reasons we feel confident about the channel is that our opportunity is actually growing within the channel, as well as the channel itself growing. And that back of house, I suppose, operational complexity reduction opportunity was not an opportunity there previously. It is an opportunity that has presented itself over the course of the last year or two. We see it continuing, if not accelerating. It has started in North America maybe over the course of the last 12 months, and we see this opportunity now presenting itself in Europe. So that doesn't necessarily need the food service channel to grow itself because our pie is actually growing within the food service channel. I suppose from an outlook perspective, we expect to see, I would say, continued strong growth for the second half, more or less in the same zone as H1. again, with operational complexity reduction, nutritional improvements, and LTO activity continuing to be the key drivers.

Just on your pricing question, Lauren, for taste and nutrition, we currently expect low single-digit pricing for the full year, reflective of some pricing deflation expectation in the second half. For Dairy Ireland, we expect to see continued deflation. And then just more generally on the other costs, no particular change. As we would have said, we have seen significant inflation in energy and labour-related costs, which we managed through our pricing model.

Great, thank you. As a reminder, if you would like to ask a question, please press the star followed by the one on your telephone.

Our next question comes from the line of Charles Bentley from Jefferies. Please go ahead with your question.

Hi, Edmund. Hi, Marguerite. Thanks for the opportunity to ask questions. So I just want to ask a little bit more around the strategic value of the Grey Tang business. When I've done a little bit of digging, it appears to be split between kind of consulting, so some market research, menu design, and store opening consulting, as well as seasoning sales, so solid, semi-solid, and liquid seasoning. Is that right? And any indication of split of revenues between the two would be helpful. And then finally, in the release, when you kind of say, specifically mention it enhances your local taste innovation capability, specifically what you mean? Thanks very much.

Thanks, Charles. So there is no consulting revenue in this business. It's all product revenue. It's a business we've been tracking for several years. It's actually a customer of our Ginning Nature business. And it's quite complementary to that business. I think in terms of, let's say, the way they engage with their customers is extremely proactive around the menu. It is a key, I suppose, way of engaging with customers in the food service channel around menu development. All the products supplied into the local food service chains are taste orientated products. I mean, let's say the main, I suppose, attributes of the products are taste related. and ginning nature in terms of the building blocks of the authentic building blocks of taste is a key factor in complementing that business and driving that business forward. The other factor there that we're very interested in is that we're seeing that taste profiles migrating from the local food service market into mainstream retail So we feel that now that we have strong access into that local food service, let's say authentic taste base, we'll be able to also translate that into snack applications and meals applications from a taste perspective. So quite complementary to what we already have there. It's a deal that was done on a bilateral basis and a business that we've been following for quite some time.

Makes sense. If I could just ask a quick follow-up. So it's essentially more channel rather than technology, as you'd say?

It's more channel than technology, yeah.

Great. Thanks very much. Thank you.

Our final question for today comes from the line of Ed Hawkin from JPMorgan. Please go ahead with your question.

Hi, this is Ed Hawkin from JPMorgan. Thank you for taking my question. My first question is on the raw materials turning deflationary in H2. the mechanical effect on pricing, but what can you say about the possible impact on volumes in taste and nutrition? Could there be some benefit as the pricing eases, or could there be some headwind from customers potentially delaying orders? And then my second question, if I may, is you talked of innovation activity helping to drive volumes improvement in the second half of the year. Wondering if you could comment a bit more specifically on which categories in particular you see this innovation activity, what gives you the confidence of this step up, and how more broadly you see your market shares trending in your markets. Thank you.

Yeah, so just maybe on the pricing impact on volume. I mean, I think, let's say, pricing in terms of, let's say, our customers and how they think about ordering doesn't really have a huge impact on their order patterns as such. I mean, we are a relatively small proportion of their overall cost base, so it's not a major driver and it's not a major thought process in terms of how we're thinking about that step up in volume as we're looking out into the second half. And that step up in volume is more driven from an innovation standpoint. The pipeline that we have with customers both in food service and in retail, I would say specifically in retail from a category perspective, we're seeing an awful lot of churn in the beverage space. It is a category that has been impacted by both shrinkflation and destocking, but a huge amount of activity with many launches, I would say, right across the board. Probably the area that's most dynamic right now is the snacking area. And it's an area that we feel we're extremely well positioned. We have a strong foundational technology taste capability as it relates to the whole areas of authentic stocks and broths, citrus, obviously in dairy as well. So snacking to us is probably the most dynamic from an innovation standpoint now, and we're seeing a lot of customers in that space investing, whether it's from a capacity standpoint, a new product development standpoint, a range extension standpoint. So that's probably the category that's probably stand out and that has been stand out here for the last quarter, and we see it continuing for the next couple of quarters.

Thank you. There are no further questions at this time. Mr. William Lynch, I turn the call back over to you for closing remarks.

Thank you, operator. Yeah, we just want to say thank you to everyone for joining us on the call this morning. And we wish you all a good day. Thank you.