Tate & Lyle reported full-year revenue of nearly £1.8bn, reflecting underlying growth of 18%. Higher prices were the key growth driver, more than offsetting an 11% volume decline. Food & Beverage Solutions was the standout division.
Underlying cash profit (EBITDA) rose 22% to £320m, with cost inflation offset by pricing and cost savings.
Free cash flow improved by £47m to £119m. Net debt more than halved to £238m, with the balance sheet benefiting from the disposal of a controlling stake in Primient.
For the new year, revenue is expected to grow 4-6%, with a 7-9% rise in underlying cash profit.
The board has recommended a final dividend of 13.1p, up 2.5%.
The shares rose 2.2% in early trading.
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Our view
The new and refreshed Tate & Lyle delivered strong results despite a challenging backdrop. Mammoth price hikes may have caused volumes to dip, but that won't be much of a worry given the big jump in cash profit, and there's more wiggle room built into contract pricing, should it be needed.
The outlook was positive too. Revenue and profit are expected to grow in line with the medium-term targets next year - that should be a tick higher than analysts were forecasting.
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 cash profit (EBITDA) margin of 18.3% over the year was a step up.
There are some challenges, Tate's heavy reliance on corn to make its products, and given that's a key export for Ukraine, means pricing uncertainty will be a risk moving forward. Cost-saving efforts should help with this, and the efficiency programme is years ahead of schedule.
But passing these costs on to customers is often the most effective way to help mitigate inflation. So far, the Group's been able to do this, and its focus on cleaner, healthier ingredients - a market that's gaining momentum - should help support demand despite charging higher 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 dietary 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, now in the form of a joint venture called Primient, was part of the solutions led revamp. Retaining a large stake means Tate still has interests here. Last year was tricky, with performance hurt by operational challenges and higher costs. But demand looks robust, and a successful round of price hikes means the outlook is promising. This'll be a key driver of cash flow as dividends from Primient get passed on to Tate.
At first glance, the new strategy looks to be progressing well. If management can navigate the increasingly challenging environment, Tate looks to be in a strong position. The valuation, roughly 14 times expected earnings, isn't too demanding. But it's beyond the long-term average, so there's an expectation to deliver, and there are no promises.
Tate & Lyle key facts
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