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

Good morning, everyone, and thank you for joining today's full year results presentation. We are now into the live Q&A. As I said in the prerecording, we delivered robust performance in the year with strong profit growth and cash generation and significant strategic progress, while successfully navigating a challenging external environment. Following the sale of the remaining stake in Primient, Tate & Lyle is now a fully focused specialty business creating solutions that meet growing consumer demand for healthier, tastier and more sustainable food and drink. At the completion of the transaction, we will return the net proceeds to shareholders through a share buyback program.

Turning now to your questions. The first question comes from Damian McNeela at Deutsche Numis.

Just 2 for me, please. Just on the EBITDA growth for this year. Can you just sort of talk about the considerations around volume expectations that is being incorporated into that? And then on the longer-term sort of EBITDA growth ambitions. Do you still think you can hit that sort of 7% to 9% over the 5-year time frame that you set last year? And then the second question is just on the volume performance. I think you've talked about an improving volume performance so far, well, in Q4 and then a bit into this year. Can you just give any more color on whether there are any sort of particular categories or channels which are seeing the growth and whether there any laggards that you would expect to recover as we go through the year, please?

Sure. Both very good questions, Damian. Let me take the first one and then maybe Dawn can add some more color on the volumes. So as we thought about guidance for this year, I'd say a few things. Firstly, we're clearly seeing positive signs of recovery in the market. And we saw that in the last quarter of the last financial year. And as we built our plan for this year, we were really looking to balance a few things. The first is signs of recovery, both with customers and with consumers. So with customers, we're seeing an entity stocking, we're seeing some more positive views of the future, and we're seeing increased engagement on innovation. That's all good. And a view that things are going to recover through this year as consumer confidence improves because of the improving economic environment in general around the world. So we're balancing off a view of seeing improved volume performance because of the fundamentals in the market. On top of that, a positive contracting round. Alongside that, we're trying to continue to make sure we invest in the future growth of the business. We've been very, very consistent through the last 3 or 4 years despite all the economic volatility, investing in innovation, investing in solution selling, investing in capacity, investing in in-market capability to serve customers. And you saw that again last year. So we will continue to invest. And the range of our guidance reflects the fact that we want to see how volume improves through the year. It was still early in the year. So that's the first part of your question. The second part is absolutely we believe we can hit our medium-term guidance. If you look at the last 3 years, we delivered double-digit revenue and EBITDA performance, which underpins that confidence. We're just coming into this year, we're trying to balance off an improving economic environment with continuing to invest for the future so that we can successfully continue to deliver what we've done in the last 3 years. So Dawn, I don't know whether you want to add something on the volume color?

Well, I think that maybe a couple of things just to build on the EBITDA. So we've delivered 10% EBITDA growth over the last 3 years. So if you add in the -- if you add in our outlook for this year, we'll still be towards the top of our long-term range. So I think that's a very strong performance. I think in terms of the volume, as Nick talked about, we are seeing small pockets of volume growth. Clearly, it's different across the different geographies and different categories around the world. So stronger performance starting to come through in beverages, particularly in places like nonalcoholic beverages as well as dairy. And I think particularly in China and in the U.S., consumer confidence is still -- we're still looking and waiting for that to improve. But as we talked about, we expect volume performance, and Nick talked about it. We expect that to continue to improve throughout the year and accelerate as we move through.

So our next question is from Alex Sloane at Barclays.

The first one, just in terms of the price resets for 2024 reflecting, in part, lower input costs. I think the statement still refers to some competition in FBS in Latin America and Europe. Obviously, you talked about that earlier last year. Have you seen any easing on this front with the new reset prices? That would be the first question. And the second one, just going back to the question on volume. I think you had said in quarter 3, maybe there was a 3-point impact from destocking into the year-end, which you expect it to reverse in the first quarter. If I look at the first quarter -- sorry, in the fourth quarter, in the calendar first quarter, if I look at the volumes in quarter 4, it looks like maybe excluding that phasing benefit, they were still slightly negative. So I just wondered, is there any sort of worsening in the trends as you exited the quarter? And just be interested in terms of what you've already seen in April and May on this front, presumably, values are improving to give you the confidence in the full year outlook.

So maybe I'll take the first question -- the second question first, and I'll come back to the pricing point. So yes, we saw a sequential improvement in volume as we went into the fourth quarter. I'd say if you take into -- the sort of residual impact of destocking as we entered the last quarter of our financial year, we clearly saw an improvement in volume run rates. And as we come into the first part of this financial year, we're starting to see that continue as well. So we're definitely seeing some positive momentum that is both about exiting the destocking. It's also about exiting the period of when we were exiting low-margin business, and it reflects the positive signs we saw in the contract round along the market evolution that we talked about earlier. So we're definitely seeing improvement as we come into the first quarter of this year. So that's all very consistent actually with what we said in our Q3 statement. That's all that's all good. In terms of the pricing reset, it varies by geography, clearly. We're probably seeing net-net a slight easing rather than an acceleration of the trends that you mentioned. But they're clearly still there in pockets of the business, and we need to make sure we balance the price, price revenue margin to reflect the relative competitive dynamics across the world. So hopefully, that gives you a broad sense, Alex, if what we're seeing on your 2 questions. And our next question comes from Karel Zoete of Kepler Cheuvreux.

I've got 2 questions. The first one is on mix, mix improvements in the second half of the year. It seems that has slowed quite a bit. Part of it anticipated. But if you can speak a bit about the mix trends during the second half of the year. And the other thing is looking at the cost situation, a very good savings momentum. In general, I think the outlook for cost of goods sold, but also other cost lines is more favorable than 12 months ago. So if you can touch upon that. And obviously, that also comes back to the EBITDA guidance as -- yes. It seems there is good savings momentum in the business. Volumes will recover. So yes, much appreciated.

So why don't I take the second question and then Dawn can maybe pick up on the mix point. So as you rightly say, Karel, I mean, 2 headlines, I would say, on cost. Incredibly pleased with the discipline the team is bringing to productivity. So $40 million plus productivity last year and that reflects a systemic program, but also some of the investments we're making in systems to allow us to get more efficient at predicting and planning the business and managing our end supply chain and serving our customers better. And that's reflected in the fact that we've called up our productivity guidance for the 5-year period, so from $100 million to $150 million. So the team doing a really good job there. Of course, we're also seeing the impact of inflation easing on input costs as well. And that delivers that delivers some significant benefits this year, which as we've done -- as we did with inflationary pressures, we're passing through to customers in a responsible way. They were accepting of price increases when we were under inflationary pressures because of the value we bring to their products. And we were committed to being fair with them as inflation abated. So that's reflected in the pricing dynamics in the business as we've given guidance on revenue for this year. Now when you add all of that up, though and you think about the shape of our EBITDA guidance, it really reflects the balance between being really disciplined on cost and productivity, but also continuing to invest in the long-term future of the business in innovation, in solution selling and customer intimacy. And as we add all of that up and look at the volume trajectory, that's where we end up with EBITDA guidance that sort of touches the end of our long-term range. So Dawn, do you want to pick up mix?

Yes. So Karel, if you remember, in the first half of last year, we did have very strong price mix. Obviously, at the half year, we had 13 points of price mix, roughly driven half inflation and half price mix. As we moved into quarter 3, we saw a similar trend, but it came off slightly. And then as we moved into quarter 4 and we set the new contracting round. And as we've talked about, we've set up that contracting round to drive volume growth. We also moved into a deflationary environment. So high single-digit deflation in quarter 4. We also selectively chose to invest with specific customers to drive long-term growth, but that is a small impact in the quarter. And as we look forward, we would expect to see high single-digit deflation particularly in the first half of the year. And as the volume momentum improves, we expect that to start to offset and more than offset as we move through the year, the selective investment that we've chosen to do with some customers.

Okay. So our next question is from Chris Pitcher at Redburn.

A couple of questions for me on the sort of the momentum in innovations and solutions selling. You increased spend by a double-digit rate in the first half. It was up 5% for the full year. So it's kind of flat in the second half. Is that because you've got to sort of level that you think is sustainable? And could you give a bit more color on what your R&D spend is doing? And then I appreciate it's modest changes, but the percentage of new business wins went down a bit at the full year versus the first half. I'm just wondering what's going on in the background. And last one, are you able to give us an absolute share of your business between what draft at the CMD between specification, technical sports and solutions? What is solutions actually the underlying business? I understand that the goal to get the new wins up to over 30%. But just I -- just clarify where we are on the base?