Tate & Lyle plc (TATE) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the presentation of Tate & Lyle's results for the year ended 31st of March 2021. Today's presentation is being run as a webcast followed by live Q&A. The presentation has been recorded, and I will play the recording in a moment. The duration of the presentation is 47 minutes. Following the presentation, there will be a live Q&A and Nick Hampton, Chief Executive; and Vivid Sehgal, Chief Financial Officer. Please note that only preregistered questions will be taken. Thank you. I will now play the recording.

Good morning, and welcome to the presentation of Tate & Lyle's results for the year ended the 31st of March 2021. I hope everyone listening to this presentation is safe and well. Over the last year, the global pandemic has tested our organization in ways we have not experienced before. Across Tate & Lyle, our people have worked incredibly hard to keep our colleagues safe and well, to keep our customers served and to support our local communities at a time of great need. I would like to express my personal thanks to all my colleagues for their extraordinary efforts in a very demanding year and for truly living our purpose of Improving Lives for Generations in everything they have done. Now I'd like to introduce you to Vivid, our new Chief Financial Officer. Vivid has been with us for 3 months and is already making a significant contribution to the business and to the leadership team. The agenda for today's presentation is on the screen. I will start with a brief overview of the year. Vivid will run through the financial results. And I will then return to review the business in more detail and talk to the outlook. Finally, Vivid and I will take your questions. Starting then with an overview of the year. Despite the challenges of COVID-19, the group delivered robust performance, demonstrating the resilience, quality and agility of the business. Food & Beverage Solutions delivered another year of strong top and bottom line growth while Primary Products' resilient performance was helped by a record year of Commodities profits. We completed two important acquisitions and delivered double-digit new product revenue growth. Since 2018, we have delivered 3 years of consistent progress on our strategy, productivity program and investment case and built a strong platform for future growth. This progress and the strength of our business today is allowing us to explore the potential separation of our Food & Beverage Solutions and Primary Products businesses through the sale of a controlling stake in Primary Products to a new long-term financial partner. Discussions are ongoing, and I will talk to this later in my presentation. Looking briefly at the financial results. Food & Beverage Solutions grew revenue by 6% and profit by 12%. Sucralose profit was 9% lower while profit from Primary Products was 5% higher. For the group as a whole, adjusted profit before tax was 6% higher and adjusted diluted earnings per share were 12% higher, helped by a lower effective tax rate. Adjusted free cash flow increased by GBP 3 million. The uncertainty caused by the pandemic led the Board not to increase last year's final dividend or this year's interim dividend. Today, the Board is recommending a 5.8% increase in the final dividend to 22p with the full year dividend up 4.1%. This increase brings dividends back to a level consistent with the Board's progressive dividend policy despite the pandemic. Overall, I'm delighted with our financial performance and the continued strength of our balance sheet. Our three priorities, to sharpen, accelerate and simplify our business, continue to support our strategic progress. Revenue from New Products increased by 21%. We stayed very close to our customers, helping to grow the value of our new business pipeline by 12%. We strengthened our sweetener and texturant platforms with two acquisitions of high-quality stevia and tapioca businesses. Our productivity program also continues to deliver with a further $37 million delivered during the year. In March last year, as the pandemic took hold, we set out four priorities for the year: to look after our colleagues and communities; to strengthen our relationship with customers; to continue to progress our strategy; and to maintain our financial strength. With the pandemic continuing across the world, keeping our colleagues safe and well, our operations running and our customers served remains a key focus. The global pandemic response team we formed last year is still in place as are local teams at every site. All our manufacturing facilities remained operational, and we continue to stay very close to our customers to react quickly to their changing needs. Underpinning our response to the pandemic is our purpose of Improving Lives for Generations. In these troubled times, our purpose has never been more important. Last year, we announced new long-term targets and commitments to measure how we are living our purpose. And I want to briefly share our progress in the first year. We made good progress on our first two purpose pillars: supporting healthy living and building thriving communities. Let me pick out just a few highlights. During the year, our no- and low-calorie sweeteners and our fibers helped remove 1.8 million tonnes of sugar from people's diets. By offering online nutrition education, supporting physical activity programs and providing access to essential hygiene supplies, we helped 40,000 people live healthier lives. Our target of reaching gender equality in leadership roles by 2025 made good progress. We moved from 27% to 32% with particularly good progress in our innovation team, where 75% of leadership roles are held by women. I am particularly proud that we provided 1.7 million meals to people in need through our food bank partners last year. The pandemic significantly increased the level of food insecurity among some of the most vulnerable people in our communities. So ensuring families have enough nutritious food to eat has never been more important. Turning to caring for our planet, our third purpose pillar. Our Scope 1 and 2 absolute greenhouse gas emissions reduced by 7%. This was largely due to our U.S. plants in Indiana and Illinois starting to transition out of coal and more use of renewable energy. Projects to replace coal boilers with more efficient natural gas-fired systems in two U.S. plants are progressing well. And we remain on track to deliver our commitment to eliminate coal from our operations by 2025. We are also working through what it will take to reach net zero carbon by 2050 and expect to have completed this work by the end of the year. We made significant progress on our waste targets. 69% of our waste was beneficially used, mostly to generate energy or as a nutrient on farms. We reduced water use by 1% and our sustainable agriculture program in partnership with Truterra continues to progress well. It actively supports over 1,800 U.S. farmers and covers 1.5 million acres of U.S.-grown corn, equivalent to every acre of corn we buy globally each year. Overall then, I am pleased with the progress we are making on our purpose targets, and we are working to build on this momentum in the coming year. And with that, I will hand you over to Vivid.

Thank you, Nick, and good morning, everyone. I'm delighted to be here. My first 3 months with the company have been very positive and firmly in line with my expectations. I've been impressed by the talent we have at Tate & Lyle, the passion for driving innovation, the focus on serving our customers and our purpose being at the heart of everything we do. Equally important to me, the overall business is in a solid financial position with a strong balance sheet. I've inherited an experienced and high-quality finance team at a strong internal control environment. All of this gives me confidence coming in as CFO. Turning now to our financial performance. In line with previous presentations, I will focus on adjusted measures. Items with percentage growth are in constant currency unless I indicate otherwise. As Nick said earlier, we've had another strong year. Group revenue was up 1%. Profit before tax was up 6% with Food & Beverage Solutions delivering another strong year of revenue and profit growth while earnings from Primary Products were resilient despite a challenging environment. Adjusted diluted earnings per share were up 12%, benefiting from a lower effective tax rate. Adjusted free cash flow continued to be strong at GBP 250 million, up GBP 3 million. And net debt was GBP 34 million lower at GBP 417 million. The Board is recommending an increase in the final dividend, leading to a full year dividend 4.1% higher. I'll now go through the key factors driving profit growth. Food & Beverage Solutions operating profit was up GBP 19 million, driven by strong revenue growth, good operational performance and cost discipline. Sucralose profit was GBP 6 million lower, reflecting deleverage from lower revenue and one-off production costs. In Primary Products, profit was up GBP 9 million. Sweeteners and Starches profit were GBP 17 million lower, reflecting weaker demand due to the pandemic while Commodities profit was up GBP 26 million. Strong cost discipline has been a key feature of our response to COVID-19. And this positively impacted the performance of both divisions. Central costs and interest together increased by GBP 2 million, mainly due to lower interest income from cash balances. The share of profit after tax from joint ventures was GBP 1 million higher. Finally, the impact of translational foreign exchange was to decrease profits by GBP 17 million to GBP 335 million. Now let's turn to our divisional performances. Let's start with Food & Beverage Solutions. Volume was 3% higher. Revenue was 6% higher. And profit grew by 12%, driven by good operational performance and cost discipline. Taking a look at our regions. In North America, top line momentum continued with volume up 4%. The pandemic caused significant changes in demand patterns earlier in the year with strong demand from ingredients used for in-home consumption offset by weaker out-of-home demand. The North American food and beverage market moved into low single-digit growth during the year with strong customer service and good performance across categories, such as beverage, confectionery, nutrition and bakery, helping us to grow ahead of the market. Revenue was 6% higher, benefiting from good mix management. In Asia, Middle East, Africa and Latin America, volume increased by 2% while revenue increased by 7%, benefiting from good price and mix management, especially in Latin America, which benefited from U.S. dollar-based pricing. In Europe, volume increased by 4% and revenue increased by 2%. Mix was impacted by strong texturants demand for ingredients used for bulking and cost optimization, mitigated by higher stevia and clean-label texturants demand. Revenue from New Products was up 21% and now represents 14% of Food & Beverage Solutions revenue, up 2% from last year. Turning to Sucralose. Volume was in line with the prior year with revenue 2% lower, reflecting customer mix and pricing pressures. Further modest pricing pressure is expected to continue in the 2022 financial year. Profit at GBP 55 million was 9% lower, reflecting the deleveraging impact of lower revenue as well as one-time cost of higher production. Moving to Primary Products, which also includes Commodities. Total volume was 5% lower and profit was 5% higher. Sweetener volumes were 7% lower with significantly reduced out-of-home consumption during lockdowns in North America impacting consumer consumption patterns. As the year progressed, out-of-home consumption started to recover, but demand remains below pre-pandemic levels. The 2021 calendar year bulk sweetener pricing round was more competitive than in previous years, delivering slight unit margin compression, which we expect to mitigate with our ongoing productivity program. Industrial starch volumes were 6% lower. The pandemic resulted in lower demand from the paper industry following the closure of many schools and offices. This was partially mitigated by higher demand for starches used in packaging. Profit from Sweeteners and Starches was 13% lower with strong cost discipline, particularly in our operations, mitigating some of the impact of lower volumes. Adverse U.S. winter weather increased costs by GBP 6 million in the last month of the year. Profits were helped by transactional foreign exchange benefits in Latin America, which mitigated the loss of profit from the savory ingredients business we exited in the prior year. Commodities profit was up GBP 26 million. This was due to significantly higher co-product recoveries from good market conditions, including increased market demand and strong prices across our co-products, particularly for corn oil. On this slide, we show the remaining components of profit before tax. Central costs were in line with the prior year. Net finance expenses were GBP 2 million higher, reflecting lower interest income on cash balances, higher borrowing costs following the issue of $200 million of new private placement debt in August and the loss of finance income following last year's pension buy-in. The group's share of profit after tax of joint ventures was GBP 1 million higher, principally due to higher profits in Almex, our joint venture in Mexico. Almex saw weaker sweetener demand due to the pandemic, which was offset by transactional foreign exchange benefit of GBP 4 million. The effective rate of tax was 360 basis points lower at 14.3%, reflecting the release of provisions for which tax liabilities did not materialize and U.S. tax credit recognized in the year. We expect the effective tax rate for 2022 financial year to be higher than this year. Turning to exceptional items. We recognized net exceptional costs in profit before tax of GBP 42 million. This comprised a GBP 20 million charge relating to our $150 million productivity program and a charge of GBP 19 million, mainly for professional fees for the work we are doing to explore the separation of our two businesses. Our productivity program to deliver $150 million of benefits over a 6-year period to March 2024 remains on track. We delivered a further $37 million of benefit in the year, bringing the total over the first 3 years of the program to $124 million. The cash cost of generating these benefits for the 3 years to date is $48 million. These benefits come from a range of areas, including supply chain efficiency improvements, our continuous improvement program, capital investments to reduce energy costs and SG&A savings. During the year, we took steps to significantly reduce cost to mitigate the financial impact of lower demand. Actions taken included reducing discretionary costs, such as travel, as well as freezing recruitment. These actions benefited both business units. Turning to cash flow and the balance sheet. Cash management remained strong. Adjusted free cash flow was GBP 3 million higher at GBP 250 million. This was due to higher earnings, lower retirement benefit contributions and lower capital expenditure, partially offset by the impact of higher corn prices on working capital. We expect capital expenditure for the 2022 fiscal year to be between GBP 180 million and GBP 200 million, reflecting higher Food & Beverage Solutions growth capacity, part of which relates to our recent stevia and tapioca acquisitions. Net debt decreased by GBP 34 million to GBP 417 million. And our net debt-to-EBITDA ratio is slightly lower at 0.8x. We continue to strengthen our balance sheet. In August, we issued $200 million in U.S. private placement debt at an average coupon of just below 3%. We extended our committed but undrawn revolving credit facility twice this year. In May, we extended the maturity of the $800 million facility by 1 year to 2025. Then in March, we extended the maturity of $700 million of this facility by a further year to 2026. As a result, we have a strong liquidity headroom with access to more than $1.3 billion through cash on hand and our revolving credit facility. So in summary, we delivered a robust financial performance with adjusted profit before tax up 6% in a challenging environment. Both business divisions performed well with strong revenue growth in Food & Beverage Solutions and steady earnings from Primary Products supported by excellent productivity and cost discipline. Diluted earnings per share were up 12%. Cash management was good. And the Board is recommending an increase in the final dividend of 5.8%. Overall, we remain in a good financial position with a strong balance sheet, providing organic and inorganic optionality and a solid platform on which to execute our strategy. With that, let me hand you back to Nick.

Thank you, Vivid. In this section of the presentation, I'm going to focus on three areas: our progress over the last year, our outlook for the coming year and our progress over the last 3 years. So let's start with our progress last year. Food & Beverage Solutions delivered another year of positive top line momentum. The work we are doing to collaborate more with our customers and to become their innovation growth partner is progressing well. And this is showing through in our financial results. We are also making good progress expanding our portfolio and our presence in the higher-growth markets of Asia. Staying close to our customers and supporting their growth plans has been a key priority this year. Given the restrictions on travel and face-to-face meetings, we have to find new and creative ways to support and connect with our customers. Our bespoke webinar series on topics like sugar reduction and plant-based ingredients, our virtual prototype tasting sessions and video links in our application labs were so successful that our technical team's interactions with customers increased by 44% during the year. As the world opens up, we will continue to use virtual platforms and technology to work closely with our customers. We also accelerated the launch of online tools to support our customers. In February, we launched our Fibre University, an online course designed to help food scientists solve difficult fiber formulation challenges. This followed the launch of our Sweetener University last July, 1 year earlier than originally planned. All these actions helped increase the value of our new business pipeline by 12%. We continue to see strong traction for New Products launched from our innovation pipeline. Revenue was up 21% with double-digit growth in both our sweeteners and texturants platforms. We launched 13 new on-trend products during the year, including clean-label tapioca starches, which provide enhanced mouthfeel in categories such as dairy, soups and sauces. We also launched 5 new stevia sweeteners solutions to enable sugar replacement in a range of categories. Overall, the risk-adjusted value to our innovation pipeline grew by 18%. Innovation isn't only about new products but also about finding new ways to engage with customers. During the year, we launched a series of new online concepts, such as our Collaborate at Home Kitchen in North America, an engagement hub where customers can interact with Tate & Lyle experts to explore consumer trends in food and drink. In February, we launched our Tate & Lyle Nutrition Centre, which is a website providing customers and health professionals with easy access to expert insights, research and educational tools. The aim is to increase awareness of evidence-based science for ingredients, including low- and no-calorie sweeteners and dietary fibers and their role in a healthy and balanced diet. We also introduced a new prototype pantry concept, and I want to give you a real-life example of this in action. In North America, we continue to target new business in attractive subcategories. One subcategory is low net carbohydrate ice cream. Last year, we started discussions with a customer who wanted to reformulate their low net carb ice cream to use an alternative fiber and improve its mouthfeel. Using our prototype pantry approach, we created several ice cream variations to optimize the formula and meet our customers' requirements. The solution used in the consumer product shown on the screen features a blend of our stabilizers, DOLCIA PRIMA Allulose, PROMITOR Fibre and PUREFRUIT Monk Fruit Extract. This is a great example of how we are using new concepts to engage with customers, to show our capabilities in specific product categories and win new business. This integrated solutions approach is also helping us increasingly become the chosen growth partner for our customers. In the markets of Asia, the Middle East, Africa and Latin America, we continue to see good top line momentum and opportunities for future growth. We established this new region in October to accelerate building our presence in these higher-growth markets. Similar to North America, we are implementing a solutions approach in these regions. Under the leadership of Andrew Taylor, formerly our President of Innovation and Commercial Development, we are building capabilities to address key customer challenges in our growth regions. This includes increasing our investments in category and consumer insights and strengthening our applications and solutions expertise. We have made a good start. Last year, our customer-facing applications teams across these regions increased by 25%. We are also investing in strengthening our infrastructure in the region. We are further expanding our applications lab in Singapore, and we will be opening a new applications lab in Dubai this summer, taking our network of labs across these regions to 13. The two important acquisitions we completed this year add new solutions to our customer offering for Food & Beverage Solutions and expand our presence in Asia. In November, we acquired the outstanding majority shareholding in Sweet Green Fields, a leading global stevia solutions business. This acquisition brings a fully integrated stevia supply chain, including leaf sourcing and established agricultural programs as well as a dedicated production and lab facility in China. It also strengthens our sweetener platform as stevia is one of the fastest-growing low-calorie sweeteners, particularly in beverages, dairy and snacks. In February, we completed the acquisition of an 85% holding in Chaodee Modified Starch, a specialty tapioca food starch business in Thailand. This brings us new tapioca capabilities and raw material sourcing expertise, strengthens our texturants platform and expands our customer offering in categories such as dairy, bakery and noodles. It also establishes a dedicated tapioca facility in Asia, which we intend to invest in to significantly increase capacity. As well as broadening our solutions offering, both acquisitions also help us diversify from corn. The integration process for the two businesses is proceeding well, and we're delighted to welcome them to Tate & Lyle. The pandemic has caused major changes to the way we live, view our health and how we eat and drink. Consumers today are even more concerned about their well-being and are looking for a healthier diet. They want more sugar- and calorie-reduced products with improved mouthfeel and taste. There is also growing demand for more plant-based options and foods that help build immunity. These trends have been accelerated by the pandemic. And with governments across the world increasingly focused on the importance of diet and health, these trends are here to stay. Food & Beverage Solutions is very well placed to benefit from these trends. We have leading expertise in sweetening, mouthfeel and fortification. And our unique portfolio helps to remove sugar, calories and fats and add fiber to consumer products across the world. These technical capabilities are helping to drive strong growth. Last year, in sweetening, revenue from products supporting sugar reduction, excluding sucralose, was up 32%. In mouthfeel, our range of clean-label texturants delivered revenue growth of 23%. And in fortification, revenue for our soluble fibers, which reduce sugar and provide nutritional benefits such as digestive health, grew by 16%. These capabilities are what gives Food & Beverage Solutions its inherent strength and make it a business very much fit for the future. Turning now to Primary Products. It is to the great credit of the Primary Products team that they managed to mitigate the impact of the pandemic and deliver profit growth in such a challenging environment. This was delivered by excellent cost management, good operational and supply chain performance, a focus on customer service and strong Commodities performance. Primary Products also benefited from the single-minded execution of the strategy it has had in place for a number of years: to deliver steady earnings by focusing on portfolio optimization to maximize margins, increasing operational efficiency and diversifying capacity towards new and growing markets. At the start of the year, in April and May, demand was impacted by lockdown in the U.S. as restaurants, bars, cinemas and sporting venues all closed. This led to a significant reduction in demand for sweeteners used in products consumed out of home. The closure of schools and offices and the associated reduction in the use of paper also led to lower demand for industrial starch. From June onwards, lockdowns eased and demand improved. For sweeteners, demand remains below pre-pandemic levels, although we expect it to strengthen during the 2022 financial year. For industrial starch, demand for printing and writing also remains below pre-pandemic levels. However, demand for starches used in packaging continues to grow, and I will talk about this in more detail shortly. Commodities delivered a record year of profits, helped by strong pricing for co-products and, in particular, higher demand for corn oil as the pandemic increased home cooking. Primary Products has a clear strategic focus to optimize mix, increase operational efficiency and leverage its technical expertise. Let me give you an example for each area. Our dextrose sweeteners can be used in different ways to optimize mix, including in the green chemistry space as a surfactant or detergent in a range of industrial applications. Turning to operational efficiency. At our acidulants facility in Dayton, Ohio, we recently completed a project to beneficially use wastewater to create biogas. This biogas is used as a renewable energy source for one of the facility's boilers. This is providing over $1 million of benefits and also helping to reduce the site's carbon footprint. Our industrial starch team continues to leverage their technical expertise and customer intimacy to generate new business. For instance, last year, they worked with a customer to produce a new, highly functional starch to improve the strength and application of its adhesive tapes as it looked to meet the surge in online shopping and home delivery. The packaging market is a good example of our strategy of diversifying from declining markets, such as printing and writing, into growing markets such as packaging. This was particularly beneficial last year as the impact of the pandemic led to the volume of starches sold into printing and writing to decline by 20% while a surge in online shopping helped volume from packaging grow by 19%. Our industrial starch team developed solutions for different subcategories within the packaging market, all of which experienced growth during the year. General packaging for cardboard boxes increased by 9%. Food packaging increased by 25%. And high-end specialty packaging for boxes used for technology goods increased by 12%. With consumer demand for more functional and sustainable packaging increasing, our extensive portfolio of plant-based and highly functional starches means we are well placed to benefit from this trend. Packaging is not the only diversification opportunity Primary Products is pursuing. We are constantly looking to take advantage of growth opportunities in our existing markets and to enter new markets, particularly to address the trend for renewably sourced products. Examples of existing markets include using sweeteners as feedstock for fermentation and the use of starches in building materials and adhesives. Starches for adhesives grew volume by 16% last year. In new markets, we continue to work with formulators on our TEXTURLUX Personal Care Additives. These are a range of bio-based specialty polymers for skin, hair and sun care applications available in North America. And then there is our Bio-PDO joint venture, a new opportunity to replace fossil fuels with bio-based products in many different markets, including clothing and liquid detergents. Overall then, I continue to be pleased with the progress of both Primary Products and Food & Beverage Solutions. Both businesses performed well during the year, demonstrating the strength of their respective strategies and their operational resilience. Looking now to the year ahead. With the pandemic continuing, the priorities we set out at the start of last year remain our near-term focus. We will continue to support our employees and local communities, strengthen our relationships with our customers, progress our strategy and maintain our financial strength. We will also continue to adapt to and embrace the new business environment and ways of working and to invest in the business to ensure we emerge from this period an even stronger business. Moving to the outlook for the year ending the 31st of March 2022. Despite the continuing impact of the COVID-19 pandemic, we expect Food & Beverage Solutions to deliver another year of progress; Sucralose to see further modest pricing pressure; and Primary Products, Sweeteners and Starches to return to growth as out-of-home consumption recovers; and for Commodities, profits to be significantly lower. We also expect to deliver further productivity benefits. With overall positive momentum, we expect growth in group adjusted operating profit before Commodities to be in the mid-single-digit range in constant currency. Reflecting significantly lower Commodities profits and an increase in the adjusted effective tax rate, group adjusted diluted earnings per share are expected to be lower than the prior year in constant currency. Turning now to our progress over the last 3 years. In May 2018, I set out our investment case for Tate & Lyle. Since then, we have built a purpose-led business with a strong platform for growth. Underpinned by our sharpen, accelerate and simplify priorities, both businesses have delivered on their strategy. In Food & Beverage Solutions, we have created a successful innovation model, significantly strengthened our technical capabilities and expanded our portfolio through new products and acquisitions. In Primary Products, the core business has performed well. And we have made good progress diversifying into new and growing markets. We have instilled a culture of operational discipline and productivity with more agility and ambition. At the same time, we have significantly strengthened the balance sheet and delivered on our investment case for both businesses and Tate & Lyle as a whole. Looking briefly at each business. Food & Beverage Solutions has delivered what we said it would, consistent top line and bottom line growth. Over the last 3 years, revenue has increased by a compound annual growth rate of 4%. Adjusted operating profit has grown by 11%. And revenue from New Products has grown by 18%. Following a strategic reset in 2016, Sucralose has performed well. It is seen as a core sugar reduction ingredient by many of our customers. And while excess capacity remains in the industry, demand continues to grow. And it remains an important ingredient in the sweetener toolbox of our Food & Beverage Solutions business. Primary Products has also delivered what we said it would, steady earnings with a compound annual growth rate of 3%. A combination of long-standing customer relationships, a focus on operational efficiency and cost discipline and an innovative approach to value creation, including the targeting of new markets, makes this a strong and resilient business. Looking at the group as a whole. In May 2018, we said that, over time, we expected growth in earnings per share in constant currency to accelerate, for organic return on capital employed to improve and for strong cash generation to support our progressive dividend policy. Over the last 3 years, diluted earnings per share has increased by a compound annual growth rate of 8%. Return on capital employed has increased by an average of 5 basis points each year. And the dividend has been increased by a compound annual growth rate of 2.4%. This progress and the strength of the business today has provided the opportunity to explore the potential to separate our Food & Beverage Solutions and Primary Products businesses through the sale of a controlling stake in Primary Products to a long-term financial partner. This transaction, if concluded, will create two businesses: Tate & Lyle, focused on Food & Beverage Solutions and a global leader in sweetening, mouthfeel and fortification; and Primary Products, a leader in plant-based products for the food and industrial markets with a new investor with a strong appetite to develop and grow the business. We continue to successfully execute our strategy and remain confident in the future growth prospects of the company. However, the Board and I believe that a transaction of this nature would enable Tate & Lyle and the new business to focus their respective strategies and capital allocation priorities and create the opportunity for enhanced shareholder value. Discussions with potential new partners for Primary Products are ongoing. And there can be no certainty that the transaction will be completed. We will make further announcements when appropriate. In summary, the past year has been like no other. And it has been amazing to see the passion of our people living our purpose every day and delivering for our customers. I'm so proud of all of them. Despite all the challenges, we have continued to progress our strategy, deliver productivity, enhance our financial position and build a strong platform for future growth. Looking ahead, our priority is to continue to deliver our strategy and our investment case. The pandemic is accelerating consumer demand for healthier food and drink. And our unique portfolio, customer focus and operating capabilities mean we are well placed to benefit from this trend. Whatever the outcome of the current discussions, I am confident that the future growth prospects of our company remain strong. I would like to finish by thanking everyone at Tate & Lyle for all the hard work that made last year's results possible and for their unbelievable resilience. So many have gone beyond the ordinary call of duty. And for that, I am truly grateful.

Thank you, ladies and gentlemen. That is the end of the recording. I will now hand over to Nick Hampton for a few words before we start the Q&A session.

Thank you, operator. As I said earlier, the past year has demonstrated the strength, the resilience and the agility of our business with group profits higher, Food & Beverage Solutions delivering strong top line momentum, notably accelerating in the second half. As a result, the Board has recommended an increase of the final dividend -- or the full year dividend of over 4%, so a really strong platform for us to grow from. With that, Vivid and I will be happy to take your questions.

[Operator Instructions] Our first question comes from John Ennis from Goldman Sachs.

Nick, I wondered if we could start with the Primary Products potential separation. Can you help explain the practicality of any potential separation in terms of dividing the factory footprint? Would all the FBS production shift to, say, the Sagamore facility? Or would you operate in some form of shared operations? I appreciate it's quite early to comment, but just some color there would be helpful. And then I wanted to ask about the mid-single-digit EBIT growth guidance as my second question. I think if you sort of look into the presentation, you've flagged the GBP 6 million one-off from a Primary Products disruption in North America. Obviously, if you're applying mid-single-digit growth to your EBIT ex Commodities, that's around GBP 14 million or so of increased EBIT, meaning a reversal of the GBP 6 million one-off would be almost half your EBIT growth and would imply a low single-digit growth on an underlying basis. Is that, a, the right way to think about it? And b, can you maybe detail why you're already sort of forecasting low single-digit growth from the underlying basis, excluding that GBP 6 million one-off? That's my second question.

Sure, John. Thank you. Let me take your first question first. I mean, obviously, it's very difficult for us to comment too much on the transaction at this point. Conversations are ongoing with interesting parties, and we'll update the market in more detail. But what I will say, because of the nature of the proposed transaction, we've done a lot of preparatory work to understand the practicalities of separation, including looking at how the plants would operate under separate ownership, including looking at the kind of long-term supply agreements that would satisfy both businesses. And we're very confident that we've got practical solutions that could work. And of course, as things evolve, we'll update you as appropriate. If I take your question on forecasting EBIT for this year, I think what we said very clearly is we're going to see another continued strong year of progress on Food & Beverage Solutions. Encouragingly, we saw accelerating momentum in the second half. So revenue growth was stronger in the second half than the first half, and we're seeing that momentum coming into this year. So we're expecting a similar kind of momentum on that side of the business. We will probably look to reinvest a little bit in growth as we return to a kind of more normal working pattern. On Primary Products, again we saw better momentum in the second half. We're seeing good momentum again as we come into the year. And it's just a little bit early to see how demand in Primary Products is going to evolve until we see how lockdown eases in the U.S. Yes, we're lapping the one-off in the second half of the prior year because of the winter issues. But net-net, we think we're going to see good progress on both businesses. With Sucralose, as we guided as well, continued momentum with similar kind of top line and a little bit of pricing pressure. So when we add all of that up, at this stage, we think that the mid single-digit guidance is about right, and we'll continue to evolve our thinking as we see how lockdown eases in the U.S. That's really the critical factor for us. I don't know, Vivid, whether there's anything you want to add to that.

Yes. I mean, I think, Nick, what you've said is absolutely right. I think there's still some degree of uncertainty. What I would say though is that the focus on the productivity culture as well as the cost discipline in the company is very strong. And I think that's a foundational strength of this company. So as we do emerge from the lockdowns and come out of the pandemic, the one thing we're not going to change is the focus on cost, on discipline. And really, we have a balance sheet to support all the investments that we want. So I think, Nick, it's in exactly the right way we should be thinking about this. We are being absolutely focused on cost discipline and cost control.

Our next question comes from Alicia Forry from Investec.

My questions are, one, seeing as you're looking to maximize the value of the portfolio that you have, I wonder if you could touch again on the strategic rationale for keeping Sucralose in the ongoing business. And then secondly, it sounds like the stand-alone FBS will likely be expected to shoulder some additional costs post the separation. So to create value, clearly M&A will be needed or some form of organic expansion. Can you touch on what the backdrop looks like for that at the moment?

Sure. Maybe let me take the second question first and, Vivid, you could maybe pick up on the first one. I'll start with, look, I mean, clearly, this move creates a more focused Food & Beverage Solutions business, which is exciting because of our ability to unlock that growth potential, especially in the areas of sugar reduction and added goodness into food as we see those trends accelerate as a result of the pandemic. We've strengthened that portfolio last year with two key acquisitions in stevia and tapioca to help with that. And those businesses are doing really well in the early days. We're seeing really good demand for stevia and the tapioca businesses being integrated well. From an M&A perspective, that's the kind of thing we want to continue to do, maybe looking for bigger deals alongside it. But it really is about strengthening our core portfolio because that's what makes the business strong, that ability to formulate across sweeteners, texturants and fibers. So the stronger we can make those product platforms, the better, which really links to your first question about Sucralose. Sucralose is a key ingredient of our sweetener toolbox. It's still the most formulated artificial sweetener out there and it's a key weapon for us in supporting our customers' growth agenda. So Vivid, anything you want to add on that?

Let me just take the question, I think, on the cost that came through. I think it's a fair question. But look, first of all, the deal is not complete. We're still, as you saw, in negotiations. So that's a positive sign. But what I would say at this point in time is that obviously the partners that potentially we are working with at this level are a different framework to the company of Tate & Lyle in the public framework. So naturally, that could conclude that there will be additional costs that will stay with our company. But I think we're going to be very thoughtful around, if successful, how we deal with that. And as you said perfectly, it will depend on both our organic as well as inorganic potential opportunities that we have going forward. So this is in our sort of sight and it's something we think about. But at this point, I think negotiations are going well. We are thoughtful on the process. And we have a very bright future going ahead right now.

Our next question comes from Martin Deboo from Jefferies.

A couple of questions on the core business. First one is around allulose. In press reports that you're effectively sold out of allulose, sort of interesting, given you've been quite quiet about it for a few years. Are those reports accurate? Can you give me some sense of materiality and growth on allulose? And then secondly, you won't like me asking, but I have to ask about the co-products. Clearly, you've hedged the guidance around the co-products for understandable reasons. But maybe the question I can reasonably ask is what are your sort of planning assumptions on the co-products on the Commodities line -- sorry, Commodities around, on one hand, co-products; secondly, ethanol; and thirdly, corn basis? Just what's built into your planning assumptions on the Commodities line in FY '22? Those are my questions.

Martin, let me take the allulose question first. We have seen an incredibly strong pickup in interest in allulose in the markets where it's received regulatory approval. That's a really good thing. It's been quite a slow process of building conviction in allulose. We're really seeing that explode in the near term. And I think that's a reflection of some of the trends we're seeing in the world around us. As a result, we've got lots more customers working with us on it and it's becoming more important to our business. As part of that process, we're looking at how we add capacity in the right way now that we've seen this resurgence of interest. And it's going to be exciting for the medium term. It won't have a hugely material impact on this year. But it clearly is helping with the growth. And as you saw, we saw New Products growing by over 21% last year, which is very important for the mix of the business. On Commodities, and look, I always say this at the start of the year, it's difficult to predict. What I can tell you is coming into the year, we're still seeing strong recoveries from co-products. We're still seeing kind of a normal program on basis. And we'll continue to update the market as we go on. But the early signs are that co-product recoveries remain strong at least in the near term. I don't know, Vivid, anything you could add to that?

Yes, certainly. I mean, I think, first of all, I think we want to sort of congratulate the team, who have done an outstanding job on Commodities. I think you've seen the numbers this year. And they are at record levels. And that's actually a great team effort. I would just add, in terms of Commodities, as Nick said, we do see strength continuing on, but we do think the market dynamics will change. And we don't expect the market to carry on at the same level that it is now. So we're thinking about a Commodities number of greater than GBP 20 million at this point. And we think that's a fair inflection and that's included in our current guidance.

Our next question comes from Alex Sloane from Barclays.

A couple of questions for me. Firstly, I just wondered if you could quantify the discretionary cost reduction benefits that you talked about in FBS and Primary Products in the year just gone and to what extent you're expecting those to reverse in your guidance. And then in FBS, I mean, you did highlight a nice pipeline, both on innovation and also in new business development in terms of the value of those pipelines, both up double-digit. I mean, you talked about allulose just there, but I was wondering, is there any particular sort of geographic focus or technology ingredient focus that is behind that? Or is that fairly broad-based? And then just finally, if I can just squeeze on, just on the transaction. Obviously, GBP 19 million of spend is 7.5% of annual free cash flow. So I mean, clearly you wouldn't have gone this far without, I guess, a relatively high degree of confidence that this potential transaction could be a realistic prospect. I wonder if you could just maybe, just in terms of the asset separation, just touch upon a bit more further in terms of what has changed that made you think that this could now be possible, whereas in the past, maybe these assets might have been seen as too interconnected.

Look, let me take your last question first. So the reason for contemplating the transaction at this point, and rightly as you say, we've done a lot of work on this because it's important to get it right, is, look, we've worked over the last 3 years to build two very strong businesses, both with very strong management teams. And now we think is the time to execute something like this because of the operational strength in the business and the potential future for both businesses to grow and thrive. So it's all of the hard work that's been done over the last 3 years that's given me, the Board conviction that this is the right time. As I said, conversations are ongoing, and we'll see how those evolve and we'll update you as things move forward. On New Products, the encouraging thing is that it's broad-based, it's not any one single item. So we're seeing really strong growth in our sweeteners portfolio, notably driven by stevia, the acquisition we just made, and allulose, we've just talked about. But we're also seeing very good growth on our clean-label starches, they're very on trend, and also in our fibers portfolio. So we've got multiple weapons in the arsenal, if you like, rather than it being one big piece of new product development. And that gives us optionality, clearly. From a geography perspective, it is broad-based as well. Typically, in our growth markets, we see more innovation because we've got a bigger stable business in North America. But it is geographically dispersed as well. So the fact that it's across the world and it's a number of products gives us confidence in the future. And I have to apologize, I forgot what your first question was.

Maybe I can take that. Look, I think the first question was around the really important subject of productivity. And in my short period here, what I've realized is $37 million sort of productivity program in a year, that has put us well ahead of our 6-year program, maybe $124 million of benefits. And the question was really around do we see that -- what do we see about the future there? I mean, what's important is that, that is giving us a huge amount of opportunity to actually reinvest in future growth opportunities. And so if the question was how we do see that going forward, that goes forward with the same passion, the same culture that we've had before. And we raised the target last year from $100 million to $150 million. And that's given us a real opportunity to go back and reinvest in future growth, as Nick said, in terms of the key products that we have.

And Alex, I think, actually also asked about discretionary cost benefits last year. And they weren't insignificant. What we did do in the second half, we did reinvest some of that in the kind of key growth areas. So I was sort of thinking about the overall benefits of discretionary costs on a like-for-like basis being sort of plus or minus GBP 10 million for last year after reinvestments. And obviously, some of that will flow back this year as we start to return to a more normal working pattern as hopefully the pandemic abates across the world.

Our final question comes from Karel Zoete from Kepler Cheuvreux.

Again, I have a follow-up question on the potential sale of your Primary Products business. With regards to the GBP 20 million money on advisory costs, you already briefly touched upon it, but it's a lot of money. So basically, where did you need really advice from external parties? Especially, what's the money being spent on? And it kind of also suggests that it's not been something you've been working on in the last 1 or 2 months. So that's the first question. And then on the remaining business. You've done two add-ons to the FBS this year. Is it pure luck that the progress or speed with which you're able to make these deals has picked up? Or have you organized yourself differently? In general, I think, how do you see the M&A capability within your team? And then the third question is on the mix, price/mix part in FBS in H2. It seems to be picking up quite nicely in the second half of the year. Is that due to price increases? Or did the rapid growth of the New Products also a material contributor?

Okay. So let me take your questions in turn. So firstly, on the costs associated with the transaction, look, we have been working on this for a significant period of time. Because as I said earlier, we want to get it right. And we've been working on it in a number of areas. Firstly, what would the operational separation look like? So physically, how would we run the operation as two separate companies? Secondly then, what are all the legal agreements that go around that to ensure that both companies are incented to work well together? That's incredibly important. And then thirdly, of course, there's a bunch of work to do on things like financial separation. So this is a significant undertaking. And therefore, we spent proper time preparing for it, even before engaging with potential partners. That's what that's all about. Your second question, I think, was about M&A. It's great that we did two significant transactions last year. That's a product of hard work over a number of years to build the capability. We have stepped up our M&A capability internally recently with a hire of a very senior head of M&A, who is very involved in the current transaction we're contemplating. So that's a conscious effort to step up capability to make sure we can continue to make progress over the next 6 months and beyond. And then I think your third question in terms of mix and acceleration, it's a combination of very good commercial management and mix on the base business, aligned with price realization on new products. We've always said that bringing new products to market is about improving mix. And it's about driving volume growth in the right areas as well with the right customers. So it's all about commercial discipline and innovation capabilities coming together at once to serve the trends in the world that will be our friend going forward. Because the trends that we saw pre pandemic are accelerating, and we think they're here to stay.

Our next question comes from Chris Pitcher from Redburn.

A couple of questions actually. On SGF, just trying to understand the volume impact that, that had on your numbers in the year just gone. And looking out to next year, you said the business would have had revenues of GBP 41 million and would have been breakeven. But part of your CapEx step-up appears to be investment in SGF. Could you just [ tell me ] how much CapEx needs to go into SFG? And will be -- will you keep it loss-making in this fiscal year? And then a final question just to try. In terms of the minority stake you're looking to keep in the Primary Products business, you talked about alignment between the two parties. Is that a necessary part of the negotiation from your side? Or is it more from the buyer's side? If you can give any color on that.

So let me start with SGF, incredibly -- as I said, incredibly important transaction for us. It actually has more impact on our revenue growth because it's actually a relatively light product compared to many others. But it had a point or so impact on revenue growth last year. That will step up a little bit this year as we think about the future. It is already profitable. So we are making money on SGF. And the capital investment that we're going to make to scale the business is not significant. So it's not going to take us anywhere near into a loss-making position. We're making good margins on stevia, and we'll look forward to doing that going forward as well. On your question on Primary Products and a potential partner, it's really important for us that we find somebody who believes in the future growth potential of that business and is prepared to invest alongside us to execute the strategy that we think will drive accelerated growth in the right kind of partnerships. So getting the right partnership is as important as getting a partnership at all. So that's a consideration for both sides, frankly, as we think about the nature of the transaction.

Our next question comes from Heidi Vesterinen from Exane BNP Paribas.

I have two additional questions on the transaction. First, could you discuss what the attractions of PP would be for a potential partner? I'm wondering what someone could bring that you haven't been able to achieve on your own. And then second, in the release where you discussed the $150 million productivity program, you discussed reclassifying $12 million of costs relating to the separation. Could you explain what these costs relate to as it sounds separate from the advisory fees that we've talked about already?

So let me take your first question on Primary Products and then maybe Vivid could take the second question. The attraction of the Primary Products business is it's a stable, strong, cash-generating business with great long-term customer relationships. And it generates very significant cash and in a market that is stable, and we're finding ways to build margin growth into. On top of that, we believe that business has potentially attractive future in, let's call it, more bio-based materials. If you think about our Bio-PDO JV, which is already serving markets like the clothing market, the personal care market with bio-based carriers for things like cosmetics, there is no doubt that there are growth opportunities there. And finding a partner who can help bring operating capability in that area and increased investment appetite for the business is really where the attraction comes for us and for any potential partner. So Vivid, do you want to take [ second one ]?

Yes, certainly. I mean, the reclassification is effectively -- originally, we recorded costs that were related to [ Gemini ] -- sorry, to our separation program in restructuring. And therefore, we actually have reclassified those back into separation costs. So that's really all that is. So within the numbers of GBP 19 million that you've seen, that's part of that is the reclassification.

So it sounds like you're making structural changes in preparation for the sale. That's what I understand.

We currently have no further questions. So I'll hand the call back over to Nick.

Thank you, operator. And thank you all for your questions. As I said earlier, we're very pleased with the progress the business made last year both financially, strategically and importantly on delivering on our purpose objectives. We haven't talked much about it on the Q&A session today. But as we focus on both the business and the transaction, we're very excited about the future of the business, and we'll update you appropriately as things evolve. Thank you for your time today, and enjoy the rest of the day.