REG-Tate & Lyle PLC Half-yearly Report <Origin Href="QuoteRef">TATE.L</Origin> - Part 3
05/11/2015 07:00
- Part 3: For the preceding part double click ID:nBw3Pb0pWb
completed the re-alignment of its Eaststarch
joint venture leading to the disposal of the majority of the Group`s European
Bulk Ingredients business. At 30 September 2015 the assets and liabilities of
the disposed ventures were accounted for as held for sale, with their financial
performance classified within discontinued operations.
Comparative financial information for the six months to 30 September 2014 and
for the year ended 31 March 2015 has been restated to reflect the disclosure of
the financial performance of the disposed elements of the Eaststarch joint
venture as discontinued operations. There is no overall effect on the Group`s
profit for the period from total operations.
In addition, the Group announced on 29 September 2015 that the Commercial Court
in London had handed down a decision in a case bought by American Sugar
Refining, Inc. (ASR) in which it made a number of claims in relation to its
acquisition of the Group`s European Sugars business. The European sugars
business formed part of the Group`s discontinued Sugars segment, and accordingly
the costs associated with those claims are recognised within discontinued
operations.
Seasonality
The Group's principal exposure to seasonality is in relation to working capital.
The Group's corn inventories are subject to seasonal fluctuations reflecting
crop harvesting and purchases. Inventory levels typically increase progressively
from September to November and gradually reduce in the first six months of the
calendar year.
2.Segment information
Segment information is presented on a basis consistent with the information
presented to the Board (the designated Chief Operating Decision Maker) for the
purposes of allocating resources within the Group and assessing the performance
of the Group`s businesses. Continuing operations comprises two operating
segments: Speciality Food Ingredients and Bulk Ingredients. Central, which
comprises central costs including head office, treasury and re-insurance
activities, does not meet the definition of an operating segment under IFRS 8
`Operating Segments` but no sub-total is shown for the Group`s operating
segments in the tables below so as to be consistent with the presentation of
segment information to the Board. Both segments are served by a single
manufacturing network, and receive services from a number of global support
functions. The segmental information presented below reflects the allocation of
net assets and costs based on the most appropriate methodology in each case,
consistently applied over time.
The Board uses adjusted operating profit as the measure of the profitability of
the Group`s businesses. Adjusted operating profit is, therefore, the measure of
segment profit presented in the Group`s segment disclosures. Adjusted operating
profit represents operating profit before specific items that are considered to
hinder comparison of the trading performance of the Group`s businesses either
year-on-year or with other businesses. During the years presented, the items
excluded from operating profit in arriving at adjusted operating profit were the
amortisation of acquired intangible assets and exceptional items. Following the
completion of the re-alignment of the Eaststarch joint venture, the Group has
adopted equity accounting for joint ventures and associates in the presentation
of its segmental information having previously used proportionate consolidation.
The restatement of segmental information is presented below. The segmental
classification of exceptional items is detailed in Note 3. 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 (inventories,
trade and other receivables, less trade and other payables). 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. The segment results were as follows:
(a)Segment sales Six months to Restated* Restated*
30 September Six months to Year ended
2015 30 September 31 March
£m 2014 2015
£m
£m
Sales - continuing operations
Speciality Food Ingredients 447 426 868
Bulk Ingredients 729 774 1 488
Sales - continuing and total operations 1 176 1 200 2 356
(b)Segment results Notes Six months to Restated* Restated*
30 September Six months to Year ended
2015 30 September 31 March
£m 2014 2015
£m
£m
Adjusted operating profit - continuing operations
Speciality Food Ingredients 76 59 136
Bulk Ingredients 42 47 83
Central (18) (25) (35)
Adjusted operating profit - continuing operations 100 81 184
Adjusting items:
- Exceptional items 3 (25) (9) (142)
- Amortisation of acquired intangible assets (4) (4) (9)
Operating profit - continuing operations 71 68 33
Finance income 4 - - 1
Finance expense 4 (14) (17) (32)
Share of profit after tax of joint ventures and associates 13 12 23
Profit before tax - continuing operations 70 63 25
(Loss)/profit before tax - discontinued operations 6 (3) 16 26
Profit before tax - total operations 67 79 51
* Prior year restated to reflect discontinued operations (see note 1). Where
adjusted metrics are presented, these have been further restated for the
adoption of equity accounting (see note 1).
Six months to Restated* Restated*
30 September Six months to Year ended
2015 30 September 31 March
Percentage 2014 2015
Percentage Percentage
Adjusted operating margin
Speciality Food Ingredients 17.0% 13.8% 15.7%
Bulk Ingredients 5.8% 6.1% 5.6%
Discontinued operations - - -
Central n/a n/a n/a
Total 8.5% 6.8% 7.8%
(c) Segment assets/(liabilities)
At 30 September 2015
Assets Liabilities Net
£m £m £m
Net working capital
Speciality Food Ingredients 297 (131) 166
Bulk Ingredients 305 (162) 143
Central 9 (57) (48)
Group working capital 611 (350) 261
Other assets/(liabilities) 1 837 (1 195) 642
Group assets/(liabilities) 2 448 (1 545) 903
At 30 September 2014 (restated*)
Assets Liabilities Net
£m £m £m
Net working capital
Speciality Food Ingredients 281 (112) 169
Bulk Ingredients 336 (178) 158
Central 11 (35) (24)
Group working capital 628 (325) 303
Other assets/(liabilities) 1 900 (1 158) 742
Group assets/(liabilities) 2 528 (1 483) 1 045
At 31 March 2015 (restated*)
Assets Liabilities Net
£m £m £m
Net working capital
Speciality Food Ingredients 299 (131) 168
Bulk Ingredients 348 (162) 186
Central 8 (36) (28)
Group working capital 655 (329) 326
Other assets/(liabilities) 1 768 (1 158) 610
Group assets/(liabilities) 2 423 (1 487) 936
* Prior year restated to reflect discontinued operations (see note 1). Where
adjusted metrics are presented, these have been further restated for the
adoption of equity accounting (see note 1).
3. Exceptional items
Exceptional items recognised in arriving at operating profit were as follows:
Six months to Six months to Year ended
30 September 30 September 31 March
2015 2014 2015
Notes £m £m £m
Continuing operations
Business re-alignment - impairment and related net costs (a) (32) - (118)
SPLENDA® Sucralose - revised table top commercial agreement (b) (2) - -
Tate & Lyle Ventures - investment disposal profit (c) 9 - -
Business transformation costs (d) - (9) (12)
Termination of distribution rights agreement (e) - - (12)
Exceptional items - continuing operations (25) (9) (142)
Discontinued operations
Business re-alignment - Eaststarch disposal (f) (2) - -
ASR litigation (g) (18) - -
Exceptional items - discontinued operations (20) - -
Exceptional items - total operations (45) (9) (142)
Continuing operations
(a) As part of the major business re-alignment announced on 21 April 2015, the Group announced its intention to consolidate all
SPLENDA® Sucralose production into its facility in the US and close the Singapore facility which will not be cost competitive
going forward. The Group has recognised a charge of £35 million in the six months to 30 September 2015 where it has incurred
costs or has a present obligation resulting from the Singapore closure. A £4 million gain relating to the write back of certain
assets in Singapore that will be usefully redeployed elsewhere within the Group is also reflected in the net charge. The Group
also incurred £1 million of costs associated with the wider Group business re-alignment exercise. Net costs of £31 million were
recognised within the Speciality Food Ingredients segment, with £1 million classified as Central costs.
In the second half of the year ended 31 March 2015 the Group recognised an impairment charge of £113 million within the
Speciality Food Ingredients segment, comprising a full impairment of the property, plant and equipment (£108 million) and
associated intangible assets (£5 million) of the Singapore facility. In addition, the Group incurred £5 million of one-off costs
associated with the business re-alignment (primarily consultancy and redundancy costs) which were classified as Central costs.
(b) During the six months to 30 September 2015 the Group received compensation of £5 million related to SPLENDA® Sucralose and the
renegotiation of our commercial agreements for our table top business following the sale of the SPLENDA® brand by McNeil
Nutritionals, LLC. The Group also wrote off a marketing related intangible asset (loss of £9 million) and wrote back an
associated payable (gain of £2 million) relating to that alliance.
(c) During the six months ended 30 September 2015 the Group realised a £9 million profit on the disposal of part of its venture fund
portfolio which was classified as an available-for-sale financial asset within the Group`s Consolidated Statement of Financial
Position. This profit was classified within Central costs.
(d) During the prior year, the Group completed the implementation of a common global IS/IT system and recognised costs of £12
million for the year ended 31 March 2015 (six months to 30 September 2014 - £9 million) which did not meet the criteria to be
capitalised. These costs were classified within Central costs.
(e) The Group made a payment of £12 million in December 2014 to terminate distribution rights previously held by a third party to
sell our crystalline fructose to customers, primarily in Asia Pacific. The expense was recognised within the Speciality Food
Ingredients segment.
The tax impact on exceptional items within continuing operations was a £13
million credit (six months to 30 September 2014 - £2 million credit, year to 31
March 2015 - £8 million credit). Tax credits on exceptional costs are only
recognised to the extent that losses incurred will result in tax recoverable in
the future.
Discontinued operations
(f) In the six months to 30 September 2015, the Group recognised £2 million of costs, predominantly professional fees, in relation
to the exit from a substantial part of its European Bulk Ingredients business which completed after the balance sheet date (see
note 17 for further details).
(g) As previously announced, Judgment was handed down on 29 September 2015 in the case brought by American Sugar Refining, Inc.
(ASR) in which it made a number of claims totalling around £40 million in relation to its acquisition of the Group`s EU Sugars
business in September 2010 for a consideration of £211 million. The Court found in favour of ASR on two elements of its claims,
whilst rejecting all other aspects. Accordingly, in the Judgment, the Court has awarded damages of £18 million to ASR. Neither
party has appealed the decision and the full amount of damages awarded were paid to ASR at the end of October, together with
subsequently agreed interest and costs totalling £5 million. At 31 March 2015, the Group held a provision totalling £5 million
in respect of this claim. The excess over this provision, amounting to £18 million, is reported as an exceptional item within
discontinued operations.
There was no tax impact on discontinued exceptional items in either the current
or comparative periods.
4. Finance income and finance expense
Continuing operations Six months to Six months to Year ended
30 September 30 September 31 March
2015 2014 2015
£m
£m
£m
Finance income - - 1
Interest receivable
Total finance income - - 1
Finance expense
Interest payable on bank and other borrowings (9) (12) (23)
Fair value hedges:
- fair value loss on interest rate derivatives (3) (4) (3)
- fair value adjustment of hedged borrowings 3 4 3
Finance lease interest (1) (1) (1)
Net retirement benefit interest (4) (4) (8)
Total finance expense (14) (17) (32)
Net finance expense (14) (17) (31)
Reconciliation to adjusted net finance expense Note £m £m £m
Net finance expense (14) (17) (31)
Net retirement benefit interest 4 4 8
Adjusted net finance expense - continuing operations 16 (10) (13) (23)
Finance expense is shown net of borrowing costs of £1 million capitalised into
the cost of assets (six months to 30 September 2014 - £1 million; year to 31
March 2015 - £1 million).
5. Income tax expense
Continuing operations Six months to Restated* Restated*
30 September Six months to Year ended
2015 30 September 31 March
£m
2014
2015
£m
£m
Current tax:
In respect of the current period
- UK - - -
- Overseas (7) (3) (15)
Adjustments in respect of the previous years - - 2
Deferred tax credit/(charge) (7) (3) (13)
4 (8) (8)
Adjustments in respect of previous years - - -
Income tax expense (3) (11) (21)
Reconciliation to adjusted income tax expense Note £m £m £m
Income tax expense (3) (11) (21)
Tax on exceptional items, amortisation of acquired (15) (4) (13)
intangibles and net retirement benefit interest
Adjusted income tax expense - continuing operations 16 (18) (15) (34)
* Prior year restated to reflect discontinued operations (see note 1). Where
adjusted metrics are presented, these have been further restated for the
adoption of equity accounting (see note 1).
Profit from continuing operations for the six months to 30 September 2015
reflected an income tax expense of £3 million (six months to 30 September 2014 -
£11 million, year to 31 March 2015 - £21 million), including an income tax
credit of £13 million (six months to 30 September 2014 - credit of £2 million,
year to 31 March 2015 - credit of £8 million) in respect of exceptional items
(see note 3).
The Group`s adjusted effective tax rate on continuing operations, calculated on
the basis of the adjusted income tax expense of £18 million (six months to 30
September 2014 - £15 million, year to 31 March 2015 - £34 million) as a
proportion of adjusted profit before tax of £103 million (six months to 30
September 2014 - £80 million, year to 31 March 2015 - £184 million) was 17.9%
(six months to 30 September 2014 - 18.9%, year to 31 March 2015 - 18.4%).
Adjustments to current tax in respect of previous years were £nil, (six months
to 30 September 2014 - £nil, year to 31 March 2015 - £2 million). The adjustment
in the year ended 31 March 2015 reflected non-recurring tax credits relating to
prior years in several European jurisdictions.
The standard rate of corporation tax in the United Kingdom will reduce from 20%
to 19% with effect from 1 April 2017. The standard rate of corporation tax in
the United Kingdom will reduce from 19% to 18% with effect from 1 April 2020.
6. Discontinued Operations
On 31 October, the Group completed the re-alignment of its Eaststarch joint
venture (see note 17). As a result, the Group has substantially exited its
European Bulk Ingredients business by disposing of its share of the plants in
Bulgaria, Turkey and Hungary, whilst strengthening its Speciality Food
Ingredients business by acquiring full ownership of the plant in Slovakia. At
the balance sheet date, the disposed operations have been classified as assets
held for sale having previously been included within `investments in joint
ventures`. Accordingly, the results of those operations in both current and
comparative periods have been restated as discontinued operations. The closing
balance of `Investments in Joint Ventures` of £117 million at 30 September 2015
(31 March 2015 - £323 million, 30 September 2014 £328 million) reflects
primarily the transfer of those investments to `Assets held for sale` in the
Statement of Financial Position during the six months ended 30 September 2015.
In addition, the Group announced on 29 September 2015 that the Commercial Court
in London had handed down a decision in a case brought by American Sugar
Refining, Inc. (ASR) in which it made a number of claims in relation to its
acquisition of our European Sugars business (see notes 3 and 11). The European
sugars business formed part of the Group`s discontinued Sugars segment, and
accordingly a £18 million charge in relation to those claims was recognised
within discontinued operations.
The results of the discontinued operations which have been included in the
consolidated income statement were as follows:
Six months to 30 September 2015
Eaststarch Sugars Total
disposal group Discontinued
Discontinued operations Note £m £m £m
Operating loss (2) (18) (20)
Share of profit after tax of joint ventures and associates 17 - 17
Profit/(loss) for the period from discontinued operations 15 (18) (3)
Basic and diluted loss per share from discontinued operations 7 (0.6p)
Six months to 30 September 2014
Eaststarch Sugars Total
disposal group Discontinued
Discontinued operations Note £m £m £m
Share of profit after tax of joint ventures and associates 16 - 16
Profit for the period from discontinued operations 16 - 16
Basic and diluted earnings per share from discontinued operations 7 3.5p
Year ended 31 March 2015
Eaststarch Sugars Total
disposal group Discontinued
Discontinued operations Note £m £m £m
Share of profit after tax of joint ventures and associates 26 - 26
Profit for the year from discontinued operations 26 - 26
Basic and diluted earnings per share from discontinued operations 7 5.7p
The results of the discontinued operations which have been included in the
consolidated cash flow statement were as follows:
Six months to 30 September 2015
Eaststarch Sugars Total
disposal group Discontinued
Discontinued operations Notes £m £m £m
Profit/(loss) before tax from discontinued operations 2 15 (18) (3)
Adjustment for: - 18 18
Exceptional items
Share of profit after tax of joint ventures and associates (17) - (17)
Cash used in discontinued operations (2) - (2)
There was a £2 million cash outflow from discontinued operations in the current
period, mostly reflecting professional fees associated with the Eaststarch
realignment. The Group did not receive a dividend from its disposed European
joint ventures in the six months to 30 September 2015 or either of the
comparative periods. The Group had not settled the ASR legal claim as at 30
September 2015. There were no cash flows from discontinued operations in either
of the comparative periods.
7. Earnings per share
Basic
Basic earnings per share is calculated by dividing the profit attributable to
owners of the Company by the weighted average number of ordinary shares in issue
during the year, excluding ordinary shares purchased by the Company or in the
Employee Benefit Trust to satisfy future awards made under the Group`s
share-based incentive plans.
Six months to Restated*
30 September 2015 Six months to 30 September 2014
Continuing Discontinued Total Continuing Discontinued Total
operations operations operations operations
Profit/(loss) attributable to owners of the Company (£m) 67 (3) 64 52 16 68
Weighted average number of ordinary shares in issue (millions) 464.2 464.2 464.2 464.4 464.4 464.4
Basic earnings/(loss) per share 14.4p (0.6p) 13.8p 11.2p 3.5p 14.7p
Restated*
Year to 31 March 2015
Continuing Discontinued Total
operations operations
Profit attributable to owners of the Company (£m) 4 26 30
Weighted average number of ordinary shares in issue (millions) 464.2 464.2 464.2
Basic earnings per share 0.9p 5.7p 6.6p
* Prior year restated to reflect discontinued operations (see note 1).
Diluted
Diluted earnings per share is calculated by adjusting the weighted average
number of ordinary shares in issue (assuming conversion of all potentially
dilutive ordinary shares). Potentially dilutive ordinary shares arise from
awards made under the Group`s share-based incentive plans. Where the vesting of
these awards is contingent on satisfying a service or performance condition, the
number of potentially dilutive ordinary shares is calculated based on the status
of the condition at the end of the period. Potentially dilutive shares are
dilutive only when the average market price of the Company`s ordinary shares
during the period exceeds their exercise price (options) or issue price (other
awards). The greater any such excess, the greater the dilutive effect. The
average market price of the Company`s ordinary shares during the six months to
30 September 2015 was 562p (six months to 30 September 2014 - 673p). The
dilutive effect of share-based incentives was 2.3 million shares (30 September
2014 - 4.1 million shares).
Six months to Restated*
30 September 2015 Six months to 30 September 2014
Continuing Discontinued Total Continuing Discontinued Total
operations operations operations operations
Profit/(loss) attributable to owners of the Company (£m) 67 (3) 64 52 16 68
Weighted average number of diluted ordinary shares (millions) 466.5 466.5 466.5 468.5 468.5 468.5
Diluted earnings/(loss) per share 14.3p (0.6p) 13.7p 11.1p 3.5p 14.6p
Restated*
Year to 31 March 2015
Continuing Discontinued Total
operations operations
Profit attributable to owners of the 4 26 30
Company (£m)
Weighted average number of 468.0 468.0 468.0
diluted shares (millions)
Diluted earnings per share 0.8p 5.7p 6.5p
Adjusted earnings per share
Adjusted earnings per share measures are calculated based on profit for the year
from continuing operations attributable to owners of the Company after the
effect of adjusting for the items below:
Continuing operations Notes Six months to Restated* Restated*
30 September Six months to Year to
2015 30 September 31 March
£m 2014 2015
£m
£m
Profit attributable to owners of the Company 67 52 4
Adjusting items:
- exceptional items 3 25 9 142
- amortisation of acquired intangible assets 4 4 9
- net retirement benefit interest 4 4 4 8
- tax effect of the above adjustments 5 (15) (4) (13)
Adjusted profit attributable to owners of the Company 85 65 150
Adjusted basic earnings per share (pence) from continuing operations 18.2p 14.0p 32.3p
Adjusted diluted earnings per share (pence) from continuing operations 18.1p 13.8p 32.0p
* Prior year restated to reflect discontinued operations (see note 1). Where
adjusted metrics are presented, these have been further restated for the
adoption of equity accounting (see note 1).
8.Dividends on ordinary shares
The Directors have declared an interim dividend of 8.2p per share for the six
months to 30 September 2015 (six months to 30 September 2014 - 8.2p per share),
payable on 4 January 2016.
The final dividend for the year to 31 March 2015 of £92 million, representing
19.8p per share, was paid during the six months to 30 September 2015.
9. Net debt
The components of the Group`s net debt are as follows:
At Restated* Restated*
30 September At At
2015 30 September 31 March
£m 2014 2015
£m
£m
Non-current borrowings (285) (440) (463)
Current borrowings and bank overdrafts (494) (356) (305)
Debt-related derivative financial instruments 24 30 18
Cash and cash equivalents 234 323 195
Net debt (521) (443) (555)
Prior year comparatives have been restated and are now prepared on an equity
accounted basis (excluding the share of net cash of joint ventures and
associates) consistent with the Group`s other non GAAP measures.
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 2015, the net
fair value of these derivatives comprised assets of £37 million (30 September
2014 - £37 million; 31 March 2015 - £33 million) and liabilities of £13 million
(30 September 2014 - £7 million; 31 March 2015 - £15 million).
Movements in the Group`s net debt were as follows:
Six months to Restated* Restated*
Six months to Year ended
30 September 30 September 31 March
2015 2014 2015
£m
£m
£m
Net debt at beginning of the period - (restated for equity accounting) (555) (385) (385)
Increase/(decrease) in cash and cash equivalents in the period 41 (28) (170)
Net (increase)/decrease in borrowings (note a) (15) (22) 43
Debt in subsidiary acquired - - (5)
Fair value and other movements 2 (1) 1
Currency translation differences 6 (7) (39)
Decrease/(increase) in net debt in the period 34 (58) (170)
Net debt at end of the period (521) (443) (555)
* Prior year restated to reflect discontinued operations (see note 1). Adjusted measures also restated for the adoption of equity accounting (see note 1).
(a) Net (increase)/decrease in borrowings for the six months ended 30 September 2015 includes a repayment of capital element of finance leases of £1 million (six months ended 30 September 2014 - £1 million; year ended 31 March 2015 - £2 million).
Share of net cash within joint ventures (not included above) at 30 September
totalled £85 million (30 September 2014 - £60 million; 31 March 2015 - £51
million).
10. Capital additions and commitments
For the six months ended 30 September 2015, there were additions to intangible
assets (excluding goodwill and acquired intangibles) of £6 million (six months
ended 30 September 2014 - £20 million; year ended 31 March 2015 - £34 million)
and additions to property, plant and equipment of £69 million (six months ended
30 September 2014 - £49 million; year ended 31 March 2015 - £133 million).
Commitments at the balance sheet date were as follows:
At At At
30 September 30 September 31 March
2015 2014 2015
£m £m £m
Commitments for the purchase of intangible assets 1 - 4
Commitments for the purchase of property, plant and equipment 62 41 71
Total commitments 63 41 75
11. Contingent liabilities
Sale of EU Sugars
As previously announced, Judgment was handed down on 29 September in the case
brought by American Sugar Refining, Inc. ("ASR") in which it made a number of
claims totalling around £40 million in relation to its
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