Tate & Lyle Plc – Global Producer Of Food And Beverage Ingredients

Tate & Lyle Plc is a British company with its number of offices spread across the world and large number of satisfied customer base for last several years. The company is engaged in producing food and beverage ingredients to the industrial markets globally. In the initial years, the business started as a sugar refinery business. Gradually, the management diversified the scope of operation and presently the business is specialised in producing different food and beverage materials.

The stock of the company is being traded  in London Stock Exchange and one of the constituents of FTSE 250 Index as well (Tate & Lyle, 2022). The company serves a legacy of operating in the food and beverage industry segment over last 160 years with millions of satisfied customer base globally.

In the year July 2021, the company announced a spinning of for Tate & Lyle Primary Products into a new company called as Primary Product Ingredient America LLC wherein KPS capital Partners will hold significant share along with the original management (KPS Capital Partners, 2022).

Some of the competitors of the company are Corbion, Ingredion, Archer Daniels Midland, Performance Food Group etc. All these companies are having their wide presence globally for many years (Craft.co, 2022). However, for the purpose of conducting a comparative analysis, Hilton Food Group has been chosen. The company is a supplier of food and beverage in the UK and many other countries across the world. The shares of the company are being listed in LSE as well.

In order to analyse the financial performance of the company, last five years’ significant financial data has been chosen from the latest available annual reports from the corporate website of the company. Based on the chosen data, financial ratios have been calculated considering five different parameters namely a) profitability, b) liquidity, c) solvency, d) efficiency and e) market performance.

Also, the relevant financial data of Hilton Food Group (herein after may be referred to as HFG) has been taken for last two years from the latest available annual report of the company (i.e. 2019 and 2020). The tables below show the significant financial data and financial ratios of both the companies accordingly. 

Table 1: Key Financial Data of Tate & Lyle for 2017 to 2021

(Source: Tate & Lyle, 2022)

In this context, it may be wise to note that the last five years significant financial data have been taken from the last year’s annual report and hence reclassified and regrouped have not been considered for each of the chosen 5 years namely, 2017, 2018, 2019, 2020 and 2021. In other words, it may be stated that the researcher has not verified the financial data from each audited annual reports but referred the chosen dataset from the last year’s annual report only wherein individual year’s reclassified have been ignored.

Table 2: Key Financial Ratios of Tate & Lyle for 2017 to 2021

(Source: Tate & Lyle, 2022)

It has been observed that the company has been able to increase the operating profit from 8 % in the year 2017 to 10% in the year 2021. Similar growth is further being substantiated from the increment of ROE from 14% in the year 2017 to 17% in the year 2021.

Stock information and presence

However HFG has the operating profit ratio of around 2% which is much lower than that of the chosen company. The contrary scenario has been observed for HFG in case of ROCE which stands at an average of around 30%, as compared to almost 16% in case of Tate & Lyle.

In terms of liquidity as well, it is being stated that the management of the company has been able to increase the current ratio significantly from around 1.53 to more than 2.34 during the period of last 5 years. The current liabilities to equity too have marginally reduced from 0.49 to 0.3 8 during the same period under review. Hence, it may be construed that the working capital policy of the company is efficient and the working capital is positive and standard in terms of industry benchmark of 2. From the given scenario, it may be considered that the management has been able to hold a significant amount of current asset to liquidate, if necessary, and thereby pay-off the immediate payment obligation in the form of current liabilities and still able to run the show by incurring daily and operational routine expenses (Chu et al, 2019).

The current ratio of HFG has been more than one signifying positive working capital situation. However, comparatively, it may be stated that Tate & Lyle may have more liquidity as against HFG with an average current ratio of around 2 maintained for last 5 years. They suggest that the management of Tate & Lyle has been efficiently managing working capital, operational budget and simultaneously provision for long term growth and expansion as compared to its competitors.

Solvency is another critical success factor for the business and the same shows the efficiency of capital structure of the enterprise. In case of given company, the gearing ratio has been reducing during the given period which shows the fact that the management has been cautious to pay off its debt obligation and thereby reduce the finance risk on the business. However, the increased interest cover establishes exactly the opposite scenario. The increase of interest coverage from 7.28 in the year 2017 to 9.57 in the year 2021 may reflect the scenario that the management should be more cautious to pay off its debt obligation and thereby optimize the capital structure, reduce the finance risks and consequently ensure the operational sustainability of the business for the long term.

HFG, on the other hand, has been aggressively relying on debt which runs the risk of insolvency in future. The interest coverage for HFG is also lesser than that of Tate & Lyle signifying finance risk for HFG in the long term.

Asset utilisation is another critical aspect for any business and the same may best be assessed with reference to asset turnover ratio. In case of chosen company, it is being observed that the management has been able to use its net asset efficiently for the purpose of business. An average turnover ratio of approximately 1.00 may establish the fact that the management has been able to use the business asset base effectively to earn revenue. In other words, as per the version of ALI and FAISAL (2020), every one unit of business asset is being used to generate one unit of business revenue denoting a basic level of utilisation of the business asset. In terms of collection policy of the management as well, it may be observed that the collection period has been increasing marginally and consistently during the given period. Initially, it was around 35 days which has increased to almost 45 days in last 5 years. In other words, the given scenario may depict the fact that the management has not been able to collect and monitor the aging of receivable and thereby maintain an efficient debtor turnover ratio for the business.

Competitors

Asset has been well utilised by the management of HFG which is reflected in the asset turnover ratio of the company as well. Similarly, the receivables have also been well managed in terms of ageing and collection policy. Hence, it may be stated that working level efficiency has been observed in HFG in better fashion as compared to Tate & Lyle.

Growth of a company stock may be based on several internal as well as external factors. Since, stock market is a volatile area where market sentiment and lot of other externalities may play a vital role in impacting the stock price of a company, it will be critical for the analysts to assess the market performance of a stock solely based on the financial ratios. In financial ratios, however, dividend is being considered to be one of the most widely used and considered themes for the analysts to consider while assessing stock performance of a company. It is being well observed that the stocks which are paying dividends are more attractive in the stock market among the investors. Quite naturally the logic here is that if the investors buy the stocks, they will be able to get their return on investment by way of getting dividend out of the shares.

An insight into the financial statement of the company may reveal the fact that dividend per share has consistently been increasing from 28 pence in the year 2017 to 29 in the year 2019 and consequently finally 31 in the year 2021. In other words, the earning per share has slightly reduced during the given years and hence, dividend cover has also been reduced. In short, it may be observed that the current stock is a growth stock and therefore has a higher attractiveness in the market as compared to its other competitors. In terms of price earnings ratio as well, it may be observed that the same has been fluctuating with a growth prospect for the long run. The fluctuation may primarily be attributable to the fact of latest pandemic situation. It is being expected that in the long run the growth will be observed and the stock price will increase consequently.

P/E has been marginally declining in case of HFG which shows non-attractiveness of the stock on the stock market, among the investors. Though such decline has also been observed in case of Tate & Lyle, the overall growth prospect may be construed to be positive for both the stocks in the long-run.

In the opinion of Hayati et al (2020, January), in terms of non-financial considerations, it may be recommended that the investors should consider the aspects affecting the operations, especially relating to market dynamics such as the competition, regulatory changes and the shift in the demand and supply horizon in the industry etc.

In terms of Brexit, it may be observed that the company had been actively advocating for Brexit as the sugar production and distribution could have been more centralized and the company would have gained a significant control over the sugar market, if UK would have left the EU and consequently its trade protection (Roberts, 2017). However, post-Brexit, the company managed to sustain and grow in steady manner. However, the pandemic situation affected the globe soon and the company was also no exception to the same. It has been observed that the global food habits have been rapidly changing and people are leaving towards hygienic and healthy foods rather than junk foods. Since the healthcare costs are also on the higher side, the green foods have been gradually taking over the fast foods and as a result, plant-based foods have been becoming the trend. The changing food consumption landscape may provide opportunity for the company’s the plant-based ingredients and green solutions are ingrained within the corporate philosophy (Tate & Lyle, 2022). As a result, it has been observed that the company’s profit increased by 12% and 5% respectively from food and beverage solution segment and primary product segment for the year 2021 (Twitter, 2022).

Financial Performance Analysis

Based on the aforesaid recommendations for the management, it may be finally advised to the prospective investors to buy the stock of the company as the same will have growth prospect in the long-run.

The books of accounts have been prepared as per International Accounting Standards and in association with Companies Act 2006, denoting the fact that the reporting quality has been in compliance with the relevant statute. The books of accounts have been prepared in line with the relevant statues which may show that the reported income and earnings are in compliance and within the environmental, and taxation related regulatory regime. The tax provision has also been well made showing the same under the short-term payment obligations the business as part of the disclosure requirements of the Act.

In case of HFG as well, it may be observed that the financial statements of the company have been prepared in accordance with the relevant provisions of the Companies Act’ 2006 denoting the quality of reported earnings and income to be in compliance with the statutory pronouncements.

Conclusion and Recommendations

Conclusion

Financial ratios are being widely used by the analysts and researchers across the globe for last several years in assessing companies’ performance. However, the use of financial ratios may suffer from certain inherent limitations which are being discussed in brief in the subsequent sections of the paper. However, it may be stated that in spite of such limitations, the financial ratios are being widely used as the same is easy to calculate and interpret. Also, financial ratios may provide a holistic overview about the financial performance of a business at a quick glance. Finally, it may be concluded that a well-designed financial ratio set considering profitability, liquidity, efficiency and other factors will help analysts to assess the performance of the business efficiently. Also, the researchers should note that any market related factors affecting the business performance should be considered while assessing and projecting the future performance of a business. Only then, the assessment will prove to be fruitful and tenable in the long run in most time and cost-efficient manner.

Based on the aforesaid discussion, it may be stated that comparatively both the companies have been performing reasonably well in their industry segment. The average of all the ratios so computed above may reveal the comparative position of both the companies in terms of ranking. The table below in the appendices shows such comparison in brief.

It has been observed that the operating profit ratio is more in Tate & Lyle whereas, return on capital employed is more in HFG. Also, the liquidity is more in case of Tate & Lyle and the solvency position and capital structure has been efficient in the company which may be substantiated from the fact of high interest coverage as well. Though the asset utilisation has relatively on the lower side as compared to the HFG, the collection period has been reasonable and it is expected that the company will be able to pay off its short term payment obligation, pay the dividend and thereby satisfy the stakeholders associated with same in most effective manner. Hence for the investors two recommendations may be provided.

• For short term investors, it is advised to buy the stock, use the benefit of arbitrage or intraday trading and thereby attain short term capital gain due to the fluctuation of stock price.
• For long term investors, it is recommended that they should also go for investing in the stock for the period of 5 to 10 years so that in the long run the business will get more stabilized scenario in terms of political and economic environment, be able to manage receivable and working capital in better fashion. So it may finally recommended that the stock of Tate & Lyle should be invested in as compared to HFG

The report is based on latest available financial data (2017 to 2021) and hence, it may be argued that the analysis may reflect the current financial performance in terms of a holistic idea and overview of the operation of the business. Also, the report is written in simple English with professional structuring and referencing. As a result, the same may be used by other researchers for their subsequent research work as well.

The report is solely based on the financial ratios which are alleged to be suffering from certain limitations. First of all, financial ratios are based on audited financial data which are prepared on historical cost basis. In other words, financial ratios provide a post-mortem analysis and hence may not reflect the current market position.

Secondly, in continuation to the previous statement, it may be stated that any other market related factors may not be captured in financial ratios. For example, recession, inflation etc are not being considered in financial ratio horizon.

Thirdly, it may be conceived that the financial ratios do not portray the qualitative factors affecting the overall performance of the business. For example, the quality of human resource, efficiency of leadership and management, competition in the market, government regulations impacting the overall operation performance of the business are not being captured in financial ratios arena.

References

ALI, A. and FAISAL, S., 2020. Capital structure and financial performance: A Case of Saudi Petrochemical Industry. The Journal of Asian Finance, Economics, and Business, 7(7), pp.105-112.

Chu, Y., Diep-Nguyen, H., Wang, J., Wang, W. and Wang, W., 2019. Simultaneous debt-equity holdings and the resolution of financial distress. Kelley School of Business Research Paper, (18-66).

Craft.co. 2022. Competitors. [online] Available at: <https://craft.co/tate-lyle/competitors> [Accessed 21 March 2022].

Hayati, I., Saragih, D.H. and Siregar, S.S., 2020, January. The Effect Of Current Ratio, Debt To Equity Ratio And Roa On Stock Prices In Sharia Based Manufacturing Companies In Indonesia Stock Exchange. In Proceeding International Seminar of Islamic Studies (Vol. 1, No. 1, pp. 276-290).

Hiltonfoodgroupplc.com. 2022. Hilton Food Group – Home. [online] Available at: <https://www.hiltonfoodgroupplc.com> [Accessed 22 March 2022].

Hiltonfoodgroupplc.com. 2022. Hilton Food Group – Investors. [online] Available at: <https://www.hiltonfoodgroupplc.com/en/investors/> [Accessed 22 March 2022].

KPS Capital Partners, L., 2022. KPS Capital Partners To Acquire Controlling Stake In Tate & Lyle’s Primary Products Business In North America And Latin America. [online] Prnewswire.com. Available at: <https://www.prnewswire.com/news-releases/kps-capital-partners-to-acquire-controlling-stake-in-tate–lyles-primary-products-business-in-north-america-and-latin-america-301331285.html> [Accessed 21 March 2022].

Roberts, D., 2017. ?Sweet Brexit: what sugar tells us about Britain’s future outside the EU. [online] the Guardian. Available at: <https://www.theguardian.com/business/2017/mar/27/brexit-sugar-beet-cane-tate-lyle-british-sugar> [Accessed 28 March 2022].

Tate & Lyle. 2022. About us. [online] Available at: <https://www.tateandlyle.com/about-us> [Accessed 21 March 2022].

Tate & Lyle. 2022. Annual Reports. [online] Available at: <https://www.tateandlyle.com/investors/annual-reports > [Accessed 21 March 2022].

Tate & Lyle. 2022. Global trends and COVID-19. [online] Available at: <https://www.tateandlyle.com/news/global-trends-and-covid-19> [Accessed 28 March 2022].

Twitter. 2022. Tate & Lyle Results. [online] Available at: <https://twitter.com/tateandlyleplc/status/1397796656557563904> [Accessed 28 March 2022].

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