REG-Tate & Lyle PLC Final Results <Origin Href="QuoteRef">TATE.L</Origin> - Part 2

Tate & LyleAnnouncement

28/05/2015 07:00

- Part 2: For the preceding part double click  ID:nBw2T3Y7Ja 

pro-forma 31 March 2015 adjusted profit before tax is required to align foreign exchange rates and to include profits for the first quarter to 30 June (reflecting a modelling 
 assumption that the Eaststarch transaction will complete on that date).  Taking these items into account the adjusted profit before tax for the year ended 31 March 2015 on a consistent basis becomes £208 million3, having increased pro-forma profit by £7 million to align to prevailing foreign exchange rates and by adding back £8 million to reflect the first quarter`s results of Eaststarch. 
                                                                                                       
 1 Pro-forma assuming the transaction to re-align Eaststarch had taken effect from 1 April 2014        
 2 Includes £6m sales of some non-blended products through the Food Systems organisation               
 3 Assumes forecast foreign exchange rate of GBP:USD £1.00:$1.54 and completion of the transaction on 30 June 2014 
                                                                                                       
                                                                                                       
 
 
Summary of financial results for the year ended 31 March 2015 (audited) 
 
 Year ended 31 March                                            2015     Restated*     Change        Change      
                                                                         2014                        (constant   
                                                                £m       £m            (reported)    currency)   
 Continuing operations                                                                                           
 Adjusted sales                                                 2 694    3 147         (14%)         (11%)       
                                                                                                                 
 Adjusted operating profit                                      247      349           (29%)         (27%)       
 Adjusted net finance expense                                   (23)     (27)                                    
 Adjusted profit before tax                                     224      322           (30%)         (28%)       
 Exceptional items                                              (142)    (14)                                    
 Amortisation of acquired intangible assets                     (9)      (10)                                    
 Net retirement benefit interest                                (8)      (8)                                     
 Share of tax of joint ventures and associates                  (14)     (13)                                    
 Profit before tax                                              51       277           (82%)         (81%)       
 Income tax expense                                             (21)     (32)                                    
 Profit for the year from continuing operations                 30       245           (88%)         (87%)       
 Profit for the year from discontinued operations               -        28                                      
 Profit for the year                                            30       273           (89%)         (88%)       
                                                                                                                 
                                                                                                                 
 Earnings per share - continuing operations (pence)                                                              
 Basic                                                          6.6p     52.8p                                   
 Diluted                                                        6.5p     52.1p         (88%)         (87%)       
                                                                                                                 
 Adjusted earnings per share - continuing operations (pence)                                                     
 Basic                                                          38.0p    56.5p                                   
 Diluted                                                        37.7p    55.7p         (32%)         (29%)       
                                                                                                                 
 Dividends per share                                                                                             
 Interim paid                                                   8.2p     7.8p          5.1%                      
 Final proposed                                                 19.8p    19.8p         0%                        
                                                                28.0p    27.6p         1.4%                      
                                                                                                                 
 Net debt                                                                                                        
 At 31 March                                                    504      353                                     
 
 
* Restated for the adoption of IFRS 11 `Joint Arrangements` 

Adjusted sales from continuing operations of £2,694 million (2014 - £3,147
million) were 14% lower than the prior year (11% in constant currency). Sales in
Speciality Food Ingredients decreased by 8% (4% in constant currency) to £908
million (2014 - £983 million), with volumes increasing by 2%. Sales in Bulk
Ingredients decreased by 17% (14% in constant currency) to £1,786 million (2014
- £2,164 million), with volumes 2% lower. 

Adjusted operating profit decreased by 29% (27% in constant currency) to £247
million (2014 - £349 million). In Speciality Food Ingredients, adjusted
operating profit was 30% lower (down 29% in constant currency) than the prior
year at £149 million (2014 - £213 million). Bulk Ingredients adjusted operating
profit decreased by 23% (19% in constant currency) to £133 million (2014 - £172
million). 

Five key factors have combined to reduce adjusted operating profit by £97
million in this financial year. Firstly, on a constant currency basis, the
adjusted operating profit of our SPLENDA Sucralose business was lower by £43
million due principally to price erosion in an extremely competitive market. The
second significant factor was the impact of the operational and supply chain
disruption which led to costs totalling around £20 million in the year. These
costs exclude the impact of lost sales which constrained volume growth in
Speciality Food Ingredients in the year by approximately three to four
percentage points. Thirdly, adjusted operating profit in our Bulk Ingredients
business in Europe was £13 million lower than the previous financial year as
pricing for EU sugar, which provides the reference price for isoglucose in
Europe fell, and the 2014 financial year included a one-off gain from the
on-sale of Orsan China, a business in which we previously held a stake and which
was sold in 2009. In addition, adjusted operating profit for the year ended 31
March 2014 included a number of one off gains totalling of £9 million, the
largest item of which was the profit of £6 million on the purchase, sale and
leaseback of our Hoffman Estates building in Chicago. Finally, foreign exchange
translation also reduced adjusted operating profit by £12 million. 

Adjusted net finance expense (excluding net retirement benefit interest)
decreased from £27 million to £23 million following the repayment of our $500
million bond in November 2014. 

Adjusted profit before tax was 30% lower (28% in constant currency) than last
year decreasing from £322 million in 2014, to £224 million in 2015. Adjusted
diluted earnings per share decreased by 32% (29% in constant currency) to 37.7p
(2014 - 55.7p). 

On a statutory basis, profit before tax from continuing operations decreased by
82% (down 81% in constant currency) to £51 million (2014 - £277 million) and
reflects £142 million of exceptional costs, primarily the £113 million
impairment charge in respect of the Singapore sucralose plant. Profit for the
year from total operations decreased to £30 million (2014 - £273 million), with
the prior period benefiting from an exceptional income tax credit of £28 million
following the favourable resolution of outstanding tax matters in Spain. 

Central costs

Central costs, which include head office, treasury and reinsurance activities,
decreased by £1 million to £35 million. One off costs in the first half of the
2015 financial year (primarily driven by captive insurance costs relating to the
impact of the Singapore extended shutdown) were offset by lower share based
payments charges. 

Exceptional items from continuing operations

During the year the Group recognised an exceptional charge of £142 million,
comprising £12 million of business transformation costs associated with
completing the implementation of the common global IS/IT system; £12 million to
terminate distribution rights previously held by a third party to sell our
crystalline fructose to customers primarily in Asia Pacific; and £118 million of
costs associated with the business re-alignment exercise announced on 21 April
2015. Further detail can be found in Note 4 of the attached financial
information. 

Net finance expense

After excluding net retirement benefit interest, adjusted net finance expense
from continuing operations decreased to £23 million (2014 - £27 million) with a
reduction in underlying net interest expense following the repayment of our $500
million bond in November 2014. 

Taxation

Our tax policy is to manage our obligations in compliance with all relevant tax
laws, disclosure requirements and regulations. We seek to ensure that our
approach to tax and the tax payments we make in all territories in which we have
operations are fully consistent with local requirements, taking into account
available tax incentives and allowances, and are aligned with the Group`s wider
business strategy. 

We seek to develop good, open working relationships with tax authorities and to
engage with them proactively, recognising that tax legislation can be complex
and may be subject to differing interpretations. In instances where this might
arise, we seek to engage with the relevant tax authorities in open discussion of
any such differences as early as possible to remove uncertainty and obtain
resolution. 

Tate & Lyle`s tax strategy and the management of tax risk is primarily the
responsibility of the Chief Financial Officer and the Vice President, Group Tax
and it is reviewed by the Board and the Audit Committee to ensure responsible
tax practices are maintained across the Group`s businesses. 

Our tax rate is sensitive to the geographic mix of profits and reflects a
combination of higher rates in certain jurisdictions such as the US, nil
effective rates in Singapore (due to pioneer status which we were granted in
2008 to reflect our investment in innovative technology) and the UK, and rates
that lie somewhere in between for example, in certain East European countries.
The adjusted effective tax rate for the year increased to 21.2% (2014 - 18.5%),
driven by the geographic mix in profits shifting away from lower tax
jurisdictions, notably Singapore, partially offset by the settlement of some
outstanding tax issues in the year which benefited the headline rate by around
100 basis points. As a result of the continued shift in geographic mix of our
profits, we anticipate that the effective tax rate in the 2016 financial year
will be slightly above the underlying 2015 rate. 

Our UK earnings are now relatively small following the sale of our legacy sugars
and molasses businesses. Less than 1% of our total group sales (2015: £21
million) are derived from UK operations which are offset by our corporate costs,
primarily the interest we pay on our borrowings. As a result, we pay no
corporation tax in the UK. 

Discontinued operations and legacy issues

The Group did not report any operations as being discontinued during the year
ended 31 March 2015. Continuing operations include the results of Eaststarch
which is not treated as a discontinued operation for the financial year ended 31
March 2015. During the year ended 31 March 2014, the Group recognised a non-cash
exceptional income tax credit of £28 million following the favourable resolution
of outstanding tax matters associated with the starch facilities which formed
part of the Group`s former Food & Industrial Ingredients, Europe segment. 

Earnings per share

Adjusted diluted earnings per share from continuing operations at 37.7p (2014 -
55.7p) were 32% lower (29% in constant currency). Adjusted basic earnings per
share from continuing operations decreased by 33% (down 30% in constant
currency) to 38.0p. Total basic earnings per share decreased to 6.6p (2014 -
58.8p). 

Dividend

The Board recognises the importance of dividends to shareholders and remains
committed to the dividend policy it implemented in 2009. Underpinned by the
confidence it has in the strategy of the business, the Board intends to
recommend an unchanged final dividend of 19.8p (2014 - 19.8p) making a full-year
dividend of 28.0p (2014 - 27.6p) per share, an increase of 1.4% on the prior
year. Subject to shareholder approval, the proposed final dividend will be due
and payable on 31 July 2015 to all shareholders on the Register of Members on 3
July 2015. In addition to the cash dividend option, shareholders will continue
to be offered a Dividend Reinvestment Plan (DRIP) alternative. 

Assets

Gross assets of £2,423 million at 31 March 2015 were £45 million lower than the
prior year on a statutory basis, with capital expenditure above depreciation and
the positive impact of the strengthening US dollar more than offset by lower
levels of cash and cash equivalents and the impairment of the Singapore
sucralose facility. Net assets decreased by £114 million to £936 million, with
profits generated in the year being more than offset by dividend payments and
share repurchases. 

Retirement benefits

We maintain pension plans for our employees in a number of countries. Some of
these arrangements are defined pension schemes and, although we have now closed
the main UK scheme and the US salaried and hourly paid schemes to future accrual
at most locations, certain obligations remain. In the US, we also provide
medical benefits as part of the retirement package. 

The net deficit on our retirement benefit and health plans increased by £7
million to £227 million (2014 - £220 million): the net deficit on the Group`s
pension plans decreased by £8 million; and the liabilities associated with
unfunded retirement medical plans in the US increased by £15 million. 

The main UK pension scheme showed a reduction in liability of £52 million where
the impact of a lower discount rate was more than off-set by the return on
assets and Company cash contributions. The liability associated with the main US
pension plans increased by £42 million with the impact of the longer mortality
assumptions and lower discount rate partially off-set by the return on assets
and Company contributions. 

Other plan liabilities increased by £2 million. 

The liabilities associated with unfunded retirement medical plans in the US
increased by £15 million to £69 million (2014 - £54 million) due to the adverse
effect of exchange translation (£6 million), and a decrease in the applicable
discount rate and higher claims experience (£9 million). 

Employer contributions in respect of pension and post retirement schemes
totalled £52 million (2014 - £47 million), comprising £28 million in respect of
the main UK scheme, £1 million in respect of the other UK schemes, £19 million
in respect of US pension schemes and £4 million in respect of US retirement
medical plans. 

As previously announced, the funding arrangements in connection with the 31
March 2013 actuarial valuation for the main UK scheme were agreed with the
Scheme Trustee during the year. Under the new arrangements core funding
contributions remain at £12 million per year. A new secured funding account was
established, whereby supplementary contributions of £6 million per year will be
made during the first six years, payable to the Trustee on certain triggering
events such as under-performance of the Scheme`s investments or a deterioration
in the strength of Tate & Lyle PLC`s financial covenant. The first two annual
payments amounting to £12 million were credited to the secured funding account
upon its establishment in October 2014 and have been accounted for as additional
contributions to the Scheme in the second half of the year. 

Net Debt

Net debt increased to £504 million (2014 - £353 million). Adjusted free cash
flow from continuing businesses of £66 million was off-set by dividend payments
of £130 million and the repurchase of ordinary shares to satisfy the Group`s
share option schemes. An adverse exchange rate impact increased net debt by £46
million (including £7 million from joint ventures) principally as a result of
the stronger US dollar. During the year, net debt peaked at £567 million in
January 2015 reflecting the normal seasonal increase in payments to farmers in
the US. The average net debt was £404 million, an increase of £32 million from
£372 million in the prior year. 

Cash Flow

Adjusted operating cash flow from continuing operations was £279 million (2014 -
£440 million). Working capital was broadly flat in the 2015 financial year, as
higher inventories (driven by an increase in finished goods) and higher
receivables were broadly offset by higher payables. The cash flow impact from
the Group`s retirement benefit plans amounted to £47 million (2014 - £43
million). 
 
                                                          Year ended 31 March        
                                                          2015              2014     
                                                          £m                £m       
 Adjusted operating profit from continuing operations     247               349      
 Adjustments for:                                                                    
 Depreciation and amortisation                            113               108      
 Share-based payments charge                              -                 8        
 Other non-cash items                                     -                 (6)      
 Cash expe