REG-Tate & Lyle PLC Half-yearly Report <Origin Href="QuoteRef">TATE.L</Origin> - Part 4
05/11/2015 07:00
- Part 4: For the preceding part double click ID:nBw3Pb0pWc
acquisition of Tate &
Lyle`s EU Sugars business in September 2010 for 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 awarded damages of
£18 million to ASR (with interest and costs to be determined in due course).
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, Tate & Lyle held a
provision totalling £5 million in respect of this claim. The excess over this
provision, amounting to £18 million, has been reported as an exceptional item
within discontinued operations. The matter is now concluded and there are no
contingent liabilities remaining in respect of these claims.
American Sugar Association Claim
In 2011, three sugar companies (Western Sugar Cooperative, Michigan Sugar
Company, and C&H Sugar Company, Inc.) filed suit in the US District Court for
the Central District of California against Archer Daniels Midland Company,
Cargill, Inc., Corn Products International, Inc., The Corn Refiners`
Association, Inc. (the "CRA"), Penford Products Co. (subsequently released),
Roquette America, Inc. (subsequently dismissed), and Tate & Lyle Ingredients
Americas, Inc. claiming false advertising around the use of "corn sugar" or
"Natural" to describe high fructose corn syrup (HFCS), as well as claims
equating the nutritional effects of HFCS and sugar. Subsequently, additional
sugar companies joined the plaintiffs. They include the United States Sugar
Corporation, American Sugar Refining, Inc., The Amalgamated Sugar Company LLC,
Imperial Sugar Corporation, Minn-Dak Farmers Cooperative, The American Sugar
Cane League of the U.S.A., Inc., and The Sugar Association, Inc. The defense of
the matters on behalf of the HFCS manufacturers is being coordinated through the
CRA. The various claims made by the plaintiffs are vigorously defended by the
CRA and the HFCS Manufacturers and detailed expert evidence has been assembled
to that effect and as to the absence of material damage suffered by the
Plaintiffs. Given the current status of the litigation we cannot estimate a
reasonably possible range of loss related to this case. The matter is set to
come to trial, before a jury, in November 2015.
Passaic River
In 2007 Tate & Lyle was notified by the U.S. Environmental Protection Agency
("US EPA") that it, along with approximately 70+ others, is a potentially
responsible party ("PRP") for the northern New Jersey Passaic River, which is a
"Superfund" Site. Our involvement derives from a former Staley Chemical Company
plant in Kearny, New Jersey (owned until 1978), which is alleged to have
generated hazardous waste which made its way to the Passaic River. In April
2014, the US EPA issued a Focused Feasibility Study ("FFS") to remove 4.3
million cubic yards of sediment from the lower 8-mile stretch of the river in
bank-to-bank dredging and capping of the river bed. The purported cost range for
the work was between US$953 million and US$3.2 billion, and the US EPA`s
preferred option would cost US$1.7 billion and take five years to complete. The
FFS proposal was subject to a public commentary period, which has now ended, and
the US EPA is evaluating its final record of decision. Whilst we await the US
EPA`s final record of decision, and given the current status of the litigation,
we cannot now estimate a reasonably possible range of loss related to the
remediation of the Lower Passaic River Study Area because the ultimate remedial
approach has not been determined and the parties that will participate in
funding the remediation and their respective allocations are not yet confirmed.
We do not expect any loss to be material.
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 2015 will
have a material adverse effect on the Group`s financial position.
12. Related party disclosures
The Group`s significant related parties are its associates and joint ventures as
disclosed in the 2015 Annual Report. There were no material differences in
related parties or in the nature of related party transactions during the
period.
13. Foreign exchange rates
The following exchange rates have been applied to translate the financial
statements of the Group`s principal overseas operations:
Six months to Six months to Year to
30 September 30 September 31 March
Average foreign exchange rates 2015 2014 2015
US Dollar £1 = $ 1.54 1.68 1.61
Euro £1 = € 1.39 1.24 1.28
At At At
30 September 30 September 31 March
Period end foreign exchange rates 2015 2014 2015
US Dollar £1 = $ 1.51 1.62 1.49
Euro £1 = € 1.35 1.28 1.38
14. Financial instruments
The table below shows the Group`s financial assets and liabilities measured at
fair value at 30 September 2015. The fair value hierarchy categorisation,
valuation techniques and inputs are consistent with those used in the year ended
31 March 2015 (see pages 114 to 115 of our 2015 Annual Report):
- Quoted price (unadjusted) in active markets for identical assets or
liabilities (Level 1);
- Inputs other than quoted prices included within level 1, directly or
indirectly observable for the asset or liability (Level 2); and
- Inputs for the assets or liability that are not based on observable market
data (Level 3).
At 30 September 2015 At 31 March 2015
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 - - 22 22 - - 31 31
Other financial assets - - - - 2 - - 2
Derivative financial instruments: - 11 - 11 - 9 - 9
- currency swaps
-
26
-
26
-
24
-
24
- interest rate swaps
-
2
-
2
-
1
-
1
- forward foreign exchange contracts
3
17
23
43
2
19
37
58
- commodity pricing contracts
Assets at fair value 3 56 45 104 4 53 68 125
At 30 September 2015 At 31 March 2015
Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total
£m £m £m £m £m £m £m £m
Liabilities at fair value
Other financial liabilities (in non-current payables) - - (2) (2) - - (2) (2)
Derivative financial instruments:
- currency swaps - (13) - (13) - (15) - (15)
- forward foreign exchange contracts - (7) - (7) - - - -
- commodity pricing contracts (6) (7) (7) (20) (12) (7) (6) (25)
Liabilities at fair value (6) (27) (9) (42) (12) (22) (8) (42)
For commodity pricing contracts, in evaluating the significance of fair value
inputs, the Group generally classifies assets or liabilities as `Level 3` when
their 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 the observable inputs of the assets or liabilities.
Available-for-sale financial assets which are analysed at `Level 3` primarily
represent investments in unlisted securities. The fair values of the unlisted
securities are principally approximated at cost where the fair value cannot be
reliably measured.
The fair value of financial instruments is based on unobservable inputs that are
supported by little or no market activity at the statement of financial position
date. These inputs generally reflect the entity`s own assumptions about how a
market participant would reasonably be expected to determine the price of a
financial instrument. For financial instruments in Level 3, the Group does not
consider that changes to inputs to reasonable alternatives would have a material
impact on the income statement or equity. The following table reconciles the
movement in the Group`s net financial instruments classified in `Level 3` of the
fair value hierarchy:
Commodity Commodity Available- Other Total
pricing pricing for-sale financial £m
contracts contracts financial liabilities
assets liabilities assets
£m
£m £m
£m
At 31 March 2014 42 (21) 28 - 49
Total gains/(losses):
- in operating profit 37 (6) (2) - 29
- in other comprehensive income
-
-
5
-
5
Purchases
-
-
2
(2)
-
Settlements (42) 21 (2) - (23)
At 31 March 2015 37 (6) 31 (2) 60
Total gains/(losses): 23 (7) 9* - 25
- in operating profit
-
-
(1)
-
(1)
- in other comprehensive income
-
-
1
-
1
Purchases
Settlements (37) 6 (18) - (49)
At 30 September 2015 23 (7) 22 (2) 36
* Exceptional profit on disposal of part of ventures fund portfolio.
The fair value of borrowings is estimated to be £798 million (30 September 2014
- £823 million; 31 March 2015 - £792 million) and has been determined using
quoted market prices or discounted cash flow analysis. The values of other
assets and liabilities held at amortised cost are not materially different from
their fair values.
15. Business combinations update
During the six months ended 30 September 2015, the Group concluded its purchase
price allocation for Gemacom Tech Industria Comercio SA, in which it acquired a
90% equity interest in December 2014. This has resulted in the recognition of
additional identifiable net assets acquired totalling £3 million (£4 million of
intangible assets less £1 million of deferred tax liabilities) as outlined in
the table below:
Provisional Final
At 31 March Adjustment At 30 September
2015 £m 2015
£m £m
Cash consideration - including amounts paid to escrow 19 - 19
Deferred consideration 6 - 6
Contingent consideration 2 - 2
Total consideration 27 - 27
Add: liability recognised in respect of put option 2 - 2
Less: net assets acquired (5) (3) (8)
Goodwill 24 (3) 21
The additional assets acquired relate to recognition of customer relationship
intangibles, net of deferred tax. The remaining goodwill recognised of £21
million is attributable to: the acquisition of experienced management, research
and technical teams; a platform to leverage the Group`s existing recipe and
ingredients portfolio; and buyer specific synergies from the ability to leverage
the Group`s existing relationships with its global enterprise customer base.
16.Reconciliation of adjusted performance measures
For the reasons set out in note 1, the Group presents adjusted performance
measures including adjusted operating profit, adjusted profit before tax and
adjusted earnings per share. Following the exit from the majority of the Group`s
European Bulk Ingredients business on 31 October 2015, adjusted performance
measures are now presented on an equity accounted basis. Further information can
be found in note 1.
For the periods presented, these adjusted performance measures exclude, where
relevant:
- exceptional items
- the amortisation of acquired intangible assets
- net retirement benefit interest, and;
- tax on the above adjustments.
The following table shows the reconciliation of the adjusted performance
measures to the most directly comparable measures reported in accordance with
IFRS:
Six months to 30 September 2015 Restated*
Six months to 30 September 2014
£m unless otherwise stated Reported Adjusting items Adjusted Reported Adjusting items Adjusted
Continuing operations
Sales 1 176 - 1 176 1 200 - 1 200
Operating profit 71 29 100 68 13 81
Net finance expense (14) 4 (10) (17) 4 (13)
Share of profit after tax of joint ventures and associates 13 - 13 12 - 12
Profit before tax 70 33 103 63 17 80
Income tax expense (3) (15) (18) (11) (4) (15)
Non-controlling interests - - - - - -
Profit attributable to Owners of the Company 67 18 85 52 13 65
Basic earnings per share 14.4p 3.8p 18.2p 11.2p 2.8p 14.0p
Diluted earnings per share 14.3p 3.8p 18.1p 11.1p 2.7p 13.8p
Effective tax rate 4.5% 17.9% 17.4% 18.9%
* 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).
17. Events after the reporting period
Eaststarch Re-alignment
On 31 October, the Group completed the realignment of its Eaststarch joint
venture. Tate & Lyle has substantially exited from its European Bulk Sweeteners
business by exiting the plants in Bulgaria, Turkey and Hungary whilst
strengthening its Speciality Food Ingredients business by acquiring full
ownership of the more speciality-focused plant in Slovakia. These operations,
disposed after the balance sheet date have been classified as assets held for
sale and presented separately in the consolidated statement of financial
position having previously been included within `investments in joint ventures`.
Accordingly, the results of those operations in current and comparative periods
have been restated as being discontinued operations.
The Group received €240 million (£173 million) of consideration at closing,
however owing to the short time period between conclusion of the sale and
release of this announcement and the requirement to prepare a balance sheet as
at the date of closing, it has not been possible to calculate the final
accounting impact of the transaction. On 21 April 2015 the Group announced that
the expected exceptional profit on disposal would be approximately £60 million
subject to exchange rate movements and the timing of completion.
Upon conclusion of the sale,the Group received dividends of €94 million (£68
million) from its Eaststarch joint venture.
European operations restructuring
Following the completion of the Eaststarch transaction, the Group has just
commenced a restructuring of its European operations. No amounts have been
recognised in the six months ended 30 September 2015 because no present
obligations existed at the balance sheet date.
US private debt placement
On 21 July 2015 the Group successfully priced a US$400 million debt private
placement. The transaction completed on 29 October 2015, at which point the
following notes were issued:
- $95 million floating-rate notes due 2023
- $25 million 3.83% notes due 2023
- $180 million 4.06% notes due 2025
- $100 million 4.16% notes due 2027
The proceeds will be used to refinance existing indebtedness, thereby extending
the Group`s debt maturity profile, and for general corporate purposes.
ADDITIONAL INFORMATION
1.RATIO ANALYSIS (a)
30 September 30 September 31 March
2015 2014 2015
Net debt to EBITDA - on banking covenant basis (b)
= Net debt 428 374 462
Pre-exceptional EBITDA 384 394 360
= 1.1 times = 0.9 times = 1.3 times
Interest cover - on banking covenant basis (b)
= Operating profit before exceptional items and amortisation of intangible assets
Net finance expense
269 286 247
21 27 23
= 12.8 times = 10.6 times = 10.7 times
Cash dividend cover (c)
= Adjusted free cash flow from continuing operations 92 60 54
Cash dividends 38 38 130
= 2.4 times = 1.6 times = 0.4 times
Adjusted operating cash flow (d) 124 110 125
Gearing (e)
= Net debt 521 443 555
Total equity 903 1 045 936
= 58% = 42% = 59%
Notes:
(a) All ratios are calculated based on unrounded figures in £ million. Comparatives have been restated as prepared on an equity accounted basis where appropriate.
(b) Net debt to EBITDA and interest cover are defined under the Group`s banking covenants and reported on a proportionate consolidation basis. For banking covenant purposes these ratios are calculated based on the accounting standards that applied for the financial year 2014, and new accounting standards adopted by the Group subsequent to 1 April 2014 are disregarded. Net debt is calculated using average currency exchange rates.
(c) Adjusted Free cash flow represents cash generated from continuing operations excluding the impact of exceptional items, less net interest paid, less income tax paid, less capital expenditure. Cash dividends represent external dividends on ordinary shares paid or proposed in respect of the reporting period, excluding dividends that are reinvested in shares through the DRIP scheme.
(d) As announced in the Group`s 2015 Annual Report, the Group reviewed appropriateness of cash conversion cycle (CCC) as its cash flow KPI, and concluded that adjusted operating cash flow is a more effective measure of overall cash management. Adjusted operating cash flow is defined as adjusted cash flow from continuing operations, excluding the impact of exceptional items, pensions, derivative financial instruments, tax, interest and acquisitions less capital expenditure.
(e) Prepared using equity accounted net debt and total equity from the Consolidated Statement of Financial Position.
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