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Edited Transcript of TATE.L earnings conference call or presentation 24-May-18 9:00am GMT

Full Year 2018 Tate & Lyle PLC Earnings Call

London May 25, 2018 (Thomson StreetEvents) -- Edited Transcript of Tate & Lyle PLC earnings conference call or presentation Thursday, May 24, 2018 at 9:00:00am GMT

TEXT version of Transcript


Corporate Participants


* Christopher Mark McLeish

Tate & Lyle plc - Group VP of Finance & Control

* Nick Hampton

Tate & Lyle plc - Chief Executive & Executive Director


Conference Call Participants


* Alicia Ann Forry

Investec Bank plc, Research Division - Analyst

* Arthur John Reeves

Societe Generale Cross Asset Research - Equity Analyst

* Jeremy Fialko

Redburn (Europe) Limited, Research Division - Partner of Food Manufacturing & HPC Research

* John Mark Ennis

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Martin John Deboo

Jefferies LLC, Research Division - Equity Analyst

* Robert Russell Waldschmidt

Liberum Capital Limited, Research Division - Consumer Goods Analyst

* Warren Lester Ackerman

Societe Generale Cross Asset Research - MD, Head of Global Staples Research and Equity Analyst




Nick Hampton, Tate & Lyle plc - Chief Executive & Executive Director [1]


Good morning. So welcome to today's results presentation. For me, it's a huge honor to become the Chief Executive at Tate & Lyle. And I'd like to thank Jerry and the board for the opportunity and for their continued support and guidance as we chart the future of the company.

Before we talk about the results, I just like to cover briefly my key priorities for the business going forward.

A lot of hard work has gone on over the last 3 years to drive greater operational discipline into the business to set a clearer direction for the future and to strengthen the balance sheet. We've put a sound foundation to move forward from, and I'm excited about our growth potential.

My job is to deliver on that potential. And to do that, I want to inject more pace and intensity into the organization and focus on 3 key priorities.

Firstly, we are going to sharpen the focus on our customers. I spent 20 years at PepsiCo in the food and beverage industry. They're one of Tate & Lyle's biggest customers. And I understand what they need from us and also how we can deliver that going forward.

Secondly, we're going to accelerate the development of our portfolio. By that, I mean accelerate taking innovation to market, accelerate how we get new products to market, continue to expand our geographic presence and focus more on M&A.

And thirdly, we're going to simplify the business to drive greater agility and critically deliver the productivity that's required to invest in the sustainable growth of Tate & Lyle.

These 3 priorities are critical to the future of the company, and I'll come back to them later in the presentation.

The agenda for today is on the screen. As you know, Imran Nawaz will join us as Chief Financial Officer from the 1st of August. I'm delighted to say that Imran is with us here today, and he's looking forward to meeting you all in due course. Imran is sitting there. Would you just stand up so people can see who you are? Imran, welcome, welcome to the team. I'm really glad that you're coming in August to take on the new role.

Imran is the latest addition to a senior management team that's been significantly refreshed over the last year. In September, Andrew Taylor joined us from BCG as the President of Innovation. And in the same month, Melissa Law joined from Baker Hughes as President of Global Operations. This new team, alongside the experienced management team that exists, has a diversity of experience, an excellent blend of company, industry and international experience and is deeply committed to driving the business forward.

Today, because Imran isn't joining us until August, Chris McLeish, our Group Vice President of Finance and Control, and for those of you with really long memories, a former Head of Investor Relations, will present the financial results. I will then return to talk about the outlook, about my priorities for the business and to take your questions.

Before I hand over to Chris, I want to briefly explain the actions we're taking to simplify the way we report and changes to our divisional names.

We will continue to have 2 divisions, and these have been renamed Food & Beverage Solutions and Primary Products to better reflect their business fundamentals and customer offerings.

While Sucralose remains part of our Food & Beverage Solutions division, as we manage it in a different way from the rest of that division, we will report it separately. Therefore, from now on, we will have 3 reporting segments: Food & Beverage Solutions, Sucralose and Primary Products. In addition, the Food Systems or stabilizer business has been integrated into Food & Beverage Solutions, and they will no longer be disclosed separately.

With that, I will hand over to Chris.


Christopher Mark McLeish, Tate & Lyle plc - Group VP of Finance & Control [2]


Good morning, everyone.

Turning now to the review of financial performance for the year ended 31 March 2018. Consistent with previous presentations, I will focus on adjusted measures for continuing operations. Items with percentage growth are in constant currency unless I indicate otherwise.

2018 has been another year of progress, with profit growth delivered in all businesses.

Food & Beverage Solutions continued to build volume momentum, which was a key priority coming into the year. Our reset of the Sucralose business drove costs lower and margins higher, and Primary Products delivered another strong year.

Operational performance was consistently good across the business. And we continue to invest in longer-term growth by strengthening our commercial capabilities and expanding our customer-facing network of applications laboratories.

We delivered good earnings growth and strong cash generation, and the balance sheet is robust. The board is proposing to increase the final dividend by 0.5p to 20.3p per share. This makes a dividend for the full year of 28.7p, an increase of 2.5%.

Looking now at the financial results in more detail.

Group sales were 1% lower at GBP 2.7 billion, reflecting lower corn prices. Profit before tax of GBP 301 million was 13% higher. Adjusted diluted earnings per share on continuing operations was 7% higher at 50.1p, after the impact of a 3.7 percentage points increases in the adjusted effective tax rate, reflecting the impact of changes in U.K. tax legislation and higher U.S. earnings. Cash management was once again strong, with adjusted free cash flow GBP 22 million higher at GBP 196 million. Net debt was GBP 60 million lower at GBP 392 million, driven by strong free cash flow and the favorable impact of foreign exchange on U.S. borrowings. Finally, improved operational performance drove return on capital employed 190 basis points higher at 16.2%.

Let me now go through the key factors driving profit growth. On this slide, we have separated our underlying growth from currency impacts.

Food & Beverage Solutions operating profit was GBP 10 million higher, driven by higher volume and the recovery of the stabilizer business in Europe.

Sucralose operating profit was GBP 3 million higher, with firm pricing and lower operating costs from our single facility in Alabama, which continues to operate well.

Primary Products operating profit increased by GBP 39 million.

Profits from sweeteners and starches increased by GBP 13 million while operating profits from commodities increased by GBP 26 million.

The share of profit after tax from the Almex and Bio-PDO joint ventures was GBP 4 million lower, driven by lower profits from Almex, as we lapped currency gains in the previous year.

Central and finance costs were GBP 14 million higher, mainly as a result of higher captive insurance claims.

Moving to the divisional results.

In Food & Beverage Solutions, volume grew 3% with growth in all regions. Operating profit was up 8% at GBP 137 million, with 60 basis points of margin improvement. Profit growth moderated in the second half as we invested behind customer-facing capabilities, and we also saw increasing North American transport costs. Sales increased by 2%.

In North America, market conditions continued to be challenging as the overall U.S. food and beverage market remained flat, with consumers increasingly seeking alternatives to traditional brands and many of our largest customers experiencing end-market softness. Despite this, volume was 1% higher, reflecting the benefit of our approach of focusing on higher growth, subcategories and customer channels and gaining share in larger customers.

In Asia Pacific and Latin America, volume was 7% higher. China saw double-digit growth, driven by beverages and dairy. Mexico and Brazil also saw double-digit growth with strong demand in Mexico and sales into dairy in Brazil. Demand in the Andean region was softer due to weakness in the Venezuelan market.

In Europe, the Middle East and Africa, volume increased 6%, benefiting from strong sweetener demand in beverages in Southern Europe and good texturant demand in soups, sauces and dressings in Central Europe. In Russia, volume was significantly lower following a customer credit issue in the prior year.

New products continued to show good momentum with 15% increase in sales to $121 million. Higher sales in texturants were driven primarily by our clean label starches and non-GMO solutions. In sweeteners, PUREFRUIT performed well and sugar replacement in beverages drove growth in our stevia portfolio.

Turning to Sucralose.

Profit was 5% higher at GBP 55 million with strong margin accretion. As expected, volume was 12% lower as we lapped the sell-down of excess inventory following the transition to our facility in Alabama. Pricing remained firm with sales 9% lower. Our facility in Alabama continued to operate well and close to capacity, driving operating costs lower.

Looking forward, while overall market demand for Sucralose continues to grow, over the longer term, market prices are expected to moderate, driven by increases in supply from China.

Moving to Primary Products, which once again performed strongly.

The volume grew by 1% and operating profit was GBP 37 million higher. The sweetener and starch business delivered 11% increase in operating profit to GBP 134 million. This was driven by good mix management and 3% volume growth in North American sweeteners, with moderate margin gains secured in the 2017 sweetener contracting round. Strong commercial and consistent supply chain execution and efficiency initiatives also drove profits higher.

Contracts renewed for the 2018 calendar year sweetener contracting round delivered unit margins broadly in line with the previous year.

North American industrial starch volume was in line with the prior year as overall demand remained steady.

Commodities had a strong year, contributing profit of GBP 32 million, an increase of GBP 24 million. The strong performance was driven by market opportunities across coproducts and gains from the sourcing of corn. In particular, profit from corn gluten feed, which is used for animal nutrition, increased significantly during the year.

Overall, the U.S. corn wet milling industry continues to be well-balanced, although market and political factors could obviously influence this situation. To that end, as you know, negotiations between the U.S., Canada and Mexico to modernize NAFTA are continuing. The situation remains complex and we continue to monitor progress closely.

Turning to cash flow.

We generated free cash flow of GBP 196 million, an increase of GBP 22 million, reflecting higher earnings and lower capital expenditure.

Capital expenditure was GBP 131 million, reflecting continued investments in capacity, productivity and maintenance. We expect capital expenditure for the 2019 financial year to be between GBP 130 million and GBP 150 million.

Net debt reduced by GBP 60 million due to strong cash generation and the GBP 35 million favorable impact to foreign exchange on U.S. dollar borrowings.

During the year, we also made a GBP 56 million accelerated contribution to the U.S. pension scheme, moving the scheme close to full funding.

Overall, we have made significant progress over the last 3 years, embedding more rigorous financial disciplines and strengthening our balance sheet.

Cash generation last year was more than 3.5x higher than it was 2 years ago, and cash dividend cover has been rebuilt from 0.4x to 1.5x over the same period.

Our return on capital employed is now at 16.2%, nearly 500 basis points higher than 2 years ago.

So in summary, good volume momentum in Food & Beverage Solutions and strong performance in Primary Products resulted in group profit 13% higher, while diluted earnings per share increased by 7%. Cash flow was strong. Net debt is down. And the 2.5% increase in the final dividend has been recommended by the board.

With that, I will hand back to Nick to take you through the outlook for the coming year.


Nick Hampton, Tate & Lyle plc - Chief Executive & Executive Director [3]


Thank you, Chris.

Moving to the outlook.

For the year ending the 31st of March 2019, we expect growth in adjusted diluted earnings per share in constant currency to be in a mid-single-digit range, albeit towards the lower end of the range due to energy and transport cost inflation in North America and a strong year of Commodities performance in fiscal 2018.

Recent tax reforms in the U.S. will generate some modest benefit for the group, and that outlook includes our expectation that the adjusted effective tax rate for the 2019 financial year will be in the range 20% to 22%.

A couple of calendar items.

We have decided we will no longer issue a quarter 1 trading statement. However, we will keep our quarter 3 trading statement so we can update you on the annual sweetener pricing round in North America. I'm also announcing today that we'll be holding a Capital Markets Day in Chicago and Lafayette in the U.S. on the 12th and 13th of September. I hope as many of you as possible will be able to join us for those 2 days.

To wrap up the financial review of this presentation, I am pleased with our progress and the financial position we have built over the last 3 years. This provides a strong foundation on which to grow the business in the years ahead.

I now want to talk about the future of the business and talk more about how we're going to accelerate performance going forward. To do that, I'll touch on 3 areas. Firstly, I'll talk about the business we are today. Secondly, I'll expand in more detail on the 3 priorities I laid out right at the start of the presentation. And lastly, I'll touch on the investment case for Tate & Lyle.

Tate & Lyle is one integrated business, made up of 2 trading divisions, both with distinct roles to play and both important to the future of the company.

Food & Beverage Solutions is focused on delivering growth, with Primary Products focused on delivering cash and steady earnings. They share a cost-efficient asset base, many common customers, and we will manage them together to optimize returns for shareholders.

One of the reasons I joined Tate & Lyle 3 years ago was my belief in the strong value proposition of the business, which I see clearly in both divisions.

Food & Beverage Solutions operates in the large global Speciality Food Ingredients market, growing at about 4% to 5% each year. Major global trends, such as the increase in urbanization and the rise of technology, are leading to significant changes in people's diets and lifestyles. The rise in diseases, such as diabetes and obesity with their associated health care costs, are forcing governments to look at different ways to change consumer behavior, from healthier lifestyle programs to sugar taxes. All these changes are driving growth in packaged food consumption and consumer demand for healthier products lower in sugar, calories and fat. That is where Tate & Lyle comes in. We play at the center of these trends.

In Food & Beverage Solutions, we combine our deep understanding of sweetness, texture and fiber enrichment, together with our expertise in key categories such as beverages, dairy and soups, sauces and dressings, to tailor unique solutions for our customers. It is this intersection of our product knowledge and category expertise which will increasingly differentiate us in the market.

We also help food keep its great taste. It's worth remembering that despite the increase in the demand for healthier foods, taste remains the primary driver of consumer purchase.

So if you add to this our innovation expertise and our ability to provide local solutions to customers out of our labs across the world, Food & Beverage Solutions has a strong value proposition, and with the right level of focus, all the capabilities to become our customers' chosen growth partner.

Primary Products is a very good business. It is predominantly anchored in the more stable North American market with strong positions in sweeteners and industrial starches and supported by scale, cost-competitive asset base.

Over the last 5 years, demand across the U.S. and Mexico for sweeteners and industrial starches has remained relatively stable. Our focus is to identify and exploit opportunities for margin growth in these markets.

The near-term focus of our 2 divisions is clear. Food & Beverage Solutions is to accelerate volume growth, enhance margins and expand its portfolio to allow us to serve our customers better. Primary Products is to deliver steady volume and profit through mix management and to continue to generate cash to support investments. To deliver this, I have identified 3 priorities.

Firstly, sharpen the focus on our customers; secondly, accelerate portfolio development; and thirdly, simplify the business and drive productivity. I'll touch on each of these in a little bit more detail, starting with sharpening the focus on our customers.

Whether it's in sales, applications, manufacturing or new product developments, serving our customers the best way we can is key to the success of both divisions. Our customers look at the market through a category lens, so we need to do the same. Our customers want solutions, not just ingredients, so that is what we need to give them. Our customers are increasingly looking for a growth partner, not just a supplier, so that is what we must become.

And while food is global, taste is local, so we need to be able to serve our customers in their local markets. I have already started to make the necessary changes to sharpen the focus on our customers.

Firstly, we have reset our growth strategy on categories. Our focus is on building leading positions in 3 categories globally: beverages, dairy and soups, sauces and dressings, and in addition, in 2 or 3 additional categories in each region where we have local expertise. For example, bakery in North America and Latin America, baby food in Europe and snacks in Asia Pacific.

We have also reorganized our commercial organization into category teams. Previously, we sold through a product lens, but now we're going to our customers in category teams across sales, marketing and applications. This will increasingly allow us to work with our customers and provide solutions and insights in their key consumer categories.

Secondly, we fully integrated the former Food Systems business into Food & Beverage Solutions to ensure we have one approach for all our customers.

Thirdly, we've accelerated the building of our infrastructure in Asia Pacific and Latin America to get us closer to our customers in these important high-growth markets. We recently completed expansions of application labs in Singapore, Shanghai and Mexico City, all of which have enhanced our ability to work for their customers locally.

And we're not starting from scratch. We've made some good progress over the last 12 to 18 months enhancing the way we serve our customers across both divisions. What I intend to do is drive greater pace and focus in this area.

To show you the way I wanted to work with our customers in the future, in Primary Products, we recently provided an innovative supply chain solution for a large U.S. private label customer. And this flexible approach enabled us to win new sweetener volume across multiple categories.

For Food & Beverage Solutions, I'd like to share one example in more detail.

I'm really proud of what the team has done with Nestlé in helping them take sugar out of their famous range of Nesquik powder drinks. Nestlé wanted to significantly reduce the amount of sugar they use in Nesquik without compromising taste. Working closely with them at both the global and the local level, using our PROMITOR fiber, we were able to provide the right solutions to reduce sugar by up to 40% in Nesquik products across numerous countries, from the U.K. to Spain, from Hungary to Chile.

We not only provided the customer with local application expertise but also support in other areas including nutrition, regulatory and logistics. This project demonstrates the approach I wanted to take with all our key customers. By that, I mean moving from being a valued ingredient supplier to becoming a provider of category-led solutions and a full-service growth partner. It will take time to get there, so we've made a good start. I'm pleased to say we're working with a number of customers, including Nestlé, on similar projects across multiple regions.

The second priority is to accelerate the development of our portfolio. To do this, we're focused in a number of areas.

Firstly, accelerating the pace of new product development. We have already taken steps to simplify our innovation process and critically work more closely with customers earlier in the new product development cycle.

Secondly, increasing our focus on building more external partnerships and alliances to support the growth of our business, either through open innovation or directly with our in-house team.

For open innovation, I mean scouring the world for great ideas that can complement or add to our current portfolio. And with our new President of Innovation, Andrew Taylor, we are already taking steps to expand our global innovation network.

One great example of a developing partnership that is helping to accelerate growth in our product portfolio is with Codexis, a leading protein engineering company and expert in enzymes based on the West Coast of the U.S. We are working with them to create novel and domestic routes to strengthen our key sweetener platform.

Thirdly, I wanted to take a more active approach to M&A, particularly in the context of strengthening our existing product platforms and expanding our geographic presence.

With that in mind, this morning, we announced that we have extended our relationship with Sweet Green Fields, our stevia partner, by taking a 15% shareholding with a one-way option to buy the business outright. Stevia is a key component of our sweetener portfolio, and this investment would strengthen our partnership, enhance our stevia offering and support Sweet Green Fields' continued expansion and the lease development program. This transaction is the first example of what I intend to be increased M&A activity.

My third priority is to simplify the business and drive greater agility and productivity across the whole organization. Here, we are committing to delivering productivity benefits of $100 million over the next 4 years. By that, I mean our cost base will be $100 million lower at the end of year 4 before reinvestments. Actions to deliver this will include simplifying the business, zero-based budgeting and increasing efficiency in our end-to-end supply chain. Melissa Law, our new President of Global Operations who joined us from the oil and gas industry is bringing a new and different level of focus to this area. We will use the $100 million of productivity benefits to reinvest in growing the business sustainably, particularly to serve our customers better and also to support margin progression.

Moving lastly to the investment case.

Tate & Lyle today is a well-balanced business, with a strong value proposition and key priorities to deliver growth going forward. Ultimately, that's what underpins the investment case. Primary Products, delivering steady profits and strong cash flow. Food & Beverage Solutions focused on accelerating top line growth and margin expansion. Sucralose managed for cash and delivering high return on assets.

Over time, we expect growth in earnings per share in constant currency to accelerate, for organic return on capital employed to improve and strong cash generation to continue, supporting our progressive dividend.

This investment case is supported by a clear capital allocations framework, ultimately aimed at maintaining an investment-grade credit rating.

There are 4 priorities underpinning our capital allocation.

Firstly, investing in organic growth where I expect we will invest capital in the range of GBP 130 million to GBP 170 million a year. This may increase in any given year if we're excited about the potential of a new product. Secondly, funding acquisitions, partnerships or joint ventures to accelerate growth. Thirdly, to maintain our progressive dividend policy. And lastly, returning surplus capital to shareholders if we aren't utilizing it elsewhere.

Maintaining a robust balance sheet is a key priority, as is continuing to generate strong return on capital employed. I'm very clear about our forward leverage. We believe the appropriate leverage over the longer term for our business lies in the range of 1 to 2x net debt-to-EBITDA, but that won't stop us going outside that range if we see attractive investment opportunities. You will have noticed that our current leverage is 0.8x. That gives us a strong balance sheet and flexibility to invest in the future of the business.

So in summary, I'm excited about the future of Tate & Lyle and clear about our priorities to grow the business: sharpen, accelerate and simplify.

I want you to take the following key messages away from today's presentation.

Tate & Lyle is one integrated business, which we will manage together to optimize returns to shareholders. We have a strong value proposition, anchored in our ability to help customers take sugar, calories and fat out of food and in the strength of our North American Primary Products business.

We have 3 programs underway to realize the potential of Tate & Lyle: sharpening the focus on our customers, accelerating portfolio development and simplifying our business to deliver $100 million in productivity improvements over the next 4 years.

As these programs gather momentum, over time, we expect growth in earnings per share to accelerate. We will also improve our organic return on capital employed and deliver strong cash generation, supporting a progressive dividend policy.

We have a clear direction, and we start from a strong financial position. Credit to that lies in all the people within the Tate & Lyle organization for whose support I'm incredibly grateful.

Ultimately, my job as the Chief Executive at Tate & Lyle is to unlock that potential. With 3 key priorities, sharpen, accelerate and simplify, I'm incredibly confident we will do so. We've got a new capable diverse management team committed to delivering those priorities, and the future of Tate & Lyle is strong.

With that, I'll be happy to take any of your questions. Thank you.

And if I could just ask you, when you ask your question, to give your name and where you're from, so that's just for the webcast. Thank you. Warren?


Questions and Answers


Warren Lester Ackerman, Societe Generale Cross Asset Research - MD, Head of Global Staples Research and Equity Analyst [1]


It's Warren Ackerman at SocGen. I've got a few questions. First one's on M&A. You said that you want to accelerate M&A. Can you talk a bit about the priorities for the portfolio? Do you think the portfolio is too narrow? And do you want to kind of reduce the reliance on corn to other feedstocks like oats, tapioca? Just interested to get your thoughts around that. And then, secondly, on the cost savings, interesting you talk about [ZBB]. Just interested how much of the $100 million reduction comes from ZBB . And do you have any initial thoughts on the benchmarking on ZBB ? Or is it a bit too early? Just any kind of color on that. And just very -- finally, on the trading side on coproducts, there was a massive uplift. I think my family has kind of considered that to be quite a cyclical business, but you do sort of suggest there's a structural benefit from the move into animal feed. Just wondering whether some of that big uplift might actually be sustainable within the coproducts.


Nick Hampton, Tate & Lyle plc - Chief Executive & Executive Director [2]


So let me take 3 questions, I think, each in turn. So M&A. The priority on M&A for me is very clear. The first thing is to invest behind strengthening our current product portfolio, and the announcement we made this morning, I think, is a clear example of that. Stevia is right at the center of the natural sweetener industry and critical product for us to be in. So that's the first priority, strengthening our portfolio across sweeteners, texturants and fibers. The second priority is to make sure we continue to strengthen our geographic presence. A good example of that would be, as you know, we're looking to grow our business in Asia. If you want to be a full-service player in texturants in Asia, it's helpful to be in tapioca, which brings me to your point about corn, which is cores having different substrates in the portfolio can only strengthen it. Do we feel constrained by our current portfolio? No, we don't, but we are always looking to add to it. So those will be the kind of the focus for M&A. If I come back to your second question, which I think was, remind me again, [ZBB]. So when I look at the productivity agenda, what we're really saying is we're doing what all good companies could -- should do, to continue to get more efficient at how we run our business. We've got opportunities to simplify the way we go to market. And ZBB is part of the more holistic program to find that $100 million. I think it's a bit early to say precisely what's going to come from it. But it's the clear intent to look at every pocket of cost in the business and make sure we're operating as efficiently as we can because we need funds to reinvest in the growth. We need to continue to reinvest behind growing the business going forward, so we get sustainable earnings growth. And I think your third question was about coproducts. So look, like every single part of the business, we should continue to reevaluate how we run it. We've recently taken another look at Commodities and decided looking at coproducts on a global basis is the right thing to do and to see if we can think differently about how we extract value from that business. The thinking is very early, but we're going to continue to evolve that thinking. I would say, look, I'm delighted we have the teams continuing to manage that business really well. We saw that in the results last year, but it is still a cyclical business, so we shouldn't expect we're going to see the same level of profitability in fiscal '19. And to a certain extent, that's how we're guiding. John?


John Mark Ennis, Goldman Sachs Group Inc., Research Division - Equity Analyst [3]


John Ennis from Goldman. Two for me. The first one is on the cost-saving program. Could you -- you mentioned that there will be an element of reinvestment. I just wondered if you could give us a bit more detail on what proportion you think will be reinvested, what proportion you think will be retained on the cost-saving program and maybe some color on how you see that phasing over the 4-year period. And then the second question is on the Sucralose business. You mentioned in your opening remarks that pricing may deteriorate there. I wondered if you could give us a bit more clarity on the magnitude of price reduction that you're expecting.


Nick Hampton, Tate & Lyle plc - Chief Executive & Executive Director [4]


Sure. So let me start with productivity. I don't want to be constrained by putting a specific target on what we reinvest versus what we put to the bottom line because I think, ultimately, what we're trying to do is manage the business for an overall return and for sustainability. And that will look different in any 1 year depending on how the business evolves. I mean, the clear message I want to give is we're focused on productivity because it's a critical component of driving an overall return for the business and underpinning the growth that we're looking to deliver. I think it would be stupid for us to put a specific number on what goes where at this stage in the journey. On Sucralose, let's start with the strategy that we laid out 2 to 3 years ago, has played out really well and actually better than we anticipated. So the shift in profitability in the business, the shift to focus on customers who value what we do, the shift to a low-cost manufacturing operation in McIntosh has gone, frankly, as well as we could have imagined. That's a great credit to the team. When we look at the business going forward, we still see lots of value in the customers we do business with, and we feel good about the way we've contracted for this year. Looking beyond that, although Sucralose is a fast-growing market still, there is still a supply-demand imbalance. So therefore, we're being cautious about the evolution of pricing, and we'll see how the look evolves as the business develops over the next 12 to 18 months. Jeremy?


Jeremy Fialko, Redburn (Europe) Limited, Research Division - Partner of Food Manufacturing & HPC Research [5]


Jeremy Fialko at Redburn. So 2 questions. Coming back to this M&A point. I guess, one of the things, looking back to when Javed was Chief Executive, I know that he came in and said he had this intention of doing more deals and the results were relatively modest. So can you just give a bit more detail on maybe, let's say, how the approach might change? And why is it that you're optimistic there is more that you can be doing? I know that there would've been plenty of things that you would've been looking at over the last, say, 3 to 5 years. And then the second question is on the 2020 targets. Are they still relevant, the ones in terms of the geographic products versus the new product number?


Nick Hampton, Tate & Lyle plc - Chief Executive & Executive Director [6]


So let me take the first question. And so the priority is to accelerate portfolio development. There are 3 priorities in there: so accelerating new products, accelerating geographic presence and M&A. So it's not just about M&A. But on the M&A point, look, we are increasingly being more active in looking for opportunities. We just announced something today, which is a sign of progress. And we'll continue to focus and work hard on unlocking what we think is right for the business. Of course, there are no guarantees, but it's very clear that it's part of the plank to development the portfolio. It's not the only thing. What I can't tell you is timing and level of success because that's not entirely within our control. But it's a very clear signal that we are going to be more focused on it. And your second question?


Jeremy Fialko, Redburn (Europe) Limited, Research Division - Partner of Food Manufacturing & HPC Research [7]


It was on the beyond 2020 target.


Nick Hampton, Tate & Lyle plc - Chief Executive & Executive Director [8]


2020? Okay. So I think I've been very clear with the priorities that we've laid out today and clear that we're going to manage the business as a total to deliver return for shareholders. So are we moving on from the 2020 ambition? Yes, we are. Is it consistent? Is what we're going to do going forward consistent with the direction that we talked about in 2020? Yes, it is. We're still focused on accelerating new product development. We're still focused on driving geographic diversity, so expanding our presence in emerging markets. And we're still focused on growing the Food & Beverage Solutions business. So we're going to focus on the 3 priorities, and we'll talk about those as we go forward. Robert?


Robert Russell Waldschmidt, Liberum Capital Limited, Research Division - Consumer Goods Analyst [9]


Robert Waldschmidt from Liberum. When we think about the evolution of your ingredients margins then, clearly, the $100 million in productivity savings being reinvested, but at the same time, allowing you to have capacity to grow that margin, perhaps maybe a bit more than you had in terms of the past with the current core investment, for example. How do you see the trajectory of ingredient margins going forward over the next 4 to 5 years? And do you have some form of target in mind in your getting to these margins?


Nick Hampton, Tate & Lyle plc - Chief Executive & Executive Director [10]


No, I don't. Actually, at this point -- and I think we're very clear that if we do the right things with the portfolio and we build the kind of customer relationships we want to build to shift the access from ingredient to solutions, we will see more valuable business, and therefore, margin expansion. And we will manage it over time as we think what's the right way to continue to drive sustainable growth in the business. Both top and bottom line is going to -- it will evolve over time rather than be a specific target in my mind. I'm also conscious, by the way, that I've got a new CFO coming in, in August who has the right to have a point of view as well. So we will have developed our thinking as we go forward. Martin, I'll come to you first.


Martin John Deboo, Jefferies LLC, Research Division - Equity Analyst [11]


Martin Deboo, Jefferies. Nick, can we come to the current year and guidance? You've moved away while you're guiding through EPS. I suppose one's conscious that a benefit from on the tax line you're deleveraging. So then a question has to be, what do you expect to happen to EBIT in constant currencies in FY '19? And just what are the sorts of issues we need to think about there? And I think because freight cost is such an issue both for you and the industry, can you give us color on overall materiality of freight costs? How much -- given the problem is on road rather than rail, how much of the stuff moves in railcars? And who's bearing the cost of freight for you? Is it -- are you taking it in your margin or does the customer bear it? Just...


Nick Hampton, Tate & Lyle plc - Chief Executive & Executive Director [12]


So let's start with guidance specifically. So we've guided to an EPS number. You're right, Martin. I think we're very clear on what that guidance is. Within that, we are likely to see a modest benefit from the tax rate, if you look at the kind of range that we've given you. So the EBIT will be somewhat lower than EPS based on that. And I wouldn't be more specific than that at this point in the year. It's very early in the year. On transport costs, they're evolving very quickly. As you rightly pointed out, we are a mixture of rail and truck. Our big volume tends to go through rail. And you won't be surprised for me to say that the nature of our commercial agreements with our customers are somewhat sensitive, so I'm not going to comment on how much we bear versus how much the customers will bear. But it's not an insignificant number. And as we sit today, it's sort of built into our assumptions on forward guidance for the year. It's early and we'll see how things evolve. As you say, it's a total industry issue. Arthur?


Arthur John Reeves, Societe Generale Cross Asset Research - Equity Analyst [13]


Arthur Reeves, SocGen. Two questions from me, please. You talked about market growth being 4% to 5% for Speciality Ingredients. Given the geographic mix of your portfolio, what do you think that market growth is? And can you outpace it? And then the second question, more prosaic. Can you give us a bit more flavor on the insurance claims that pushed up central costs?


Nick Hampton, Tate & Lyle plc - Chief Executive & Executive Director [14]


Yes, sure. So the market growth, as we said, 4% to 5% in revenue terms across the world. I mean, that's obviously a big average across, faster in emerging markets, slower in developed markets. So even in developed markets, there are pockets of higher growth, which is the key for us in terms of where we focus. Look, over time, we will look to grow at or above the market rate. As we see the programs I announced today kick in, we'd look to accelerate our growth to those kind of levels because we should be aspiring to that level of growth over the -- over time. And your -- sorry, I forgot your second question.


Arthur John Reeves, Societe Generale Cross Asset Research - Equity Analyst [15]


Insurance claims.


Nick Hampton, Tate & Lyle plc - Chief Executive & Executive Director [16]


Insurance claims. Very simple. We had a turbine issue in one of our plants that led to some higher costs in the short term that we have a captive insurance scheme in-house that pays the first portion of the spend. And the good news is the team managed it very well. We saw some increasing costs but didn't see any disruption in supply. Alicia?


Alicia Ann Forry, Investec Bank plc, Research Division - Analyst [17]


It's Alicia Forry with Investec. Just wanted to ask you about, is there any changes to the remuneration policies or incentives as the result of the new productivity target and these plans to accelerate growth in Food & Beverage Solutions? That's the first question. Secondly, coming back to M&A. Could you talk at all about thoughts on the types of returns that would or would not be acceptable, possible effect on group ROCE, timelines to create value, some additional color as to what you would deem as acceptable M&A policy?


Nick Hampton, Tate & Lyle plc - Chief Executive & Executive Director [18]




Alicia Ann Forry, Investec Bank plc, Research Division - Analyst [19]


And then just finally, on Food & Beverage Solutions, the working capital intensity seems to have reduced in F '18 versus F -- versus the previous year. To what do you attribute this improvement? And what are the opportunities on working capital efficiency for the group going forward?


Nick Hampton, Tate & Lyle plc - Chief Executive & Executive Director [20]


Okay. So remuneration policy, number one. No change for this year. I mean, we clearly laid out we'll publish the annual report in a few weeks. We'll continue to keep it under review as always, and that's a matter for the board as much as anything, if anything else. Your second question, I think, was about M&A?


Alicia Ann Forry, Investec Bank plc, Research Division - Analyst [21]


Yes, a bit more color on that.


Nick Hampton, Tate & Lyle plc - Chief Executive & Executive Director [22]


And I don't want to sound kind of vague here, but the answer is really it depends, because it depends on the nature of any individual deal. I mean, is it possible that in the short term, you would see some dilution in ROCE if you're doing a deal? Absolutely. I mean, that's not uncommon. But the deals you do, you'd expect to be accretive over time and over a reasonable time period as well. Is that 1 or 2 years? Again, we'll see how the landscape evolves. But the crucial thing is you're doing deals for the right strategic reasons and that the economics support shareholder value, and that's the broad way I think about it. And I think there was a third question as well.


Alicia Ann Forry, Investec Bank plc, Research Division - Analyst [23]


Yes, just on the working capital.


Nick Hampton, Tate & Lyle plc - Chief Executive & Executive Director [24]


Look, I mean, as we said in the presentation, you saw in the improvements in the balance sheet and all the key financial metrics over the past 3 years, the team has done a terrific job of focusing on working capital management, return on capital over the last 3 years. And a lot of it is about daily discipline and focus on every single aspect of working capital. We need to continue that going forward and maintain working capital to the level that supports strong cash generation. So there isn't a -- one individual thing you can point at because there are lots of things have to come right. It's about detailed daily operational discipline.

Okay, it sounds like we're done on the questions. So just to finish for me, thank you very much for being here. I hope we've been very clear about the priorities for the business going forward. I appreciate all the questions. And I've got one last question for all of you before we leave. The most important question of the day is, who won the toss at Lord's? Somebody must know. Okay. Thank you very much.