REG-Tate & Lyle PLC Half-year Report <Origin Href="QuoteRef">TATE.L</Origin> - Part 3
02/11/2017 07:05
- Part 3: For the preceding part double click ID:nBw4dJ7sHb
Adjusted operating profit 301 221 264
Further adjustments set out in financial covenants:
to reflect proportionate consolidation 40 54 48
to exclude charges for share-based payments 21 13 21
to add back depreciation and adjusted amortisation 145 116 137
Pre-exceptional EBITDA – on a financial covenant basis 507 404 470
Net debt to EBITDA ratio (times) 0.8 1.0 0.9
Calculation of interest cover ratio – on a financial covenant
basis
Adjusted operating profit 301 221 264
Further adjustments set out in financial covenants:
to reflect proportionate consolidation 36 47 43
to exclude charges for share-based payments 21 13 21
Operating profit before exceptional items and amortisation of intangible 358 281 328
assets – on a financial covenant basis
Adjusted net finance expense 27 25 25
Less: Other financing costs (1) – –
Further adjustments set out in financial covenants including proportionate (1) (2) (1)
consolidation and other adjustments
Net finance expense – on a financial covenant basis 25 23 24
Interest cover ratio (times) 14.5 12.2 13.9
3. Segment information
Segment information is presented on a basis consistent with the information
presented to the Board (the designated Chief Operating Decision Maker) and
with that presented in the Group’s 2017 Annual Report. An analysis of total
assets and total liabilities by operating segment is not presented to the
Board but it does receive segmental analysis of net working capital.
Accordingly, the amounts presented for segment assets and segment liabilities
in the tables below represent those assets and liabilities that comprise
elements of net working capital. Segment results were as follows:
(a) Segment sales and results
Sales Notes Six months to Six months to Year to
30 September 30 September 31 March
2017 2016 2017
£m £m £m
Speciality Food Ingredients 509 487 996
Bulk Ingredients 889 834 1 757
Sales – continuing operations 1 398 1 321 2 753
Sales – discontinued operations – 3 3
Sales – total operations 1 398 1 324 2 756
Adjusted operating profit – continuing operations
Speciality Food Ingredients 104 94 181
Bulk Ingredients 93 64 129
Central (27) (25) (46)
Adjusted operating profit – continuing operations 170 133 264
Adjusting items:
– exceptional items 4 – (3) (19)
– amortisation of acquired intangible assets (5) (6) (12)
Operating profit – continuing operations 165 124 233
Finance income 1 1 2
Finance expense (18) (16) (34)
Share of profit after tax of joint ventures and associates 13 19 32
Profit before tax – continuing operations 161 128 233
Profit before tax – discontinued operations – 1 1
Profit before tax – total operations 161 129 234
Six months to Six months to Year to
30 September 30 September 31 March
2017 2016 2017
% % %
Adjusted operating margin – continuing operations
Speciality Food Ingredients 20.4% 19.3% 18.2%
Bulk Ingredients 10.5% 7.7% 7.3%
Central n/a n/a n/a
Total 12.2% 10.1% 9.6%
(b) Segment assets/(liabilities)
At 30 September 2017
Assets Liabilities Net
£m £m £m
Net working capital
Speciality Food Ingredients 364 (136) 228
Bulk Ingredients 318 (158) 160
Central 16 (32) (16)
Group working capital – continuing and total operations 698 (326) 372
Other assets/(liabilities) 1 919 (997) 922
Group assets/(liabilities) 2 617 (1 323) 1 294
At 30 September 2016
Assets Liabilities Net
£m £m £m
Net working capital
Speciality Food Ingredients 347 (145) 202
Bulk Ingredients 309 (151) 158
Central 11 (38) (27)
Group working capital – continuing and total operations 667 (334) 333
Other assets/(liabilities) 1 967 (1 181) 786
Group assets/(liabilities) 2 634 (1 515) 1 119
At 31 March 2017
Assets Liabilities Net
£m £m £m
Net working capital
Speciality Food Ingredients 371 (129) 242
Bulk Ingredients 349 (146) 203
Central 13 (50) (37)
Group working capital – continuing and total operations 733 (325) 408
Other assets/(liabilities) 2 038 (1 114) 924
Group assets/(liabilities) 2 771 (1 439) 1 332
4. Exceptional items
There were no exceptional items impacting the income statement in the six
months to 30 September 2017.
During the six months to 30 September 2016, the Group recognised net operating
exceptional costs of £3 million within continuing operations and an
exceptional tax credit of £26 million. The exceptional tax credit related to
the recognition of a deferred tax asset following changes to UK tax
legislation.
In the year to 31 March 2017, the Group recognised net operating exceptional
costs of £19 million within continuing operations. The Group also recognised
an exceptional tax credit of £65 million related to the recognition of
deferred tax assets.
Further details of amounts previously recognised in the 2017 financial year
can be found in the Group’s 2017 Annual Report.
The exceptional cash flows in the current and comparative periods were as
follows:
Six months to Six months to Year to
30 September 30 September 31 March
2017 2016 2017
Net cash outflow on exceptional items: Footnote £m £m £m
Continuing operations
Business re-alignment – impairment, restructuring and other net costs (a) (2) (13) (21)
Asset impairments – related costs – – (3)
Net cash outflow – exceptional items (2) (13) (24)
Income statement charge – included in profit before tax – 3 19
Adjustment for: exceptional items – per cash flow statement (2) (10) (5)
(a) In the six months to 30 September 2017, the Group made cash payments of
£2 million in respect of business re-alignment costs for SPLENDA(®)
Sucralose and its European operations. Further details of comparative amounts
can be found in the Group’s 2017 Annual Report.
5. Income tax expense
Continuing operations Six months to Six months to Year to
30 September 30 September 31 March
2017 2016 2017
£m £m £m
Current tax:
– United Kingdom – – –
– Overseas (23) (13) (23)
(23) (13) (23)
Deferred tax:
(Expense)/credit for the period (14) 14 45
Income tax (expense)/credit (37) 1 22
Reconciliation to adjusted income tax expense Note £m £m £m
Income tax (expense)/credit (37) 1 22
Adjusted for:
Taxation on exceptional items, amortisation of acquired intangibles (3) (1) (6)
and net retirement benefit interest
Exceptional deferred tax credits – (26) (65)
Adjusted income tax expense – continuing operations 2 (40) (26) (49)
The Group recorded an income tax expense of £37 million in continuing
operations for the six months to 30 September 2017 (six months to 30 September
2016 – credit of £1 million; year to 31 March 2017 – credit of £22
million).
The Group’s statutory tax rate on continuing operations, calculated on the
basis of the reported income tax expense of £37 million as a proportion of
profit before tax of £161 million was 22.8% (six months to 30 September 2016
– credit of 0.9%; year to 31 March 2017 – credit of 9.6%). In the six
months to 30 September 2016, the income tax credit included an exceptional tax
credit in relation to the recognition of deferred tax assets of £26 million
arising from previously unrecognised tax losses in the UK which following
changes to UK legislation and internal financing arrangements are now expected
to be utilised. In the year to 31 March 2017 deferred tax assets totaling £65
million were recognised (£34 million with respect to previously unrecognised
tax losses as above, and £31 million with respect to the transfer at fair
value of certain intellectual property assets).
The Group’s adjusted effective tax rate on continuing operations, calculated
on the basis of the adjusted income tax expense of £40 million as a
proportion of adjusted profit before tax of £169 million was 23.5% (six
months to 30 September 2016 – 18.3%; year to 31 March 2017 – 18.2%). The
adjusted effective tax rate increased as a result of firstly, changes to UK
legislation and consequent changes to the internal financing structure we use
to fund our international businesses, and secondly, an increase in profits
from the US, a jurisdiction with higher rates of corporation tax.
In March 2017, the UK government announced further draft changes to UK loss
utilisation rules which, if carried into legislation, would impact our ability
to utilise brought forward losses in the future.
The standard rate of corporation tax in the United Kingdom reduced from 20% to
19% on 1 April 2017 and is expected to reduce from 19% to 17% with effect from
1 April 2020.
6. Discontinued operations
The discontinued operations of the Group are set out in Note 1. There was no
activity classified within discontinued operations in the six months to 30
September 2017 (six months to 30 September 2016 – gain of £1 million; year
to 31 March 2017 – gain of £1 million).
7. Earnings per share
Basic earnings per share is calculated using a consistent methodology with
that used at 31 March 2017 (see the Group’s 2017 Annual Report for further
details). The average market price of the Company’s ordinary shares during
the six months to 30 September 2017 was 710p (six months to 30 September 2016
– 666p; year to 31 March 2017 – 695p). The dilutive effect of share-based
incentives was 6.7 million shares (30 September 2016 – 5.1 million shares;
31 March 2017 – 7.1 million shares).
Six months to 30 September 2017 Six months to 30 September 2016
Continuingoperations Discontinuedoperations Total Continuingoperations Discontinuedoperations Total
Profit attributable to owners of the Company (£ million) 124 – 124 129 1 130
Weighted average number of ordinary shares (millions) – basic 463.0 463.0 463.0 464.4 464.4 464.4
Basic earnings per share 26.8p – 26.8p 27.7p 0.3p 28.0p
Weighted average number of ordinary shares (millions) – diluted 469.7 469.7 469.7 469.5 469.5 469.5
Diluted earnings per share 26.5p – 26.5p 27.4p 0.3p 27.7p
Year to 31 March 2017
Continuingoperations Discontinuedoperations Total
Profit attributable to owners of the Company (£ million) 255 1 256
Weighted average number of ordinary shares (millions) – basic 464.1 464.1 464.1
Basic earnings per share 55.0p 0.2p 55.2p
Weighted average number of ordinary shares (millions) – diluted 471.2 471.2 471.2
Diluted earnings per share 54.2p 0.2p 54.4p
Adjusted earnings per share
A reconciliation between profit attributable to owners of the Company from
continuing operations and the equivalent adjusted metric, together with the
resulting adjusted earnings per share metrics can be found below:
Continuing operations Notes Six months to Six months to Year to
30 September 30 September 31 March
2017 2016 2017
£m £m £m
Profit attributable to owners of the Company 124 129 255
Adjusting items:
– exceptional items 4 – 3 19
– amortisation of acquired intangible assets 5 6 12
– net retirement benefit interest 13 3 3 7
– tax effect of the above adjustments 5 (3) (1) (6)
– exceptional deferred tax credits 5 – (26) (65)
Adjusted profit attributable to owners of the Company 2 129 114 222
Adjusted basic earnings per share (pence) – continuing operations 28.0p 24.6p 47.8p
Adjusted diluted earnings per share (pence) – continuing operations 27.6p 24.3p 47.1p
8. Dividends on ordinary shares
The Directors have declared an interim dividend of 8.4p per share for the six
months to 30 September 2017 (six months to 30 September 2016 – 8.2p per
share), payable on 5 January 2018.
The final dividend for the year to 31 March 2017 of £92 million, representing
19.8p per share, was paid during the six months to 30 September 2017.
9. Net debt
The components of the Group’s net debt are as follows:
At At At
30 September 30 September 31 March
2017 2016 2017
£m £m £m
Non-current borrowings (574) (594) (604)
Current borrowings and bank overdrafts (28) (105) (88)
Debt-related derivative financial instruments (11) (8) (21)
Cash and cash equivalents 242 289 261
Net debt (371) (418) (452)
Debt-related derivative financial instruments represents the net fair value of
currency and interest rate swaps that are used to manage the currency and
interest rate profile of the Group’s net debt. At 30 September 2017, the net
fair value of these derivatives comprised assets of £17 million (30 September
2016 – £25 million; 31 March 2017 – £17 million) and liabilities of £28
million (30 September 2016 – £33 million; 31 March 2017 – £38 million).
Movements in the Group’s net debt were as follows:
Six months to Six months to Year to
30 September 30 September 31 March
2017 2016 2017
£m £m £m
Net debt at beginning of the period (452) (434) (434)
Decrease in cash and cash equivalents in the period (5) (50) (88)
Net decrease in borrowings(*) 67 109 124
Fair value and other movements (2) 1 3
Currency translation differences 21 (44) (57)
Decrease/(increase) in net debt in the period 81 16 (18)
Net debt at end of the period (371) (418) (452)
(*) Where relevant, net change in borrowings includes repayments of capital
elements of finance leases (six months to 30 September 2017 – £nil, six
months to 30 September 2016 – £nil; year to 31 March 2017 – £1 million).
At 30 September 2017, the Group had no US commercial paper outstanding (30
September 2016 – £77 million; 31 March 2017 – £70 million). During the
six months to 30 September 2016, the Group repaid a maturing US$250 million
bond.
10. Contingent liabilities
Passaic River
The Group remains subject to a legal case arising from the notification in
2007 by the U.S. Environmental Protection Agency (‘USEPA’) that Tate &
Lyle, along with approximately 70+ others, is a potentially responsible party
(‘PRP’) for a 17 mile section of the northern New Jersey Passaic River, a
major ‘Superfund’ Site. In March 2016, the USEPA issued its Record of
Decision (‘ROD’) on the likely cost for the remediation of the lower 8
miles section of the river (the most contaminated). Whilst Tate & Lyle
will continue to vigorously defend itself in this matter, in light of the
publication of the ROD, the Group carries a provision of £6 million in
respect of this. The Group continues to be unable to estimate a reasonably
possible range of loss in respect of the remaining 9 mile section of the river
and therefore has not recognised a provision in this regard.
Other claims
The Group is subject to claims and litigation generally arising in the
ordinary course of its business, some of which are for substantial amounts.
All such actions are strenuously defended but provision is made for
liabilities that are considered likely to arise on the basis of current
information and legal advice. While there is always uncertainty as to the
outcome of any claim or litigation, it is not expected that claims and
litigation existing at 30 September 2017 will have a material adverse effect
on the Group’s financial position.
11. Capital expenditure and commitments
In the six months to 30 September 2017, there were additions to intangible
assets (excluding goodwill and acquired intangibles) of £10 million (30
September 2016 – £10 million; 31 March 2017 – £26 million) and additions
to property, plant and equipment of £51 million (30 September 2016 – £70
million; 31 March 2017 – £128 million).
Commitments at the balance sheet date were as follows:
At At At
30 September 30 September 31 March
2017 2016 2017
£m £m £m
Commitments for the purchase of intangible assets 2 – –
Commitments for the purchase of property, plant and equipment 32 36 25
Total commitments 34 36 25
12. Financial instruments
The table below shows the Group’s financial assets and liabilities measured
at fair value at 30 September 2017. The fair value hierarchy categorisation,
valuation techniques and inputs, consistent with those used in the year to 31
March 2017 (see Notes 2 and 29 of the Group’s 2017 Annual Report) are:
- Level 1: Inputs are quoted prices (unadjusted) in active markets for
identical assets or liabilities that the Group can assess at the measurement
date;
- Level 2: Inputs are those, other than quoted prices included in Level 1,
that are observable either directly or indirectly; and
- Level 3: Inputs are unobservable inputs. The Group generally classifies
assets or liabilities as Level 3 when the fair value is determined using
unobservable inputs that individually, or when aggregated with other
unobservable inputs, represent more than 10% of the fair value of observable
inputs of the assets or liabilities.
At 30 September 2017 At 31 March 2017
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
£m £m £m £m £m £m £m £m
Assets at fair value
Available-for-sale financial assets – – 36 36 – – 30 30
Derivative financial instruments:
– currency swaps – – – – – 2 – 2
– interest rate swaps – 17 – 17 – 15 – 15
– commodity pricing contracts 3 2 23 28 7 1 21 29
Assets at fair value 3 19 59 81 7 18 51 76
Liabilities at fair value
Derivative financial instruments:
– currency swaps – (28) – (28) – (38) – (38)
– commodity pricing contracts (8) (5) (3) (16) (6) (7) (3) (16)
Liabilities at fair value (8) (33) (3) (44) (6) (45) (3) (54)
The commodity pricing contracts included within the Group’s Level 3
financial instruments are valued based on the Group’s own assessment of the
particular commodity, its supply and demand and expected pricing. The most
significant unobservable input for those written commodity contracts remains
the future price of co-product positions. The methodology used to value all
Level 3 financial instruments remains unchanged from that used at 31 March
2017 and the sensitivity of the fair value of the Level 3 financial
instruments to changes in the price of commodity contracts is not materially
different to that disclosed at 31 March 2017. Further detail can be found on
page 157 of the Group’s 2017 Annual Report.
The following table reconciles the movement in fair value of net financial
instruments classified in ‘Level 3’ of the fair value hierarchy:
Available-for- Commodity Commodity Total
sale financial pricing pricing £m
assets contract contract
£m – assets – liabilities
£m £m
At 31 March 2017 30 21 (3) 48
Total gains/(losses):
– in operating profit – 15 (1) 14
– in other comprehensive income (1) – – (1)
Re-measurement of non-qualified deferred compensation arrangements 1 – – 1
Purchases 7 – – 7
Settlements (1) (13) 1 (13)
At 30 September 2017 36 23 (3) 56
Fair value of borrowings
The fair value of borrowings is estimated to be £621 million (30 September
2016 – £734 million; 31 March 2017 – £712 million) and has been
determined using quoted market prices, broker dealer quotations or discounted
cash flow analysis. The carrying value of other assets and liabilities held at
amortised cost is not materially different from their fair value. Further
details of these instruments and our associated accounting policies can be
found in Note 2 on page 112 of the Group’s 2017 Annual Report.
13. Retirement benefit obligations
At 30 September 2017, the net liability in respect of retirement benefits was
£119 million (31 March 2017 – £139 million), which is analysed as follows:
At 30 September 2017 At 31 March 2017
Pensions Medical benefits Total Pensions Medical benefits Total
£m £m £m £m £m £m
Present value of benefit obligations (1 630) (72) (1 702) (1 693) (76) (1 769)
Fair value of plan assets 1 583 – 1 583 1 630 – 1 630
Net liability (47) (72) (119) (63) (76) (139)
Presented as:
Deficits (170) (72) (242) (183) (76) (259)
Surpluses 123 – 123 120 – 120
Net liability (47) (72) (119) (63) (76) (139)
Changes in the net liability during the period are analysed as follows:
Six months to 30 September 2017
Pensions Medical Total
£m benefits £m
£m
Net liability at 1 April 2017 (63) (76) (139)
Income statement:
– service cost (2) (1) (3)
– plan administration costs (2) – (2)
– net interest expense (2) (1) (3)
Other comprehensive income:
– actual return lower than interest on plan assets (14) – (14)
– actuarial gain/(loss) 2 (1) 1
Other movements:
– employer’s contributions 23 2 25
– re-measurement of non-qualified deferred compensation arrangements (1) – (1)
– currency translation differences 12 5 17
Net liability at 30 September 2017 (47) (72) (119)
14. Related party disclosures
The Group’s significant related parties are its associate and joint ventures
as disclosed in the 2017 Annual Report. There were no material changes in
related parties or in the nature of related party transactions during the
period.
15. Events after the reporting period and assets held for sale
Tapioca Development Corporation, the Group’s associate with a carrying value
of £4 million, was classified as held for sale at 30 September 2017, and was
subsequently disposed on 2 October 2017.
TATE & LYLE PLC
ADDITIONAL INFORMATION
Calculation of changes in constant currency
Where changes in constant currency are presented in this statement, they are
calculated by retranslating current period results at prior period exchange
rates. The following table provides a reconciliation between the six months to
September 2017 performance at actual exchange rates and at constant currency
exchange rates. Absolute numbers presented in the table are rounded for
presentational purposes, whereas the growth percentages are calculated on
unrounded numbers.
Six months to 30 September 2017 2017 Underlying 2016 Change in
Adjusted performance £m FX at constant growth £m Change% constant
Continuing operations £m currency £m currency
£m %
Sales 1 398 (82) 1 316 (5) 1 321 6% –
Adjusted operating profit
Speciality Food Ingredients 104 (6) 98 4 94 10% 4%
Bulk Ingredients 93 (6) 87 23 64 45% 36%
Central (27) 1 (26) (1) (25)
Adjusted operating profit 170 (11) 159 26 133 28% 20%
Adjusted net finance expense (14) 1 (13) (1) (12)
Share of profit after tax of joint ventures and associates 13 (1) 12 (7) 19 (32%) (37%)
Adjusted profit before tax 169 (11) 158 18 140 21% 13%
Adjusted income tax expense (40) 3 (37) (11) (26) (55%) (43%)
Adjusted profit after tax 129 (8) 121 7 114 13% 6%
Adjusted diluted EPS (pence) 27.6p (1.8p) 25.8p 1.5p 24.3p 14% 6%
Ratio analysis
30 September 30 September 31 March
2017 2016 2017
Net debt to EBITDA – on a financial covenant basis
= Net debt 399 385 439
Pre-exceptional EBITDA 507 404 470
= 0.8 times = 1.0 times = 0.9 times
Interest cover – on a financial covenant basis
= Operating profit before exceptional items and amortisation of intangible
assets
Net finance expense
358 281 328
25 23 24
= 14.5 times = 12.2 times = 13.9 times
Cash dividend cover
= Adjusted free cash flow from continuing operations 151 138 174
Cash dividends 39 38 130
= 3.9 times = 3.6 times = 1.3 times
Gearing
= Net debt 371 418 452
Total equity 1 294 1 119 1 332
= 29% = 37% = 34%
Note:
All ratios are calculated based on unrounded figures in £ million. Net debt
to EBITDA, interest cover, adjusted free cash flow and adjusted operating cash
flow are defined and reconciled in Note 2 of the attached financial
information. Gearing is prepared using equity accounted net debt and total
equity from the consolidated statement of financial position.
Cash dividends represent external dividends on ordinary shares paid or
proposed in respect of the reporting period.
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