Review of the business

Since joining Tate & Lyle in October last year, I have led a thorough, fact-based review of the Company’s current position, and an assessment of the opportunities and challenges in front of us.

Tate & Lyle has some real strengths we can build on. It was clear to me as soon as I joined the Company that acting safely, responsibly and sustainably, with high levels of integrity, were hallmarks of Tate & Lyle. The Company also has a large, cost efficient, and well invested manufacturing footprint, and deep technical process and applications expertise. Our customer base includes many large, global companies with whom we have strong, long-term relationships based on our clear focus on quality, reliability and customer service. We also have a long, successful history of operating internationally and, as can be seen from the past year’s results, the potential for strong cash generation.

At the same time, we face a number of strategic and operational challenges. Strategically, we operate in a number of different markets with different characteristics and needs. We have solid competitive positions in some of these markets, but in others a path to leadership is unclear. We continue to have a relatively large exposure to commodity markets, with their inherent volatility and cyclicality, whilst, at the same time, having a limited exposure to key avenues of longer-term growth, in terms of categories and geographies. Over the last few years there has also been some inconsistency between strategic intent and actual investment strategy, with the majority of our capital having been spent on our commodity rather than our speciality business. Additionally, the operating model has lacked focus, and constrained rather than driven performance. Finally, a number of enablers, such as the capital allocation and implementation process and the IS/IT infrastructure, need significant strengthening.

In order to address these issues and reinvigorate Tate & Lyle, we will take steps to focus, fix and grow our business.

1. Focus

In future, our purpose will be to grow our speciality food ingredients business. We will do this through deeper customer understanding, continuous innovation and agility, and through building stronger positions in high-growth markets. We will continue to drive sustained cash generation from our bulk ingredients and sugars businesses to fuel this growth.

2. Fix

Fixing the operating model

The current business operating structure, with a mixture of regional and product-based business units, does not support execution of the Group’s strategy. From 1 June 2010 we will reorganise and operate through three global business units: Speciality Food Ingredients, Bulk Ingredients and Sugars. Each business unit will have a distinct go-to-market organisation to provide the necessary focus and bring the required expertise to the different markets we serve, and each will have a dedicated manufacturing asset base.

Fixing the operations

The review of our approach to capital investment planning and implementation, which we announced at our half-year results in November, has been largely completed, and will lead to a number of changes to the way we invest fixed capital in our business in future. For all major capital projects, the approval process has been strengthened to incorporate a two-stage Board approval, including a more rigorous technical and commercial appraisal, supported where necessary by external experts. Ongoing reviews performed regularly by the Group Executive Committee, as well as peer reviews, have also been added to sharpen the investment appraisal process. We will also create a dedicated, internal resource, independent of the operations, with responsibility for oversight of all capital expenditure.

We have already made huge strides in the way we control working capital in our business, evident from the improvement delivered in the 2010 financial year. There is a much clearer appreciation within the organisation now of the need for working capital optimisation and this is something I intend to build on. To this end, we have implemented standard measures of working capital efficiency across the Group, and have set clear targets by business. In the 2011 financial year, these targets will, for the first time, be linked to management incentive structures.

Our three business units will be supported by global support services, using shared service centres to eliminate duplication and rationalise resources required. This will also allow us to redeploy some needed resources to the ‘front end’ of our business.

We have already made huge strides in the way we control working capital in our business, evident from the improvement delivered in the 2010 financial year. There is a much clearer appreciation within the organisation now of the need for working capital optimisation and this is something I intend to build on. To this end, we have implemented standard measures of working capital efficiency across the Group, and have set clear targets by business. In the 2011 financial year, these targets will, for the first time, be linked to management incentive structures.

Our three business units will be supported by global support services, using shared service centres to eliminate duplication and rationalise resources required. This will also allow us to redeploy some needed resources to the ‘front end’ of our business.

We have already started work to strengthen operational enablers, by establishing a common set of performance metrics across the business and we will move to a single global IS/IT platform to drive improved global decision making over the next two years. Although it will take time, I am confident that the steps we are taking now will lay the foundation to deliver significant improvements in operational execution over the coming months and years.

Exceptional costs of £8 million associated with the reorganisation and restructuring of the Group’s activities are expected to be recognised in the 2011 financial year, with further exceptional costs expected to be in the region of £13 million the following year. These cash costs are expected subsequently to pay back within two years. Additionally, we are developing a detailed implementation plan for a common, global IS/IT platform, which we anticipate will be implemented over the next 24 months.

Fixing the organisation

In order to fix our organisation, we are taking action to address our structure, our talent and our culture.

We will simplify and de-layer the organisation structure to accelerate decision-making and move management closer to the business. We have developed clear guidelines on global talent acquisition to upgrade our capabilities and fill skills gaps in key areas. We are taking steps to embed a common, performance-driven culture within the organisation, and to define clear organisational values. We are establishing a clearer, metric-driven, performance management process which will be implemented during the coming year. The Group’s incentive system is also being restructured, to ensure that at all levels of the organisation there is a sharp focus on what drives behaviour and results. A greater proportion of pay will be at risk, with appropriate rewards to incentivise outstanding performance.

Fixing the investment focus

Over the past four financial years, around two-thirds of our capital has been invested in our commodity business with one-third in our speciality business. Geographically, investment has been overwhelmingly focused on the developed markets with emerging markets largely ignored.

Over time, our investment focus will be realigned to our strategy: our engine of growth and the focus of acquisitions will be speciality food ingredients, with greater emphasis on emerging markets. Our bulk ingredients and sugars businesses remain strong and valued businesses, and we will continue to invest appropriately in order to increase their efficiency and generate cash.

3. Grow

A new unit, the Innovation and Commercial Development group, will be established, dedicated to driving sustained long-term growth, with a key focus on speciality food ingredients. This unit will integrate R&D, global marketing and global product management, and will enable a fully integrated approach to developing and commercialising innovation.

We expect to achieve growth both in our existing markets, through the benefits of our new operating model and investment focus, and also in emerging markets and in the small- and medium-sized enterprise (SME) and private-label customer segments, where we have limited presence today.

Our new operating structure will provide a clean platform from which to grow the business, both organically and through acquisitions.

Conclusion

This statement has outlined our strategy of focusing on growing our speciality food ingredients business, and set out a number of important changes to our operating model and the way we function. We will report a set of performance metrics which will measure progress towards delivery of this strategy, and are creating reward structures aligned to these metrics.

Through these changes we will build the platform to deliver sustainable long-term value for our employees, our customers and our shareholders.

Javed Ahmed
Chief Executive

26 May 2010

"We are refocusing our strategy, with our speciality food ingredients business being the key focus of investment and long-term growth."