Tate & Lyle plc

Good morning and welcome to the conference call for Tate and Lyle's first half pre-closing statement. Today's call is hosted by Nick Hampton, Chief Executive Officer, and Sarah Gowers, Chief Financial Officer. I will now hand over to Nick Hampton.

Thank you, Operator, and good morning, everyone. Welcome to the conference call. I will make some introductory comments, and then Sarah and I will be happy to take your questions. First, I want to look at the bigger picture. We continue to make very good progress delivering the benefits of the CP Turbo combination. Customers are increasingly recognising the strength of our combined portfolio, especially our expertise in mouthfeel, and this has led to a very encouraging early cross-sale successes, with the value of the pipeline more than doubling in the last two months alone. The strong interest our combined offering and reformulation expertise is generating with customers, clearly demonstrates the strategic logic of bringing Skeptate and Lyle and CP Calco together, and reinforces our confidence in the growth potential of the combined business. While the level of customer engagement is high, we are operating in a tough market and have seen a slowdown in demand as the first half progressed, particularly over the last few months, which in turn has slowed our recent performance. We are seeing different dynamics across each region, In the Americas, we expect revenue in the first half to be slightly lower, reflecting softer consumer demand, making North America still our largest market. In Europe, Middle East and Africa, revenue is expected to be mid-single-digit lower, despite slightly higher demand. In Asia-Pacific, revenue is expected to be broadly in line after absorbing the impact of tariffs, which we continue to navigate well. Against this more challenging backdrop, we are accelerating a series of steps to drive delivery of top-line growth. These include investing in enhanced customer segmentation, further strengthening our customer-facing capabilities, such as solution selling, applications, and marketing, working even more closely with customers to accelerate innovation through technology, and optimizing capacity in our manufacturing network to accelerate productivity. The margin of the TPP portfolio is expected to improve further in the first half. Trans-revenue and cost synergies and delivery of savings from our productivity programme remain on track, and demand for superlatives continues to be strong. Overall, then, for the first half, in constant currency, and compared to the pro forma comparatives, we now expect group revenue to be 3% to 4% lower. Reflecting this top-line softness, the investments we continue to make for growth and the planned weighting of cost images into the second half, EBITDA in the first half is now expected to be high single-digit percent lower. We will provide a more detailed update on the business and the actions we are taking when we announce our half-year adults on the 6th of November 2025. Turning to the full-year outlook, while we anticipate the near-term market demand environment will remain challenging, we expect performance to improve as we move into the fourth quarter. This will be driven by the acceleration of actions we are taking to drive delivery of top loan growth and increasing benefits from the CP Club accommodation, including an acceleration in cross-selling, the migration of distribution relationships to a direct service customer model, and delivery of cross-sellages. Therefore, for the year ending 31 March 2026, in constant currency, And compared to pre-former comparisons, we now expect revenue and EBITDA to decline by no single-digit percent compared to the prior year. In summary, then, in April we started to operate as one combined business. Since then, we have made real progress setting up the business for future growth, while also operating in a period of considerable economic volatility. The benefits of the combination are clear to see. Looking ahead, the fundamental growth drivers of our business remain strong. Consumer demand for healthier and more nutritious food and drink continues to grow, and our expertise in food and drink reformulation and our leading positions across sweetening, mouthfeel and fortification mean we are well positioned to capture this growth. To conclude, we are determined to accelerate top-line growth and are fully focused on the success of using the benefits of the CP-Calco combination.

With that, I will open up the call for questions. Thank you, sir. Ladies and gentlemen, if you wish to ask a question at this time, please signal by pressing star 1 on your telephone keypad. And please make sure the malfunction on your phone is switched off to allow you to signal to reach our equipment. If you wish to cancel your request, please press star 2. Again, it is star 1 to ask a question. We will pause for just a moment to assemble the queue. We'll now take our first question from Matthew Webb from Investec. Please go ahead.

Thank you. Good morning, everyone. I wonder if I could start off by just asking about the split of the revenue decline both in H1 and expected for the full year between volume and pricing. And I suppose I'm particularly interested in the extent to which the weakness in volume demand has had the knock-on effect on pricing and what sort of the competitive behaviour has been as well as a result of that weakness. That's my first question.

Okay Matthew, good morning. Thank you for the question. Obviously overall we're seeing a lack of consumer confidence in Scottish markets and the dynamics across regions are somewhat different. So In North America, we're seeing pretty broad-based category softness, fueled by inflation and tariffs, I think. But we're seeing a relatively balanced pricing environment. So we're broadly in line, slightly positive. In Europe, as we said when we did our full-year results, we consciously invested some price in driving volume momentum. So in Europe, we're actually seeing this slight volume momentum, but some price in decline. And in Asia, we're seeing relatively muted demand with some pricing pressure, especially driven by softness in China.

Yeah, got it. Thank you. And then I wonder if you could perhaps try and separate out the impact that tariffs have have had here on the reduced guidance. Is that a big factor? And I suppose there, I mean, more about the direct impact of tariffs on you rather than the sort of broader impact of tariffs on consumer demand.

You're asking the right question, of course, because the second-order impact on consumer confidence is difficult to measure, but clearly we're seeing that, especially in North America. And overall, the team is navigating... the tariff situation well, given that it's still bumping around a bit. It's relatively uncertain. And we're focused on customer supply security, recovery of tariffs where possible, and alternative supply routes. So if you look around the world, we said at the full year that about 2% of our revenue shipped into China was being impacted. There's a little bit going the other way. The other thing that's happened is the significant imposition of tariffs on Brazil. because we ship pets from out of Brazil into North America. So, you know, we think, and again, it's very difficult to be precise when you look at supply rates. Probably, you know, 3% to 5% of our revenue pre any mitigation is being impacted by tax because of the flow of goods. As I said, we're mitigating that in various ways. So I would think about it in that kind of way.

Right. Okay. Thank you. And then, sorry, final question. Clearly the deterioration in the market environment, as you've said, has been a relatively recent thing, or at least has become worse of late. And I wonder, therefore, how much confidence and visibility you've got in the ability to improve your performance in Q4? It just sort of feels like you're slightly swimming against the tide there. How confident can you be that we will see that improvement?

So we're not assuming any near-term improvements in the market environment. Because until we see that, then we shouldn't be building that into our submissions. However, what we are clearly going to see in Q4 is the benefits of the combination starting to flow through. So if you remember, we always said the the cross-selling benefits, the distribution to direct benefits would only start to flow towards the end of the year. And we have very clear line of sight to those. And we're also seeing the pipeline building on our solution selling portfolio because of the benefits of bringing the two portfolios together. So we're really assuming any improvements in quarter four is coming from the benefits of the combination flowing through more fully. and the actions we're taking to accelerate growth regardless of the environment we're operating in.

Well done. That was really helpful. Thanks, Nick.

Thank you. We'll now take our next question from Patrick Higgins from Goodbody. Please go ahead, sir.

Good morning, everyone. A couple of questions, if I may. Firstly, just in terms of, I guess, that innovation pipeline, and you touched on it there, Mark, but Nick, sorry, but maybe you could just elaborate on Like one of the things we've heard from a lot of, you know, customers of yours or, you know, peers is, you know, the pipeline and the demand from an innovation perspective, particularly in the U.S. as reformulation really starts to kick in, has never been stronger. So be interested to hear comments on that. And secondly, a lot of apologies, I didn't hear all of your prepared remarks, but on sucralose, could you maybe just give us a comment in terms of how that business is trending, how much of the you know, the softness you call that today is related to that business.

So let me take your second question first on superclose. We're still seeing very strong demand for superclose because of what we do. We've talked about this a number of times and, you know, put simply, we're pretty much selling everything that we make. And whilst there's been some noise on superclose in the market recently, we're seeing very strong, robust demand and continue to see that. So that's pretty clear. On your first point, yes, we are seeing strengthening of the pipeline. And a lot of that is to do with the benefits of doing the combination together as well. I think the question we're still asking ourselves internally is how fast that pipeline converts in an uncertain consumer environment. Because what we're seeing at the moment is a lot of relative pricing in the market versus innovation. So the question we can't answer yet is the pace of conversion of that pipeline. The win-success rate is very good, actually, in the pipeline we're looking at. When those products come to market, it's still less certain, I would say. Great, great.

Thank you. Thank you. Well, now we'll turn to our next question from John Lin from B&T Paribas Exxon. Please go ahead.

Morning. A couple of questions from me, please. You mentioned you were taking a series of actions with customers. I was wondering if you could help providing more color as to how the conversations look like, what else you're doing with the customers. So that's my first question. And second question was the categories. In terms of categories, I know you said broad-based softness in North America. But I wondered if there were any beverages or specific categories you could call out in terms of latest color on market trading. Thank you.

So let me take the second question first. We're actually seeing pretty consistent softness across our key categories currently. I wouldn't call any out specifically at a macro category level. Clearly when you go when you go double-click one level below into subcategories, we're seeing more slightly healthier demand for the better-for-you type part of the portfolio. But overall, there isn't a significant difference across the core categories that we always talk about serving. And we're obviously continuing to track that closely as we go forward. In terms of what we're doing, the benefits of the portfolio clearly allow us to think differently about how we serve our customers. And a big part of that is, frankly, working through which customers we want to double down our efforts on. So where do we see the most growth and how do we deploy our resources with the right ammunition to accelerate growth for the customers where we see most opportunity? So we're doing a lot of work on segmenting our customers both globally and locally to deploy our resources as effectively as possible. And at the same time, making sure that based upon what we're seeing in terms of consumer demand and consumer trends, we're building the ammunition and the solutions focused on those areas of consumer opportunity. And we'll talk more about that when we do our PA results in November.

Sorry, can I just follow up on that? So you mentioned customers locally and globally. Are you seeing a difference between the local and regional customers and the bigger customers?

I mean, as always, when you go across the world, you see different behaviors. I wouldn't call out a specific trend that's global versus regional. It's just more important for us about making sure in each region we're working with the right customers because of how they're building their businesses locally. And that can vary, global customers versus regional.

Okay. Because I think that global customers have been losing share to the local and regional who might be growing faster.

So I wonder if there were any... It's important that we build a balanced focus across all customer types to make sure we're focusing on where we see most great potential.

Okay. Thanks. And then on your drug-based category softness, was it just in North America or was it across regions?

Specifically referencing to North America in the more recent months. I mean, we are seeing varying cash flow dynamics across the world. In Latin America, we're seeing stability in Brazil, some softness in Mexico. Across Asia, we're seeing relatively muted demand, but there are opportunities in places like health and wellness. In Europe, we're seeing relatively stable demand with opportunities in categories like varying clean labels. The points I made earlier in some ways about customer segmentation, you have to look at it region by region and get a sense of where the key trends are.

Okay. Thank you very much.

Thank you. We'll now take our next question from Alex Sloan from Barclays. Please go ahead.

Hi, thanks for taking the questions. One is a follow-up in terms of the assumptions in the second half. It sounds like you're not assuming much in the way of improvement, inflection in underlying market conditions from a volume perspective. What are you assuming in terms of the pricing round? I guess weaker demand probably doesn't doesn't bode that well there. So have you been conservative in your assumptions there? And I guess the overarching question there is, you know, how confident can we be that this is kind of, you know, one and done? Or is there more risk to the revised full year guidance? And the second question, I think you've prepared the marks. You talked about CP, Calco margins, moving higher in the first half despite obviously the fact that the group profits are going to be down by single digits. Is it fair to assume that more of this pressure is being felt in the legacy Tate FBS business than CP Calco?

Thank you. So on your first question Alex, I'll obviously be very early in the the framework agreements we're building for next year with customers, and that process will continue through the next few months. We've been relatively conservative in our assumptions for the contracting round at this point in the year, and as always, we'll give you more color on that as the round evolves. On the CP Calco margin point, yes, we are seeing improvements in everybody's margin level. You have to remember, of course, that we're not measuring profit margins separately across the two businesses at the moment because they're integrated. So to a certain extent, some of the investments were making the business sit below the gross margin level. But it would be fair to say that we have seen some pressure on the legacy taking our business, especially because of the pricing, which has put back into the market in the last round.

Okay, thanks. And maybe just if I could speak in one more, just in terms of the Brazil tariff situation, that's obviously kind of relatively newer. I think those kicked in in August. Could you give a bit more colour in terms of how you're mitigating that and what impact that has had? I guess what impact you're assuming that has for this whole year?

Thank you. So roughly about... 1% of our revenue is shipped out of Brazil into North America. We are shifting supply routes to source more out of Europe because, of course, we've got kept in manufacture in Brazil and in Europe. And, you know, obviously, where possible, we're passing tariffs through. So, you know, we've assumed a rebalancing between Brazil and Europe and, you know, an appropriate level of, costs associated with the tariff shipping into the US that's built into the overall assumptions we've given you today.

I think it may be linked to that as we navigate through tariffs obviously we are really focusing on having the right products for the customer in the right place which impacts our supply chain and I think that leads to an inventory level which is not yet optimal And that will come later, but obviously it's that the prime focus is the right products in the right place for our customers.

Thank you. And maybe, sorry, just one more. Obviously, you've done well over the last few years in terms of driving customers productivity savings you know if the outlook actually does deteriorate further is there is there more you can look at on this front absolutely we will continue to you know drive productivity hard as you say we've got a very successful track record and the overall the program that you announced

a couple of years ago is running ahead of Target. So we'll continue to double down our efforts on that. And, of course, as we learn more about the potential of the combined business, we'll ensure and unearth more opportunities that will help with fueling the business.

Thank you. Thank you. We'll now move to our next question from Daniel McNeill from Deutsche Unis. Please go ahead.

Morning, everybody. A few from me, please. Firstly, just on the demand outlook, I think in North America you're ascribing the slowdown to worldly economic factors. I'm just wondering to what extent do you think GLP and consumers just eating less is impacting this and how we should think about that when we think about our medium-term expectations in that business is the first question. Second question is on Shukalos. Now, I hear what you said around the sort of current trading of Shukalos, but what do you think the risks are around changing regulatory sentiment towards high-intensity sweeteners and how Shukalos positions to deal with that? And then I guess the final question is perhaps for you, Sarah. Given the sort of downgrades we're sort of looking at today and the sort of increased talk about de-stocking across the sector, how should we think about cash generation for the full year?

So, David, on the demand outlook, I would say the facts that we're seeing here are significant consumer inflation in price in North America. So, if you look at the retail sales data, whilst volume is down, value is up quite significantly. And that's always a big driver of relative demand. On GLP-1, no doubt it's changing the way people eat. And as we talked about in our capital markets event a couple of months ago, we see that as an opportunity for reformulation over time because of the need to provide more nutritionally balanced and dense food for those on GLP-1 and then to provide healthy alternatives when they come off the drug. So we're looking at two events of opportunity. Obviously, we'll see how that plays out. When I look at the data, it looks like the price inflation is driving significant pieces of the volume softness in the near term. On your question on C-Close, there's been a continual increase pressure on high intensity sweeteners for a number of years and we continue to see the demand for sucralose especially to be very robust and growing across the world and that's a trend we've seen for the last 10 years so we're very confident about the outlook for our sucralose business especially as we are very focused on customers who really value what we do and we're capacity concerned at this point however were there a decrease in demand for high intensity sweeteners, that's the power of the overall portfolio. Because we have other sweetening solutions in the business that can replace high intensity sweeteners and provide the same kind of impact, albeit that there's often a cost trade-off there. So if you take a high intensity sweetener out, you've got to put something else in. And our natural... senior solutions like Stevia can really play against that trend should that happen. So I think the portfolio balance here is really important and the way we position our quality of business is really important when you think about the future.

And then Damien on cash, of course we continue to focus on cash and continue to focus in on target cash conversion 75% and the reduction of our leverage. However, as per one of the earlier questions, We've got to acknowledge that the working capital is going to take a bit of time to be optimized because given the volatility in the tariff environment, that doesn't help optimizing our inventory position. At the moment, absolutely, we're focusing on getting inventory in the right place to support the customers. And obviously, we'll talk more about where cash lands on November the 6th for our H1 results.

Okay. Thank you very much, both of you.

Thank you. As a reminder, if you ask a question, please email by pressing star 1. We're going to move to our next question from Lisa Deneva from Morgan Assembly. Please go ahead.

Hi. Good morning. I have two questions, and one is a bit of a follow-up on the demand comments you've made. So can I just ask you to which extent, I mean, CPGs are being here much more cautious in their purchases and are either mimicking the underlying market, or are they actually being a lot more cautious than perhaps the softness we're seeing in the market. I'm just trying to understand and disentangle what's driving this demand weakness. Because my understanding is that the North American market and global food and beverage market is trending broadly flattish, with CPGs, the big ones, being down. And I'm just trying to understand, is it just CPGs being even more cautious on their purchases and managing their inventories? Is it specific ingredients where you see softer demand? and it would be great to get a little bit more granularity on this. And then secondly, as a bit of a follow-up on the free cashier question, in the light of this sort of softer year for you, and it's very much across the sector, but just talking about you, I mean, how committed are you to the dividends? Thank you.

So on your points on CPG and those amounts, we've clearly seen a decline in volumes in North American retail in the last quarter. So that's a clear trend we're seeing. Whether that's then impacting customers' inventory levels and how they think about that is a bit early to tell, but we're certainly seeing a reduction in demand in the near term. As you rightly correct, more broadly across the world, things are are relatively more stable, not growth, but stable. Now, that's a gross generalization because you have to look market by market, but the thing we've really seen in the recent couple of months or so is a notable slowdown in North America. On your question on the dividend, the board has a very clear capital allocation structure, framework, and has been committed to a progressive dividend for the last 10 to 15 years. So we're absolutely committed to the dividend and the board will continue to appraise the capital allocation framework as normal as we go forward.

Thank you very much.

Thank you. It appears there are currently no further questions today. So, with this, I'd like to hand it over back over to the Captain for any additional or closing remarks. Over to you, sir.

Thank you, Operator, and thank you for your questions. So, in summary, we continue to make good progress for delivering the benefits of the CP-Calto combination. Customers are increasingly recognizing the strength of our combined portfolio, and the cost-selling pipeline has more than doubled in value over the last two months. A slowdown in market demand has impacted our recent performance, and we are accelerating actions to drive top-line growth. Looking ahead, the fundamental growth drive of our business remains strong. Consumers' demand for healthier and more nutritious food and drink continues to grow, and our expertise in food and drink reformulation means we are well-positioned to capture this growth. We are determined to accelerate top-line growth and are fully focused on successfully delivering the benefits of the combination. Thanks for your time and questions, and I wish you all a very good day.

Thank you. This concludes today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.