Tate & Lyle Plc - Final Results

TATE & LYLE PLC STATEMENT OF FULL YEAR RESULTS

 

For the year ended 31 March 2019

 

 

 

Adjusted results

 

Statutory results

Year ended 31 March1

Continuing operations

£m unless stated otherwise

 

2019

2018

(restated)

Constant currency change

 

2019

2018

 

 

Change

 

 

 

 

 

 

 

 

 

Sales

 

2 755

2 710

2%

 

 

 

2% 

Profit before tax (PBT)

 

309

296

4%

 

240

286

(16%)

Diluted earnings per share

 

52.0p

49.4p

4%

 

38.6p

56.1p

(31%)

Net debt at 31 March

 

 

 

 

 

337

392

 

Dividend per share

 

 

 

 

 

29.4

28.7

2.4% 

 

 

 

 

 

 

 

 

 

 

                           

Key highlights

·   Group delivered solid financial progress

?  Food & Beverage Solutions maintained momentum

?  Sucralose performed strongly

?  Primary Products volume in line with prior year despite challenging market conditions

·   Progress on each of 'Sharpen, Accelerate, Simplify' priorities

·   Four-year US$100m productivity programme on track, with benefits offsetting cost inflation

·   Strengthened balance sheet provides flexibility to invest in long-term growth

 

Financial highlights

·   3% increase in Food & Beverage Solutions profit3 to £143m, volume 3% higher

?  Volume up 3% in North America, up 15% in Emerging Markets, down 2% in Europe, Middle East and Africa

?  Sales 5% higher2, up in all regions

·   11% increase in Sucralose profit3 to £61m, volume 16% higher

·   11% decrease in Primary Products profit3 to £148m, volume in line with prior year

?  Sweeteners and Starches profit3 5% lower due to higher input costs

?  Commodities profit3 £10m lower following exceptionally strong profits in fiscal 2018

·   Group statutory profit before tax 16% lower due to net exceptional costs of £58m (£49m non-cash)

·   4% increase2 in adjusted profit before tax

·   4% increase2 in adjusted diluted earnings per share

·   Adjusted free cash flow higher at £212m

·   90bps improvement in return on capital employed to 17.1%

·   Proposed final dividend of 20.8p per share; full year dividend of 29.4p per share up 2.4%

 

Nick Hampton, Chief Executive, said:

"I am encouraged by our progress over the past year. The Group delivered solid financial results and we are starting to see real momentum from the three priorities I set out last year to sharpen the focus on our customers, accelerate portfolio development and simplify our business. 

 

In Food & Beverage Solutions top-line momentum continued with solid volume growth in North America and double-digit growth in Emerging Markets. Sucralose performed particularly strongly.  Primary Products did well to deliver steady volume in the face of challenging market conditions. Across the business, strong cost discipline helped offset higher than expected input costs and operational execution was excellent, particularly during the extreme cold weather in the US in early 2019.

 

For the year ending 31 March 2020, we expect continuing progress in Food & Beverage Solutions and gains from productivity initiatives to offset both lower Sucralose profits and continued market challenges in Primary Products. As a result we expect earnings per share growth4 in constant currency to be broadly flat to low-single digit."

 

1     The adjusted results for the year ended 31 March 2019 have been adjusted to exclude exceptional items, amortisation of acquired intangible assets, the tax on those adjustments and tax items that themselves meet the definition to be treated as exceptional. Adjusted free cash flow and return on capital employed are also adjusted metrics. A reconciliation of statutory and adjusted information is included in Note 3 to the Financial Information. The adjusted results for the year ended 31 March 2018 have been restated to include net retirement benefit interest (2018 - £5 million) and associated tax.

2        Percentage change in constant currency.

3        Adjusted operating profit, percentage change in constant currency.

4        Adjusted diluted earnings per share from continuing operations at constant currency, growth after adopting IFRS 16 (which is expected to reduce earnings per share growth by circa 1ppt in fiscal 2020).

 

FINANCIAL HIGHLIGHTS

 

Year ended 31 March

Continuing operations

2019 

£m 

2018 

£m 

(restated)

Change

Constant

currency change

Sales:

 

 

 

 

   - Food & Beverage Solutions

889

850

5% 

5% 

       - Sucralose

164

146

12%

13% 

   - Primary Products

1 702

1 714

(1%)

(1%)

Sales

2 755

2 710

2% 

2% 

Adjusted operating profit

 

 

 

 

   - Food & Beverage Solutions

143 

137 

5% 

3% 

      - Sucralose

61 

55 

10% 

11% 

   - Primary Products

148 

166 

(11%)

(11%)

   - Central

(47)

(58)

 

 

Adjusted operating profit

305 

300 

2% 

1% 

Net finance expense

(26)

(32)

 

 

Share of profit after tax of joint ventures and associates

30 

28 

7% 

9% 

Adjusted profit before tax

309 

296 

4% 

4% 

Adjusted effective tax rate

21.0%

21.5%

 

 

 

 

 

 

 

Adjusted diluted earnings per share

52.0p

49.4p

5%

4%

Adjusted free cash flow

212

196

 

 

Net debt - at 31 March

337

392

 

 

 

The adjusted results for the year ended 31 March 2019 have been adjusted to exclude exceptional items, amortisation of acquired intangible assets and the tax on those adjustments. A reconciliation of statutory and adjusted information is included in Note 3 to the Financial Information. The adjusted results for the year ended 31 March 2018 have been restated to include net retirement benefit interest and associated tax. Growth percentages are calculated on unrounded numbers. 

 

·   Food & Beverage Solutions adjusted operating profit of £143m:

−  3% higher profit after annualising growth investments in Emerging Markets (made in fiscal 2018) and cost inflation.

−   2% increase in New Products sales (under 7-year definition) to £95m, up 42% on a like-for-like basis1.

·   Sucralose profit 11% higher to £61m, due to stronger volume, and £3m one-off gain from supply contract.

·   Primary Products adjusted operating profit of £148m:

−  5% lower profit in Sweeteners and Starches, due to inflationary headwinds, partially offset by mix management and cost discipline. The year benefited from a £4m insurance recovery.

·   Productivity programme benefits offset £25m impact of unanticipated cost inflation.

·   Central costs at £47m, £11m lower reflecting cost discipline and lower insurance costs.

·   Net finance costs £6m lower at £26m, benefiting from lower post-retirement benefit interest following the decision in the prior year to accelerate funding of the main US pension scheme.

·   Share of profit after tax of joint ventures and associates 9% higher, with strong performance in Bio-PDOTM.

·   Net exceptional costs of £58m (mainly in the first half), with net exceptional cash inflow of £12m. Exceptional items relate to actions to focus the portfolio and simplify the business comprising:

−   £43m charge on the sale of our oats ingredients business after a strategic review (£3m cash inflow)

−   £13m restructuring charge as part of the simplification programme (£6m cash outflow)

−   £14m net gain from the sale and lease back of railcars (£16m cash inflow)

−   £16m provision for asset remediation following the Group-wide safety review (£1m cash outflow)

·  Adjusted effective tax rate for continuing operations of 21.0% (2018 - 21.5%), primarily reflecting favourable tax settlements. Adjusted effective tax rate for fiscal 2020 expected between 21.5% and 23.5%.

·   Group statutory profit before tax of £240m was £46m lower due to higher exceptional costs.

·   Adjusted free cash flow increased to £212m. Capital expenditure at £130m was £1m lower than the prior year. We expect capital expenditure for fiscal 2020 to be between £140m and £160m.

·   Net debt at £337m, £55m lower than at 31 March 2018.  Net debt:EBITDA reduced2 to 0.8x (2018 - 0.9x).

 

1       Three ingredients were removed from New Products during the year since they were launched more than seven years ago; like-for-like growth assumes those ingredients remain included in New Products.

2       Calculated on the new simplified definition, see Note 3.

 

Overview

 

At the start of the year, we set out to execute our strategy through three key priorities and to build an organisation with a strong sense of purpose and a more dynamic culture. We made good progress in each of these areas over the year. Customer focus is now sharper across the business and innovation has accelerated. Operational execution has improved, with our US plants performing well through the extreme cold weather in early calendar 2019. Cost discipline is also much stronger with the introduction of zero-based budgeting. This discipline, together with our simplification and productivity agenda, helped to offset cost inflation during the year. Finally, the new leadership team is driving greater pace and agility across the entire organisation. Overall, while we continue to operate in challenging market conditions, the business is moving in the right direction.  Together with our robust balance sheet, we enter the new financial year in a strong position.

 

Programmes to accelerate business performance: Sharpen, Accelerate, Simplify

 

In May 2018, we announced three priorities to accelerate business performance - sharpen the focus on our customers; accelerate portfolio development; and simplify the business. These priorities have been embraced by our employees and are starting to drive real momentum across the business and with our customers.

 

Sharpen the focus on our customers

This priority is about us moving from being a valued ingredient supplier to a growth partner for our customers. Progress during the year included:

·     Significantly increased interactions with customers at CEO, R&D and Sales & Marketing levels.

·     Enhanced customer-facing capabilities with over 900 training days for the sales and technical teams.

·     Completing the implementation of a category model in Food & Beverage Solutions across all regions in sales, applications and technical services. Our operating model now reflects how our customers are organised.

·     Building a stronger customer pipeline with the global sales pipeline up 29% in the year.

·     Implementing new customer management tools driving a c.40% increase in monthly customer calls.

 

Accelerate portfolio development

This priority is about accelerating new product development, building more external partnerships to speed up innovation, and making selective acquisitions and joint ventures in line with our strategy. Progress during the year included:

·   24% increase in the expected value of the innovation pipeline, with a greater emphasis on line extensions and projects to create new generations of existing ingredients (which generally deliver a faster payback).

·    Acquisition of a 15% shareholding in Sweet Green Fields, a leading stevia player.

·    Through our partnership with Codexis, developing a proprietary route to producing Reb M, a consumer preferred stevia sweetener, and accelerating the launch by 12 months of our Reb M product, TASTEVA® M Stevia Sweetener.

·   Through increased open innovation efforts, developing contacts with over 170 start-ups and research institutions, signing five agreements in areas such as sweetener testing and new sources of fibre.

 

Simplify our business

This priority is about making the company simpler and easier to work in, streamlining the organisation, simplifying processes, and creating a culture of continuous improvement. As part of this, we are targeting US$100m of productivity benefits over a four-year period, and are on track to deliver this target. Progress in the year included:

·     Implementing zero-based budgeting across the business.

·     Simplifying the organisation to improve customer focus.

·   Employing new tools and systems to drive efficiencies and reduce bureaucracy (e.g. new automated North American Transport System).

·     Making capital investments to reduce costs and drive efficiencies (e.g. new gas boilers and dryers).

 

Purpose-driven organisation

 

Tate & Lyle's purpose is Improving Lives for Generations. Our people passionately believe that, through our purpose, we can successfully grow our business and have a positive impact on society.  Working in partnership with our customers, we use our ingredients and expertise to help people make healthier and tastier choices when they eat and drink, and lead a more balanced lifestyle. Our purpose is a powerful motivator for our employees and also resonates with our customers. Our determination to make tasty food healthier and healthy food tastier gives our business real energy and momentum.

 

Sustainable business

 

A key part of how we live our purpose is acting as a responsible and sustainable business. In November, we announced a new partnership with Land 'O Lakes SUSTAIN, a leading conservation solutions provider, to advance conservation practices on Midwest farms, including the sourcing of sustainable corn. Then, in February, we entered into a partnership with an independent, international science-based NGO, Earthwatch, to undertake a research project on the sustainability of our stevia supply chain in China.

 

The safety of our people is foundational to our business. This year marked the first of our new multi-year environment, health and safety (EHS) programme - called the 'Journey to EHS Excellence'. While still in its early stages, this programme is having a very positive impact on our EHS culture and we expect to see progress in our safety performance over time as the programme is embedded across the organisation.

 

Summary

 

This was a year of progress, with good operational and commercial execution and strong cost control helping to deliver solid financial performance in the face of challenging market conditions. With a clear strategy and priorities, strong leadership team, the expertise and commitment of our people, the power of our purpose, and a portfolio of products aligned to growing global trends of healthier and tastier food and drink, Tate & Lyle remains well-positioned to deliver growth over the long-term.