P R O JE C T T O T E N H A M

Financial Analysis on Tate &

Lyle plc
For Examination Purposes 4 December
2009
 Analytical Objectives

T h e a n a lysis is u n d e rta ke n o n Ta te & Lyle p lc fo r th e b e n e fit o f a ca d e m ic p u rp o se s to se rve

th e co n ce rn s o f th e sh a re h o ld e rs ( cu rre n t a n d fu tu re ) o f th e co m p a n y.

Ta te & Lyle p lc is a n in te rn a tio n a lm a n u fa ctu re r o f fo o d a n d in d u stria lin g re d ie n ts fro m co rn

a n d su g a r.
Revenue and COS segments:

The following analysis will be covered in this report:

Value Driver Analysis

SWOT & Analytical Issues
PERL
COP
Valuations
Key Assumptions
 Value Driver Analysis
Type of business: manufacturing from raw materials (sugar and corn) to finished goods
Value Chain:

Sustainable CreatingSourcing Volume Preserving Value Adding Value Going to

pply of corn and cane -Creating basic material for -sale
Cost or
& risk
WIP control
-Factor: rapid change consumer l/style
in carb processing & blending , specialist R&DMarket
sugar
ng commodities market -Efficient processing large volume
-Supply(low
risks
unit
: Commodity
costs
-To ) exposure
address price nego
this: ,expertise knowledge
-High-volume, low-cost commodity base
quality raw materials at the right price -Demand risks : quality
-Target, : quantity
Taste , on time
nutrients
, , consistency
& functions
-Higher margin , value added ingredients & se
Re -
ve
nu
e
dr
iv
tyer
raw 1materials
) viabilityfrom
•Stringent
for attracting
quality
value add the next
via best
standards
suppliers
WIP stages •Consumer
of specialty insights
products ; : understanding demands
•4 key market
(R&D): segments
product :development
2) volumeF&revenue
B, industrial
differentiation
,for , animal
basic feed
, ,comp
products pharmaceutical
(low advantage
price). .
•Timely delivery to customer •Market drivers: specialty products – sweeteners, texturants, wellness.
•Integrated customer services •R&D: capture future trends and higher
F & B margins – product development, technology & customer solutions
•Using every part of the raw material: sale of byproducts (molasses & kernel
•70%) as
of animal
revenuefeed. This extends revenue line.
•Negotiating prices & volumes for majority of sales •USD30b market size, g 3% p.a.
•Key drivers: convenience & interest in healthy eating
supply contract •Growth: BIC.
wet milling plant
elevators (silos)
ge & unloading capacity (cost vs. suppliers’ benefit) Industrial
•>45 production facilities •Traditional market: Paper & board (starches), fuels (ethanol) househ
•Manufacturing efficiency: reliable & latest processes •New market: oil-well drilling (biogums), textiles & plastics (Bio-PDO
• Highly qualified teams
eetener quota system & transportation of engineers
•Latest monitoring tools & programs: increase yield, reduce waste & save energy
ve local markets
ants•Using •every part of the
R&D: CORNBELT®
than USA raw material
- increase : sale
starch of and
yield byproducts (molasses
reduce energy /unit& kernel) inputs for fermentation (acids or alcohol). This reduces production cost.
orns•Hedging•Specialist
locally corn prices
team
forfor
shortfall
Sugars (of
support
supply
, process
(USA only& )design)
Co•Logistics
•Patents
team:–ensure
barriers
efficient
to comp costs for warehousing and transportation (plants  warehouse  customers)
•Research
•Plant positioning: near key supply and key marketspartnership : savetime
– reduce lead cost
. whilst riding on the most expert.
st• •Research Advisory Group: monitor and control the productivity of R&D activities.
cane
drsugar •Venture Capital Funds: invest in early-stage high growth Cos specialize in renewable ingredients, food & proc
ries: B24h •Alliances and JVs
iv
egime
s. er
Cost

•Sales & marketing costs productivity

Value Driver: Going to Market
 SW O T
Key Value Driver Internal Factors External Factors
Strength Weakness Opportunity Threat
Sustainable Sourcing • Long term supply contracts •Matching of supply & demand Supply consistency & barrier
• • Volatile supply price esp. corn
• Attractive price & capacity •Higher material & storage cost? Lower price & storage utilization
• • Suppliers go bust/competitors

Creating Volume • High volume & efficient process •Somemills not in corn belt (EU) - Inc. tech (CORNBELT) utilization • Inefficiency of far mills
• WIP stage 1 ready to market •Sell WIP stage 1 = Low margin •> demand for specialty products • Uncertainty of the demands

Preserving Value • Big volume influent supply price •Supply price volatility Hedging of supply shortfall
• • Uncertainty of future prices
• QC & logistics management •Extra costs take up the margin Sal e/utilize byproducts
• • Comp outsourcing of logistics

Adding Value •Good R&D result in sweeteners, •High R&D spending - Global market size (STW): £6.4 - Global new product launches with
texturants and wellness •Uncertain lead R&D to market billion, g: 4.3% to £7.2 billion HIS continue to reduce

Going to Market • Sales mostly at annual pricing •Majority lower margins More sales of high margins
• Volatility of commodity price
•

• Strong market intel •Cost of collecting market intel Use intel: product dev. & sales
• Vast changes due to economic
•

changes

Key Value Driver Key Issues Financial Analysis

Sustainable Sourcing •Volatility & significance of cost of raw materials Cost efficiency ratio; Fixed Asset Turnover (E)
•

•Capacity, storage & inventory costs and impacts to profit margins ROCE (P)
•

Creating Volume •Utilization of mills out of corn belt vs. overall production cost & transport of raw materials •Fixed Asset Turnover (E)
•Profitability from WIP Stage 1 vs. utilization and profitability of specialty products •Margins (P)
•Ability to increase the technology utilized via CAPEX investment •Gearing ratio (R)

•Current Asset Ratio; Acid Test (L)

Preserving Value •Shortfall of supply to demand and significance of hedging •Return on hedging (R) Return QC & logistics (E)
•Productivity & cost significance of QC & logistics management •Beaver failure ratio (R)
•Interest cover; interest gearing (R)

•Cash Exhaustion Ratio (L)

•Operating CF to maturing obligations (L)

Adding Value •R&D to market: standard vs. Tate & Lyle’s. Lead time (E); Return on R&D (E)
•

•Percentage of R&D expenses vs. competitors. Labour productivity ratio (E)

•

Going to Market •Most sales are lower margins’ Margins(P)

•

•Efficiency of sales & marketing and market intel. Cost efficiency ratio(E)
•
 PER L
PERFORMANCE EFFICIENCY
(5 years) -Cost Efficiency Ratio (5 years)
years – all & segmental) -Fixed Asset Turnover (5 years)
years – vs. competitors 2) -Labour Productivity Ratio (5 years)
years – all) -Debtor Age (5 years)
rn on R&D (5 years – vs. comp) -Creditor Age (5 years)
-Stock
rn on marketing (5 years – vs. competitors ) Turnover (days) (5 years)
-Lead time of R&D to market (5 years)
-
-
RISK LIQUIDITY
-Gearing (5 years – vs. competitors
-Current
) Asset Ratio (5 years)
-Interest Cover (5 years) -Acid Test (5 years)
-Interest Gearing (5 years) -Cash Exhaustion Ratio (5 years)
-Cost (Operational Gearing) (5 -years
Operating
) Cash Flow to Maturing Obligations (5 ye
-Beaver Failure Ratio (5 years-)
-