Unlocking our potential: CEO’s review

I am very proud of how our colleagues have risen to the many challenges of the past year, delivering a strong financial performance while also completing a major strategic transformation to create two strong standalone companies: Tate & Lyle and Primient. To do this during a global pandemic while living our purpose, serving our customers and accelerating innovation is truly remarkable and a testament to their resilience, agility and ambition. In many ways the last 12 months have been even tougher than the first year of the pandemic, as everyone started the year exhausted from that experience. Despite that, we have thrived as a business, emerging stronger and positioning both Tate & Lyle and Primient for exciting futures with capacity for investment and opportunities for growth.

REPOSITIONING TATE & LYLE AS A GROWTH FOCUSED BUSINESS

In July 2021, we announced we had entered into an agreement to sell a controlling stake in our Primary Products business in North America and Latin America, and our interests in the Almex and DuPont Tate & Lyle Bio-Products joint ventures (together called Primient), to KPS Capital Partners, LP (KPS). The details of the transaction, which was completed on 1 April 2022, and the shape of the two companies, are set out on pages 16 and 17.

This transaction represents an ambitious and bold step forward for Tate & Lyle. By enabling Primient to chart its own future, Tate & Lyle has been transformed into a purpose-led, growth-focused food and beverage solutions business serving faster-growing speciality markets. Our unique product portfolio and leading technical capabilities in sweetening, mouthfeel and fortification position us very well to benefit from the growing demand for food and drink that is lower in sugar, calories and fat, and with added fibre.

To support this growth, we are increasing our investment in R&D, innovation and solutions development. We will increase spend on R&D to more than 4% of Food & Beverage Solutions’ revenue each year, and we expect to grow revenue from New Products to around 20% of Food & Beverage Solutions’ revenue by the end of the 2027 financial year.

With our new focus, positive top-line momentum, and increased investment in innovation, we are confident we have a strong platform from which to accelerate growth. Our ambition for the five years ending 31 March 2027 is to:

• Deliver organic revenue growth of mid-single digit percent each year
• Expand operating margin by at least 50 to 100 basis points each year on average
• Improve organic return on capital employed by 50 basis points each year on average.

We will also continue to accelerate growth through value-enhancing acquisitions. The performance of Food & Beverage Solutions over the four years ended 31 March 2022, a compound annual revenue growth of 8%2, supports our ambition and shows the potential of Tate & Lyle as a growth-focused business.

The transaction also gives Primient the opportunity as an independent company to unlock its growth potential. We have been impressed with KPS and are excited to partner with them in the next phase of Primient’s development. KPS has proven expertise in managing and creating value from large manufacturing businesses, and we look forward to working with them under the long-term agreements we have established which provide supply security and economic protection to both businesses. We will also benefit from ongoing cash dividends from Primient and potential future value creation from the 49.9% equity stake we have retained.

Thanks to the superb efforts of our people and resilience of our business, we have not only survived the pandemic but thrived, emerging as a stronger business ready to seize the opportunities ahead.

Two standalone companies

Creating value for all our stakeholders was at the heart of our decision to separate into two companies. Over the last five years, our two divisions have grown into two strong businesses with their own strategies and their own – but different – potential for purpose-led growth.

We would not have been able to do this transaction five years ago, but both businesses are now well placed to stand on their own and determine their own futures. Critical to the success of the transaction was our ability to take people with us – not just our own people, but our other stakeholders too, especially our customers and shareholders. We spent a lot of time preparing our customers for the change, particularly those who will transact with both Tate & Lyle and Primient in the future.

Clear communication with all stakeholders has been a core part of the project from the start and we are very grateful for the support we have received. Our shareholders were very supportive, with 99.9% of those who voted approving the transaction at the general meeting in September 2021.

The separation into Tate & Lyle and Primient was a complex and challenging project to execute. I’m hugely grateful to everyone at Tate & Lyle and Primient who put in the extra hours needed to achieve our goal of separating the businesses successfully, on schedule, while continuing to do their day jobs. It is to everyone’s great credit that, despite all the extra work, our people never once lost sight of the day-to-day requirements of serving our customers and keeping our operations running safely and efficiently.

A YEAR OF STRONG PERFORMANCE

Discussing our results this year is a little more complex than usual, since we have to split our reporting between continuing operations (‘new’ Tate & Lyle – mainly Food & Beverage Solutions and Sucralose), and discontinued operations (the Primary Products business in the Americas in which we sold a controlling stake to KPS – now Primient). For the purposes of my review, as I talk to our results, where applicable, I will refer to them as Tate & Lyle and Primient. Together, they are referred to as total operations.

Strong customer demand

For Tate & Lyle, the year saw improved customer demand in many of our key markets, although the trading environment remained challenging as we had to manage significant disruption to supply chains, evolving Covid-19 restrictions, rapidly increasing cost inflation and, latterly, the uncertainty related to the conflict in Ukraine.

We saw strong demand in Food & Beverage Solutions, as in-home consumption remained robust and out-of-home consumption continued to recover. We also saw good revenue growth and we were able to price through the increase in input costs during our 2022 calendar year contract renewals.

Sucralose benefited from strong volume growth in beverages, driven by the recovery in out-of-home consumption.

It also benefited from increased volume following production optimisation at our facility in McIntosh, Alabama, US, and from having the only sucralose facility based outside China. In constant currency, Tate & Lyle’s revenue grew by 18%, adjusted profit before tax by 14% and adjusted diluted EPS by 4%.

By contrast, Primient saw a reduction in adjusted profit after tax of 9% in constant currency. This was due to two things: firstly, cost inflation, particularly in the third quarter of the financial year before calendar year contracts were renewed in the fourth quarter; and secondly, short-term operational disruption, including from the installation of new gas turbines at the facility in Lafayette, Indiana, US. In the longer term, these new turbines will increase efficiency and environmental performance at the facility. Commodities saw higher profits due to exceptionally strong market conditions.

In Tate & Lyle, we saw cost inflation totalling £100 million during the year in areas such as energy, labour, consumables and transport. This was mitigated by a combination of pricing, productivity, cost discipline, volume growth and mix improvements. Given this tough cost environment, we were pleased that we exceeded our target to deliver US$150 million in productivity benefits, over a six-year period ending 31 March 2024, two years ahead of schedule. In total, we have delivered US$158 million of productivity benefits over the last four years.

Overall, taking Tate & Lyle and Primient together, adjusted profit before tax was in line with the previous year, while adjusted diluted earnings per share were 4% lower.

DELIVERING STRATEGIC PROGRESS

Growth in Food & Beverage Solutions was driven by the delivery of our strategic growth framework (see page 26 for more details), centred on four pillars – market focus; portfolio expansion; accelerate innovation; and integrated solutions for customers.

Market focus

We aim to maximise opportunities in all our markets; to grow above the market in developed markets; and accelerate growth in the faster-growing markets of Asia, the Middle East, Africa and Latin America.

We focus on four global categories – dairy, beverages, bakery, and soups, sauces and dressings, and two or three regional categories where we have local expertise, such as confectionery and snacks.

This category focus, combined with our expertise in sweetening, mouthfeel and fortification, provides a unique and attractive offering for customers. For example, in North America, revenue from bakery and snacks grew by 19% and from beverages by 12%, supported by strong demand for our fibre and stevia solutions.

In Europe, dairy grew by 14% helped by demand for clean-label solutions. In Asia, the Middle East, Africa and Latin America, revenue grew by 25% with good progress across our focus categories as customers continued to demand solutions that reduce sugar, calories and fat in their products.

Read more from Nick on portfolio expansion, accelerated innovation, and our increasingly ambitious purpose goals, on pages 18-20.