Half year results for six months to 30 September 2021

 

Thursday 4 November 2021

 

Strategic transformation progressing well; strong growth in Food & Beverage Solutions

 

Headlines

·   Group delivered strong H1 performance

·   Double-digit revenue growth in Food & Beverage Solutions

·   New Products revenue growth acceleration

·   Effective management of cost inflation through productivity, cost discipline and pricing

·   Delivered environmental commitment to eliminate use of coal in all operations four years ahead of target

·   Transaction to create two focused businesses on track for completion in Q1 of 2022 calendar year

·   Strong platform for growth as a focused Food & Beverage Solutions business

 

Financial highlights¹

Continuing operations (new Tate & Lyle)

·   Revenue +19%; profit before tax +20%

−   Food & Beverage Solutions revenue +19%

−   New Products revenue +48%

−   Sucralose revenue +17%

·   Adjusted diluted EPS +25%

 

Discontinued operations² (NewCo)

·   Adjusted profit after tax (12)% lower

 

Total operations (Tate & Lyle Group)

·   Statutory profit after tax (23)% lower at £102m with exceptional costs of £67m partially offset by benefit of £25m held for sale accounting adjustments

·   Adjusted diluted EPS +3% higher at 29.8p

·   Free cash flow £67m lower at £127m, net debt £8m lower at £409m

·   Interim dividend increased by 2.3% to 9.0p

 

Nick Hampton, Chief Executive said

"In a year of significant change as we re-position Tate & Lyle as a growth-focused speciality food and beverage solutions business, the Group delivered strong first half performance despite inflationary headwinds. Food & Beverage Solutions had an excellent half and we made good progress on the priorities we set out at the start of the year.

 

Consumer demand for healthier food and drink continues to strengthen across our markets and this was reflected in the performance of Food & Beverage Solutions which delivered strong volume and double-digit revenue growth across all regions. Our investment in innovation and focus on working more closely with customers continues to generate excellent results with revenue from New Products 48% higher.  

 

The strategic transformation we announced in July is progressing well and we remain on course to complete the sale of a controlling stake in our Primary Products business in the Americas in the first quarter of 2022.

 

The strong performance of Food & Beverage Solutions underpins Tate & Lyle's future potential as a growth-focused speciality food and beverage solutions business.  The new Tate & Lyle is very well-positioned to deliver on its five-year ambition for mid single-digit organic revenue growth and annual operating margin expansion of at least 50 to 100 basis points per year, supported by increased investment in innovation and a strong balance sheet to fund both organic growth and M&A.

 

We are entering a new, ambitious and exciting chapter for Tate & Lyle and I look forward to the future with great optimism."

 

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1 Adjusted metrics percentage changes are in constant currency

2 Defined as the "Disposed Primary Products business" in this statement.  Adjusted to exclude impact of exceptional items and IFRS 5 held for sale accounting.

 

Financial Summary 

Proposed sale of a controlling stake in Primary Products and associated reporting changes

On 12 July 2021, we announced we had entered into an agreement to sell a controlling stake in a new company and its subsidiaries which will hold the Primary Products business in North America and Latin America and its interests in the Almidones Mexicanos S.A de C.V and DuPont Tate & Lyle Bio-Products Company, LLC joint ventures (together, 'NewCo') to KPS Capital Partners, LP (the 'Transaction').  From July, NewCo has been classified as held for sale and met the definition of a discontinued operation in accordance with IFRS 5.  As a result, NewCo is required to be treated as a discontinued operation for all of the year ending 31 March 2022. This classification has been adopted in this half-year results statement. The continuing operations comprise: Food & Beverage Solutions (into which the European Primary Products business, which is not part of the Transaction, and some stranded costs have been combined); Sucralose; and Central costs. The results for comparative periods have been restated on a consistent basis.

 

Summary of results for six months ended 30 September 2021

 

	Adjusted results1			Statutory results
	2021	2020	vs 2020	2021	2020	vs 2020
Continuing operations
Revenue	£656m	£592m	+19%			+11%
Profit before tax	£85m	£78m	+20%	£21m	£58m	(64%)
Diluted earnings per share	14.4p	12.9p	+25%	2.5p	9.6p	(74%)
Discontinued operations
Profit after tax	£72m	£90m	(12%)	£90m	£88m	+3%
Total operations
Diluted earnings per share	29.8p	32.1p	+3%	21.7p	28.4p	(24%)
Free cash flow	£127m	£194m	£(67)m
Net debt (vs. at 31 March 2021)	£409m	£417m
Dividend per share				9.0p	8.8p	+2.3%

 

1 The adjusted results for the six months to 30 September 2021 exclude exceptional items, amortisation of acquired intangible assets, the tax on those adjustments and tax items that are themselves exceptional. The adjusted results of discontinued operations have also been adjusted to exclude the impact of IFRS 5 held for sale accounting. A reconciliation of statutory and adjusted information is included in Note 2 and Note 6 to the Financial Information. Growth percentages are calculated on unrounded numbers.  Changes in adjusted performance metrics are in constant currency throughout this statement.

 2 Adjusted operating profit

 

Continuing operations (new Tate & Lyle)

·   Food & Beverage Solutions:

−   Volume +9% with a particularly strong performance from Asia, Middle East, Africa and Latin America

−   Revenue +19% with double-digit organic growth across all regions; 3ppts from acquisitions

−   New Products revenue +48% reflecting strong customer demand for sugar reduction solutions

−   Profit² +9% higher with benefit of positive mix and some reinvestment in future growth

o Profit² +2% higher at £83m when including lower performance from Primary Products Europe

·   Sucralose:

−   Volume +23% led by strong demand in beverages and phasing of customer orders into the first half

−   Revenue +17% with higher volume partially offset by customer mix and modest pricing pressure

−   Profit² +34% at £31m

·   Adjusted profit before tax +20%; Adjusted diluted EPS +25%

 

Discontinued operations (NewCo)

·   Volume up +3% as out-of-home consumption continued to recover; strong industrial starch growth

·   Profit² (10)% lower at £74m

−   Sweeteners & Starches profit² down (13)% due to cost inflation and operational and supply chain disruption

−   Commodities profit² 4% higher reflecting good market conditions at the start of the period

 

Total operations (Tate & Lyle Group)

·   Adjusted diluted EPS +3%

·   £26m cost inflation mitigated to £2m net of £10m of pricing and £14m of productivity benefits

·   Adjusted free cash flow £(67)m lower due to £54m higher working capital from higher revenue and corn price

·   Net debt £8m lower at £409m; Net Debt to EBITDA ratio 0.8x

·   Interim dividend increased by 2.3% to 9.0p

 

 

Outlook for Year Ending 31 March 2022

We continue to work on completing the sale of a controlling interest in the Primary Products business in the Americas and certain joint venture interests to KPS Capital Partners, LP in the first quarter of the 2022 calendar year. For the purposes of providing an outlook, we are assuming completion of the transaction on 31 March 2022. 

 

On that basis, for the year ending 31 March 2022 we expect:

 

Continuing operations (new Tate & Lyle)

·   Food & Beverage Solutions to deliver another year of progress

·   Sucralose profit to be ahead of the prior year

·   Growth in adjusted profit before tax in constant currency to be in the high single-digit percent range

 

Discontinued operations (NewCo)

·   Sweeteners and Starches adjusted operating profit to be below the prior year and Commodities profit to be significantly lower

 

Total operations (Tate & Lyle Group)

·   Change in adjusted diluted earnings per share in constant currency to be mid-single digits percent lower due to the performance of discontinued operations and expected cost inflation.

 

 

Overview of the Half-Year

Business environment and trading

The Group benefitted from an improved trading environment while having to navigate changing demand patterns, disruption to international supply chains, evolving Covid-19 restrictions and cost inflation.  Performance was in line with our expectations at the start of the 2022 financial year although the divisional mix was different than anticipated with stronger profit growth in Food & Beverage Solutions and Sucralose offsetting lower profits from Primary Products. 

 

Food & Beverage Solutions saw strong demand as in-home consumption remained robust and out-of-home consumption continued to recover. Each region delivered strong volume and double-digit revenue growth. The business continues to benefit from increasing consumer awareness of the importance of a healthier diet.  With its broad portfolio and technical capabilities in sweetening, mouthfeel and fortification, Food & Beverage Solutions provides customers with solutions to reduce sugar, calories and fat, and add fibre to their products. These capabilities, together with good commercial execution, supported strong top-line delivery in the half.

 

In Sucralose, recovering out-of-home consumption led to strong volume growth in beverages. The business benefitted from phasing of customer orders into the half which we expect will mostly unwind in the second half.

 

In discontinued operations, lower sweetener volume caused by short-term operational disruption from the installation of new gas turbines at our facility in Lafayette, Indiana to increase long-term efficiency and environmental performance, together with cost inflation, resulted in lower profits in Primary Products. Industrial starches performed very well with higher volume from continued growth in the sustainable plant-based packaging market.

 

Across the business we saw cost inflation totaling £26 million in the first half in areas such as energy, labour, consumables and transportation.  This was mitigated by productivity benefits of £14 million, pricing of £10 million and cost discipline.  We expect cost inflation to increase in the second half and to be partially mitigated through a combination of the same actions, with pricing playing a greater role, particularly in the fourth quarter reflecting the annual contracting cycle. 

 

Delivering strategic progress in Food & Beverage Solutions

Food & Beverage Solutions made good progress delivering its strategy and working closely with customers on reformulating existing products and launching new products.  During the half:

·   Food & Beverage Solutions delivered double-digit revenue growth in each region

·   New Product revenue increased by 48% in constant currency

·   New Products represented 14% of Food & Beverage Solutions revenue

·   The value of the new business pipeline increased by 4%

·   The risk adjusted value of the innovation pipeline grew by 2%

·   Integration of the acquisitions of stevia and tapioca businesses in H2 of fiscal 2021 progressed well.

 

Growth within Food & Beverage Solutions is being driven by delivery of its strategic growth framework which is centered on four pillars - market focus; portfolio expansion; accelerating innovation; and integrated solutions for customers.  Progress in each pillar in the half is summarised below.

 

Market focus

Our aim is to maximise opportunities in developed markets and accelerate growth in the faster growing markets of Asia, Middle East, Africa and Latin America.  We focus on three global categories - dairy, beverage, and soups, sauces and dressings - as well as two or three regional categories where we have local expertise such as bakery and snacks. This category focus, combined with expertise in sweetening, mouthfeel and fortification, provides a unique and attractive offering for customers.  In North America, revenue from bakery and snacks grew by 32% and from beverages by 17% supported by strong demand for fibre and stevia solutions, respectively.  In Asia, revenue from soups, sauces and dressings grew by 16%, while in Latin America we saw double-digit revenue growth in all three global categories.

 

We continue to invest in both infrastructure and capabilities to support our customers particularly in higher growth markets. In October, we opened a new Application Technical Centre in Dubai to serve customers in the Middle East, Turkey and Africa region, where consumer demand for healthier food and drink is increasing. The Centre's state-of-the-art technology will speed up the innovation process for customers and increase their speed to market.  It will also support a new initiative we have launched - The Middle East Sugar and Calorie Reduction Knowledge Building Programme - together with the UAE Food & Beverage Manufacturers Group.

 

Portfolio expansion

The integration of the two acquisitions we made at the end of the 2021 financial year (Sweet Green Fields, a leading global stevia solutions business, and Chaodee Modified Starch Co., Ltd. a speciality tapioca food starch business in Thailand) is progressing well.  Our expanded stevia business is performing very well with revenue more than doubling.  To meet growing customer demand for stevia solutions, we are investing in our stevia facility in Anji, China to increase extraction capacity and to install new environmental equipment. We are also increasing the capacity of our stevia production line in the US.  The capital investment programme to significantly increase capacity over the next three years for higher functionality tapioca starches at our facility in Thailand is progressing as planned. 

 

We strengthened our sweetener platform with two New Product launches including PUREFRUIT™ Monkfruit Juice Concentrate.  We also strengthened our health and wellness platform through a new distribution agreement for chickpea protein and flour with Nutriati, a US-based company. 

 

Accelerate Innovation

We continue to increase our investment in R&D, both by building on our strong in-house scientific expertise and with external partners through open innovation. New Product revenue grew by 48% with the sweetener platform delivering exceptionally strong performance with revenue nearly three times higher driven mainly by demand for stevia solutions.  Revenue in the health & wellness platform grew by 23% with good demand in the sports nutrition category while revenue from texturants grew by 9%.

 

Our increased focus on open innovation is unlocking exciting new ideas and opportunities.  We are seeing good progress in our partnership with Zymtronix (US), an early-stage company developing enzyme immobilization technologies used to enhance the efficiency of production processes.  We formed a new partnership with TNO in the Netherlands to explore the use of 3D food digital technology to deliver personalised food and nutrition choices for consumers. We also extended our existing work with APC Microbiome Ireland to undertake scientific research on the potential metabolic health benefits of combining dietary fibre with certain bacterial strains.

 

Integrated Solutions

We continue to focus on creating integrated solutions for customers to strengthen our position as their partner for growth.  Our deep understanding of how ingredients interact across the food matrix in our core categories, together with our leading product portfolio and technical expertise, mean we can provide customers with a unique solutions' offering.  To further strengthen our offering, we are increasing our investment in category and consumer insights, for example through the establishment of a new position of Global Head of Marketing and Insights, as well as strengthening our customer-facing applications teams across our regions.  

 

In April, to support our solutions offering, we launched the Stabiliser University™, an online modular course designed to help formulators and food scientists solve even the toughest stabiliser formulation challenges. This follows the success of three other curriculums - Texture University™, Sweetener University™ and Fibre University™ - which have attracted thousands of attendees worldwide.
 

Delivering on our near-term priorities

We are successfully delivering on the four near-term priorities we set out as we entered the year.

 

Looking after our colleagues and communities

·   Established new Employee Resource Group focused on providing support and information on mental health.

·   Partnered with the China Foundation for Poverty Alleviation to provide children in nine schools with a nutritious daily meal, nutrition education and to install modern kitchen equipment in the school canteens.

·   Created a new role of Chief Equity, Diversity & Inclusion Officer.

·   Covid-19 safety protocols in place at all our sites to ensure the workplace is as safe as possible for our people.

 

Strengthen our relationships with customers

·   Continued to stay very close to our customers by using technology and increasingly by meeting in person.

·   All our manufacturing facilities remained operational and our customers served during the pandemic.

·   Partnered with Nutrição em Pauta, a leading nutrition education platform in Brazil, the Brazilian Society for Food and Nutrition and Coca-Cola, to offer health and food industry professionals a free-to-access digital course to explain the origins, safety and efficacy of low and no calorie sweeteners.

·   Partnered with the Kellogg's Nutrition and Health Institute to launch an online course to share the latest science on dietary fibres with health clinicians, nutritionists, and industry professionals in Latin America. 

 

Continue to progress our strategy

·   Announced transaction to re-position Tate & Lyle as a growth-focused global food and beverage solutions business through the sale of a controlling stake in Primary Products in the Americas and certain joint ventures.  This transaction is explained in more detail later in this statement.

·   Further information on how we are progressing our strategy is set out in the "Delivering strategic progress in Food & Beverage Solutions" section in this statement.

 

Maintaining our financial strength

·   Robust financial position and strong balance sheet.  No employees furloughed or government aid sought.

·   Continued to execute against productivity programme to deliver US$150 million benefits over a six-year period ending 31 March 2024 with US$20 million of benefits delivered in the half.  Of this US$14 million was realised from projects in our operations and US$6 million from SG&A savings.

·   Total benefits since start of programme are US$144 million, coming from areas including capital investments to reduce costs, supply chain efficiencies and SG&A savings.

 

Caring for our Planet - eliminating the use of coal from our operations

In May 2020 we announced a set of ambitious environmental targets for 2030 to significantly reduce our absolute greenhouse gas emissions, beneficially use all the waste we generate, reduce water consumption and to continue to support sustainable agriculture. We also committed to eliminate the use of coal in our operations by 2025.

 

During the half, we completed projects to replace coal boilers with natural gas fired heat and power systems at our plants in Lafayette, Indiana and Decatur, Illinois.  Both projects were part of a multi-year US$150 million capital investment programme to reduce greenhouse gas emissions and increase operational efficiency in our plants.  With the completion of these projects, we delivered on our commitment, four years ahead of schedule, to eliminate the use of coal in all our operations.

 

We also launched a new sustainability programme for stevia farmers in Eastern China, developed with the environmental charity Earthwatch and Nanjing Agricultural University, to help growers lower their environmental impact and improve their economic returns.

 

Changes to Executive Management

William 'Bill' Magee was appointed as President, North America, Food & Beverage Solutions, and as a member of Tate & Lyle's Executive Committee, with effect from 1 October 2021.  Bill joined Tate & Lyle in 2018 and had previously served as Senior Vice President and General Manager, North America, Food & Beverage Solutions.

 

Re-positioning Tate & Lyle as a growth-focused business 

On 12 July 2021, we announced we had entered into an agreement to sell a controlling stake in the Primary Products business in North America and Latin America and certain joint ventures interests ("NewCo" or the "NewCo Business") to KPS Capital Partners, LP (the "Transaction"). Full details of the Transaction are set out in the circular to shareholders posted on 13 September 2021 (the "Circular"), a copy of which is available on the company's website.

 

Growth-focused speciality food and beverage solutions business

The Transaction re-positions Tate & Lyle as a leading global food and beverage solutions business focused on faster growing speciality markets with the opportunity to, firstly, benefit from growing global consumer demand for healthier food and drink a trend which the global pandemic is accelerating; secondly, to accelerate growth through a step-up in R&D investment and innovation; and thirdly to increase the focus on solutions development to support and strengthen customer relationships. Tate & Lyle's ambition over the five years following completion of the Transaction is to increase R&D spend to more than 4% of Food & Beverage Solutions revenue per annum, and to grow revenue from New Products to around 20% of Food & Beverage Solutions revenue by the 2026 financial year. 

 

With increased focus, positive top-line momentum, and our plans to increase investment in innovation, we are confident we have a strong platform in place from which to sustainably accelerate organic growth. Our ambition for the five years following completion is to deliver:

·   Organic revenue growth of mid single-digit percent per annum

·   Operating margin expansion of at least 50 to 100 basis points per annum

·   Organic return on capital employed improvement of 50 basis points per annum on average.

 

The performance of Food & Beverage Solutions over the three years ended 31 March 2021 (compound annual revenue growth of 4%) and in the first half of the 2022 financial year (19% revenue growth), supports this ambition and demonstrates the potential of Food & Beverage Solutions as a growth-focused business.

 

Progress towards completion

Completion of the Transaction is subject to various conditions.  Progress on key areas include:

i)   Approval of shareholders was received at a General Meeting held on 30 September 2021. The ordinary resolution was passed with 99.9% of the votes cast in favour.

ii)  Anti-trust clearance from five out of the six the relevant jurisdictions has been received to-date.

iii) The legal restructuring required to separate the NewCo Business from Tate & Lyle is proceeding as planned.

iv) The information technology separation to enable both Tate & Lyle and NewCo to report financially on a standalone basis from completion is also on track. 

 

We remain on track to complete the Transaction in the first quarter of the 2022 calendar year.

 

 

Dividend

The Board has approved an increase in the interim dividend for the six months to 30 September 2021 of 0.2p to 9.0p. This will be paid on 5 January 2022 to all shareholders on the Register of Members on 26 November 2021. As well as the cash dividend option, shareholders will be offered a Dividend Reinvestment Plan alternative.

 

As set out in the Circular, consistent with the sale of a controlling stake in NewCo, it is intended to reduce the dividend to reflect the earnings base of the re-focused Tate & Lyle. The pay-out ratio (excluding any NewCo earnings) is expected to be maintained and the dividend per share reduced by around 50%, before the impact of the share consolidation. Following payment of the intended special dividend of around £500 million and the associated share consolidation, it is intended that a progressive dividend policy will be maintained. 

 

With completion of the Transaction expected on or before 31 March 2022, it is expected that the final dividend for the 2022 financial year will be re-based.

 

 

 

 Operating Performance - Continuing Operations (New Tate & Lyle)

 

Six months to 30 September 2021	Volume change	Revenue	Revenue growth	Adjusted operating profit	Adjusted operating profit change
North America	+4%	£260m	+19%	-	-
Asia, Middle East, Africa and Latin America	+19%	£151m	+20%	-	-
Europe1	+9%	£167m	+18%	-	-
Food & Beverage Solutions	+9%	£578m	+19%	£83m	+2%
Memo: Food & Beverage Solutions (before reporting changes)	+10%	£528m	+19%	£98m	+9%
Sucralose	+23%	£78m	+17%	£31m	+34%
Central costs				£(17)m	+25%
Total - Continuing operations		£656m	+19%	£97m	+18%

 

The adjusted results for the six months to 30 September 2021 have been adjusted to exclude exceptional items, amortisation of acquired intangible assets, the tax on those adjustments and tax items that are themselves exceptional. A reconciliation of statutory and adjusted information is included in Note 2 to the Financial Information. Growth percentages are calculated on unrounded numbers.  Changes in revenue and adjusted operating profit are in constant currency. 

1 Includes loss from the retained Primary Products Europe business for the six months to 30 September 2021 £(11) million loss (2020 - loss of £(4) million) and cost re-allocations (stranded costs) of £(4) million (2020 - £(4) million).

 

 

FOOD & BEVERAGE SOLUTIONS

 

Excellent top-line growth

 

Volume increased by 9% with revenue 19% higher in constant currency at £578 million. Customer demand for ingredients used for in-home consumption, such as packaged and shelf-stable foods, remained strong, supplemented by increasing demand for ingredients used in food and drink consumed out-of-home.  Consumer demand for healthier food and beverages that are lower in sugar and calories, with cleaner labels and added fibre, also continued to grow.  Strong mix management, together with the pass through of higher corn costs contributed 7ppts of price/mix leverage.  Acquisitions contributed 3ppts to revenue growth.

 

Looking through the impact of the Covid-19 pandemic and before the impact of reporting changes, compared to the six months to 30 September 2019, volume was 11% higher and revenue 21% higher.

 

Adjusted operating profit was 2% higher in constant currency at £83 million with the benefit of strong mix management, strong cost discipline and productivity benefits mitigated by selected investments in future growth.  As a result of the transaction to sell a controlling stake in the Primary Products business in the Americas, Primary Products Europe is now included in the Food & Beverage Solutions division. Operating losses in the European Primary Products business increased by £7 million to £11 million reflecting the impact of higher corn costs and low sugar pricing. Excluding this, adjusted operating profit for the division was 9% higher in constant currency. The effect of currency translation decreased revenue by £39 million and adjusted operating profit by £8 million. 

 

North America

 

Top-line momentum continued with volume 4% higher as strong demand for in-home consumption continued supported by improving out-of-home demand, especially for customers in the food service channel.  Demand for solutions which make food and beverage healthier remained strong in our focus categories in the North American market, driving volume growth well ahead of the overall food and beverage market which remained in line with the comparative period.  Growth was driven by strong performance across categories such as beverage, confectionery and nutrition and bakery, especially for solutions using our fibre portfolio.

 

Revenue was 19% higher in constant currency at £260 million.  Significant volume growth to revenue growth leverage reflects good mix with particularly strong growth from the fibre portfolio and New Products, the impact of acquisitions and the pass through of higher corn costs.  Revenue for New Products increased by more than 50% in North America in the half, with high customer demand for stevia and allulose sweeteners.

 

Asia, Middle East, Africa and Latin America

 

Volume was 19% higher reflecting double-digit growth in each sub-region, the impact of acquisitions and a comparative period impacted by the pandemic. Revenue increased by 20% in constant currency to £151 million.  Revenue growth was strong in each sub-region with especially strong growth in Latin America.

 

In Asia, revenue growth was strong in South East and North Asia. In China, we saw strong revenue growth in stevia while overall revenue was lower reflecting a strong comparative.  In Latin America, sugar reduction solutions for customers addressing new front-of-pack labelling rules accelerated growth in the Mexico and Central American region, while growth was also strong in Southern Latin America driven by strong stevia performance.  In Brazil, revenue was slightly lower. In Middle East and Africa, revenue grew strongly reflecting good performance in Turkey and North West Africa and strong demand for texturants.

 

Europe

 

Volume was 9% higher.  Revenue for the region was £167 million including £50 million from the retained European Primary Products business. Revenue was 18% higher in constant currency both before and after the inclusion of the European Primary Products business.  Revenue growth benefited from strong performance in the beverage, bakery and confectionary categories and a comparative period impacted by pandemic lockdowns. 

 

New Products

 

Revenue from New Products (products launched in the last seven years) increased by 48% in constant currency to £80 million, representing 14% of Food & Beverage Solutions revenue (after inclusion of Primary Products Europe), with revenue growth across the three platforms of sweeteners, texturants and health & wellness.  Acquisitions, particularly the Sweet Green Fields stevia business, helped to accelerate New Product revenue growth.

 

The sweeteners platform delivered exceptionally strong performance with revenue nearly three times higher in the half driven mainly by demand for stevia solutions.  Stevia is an important natural sweetening ingredient for customers and consumers and our stevia solutions are used to reduce sugar and calories in products across a range of categories such as beverage, dairy, confectionery and bakery.  Excluding acquisitions, revenue from the sweetener platform doubled.  Revenue in the health & wellness platform also grew strongly reflecting strong demand in the sports nutrition category.

 

SUCRALOSE

 

Robust demand

 

Sucralose volume increased by 23% with strong customer demand in the beverage category as out-of-home consumption recovered and customers phased orders into the first half.

 

Revenue increased by 17% in constant currency to £78 million reflecting strong volume growth partially offset by the impact of customer mix and modest pricing pressure.  In the second half of the 2022 financial year, we expect the impact of customer order phasing to mostly unwind and further modest pricing pressure to continue.  

 

Looking through the impact of the Covid-19 pandemic, compared to a comparative period for the six months to 30 September 2019, volume was 21% higher and revenue 14% higher.

 

Adjusted operating profit at £31 million was 34% higher in constant currency reflecting both operational leverage of higher revenue and one-off production costs incurred in the comparative period.  Currency translation decreased revenue by £7 million and adjusted operating profit by £3 million.

 

 

 Operating Performance - Discontinued Operations (NewCo)

 

Six months to 30 September 2021	Volume change	Revenue	Revenue growth	Adjusted operating profit1	Adjusted operating profit change
Sweeteners and Starches2	-	-	-	£60m	(13%)
Commodities	-	-	-	£14m	+4%
Primary Products	+3%	£891m	+22%	£74m	(10%)
Memo: Primary Products (before reporting changes)	+3%	£941m	+22%	£59m	(19%)

 

The adjusted results for the six months to 30 September 2021 have been adjusted to exclude exceptional items, amortisation of acquired intangible assets, the tax on those adjustments and tax items that are themselves exceptional. A reconciliation of statutory and adjusted information is included in Note 6 to the Financial Information. Growth percentages are calculated on unrounded numbers.  Changes in revenue and adjusted operating profit are in constant currency. 

1 Adjusted results for discontinued operations have also been adjusted to exclude the impact of IFRS 5 'held for sale' accounting.

2 Excludes Primary Products Europe, which has been retained.  Reflects cost re-allocations (stranded costs) transferred to Food & Beverage Solutions reflecting separation of the businesses see Note 3.

 

 

Resilient performance

 

Volume was 3% higher with sweetener volume 1% lower and industrial starch volume 22% higher.  Sweetener volume benefited from improved out-of-home demand for beverages but was impacted by operational and supply chain disruption.  Industrial starch volume benefited from its strategy to focus on packaging markets as well as a weak comparative period impacted by Covid-19.  Revenue at £891 million increased by 22% in constant currency reflecting higher volume, the pass through of higher corn costs and significantly higher revenue from Commodities due to higher co-product prices. 

 

Looking through the impact of the Covid-19 pandemic and before reporting changes, compared to the six months to 30 September 2019, volume was 5% lower and revenue 15% higher.

 

Adjusted operating profit was 10% lower in constant currency at £74 million.  Adjusted operating profit in Sweeteners and Starches was 13% lower in constant currency reflecting costs associated with productivity related operational disruption at our Lafayette, Indiana facility of £6 million and input cost inflation. Benefits from the productivity programme also supported financial performance. Profit for the period was also lower as the comparative period benefited from transactional foreign exchange in Latin America of £3 million.  Commodities adjusted operating profit at £14 million was 4% higher in constant currency.

 

Currency translation decreased revenue by £84 million and adjusted operating profit by £8 million.

 

Sweeteners

 

Volume was 1% lower with out-of-home consumption continuing to recover after declining during Covid-19 lockdowns mitigated by the impact of operational disruption.  While out-of-home consumption continues to recover, demand in that channel remains below pre-pandemic levels.

 

Industrial Starches

 

Volume was 22% higher as demand for paper and packaging recovered compared to weak demand in the comparative period.  Our strategy to partner with customers focused on more sustainable, plant-based packaging delivered growth ahead of the market.

 

Commodities

 

Commodities delivered adjusted operating profit of £14 million, 4% higher in constant currency.  As we entered the period, market conditions remained good and co-product recoveries high, with market conditions and co-product recoveries weakening as the half progressed. 

 

Additional Commentary in Financial Statements

 

Six months to 30 September1 Continuing operations	2021  £m	Restated* 2020  £m	Change  %	Constant  currency  change   %
Revenue	656	592	11%	19%
Adjusted operating profit2
- Food & Beverage Solutions	83	90	(7%)	2%
- Sucralose	31	25	22%	34%
- Central	(17)	(24)	27%	25%
Adjusted operating profit	97	91	6%	18%
Net finance expense	(12)	(13)	5%	(3%)
Adjusted profit before tax	85	78	8%	20%
Exceptional items	(59)	(15)	(>99%)	(>99%)
Amortisation of acquired intangible assets	(5)	(5)	(5%)	(11%)
Profit before tax	21	58	(64%)	(41%)
Income tax expense3	(9)	(13)	26%	23%
Profit for the period - continuing operations	12	45	(74%)	(46%)
Profit for the period - discontinued operations	90	88	3%	12%
Profit for the period - total operations	102	133	(23%)	(8%)
Earnings per share (pence) - continuing operations
Adjusted diluted	14.4p	12.9p	11%	25%
Diluted	2.5p	9.6p	(74%)	(46%)
Earnings per share (pence) - total operations
Adjusted diluted	29.8p	32.1p	(7%)	3%
Diluted	21.7p	28.4p	(24%)	(8%)
Cash flow and net debt - total operations
Adjusted free cash flow	127	194
Net debt - At 30 September (comparative 31 March 2021)	409	417

 

*  Prior period restated to reflect discontinued operations (see Notes 1 and 6)

1. Adjusted results and certain other terms and performance measures used in this document are not directly defined within IFRS. We have provided descriptions of such metrics and their reconciliations to the most directly comparable measures reported in accordance with IFRS and the calculation (where relevant) of any ratios in Note 2.

2. For a reconciliation to the IFRS 8 segmental results refer to Note 3.

3. Statutory income tax expense on continuing operations of £9 million comprises adjusted income tax charge of £17 million (Difference of £8 million comprises
 exceptional tax charge of £6 million and tax credit on adjusting items of £14 million). Refer to Note 5.

 

Continuing operations - adjusted operating profit

 

Six months to 30 September 2021 Adjusted operating profit	2021  £m	2020  £m	Constant  currency  change  %
Food & Beverage Solutions
As previously reported	98	98	9%
Cost re-allocations1	(4)	(4)	(4%)
Retained European Primary Products business2	(11)	(4)	(>99%)
Food & Beverage Solutions	83	90	2%
Sucralose	31	25	34%
Central costs	(17)	(24)	25%
Adjusted operating profit - continuing operations	97	91	18%

1.    Inclusion of certain operating costs which are reallocated from Primary Products to Food & Beverage Solutions because they will remain with the Group post disposal.

2.    Adjustment to include the European Primary Products business in Food & Beverage Solutions, which is not subject to the NewCo disposal transaction.

 

Central costs

 

Central costs, which include head office costs and certain treasury and legal activities, were 27% lower (25% lower in constant currency) at £17 million benefitting from strong discipline on overhead costs. Higher costs in the comparative period also reflected higher self-insurance costs.

 

Net finance expense and liquidity

 

Net finance expense from continuing operations at £12 million was 5% lower (3% higher in constant currency), mainly reflecting lower finance costs in the comparative period due to the US$200 million Private Placement issued in August 2020.

 

Exceptional items

 

The Group recorded a net exceptional charge of £65 million in continuing operations, comprising £59 million of exceptional items included in profit before tax and a £6 million charge included as an exceptional item within tax. Such items principally included the following:

 

·  £41 million of cash costs associated with the transaction to dispose of the Americas Primary Products business ("NewCo" or the "NewCo Business");

·   £13 million non-cash impairment charge related to the write-off of dedicated assets in the European Primary Products business and certain other assets, which are obsolete as a result of the NewCo Business disposal;

·   £2 million of cash costs relating to productivity and simplification projects in our operations; and

·   £3 million net charge related to historical legal matters in the US.

 

The exceptional cash outflows for the period totalled £15 million (for total operations), comprising £8 million of cash outflows related to charges recorded in the current period and £7 million of cash outflows resulting from exceptional costs recorded in prior year.

The Group is in the fourth year of its programme to generate productivity benefits of US$150 million by 31 March 2024 and has delivered US$144 million of total benefits to date. During the six months to 30 September 2021, exceptional cash costs in respect of this programme of US$3 million (£2 million, total operations) were recognised (either paid or provided), bringing the total to date to US$51 million.

In the comparative period, the Group recorded a net exceptional charge of £15 million in continuing operations.

 

Taxation

 

The adjusted effective tax rate on continuing operations was 20.2% (30 September 2020 (restated) - 22.5%). The rate reflects the prevailing rates of corporation tax in the US and UK, the jurisdictions most applicable to the Group's activities, as well as the benefit from the recognition of additional deferred tax assets following the announced future increase in the UK corporation tax rate.  We expect the adjusted effective tax rate for the year ending 31 March 2022 to be at a similar level to this rate.

 

The reported effective tax rate (on statutory earnings) for continuing operations was 44.7% (30 September 2020 - 21.9%). The higher effective tax rate on statutory earnings reflects the £6 million exceptional tax charge recorded in the period.

 

Earnings per share

 

For continuing operations, adjusted earnings per share increased by 11% (25% in constant currency) to 14.5p and adjusted diluted earnings per share at 14.4p were also 11% higher (25% in constant currency).  This increase reflects both stronger business performance as well as a slightly lower tax rate.  Statutory diluted earnings per share decreased by 7.1p to 2.5p, principally reflecting the higher exceptional costs in the period.

 

Discontinued operations

 

Discontinued operations comprises the NewCo Business which represents a disposal group.

 

Six months to 30 September 2021	2021  £m	2020  £m	Change  %	Constant  currency  change  %
Revenue	891	797	12%	22%
Primary Products as previously reported - adjusted operating profit	59	83	(28%)	(19%)
Costs re-allocations to continuing operations1	4	4	5%	4%
Transfer of European Primary Products to continuing operations2	11	4	>99%	>99%
Adjusted operating profit	74	91	(19%)	(10%)
Net finance expense	(2)	(2)	21%	13%
Adjusted share of profit after tax from joint ventures	15	13	13%	12%
Adjusted profit before tax	87	102	(14%)	(7%)
Exceptional items	(2)	(3)	30%	24%
IFRS 5 held for sale adjustments	25	-	-%	-%
Profit before tax	110	99	11%	20%
Income tax expense	(20)	(11)	(74%)	(88%)
Profit for the period - discontinued operations	90	88	3%	12%

1.   Inclusion of certain operating costs which are reallocated from Primary Products to Food & Beverage Solutions because they will remain with the Group post disposal.

2.   Adjustment to include the European Primary Products business in Food & Beverage Solutions, which is not subject to the NewCo disposal transaction.

 

Adjusted profit after tax for discontinued operations (which excludes the impact of exceptional items and IFRS 5 held for sale adjustments) of £72 million was 12% lower than the comparative period, mainly reflecting weaker operating performance.

 

IFRS 5 Held for Sale adjustments of £25 million

 

IFRS 5 requires certain adjustments to assets held for sale, for which the relevant items to the Group from the Transaction were as follows:

 

·   Cessation of depreciation of assets of the NewCo Business, this reduced operating costs by £23 million; and

·   Cessation of equity accounting of the share of profits from the Group's existing joint venture interests in Almex and Bio-PDO.  The impact of this resulted in a reduction in joint venture income of £7 million, however dividends received in the period were recorded as income within discontinued operations, an income of £9 million.

 

Such adjustments applied prospectively from 1 July 2021 (being the date at which the Transaction became highly probable) and comparatives are not restated.  The impact of these adjustments is reflected in discontinued operations only. 

 

Adjusted share of profit after tax of joint ventures

 

The Group's adjusted share of profit after tax of joint ventures of £15 million was 13% higher (12% higher in constant currency) principally due to higher profits in DuPont Tate & Lyle Bio-Products (Bio-PDO), as demand recovered from the pandemic period.  Almex saw stronger sweetener demand in the half as consumption recovered compared to a Covid-19 pandemic impacted comparative period. Almex profit was in line with the comparative period, as the impact of higher volume was offset by the benefit in the comparative period of transactional foreign exchange of £4 million.  The statutory share of profit after tax of joint ventures of £8 million reflects the impact of stopping equity accounting on 1 July 2021 (reduction in joint venture income of £7 million).

 

Net finance expense

 

Relates to the interest charge on certain leases, principally railcars.

 

Exceptional items

 

Relates to the exceptional charge recognised within the NewCo Business. This cash charge of £2 million relates principally to productivity and simplification projects in our operations.

 

Cash flow, net debt and liquidity - total operations

Adjusted free cash flow for the total Group was £127 million (2020 - £194 million).  The decrease of £67 million reflects the weaker performance in Primary Products, as well as an increase in working capital of £54 million. The increase in working capital was due to higher receivables as a result of increased revenue and an increase in inventory as a result of higher corn prices.

 

We continue to expect capital expenditure for the 2022 financial year to be between £160 million and £180 million Such forecast capital expenditure assumes completion of the Transaction to sell the NewCo Business on 31 March 2022.

 

Net debt at 30 September 2021 of £409 million was £8 million lower than at 31 March 2021. Net cash flow generated from operating activities was largely offset by dividend payments of £102 million and capital expenditure of £67 million leading to this modest reduction in the period.

 

At 30 September 2021 the Group held cash and cash equivalents of £396 million (including £11 million classified as held for sale) and had access to a committed, undrawn revolving credit facility of US$800 million until 2025.  Net debt to EBITDA ratio was 0.8 times (31 March 2021 - 0.8 times). On a covenant-testing basis, net debt to EBITDA ratio was 0.6 times, which was materially lower than the required covenant ratio of not greater than 3.5 times, demonstrating significant headroom above this covenant requirement.

 

Retirement benefits

 

The Group maintains pension plans for certain of its current and former employees in a number of countries. Certain of these arrangements are defined benefit pension schemes.  All funded schemes in the UK and US are closed for further accrual. In the US, the Group also continues to provide an unfunded post-retirement medical benefit scheme.

 

On disposal of the NewCo Business, the Group will retain all US defined benefit pension schemes.  However, certain funded non-qualified deferred compensation arrangements as well as the unfunded post-retirement medical plans relating to employees transitioning as part of the Transaction (together representing a net deficit of £28 million) will be disposed of and are therefore classified as held for sale.

 

At 30 September 2021, the Group's retirement benefit obligations were in a net deficit of £114 million (31 March 2021 - net deficit of £140 million).  The largest component of the net deficit relates to schemes in the US that are by their nature unfunded schemes (e.g. US post-retirement medical benefit scheme).

 

During the period to 30 September 2021, the asset performance closely matched and offset the actuarial losses in the funded plans. As a result, the net deficit position increased marginally to £142 million before the impact of reclassification to held for sale.

 

The main UK plan was subject to a 'buy-in' in the 2020 financial year whereby any increases in pension obligations are offset by equal and opposite movements in the 'buy-in' insurance policy.  As a result, the balance sheet for the UK plans has remained consistent with the 31 March 2021 position.

 

In the six months to 30 September 2021, pension contributions of £5 million were in line with the comparative period.

 

Basis of preparation

 

Notwithstanding the application of IFRS 5 'Non-current assets Held for Sale and Discontinued Operations' to the NewCo Business, the Group's principal accounting policies are unchanged compared with the year ended 31 March 2021 with one exception.  During the six months to 30 September 2021, the Group has revised its accounting policy in relation to upfront configuration and customisation costs incurred in implementing Software-as-a-Service arrangements in response to an IFRS Interpretations Committee decision (Configuration or Customisation Costs in a Cloud Computing Arrangement (IAS 38 Intangible Assets)-Agenda Paper 2).

 

Details of the basis of preparation, including information in respect of the Group's alternative performance measures, can be found in Note 1 to the attached financial information. 

 

 

Going Concern

 

The Directors are satisfied that the Group has adequate resources to continue to operate as a going concern for the foreseeable future and that no material uncertainties exist with respect to this assessment. In making the assessment, the Directors have considered the Group's balance sheet position and forecast earnings and cash flows for the period from the date of approval of this condensed set of consolidated financial information to 31 March 2023. The Directors have also considered the impact of the Transaction on this assessment. The business plan used to support the going concern assessment (the "Base case") is derived from Board-approved forecasts together with certain downside sensitivities.

 

Further details of the Directors' assessment are set out below:

 

At 30 September 2021, the Group has significant available liquidity, including £396 million of cash and US$800 million of committed and undrawn revolving credit facility, of which US$100 million matures in 2025 and US$700 million matures in 2026. In addition, none of the Group's existing financing matures during the going concern assessment period and the Transaction does not require any of it to be repaid or refinanced.  The earliest maturity date is October 2023, when US$120 million of private placement debt will mature.  During the prior year, the Group demonstrated its ability to raise new finance despite the uncertainties of the Covid-19 pandemic, raising US$200 million of new private placement debt in August 2020, with ten-year and twelve-year tenors at 2.91% and 3.01%, respectively.  

 

The Group has only one debt covenant requirement which is to maintain a net debt to EBITDA ratio of not more than 3.5 times. On the covenant-testing basis this was 0.6 times at 30 September 2021 (Refer to Note 2). For a covenant breach to occur it would require a profound reduction in Group profit. Such reduction is considered to be extremely unlikely.

 

As set out in our 31 March 2021 Annual Report, during May 2021, the Directors modelled the impact of a 'worst case scenario' to the Base case by including the same three plausible but severe downside risks also used for the Group's viability statement, being: a major shutdown of our largest manufacturing facility; the loss of two of our largest Food & Beverage Solutions customers; and a slower recovery from the impact of the Covid-19 pandemic. In aggregate, such 'worst case scenario' did not result in any material uncertainty to the Group's going concern assessment and did not erode the significant headroom above the Group's debt covenant requirement.   The Directors also calculated a 'reverse stress test', which represents the changes that would be required to the Base case in order to breach the Group's debt covenant. Such 'reverse stress test' showed that the forecast Group profit would have to be reduced to almost zero in order to cause a breach.

 

Since the assessment in May, the Directors updated the model such that it considered similar downside cases (being a major plant shutdown, loss of our two largest Food & Beverage Solutions customers and a slower recovery from the Covid-19 pandemic).  This assessment also considered a scenario where the Transaction did not complete.  Based on this assessment, the Directors concluded that in both the Base Case and worst case scenario, the Group has significant liquidity and covenant headroom throughout the period to 31 March 2023. Accordingly, the Directors have concluded that there are no material uncertainties with respect to going concern and have adopted the going concern basis in preparing the condensed consolidated financial information of the Group as at 30 September 2021.

 

Risks and uncertainties

 

The principal risks and uncertainties affecting the business activities of the Group are detailed on pages 71 to 76 of the Tate & Lyle Annual Report 2021, a copy of which is available on the Company's website at www.tateandlyle.com.  Given the work currently being undertaken to complete the transaction announced on 12 July 2021 to sell a controlling stake in the Primary Products business in the Americas ("NewCo") to KPS Capital Partners, LP, the Board has decided to add a further principal risk to those outlined in the Annual Report 2021 which is 'Failure to successfully manage the transition to two standalone businesses following the sale of the controlling stake in Primary Products'. The Board considers that actions are also being taken to substantially mitigate the impact of this risk. Except as described above, the Board considers that the principal risks set out in the Annual Report 2021 remain unchanged and that actions continue to be taken to substantially mitigate the impact of such risks, should they materialise.

 

 

CAUTIONARY STATEMENT AND CONFERENCE CALL DETAILS

 

 

 

Webcast and Q&A Details

 

An audio presentation of the results by Chief Executive, Nick Hampton, and Chief Financial Officer, Vivid Sehgal, will be available to view on our website from 07.00 (GMT) on Thursday 4 November 2021. To access the presentation, visit https://www.investis-live.com/tate-and-lyle/61718bc1835ae21200bc2f0b/dfgh.

 

This presentation will be live streamed at 10.00 (GMT), and will then be followed by a live Q&A session. To view and listen to this audio webcast and Q&A, visit https://www.investis-live.com/tate-and-lyle/61718e74b3a1780c00c8bf58/hunbPlease note that only sell-side analysts and any pre-registered buy-side investors will be able to ask questions during the Q&A session. Sell-side analysts will be automatically pre-registered.  To pre-register, please contact Lucy Huang at lucy.huang@tateandlyle.com.

 

The archive version of the audio webcast with Q&A will be available on the same link at https://www.investis-live.com/tate-and-lyle/61718e74b3a1780c00c8bf58/hunb within two hours of the end of the live broadcast.

 

 

For more information contact Tate & Lyle PLC:

Christopher Marsh, VP Investor Relations

Tel: Mobile: +44 (0) 7796 192 688

 

Nick Hasell, FTI Consulting (Media)

Tel: Mobile: +44 (0) 7825 523 383