Kerry Group plc (KRZ) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Kerry Group Interim Results Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today. I would now like to hand the conference over to Mr. William Lynch, Head of Investor Relations. Please go ahead, sir.

Good morning, everyone, and welcome to Kerry's Half Year Results Call. As per our first quarter update, we are hosting today's call from different locations. So please bear with us, if things are not quite as smooth as they would normally be. I'm joined on the call by our CEO, Edmond Scanlon; and CFO, Marguerite Larkin. Edmond and Marguerite will take you through a brief presentation capturing the key points of this morning's results update. And following the presentation, we will open the lines for questions. Before we begin, please note the usual disclaimer regarding forward-looking statements. I will now hand over to Edmond.

Thanks, William, and good morning, everyone, and thanks for dialing in this morning. We're going to spend the next 25 minutes -- 30 minutes or so updating you on our H1 performance. And as we did in April, today, we're going to try to give you as much of a line of sight as possible on our business performance as we continue to manage through these unprecedented times. Before we get into the slides, I just want to touch on a few important points from my perspective. Firstly, our foodservice business continues to recover well, while our retail business had a strong Q2 performance. Secondly, the nature of engagement with our customers has been at a different level than we've seen before. And finally, the absolute pace of change in the last 2 to 3 months has been truly incredible. COVID has accelerated a number of key consumer trends from natural authentic cooking to online and delivery and also the acceleration of the proactive health trend. So just to summarize, a really dynamic marketplace, a lot of change going on, which to me present many opportunities for Kerry as we emerge from this pandemic. So moving on to Slide #4 and the H1 overview. Firstly, let me start by saying I'm immensely proud of the tremendous efforts of our COVID response teams and indeed of all of our people in supporting our customers and supporting in our local communities over the last 6 months, very much aligned to our values and guided by our purpose of inspiring food and nourishing life. So looking at the performance of our business by channel. Foodservice was back by 2/3 in April, as you can see on the trend line here on the slide. And this has been recovering well across the second quarter, corresponding to the lifting of restrictions and was back 26% as we exit the quarter. And we've seen further sequential improvements in spend with volumes back in the mid-teens in July. Our retail channel had a strong performance in Q2 with a 5% volume growth which was a significant improvement on Q1, where we had the impact from COVID in China. This growth was also above our average in the channel for the last couple of years. This strong performance was driven by our solutions incorporating our broad protein portfolio, including plant-based offerings, authentic care solutions, fermented ingredients and immunity enhancing technologies. And we've continued to perform well in this channel in July with growth at the lower side of mid-single digits. So moving on to Slide #5. Our key priorities throughout this period have been our people, our customers and our community. So then to give you a status update on the impact of COVID on our business. In North America, we've seen our strongest rate of recovery in the foodservice channel as restrictions were lifted sooner and many of our customers were able to pivot their offerings pretty quickly for more drive-through, curbside pickup and delivery options. Our retail channel delivered a very strong performance with increased demand for health and wellness and also authentic cooking products. For Europe, the rate of recovery has been slower than it was in North America, with the lifting of restrictions being more on a phased basis. However, I would note that there was a good improvement in the region in June. In APMEA, we had a steady improvement in China, while India and South Africa were significantly impacted later on in the period. There also has been some resilient performances in other parts of the region, but overall, it's very much on a country-by-country basis with quite a bit of volatility and variability. On our Consumer Foods division, it has seen some impact from COVID, but it was limited relative to what we've seen in our Taste & Nutrition business. On margins, we've seen a pretty significant short-term impact in the second quarter as many of our facilities are set up for multi technology manufacturing, serving both the retail and foodservice channels. We kept all of our plants running throughout this period, albeit many plants were running at a much lower capacity, resulting in significant operating deleverage as we still have to incur the fixed costs. This impact will be greatly reduced in the third quarter as we continue our volume recovery. We have taken a number of actions around the safety of our people and the security of supply for our customers. And we've also implemented cost actions to try to mitigate some of the impact. And we've also been working with our customers on a number of different fronts to manage through the short-term and also to plan for launches for the new norms. So to conclude on this page, and I'll talk to this in a little bit more detail later, COVID is having an impact on our entire industry with the robustness of supply chains being more important than ever. Customers are currently reviewing their product portfolios and changes in new product development, meaning new challenges for our industry and more importantly, meaning significant new opportunities as we work through this period. So moving on to Slide 6 and the overview of our Taste & Nutrition performance in H1. Revenue for Taste & Nutrition was EUR 2.8 billion in the first half. While trading margin at 11.6% was 170 basis points lower due to the operating deleverage I just referenced. Overall, volumes were back 5.6% in the half. And this was driven by lower volumes in foodservice -- in the foodservice channel of 27%, which you can see from the panel on the right-hand side, but these have been recovering well as we've moved through the second quarter. The retail channel delivered good growth through Q2 after being particularly impacted in China in Q1. Performance was best in beverage, meals and snacks, with good demand across our nutrition and wellness portfolio. Developing markets declined by 3.8% as a result of the restrictions in various countries in APMEA. And pricing was pretty flat in the period, reflecting relatively neutral input costs. So now turning to Slide #7 and looking at our Taste & Nutrition performance from a regional perspective. Firstly to the Americas, which had reported revenue of $1.5 billion in the period, with overall lower volumes of 3.9% due to the impact of COVID. Foodservice in North America was affected, particularly in April, but has been recovering well since then. We had strong mid single-digit growth in our retail channel, driven by our broad beverage offering, increased demand for natural stocks and broths in the meals category while snacks continued to perform well through healthier options. LatAm was impacted later in the period with Brazil being more challenged. And in April, we completed the acquisition of Tecnispice in Guatemala, which is a local leading savory taste business, serving both the meat and snacks end-use markets. So moving on to Europe. We reported revenue in the period of $657 million, with volumes 8.8% lower, with a more pronounced impact from restrictions here. The retail channel performed well, driven again by beverage and snacking, along with meat, where we had a number of successful plant-based launches. Russia and Eastern Europe continue to deliver very good growth in the period. In APMEA, we had reported revenue of EUR 566 million in the period with lower volumes of 5.9% as the impact from COVID in China extended to another -- a number of other countries in the region. On the retail side, SSA, Sub-Saharan Africa and India were also challenged due to local conditions, while performance in Southeast Asia and the Middle East were more robust. On the strategic front, we continue to make good progress in expanding our capacity and deploying our technology capabilities in the region, most notably in China and in the Middle East. And we also moved into our new Technology & Innovation Center in Shanghai, a state-of-the-art facility which will be a key enabler of future business development for us in the China region. So now turning to Consumer Foods on Slide 8. Reported revenue was at EUR 647 million in the first half with the volume decline here primarily reflecting the ready meals contract exit in the prior year. COVID had a positive impact in some of our categories earlier in the period but this was offset by lower snacking and impulse purchases in some categories in the second quarter. Trading margin was maintained as efficiencies offset any COVID and pricing impacts. And we're very pleased with the performance of the recent meat-free launches under both the Richmond and Naked Glory brands. Where they've been rolled out today, they're performing very strongly and achieving category-leading positions. And with that, I'd hand you to Marguerite to give you a little bit more detail on the financials.

Thanks, Edmond, and good morning, everyone. Over the next 10 minutes or so, I will take you through our financial performance for the first half of the year, which was clearly impacted by the global pandemic. In the period, we delivered $3.4 billion of revenue, trading profits of EUR 316 million and adjusted earnings per share of EUR 1.321. Now to look at our financial overview in a little more detail on Slide 10. As expected, we had a reduction in reported revenue, which amounted to 4.3%, reflecting the impact of COVID-19. Our trading profit of EUR 316 million and trading margin of 9.3% were lower year-on-year, which I will expand on when we look at the margin bridge shortly. This resulted in an adjusted earnings per share of EUR 1.321, which was a reduction of 19.8% in constant currency terms. Return on capital employed was 10.5% and we generated EUR 107 million of cash in the period. Now turning to our revenue performance on Slide 11 and taking each of the components in turn. The reduction in reported revenue of 4.3% was driven by a number of elements: reduced volumes of 6%, which I will give you more detail on in the next slide; price increases of 0.4%, principally driven by increases in our Consumer Foods business; a translation currency impact of 0.1%; and a positive impact overall from acquisitions of 1.2%. Moving now to Slide 12 and looking at our revenue volume performance by business. On the left, you will see our overall group revenue performance by business, and on the right is the Taste & Nutrition monthly volume performance over the last 6 months. The trajectory of recovery through the second quarter is evident from the trends line. We started the year strongly prior to restrictions on movement, which impacted performance as we moved through the first quarter. In April, our volumes within the foodservice channel were back 2/3. And this was the driver of overall Taste & Nutrition volumes being back 17% in the month. We have seen volumes recovering well since then, very much aligned to the lifting of restrictions in the foodservice channel and we have exited the quarter with Taste & Nutrition volumes down 5% in the month of June. Turning now to our margin performance and the group trading margin bridge. Overall, group margins were down 140 basis points in the period due to the impact of COVID. Given the impact on volumes in the period, we incurred significant operating deleverage of 110 basis points, which reflects, as Edmond referenced earlier, the impact of our decision to keep our facilities open through the short-term period of disruption as our foodservice customers dramatically reduce their operations with the introduction of mobility restrictions. From a portfolio mix perspective, the net effect was neutral in the period. During the first half, we incurred costs in relation to COVID-19, the impact of which we thought to minimize by actioning a number of short-term cost management initiatives. And overall, the net impact was 30 basis points. The additional COVID related costs can be classified into 2 main categories: firstly, to ensure the safety and well-being of our employees, including personal protective equipment, zoning, segregation and other employee support costs; and secondly, to ensure continuity of supply including additional labor, raw material costs, stock holdings and distribution costs. We took a number of decisive short-term actions to reduce the impact of these on-costs, which included the suspension of all nonessential and discretionary expenditure, reallocation of resources and optimizing production runs while continuing to support our customers with planned stocking arrangements. Moving to pricing. The 10 basis points reduction here was driven by our Consumer Foods business. And finally, there was a net positive contribution of 10 basis points from our KerryExcel program. So just to summarize where we are from a margin perspective, as we expected, clearly, our margins were materially impacted in the second quarter. As we look forward, given the good business momentum and the continued recovery trajectory, we expect operating deleverage to significantly reduce in the second half of 2020. Turning now to free cash flow on Slide 14. The actions we have taken to ensure continuity of supply in the short-term and to support customers during the last number of months are reflected in the first half free cash flow. Free cash flow has been impacted by -- in the period by a number of factors, including lower trading profit, as mentioned, increased working capital in the period of EUR 116 million, with the key drivers being inventory and trade receivables. We invested in additional raw material and finished goods stock to carry contingency stocks of key raw materials, while we also worked with our customers and carries contingency finished goods to ensure continuity of supply through a period of highly fluctuating demand. In addition, aligned to our Kerryconnect deployment in North America, we had plans to carry additional security stocks at this time. Our receivables increased in the period as we supported a number of our customers in navigating short-term challenges. Finally, we had capital expenditure of $129 million, which included the continued expansion of our technology capabilities in China and the Middle East as well as the commencement of our investment at our Rome, Georgia facility in the U.S., where we are creating a world-leading manufacturing facility to meet the increasing demand for integrated solutions across a variety of protein applications. As we look out to the second half of the year, we expect free cash flow to be much improved as volumes continue to recover. Now moving to our debt profile and credit metrics on Slide 15. Net debt was just under $2 billion at the end of the period. We have a good net debt-to-EBITDA ratio of 2x, and our overall debt profile continues to be in very good shape, with no significant repayments until 2023 with a weighted average maturity profile of our debt at 5.6 years. So all in all, we continue to have a very strong balance sheet with a long maturity profile to enable future strategic development. And finally, before I finish, I would like to cover off a number of other matters on Slide 16. On Kerryconnect, I am pleased to say that our deployment in North America is progressing well. We have pushed out the go-live dates by 1 or 2 months at a number of facilities to safely enable ways of working during current restrictions. We have proposed an interim dividend of EUR 0.259 per share. On raw materials, we had low to mid single-digit inflation within our Consumer Foods business, while raw materials in Taste & Nutrition were broadly neutral. And at this stage, the overall group outlook is for relatively neutral input cost inflation for the remainder of the year with low single-digit inflation within Consumer Foods. And finally, on currency, we are currently estimating a translation currency headwind of circa 2% to 3% on earnings for the full year. And in summary, before I hand over to Edmond, our financial performance in the first half and most notably, the second quarter, reflects the significant volume impact of COVID-19, most notably in our foodservice channel with an encouraging sequential improvement in volume from April through the second quarter. So now back to Edmond to update more broadly on future prospects.

Thanks, Marguerite. Before I turn to the future prospects, I just like to take a few minutes to look at the evolving marketplace and industry landscape and how we're engaging and partnering with our customers. So moving on to Slide #18. We've always said that everything starts with the consumer. And this slide gives you a good framework of how we look at our marketplace. Here, you see some noteworthy current market dynamics. And 1 point I wanted to highlight at the outset is that sustainability has now become a primary factor for consumers and for our customers. There are 4 key consumer trends outlined in this slide and I'll touch on a couple of them in more detail in the following slides. Firstly, online and food delivery in the foodservice channel has seen a step change over the last few months. There's been an increased consumption with existing customers, but more importantly, a large number of new consumers are experiencing food delivery for the first time. Customers are responding at a pace. And while this is a major opportunity, there are challenges to be addressed. And foodservice customers are looking to partners for support to overcome these challenges. The second consumer trend is plant-based. Plant-based has continued to establish itself and is proving very resilient, even through this pandemic. We've seen a step change in plant-based innovation as customers who were previously monitoring this trend have crossed the line and are now planning new launches in this space. Next, we have a heightened focus on reducing food waste, leading to natural shelf life extension coming even more to the fore. Customers are reassessing their offerings with a lot of engagement of how they can renovate their portfolios. And the other trend I just wanted to touch on is well-being and immunity. And this has become very much top of mind for consumers and has been a major focus from an innovation perspective so far this year. So to conclude on this slide and as I referred to earlier, there are a lot of changes happening in our marketplace, meaning new challenges for our industry to address, but also providing significant new opportunities. So turning now to Slide 19 and looking at the growth of online and food delivery in the foodservice channel. Customers here are fundamentally relooking at their businesses and the growth opportunities ahead of them for the next 3 to 5 years. They're reviewing their footprint and their operating models with a good example being operators investing more in the likes of cloud kitchens. They're also looking at their menu offerings and how they can address the multitude of challenges to deliver a winning home delivery consumer experience. And if I take the example here in the middle of the page, and the challenges here apply to almost all delivery products, whether it be stability, consistency, taste or texture. And what's key for our foodservice customers is that Kerry has the broadest technology portfolio to address these requirements. With our holistic partnership model, we develop solutions to meet our customers' needs and the needs of their consumers. So moving on to Slide #20. And just taking a moment on the important trend we've seen accelerating through COVID which is the increased demand in the area of food protection, with customers looking to maximize food safety, minimize food waste and reduce the overall environmental impact. Over the last 10 years or so, we've been building out our capability through systematic strategic investments, both organic and through acquisitions to become the leader in clean label food protection. Keeping food safe over a long shelf life is a complex and multifaceted challenge. It's never just the case of simply switching or adding an ingredient. And our core focus is on enabling customers to keep their food safe, while at the same time, cleaning of their labels by replacing chemical preservatives with cleaner alternatives. We've outlined our clean label strategy to you in the past under our 5R framework, where Kerry, we believe, have a distinct advantage. Our clean label food protection portfolio comprises 5 technology platforms, as you can see here on the slide: fermentation metabolites, protective cultures, smoke distillates, vinegar antimicrobials and bio protective plant extracts. Each of these technologies has a unique mechanism of action that can be used individually or in combinations that can offer protection across multiple applications and in multiple environments. The value we bring to our customers is very much about how we deploy our food protection portfolio with our broad Taste & Nutrition technology capabilities to create solutions for a variety of applications across the food and beverage landscape. And I'm particularly excited about the potential here as we see this as an area that will continue to grow on importance for our consumers and for our customers for the coming years. So turning to Slide 21 and future prospects. Within Taste & Nutrition, firstly in our foodservice channel, I'm very encouraged by the progress we've made and we're continuing to partner with our customers on new menu developments. Our retail channel continues to deliver strong growth, and we have a strong innovation pipeline and enhanced customer engagement to meet the demands of the post COVID consumer. Overall, in our Taste & Nutrition business, we're seeing continued good recovery in momentum. And based on the current prevailing environment, for the third quarter, we're estimating lower year-on-year volumes in the range of low single-digit to flat. Our Consumer Foods business is currently seeing some short-term changes in consumer purchasing behavior with variability across some categories as we continue to selectively focus on growth opportunities. We'll continue to invest for growth and pursue M&A opportunities aligned to our strategic growth priorities, and our unique business model, broad Taste & Nutrition portfolio and industry-leading integrated solutions capabilities are more critical now than ever before as we support our customers through this changing environment. So with that, I'll hand you back to the operator and we'll be glad to take any of your questions.

[Operator Instructions] And your first question comes from Cathal Kenny from Davy.

2 questions from my side. Firstly, to Marguerite, on your comment on margin. I think you spoke about a significant reduction in operating leverage in the second half. Perhaps you could maybe quantify that a little bit more, please? Second question relates to emerging markets, 1 for Edmond. It looks like a mixed picture there. I think overall volume is down close to 4% in the first half. I just wondered, could you give us the drivers behind that volume outturn? And secondly, I guess, has the whole dislocation in emerging markets related to COVID, has that influenced your kind of thought process on the region looking out over the medium term?

I might just jump in there first and then hand it back to Marguerite. So like you said there, Cathal, yes, we said in the presentation, our developing markets was back by about 3.8%. And it's been very much a country-by-country story. Maybe just to put some color on that first, maybe starting off with China. If we go back to February, we had -- we said at the Q1, we had volumes down by more than 80%. And by the time we got to April, volumes for the month were similar to that of last year. And now as we stand here at the end of July, we're looking at a month where we're looking at volumes being positive year-on-year. So clearly, over the last 5 or 6 months, we've seen continued recovery in our business in China. The decline in APMEA was greater than the average while the decline in LatAm was less. So the impact from COVID was greater in APMEA in the first half, whereas in LatAm, we were kind of more into the second quarter before we started to see the impact. In APMEA, like I said, India and South Africa remain the most impacted. While in LatAm, Brazil is the most impacted. So as we stand here today, pretty much all of our developing countries that we operate in have turned the corner at this stage with Brazil really being the only 1 -- the only call out where we're later in the cycle. And maybe just on the second part of your question and maybe taking an overall kind of higher level look at developing markets. Clearly, the requirements in developing markets are going to evolve in response to COVID. And maybe 2 areas I'd like to call out in particular is the whole area of localization. I think localization will be even an accelerated trend. It was there pre COVID. We've talked about in the past, but clearly, supply chain did get exposed during the COVID crisis. So I do see an acceleration in localization. And the second area I'd like to call out is the whole area of nutrition and wellness. And already in a very short amount of time, we're seeing a significant acceleration in projects and innovation around nutrition, around immunity across both retail and foodservice channels. So look, from our perspective, we continue to see great growth opportunities ahead of us into the future. Maybe the last point before I hand it over to Marguerite. I believe that our in-country strategy and our local footprint -- that our strategy is a proven strategy. I believe we're going to be more important than ever. And I believe our ability to execute against that localization strategy, nothing has changed there. So I still continue to believe we have a strong ability to execute against that strategy. The second point is from an overall business model standpoint, our business model is very appropriate. It works effectively in supporting right across customer segments and developing markets, whether it's global customers, whether it's regional leaders or whether it's local giants. So I believe we're well placed to support those customers there. And the third point is, look, we're still very early days in our overall journey in terms of rolling out technology into developing markets. And COVID crisis could be a potential catalyst there for some step change opportunities. I touched on it briefly on the slide there on delivery. I also touched on food protection and on plant-based. There are 3 areas where we've seen an accelerated level of interest coming from developing markets. So look, at an overall level, there's no change to our strategy. There's no let up in our drive forward in our overall developing markets journey.

So Cathal, I will take your question on margins and deleverage. So as we currently think about margins for the second half, and in the context of the continued recovery trajectory that I spoke about earlier, we do expect operating deleverage to significantly reduce in the second half and we are looking at a significant improvement in margins on the back of the continued recovery. So as we see things today, we would expect margins to be slightly negative in the second half. And the change in operating leverage will be the key driver of this improvement.

Your next question comes from James Targett from Berenberg.

A couple of questions for me. Firstly, on foodservice. Maybe you could -- thank you for giving us that color of the exit rate. It's very helpful. But I wonder maybe if you could talk about that June figure or the July figure you gave, how that was trended by the regions? Just to get an idea of where foodservice was down in the 3 regions, that would be very helpful. And then secondly, on innovation, Edmond, thanks for your comments on sort of where your focus is and the opportunities that you're seeing right now. But I guess, specifically, a lot of the CPG companies have been flagging a couple of things like a more rationalized approach to innovation, a less scattergun approach, fewer, bigger innovations and also talking about SKU reductions, we're talking 25 -- 20%, 25% SKU reduction. What specifically does that sort of strategy mean for Kerry? That would be useful to get some color there. And particularly, if there's a big difference between what you're seeing on innovation with your local versus your global customers? And maybe a third one, if I can, just on Consumer Foods. You -- actually, sorry -- yes, on Consumer Foods, you say there was no big impact from COVID, but ultimately, volumes swung from being up 3% in the first quarter, so I think, down 4%, excluding the Tesco contract. So is that just due to footfall issues and schools being closed, et cetera? Or is there something fundamentally changed for demand for your products that you expect to see weaker growth in Consumer Foods going forward?

Thanks, James. And maybe taking your first question first, James, on foodservice. And if you don't mind, I might just take this opportunity just to maybe frame our foodservice business. And then I'll answer your question specifically. So like we said before, our foodservice channel represents 30% of our Taste & Nutrition business. With -- and of that, about 2/3 is with chains, so -- and that's made up of QSRs, coffee chains, fast casual, casual dining and contract caterers. And we're primarily weighted towards QSR, coffee chains and fast casual from a sub channel perspective. So that's about 2/3. The next 20% is orientated towards independent operators wherever we have a specific targeted strategy. And then the remaining 10% is orientated towards convenience stores. And 75% of the channel is orientated towards larger players being convenience stores and QSRs and coffee chains. So -- and the profile is quite similar by region. So then just moving in specifically to give some color on each of the regions. Look, North America was recovering strongly as we move through May and June, very much aligned with the lifting of restrictions. So that's been -- that has accelerated pretty quickly. The impact in LatAm commenced later than North America and has continued to be significantly impacted in May and June. And in Europe, the recovery has been slower than North America. Firstly, I would say that lockdowns were more severe. And secondly, the lifting of restrictions in Europe had been slower and had been done in a more phased basis. So there's a lot of variability country to country. And in the APMEA region, as we've kind of moved through the quarter, we have continued to see a lot of variability country by country. Again, very much aligned to movements on restrictions. And like I said, we saw China continuing to improve across the quarter while countries like India and South Africa had more significant impacts in May and June. So then maybe to come to your question on innovation. And absolutely, James, we've seen what you just referenced there in terms of SKUs. But I think the story for us here is, it's very much a customer-by-customer story, frankly. You're correct, especially at the earlier phase of COVID, there was a significant reduction in the number of SKUs by many players. And I suppose the reality is that as customers were looking at these SKUs, I think there was a bit of a realization that the level of differentiation that we've seen amongst these SKUs at a consumer level probably wasn't there. So as we are engaging with customers now, and I have to say that the level of openness and transparency with customers has gone to a new level, we're kind of seeing three, let's say, kind of big buckets of factors influencing innovation at this stage. The first one is we are seeing more, like I said, more openness, more collaboration towards innovation and more partnership type discussions going on. The second point is we're seeing more meaningful, purposeful innovations being talked about. So a number of customers, they're talking about "real" initiatives as it relates to their new product development approach. So real meaning, real functionality, real nutritional improvement, real clean label. So it's -- the point there is, I think, bigger, more impactful, more purposeful innovation. And the third point is localization just has -- has just really accelerated in terms of that whole push because the reality is COVID did show up some weaknesses in supply chain. So localization has been a factor. From a carry perspective, frankly, we're pretty indifferent as it relates to the types of approaches that customers take in innovation. If I was to go back maybe 10 years ago, it was about bigger innovation, it was about more purposeful innovation, it was about bigger reference sizes. And over the years and in recent times, it was probably more incremental innovation. And from a Kerry perspective, we're somewhat indifferent in terms of how that plays out because I believe we have an in-built agility in our business model that we'll be able to pivot, and we have that track record of being able to pivot to where the opportunities are at. And for us, we look at every project on a stand-alone basis to understand the level of investment in resources versus the return. So from our perspective, this wouldn't be a bad outcome. And I think, overall, I believe we're actually well positioned to enable customers to continue to bring innovations to market that are aligned to consumer requirements. And then maybe moving on to your last question on Consumer Foods, look, there's been a lot of moving parts there over the last 6 months. Like we said, we had several of the categories that we operate in, in Q1, accelerated. There was a little bit of a pullback in Q2. I would say, as we look at July, it's kind of -- it's -- let's say, it's a little bit more normalized, where we've seen, one, I would say, the ready meals category improve. And maybe some of the tailwinds that were there in our sausage category and in the spreads category ease off a little bit. So a lot of moving parts. I mean, we're -- it is a fast-moving set of categories that we're operating in. So it's harder to predict how things will play out. But the view that we've given, we stand by, that H2 will be somewhat similar to H1 when you factor out the ready meals contract exit that you mentioned.

Your next question comes from Graham Hunt from Morgan Stanley.

Just 2 questions for me, if possible. First one is on M&A. I just wanted to ask how you're thinking about capital allocation priorities today after maybe what you've seen over the last 6 months. And whether this demand online implies some kind of shift in investment or if it's going to be additional spend? And then on deals, going forward, would you expect them to come at a similar run rate as you've had in the past? Or if there's been a kind of shift in priority there? And then on -- second question is on plant-based. I just wondered if you could give some color on how the radical platform performed in the half and how that might have been against your expectations where they were in January?

Yes. So thanks, Graham, for those questions. In terms of M&A, what I would say here is that there's no change in our strategy here. You shouldn't think about Kerry in a different way as it relates to M&A. We continue to have a strong pipeline there ahead of us. We haven't put in place any self-imposed restrictions as it relates to M&A. There are practical issues. There are practical issues as we stand here today and look back over the last 6 months, just in terms of the obvious travel restrictions and what have you. But it's not something that I'm concerned about. Look, as it relates to our M&A strategy, we'll do the best thing for our shareholders and all stakeholders as it relates to long-term value creation. So no change there on our strategy or no change in our ability to execute against our M&A strategy, I believe, and the pipeline remains strong. So in terms of plant-based meat alternatives and the radical platform that you mentioned. Look, frankly, it's an area where we're very excited about. Like I mentioned on the prepared remarks, there has been an acceleration in plant-based launches. We did see several customers that were standing in the sidelines maybe coming into 2020 that were kind of thinking about where -- is this a real trend? Has this got real staying power? And clearly, what we've seen during COVID is that there's a lot of resiliency here in this category. And those customers and it maybe goes back to the innovation question that I answered previously, where customers have made a decision to do something. And this plant-based area is a good example. We've seen customers be very focused, prioritized a launch, aligned resources behind this and really drive forward. And that's been a change, and that's been a real positive change. So launches that would have maybe historically taken 12, 18 months or even longer, those launches being done in 3 months. And I think the plant-based area is a good example for us where customers made a decision in kind of April, May time frame and are targeting launches here in September. So that's the first point. The second point that I'd like to just touch on is that we started to see plant-based alternatives move into new categories, categories like desserts, categories like meals, both frozen and chilled. And the third point is that we've seen a step change engagement in developing markets as it relates to plant-based meat alternatives. Frankly, if we were having this discussion 6 months ago, I just didn't see that happening as quick. So overall, we're really excited about that radical platform. We will be relaunching a radical 2.0 here in the coming month or 2. So it's an area we're really excited about and have significant customer engagement here.

Your next question comes from Jason Molins from Goodbody.