Half year results for the six months to 30 September 2022
Issued: Thursday 10 November 2022
Strong first half performance with good progress delivering growth-focused strategy
HEADLINES
· Strong first half performance with Group revenue +20% and adjusted operating profit +29%
· Good progress delivering growth strategy as newly focused speciality food and beverage solutions business:
− Food & Beverage Solutions revenue +21% including inflation price-through and mix management
− New Products revenue +19% benefiting from focus on innovation and customer collaboration
− Integration of Quantum Hi-Tech acquisition, a leading dietary fibre business in China, progressing well
· Managing impact of cost inflation through strategic mix management, pricing, productivity and cost discipline
· Adjusted profit before tax1 +10% with strong Tate & Lyle and significantly lower Primient joint venture profits
· Strong balance sheet and cash delivery underpins investment for growth and progressive dividend policy
· Outlook for year to 31 March 2023 – adjusted profit before tax to be in-line with current market expectations
FINANCIAL SUMMARY
| Adjusted results1, 2, 3 | Statutory results4 | |||||
| 2022 | 2021 | vs 2021 | 2022 | 2021 | vs 2021 | |
| Revenue | £849m | £656m | +20% | £849m | £656m | +29% |
| Operating profit | £137m | £94m | +29% | £114m | £33m | >99% |
| Profit before tax | £139m | £112m | +10% | £68m | £21m | >99% |
| Diluted earnings per share | 26.6p | 21.4p | +9% | 13.3p | 2.5p | >99% |
| Free cash flow | £62m | £20m | £42m | |||
| Net debt (comparative 31 March) | £281m | £626m | ||||
| Dividend per share | 5.4p | 9.0p | (40%) |
NICK HAMPTON, CHIEF EXECUTIVE SAID
“Our strong first-half represents an excellent start to Tate & Lyle’s first full year as a growth-focused, science-driven, speciality food and beverage solutions business. Food & Beverage Solutions delivered another half of strong revenue and profit performance with broad-based growth across all regions. We continued to see robust customer demand for solutions which make healthier food and drink, and to benefit from our increasing focus on innovation and close customer collaboration.
We have seen significant inflation and supply chain volatility in raw materials, energy and logistics costs, especially in Europe. We have worked closely with our customers to provide visibility of increasing input costs and continue to follow this approach as we enter discussions for 2023 calendar year contract renewals.
The separation of the Primient joint venture was executed successfully in April to the great credit of both the Tate & Lyle and Primient teams. While Primient had a difficult first half due to inflation and operational challenges, underlying demand remains robust and with a focus on cash generation we have received US$76m in cash dividends this year.
The strategic re-positioning of Tate & Lyle to focus on speciality food and beverage solutions has significantly enhanced the quality and resilience of our business. Despite the uncertain economic outlook, we remain confident that the strength of our ingredient portfolio across attractive categories and regions, our focus on serving our customers, and the expertise and commitment of our people will enable us to successfully deliver our growth-focused strategy.”
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1 Comparatives for adjusted results for the six months to 30 September 2021 are pro-forma financial information published on pages 44 and 45 of the half year results statement for that period issued on 4 November 2021. Free cash flow comparative is continuing operations only.
2 The adjusted results for the six months to 30 September 2022 exclude exceptional items, amortisation of acquired intangible assets and other fair value adjustments, 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 adjusted performance metrics are in constant currency throughout this statement.
3 Pro-forma adjusted diluted EPS has been calculated based on the earnings for the period and the shares in issue adjusted for impact of the 6 for 7 share consolidation as if it occurred on 1 April 2021.
4 Statutory results are continuing operations only
KEY HIGHLIGHTS1
Food & Beverage Solutions: continued strong revenue momentum
· Underlying volume +2% from robust customer demand; reported volume (8%) lower reflecting the planned transition of Primary Products Europe capacity, supply chain challenges and one-off factors
· Revenue +21% with double-digit organic growth across all regions
− Volume excluding Primary Products Europe (5%) lower delivering +21% revenue growth from 13ppts inflation price-through, 12ppts strategic mix management and 1ppt acquisitions
· Adjusted operating profit +26% at £113m
Continued focus on innovation and customer collaboration driving New Products revenue growth
· New Products revenue +19%2 reflecting good demand for fortification and mouthfeel solutions
· New Products represent 15% of Food & Beverage Solutions revenue
Sucralose delivers steady earnings
· Volume +9% due to strong customer demand, a phasing benefit and modest optimisation of production
· Revenue +12% with higher volume and benefits from customer mix
· Adjusted operating profit 8% higher at £39m
Group results reflect strong Tate & Lyle profits and significantly lower profits in Primient joint venture
· Revenue +20%; adjusted operating margin +110bps in constant currency; adjusted profit before tax +10%
· Share of adjusted profit of Primient joint venture 62% lower1 due to inflation and operational challenges
− Primient executed in-year supplementary pricing where possible with the ability to further price-through inflation during the 2023 calendar year bulk sweetener contracting round
· Received US$76m in cash dividends from Primient, the full amount expected for the 2023 financial year
· Proforma adjusted diluted EPS +9% after adjusted effective tax rate at 21.9%
· Statutory profit after tax on total operations up £19m at £121m from the profit on disposal of Primient offset by the inclusion in the current year of only 49.7% of profits from the retained interest in the joint venture
· Free cash flow of £62m (2021 – £20m) benefiting from higher profits and working capital in-line with the comparative period despite the impact from inflation
· Net debt £345m lower at £281m at 30 September 2022
− Primient net receipts of £1.0bn; acquisition of Quantum £(184)m; special dividend £(497)m
− Net debt to EBITDA ratio 1.0x
· Interim dividend of 5.4p reflects new earnings base, share consolidation and special dividend in May 2022
Continuing to invest in delivering growth-focused strategy
· Strengthened customer-facing solutions capability in areas such as nutrition, sensory and regulatory
· Acquired Nutriati, an ingredient technology business producing chickpea protein and flour
· Opened new Innovation and Customer Collaboration Centre in Santiago, Chile
· Capital projects to deliver growth expansion and ease capacity constraints progressing well
Effective management of significant cost inflation
· £85m of gross cost inflation mitigated by strategic mix management, pricing, productivity and cost discipline
· Quarterly supplemental pricing programme in place since May 2022
· For key production inputs such as corn and energy, forward purchase agreements and hedging are used to help manage input cost volatility and to build supply continuity
Integration of Quantum, a leading dietary fibre business in China, acquired in June progressing well
· Quantum significantly strengthens fortification solutions offering for customers in China and Asia
· Integration on track supported by strong customer relationships and good operating discipline
Good progress on purpose programme and building a more agile and inclusive culture
· Expanded sustainable agriculture programme for stevia
· Food bank partnership programme increased to support local communities
· 42% of top 500 managers are women
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1. Adjusted metrics percentage changes are in constant currency, Comparatives for adjusted results for the six months to 30 September 2021 are pro-forma financial information published on pages 44 and 45 of the half year results statement for that period. Pro-forma adjusted diluted EPS has been calculated based on the earnings for the period and the shares in issue adjusted for impact of the 6 for 7 share consolidation completed on 3 May 2022.
2. Definition of New Products updated to reflect nature of innovation launches see page 47. On previous definition revenue was 16% higher in period.
OUTLOOK
For the year ending 31 March 2023, we continue to expect:
· Revenue growth reflecting current top-line momentum
· To offset input cost inflation through strategic mix management, pricing, productivity and cost discipline
· Adjusted profit before tax to be in line with current market expectations with stronger profits in Food & Beverage Solutions offsetting lower profits from the minority holding in Primient.
OVERVIEW OF THE HALF-YEAR
Business environment and trading
The Group has made an excellent start to the year. Revenue in the first half was 20% higher reflecting the pricing-through of inflation and strong strategic mix management to deliver higher margin business in a period of capacity constraint. Adjusted operating profit was 29% higher. Adjusted profit before tax was 10% higher reflecting strong performance from the core business and weaker performance from our minority holding in the Primient joint venture.
Tate & Lyle is a global leader in sweetening, mouthfeel and fortification and we saw revenue growth across each of these platforms in the half. Our broad portfolio and technical capabilities provide customers with solutions that reduce sugar, calories and fat, and add fibre to their products, and consumer demand for healthier food and drink remained robust across the period. Underlying volume was slightly ahead of the comparative period at 2% higher. However, reported volume was 8% lower due to three factors each with around equal impact. Firstly, the planned transition of Primary Products capacity in Europe. Secondly, challenges in the operating environment from Covid-19 lockdowns in China and supply chain disruption. Thirdly, one-off factors including our decision to exit certain low margin business and the impact of industrial action at our corn wet mill in The Netherlands over a two-week period, which is now concluded.
We are mindful of the uncertain economic outlook and are closely monitoring consumer and customer demand as we move forward. Our experience during the pandemic, when demand for our speciality ingredients and solutions remained robust with some fluctuations across categories and regions, gives us confidence we can adapt to changing demand patterns.
Input inflation and supply volatility
Our teams have demonstrated agility in successfully navigating significant inflation and supply chain disruption. In the first half, we saw gross cost inflation totaling £85 million in areas such as corn, energy, consumables and transportation. This was mitigated by a combination of strategic mix management, pricing, productivity and cost discipline.
We entered the 2022 calendar year with renewed customer contracts that offset expected inflation. However, the conflict in Ukraine has caused significant further inflation in raw materials (including corn), energy and logistics costs, especially in Europe. It has also created supply chain volatility across a range of inputs (including packaging and chemicals) consumed in our production facilities across the world.
In May 2022, we implemented a programme of supplementary price increases across our main markets to recover incremental input costs. Under this programme, we have worked closely with customers to provide visibility of increasing input costs and are adjusting customer prices on a rolling quarterly basis. Together with a continued focus on delivering productivity and strong cost discipline, this has allowed us to offset input cost inflation. Normal industry practice sees customer contracts in North America and Europe renewed annually from 1 January each year. We will continue to adopt our approach of working closely with customers as we go through the 2023 calendar year contracting round in these regions.
We use forward purchase commitments globally and hedging for corn and energy in the US to help manage inflation and to build supply continuity. Such arrangements delay the impact of incremental cost increases. In addition, business continuity plans are in place should energy supplies to our two European corn wet mills in the Netherlands and Slovakia be limited or interrupted, which include optimising production to prioritise speciality ingredients.
Delivering progress on our growth-focused strategy
On 1 April 2022, following the sale of a controlling stake in Primary Products in the Americas (‘Primient’), Tate & Lyle was re-positioned as a leading global speciality food and beverage solutions business focused on faster growing markets. During the half, we made good progress delivering our growth strategy and increasing our focus on innovation:
· Double-digit organic revenue growth in each region
· New Products revenue up 19% in constant currency (23% on a like-for-like basis)
· New Products revenue 15% of Food & Beverage Solutions revenue
· Risk adjusted revenue of innovation pipeline up 29% since 31 March 2022.
Growth is being driven by the delivery of our strategic growth framework which is centered on four pillars. Progress across these four pillars during the half include:
Integrated solutions for customers
· We continued to invest in strengthening our customer-facing solutions capabilities in areas like sensory, nutrition, regulatory and category and consumer insights. Targeted programmes to develop new ways of working with customers are progressing well and helping to build stronger solutions-based partnerships.
Market focus
· In May, we opened a new Customer Innovation and Collaboration Centre in Santiago, Chile to accelerate the innovation process for customers in southern Latin America.
· In our sweetener platform, to meet growing customer demand across our key markets, we are investing in our stevia facility in China and have just increased capacity in our stevia production line in the US.
Portfolio expansion
· In April, we acquired Nutriati, an ingredient technology business developing and producing chickpea protein and flour, expanding our capability to offer customers sustainable, plant-based solutions. We have seen strong revenue growth and customer interest for both product lines.
· In June, we completed the acquisition of Quantum Hi-Tech (Guangdong) Biological Co., Ltd (Quantum), a leading prebiotic dietary fibre business in China for a total consideration of US$238 million. Quantum has a high-quality portfolio of fructo-oligosaccharides (FOS) and galacto-oligosaccharides (GOS), and the acquisition strengthens our fortification platform and our position as a leading global player in the fast-growing dietary fibres market. The integration of Quantum is on track and, despite some challenges with Covid-19 related lockdowns in China, the business is performing well.
Accelerate innovation
· New Product revenue grew by 19% with the fortification platform up 79% driven by high demand for fibre solutions and the Quantum acquisition. Revenue from our mouthfeel platform was 10% higher reflecting customer demand for innovation, cleaner labels and cost optimsation. Revenue from the sweetener platform was 1% higher reflecting capacity constraints, especially in stevia.
· We extended our scientific partnership with APC Microbiome Ireland through a new two-year research project to increase understanding of how dietary fibres can impact the functioning of the gut microbiome. In August, we announced a jointly filed international patent application for a synbiotic fibre technology that has shown positive preliminary results in improving metabolic health.
Maintaining our financial strength
· Free cash flow generation at £62 million was £42 million higher than the comparative period (continuing operations) benefiting from a strong focus on working capital management, especially important given the headwinds from input cost inflation.
· Our minority holding in Primient offers an attractive cash dividend stream. We have received US$76 million in cash dividends from Primient representing the full amount expected for the 2023 financial year.
· Productivity remains a key focus, driving further efficiencies in our business. We have made good progress delivering against our target for productivity benefits of US$10 million for the 2023 financial year. We now expect productivity benefits of around US$15 million in the year .
· Proceeds from the Primient transaction further strengthened the balance sheet supporting the acquisition of Quantum (£184 million) and the payment of the special dividend (£497 million). At the end of the half, net debt had decreased by £345 million to £281 million and net leverage was 1.0x net debt to EBITDA. Our strong balance sheet is ready to support further investment for organic and inorganic growth.
Living our Purpose
With continued challenges across the world including Covid-19, climate change, the cost-of-living crisis and the conflict in Ukraine, we remain as determined as ever to deliver on our purpose. Our new more ambitious purpose of ‘Transforming Lives through the Science of Food’, introduced in April, is gaining strong traction with employees, customers and community partners. We continue to make good progress in each of our three purpose pillars.
Supporting healthy living
· In June, in partnership with the UAE’s F&B Manufacturers Business Group, we completed the Middle East’s first Sugar and Calorie Reduction Knowledge Building Programme, held at our Customer Innovation and Collaboration Centre in Dubai. The programme focused on supporting food and beverage manufacturers in the region to reduce sugar and calories in their products, with around 400 delegates participating including many customers and officials from regional government food authorities.
· In September, working with the British Nutrition Foundation, we launched a new online fibre calculator. This tool asks people eight questions to assess their current eating habits before giving an overall fibre score and offering simple tips and personalised advice on how to increase their fibre intake.
· In October, we announced support for a three-year research programme by The University of Aberdeen’s Rowett Institute to investigate how issues around poverty, food insecurity and obesity may affect shopping habits in the UK. As the only food and drink ingredient solutions supplier on the research panel, our support will include sharing industry insight on reformulation and expertise on nutrition.
Building thriving communities
· Demand for food banks is increasing significantly and so our partnerships with many food banks and other charitable partners across the world have never been more important. Since 2020, we have donated around 3 million meals to people in need in our local communities.
· We continue to make good progress against our target of achieving gender parity in leadership and management roles by 2025. At 30 September 2022, 42% of the top 500 managers in Tate & Lyle are women. Our UK median gender pay gap (at 1 April 2022) also increased to 9.6% in favour of women, up from 1.7% in favour of women in 2021.
Caring for our Planet
· We have expanded our stevia sustainable agriculture programme in China working with Earthwatch and Nanjing Agricultural University. This programme focuses on improving the environmental and social impacts of stevia production such as reducing fertiliser use and improving soil health through regular testing. Stevia growers are also being supported to pursue sustainability-related verification.
· We continue to make excellent progress on waste management. Over 90% of the waste we generate is beneficially used, for example as nutrients for local farms.
Later this year we will be publishing our third annual Purpose Report describing how our purpose is being lived across Tate & Lyle and progress against our purpose targets and commitments.
PRIMIENT
On 1 April 2022, we completed the sale of a controlling stake in Primient comprising the Primary Products business in North America and Latin America and interests in the Almidones Mexicanos S.A de C.V and DuPont Tate & Lyle Bio-Products Company, LLC joint ventures, to KPS Capital Partners, LP (KPS). Following the transaction KPS held a 50.1% interest in Primient and has Board and operational control, while Tate & Lyle held a 49.9% interest. An exceptional profit on disposal of £98 million has been recorded in the period. Subsequently, upon the issue of share incentives to Primient management, Tate & Lyle’s interest in Primient was diluted to 49.7%. Our relationship with KPS has started positively, and the 20-year agreements put in place to provide supply and economic security for both businesses are operating effectively.
During the first half, Primient saw sweetener volume marginally higher with industrial starch volume materially lower as robust demand was more than offset by operational challenges. Revenue was moderately higher reflecting both the pass-through of higher corn costs and in-year supplementary pricing which was executed where possible. Operational challenges in its network of corn wet mills reduced both throughput and efficiency and this, combined with the impact of cost inflation, resulted in significantly lower profits. The 2023 calendar year bulk sweetener contracting round provides the ability to further price-through inflation.
Tate & Lyle has received US$76 million in cash dividends from Primient representing the full amount expected for the 2023 financial year. Of this amount, US$31 million relates to distributions from profits earned by a former joint venture prior to disposal, and US$15 million to settle tax obligations on Primient profits. A dividend of US$15m was received in first half and the remaining US$61m in early November.
DIVIDENDS
£497 million special dividend and associated share consolidation
Following the sale of a controlling stake in Primient, £497 million was returned to ordinary shareholders by way of a special dividend of £1.07 per existing ordinary share on 16 May 2022. To maintain comparability, so far as possible, of the Company’s share price before and after the special dividend, this was accompanied by a consolidation and division of the Company’s ordinary share capital resulting in ordinary shareholders receiving six new ordinary shares for every seven existing ordinary shares they held. The share consolidation applied to ordinary shareholders on the Register on 29 April 2022.
Interim dividend for six months to 30 September 2022
The Board has approved an interim dividend for the six months to 30 September 2022 of 5.4p (2021 – 9.0p). The interim dividend represents a 40% per share reduction from the prior year’s interim dividend. After the effect of the share consolidation implemented in May 2022, this reduction is in-line with the previously communicated approach and reflects the smaller consolidated earnings base following the sale of the controlling stake in Primient, and is consistent with the step down in the final dividend for the year ended 31 March 2022. An underlying growth of 2.5% has been applied to the interim dividend. This dividend will be paid on 4 January 2023 to all shareholders on the Register of Members on 25 November 2022. As well as the cash dividend option, shareholders will be offered a Dividend Reinvestment Plan alternative.
BOARD AND MANAGEMENT
Board of Directors
· Dawn Allen joined the Board on 16 May 2022 as Chief Financial Officer.
· Dr Isabelle Esser joined the Board as a non-executive director on 1 June 2022.
Executive Committee
· Jim Stutelberg, President, Primary Products stepped down from the Executive Committee to take up the role as Chief Executive, Primient on 1 April 2022.
OTHER MATTERS
We will be holding a Capital Markets event on 8 February 2023.