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Tate & Lyle - building from a new base

Full year underlying revenue, from continuing operations, rose 18% to £1.4bn...

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Full year underlying revenue, from continuing operations, rose 18% to £1.4bn. That reflects growth in both Food & Beverage Solutions and Sucralose. This fed into a14% increase in underlying profit before tax to £145m.

Management expects pre-tax profit in-line with market expectations for the new financial year, and plans to pass on rising input costs to customers. Capital expenditure is seen rising from £75m this year to £90m - £100m, in line with the strategy to invest in growth, including through acquisitions.

The group announced a final dividend of 12.8p, bringing the total for the year to 21.8p. This is a 29% decrease and reflects a lower overall earnings base following the Primient sale.

Shares rose 3.6% following the announcement.

View the latest Tate & Lyle share price and how to deal

Our view

Golden syrup, sugar and treacle mean Tate & Lyle is a household name. Except Tate & Lyle plc doesn't own any of those brands anymore. Instead, it's focused on ingredients like sweeteners and thickeners as well as some larger bulk commodity businesses.

The group's making good on its promise to streamline operations and focus on the most profitable parts of the business. This was the first set of results under the new structure, and it didn't disappoint. The new leaner organisation delivered 14% profit growth and 12.4% operating profit margins. That's expected to grow by at least half a percent per year from here on out--an impressive feat when you consider the inflationary pressure that Tate will be facing.

Tate is heavily reliant on corn to make its products, and given that's a key export for Ukraine, pricing uncertainty will be a risk moving forward. Cost saving efforts should help with this. The group's delivered more than expected through its efficiency programme years ahead of schedule. A further $10m in savings is expected this year. But passing these costs on to customers will be the most effective way to mitigate inflation. So far, the group's been able to do this, and is making provisions to continue doing so if prices rise further this year. Its focus on cleaner, healthier ingredients--a market that's gaining momentum--should help support demand even in light of elevated prices.

The focus on a growing market is a positive step in our view. Acquisitions are a key part of this plan. The purchase of Quantum, a Chinese daily fibre maker, is an example of this. While we're supportive overall, and can't deny the growth opportunity, execution risk hangs heady. Expectations are high and it marks some entry into less familiar territories.

The sale of Primary Products yielded a £500m special dividend, but the lost income meant management's now setting its progressive dividend policy from a lower base. This should help keep the dividend payments more manageable for Tate, but please remember dividends are variable and not guaranteed.

At first look, the new Tate & Lyle looks pretty sweet. As long as management are able to navigate the increasingly challenging environment, Tate could be in a strong position. So far the group look capable of doing just that. The group's valuation, roughly 15 times expected earnings isn't too demanding. But it's some way beyond the long-term average suggesting expectations are high and there are no promises

Tate & Lyle key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

Full Year Results (underlying and constant currency)

Revenue in Food and Beverage Solutions rose 19% to £1.2bn, reflecting an increase in both price and volumes, particularly in Asia, Middle East Africa and Latin America. Demand for items consumed at home, like packaged foods, remained strong even as out-of-home products like industrial ingredients picked up following covid restrictions. Operating profit rose 7% to £160m, though inflation in the final quarter held growth back. Rising corn and other input costs meant operating losses in European Primary Products widened. Acquisitions helped New Products revenue rise 35% to make up 14% of the division's overall revenue. Sweeteners performed especially well, with revenue nearly doubling.

A recovery in out-of-home consumption helped volumes rise 15% in Sucralose, driving revenue 13% higher to £163m. The benefit of increased volumes on per-unit costs offset rising input cost inflation and fed through to a 15% increase in operating profits to £61m.

During the year the group sold its majority stake in Primient, a plant-based industrial ingredient maker for £1.1bn and acquired Quantum Hi-Tech Biological, a Chinese daily fibre maker and Nutriati, a chickpea-based flour and fibre maker.

The group's productivity programme's delivered £158m, beyond the £150 targeted and ahead of schedule. In the current year the group expects the programme to yield a further $10m in savings.

Underlying free cash flow fell from £153m to £72m, primarily reflecting the cost of the Primient sale. Net debt rose by £209m to £626m as dividend payments and the impact of currency fluctuations on the value of debt more than offset cash flow.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Written by
Laura Hoy
Laura Hoy
ESG Analyst

Laura is part of HL's ESG analysis team, working to offer research and analysis to help with sustainable decision making. She also works with other parts of the business to help integrate ESG.

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Article history
Published: 9th June 2022