REG-Tate & Lyle PLC Half-yearly Report <Origin Href="QuoteRef">TATE.L</Origin> - Part 1
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LONDON--(Business Wire)--
6 November 2014
TATE & LYLE PLC
STATEMENT OF HALF YEAR RESULTS
For the six months to 30 September 2014
Six months to
30 September (Unaudited)
£m unless stated otherwise 2014 2013 % change % change in
(restated) constant currency4
Adjusted results
Adjusted sales1 1 380 1 737 (21)% (13)%
Adjusted operating profit2 117 187 (37)% (31)%
Adjusted profit before tax3 104 173 (40)% (34)%
Adjusted diluted earnings per share3 17.3p 29.9p (42)% (36)%
Statutory results5
Sales 1 200 1 516 (21)% (14)%
Operating profit 68 139 (51)% (46)%
Profit before tax 79 150 (47)% (44)%
Profit for the period 68 130 (47)% (42)%
Diluted earnings per share 14.6p 27.6p (47)% (42)%
Net debt6 383 353
Dividend per share 8.2p 7.8p + 5.1%
Javed Ahmed, Chief Executive, said:
"As we announced on 23 September, the Group`s performance in the first half has
been significantly held back by operational and supply chain disruption and an
increasingly competitive market for SPLENDA® Sucralose. Notwithstanding these
factors, the fundamentals of our business are robust with particularly strong
growth in the emerging markets for our Speciality Food Ingredients business
excluding SPLENDA® Sucralose, a high quality innovation pipeline and a
resilient, cash generative Bulk Ingredients business. We are firmly focused on
taking the necessary steps to work through the issues we face and improve the
Group`s performance."
Key points
* Group adjusted profit before tax 34% lower in constant currency at £104m (2013
- £173m):
- Operational and supply chain disruption costs of £31m
- The effect of price erosion for SPLENDA® Sucralose of £18m
* Group reported sales 21% lower at £1,200m (2013 - £1,516m) largely due to:
- Pass through of lower corn prices and price erosion for SPLENDA® Sucralose
- Adverse impact of the strength of sterling against the US dollar and other
currencies
* Speciality Food Ingredients adjusted operating profit 37% lower in constant
currency at £66m (2013 - £112m)
* Bulk Ingredients adjusted operating profit 10% lower in constant currency at
£76m (2013 - £92m)
* 5.1% increase in interim dividend to 8.2p(2013 - 7.8p)
* Appointment of Joan Braca as President, Speciality Food Ingredients
Outlook
Our outlook for the full year to 31 March 2015 remains unchanged from our
trading statement on 23 September 2014. For the second half, we expect
Speciality Food Ingredients excluding SPLENDA® Sucralose and Bulk Ingredients to
continue to perform solidly, but this will be more than offset by a softer
performance in SPLENDA® Sucralose and additional supply chain costs. This,
together with the first half performance, leads us to expect Group adjusted
profit before tax7 for the full year to be in the range of £230 million to £245
million.
As usual, performance in the final quarter of the financial year will be
influenced by the outcome of the calendar year pricing round, and also assumes
normal weather patterns.
1 Including proportionate consolidation of sales of joint ventures of £180
million (2013 - £221 million).
2 Including proportionate consolidation of operating profit of joint ventures of
£36 million (2013 - £37 million) and before an exceptional charge of £9 million
(2013 - £6 million) and amortisation of acquired intangible assets of £4 million
(2013 - £5 million)
3 Before proportionate consolidation of tax charge of joint ventures of £8
million (2013 - £8 million), and adjusted for the exceptional charge,
amortisation of acquired intangible assets in adjusted operating profit in (2)
above and retirement benefit interest and, for adjusted diluted earnings per
share, the tax effect of these items.
4 Changes in constant currency are calculated by retranslating comparative
period results at current period exchange rates.
5 Prior period restated for the adoption of IFRS 11 `Joint Arrangements`
6 Net debt includes share of net cash in joint ventures, comparative information
stated is for 31 March 2014
7 Based on forecast foreign exchange rates of GBP:USD £1/$1.69. Profit before
tax adjusted for full year effect of the adjustments described in (3) above.
Cautionary statement
This Statement of Half Year Results contains certain forward-looking statements
with respect to the financial condition, results, operations and businesses of
Tate & Lyle PLC. These statements and forecasts involve risk and uncertainty
because they relate to events and depend upon circumstances that will occur in
the future. There are a number of factors that could cause actual results or
developments to differ materially from those expressed or implied by these
forward-looking statements and forecasts.
A copy of this Statement of Half Year Results for the six months ended 30
September 2014 can be found on our website at www.tateandlyle.com. A hard copy
of this statement is also available from the Company Secretary, Tate & Lyle PLC,
1 Kingsway, London WC2B 6AT.
SPLENDA® is a trademark of McNeil Nutritionals, LLC.
Webcast and Conference Call Details
A presentation of the results by Chief Executive, Javed Ahmed and Chief
Financial Officer, Nick Hampton will be audio webcast live at 10.00 (UKT) on
Thursday 6 November 2014. To view and/or listen to a live audio-cast of the
presentation, visit http://view-w.tv/p/797-1031-15045/en. Please note that
remote listeners will not be able to ask questions during the Q&A session.
A webcast replay of the presentation will be available within two hours of the
end of the live broadcast on the link above.
For those unable to view the webcast, there will also be a teleconference
facility for the presentation. Details are given below:
Dial in details:
UK dial in number: +44 (0)20 3003 2666
US dial in number: +1 212 999 6659
Password: Tate & Lyle
14 day conference call replay:
UK replay number: +44 (0)20 8196 1998
US replay number: +1 866 583 1035
Replay Access code: 4028758
For more information contact Tate & Lyle PLC:
Christopher Marsh, Group VP, Investor and Media Relations
Tel: +44 (0) 20 7257 2110 or Mobile: +44 (0) 7796 192 688
Andrew Lorenz, FTI Consulting (Media)
Tel: +44 (0) 20 3727 1323 or Mobile: +44 (0) 7775 641 807
STATEMENT OF HALF YEAR RESULTS FOR THE SIX MONTHS TO 30 SEPTEMBER 2014
The results for the six months ended 30 September 2014 have been adjusted to
include the proportionate consolidation of joint ventures and exclude
exceptional items, net retirement benefit interest and amortisation of acquired
intangible assets. The Group`s statutory results are presented in accordance
with International Financial Reporting Standards as adopted by the European
Union. Except where specifically stated to the contrary, this commentary relates
only to the adjusted results. A reconciliation of statutory and adjusted
information is included in Note 15.
Overview
The Group`s results for the first half of the year were significantly held back
by operational and supply chain disruption and an increasingly competitive
market for SPLENDA® Sucralose. Adjusted sales of £1,380 million (2013 - £1,737
million) were 21% lower (13% in constant currency). Adjusted operating profit of
£117 million (2013 - £187 million) was 37% lower (31% in constant currency) with
adjusted profit before tax of £104 million (2013 - £173 million) 40% lower (34%
in constant currency). On a statutory basis, profit before tax decreased by £71
million to £79 million (2013 - £150 million).
Net debt at 30 September 2014 increased by £30 million to £383 million (31 March
2014 - £353 million), driven by the payment of the final dividend of £92 million
and lower earnings. The average four quarter cash conversion cycle for the
period ended 30 September 2014 increased by 2 days to 41 days (31 March 2014 -
39 days), resulting primarily from higher receivables, but partially offset by
higher payables, following the deployment of our upgraded IS/IT platform in
North America.
Key challenges in the first half
i) Operational and supply chain disruption
The unusually prolonged and severe winter in the US caused operational
difficulties in our US plants and led us to enter the 2015 financial year with
much lower inventories than usual. Then, in the first quarter of the financial
year, following an industrial accident, our SPLENDA® Sucralose facility in
Singapore had to take an extended shutdown. These events materially disrupted
our supply chain as we had to manage a combination of operational challenges in
our plant network, low absolute levels of inventory, and misalignments between
customer demand and inventory location (particularly in the emerging markets).
To ensure we could service our customers` requirements, we incurred significant
incremental costs in areas such as air freight, buying-in additional product
from the market and having to make some sub-optimal production runs. Some sales
were also lost due to product unavailability. The total cost of the operational
and supply chain disruption in the first half was £31 million (this includes the
£3 million of Singapore costs communicated in our July Interim Management
Statement). As stated on 23 September, we anticipate further supply chain
related costs of around £10 million in the second half of the financial year.
The process of re-building inventories and bringing our global supply chain back
into balance is underway. We have initiated a comprehensive end-to-end review of
our global supply chain, led by Nick Hampton, Chief Financial Officer. This
review will evaluate all aspects of our demand, supply and planning processes,
and will ensure they fully reflect our future needs as we continue our
transition into a more speciality focused and geographically diverse business.
We expect to reach our preliminary findings in the early part of next year.
ii) SPLENDA® Sucralose
Operating profit from SPLENDA® Sucralose in the first half was significantly
lower than the comparative period. This decrease was caused by a combination of
supply constraints following the extended shutdown of the Singapore facility,
and price erosion which impacted profit by £18 million in the first half. For
the full 2015 financial year, we expect the average level of pricing to be
around 25% lower than in the prior year.
Sucralose is a highly functional and widely used ingredient, and continues to be
incorporated in more new product launches than any other high intensity
sweetener. However, as we said in our trading statement on 23 September 2014,
the global market for sucralose continues to be extremely competitive and we are
evaluating how best to maximise returns from this product.
Strategic progress
The strength of Tate & Lyle`s business derives from four main areas: (1) the
attractiveness of our global markets; (2) the strong platform for growth in
Speciality Food Ingredients we have built over the past four years; (3) a more
resilient, cash generative Bulk Ingredients business; and (4) strong financial
discipline.
Despite the challenges we have experienced in the first half, we are confident
in our strategic direction and in our ability to grow our Speciality Food
Ingredients business steadily over time. The $42 billion global market for
speciality food ingredients continues to grow at around 4-5% annually, and has
attractive economics. This growth is underpinned by long term, structural global
consumer trends such as: consumer demand for convenience food and growth in
packaged food particularly in the emerging markets; a focus on health and
wellness in light of the rising incidence of obesity and diabetes worldwide; and
an increasing preference for natural, `cleaner label` foods.
When we established our strategic direction in May 2010, we chose to focus our
resources and investment on three foundational platforms - texturants,
sweeteners and health and wellness - where we had the capability to provide high
value solutions for our customers to address these global consumer trends. We
focused on these three platforms due to the competitive advantage we derived
from a unique combination of: deep relevant scientific and technical knowledge;
a portfolio of very high quality products with market leading positions; an
efficient and scale manufacturing asset base; and long-standing customer
relationships with some of the largest global and regional food companies.
Over the last four years we have built on these strong foundations through
investments in our innovation capabilities, in establishing a meaningful
presence and creating solid infrastructure in the emerging markets, and
significantly strengthening our customer facing and go-to-market capabilities.
In the first half of the 2015 financial year, we continued to take steps to
build our business in line with our strategic focus, and to create further
opportunities for long term growth.
On 1 August 2014, we completed the acquisition of Winway Biotechnology Nantong
Co., Ltd, a leading producer of polydextrose dietary fibre based in Nantong,
China. This acquisition provides an excellent platform to accelerate the growth
of our fibres business in Asia Pacific. We will be investing in the Nantong
facility over the next two years to expand capacity and enhance its speciality
fibre product offering. Nantong becomes our third polydextrose facility
globally, in addition to existing lines in the Netherlands and the US. We
continue to actively explore further acquisition and partnership opportunities
to extend our speciality food ingredients business in line with our strategy.
In August, we also successfully implemented our global IS/IT platform in our
North American business and in Singapore. This follows the deployment of this
platform across our European business in May. We are now focused on fully
embedding the new processes and systems, and on driving the benefits from the
enhanced capabilities now available to better understand and serve our
customers, and the greater transparency and insight into our operations.
We have continued to invest in developing a high quality and robust innovation
pipeline. A good example of our innovation expertise was the launch on 30
September of our new CLARIA® line of functional clean-label starches. CLARIA®
starches provide food manufacturers with functionality similar to modified food
starches but with the benefits of a cleaner colour and a cleaner taste, and a
`clean label` (i.e. they label simply as `starch`). CLARIA® is just one line in
a portfolio of high value products we have been building over the past few years
through a combination of in-house innovation, Open Innovation and acquisition,
specifically designed to meet our customers` need for more label-friendly
solutions. Our other ingredients in the `clean label` space include SODA-LO®
Salt Microspheres, TASTEVA® Stevia Sweetener, PUREFRUIT Monk Fruit Extract,
PROMITOR® Soluble Gluco Fibre and PromOat® Beta Glucan, all of which are growing
strongly. We expect to add more label-friendly and wellness ingredients to our
portfolio over time, and expect to launch more new products in the next 12
months.
Bulk Ingredients is a more resilient, cash generative business, benefiting from
large and mature markets (e.g. sweeteners, industrial starches), efficient
manufacturing assets, and long-standing customer relationships. While Bulk
Ingredients has successfully managed the commodities volatility inherent in its
business over the past few years, we continue to look at ways we can dampen
volatility and further reduce our exposure to regulated markets.
Executive management appointment
Joan Braca was appointed as President, Speciality Food Ingredients with effect
from 1 November 2014. Joan joined Tate & Lyle in January 2013 as Senior Vice
President & General Manager, Asia Pacific, Speciality Food Ingredients, and has
been responsible for our materially increased presence and significant growth in
that region. Prior to joining Tate & Lyle, Joan spent nearly 20 years in the
speciality chemicals industry mainly with Rohm and Haas Company (part of the Dow
Chemical Company since 2009). Joan has joined the Group`s Executive Committee
and reports directly to Javed Ahmed, Chief Executive.
Board changes
On 29 October 2014 it was announced that Paul Forman has been appointed as a
Non-Executive Director and a member of the Audit, Remuneration and Nominations
Committees with effect from 1 January 2015. Paul is Group Chief Executive of
Coats plc, a leading industrial thread and consumer textile crafts business.
Prior to joining Coats in 2009, he was Group Chief Executive of Low & Bonar PLC,
a global performance materials group, and was previously Managing Director at
Unipart International, a leading European automotive aftermarket supplier. Paul
also served as a non-executive director at Brammer PLC from 2006 to 2010.
It was also announced that Liz Airey, currently Chairman of the Audit Committee,
will become Senior Independent Director and Anne Minto will assume the
chairmanship of the Remuneration Committee with effect from 1 January 2015,
after Robert Walker steps down from the Board following the completion of his
term of appointment on 31 December 2014. Douglas Hurt will succeed Liz Airey as
Chairman of the Audit Committee with effect from 1 March 2015 and will also
replace her as a member of the Corporate Responsibility Committee from that
date.
Key performance indicators
Our Key Performance Indicators (KPIs) are as follows:
KPI Measure First Half 2014 First Half 2013 Change2
Growth in SFI sales Adjusted sales £446m £519m (7)%
Profitability Adjusted operating profit £117m £187m (31)%
Working capital efficiency Cash conversion cycle3 41 days 39 days1 Lengthened by 2 days
Financial strength Net debt/EBITDA4 0.9x 0.8x
Financial strength Interest cover4 10.6x 10.9x
Safety
The Corporate Responsibility KPIs relating to safety are measured annually and
therefore are not included in the half year results. In June, one of our
employees died in a tractor accident at one of our Bulk Ingredients' sites in
the US. In addition, in May another of the contractors involved in the
previously reported accident at our Singapore facility in April passed away from
his injuries. As stated in the 2014 Annual Report, we are taking significant
steps to strengthen our safety programme and these efforts are being overseen by
the Corporate Responsibility Committee.
1 The comparative measure for the cash conversion cycle is for the four quarters
ended 31 March 2014.
2 Adjusted sales and adjusted operating profit growth are shown in constant
currency.
3 Defined as controllable working capital divided by quarterly adjusted sales,
multiplied by number of days in quarter on a four quarter rolling basis (a
reduction in the number of days represents an improvement).
4 These ratios have been calculated under the Group`s bank covenant definitions.
DIVISIONAL OPERATING PERFORMANCE
Speciality Food Ingredients
Six months to 30 September Change
2014 2013 Reported Constant currency
£m £m
Adjusted sales 446 519 (14)% (7)%
Adjusted operating profit 66 112 (41)% (37)%
Adjusted margin 14.8% 21.5% - 6.7ppts - 6.9ppts
Within Speciality Food Ingredients, volumes increased by 2%, while constrained
by the impact of supply chain disruption, with strong growth in emerging
markets. We estimate supply disruption impacted volume growth by around 4
percentage points. Excluding SPLENDA® Sucralose, Speciality Food Ingredients
continues to perform well supported by strong demand, with constrained volume
higher by 2%. Adjusted sales decreased by 14% (7% in constant currency) to £446
million (2013 - £519 million) reflecting the pass through of lower corn prices
and lower prices for SPLENDA® Sucralose as well as supply constraints.
Adjusted operating profit decreased by 41% (37% in constant currency) reflecting
the impacts arising from the operational and supply chain disruption and the
impact of lower SPLENDA® Sucralose pricing of £18 million. Adjusted operating
profit for Speciality Food Ingredients excluding SPLENDA® Sucralose now
represents over 90% of the divisional profit. The effect of exchange translation
was to decrease adjusted sales by £40 million and adjusted operating profit by
£8 million compared with the first half last year.
The Speciality Food Ingredients division comprises three broad product
categories: starch-based speciality ingredients; high intensity sweeteners; and
Food Systems.
Starch-based speciality ingredients
In starch-based speciality ingredients, adjusted sales decreased by 13% (7% in
constant currency) to £272 million (2013 - £314 million). Constrained volumes
increased by 1% with strong growth in emerging markets. The rate of sales
decline reflects the impact of passing through the significant reduction in corn
prices following a better 2013/14 corn harvest, although unit margins were
slightly higher.
We continued to invest in growth including the acquisition of Winway
Biotechnology Nantong Co., Ltd. a leading polydextrose dietary fibre business in
China, which was completed in August, and the launch in September of our new
CLARIA® line of functional clean-label starches.
High intensity sweeteners
The market for no-calorie, high intensity sweeteners continues to grow driven by
the focus on healthier lifestyles and calorie reduction due to the rising
incidence of obesity and diabetes globally. Within the high intensity sweetener
category, which includes SPLENDA® Sucralose, PUREFRUIT Monk Fruit Extract and
TASTEVA® Stevia Sweetener, volume growth of 2% was impacted by the increasingly
dynamic global market for sucralose. PUREFRUIT and TASTEVA® volumes grew
strongly. Adjusted sales decreased by 22% (15% in constant currency) to £82
million (2013 - £106 million) as a result of lower selling prices for SPLENDA®
Sucralose. As a result, profits in this category were substantially lower than
the comparative period.
Food Systems
In Food Systems, our global blending business, volumes were 9% ahead with growth
particularly strong in the emerging markets. Adjusted sales decreased by 8% to
£92 million (2013 - £99 million) mainly reflecting a strengthening of sterling.
On a constant currency basis, adjusted sales increased by 1% with margin
expansion and strong profit growth. This business is now benefitting from the
decision taken two years ago to refocus it on higher margin blends and to
increase its presence in the emerging markets.
Bulk Ingredients
Six months to 30 September Change
2014 2013 Reported Constant currency
£m £m
Adjusted sales 934 1,218 (23)% (16)%
Adjusted operating profit 76 92 (18)% (10)%
Adjusted margin 8.1% 7.5% 0.6ppts 0.6ppts
Within Bulk Ingredients, adjusted sales decreased by 23% (16% in constant
currency) to £934 million (2013 - £1,218 million) with volumes 1% lower than the
comparative period. Adjusted operating profit was 18% lower (10% in constant
currency) at £76 million (2013 - £92 million) driven primarily by the impact of
operational and supply chain disruption costs, partially offset by improved
ethanol margins. The comparative period benefited from a one-off gain of £3
million from the on-sale of Orsan China. The effect of exchange translation was
to decrease adjusted sales by £102 million and adjusted operating profit by £8
million.
Towards the end of the first half, corn prices in the US fell on the expectation
of another very strong crop, with the USDA projecting a 4% increase in US
production over the prior year and an increase in the stocks-to-use ratio to
15.2% (from 9.1% last year). Corn prices in Europe followed a similar pattern.
Bulk Ingredients comprises three broad product categories: sweeteners;
industrial starches, acidulants and ethanol; and co-products.
Sweeteners
Adjusted sales decreased by 29% (22% in constant currency) to £431 million (2013
- £604 million).
In the Americas, bulk corn sweetener volumes grew by 1%. Adjusted sales
decreased by 30% (24% in constant currency), reflecting the pass through of
significantly lower corn costs, and unit margins were modestly lower. Together
with additional operational and supply chain costs, this led to adjusted
operating profit being lower than the comparative period.
In Europe, whilst bulk corn sweetener volumes were 1% higher, adjusted sales
decreased by 19% (12% in constant currency) largely reflecting the decline in
European sugar prices over that time period. The impact of lower selling prices
was mostly offset by lower corn prices.
Industrial starches, acidulants and ethanol
Adjusted sales decreased by 16% (8% in constant currency) to £281 million (2013
- £333 million).
For industrial starch, in the US overall volumes were broadly in line with the
comparative period. Although the pass through of lower corn prices reduced
adjusted sales, we were able to secure slightly higher unit margins, resulting
in an increase in adjusted operating profit. In Europe, overall volumes were
stable but lower prices, due to a more competitive market, put pressure on
margins and reduced profits.
In US ethanol, which represents a small part of our business, more favourable
market conditions resulted in increased margins compared to a year ago. Profits
in our Acidulants business were broadly in line with the comparative period
despite some operational and supply chain disruption. Our Bio-PDOTM joint
venture increased profits slightly as a result of lower corn costs.
Co-products
Co-products adjusted sales decreased by 21% (13% in constant currency) to £222
million (2013 - £281 million) reflecting lower co-product prices on flat volumes
and, accordingly, reduced the division`s operating profit.
FINANCIAL PERFORMANCE
The accounting policies adopted in the preparation of the condensed set of
consolidated financial information are consistent with those of the Group`s
Annual Report and Accounts for the year ended 31 March 2014, other than the
adoption, with effect from 1 April 2014, of new or revised accounting standards,
as set out below:
- IFRS 10 Consolidated Financial Statements
- IFRS 11 Joint Arrangements
- IFRS 12 Disclosure of Interests in Other Entities
- Amendments to IAS 27 (Revised 2011) Separate Financial Statements
- Amendments to IAS 28 (Revised 2011) Investments in Associates and Joint
Ventures
The adoption of these standards and interpretations has not had a material
effect on the results or financial position of the Group. However, the adoption
of IFRS 11 (while not affecting the Group`s earnings or net assets) has impacted
a number of the individual line items disclosed in the Group`s financial
statements. Previously, the Group had accounted for its interest in joint
ventures on a proportionate consolidation basis, whereby the Group`s share of
the income and expenses, assets and liabilities and cash flows of joint ventures
was combined on a line-by-line basis with those of Tate & Lyle PLC and its
subsidiaries. IFRS 11 prohibits the use of proportionate consolidation and
requires that joint ventures are accounted for using the equity method of
accounting. Under the equity method of accounting, the Group`s share of the
after tax profits and losses of the joint ventures are shown on a single line of
the consolidated income statement, its share of their net assets are shown on
one line of the consolidated statement of financial position and the
consolidated statement of cash flows reflects cash flows between the Group and
the joint ventures within cash flows from investing activities. The Group has
restated comparative financial information where appropriate.
The Group has elected to present segment and adjusted financial information on a
proportionate consolidation basis, as this reflects the management of its joint
ventures on an integrated basis with the Group`s subsidiaries and the basis upon
which management information is reported to the Chief Operating Decision Maker.
Accordingly, performance measures such as adjusted sales, adjusted operating
profit, adjusted profit before tax and adjusted diluted earnings per share are
unaffected by IFRS 11.
Overview of Group financial performance
Adjusted sales decreased by 21% (13% in constant currency) to £1,380 million
(2013 - £1,737 million). Adjusted operating profit was 37% lower (31% in
constant currency) at £117 million (2013 - £187 million) with adjusted profit
before tax down 40% (34% in constant currency) at £104 million (2013 - £173
million). On a statutory basis, profit before tax decreased by £71 million to
£79 million (2013 - £150 million).
Central costs
Central costs, which include head office, treasury and reinsurance activities,
were higher at £25 million (2013 - £17 million) mainly driven by captive
insurance costs relating to the impact of the Singapore extended shutdown, an
accelerated write down arising from the refinancing of the Group`s US$800
million revolving credit facility on favourable terms, and professional fees
mostly associated with agreeing the funding plan for the main UK pension scheme.
Adjusted net finance expense
Adjusted net finance expense, which excludes net retirement benefit interest,
was broadly in line with the comparative period at £13 million (2013 - £14
million).
Exceptional items
During the period to 30 September 2014 an exceptional charge of £9 million (2013
- £6 million charge) was recognised, relating to business transformation costs,
specifically the implementation of the common global IS/IT platform.
The tax impact on continuing operations of exceptional items was a £2 million
credit (2013 - £1 million credit).
Taxation
We indicated in our preliminary results announcement in May that, for the year
ending 31 March 2015, changes in the geographic mix of profits were expected to
lead to an effective tax rate of a little over 20%. The effective tax rate on
adjusted profit for the six month ended 30 September 2014 was 22.0% (six months
to 30 September 2013 - 18.7%). Our expectation is that the effective tax rate
for the full year will be broadly consistent with the rate for the first half
(year to 31 March 2014 - 18.5%).
Earnings per share
Adjusted diluted earnings per share on continuing operations decreased by 42%
(36% in constant currency) to 17.3p (2013 - 29.9p). Statutory diluted earnings
per share on continuing operations decreased by 47% (42% in constant currency)
to 14.6p (2013 - 27.6p).
Adjusted cash flow
Adjusted free cash flow (including proportionately consolidated share of cash
flows of joint ventures and associates) of £81 million was £158 million lower
than the comparative period (six months to 30 September 2013 - £239 million)
largely driven by a lower adjusted working capital inflow of £42 million (six
months to 30 September 2013 - inflow of £114 million) and lower adjusted
earnings.
Adjusted capital expenditure of £79 million (2013 - £64 million) was 1.5 times
the adjusted depreciation and amortisation charge (excluding amortisation of
intangible assets acquired through business combinations) of £53 million and
included £10 million of expenditure on the implementation of the global IS/IT
system. We expect our full year capital expenditure will be approximately £180
million. The majority of the incremental capital investment of £100 million
announced in May 2014 will be invested as follows: £20 million is being invested
to expand capacity of the Oat beta glucan plant in Sweden which, by the 2016
calendar year, will result in capacity being ten times greater than when we
acquired the business in 2013; £55 million being invested to add new dryers and
finishing capacity in our corn plants in the US and Europe; and, £10 million
will be invested behind new products which we expect to launch in the near
future.
The net decrease in adjusted cash and cash equivalents for the period was £12
million (2013 - net increase of £91 million), and on a reported basis it was a
net decrease of £28 million (2013 - net increase of £104 million). The net
increase in our share of cash and cash equivalents of joint ventures was £16
million (2013 - net increase of £13 million).
Our average four quarter cash conversion cycle for the period ended 30 September
2014 increased by 2 days to 41 days (31 March 2014 - 39 days), resulting
primarily from higher receivables, partially offset by higher payables following
the deployment of our upgraded IS/IT platform in North America.
Net debt and financing profile
Net debt at 30 September 2014 increased by £30 million to £383 million (31 March
2014 - £353 million). The effect of exchange translation (including share of
exchange translation on joint ventures net cash) was to increase net debt by £11
million. The ratio of net debt to EBITDA was 0.9 times, comfortably within our
internal threshold of 2.0 times.
Balance sheet
The Group`s gross assets increased by £60 million to £2,528 million at 30
September 2014 from £2,468 million at 31 March 2014, principally as a result of
an increase in trade receivables and profits from the equity accounted joint
ventures partially offset by the seasonal reduction in corn inventories. Net
assets decreased by £5 million to £1,045 million (31 March 2014 - £1,050
million) with profit after tax for the period and a favourable remeasurement of
post retirement plans offset by payment of the final dividend for the 2014
financial year.
Post-retirement benefit plans
We maintain pension plans for our employees in a number of countries. Some of
these arrangements are defined benefit pension schemes and, although we have now
closed the main UK scheme and US salaried scheme to future accrual, certain
obligations remain. In the US, we also provide medical benefits as part of the
retirement package.
The net deficit on our retirement benefit plans decreased by £31 million to £189
million (31 March 2014 - £220 million). The decrease in the net deficit was
driven mainly by the UK Group scheme, where returns on the asset portfolio more
than offset the increased liability arising from the reduction in the discount
rate.
The funding arrangements in connection with the 31 March 2013 actuarial
valuation for the Tate & Lyle Group Pension Scheme (the `Scheme`), the Group`s
main defined benefit plan, were agreed with the Scheme Trustee on 20 October
2014. These arrangements provide an integrated funding and investment strategy
for the Scheme, designed to maintain contribution stability, whilst leaving
scope to take advantage of future de-risking opportunities as they arise. The
planned contributions, together with the expected investment returns over the
period, have been targeted to achieve full funding on a gilts basis by 30
September 2026.
Under these new arrangements core funding contributions to the Scheme will be
made at the level of £12 million per year. In addition, a new secured funding
account was established on 20 October, with a charge in favour of the Scheme
Trustee, to which supplemental contributions of £6 million per year will be made
during the first six years. The assets in the secured funding account will be
paid into the Scheme in the event of various triggers which have been agreed
with the Trustee. These include triggers linked to underperformance of the
Scheme`s investments, deterioration in the strength of Tate & Lyle PLC`s
financial covenant, pension contribution breaches and events of default on the
Company`s borrowings or insolvency proceedings. Those assets may also, with
agreement of the Trustee, be used to meet the cost of future de-risking
opportunities. The first two annual payments amounting to £12 million were
credited to the secured funding account upon its establishment in October 2014
and will be shown as a cash outflow in the second half of the 2015 financial
year.
Dividend
The Board has approved an interim dividend of 8.2p, an increase of 5.1% on the
prior year (2013 - 7.8p) in line with our progressive dividend policy. This will
be paid on 2 January 2015 to shareholders on the register on 21 November 2014.
In addition to the cash dividend option, shareholders continue to be offered a
Dividend Reinvestment Plan (DRIP) alternative.
Going concern
After making enquiries, the Directors have a reasonable expectation that the
Company and its subsidiaries have adequate resources to continue in operational
existence for the foreseeable future. For this reason, they continue to adopt
the going concern basis in preparing the consolidated financial information of
the Group.
Risks and uncertainties
The Group has been affected by specific risks in its global supply chain and in
relation to price erosion of SPLENDA® Sucralose. These issues, together with the
actions being taken to mitigate them, are discussed on page 3. In addition to
these, pages 29 to 31 in the Tate & Lyle Annual Report 2014, a copy of which is
available on the Company`s website at www.tateandlyle.com, provide detail of the
principal risks and uncertainties affecting the business activities of the
Group. In the view of the Board these risks collectively reflect the risks in
respect of the remaining six months of the year. As noted elsewhere, the Group
is in the process of conducting a comprehensive end-to-end review of its supply
chain and planning processes to mitigate some of the risks which impacted the
Group in the first half of the year.
The risks highlighted in the Annual Report are failure to: act safely and to
maintain the safe and continuous operation of our facilities; grow in speciality
food ingredients; innovate and commercialise new products; maintain the quality
of our products and high standards of customer service; develop and retain key
personnel; comply with legislation and regulation; mitigate fluctuations in
prices and availability of raw materials, energy, freight and other operating
inputs; implement the Group`s programme to transform its operational
capabilities; counter negative perceptions of the Group`s products; manage the
balance sheet, particularly during periods of economic uncertainty and failure
to maintain an effective system of internal financial controls.
Impact of changes in exchange rates
In comparison with the prior period, the Group`s reported financial performance
has been adversely impacted by exchange rate translation, driven by a weakening
of the average US dollar and Euro exchange rate against sterling. The movement
in period-end exchange rates, particularly the stronger US dollar, led to an
increase in net debt as a result of the translation of accounts recorded in
foreign exchange. The principal average and closing exchange rates used to
translate reported results were as follows:
Six months to Six months to Year to
30 September 30 September 31 March
Average foreign exchange rates 2014 2013 2014
US dollar £1 = $ 1.68 1.54 1.59
Euro £1 = € 1.24 1.18 1.19
30 September 30 September 31 March
Period end foreign exchange rates 2014 2013 2014
US dollar £1 = $ 1.62 1.62 1.67
Euro £1 = € 1.28 1.19 1.21
Statement of Directors` responsibilities
The Directors confirm that this condensed set of consolidated financial
information has been prepared in accordance with International Accounting
Standard 34 Interim Financial Reporting as adopted by the European Union, and
that the interim management report herein includes a fair review of the
information required by the Disclosure Rules and Transparency Rules of the
Financial Conduct Authority, paragraphs DTR 4.2.7 and DTR 4.2.8, namely:
* an indication of important events that have occurred during the first six
months and their impact on the condensed set of consolidated financial
information;
* a description of the principal risks and uncertainties for the remaining six
months of the financial year; and
* material related party transactions in the first six months and any material
changes in the related party transactions described in the last Annual Report.
The Directors are responsible for the maintenance and integrity of the Company`s
website. UK legislation governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
The Directors of Tate & Lyle PLC are listed in the Tate & Lyle Annual Report for
the year ended 31 March 2014. The following changes to the Board occurred in the
period:
* Nick Hampton joined the Board on 1 September 2014; and
* Tim Lodge ceased to be a Director of the Company on 31 August 2014.
For and on behalf of the Board of Directors:
Javed Ahmed Nick Hampton
Chief Executive Chief Financial Officer
5 November 2014
Independent review report to Tate & Lyle PLC
Report on the condensed set of consolidated financial information
Our conclusion
We have reviewed the condensed set of consolidated financial information,
defined below, in the Statement of Half Year Results of Tate & Lyle PLC for the
six months ended 30 September 2014. Based on our review, nothing has come to our
attention that causes us to believe that the condensed set of consolidated
financial information is not prepared, in all material respects, in accordance
with International Accounting Standard 34 as adopted by the European Union and
the Disclosure and Transparency Rules of the United Kingdom's Financial Conduct
Authority.
This conclusion is to be read in the context of what we say in the remainder of
this report.
What we have reviewed
The condensed set of consolidated financial information, which is prepared by
Tate & Lyle PLC, comprises:
* the consolidated statement of financial position as at 30 September 2014;
* the consolidated income statement and consolidated statement of comprehensive
income for the period then ended;
* the consolidated statement of cash flows for the period then ended;
* the consolidated statement of changes in equity for the period then ended; and
* the related notes to the condensed set of consolidated financial information.
As disclosed in Note 1, the financial reporting framework that has been applied
in the preparation of the full annual financial statements of Tate & Lyle PLC is
applicable law and International Financial Reporting Standards (IFRSs) as
adopted by the European Union.
The condensed set of consolidated financial information included in the
Statement of Half Year Results has been prepared in accordance with
International Accounting Standard 34, `Interim Financial Reporting`, as adopted
by the European Union and the Disclosure and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
What a review of a condensed set of consolidated financial information involves
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410, `Review of Interim Financial Information
Performed by the Independent Auditor of the Entity` issued by the Auditing
Practices Board for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK and Ireland) and, consequently,
does not enable us to obtain assurance that we would become aware of all
significant matters that might be identified in an audit. Accordingly, we do not
express an audit opinion.
We have read the other information contained in the Statement of Half Year
Results and considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set of
consolidated financial information.
Responsibilities for the condensed set of consolidated financial information and
the review
Our responsibilities and those of the Directors
The Statement of Half Year Results, including the condensed set of consolidated
financial information, is the responsibility of, and has been approved by, the
Directors. The Directors are responsible for preparing the Statement of Half
Year Results in accordance with the Disclosure and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
Our responsibility is to express to Tate & Lyle PLC a conclusion on the
condensed set of consolidated financial information in the Statement of Half
Year Results based on our review. This report, including the conclusion, has
been prepared for and only for Tate & Lyle PLC for the purpose of complying with
the Disclosure and Transparency Rules of the Financial Conduct Authority and for
no other purpose. We do not, in giving this conclusion, accept or assume
responsibility for any other purpose or to any other person to whom this report
is shown or into whose hands it may come save where expressly agreed by our
prior consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
5 November 2014
London
Notes:
a) The maintenance and integrity of the Tate & Lyle website
(www.tateandlyle.com) is the responsibility of the Directors; the work carried
out by the auditors does not involve consideration of these matters and,
accordingly, the auditors accept no responsibility for any changes that may have
occurred to the financial statements since they were initially presented on the
website.
b) Legislation in the United Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in other jurisdictions.
CONSOLIDATED INCOME STATEMENT (UNAUDITED)
Six months to Six months to Year to
30 September
30 September
31 March
Notes 2014 2013 2014
(restated*) (restated*)
£m
£m
£m
Continuing operations 2 1 200 1 516 2 754
Sales
Operating profit 2 68 139 251
Finance income 2,4 - 1 2
Finance expense 2,4 (17) (19) (37)
Share of profit after tax of joint ventures and associates 28 29 61
Profit before tax 2 79 150 277
Income tax expense 5 (11) (20) (32)
Profit for the period from continuing operations 68 130 245
Profit for the period from discontinued operations - - 28
Profit for the period 68 130 273
Profit for the period attributable to:
- Owners of the Company 68 130 273
- Non-controlling interests - - -
Profit for the period 68 130 273
Earnings per share Pence Pence Pence
Continuing operations: 6
- Basic 14.7p 28.0p 52.8p
- Diluted 14.6p 27.6p 52.1p
Total operations: 6
- Basic 14.7p 28.0p 58.8p
- Diluted 14.6p 27.6p 58.0p
Analysis of adjusted profit before tax £m £m £m
from continuing operations
Profit before tax 79 150 277
Adjusted for:
Exceptional items 3 9 6 14
Amortisation of acquired intangible assets 4 5 10
Net retirement benefit interest 4 4 4 8
Share of tax of joint ventures and associates 5 8 8 13
Adjusted profit before tax 104 173 322
* Restated for the adoption of IFRS 11 `Joint Arrangements` (see note 1).
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
Six months to Six months to Year to
30 September
30 September
31 March
2014 2013 2014
(restated*) (restated*)
£m
£m
£m
Profit for the period 68 130 273
Other comprehensive (expense)/income
Items that have been/may be reclassified to profit or loss:
Fair value losses on cash flow hedges - - (2)
Fair value gains on cash flow hedges transferred (1) (1) -
to the income statement
Fair value gains on net investment hedges - - 50
Loss on currency translation of foreign operations - (45) (107)
Share of other comprehensive expense of joint ventures (8) (13) (22)
and associates
(9) (59) (81)
Items that will not be reclassified to profit or loss:
Re-measurement of retirement benefit plans
- Actual return higher/(lower) than interest on plan assets 52 (72) (29)
- Net actuarial (loss)/gain (28) 70 19
Tax income/(expense) relating to the above items 1 (16) (22)
25 (18) (32)
Total other comprehensive income/(expense) 16
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