Half year underlying revenue grew 20% to £849m, reflecting growth in all business segments. The group's been able to mitigate cost inflation with a range of initiatives and underlying operating profit grew 29% to £137m. Underlying profit before tax rose more slowly, up 10% to £139m, but this was a temporary reflection of lower Primient joint venture profits following the sale of a large stake last year.
Food & Beverage was the standout, with double digit organic growth across all regions and a 13-percentage point benefit from higher prices. Underlying volumes were up 2% as customer demand remained "robust". Sucralose saw volumes up 9%, helping revenue rise 12%.
The group generated free cash of £62m, which helped net debt fall £345m to £281m.
The board has approved an interim dividend of 5.4p, a 40% drop reflecting the smaller earnings base after the sale of the controlling stake in Primient.
Full year guidance remains unchanged, with the group expecting revenue growth and underlying profit before tax of around £244m.
The shares rose 3.0% following the announcement.
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Our view
Tate & Lyle's shift, from golden syrup and treacle to sweeteners and thickeners, looks to be yielding some strong results. First half sales and profit popped, as demand remained resilient and a host of cost saving and pricing initiatives kept rising costs at bay.
The group's making good on its promise to streamline operations and focus on the most profitable parts of the business. The margin benefits are already being seen, an underlying operating margin of 16.2% over the first half is a step up from the 14.3% seen this time last year.
We'd expect that to taper over the second half though, as has been the case historically. Digging into management's comments, revenue is expected to grow around 20% this year with analysts estimating an underlying operating profit of £207m. That suggests margins of around 12.5% for the full year.
There are challenges, not least is Tate's heavy reliance on corn to make its products, and given that's a key export for Ukraine, pricing uncertainty will be a risk moving forward. Cost saving efforts should help with this. The group's delivered more than expected through its efficiency programme years ahead of schedule. A further £15m in savings is expected this year.
But passing these costs on to customers will be the most effective way to mitigate inflation. So far, the group's been able to do this, and is making provisions to continue doing so if prices rise further. Its focus on cleaner, healthier ingredients - a market that's gaining momentum - should help support demand even in light of elevated prices.
The focus on a growing market is a positive step in our view. Acquisitions are a key part of this plan. The purchase of Quantum, a Chinese daily fibre maker, is an example of this. While we're supportive overall, and can't deny the growth opportunity, execution risk hangs heady in a Chinese market that's seeing prolonged uncertainty.
The sale of Primary Products, and the associated lost income, meant management's now setting its progressive dividend policy from a lower base. This should help keep the dividend payments more manageable for Tate, but please remember dividends are variable and not guaranteed.
At first look, the new Tate & Lyle looks pretty sweet. As long as management are able to navigate the increasingly challenging environment, Tate could be in a strong position. So far, the group looks capable of doing just that. The valuation, roughly 14 times expected earnings isn't too demanding. But it's beyond the long-term average suggesting expectations are high and there are no promises.
Tate & Lyle key facts
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