Future is sweet for Tate & Lyle’s new strategy
TATE & Lyle takes raw materials and turns them into food and drink ingredients that add taste, texture and nutrition to its customers’ products.
Following a shift in strategy a few years ago, the focus is on healthier ingredients and known markets.
Recent full-year results were strong and the £1.8billion of revenue benefited from mammoth price hikes.
Volumes took a dip, but profits jumped 22 per cent to £320million.
The outlook was positive too. Revenue and profit are expected to grow at mid-to-high single-digit rates next year.
The group’s making good on its promise to streamline operations and focus on the most profitable parts of the business. One example of the new strategy was the sale of the Primary Products business in 2022, which allowed core operations to focus more on speciality markets.
But Tate retained a holding in the business, in its new form as a joint venture called Primient. Last year was tricky, but demand looks robust and a successful round of price hikes means the outlook is promising. This will be a key driver of cash flow as dividends from Primient get passed on to Tate.
There are some challenges. Tate’s heavy reliance on corn to make its products, given that it’s a key export for Ukraine, means pricing uncertainty will be a risk moving forward. Cost-saving efforts should help and the efficiency programme is years ahead of schedule.
But passing these costs on to customers is often the most effective way to mitigate inflation. So far, the group’s been able to do this. Its focus on cleaner, healthier ingredients, a market that’s gaining momentum, should help support sales despite higher prices.
Acquisitions are a key part of the plan, as is research and development to create new products. Both avenues of growth will require cash.
If management can navigate the increasingly challenging environment, Tate looks to be in a strong position. The valuation, roughly 15 times expected earnings, is ahead of the longer-term average but doesn’t look too demanding.
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