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Edited Transcript of TATE.L earnings conference call or presentation 23-May-19 9:00am GMT

Full Year 2019 Tate & Lyle PLC Earnings Call

London Jun 2, 2019 (Thomson StreetEvents) -- Edited Transcript of Tate & Lyle PLC earnings conference call or presentation Thursday, May 23, 2019 at 9:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Imran Nawaz

Tate & Lyle plc - CFO & Director

* Nick Hampton

Tate & Lyle plc - Chief Executive & Executive Director

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Conference Call Participants

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* Alicia Ann Forry

Investec Bank plc, Research Division - Consumer Analyst

* Arthur John Reeves

Barclays Bank PLC, Research Division - Analyst

* Chris Pitcher

Redburn (Europe) Limited, Research Division - Partner of Beverages Research

* Elizabeth Coen

Davy, Research Division - Food Analyst

* James Targett

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

* Martin John Deboo

Jefferies LLC, Research Division - Equity Analyst

* Robert Russell Waldschmidt

Liberum Capital Limited, Research Division - Consumer Goods Analyst

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Presentation

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

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Okay. I think we'll get started. Good morning, everybody, and welcome to Tate & Lyle's Full Year Results Presentation for the year ending 31st of March 2019.

I will begin with a brief overview of the year. The group made solid financial and strategic progress. Food & Beverage Solutions maintained good top line momentum. Sucralose performed well. Profits from Primary Products were lower, and productivity benefits offset significant cost inflation. Operational execution was strong while cash generation was once again good, further strengthening our balance sheet and providing the flexibility to invest in long-term growth. Our 3 priorities, to sharpen, accelerate and simplify our business, have become the focus of the entire organization, and they're starting to deliver real momentum. And with the new leadership team, we are creating a more dynamic culture with people beginning to get things done with much greater pace and agility.

Looking briefly at the financial results. We made good progress in the key areas we prioritized at the start of the year: group sales were up 2%; profit up 4%; and Food & Beverage Solutions volume up 3% with good momentum in North America and emerging markets. Despite more challenging market conditions for Primary Products, sweetener volume was in line with the prior year.

As I said 12 months ago, we will manage our 2 trading divisions as one integrated business to maximize overall returns to shareholders. This approach served us well with earnings per share 4% higher, return on capital employed 90 basis points higher and free cash flow up GBP 16 million. As a result, we are recommending a 0.5p per share increase in the final dividend, representing an increase in the full year dividend of 2.4%. Overall then, I'm pleased with the progress we have made in the last 12 months.

Let's take a look at today's agenda. I will start with a brief update on the business. Imran will run through the financial results, and then I will come back with the outlook and a summary before we take your questions.

I want to begin with purpose. I believe companies succeed when their employees have a common sense of purpose, driving what they do and why they do it. Tate & Lyle's purpose is improving lives for generations. We passionately believe that through our purpose, we can successfully grow our business and have a positive impact on society. By working in partnership with our customers, we use our ingredients and expertise to help them make tastier food healthier and healthy food tastier and for consumers to lead a more balanced lifestyle.

Our purpose is a very powerful motivator for our people, and it's also something that resonates with our customers. For example, our fibers have helped our customers take the equivalent of 170 billion calories out of their products in the last 4 years. Over the last 26 years, sucralose has removed the equivalent of 85 trillion calories. And our Bio-PDO product, manufactured by our joint venture with DuPont, is helping Reebok make more sustainably sourced sneakers with soles made from corn. These are all great examples of purpose and profits working in harmony.

Being a responsible business is a key part of our purpose. During the year, we took a number of steps to enhance our focus on sustainability. In November, we formed a partnership with leading conservation solutions provider, Land 'O Lakes SUSTAIN, to advance conservation practices on Midwest farms, specifically for corn. We've also partnered with Earthwatch, an independent science-based NGO, to research the sustainability of our stevia supply chain in China. Also in China, our health education program in 2 schools in Shanghai has entered its second year. This program, which we are running in partnership with the Nutrition Society of Shanghai, is starting to make a real difference to the health of the children at both schools.

Turning then to the markets our 2 businesses serve. Food & Beverage Solutions continues to operate in an attractive, growing market driven by some major global trends. The rise in diseases like diabetes and obesity is encouraging people to seek healthy alternatives from their food and drink. Consumers are also demanding greater transparency with cleaner labels and more natural ingredients, and the increasing vegan and flexitarian diet is driving demand for more plant-based options. And of course, people continue to reduce the amount of sugar in their diets.

All these trends present significant opportunities for Food & Beverage Solutions. The combination of our deep understanding of sweetness, texture and fiber enrichment, together with our expertise in key categories, mean we can tailor unique solutions for our customers. It is this combination of our product knowledge and category expertise which differentiates us in the markets. If you add to this our application knowledge and our ability to provide local solutions for our customers out of our local laboratories across the world, we are well placed to become our customer's chosen growth partner.

Let me give you 2 examples of how this is working in practice. Sugar and calorie reduction remains a key opportunity for us, representing about 1/3 of the projects in our customer pipeline. An increasing number of these projects are for customers using our soluble fibers because they not only allow the amount of sugar to be lowered but also provide nutritional benefits, such as digestive health, low glycemic response and calcium absorption, all without impacting taste.

Over the last 2 years, global market growth in the use of fiber in products launched with low, no or reduced sugar and calorie claims has been strong. Over the same period, we saw good volume growth of our fibers with a compound annual growth rate of 15% globally and over 30% in emerging markets.

Clean label is another area where our portfolio and technical expertise is well-placed to meet growing consumer demand. People increasingly want to understand the ingredients on food and drink labels. They want to know where their food comes from, and they're increasingly choosing products they feel are less processed or simpler. This is shown by the healthy growth rates for clean label products across the world. A range of CLARIA clean label starches and non-GMO starches have seen strong growth over the last 2 years in response to this trend, achieving compound annual growth rates of 57% and 28%, respectively.

Moving on to Primary Products. In the 5 years to 2017, industry fundamentals remained stable. U.S. corn wet milling supply was well balanced with declines in carbonated soft drinks and paper offset by sweetener exports to Mexico, higher corn syrup demand and demand for industrial starches for use in packaging and tissue.

Over the course of the 2018 calendar year, market conditions became more challenging. Demands for carbonated soft drinks in the U.S. declined a little faster at nearly 2% as pricing increased to offset higher input costs and U.S. exports to Mexico were slightly lower. Commodities markets were also challenging.

In light of these market dynamics, it was encouraging to see the Primary Products team navigate these headwinds well. As we move into the new financial year, recent trends for carbonated soft drinks in the U.S. are continuing, and we anticipate the industry will continue to face demand headwinds in the nearer term.

Delivering steady earnings in more uncertain market conditions is why Primary Products is focused on managing its portfolio to maximize margins. We do this by driving operational efficiency and optimizing products and customer mix. We are also diversifying capacity towards new and growing markets, where we can provide customers with high-quality products and differentiated service, whether that be supply chain flexibility or on-site technical expertise.

To illustrate this, through our joint venture with DuPont, we are providing customers with renewably sourced products used at a wide range of growing end markets, including clothing and cosmetics. A 20% capacity expansion for Bio-PDO will come online later this year. This increases our opportunities in new markets and underpins capacity utilization at our corn wet mill in Loudon, Tennessee.

In our industrial starch business, we recently worked with a new paper mill to provide an alternative starch solution to the more traditional starch we're using. This higher-margin starch not only provided greater strength to the paper in the mill but also lowered total cost in use. This resulted in new business and a margin trade-up for both us and our customer.

Turning now to our 3 key priorities of sharpen, accelerate and simplify. As I said earlier, I am very encouraged by the way our people have embraced these priorities, and they are beginning to drive real momentum across the business.

Firstly, sharpening the focus on our customers. A key element in delivering this priority is developing closer relationships with our customers at all levels. This has been a real focus for me personally. And together with the executive team, we have significantly increased the number of top-to-top meetings we have held with customers this year. Through these meetings, I'm seeing it firsthand a shift in our relationships, and customers are telling me they're experiencing a positive change in the way we are working with them. Our increased interaction with customers has been across-the-board with a 39% increase in calls or face-to-face meetings each month to discuss growth opportunities.

During the year, we also completed the reorganization of our sales, marketing and applications team into category teams. We are now organized like our customers and thus serving them in a more focused way. We also made significant investments to build capabilities -- the capabilities of our sales and technical teams through training programs and new tools to track customer opportunities. These tools are making a real difference in the way we manage our customer pipeline and ensure we focus our resources on the right growth opportunities. This has helped drive a 29% increase in the global sales pipeline for Food & Beverage Solutions.

Here is a great example of a customer project that demonstrates our approach. Over 2 years ago, we started a conversation with the head of R&D at Mondelez about sugar reduction, out of which came a project to work with them to develop a reduced sugar version of their iconic Cadbury Dairy Milk chocolate bar without compromising taste. Working closely across sales, applications and R&D, we were able to support them in finding the right solution based on a PROMITOR fiber and reduced the bar's sugar content by 30%. This product will launch in the U.K. this summer. As a result of this, our relationship with Mondelez has grown stronger. We are now working on more projects across the world, building a growth partnership together.

Another relationship which is delivering encouraging results is our stevia partnership with Sweet Green Fields in which we acquired a 15% shareholding last year. The combination of our stevia portfolios and solutions expertise has given us a significantly expanded customer offering, driving a 78% increase in stevia volume last year. As you can see from the product examples on the slide, our stevia solutions are being used in a wide range of categories, including snacks, dairy and beverages. They also show how we are working successfully with different types of customers, from small startups like No Cow in the U.S. to large brands such as Verde Campo in Latin America. No Cow's protein bar contains a new clean tasting TASTEVA M stevia sweetener, which we launched during the year and continues to attract strong customer interest.

Turning now to accelerating portfolio developments. This priority is focused on speeding up our innovation efforts by improving the quality of our pipeline, working more closely with customers earlier in the cycle and building external relationships to capitalize innovation. We are making progress in all these areas.

For example, we are shifting the balance of our innovation portfolio towards projects with faster paybacks, helping to deliver a 24% increase in the value of the innovation pipeline this year. We are also broadening our open innovation network. We have contact with over 170 startups or research institutions during the year, resulting in 5 signed agreements to work on early-stage developments in areas such as sweetener testing and new sources of fiber.

We also received 2 positive rulings from the U.S. Food and Drug Administration or FDA. In June, the FDA confirmed that our PROMITOR and STA-LITE Polydextrose fibers have both been included under its new definition of dietary fiber, opening up significantly more customer interest and pipeline opportunities. Then last month, the FDA issued guidance allowing the exemption of allulose from the sugars and added sugars line of nutrition labels in the U.S. This decision clears the way for U.S. customers to use allulose to deliver calorie and sugar reduction in their products. We have a number of customer projects which are now being reactivated, and we remain encouraged by the medium to long-term prospects for allulose.

Our third priority is to simplify the business. This program is focused on, firstly, delivering sustainable improvements to support our commitment to deliver $100 million of productivity benefits over a 4-year period. This program performed well this year, and we are on track to deliver on our commitment.

Secondly, it's focused on simplifying the way we are organized and driving faster decision-making. For example, in North America, we completed the rollout of a new Transportation Management System. This is driving efficiencies across our supply chain, improving customer service and delivering an expected annual benefit of $3 billion. In Dayton, Ohio, where we make citric acid, we have installed new water wells on our site to reduce the cost of purchasing water from local authorities. This is expected to save around $1 million each year.

We are also integrating and streamlining teams within our business to make faster decisions and serve our customers better. This year, we consolidated our marketing capabilities into one team within Food & Beverage Solutions and combined our transportation and logistics procurement teams within our global operations organization.

So to summarize, one year in, I am really pleased with the progress we are making in the key areas we prioritized 12 months ago and shown on this slide. While there is more work to be done and we are facing some market challenges, the strategy is clear and the business has good momentum.

And with that, I will hand you over to Imran.

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Imran Nawaz, Tate & Lyle plc - CFO & Director [2]

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Thank you, Nick. Good morning, everyone. Turning now to our financial performance. In line with previous presentations, I will focus on adjusted measures for continuing operations. Items with percentage growth are in constant currency unless I indicate otherwise.

Overall, as Nick said, we had a solid year. Overall group sales were up 2%, driven by strong volume-led growth in Food & Beverage Solutions. Profit before tax was up 4% with the main drivers being good volume and mix management in Food & Beverage Solutions, a strong year in sucralose, cost savings from our 4-year productivity program and lower finance costs. In combination, these helped to more than offset the impact of higher input costs that we saw in materials and transportation in North America as well as the anticipated lower commodity profits that we had expected versus last year. The adjusted diluted earnings per share were also up 4%. Cash flow management was strong. We had adjusted free cash flow up GBP 16 million at GBP 212 million. Net debt was GBP 55 million lower at GBP 337 million. Finally, the full year dividend will be up 2.4%.

Let me now go through the key factors driving the profit growth. As you can see, Food & Beverage Solutions' operating profit was up GBP 3 million driven by higher volume, productivity, better mix and some pricing in Q4, offset by the impact of cost inflation. Our sucralose operating profit was up GBP 7 million driven by higher volume as well as a one-off gain from a supply contract. Profit from Primary Products, excluding commodities, was GBP 7 million lower. That reflected the flat volume as well as the impact of the inflationary cost headwinds partially offset by productivity gains. Commodities were down GBP 11 million as we lap an exceptionally strong 2018 financial year. Central costs and interests were GBP 17 million lower driven by good cost discipline, lower insurance costs and lower pension interest. Finally, the share of profit after tax from joint ventures was GBP 2 million higher.

I'll now give you an overview of each of the divisions, starting with Food & Beverage Solutions. Volume grew by 3%. This led to total sales growth of 5%. Operating profit growth was solid at 3% with the benefit of higher volumes, cost savings, Q4 pricing partially offset by both the absorption of higher input costs as well as some investments we had made in emerging markets last year.

Taking a look at the different regions. In North America, we saw continued momentum on the top line. Volume was up 3%, and that reflects the focus on higher growth subcategories, new customer channels as well as gaining share in our larger customers. In Asia Pacific and Latin America, volume was 15% higher with double-digit growth in both regions. In Asia Pacific, we saw a good growth in China as well as in Southeast Asia. And in Latin America, we saw good growth in southern -- in the Southern Cone and in Mexico. Volume in Brazil was lower because it reflected the continued weaker macroeconomic conditions. In Europe, Middle East and Africa, although volumes are down 2%, you will see that sales were actually up 4%, and that reflects our continued strategy to exit some lower-margin businesses and drive up sales mix.

Sales of New Products. Sales of New Products were up 2%, and that -- and they now represent 11% of sales of Food & Beverage Solutions. We saw good growth in fibers, in clean label and in non-GMO texturants as well as our stevia portfolio, as Nick had mentioned earlier. Now New Products are defined as products launched within the last 7 years, and 3 ingredients were no longer being reported under New Products. If they had been included, our like-for-like growth in new product sales would have been 42%.

Turning to sucralose. The volume was up a strong 16%, benefiting from a program to optimize our production efficiency at our facility in Alabama as well as the sale of some excess inventory. Consequently, our sales were 13% higher, albeit slightly lower than the volume growth due to the softer pricing, which also we had expected to see. Operating profit itself was therefore up 11% at GBP 61 million, and that reflects the higher sales as well as the onetime credit of GBP 3 million I mentioned earlier. Overall, on sucralose, while the market demand for sucralose continues to grow, we do expect the market prices to continue to moderate, reflecting the increase of the industry supply from Chinese manufacturers.

Moving to Primary Products, which also includes commodities. Total volume was in line with the prior year while operating profit was lower. Specifically, in sweeteners and starches, operating profit was 5% lower, reflecting the impact of the transport and materials cost inflation in North America. Mix management, productivity gains and pricing in Q4 did partially offset these pressures. It did also benefit from a onetime GBP 4 million credit on insurance that we had mentioned at the half. In sweeteners, volume was in line with the prior year, which is actually a good outcome in the face of the challenging market conditions we all faced. Higher demand from our Bio-PDO joint venture and firm exports to Mexico helped offset the weaker U.S. demand. The weaker demand was driven by a lower U.S. domestic demand for carbonated soft drinks, which were impacted by our customers higher pricing and lower promotional intensity. Finally, the sweetener pricing around contracts for 2019 calendar year delivered unit margins broadly in line with the prior year.

Moving to industrial starch. The volume in North America was down 2%, and that reflects primarily the reallocation of the grind as we optimize returns from our corn wet milling assets. Commodity profit reduced by 33% to GBP 22 million, and that was following the exceptionally strong performance in 2018. Weaker prices for soy and lower returns on corn oil were the key drivers.

On this slide, we show the remaining components of adjusted profit before tax. Good cost discipline and lower insurance costs drove central costs to be GBP 11 million lower. Net finance expense was GBP 6 million lower following last year's decision to make a significant funding contribution to our main U.S. pension plan. The share of profit after-tax from joint ventures was up GBP 2 million or 9%, and that's with a strong performance from both DuPont Tate & Lyle Bio Products as well as firm demand at our Mexico joint venture in -- with Almex. Finally, on taxes. Our effective rate of tax was 50 basis points lower at 21%. That primarily reflects the favorable tax settlement that we experienced during the year. We expect the rate for fiscal 2020 to be in the range of 21.5% and 23.5%.

Turning to productivity benefits. As you know, at the start of the year, we set out a commitment to deliver $100 million of productivity benefits over 4 years at an expected exceptional cost of $40 million or GBP 31 million. We made strong progress in the first year and delivered GBP 25 million of benefits.

In our operations, productivity is coming from 4 main areas: capital investments in cogeneration facilities, in new dryers and extraction units, which reduce energy as well as other production costs; continuous improvement projects. These are usually the smaller projects but in aggregate, deliver significant cost savings. We have over 300 continuous improvement projects in our pipeline, which to me actually also speaks to the increasingly focused mindset of our people; we have also stepped up our plant maintenance program, which minimizes downtime in the network; and finally, we are working to make our supply chain more productive, and Nick gave you a transportation example a little bit earlier on.

During the year, we also drove down SG&A costs. We benchmarked ourselves against best-in-class, and we implemented 0-based budgeting. Discretionary costs, such as travel, events, external consultants and other expenses, were pulled back significantly. At the same time, we supported them by tightening policies on how and where our money should be spent. We're also working on leveraging our shared services center in Poland to be -- driving more efficiency, increase the automation and, frankly, lower our costs further. So overall, we are making good progress, and we're on track to deliver our productivity commitment.

Turning to cash flow and the balance sheet. As you can see on the slide, free cash flow increased by GBP 16 million, reflecting higher earnings and good working capital management. Capital expenditure within free cash flow was GBP 130 million and broadly in line with the prior year, reflecting continued investments in capacity as well as in safety, efficiency and sustaining investments. We expect capital expenditure for the 2020 financial year to be between GBP 140 million and GBP 160 million as we look to drive both productivity and growth. Net debt reduced by GBP 55 million driven by strong cash generation partially offset by a GBP 21 million unfavorable impact of foreign exchange on our U.S. dollar borrowings. Overall, I feel good about our strong cash flow generation and financial position of the group. Our return on capital has increased by 90 basis points to 17.1%, and that reflects both the strong operational performance and continued disciplined approach to capital allocation.

Turning to exceptional items. In total, we recognized net exceptional costs of GBP 58 million in the year, most of which was reported at the half. These costs consist of the following 4 items. There was a GBP 43 million charge following the sale of the oat ingredient business in March. There was a GBP 13 million charge for the restructuring program, mainly for redundancy costs. We had a GBP 14 million gain from the sale and leaseback of railcars. And finally, we took a GBP 16 million provision for asset remediation measures following a group-wide safety review. As shown on the slide, there was a net GBP 12 million cash inflow from exceptional items in the year.

I'll also address the impact of the new lease accounting standard, IFRS 16. The key point here is, while the standard changes the number of metrics, it has no overall impact on the business or the way we operate. First, by way of explanation, our leases mainly relate to railcars and office space. And our net debt, as you can tell here, increases by around GBP 170 million as leases come on the balance sheet. And reflecting this, our net debt-EBITDA leverage ratio will also increase by around 0.3x. The cash generation of the business is unchanged. However, for reporting purposes, the adjusted free cash flow will increase with an offsetting increase in financing cash flows in respect of lease payments. Finally, in the income statement. As these expenses are front-loaded in the early period of a lease, profit will be reduced, resulting in around a one percentage point reduction in earnings per share growth in the 2020 financial year.

Stepping back from the results of the year. If you look at business performance over the last 3 years, we have delivered consistent growth: profit before tax is up by a compound annual growth rate of 8%; diluted earnings per share, 6%; and free cash flow, 10%. So in summary, it's been a solid year. The business performed as we said it would. We did a good job in mitigating significant cost headwinds, and the financial position of the company is strong.

With that, I'll turn it back to Nick. Thank you.

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

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Thank you, Imran. Turning to the outlook. In the coming year, we expect continuing progress in Food & Beverage Solutions and gains from productivity initiatives to offset both lower sucralose profits and continued market challenges in Primary Products. As a result, we expect earnings per share growth in constant currency to be broadly flat to low single digits. So to summarize, we delivered solid financial progress over the last 12 months. We saw good commercial and operational execution, strong cost control, significant momentum behind our 3 priorities to sharpen, accelerate and simplify and a more dynamic culture.

Looking then to the year ahead. Our focus is on 3 main areas: firstly, continue to execute against our priorities, put the customer at the center of our business, accelerate innovation, drive simplification and productivity across the organization and embed a culture of taste and agility; secondly, to build on the growth momentum within Food & Beverage Solutions while, at the same time, successfully navigating more challenging market conditions in Primary Products. In doing so, we will continue to manage both divisions as one integrated business and balance performance to maximize returns to shareholders; thirdly, invest in long-term growth organically through both new capacity and strengthening our business in emerging markets and with acquisitions where they make strategic sense.

I'd like to finish by thanking the entire Tate & Lyle team. Without their hard work, their dedication, their passion for performance and our purpose, I wouldn't be presenting the results I'm proud to present today.

And with that, Imran and I will be delighted to take your questions. If I can remind you just to state your name and organization when you do so could be very helpful. Thank you.

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Questions and Answers

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

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Martin?

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Martin John Deboo, Jefferies LLC, Research Division - Equity Analyst [2]

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I don't know about my handout because I've got some really spotty ones on Primary. I'm sorry. I know you want to talk about Speciality, but I have the mic. So looking at your volume performance in Primary versus what you've given us on the market, it suggests to me you've taken share in Primary. I'm interested to sort of, a, is that right and, secondly, understand a bit more where you have. One thing on my mind, Imran, you mentioned Bio-PDO, and it comes as a Primary. So does that mean that -- I know Bio-PDO's a JV. But does that mean that Bio-PDO pulls substrate through the Primary reporting line? Is that one of the reasons why your Primary volumes are ahead of market? So if you could answer that specifically.

And then commodities, I mean, to pay you a compliment in a year where everything was thrown at commodities, sort of falling co-product realizations, no margins so you actually came through with a number that was actually pretty good and, I think, better than the market was expecting. So just in terms of thinking ahead, is sort of GBP 22 million the new normal in commodities if you sort of come up with something to stabilize that profit stream? Or is that -- would that still be volatile, up and down from that level? So...

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

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The -- let me take the Bio-PDO. That's the simplest one. Yes, the answer is we see Bio-PDO as extras. It pulls Primary grind out of Primary Product, which is a helpful thing for us clearly.

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Martin John Deboo, Jefferies LLC, Research Division - Equity Analyst [4]

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And Nick, is that material in the volume equation in Primary? Is that one of the reasons why your volume is looking better than...

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Nick Hampton, Tate & Lyle plc - Chief Executive & Executive Director [5]

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I wouldn't say it's material, but it's material for Loudon in the sense that it helps us balance off (inaudible) Loudon.

If I expand on Primary Products more generally, as you said, our volume performance is very solid. And that was driven by a number of factors, in my view. We saw incredibly good operational execution through the bad weather period in quarter 4. Our plant did really, really well versus the experience we had 4 or 5 years ago, and that allowed us to continue to supply our customers successfully. Secondly, we did see good volume to Mexico still. So our business into Mexico remains strong, our Almex JV is an anchor for our Primary Product business. And then the third point to make is, the point you sort of alluded to, we are shifting grinds, and that gives us more flexibility than maybe we had in the past, and that's the key for me to help us navigate the tougher landscape that we may be seeing at least in the short term.

Your third question about commodities, I'll allow Imran to jump in on this as well. Yes, we're trying really hard to derisk our commodities business and looking at ways how we can make it less volatile, to use your words, and I think what you saw last year was the result of that. Does that mean it's always going to be bang on GBP 20 million or something else? No, of course not because there is an element of it that is volatile. But the team is thinking differently about it, and that's helping stabilize performance. Imran?

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Imran Nawaz, Tate & Lyle plc - CFO & Director [6]

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Yes. I mean just on the Primary Products piece. Just one -- maybe one additive, good thing we benefited from a Q4 great job done by our global operations teams. So our lines kept working, and I think that has benefited from the polar vortex period. I would say that was not bad for us.

And also on the commodities side, look, I think -- when I look at it, it's very hard to plan and predict. I don't think GBP 22 million is the new norm. My personal way of looking at it is mid-teens to 8 -- between GBP 15 million to GBP 18 million is sort of a number that I internally plan with it at some point in time. I think the team did a great job. Mill costs were in our favor, and we took advantage of that versus competition.

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Arthur John Reeves, Barclays Bank PLC, Research Division - Analyst [7]

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Arthur Reeves from Barclays. Two questions for me. On FBS, we've got 5% sales growth but 3% profit growth. What do you have to do to get the 2 to be -- to -- yes, to maintain your margins and transfer sales growth into the same amount of profit growth? That's my first question.

And then this time last year, Nick, in fresh new world, I think you talked about progressive growth in EPS medium term. Are you still holding that? Or are there headwinds you're facing putting you back from that?

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

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I take the second question first, and then I'll allow Imran to take it from the margin point. Look, we navigated some really severe headwinds, I thought, very well last year to get to a positive EPS outcome. When you look at the short-term, there are clearly a couple of headwinds coming to this year that we have to navigate. One is we had an incredibly successful year on sucralose, in part because there were one-off sales that aren't going to repeat but because we're managing that business really well as well, by the way.

And secondly, we are weary of the current trend on sweetener volumes in North America. It's less about margin because did a good job through the pricing round. But it's earlier in the year, and we want to see how sweetener volume progress through the summer season. You all know that the summer season is critical for sweeteners, and we'll see how that evolves and have a much clearer view on that at half clearly. My belief in the medium-term potential of the business though has not changed. Our focus as a leadership team is how do we move the dial forward over time despite some of the short-term headwinds we're facing.

And on the margin point, I think -- Imran, why don't you take that one?

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Imran Nawaz, Tate & Lyle plc - CFO & Director [9]

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Yes. Sure. So look, when I step back and I look at the overall FBS P&L, I feel really good. What I see is I see a business that's growing volumes 3%, growing revenues in every single region, aggregating to 5%. And when I look at what the business face in terms of headwinds, we use the volume, the mix on productivities to offset just the higher costs as well as some investments we have made.

Now truthfully, knowing that we had some one-off gains in the year in sucralose, it gave me some space. It gave us some space as a business to make some choices of reinvesting into FBS, which otherwise we couldn't have afford it. We could afford it. We made them. And I think we're in the business of creating a growth company in the FBS division, and that's what we've done. And I think it sort of sets us up for our future growth.

As we start getting away from lapping the investments, I do believe that the equation of volume growth, revenue and profit growth will normalize more, so you see more leverage than you did this year. But again, when you lap the cost increases we have, the investments we've made and take some advantage of it, it feels like the right decision to make.

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Chris Pitcher, Redburn (Europe) Limited, Research Division - Partner of Beverages Research [10]

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Chris Pitcher from Redburn. (inaudible) I am relatively new to this. But in sucralose, when I first started looking at it, it was a business that was maximum capacity, and you found an extra 7% of capacity in the year. And then in the second half, you managed to sell down 12, 13 million of excess inventory. I'm just intrigued on the timing of the sale of the inventory. Is it because you were worried about prices falling more significantly or there were some exceptional demand? And to the relatively new, are you now at maximum capacity? And have you got any excess inventory still to sell down?

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Nick Hampton, Tate & Lyle plc - Chief Executive & Executive Director [11]

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So every year, I stand up and say we're at maximum capacity. And we find a way, eking out a little bit more. So -- and the good news is that the debottlenecking that we did at the end of last year was more successful than we thought. That gave us a little bit more capacity. At the same time, we had a little bit of inventory as well. But I'd say the sell-down is the testament to Joan and the team for way they managed it commercially, and we found some opportunities at prices that made sense. And we took the decision to sell it at that time. So that's a good thing. What it does of course mean is that we were a little bit ahead of our real capacity coming into this year. So we're going to see little bit of a decline. And the industry dynamics would suggest that we're not going to see any price increases either. So those are broadly the factors that influenced that decision.

Anything to -- Imran?

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Imran Nawaz, Tate & Lyle plc - CFO & Director [12]

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I think that's right. When you look at our outlook, we call back to normal. And we call it as a headwind for next year. And when you look at our sucralose performance, we entered the year with some excess stuff. The debottlenecking project was better than anticipated, and it allowed us to sell it down. And we'll have to lap that next year, and that's going to be one of the negatives that we have to overdo.

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Elizabeth Coen, Davy, Research Division - Food Analyst [13]

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I'm Liz Coen from Davy. Just a few questions, please. So firstly, on Food & Beverage Solutions. So you mentioned some price increases in Q4. And could you maybe just give us some more color around those, so those magnitude of those increases and then the prospect of further increases through in the coming year?

And secondly, on allulose. So it's obviously great news in terms of the draft FDA approval. Just wondering -- or how have the reaction been with your customers and in your largest market in North America? And how quickly do you think we will see an uplift in New Products with allulose in the market?

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

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Let me take the first question -- second question first rather, and then Imran will cover the pricing points. So the good news in allulose is that the labeling decision takes away your consumer barrier to organizing with it. So consumers are concerned about the amount of sugar. And if it (inaudible) sugar, that makes more difficult. What that has led to is an increase in interest in customers on starting to test formulation. And that's the stage that we're at. So they're starting to work with us again and starting to figure out how they could formulate into products to drive consumer preference. It's really too early to say how that's going to play out. I'm wary of giving you a point of view on that until we see customer interest turning to real innovation projects and therefore sales.

One of the things I think we've learned in the last 5 years with any new sort of world ingredient, it takes a little bit longer to scale than we thought. I mean PROMITOR is a good example. One of our PROMITOR variance dropped off our definition of New Products this year because it kicked the 7-year mark. But it's still growing very strongly and arguably growing stronger today than it was when we started 2 or 3 years ago, which is why I say on allulose, I think we need to think about the medium to long-term potential of it, not the kind of the next 6 months. It's not the right way to think about it.

When it comes to pricing on FBS, what we look to do as a team was pass through the cost inflation we're seeing in our pricing. And plus or minus, that's what we saw through the pricing round. I mean the reality on pricing in FBS especially is we're going to command the price we deserve for working with our customers to provide solution. So we can increasingly move away from just selling an ingredient to working with them on formulation. We're creating more value, and we would expect to get a higher share of that value. So it's not simply about pricing. It's also about how we work with customers to sustain and grow our margin.

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Imran Nawaz, Tate & Lyle plc - CFO & Director [15]

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Nothing to add.

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James Targett, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [16]

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It's James Targett here from Berenberg. Just following up on the pricing question initially. Just in North America, you announced a 3% to 11% price increase, I think, last year. So to what extent is that increase going to stick in 2000 -- or have you been able to get that through for 2020 a year? But then on -- obviously, I could start with the -- at the 39% increase in sort of conversations or meetings with your management. I just wondered if you could talk about how that's translated into growth in briefs or contracts or however you look at that.

Maybe if I just squeeze one small -- one more on the -- on JV or associate profitability. Obviously, you seem to be talking good things about the Bio-PDO JV, and you're talking about some more stable volumes in Mexico. So just wonder what the outlook is for profitability for the JV.

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Nick Hampton, Tate & Lyle plc - Chief Executive & Executive Director [17]

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So let me take the last one first. Look, we're very encouraged by the performance of our JVs in the round. Almex is doing a terrific job in Mexico, and we're seeing very stable business in Mexico. We anticipate that continuing.

The Bio-PDO JV is a real success story, and we're starting to see traction in growth markets there. It's a nice margin trade-up from New Products business. So we'd expect to see continued progress in this financial year. Where the numbers then precisely, we'll see. But we would expect to see that move forward rather than move back.

Your first question was on pricing on FBS. Price list versus price realization are 2 different things. I'm not going to comment on precisely what our price levels and realization were in North America. But we put out a very clear price to our customers. It wasn't 11% across-the-board, by the way. It was a range of pricing depending on what the product was. But we're pretty comfortable we got to where we needed to be for the year. The critical thing was to make sure that we can pass through the cost increases we're seeing in raw material.

I can't remember what your third question was, James. I should've written it down.

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James Targett, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [18]

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Let me see. So it was on -- yes, the briefs in terms of the -- how the number of conversations that translates to briefs.

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Nick Hampton, Tate & Lyle plc - Chief Executive & Executive Director [19]

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So what we're seeing is a significant increase in the sales pipeline and the quality of the briefs. I think the 2 things in parallel are important. I think the number that we quote in the results is just shy of 30%, 40% -- 39%, I think, is the -- is that right? 39%. So we've got 39% increase in the pipeline for sale on FBS. Now all those projects get into finished product sales, but it can give -- it gives you a sense of the scale of the increase that we're seeing because of the increased interaction with customers.

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Alicia Ann Forry, Investec Bank plc, Research Division - Consumer Analyst [20]

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It's Alicia Forry with Investec. Just following up on that FBS pricing commentary. I think in the past, we've talked about how, over time, price/mix should be positive in this area because you're providing a service that your customers should be willing to pay up for. And with premiumization ongoing in the industry, that supports that trend. I just wonder if you could comment on, longer term, what you expect pricing and mix to do in FBS and how we should think about it.

And also, just on the guidance for EPS growth. Can you clarify what U.S. dollar rate you're using in that? I don't think I have that.

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Nick Hampton, Tate & Lyle plc - Chief Executive & Executive Director [21]

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Well, I'll take the first one. It's very simple which is we're guiding constant currency

(technical difficulty)

So our rates to the -- on 31. Thank you. So we'll see how the currency evolves. Do you want to comment on the longer-term price?

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Imran Nawaz, Tate & Lyle plc - CFO & Director [22]

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Yes. Look, I mean, when I look at FBS and you say ingredient market is growing 3% to 5%, I would expect our revenues to be doing the same thing, so within that range. And within that, clearly, when you look at our NPD pipeline, it is all margin accretive. And I think the more we grow that pipeline, the more margin accretive we would get. Visibly, when I look at next year, I would expect the pricing to have an impact, and therefore, revenue growth to be outpaced by volume growth. But again, in any growth company what you need to do is drive the base and drive the high margins up. And as you look in our EMEA region performance this year, that's exactly what we've done. And that's our strategy, and that's sort of what we need to do globally.

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Nick Hampton, Tate & Lyle plc - Chief Executive & Executive Director [23]

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Robert.

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Robert Russell Waldschmidt, Liberum Capital Limited, Research Division - Consumer Goods Analyst [24]

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It's Robert Waldschmidt from Liberum. Just wanted to come on to the more strategic point in the North American market. One of your major competitors is clearly going through a rethink of their business just being -- visibly for ADM, moving a bit more into maybe your patch in terms of Speciality Ingredients, in particular, and maybe trying to cleave off some of its more commoditized elements, albeit I don't know. How do you think that's going to affect the grind market in North America? Do you think that becomes something -- somebody it start to intrude a bit more on your negotiations with some of your customers? Will they be coming after (inaudible) health and wellness, et cetera? How do you see the competitive dynamic thing?

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Nick Hampton, Tate & Lyle plc - Chief Executive & Executive Director [25]

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Well, let me pick up on the grind question to start with. What we're seeing is a kind of repurposing of Primary Product grind into other what we think is Primary Product-type products at the moment. And a move from sweeteners into something else is obviously a good thing from a supply-demand perspective. And like everybody else, once you have that, it plays out through the next pricing round. But it looks like a responsible approach.

On the more -- on the broader question on competition. This is a competitive space. We operate in a competitive space like a lot of other industries. The key for us is through the customer relationships we build and through the intersection of the product capabilities we bring, sweeteners, texturants and fibers, can we do that as we're providing customer solution? That's what we're focusing our strategy on, which is why the 3 priorities I talked about are so important. Everything we do has to be focused on the customer. We have to continue to build a portfolio of products in our core that -- price, innovation and NPD because that's the future, and we have to simplify what we do. So we're focusing on pace and staying ahead of everybody else, and that's really the focus of the entire organization. And it's difficult for me to comment on price and what others are doing. That's them.

Okay. Well, if there are no more questions, thank you very much. And we'll see you all at the half year. Thank you.