Tate & Lyle plc

Good morning and welcome to the conference call for Tate & Lyle's Q3 trading statement. Your speakers today are Nick Hampton, Chief Executive, and Dawn Allen, Chief Financial Officer. I will now hand over to Nick Hampton for some opening remarks.

Thank you, Operator. Good morning, everyone, and welcome to Tate & Lyle's third quarter conference call. I will make some brief introductory comments, and then Dawn and I will be happy to take your questions. The group continued to deliver resilient performance in challenging market conditions. We continued to make good strategic progress with further new product momentum and a continued increase in investment in solution selling and innovation. Importantly, productivity, cost discipline, and cash delivery remained strong. In food and beverage solutions, volume and revenue were lower in the quarter, with revenue down 3%. This was due to softer consumer demand and customer destocking, reduced inflation pass-through, and some customers phasing orders into the fourth quarter. When new calendar year contracts, which included the pass-through of input cost inflation, deflation, came into effect, superlatives delivered an improved performance in the quarter. The renewal of customer contracts for the 2024 calendar year is expected to deliver a sequential improvement in volume growth as the year progresses. It's encouraging that with these new customer contracts in place and the phasing of some customer orders from December, we saw good volume growth in January. Turning to the outlook for the year ending 31st of March 2024, in constant currency, we expect to deliver revenue slightly lower than the prior year, with our EBITDA guidance unchanged at growth of between 7% and 9%. We also continue to expect stronger profits from our minority holding in premiums. With that, I will open up the call for questions.

Thank you. Ladies and gentlemen, if you would like to ask a question or make a contribution on today's call, please take note by pressing star 1. telephone keypad. To withdraw your question from the queue, please press star two. So again, that is star one for your questions today. And our first question comes from Patrick Higgins from GoodBuddy. Please go ahead.

Thank you. Morning, everyone. A couple of questions on my side. Maybe firstly, I suspect it's too early to speak more generally about the 2025, but could you maybe speak about your engagement with customers, whether it's in terms of innovation or promotional activity to try and reinvigorate consumer demand? And the second question, maybe could you just talk about SB&S's performance by region as well, please?

Sure. Thanks, Patrick, and good morning. As you say, a little bit early to talk too much about this calendar year, although encouraging signs of progress in January in the early part of the year. What we're seeing generally from customers is an increasing focus on starting to think about innovation and promotional activity. We're seeing some early signs, especially in Europe. We saw a little bit of that in quarter three. And And there's no doubt that, in general, fueling consumer demand as depletion starts to help is clearly a focus for many food and beverage players at the moment. And when we talk to them about innovation, innovation is both about consumer innovation to drive new demand, but also cost-effectiveness to help fuel demand through better pricing. And I suspect that'll be a theme for this year as we see, you know, deflation start to impact overall inflation and costs in the market. And of course, you know, deflation is helpful for us, it's helpful for consumers, and it's helpful for our customers. In general, to your question on spinning around the regions, I mean, basically in quarter three, we saw conditions very similar to the past one. And that's probably the key statement. And really, the difference in the revenue momentum was driven by primarily by a change in the inflationary impact on pricing. And, you know, just that except by some of the phasing between December and January. So no real significant change in overall momentum. But if you sort of spin around the world, in North America, pretty consistent retail trends in quarter three. Obviously, everybody's waiting to see what happens to the US economy this year. In Europe, as inflation started to come down, we did start to see a little bit of increase in promotional activity. And it will be true that coming into the start of this year, we're seeing a little bit of increased momentum in Europe. If you look at Asia, China remains soft in Q3. You know, we're just analyzing the outcome of the New Year holiday period, and that's more encouraging from an outlook perspective. There were record levels of travel in China over the holiday period. First time there was an increase since 2019, and we saw some increase in consumer demand through that period. And across Southeast Asia, more generally, things remain relatively robust, of course. We're seeing good engagement with customers in our new facility in Indonesia, for example. And in Latin America, we're starting to see the macro environment improve a little bit. So I think overall, some early signs of green shoots, and we just need to see how the fourth quarter or the first quarter of the calendar year evolves. That's great. Thank you.

Thank you. And up next, we have Damian McNeill from Numis. Please go ahead. Hi.

Morning, everybody. Just a few for me, please. I was just wondering if you were in a position to quantify the size of the decline in price mix and whether you can spit out mix within that as well in Q3 and then Just on your new product performance, I was just wondering whether you could sort of talk to whether you're winning, whether that growth is being driven by new customers or whether the nature of that growth is with existing customers and whether there's any sort of reason or skew to that. And then just finally, a general question on sort of the M&A environment. And I think it's over 18 months since the Quantum deal was announced. I was just wondering what the current backdrop was for M&A, whether you'd seen sort of any shift in vendor pricing expectations and whether there's sort of any material change in your pipeline and what you thought the cadence of M&A might be for the next couple of years. Great, David.

I'll probably actually take them in reverse order. It might be easier that way. So on the M&A environment, I mean, we're clearly starting to see some more movement on overall pricing expectations. I mean, typically that tends to lag a little bit with what's happening in the general market. Importantly, the M&A that we've done so far has integrated well, and we've been very focused on that over the last couple of years. And our focus on M&A remains the same, to strengthen our core platforms as we've done with the deals our geographic presence is as balanced as it can be given where consumer growth is likely to come. I think in terms of the pipeline, you know, we're working hard at the pipeline. We're encouraged by it. I mean, as you know, whether that means we prosecute any deals in the next 12 to 18 months is less certain simply because the timing is never certain. But we continue to work hard. And importantly, it's supplemental to the strength of the core business. And, you know, the other focus for us as we think about the next 12 months is to make sure we return the business to volume growth while driving good revenue and margin discipline. So that's just a lemonade lamp thing for you. On MPD, it's pretty broad-based. So, you know, when we look at the pipeline, it's a combination of new and existing customers. It's across all of the regions. Inevitably, there are always regional variations, but I wouldn't pick out anything that's particularly specific for you because the key for us, to be honest, is to make sure that we've got a broad, diverse pipeline across each of the regions with both new and existing customers. And then on your last point on... the impact of price mix, et cetera, in the quarter. I'll let John talk about that, please.

Yeah. So thanks, Damien. So in terms of SPS, clearly the revenue in the quarter was minus three, and there were three impacts or three drivers of that. The first one is clearly the volume. In the first half, we said the volume was minus eight, which was driven by softness in consumer demand and customer destocking. We've seen a continuation of both of those trends through the quarter, so very similar. The other two pieces Nick talked about it, one was the phasing in terms of orders from December into January. Customers waited for, you know, the new contact team, and the good news is all of that phasing came back in January. And the third piece is around lapping a high inflation from the previous year. So the differential year-on-year is clearly lower in Q3 than it was in the first half. And if you think about the quantum of some of those, so, you know, I think roughly half the same thing and the inflation lag. And within the inflation, slash mix, broadly half of that is lacking with the inflation piece and the other half is mixed. And I think it's important to say, you know, as you know, we have been on a journey in terms of resetting the business, you know, in terms of really being clear in terms of prioritizing customers, in terms of solution partnerships. And obviously, as we're coming through four to three, we are coming out of that that kind of phase and relapsing that, which kind of sets us up well, you know, as we move into calendar year 24.

Okay. That's great. Thank you very much.

Thank you. And up next, we have a question from Lauren Molyneux from City. Please go ahead.

Hi. Good morning, everyone. Thanks for taking my question. I was wondering if you could talk a bit on the performance being by category with SPS and across your business. Are there any categories which are performing particularly strongly or any areas of weakness? And is there any areas where you're seeing innovations coming to you and that demand for innovation, particularly concentrated pipelines anywhere? The second is on pricing. So obviously, given that you've priced the contracts for this calendar year, How should we think about the pricing element in SDS across your business into Q4 and across FY25? Those are my questions. Thank you.

So, Lauren, let me pick up the category point. I mean, actually, talking at the category level is often a little bit dangerous simply because you almost have to drill down into the subcategory. Because, you know, different subcategories are forming differently depending on, you know, the consumer environment. But in general, we've seen, you know, relative performance across our categories be pretty similar. We probably want it we're seeing a little bit, through the last 12 months, we've seen a little bit more softness in FSD, soup sauces and dressings. And we think in part that's driven by the de-stocking impact of country de-stocking with consumers. But in general, when we go down into our subcategories, we see some pockets trading into different things it just depends um almost on a region by region basis how that how that impacts the business but overall it's led to having revenue profiles you're looking at as we think about pricing coming into the new calendar year um as dawn said you know we've been on this journey to make sure we continue to improve the quality of our business from a revenue customer and a margin perspective. And that's the journey we've been on for the last two to three years. And we've talked about that a lot consistently over the last few reporting periods. As we go into next year, we'll be thinking very clearly about how do we balance on revenue and margin in the same way to continue to maintain the quality of the business. And on top of that, then you have to think about the significant deflationary impact. If you look at pricing going into next year, the deflation impact in this fourth quarter of our financial yield the first quarter of the calendar year 24 is actually quite significant I think dawn is something like five people business right so I mean clearly that has quite a big impact on the translation from bonds to revenue because so that we can manage our business mix appropriately, not surprisingly, as we go into the next year, we're rewarding customers with that loyalty by giving back the deflation in a consistent way.

Great. Thank you.

Thank you. And we're now moving to a question from Alex Sloan from Bad Place. Go ahead. Thanks.

Yeah, hi, thanks for taking the questions. The first one actually just to follow up on the comments there in terms of pricing for the quarter four, thanks for the clarity. So if five single digit decline, is it fair then to assume that within the updated full year revenue guide that we should be expecting that price decline in Q4 to be offset by maybe low single digit volume growth for the quarter? And the second one, you had talked about competition from low-cost competitors in Europe and LATAM. I guess has that continued in Q3? And what's the outlook on that front given the new prices for contracts in 2024? Would you expect that to change? to phase out given the new pricing. And then just a final one, just on the new pricing, is there any comment that you can make in terms of implications from the new contracts on unit margins? Have you had to sacrifice any more on price to ensure that volume recovery or was it kind of played out as you expected? Thanks.

Let me cover off the last two questions and then you can talk about the specifics on quarter four. So, firstly, on the competitive environment, we continue to see a pretty similar picture to half one and quarter three as things evolve. As we come into the new calendar year, clearly the reset of pricing and deflation will change that relative dynamic favorably in Europe. And then on top of that, I'd say we're also clearly seeing the geopolitical challenges across the world, most notably the conflict in the Middle East, making regional supply more important as well. So I think those two factors will shift things a little bit as we come through calendar year 24 and we'll see how that evolves. In terms of the new pricing, as I said earlier, I think ultimately our focus in renewing is to get the business back to holding growth and maintain unit margin. And the good news is as we come into January, we're seeing that volume momentum start to appear, even when we strip out the phasing impact between December and January. I mean, clearly contracting was more competitive this year because of the softer demand environment, and therefore it requires some flexibility in balancing out goals to return to volume growth and make any margins. And where necessary, we did selectively give back some margins. But I put that into the context of the big shift we've given in the business in the last three years, where we've been very conscious consistently of balancing off revenue and margins to deliver an overall attractive financial return. And that's what we're going to continue to look to do as we go through calendar year 24 and beyond. In terms of the specific strong course of four, revenue and pricing, Dawn, maybe you can pick that one up.

Yeah, so as we said, I mean, we have seen higher deflation. We are seeing higher deflation for quarter four than we were expecting, which is obviously why, you know, we've called the revenue to slightly lower than the prior year. In terms of, you know, in terms of the other factors around the volume, you know, I talked about the 8.5 of, in terms of SBS, in terms of the stock consumer demand of e-stocking that we saw through the first half into quarter three. As we move into quarter four, remember quarter four last time we started to see the e-stocking, so we would expect to lap that this quarter four. I think the consumer demand we talked about, you know, customers starting to stimulate that customer demand through promotions will need see how that plays through, how that will improve. I think the other thing to say, as we saw in January, we saw the benefits of the phased income back, but we also saw improved volume, momentum, and we would expect that to continue as we move through the quarter and as we move through the year.

Thank you.

Thank you. And we're now moving to a question from Karel Zooty from Kepler. Please go ahead.

Yes, good morning. Thanks for taking the question. And I missed the first couple of minutes, so maybe the question's already been asked. But anyhow, can you speak about unit margins in the joint friendship? Because here, obviously... Corn costs represent a bigger part of the total cost base. So how are things trending there and what's the outlook into the current calendar year? And then the other question is on sucralose. We saw quite a step up compared to the first half of the year, which suffered from high comparison days. Can you speak a bit what you're seeing in the sucralose market and the outlook for the remainder of the year? Thank you.

Sure. Carol, thanks. And thanks for those two questions, which actually weren't asked earlier. So, as you rightly say, we saw good momentum in the third quarter. That was consistent with our communication about some phasing in the first half. So if you take a step back in superlose, very pleased with the performance. We're just where we expect it to be. When we look at, you know, demand overall superlose, it remains very robust. And our customers value taking the aisle for our U.S. manufacturing base and all of the ingredient reputation management and quality and food safety we bring to the market. to the superclosed business. So for us, it remains a very, very steady generator of revenue, earnings, and cash flow, and that's consistent with the message we've given for a long period of time. So really on track, I would say, is the summary on superclosed. On premiums, as you rightly pointed out, Clearly, corn costs are very helpful in terms of improving or maintaining the competitiveness of that business. We've seen improved operating performance from premium pretty consistently through half one and quarter three after a more challenging year last year. And the business is very, very robust at this point with the contracting round for calendar year 24, supporting continued consistent performance in that business. So we're, as we said in our own statement, we're anticipating the positive benefit from that for the full year and consistent performance going into next year.

Okay, thanks. That's helpful. And on premium, the joint venture in Mexico where you kind of compete to sugar and with U.S. corn, how's the outlook there? The business must have or is that too simple?

Well, I think overall the premium business is performing as we hoped it would do. The regional variations clearly shift in and out. I'd say, you know, probably too detailed to get into the specifics of that.

All right. Thank you.

Thank you. And as a brief reminder, there is Star 1 if you'd like to ask a question today. Up next, we have Joan Lim from B&B Paribas. Please go ahead.

Hello. Just one question for me. So, you know, trying to summarize what you've been saying on the drivers of your guidance. So, we've got incremental volume improvement, less inflation recovery, and then price deflation. If I think a bit further into FY25, how should I think about the main drivers? Is it going to be more volume-led? Will pricing be negative? And how much, you know, will mix still be the same range as we've been seeing? Thank you.

Thanks, Jenna. Thank you for the questions. Let me give you the sort of the headlines on how we're thinking about next next year. And it's very consistent with the last three years, which is we're trying to balance our volume, revenue, and margins to continue to deliver an attractive growth profile for the business with attractive margins. If you think about the difference in this calendar year versus last year, clearly there's a big deflationary impact on pricing, which will get past three to customers in an appropriate way. And then the balance between volume and mix is what's going to drive the overall outcome of the business. As Dawn said earlier, and I said we're looking to contract for more volume, and we're looking to improve share, our share position, and we're looking to be balanced and disciplined about the balance between pricing, mix, and margin. The thing that we will learn much more about over the next few weeks and months is how the consumer environment improves. And that will really define actually the balance between volume, revenue, and margin overall. But as I said, early signs of that are encouraging as we exit laughing the beef stocking impact of last year and we start to see some movements in customer and consumer behavior.

Okay. That's helpful. Thank you.

Thank you. And as there are currently no further questions in the queue, I would now like to hand the call back over to you, Mr. Hampton, for any additional or closing remarks.

Thank you, Operator, and thank you all for your questions. So, in summary, look, we continue to navigate successfully this up year. Importantly, strong financial disciplines enabling us to maintain our EBITDA guidance and a strong balance sheet. We're encouraged by the outcome of the 2024 home year contracting round, which we expect to deliver substantial volume growth as the calendar year progresses. And looking ahead to the fourth quarter and into our 2025 financial year, we'll continue to balance delivering top-line growth, market share, and maintaining an attractive margin profile. Over the last three years, the quality of the business has improved significantly. solutions capabilities, we're well positioned to benefit from the long-term trends towards healthier, tastier, and more sustainable food and drink. With that, thank you for your time and questions, and I wish you all a very good day.

Thank you for joining today's call, ladies and gentlemen. You may now disconnect.