Tate & Lyle Annual Report 2014

Plain-text annual report

Focus on ingredients Annual Report 2014 Tate & Lyle is a leading global provider of ingredients and solutions to the food, beverage and other industries. Through our production facilities across the world, we turn raw materials into distinctive, high-quality ingredients for our customers. Our ingredients and solutions add taste, texture, nutrition and functionality to products used or consumed by millions of people every day. Our ingredients at work SPLENDA® Sucralose Sweetens without adding calories KRYSTAR® Crystalline Fructose Provides sweetness and extends shelf life HAMULSION® food system Thickens, stabilises, provides consistent mouthfeel and optimises cost (one all-inclusive solution) REZISTA® speciality food starch Provides body, mouthfeel and stability PROMITOR® Soluble Corn Fiber Provides added ﬁbre and mouthfeel to rebalance fat or sugar reduction PromOat® Beta Glucan Adds natural ﬁbre and promotes heart health Delicious reduced fat, reduced sugar and reduced calorie yoghurt with added ﬁbre. www.tateandlyle.com/ ingredientsandservices FINANCIAL HIGHLIGHTS Financial highlights Adjusted operating profit 1 (£m) Adjusted diluted earnings per share 3 (pence) £349m 55.7p 3562 349 3462 56.02 56.62 55.7 2012 2013 2014 2012 2013 2014 Dividend per share (pence) Net debt (£m) 27.6p4 24.9 26.2 27.64 £353m 476 479 3533 2012 2013 2014 2012 2013 2014 1 Continuing operations before exceptional items and amortisation of acquired intangible assets. 2 Restated for IAS 19 (Revised 2011) ‘Employee Benefits’. 3 Based on earnings from continuing operations excluding exceptional items, amortisation of acquired intangible assets, net retirement benefit interest and the tax effect of these items. 4 This includes the proposed final dividend. Statutory results Operating proﬁt Proﬁt before tax Proﬁt for the year (on total operations) Diluted earnings per share (on total operations) 2014 £325m £290m £273m 58.0p 20132 £334m £301m £273m 57.4p Adjusted operating profit, adjusted profit before tax and adjusted earnings per share Unless stated otherwise, adjusted operating profit in this Annual Report excludes discontinued operations and is before exceptional items (see Note 7) and amortisation of acquired intangible assets. In addition, adjusted profit before tax and adjusted earnings per share also exclude net retirement benefit interest. Adjusted earnings per share also excludes the tax effect of the adjusted items. Trademarks SPLENDA® and the SPLENDA® logo are trademarks of McNeil Nutritionals, LLC. Definitions/cautionary statement Please see the explanatory notes on the inside back cover. Strategic Report Financial Highlights Our Group at a Glance Chairman’s Statement Our Operations Chief Executive’s Review Our Marketplace Our Business Model Our Strategy Our Strategy in Action Key Performance Indicators Speciality Food Ingredients Bulk Ingredients Group Financial Results Additional Financial Information Risks Corporate Responsibility Governance Board of Directors Statement from the Chairman Corporate Governance Audit Committee Report Nominations Committee Report Corporate Responsibility Committee Report Directors’ Remuneration Report Directors’ Report Directors’ Statement of Responsibilities Financial Statements Independent Auditors’ Report to the Members of Tate & Lyle PLC Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Consolidated Statement of Changes in Equity Notes to the Consolidated Financial Statements Parent Company Financial Statements Useful Information Information for Investors Five-year Summary Glossary and Explanatory Notes 01 02 04 06 07 10 12 14 16 18 20 22 24 26 29 32 38 40 41 47 50 51 52 72 73 74 77 78 79 80 81 82 134 141 142 144 Tate & Lyle PLC Annual Report 2014 | 01 i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Strategic Report OUR GROUP AT A GLANCE A global business dedicated to serving our customers from over 30 locations worldwide Sales Adjusted profit before tax Net debt Employees worldwide £3,147m 2013 – £3,256m £322m 2013 – £327m £353m 2013 – £479m 4,523 2013 – 4,326 Tate & Lyle operates through two global divisions: Speciality Food Ingredients and Bulk Ingredients. These two divisions are supported by our Innovation and Commercial Development (ICD) group, global Shared Service Centre and other global functions. We have operations in over 30 locations, including our manufacturing facilities, such as our two scale SPLENDA® Sucralose facilities in Singapore and the US, and our network of corn wet mills in Europe and the US, which are shared by the two divisions to make our corn-based products. We have also built a global network of customer-facing facilities allowing us to collaborate with customers wherever they are located, including our global innovation hub, the Commercial and Food Innovation Centre in Chicago, USA. Our operations Page 6 Performance of our divisions Pages 20 to 23 02 | Tate & Lyle PLC Annual Report 2014 Principal Locations Latin America Buenos Aires, Argentina Guadalajara, Mexico2 Mexico City, Mexico Santa Rosa, Brazil São Paulo, Brazil USA Chicago, Illinois Dayton, Ohio Decatur, Illinois Duluth, Minnesota Houlton, Maine Lafayette, Indiana Loudon, Tennessee McIntosh, Alabama Princeton, New Jersey Sycamore, Illinois Van Buren, Arkansas Sales by division Adjusted operating profit 1 Employees by geography 1 31% Speciality Food Ingredients 2 69% Bulk Ingredients 1 55% Speciality Food Ingredients 2 45% Bulk Ingredients 1 46% North America 2 37% Europe, Middle 3 10% Latin America 4 7% Asia Pacific East & Africa 1 1 2 2 1 Adjusted operating profit excluding central costs. 4 1 3 2 i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Key Manufacturing facilities Applications/technical services facilities Principal central/ICD locations Europe Adana, Turkey2 Bergamo, Italy Boleraz, Slovakia2 Kimstad, Sweden Koog, the Netherlands Lille, France Łód ´z, Poland London, UK Lübeck, Germany Mold, UK Noto, Italy Ossona, Italy Middle East & Africa Casablanca, Morocco Kya Sand, South Africa Asia Paciﬁc Brisbane, Australia Singapore Shanghai, China Suqian, China Xuzhou, China Razgrad, Bulgaria2 Szabadegyháza, Hungary2 2 Joint venture. Tate & Lyle PLC Annual Report 2014 | 03 ChaIRman’S Statement “The Board is confident that our strategy of becoming a leading global provider of speciality food ingredients will create long-term sustainable value for our shareholders.” Sir Peter Gershon 04 | Tate & Lyle PLC Annual Report 2014 Corporate Responsibility Pages 32 to 37 Governance Pages 40 to 46 Introduction I could not open my statement on the performance of Tate & Lyle during the year without first addressing safety and the three tragic fatalities that have occurred over the last 12 months. Two accidents in Europe – one in Hungary and one in the Netherlands – and one just after the year end in Singapore, resulted in three people who came to work at our facilities not returning home to their families. At the time of writing, one other person remains in a critical condition in hospital in Singapore. I know I speak for the entire Board and the Company as a whole when I express my deep regret and sincere condolences to those families. We will continue to provide them with all the support that we can and our thoughts and prayers remain with them. The tragic loss of these colleagues reminds us that safety is, and must always be, our first priority. With that in mind, we are re-doubling our focus on safety, with Javed Ahmed and his team leading a series of fresh initiatives to further improve hazard identification and accident prevention at all of our sites. These new measures will be closely overseen by William Camp and our Corporate Responsibility Committee. We will consider what other measures are required when the results of the official investigations into the causes of the fatalities are known. Group performance We have faced a number of challenges over the last financial year. Unseasonably cold weather on both sides of the Atlantic Strategic Report in the ﬁrst half of the year reduced demand for our bulk sweeteners and this, along with an increasingly competitive environment for SPLENDA® Sucralose and lower returns from co-products in volatile corn markets in the US, offset a good performance in a number of areas, notably the emerging markets. Although we are now facing the headwind from lower SPLENDA® Sucralose prices, the Board is conﬁdent that our strategy of becoming a leading global provider of speciality food ingredients will create long-term sustainable value for our shareholders. Accordingly, in the year ahead, we will continue to put in place the investment required to ensure the continued execution of our strategy and to build on the solid foundations laid over the last four years under Javed’s leadership. Strategic progress Realising our vision of becoming a leading global provider of speciality food ingredients and solutions requires us to explore new horizons and broaden the geographic reach of the business. While we continue to develop the business within what have historically been our core markets of North America and Europe, I am pleased to say we have made very good progress over the last few years building our speciality food ingredients business in both Asia and Latin America. During the year, the Board visited China and Singapore to see our Asia Paciﬁc operations and to gain a better understanding of the opportunities that exist in the region. Against a backdrop of rapid urbanisation, rising household income and changing tastes, the role of innovation and new product development is becoming increasingly important in these regions as food and beverage manufacturers look to respond to consumer demand. We were able to see ﬁrst-hand how our investment in new capabilities and customer-facing facilities is helping our customers meet their objectives and get their new products to market faster across the region. I am in no doubt that, alongside this investment, the strength of the Tate & Lyle brand and our reputation for delivering innovative food ingredients and solutions with the highest standards of quality, traceability and reliability have played an important part in building our presence in these markets. The formation of Tate & Lyle Howbetter earlier in the year which combines Tate & Lyle’s global blending capabilities and recipe know-how with Howbetter’s strong local expertise and infrastructure, provides us with an excellent platform to accelerate the growth of our Food Systems business in China. The acquisition of Winway Biotechnology, a Chinese producer of polydextrose, which we expect to complete later in the year, will further enhance our presence in Asia and our offering in the fast-growing ﬁbre category. Work to lay the foundations for future long-term growth derived from new ingredients continues within our Innovation and Commercial Development group (ICD). While the contribution from recent launches is modest, we are encouraged by the pipeline of customer projects and the strength of our innovation pipeline which remains robust. Within ICD we have also made excellent progress building a world- class marketing function which has begun work on a range of initiatives to promote our business and products globally. Our investment in our global Commercial and Food Innovation Centre in Chicago, USA is not only helping us bring new products identiﬁed by ICD to market faster, it is also helping to generate stronger, more collaborative relationships with our customers. Further information on this is on page 16. Governance As the business expands, my fellow directors and I are devoting more time to obtaining a better understanding of the markets in which we operate and how our business is evolving to meet customer needs. As well as individual non-executive directors’ site visits to our operations, and the Board visit to the Asia Paciﬁc region, members of the Audit Committee also visited our global Shared Service Centre in Łód´z, Poland to review its work and future initiatives with the local team. This year, we agreed that the annual review of Board effectiveness should be externally facilitated. We felt that given the importance of inclusive leadership and the changes to the Board in the previous ﬁnancial year there would be signiﬁcant beneﬁt in undertaking this review from a diversity and inclusion perspective. Further details on our visits and the effectiveness review are set out within the Governance section. Corporate responsibility and risk management We have continued to strengthen our internal control arrangements and external reporting on environmental, social and governance matters, including in relation to safety and business continuity management. Our approach to safety, business continuity and risk management focuses on preventive programmes, approaches and actions to reduce the risk of experiencing any incidents; and on advanced planning and preparedness Dividend per share (pence) 27.6p1 24.9 26.2 27.61 2012 2013 2014 1 This includes the proposed final dividend. for responding to actual events that may occur. Corporate responsibility matters are integrated into the Group’s enterprise-wide risk management and reporting process (see page 29). During the year, we have engaged with customers and other key stakeholders to better understand the environmental, social and governance matters and potential risks that they see as particularly important. We have used this feedback to review how we report on corporate responsibility in this Annual Report and through other means including our corporate website. Dividend The Board recognises the importance of the dividend to shareholders and follows a progressive dividend policy with the aim of growing the dividend over time, taking into account the long-term earnings prospects of the business. The Board is recommending a 5.3% increase in the ﬁnal dividend to 19.8p (2013 – 18.8p) per share making a full-year dividend of 27.6p (2013 – 26.2p) per share, a 5.3% increase on the prior year. Subject to shareholder approval, the proposed ﬁnal dividend will be due and payable on 1 August 2014 to all shareholders on the Register of Members at 27 June 2014. In addition to the cash dividend option, shareholders will continue to be offered a Dividend Reinvestment Plan (DRIP) alternative. Finally, I would like to acknowledge the hard work of all our employees in a challenging year. We continue to make good strategic progress in transforming Tate & Lyle and we have them to thank for that. Sir Peter Gershon Chairman 28 May 2014 Tate & Lyle PLC Annual Report 2014 | 05 i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Strategic Report OUR OPERATIONS Tate & Lyle operates through two global divisions: Speciality Food Ingredients (SFI) Bulk Ingredients (BI) SFI develops, produces and markets distinctive, high-quality ingredients for food and beverage customers across the world. By leveraging our manufacturing facilities, innovative technology and formulation expertise, we help create cost-effective, better tasting products for consumers. SFI works closely with our Innovation and Commercial Development group to develop and commercialise new products. BI manufactures and markets products including sweeteners, industrial starches, ethanol, acidulants and animal feed, for food and beverage, industrial and agricultural customers around the world. BI also partners with bio-based materials companies seeking expertise to commercialise green chemistry fermentation. One such partnership is our joint venture with DuPont which manufactures Bio-PDO®, a bio-based ingredient used in the textile and plastics industries. Customers (cid:116)(cid:1) Large, multi-national food and beverage manufacturers (cid:116)(cid:1) Small and medium-sized food and beverage manufacturers (cid:116)(cid:1) Private label food and beverage manufacturers Products Sweeteners Texturants – – Speciality corn-based sweeteners including KRYSTAR® Crystalline Fructose High-intensity sweeteners including SPLENDA® Sucralose, PUREFRUITTM Monk Fruit Extract and TASTEVA® Stevia Sweetener – Speciality starches – Locust bean gum Customers (cid:116)(cid:1) Large, multi-national food and beverage manufacturers (cid:116)(cid:1) Paper and board producers (cid:116)(cid:1) Gasoline suppliers (cid:116)(cid:1) Textile manufacturers (cid:116)(cid:1) Animal feed compounders Products (cid:116)(cid:1) Liquid sweeteners including corn syrup, dextrose and glucose (cid:116)(cid:1) Industrial starches (cid:116)(cid:1) Citric acid (cid:116)(cid:1) Bio-fuels (cid:116)(cid:1) Animal feed including corn gluten feed and corn gluten meal Health and wellness – PROMITOR® Soluble Corn Fiber Food Systems – STA-LITE® Polydextrose – SODA-LO® Salt Microspheres – PromOat® Beta Glucan – Food stabiliser systems – Functional ingredient blends The Innovation and Commercial Development group supports our two divisions: Innovation and Commercial Development (ICD) ICD is a key enabler of Tate & Lyle’s growth strategy. It brings together open innovation, R&D, global marketing and platform management into one global team, to provide an integrated approach towards developing and commercialising innovative new products and technologies. While ICD supports both of Tate & Lyle’s global divisions, it concentrates particularly on growing SFI. As a result, ICD’s resources are predominantly focused on three broad platforms within the global speciality food ingredients market – sweeteners, texturants, and health and wellness. We have identiﬁed ﬁve core scientiﬁc competencies as being key to delivering innovation in these three platforms: bio-chemistry; formulations science; separations science; particle design; and organic chemistry. We have made investments in innovation and technical services facilities across the world to support these. Ideas are generated from both internal and external sources. Internally, these come from work done by our own scientists. Externally, we generate ideas from engagement with our customers and from our dedicated Open Innovation team which seeks to develop partnerships with universities, research institutions and start-ups specialising in food science and novel ingredients. We also invest in long-term external partnerships through our venture funds. All of our ideas and innovations are put forward for commercialisation via a deﬁned process which is designed to prioritise ideas, time and resources. Open innovation Research and development Innovation and Commercial Development Global marketing Platform management A clear focus on three SFI platforms Sweeteners Texturants Health and wellness Marketplace for SFI and BI Pages 10 and 11 06 | Tate & Lyle PLC Annual Report 2014 Our business model Pages 12 and 13 CHIEF EXECUTIVE’S REVIEW Highlights Speciality Food Ingredients sales up 4% (up 4% in constant currency) at £983 million with adjusted operating proﬁt in line with the prior year (up 1% in constant currency) at £213 million: – Continued strong growth in Asia and Latin America – Acquisition of Biovelop, and in China, the formation of Tate & Lyle Howbetter and agreement to acquire Winway Biotechnology Bulk Ingredients adjusted operating proﬁt 5% lower (4% lower in constant currency) at £172 million due to soft beverage season and unusually cold and prolonged winter in the US Adjusted proﬁt before tax 2% lower (ﬂat in constant currency) at £322 million Balance sheet remains strong with reduction in net debt of £126 million to £353 million (2013 – £479 million) Final dividend of 19.8p proposed making a total dividend of 27.6p (2013 – 26.2p) up 5.3% on prior year Successful deployment of upgraded IS/IT platform across Europe with US and Singapore on track for the summer Board approval of capital investment of £100 million over the next two years in Speciality Food Ingredients to expand capacity for existing and pipeline products Javed Ahmed Full-year performance During the year, we continued to make steady progress in executing our strategy. The delivery of proﬁt growth in starch- based speciality ingredients and Food Systems, along with another year of strong growth in emerging markets, was offset by the impact of the cold spring in the US last year followed by the recent severe and prolonged winter, and an increasingly competitive market for SPLENDA® Sucralose. Sales for the year were £3,147 million (2013 – £3,256 million), 3% lower than the prior year (3% in constant currency) with sales in Speciality Food Ingredients up 4% (4% in constant currency) to £983 million (2013 – £947 million) and 6% lower in Bulk Ingredients (6% in constant currency) at £2,164 million. Adjusted operating proﬁt was 2% lower (1% in constant currency) at £349 million (2013 – £356 million) with adjusted operating proﬁt in Speciality Food Ingredients in line with the prior year at £213 million (up 1% in constant currency) and 5% lower (4% in constant currency) in Bulk Ingredients at £172 million (2013 – £182 million). Adjusted proﬁt before tax was 2% lower (ﬂat in constant currency), at £322 million (2013 – £327 million), and adjusted diluted earnings per share were 2% lower (ﬂat in constant currency) at 55.7p (2013 – 56.6p). Financial management and balance sheet Our average quarterly cash conversion cycle improved by three days to 39 days (2013 – 42 days) largely driven by a decrease in working capital due to lower ﬁnished goods inventories and lower corn prices. The key performance indicators (KPIs) of our ﬁnancial strength, the ratio of net debt to earnings before interest, tax, depreciation and amortisation (EBITDA) and interest cover, remain well within our internal thresholds. At 31 March 2014, the net debt to EBITDA ratio was 0.8 times (2013 – 1.0 times), against our internal threshold of 2.0 times and interest cover on total operations was 11.6 times (2013 – 11.1 times), again comfortably ahead of our minimum threshold of 5.0 times. Net debt of £353 million at 31 March 2014 was lower than at the end of last year (2013 – £479 million), reﬂecting the reduction in working capital and a decrease in the value of dollar denominated debt as a result of the weakening of the US dollar against sterling. We continue to generate a good level of return on our assets with return on capital employed of 19.2% (2013 – 19.7%). Changes in constant currency are calculated by retranslating comparative period results at current period exchange rates. Tate & Lyle PLC Annual Report 2014 | 07 i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Strategic Report CHIEF EXECUTIVE’S REVIEW | CONTINUED Safety As already set out in the Chairman’s Statement on page 4, I am saddened to report that the performance of the Group this year has been completely overshadowed by three fatal accidents. As a result of these tragic events, working with the Chairman, the Board and the Corporate Responsibility Committee, we are taking a fresh look at our overall safety approach and procedures, not limited to the speciﬁc areas related to these accidents. I know I speak for all of my colleagues across the Group when I say that we are determined to continue to improve our safety programme so as to keep all those that work at or visit our sites safe at all times. Strategy and business update Growth in Speciality Food Ingredients Since May 2010, we have made steady progress executing our strategy and growing Speciality Food Ingredients, having delivered average annual volume growth of 5% and compound annual operating proﬁt growth of 7% during that period. Excluding SPLENDA® Sucralose, where an increasingly competitive environment held back growth of the division as a whole, we have delivered a strong performance across the rest of Speciality Food Ingredients, with compound annual proﬁt growth of 12% during the same four-year period. This growth has been achieved by rigorously following through on the key priorities we set out in May 2010, when we outlined a path to grow our Speciality Food Ingredients division by: diversifying our business geographically through building our presence in faster growing, emerging markets and hence reducing our reliance on developed markets; broadening our product portfolio through the development of a world-class innovation capability; and forming stronger relationships with our customers through much greater collaboration with them. Over the past year we have made further progress in each of these areas. Entering new markets We delivered another strong performance in Asia Paciﬁc and Latin America with double-digit volume growth during the period, as we continued to leverage the strength of our brand, our ingredients portfolio and our applications expertise in these regions. Our successful expansion into the emerging markets, which now represent 19% of Speciality Food Ingredients sales, is a result of the investments we have made in building strong local teams and infrastructure, 08 | Tate & Lyle PLC Annual Report 2014 which have been key enablers in forming direct and higher quality relationships with regional food and beverage customers. During the year, we opened an applications and technical service laboratory in Singapore (the new hub of our Asia Paciﬁc operations), and established a sales ofﬁce in Japan. We have also strengthened our presence through acquisition. In October 2013, we acquired a 51% equity interest in Jiangsu Howbetter Food Co., Ltd, a leading Food Systems business in China. By combining Tate & Lyle’s global blending capabilities and extensive recipe expertise with Howbetter’s strong local expertise and infrastructure, Tate & Lyle Howbetter provides us with an excellent platform from which to accelerate the growth of our Food Systems business in China. In March 2014, we announced the signing of an agreement to acquire Winway Biotechnology (Winway), a leading producer of polydextrose ﬁbre in China. Winway will provide us with our third global polydextrose facility complementing our existing facilities in the Netherlands and the US. The acquisition, which is subject to government approval (expected in the next few months), will allow us to further accelerate the growth of our speciality ﬁbres business in Asia Paciﬁc and to expand our health and wellness offering globally. Innovation Our Innovation and Commercial Development group (ICD) launched ﬁve new products during the year including PULPIZ® Pulp Extender, a speciality food starch that replaces tomato pulp in a range of applications. ICD also continued to play a key role in the commercialisation of our recently launched ingredients, particularly our salt reduction ingredient SODA-LO® Salt Microspheres and our stevia-based, no-calorie, natural sweetener TASTEVA® Stevia Sweetener. During the year, a number of customers launched products incorporating these ingredients and we continued to work closely with customers on formulation, product prototyping and testing to convert the increasing number of customer projects in the pipeline into sales. Our innovation pipeline remains strong with a total of 35 products at various stages of development including ten in the ﬁnal stages, some of which we plan to launch over the next 12 to 18 months. The pipeline is well balanced with a number of line extensions, next generation and breakthrough projects across our sweeteners, texturants, health and wellness and bulk ingredients platforms. Our global marketing team is an integral part of the innovation and commercialisation process. In addition to developing clear value propositions and positioning for our ingredients, this team is also developing consumer-focused strategies for speciﬁc applications in the beverage, ‘clean label’, convenience and dairy categories. At the start of the year, we acquired Biovelop, an early-stage manufacturer of oat beta glucan which added a ‘clean label’, speciality ﬁbre with strong EFSA1 health claims to our existing corn-based ﬁbre-portfolio. During the year, high levels of customer interest in PromOat® Beta Glucan has helped to build a strong pipeline. Work to expand capacity at our plant in Kimstad, Sweden has begun and we expect this will come on line in the current ﬁnancial year. Focus on the customer As reported at our half-year results, we have made signiﬁcant progress in increasing customer collaboration by leveraging our global Commercial and Food Innovation Centre in Chicago and our enhanced network of applications laboratories around the world. During the year, we commissioned an independent analysis to understand better our customers’ views of our developing innovation capabilities. This showed a marked improvement in the way we are perceived by those customers who interact with us at our Innovation Centre in Chicago, with around two-thirds of those stating that we were ‘exceeding their expectations’. This has not only led to us developing stronger customer relationships but also to winning new business with both existing and new customers. SPLENDA® Sucralose As announced in February 2014, the competitive environment for sucralose intensiﬁed during the ﬁnal quarter, driven by an increase in capacity in China and a signiﬁcant overhang of unsold Chinese sucralose. Against this backdrop, we renewed a number of customer contracts for SPLENDA® Sucralose, including some on a multi-year basis, and as a result we experienced an increase in the rate of price decline in SPLENDA® Sucralose in the ﬁnal quarter. As previously announced, with these contracts in place and based on current market dynamics, we expect average prices in the 2015 ﬁnancial year to be around 15% lower than the 2014 ﬁnancial year. 1 EFSA – European Food Safety Authority. Notwithstanding the competitive market environment and the headwind of lower prices, we continue to see good long-term volume growth opportunities in the global market for sucralose driven by a number of factors: (cid:116)(cid:1)Given rising rates of obesity and diabetes globally, increased consumer focus on health and wellness is continuing to drive food and beverage manufacturers to reduce or replace sugar content in their products. The imposition of taxes by governments on food and beverage products with high levels of sugar or calories is also creating opportunities and increasing demand for sucralose; (cid:116)(cid:1)Sucralose continues to be the high intensity sweetener of choice because the combination of its superior taste proﬁle and heat stability that enable it to be incorporated in a wide range of food, beverage and other applications. This provides an opportunity for sucralose to continue to replace other high intensity sweeteners that have already been incorporated into low calorie products in the market as well as replacing sugar. In calendar year 2013, 6,3732 new products were launched globally incorporating sucralose, a 54% increase over the prior year (2012 – 4,142 launches) compared with 3,6332 for aspartame (up 4% on 2013) and 2,8602 for stevia (up 56% on 2013) where we also have a strong offering through TASTEVA® Stevia Sweetener. As a result, sucralose’s value share of the global high intensity sweetener market continues to grow, standing at 35% for calendar year 2013; (cid:116)(cid:1)We also see good growth potential in the tabletop market where we now have full freedom to operate worldwide. While we expect the global market for sucralose to remain competitive, our priority remains to increase volumes by both growing and taking a greater share of the global market for sucralose, by leveraging our unparalleled applications and formulations expertise and providing our customers with the highest standards of quality, traceability and reliability in the industry. Speciﬁcally, our focus over the next year will be to continue to renew existing customer contracts, aggressively pursue new business opportunities globally (including those relating to the substitution of other artiﬁcial high intensity sweeteners given the increasing price competitiveness of SPLENDA® Sucralose) and drive further cost savings and efﬁciencies through our two large-scale continuous production facilities in the US and Singapore. Investing in a platform for long-term growth In order to support continued growth in the Speciality Food Ingredients division, the Board has approved, in line with our disciplined capital process, capital investment of £100 million over the next two years. This investment will be used to expand capacity at our speciality plants in Europe and the US and our recently acquired oat beta glucan business, support the growth in new products expected to be launched in the next 12 to 18 months and deliver cost reduction initiatives. As a result, we expect the ratio of capital expenditure to depreciation to increase in the next ﬁnancial year to approach 2.0 times, with an average payback on these projects of 3.5 years. Earlier this month, we successfully deployed the upgraded global IS/IT system across our European operations and we remain on track to implement the system in the US and Singapore by the end of summer. While we expect the total investment in the IS/IT platform and global Shared Service Centre to be towards the top of the £120 – 135 million range we disclosed in May 2013, we are starting to see the beneﬁts from this investment, in particular within procurement and shared services, and continue to target a three- year cash payback from completion of the implementation. During the year, we incurred £46 million of costs on the rollout of the common IS/IT platform, taking the total costs to 31 March 2014 on the global Shared Service Centre and IS/IT platform to £124 million, of which £77 million was capital expenditure. As a result of bringing the IS/IT system into operation across the business, we expect our depreciation and amortisation charge to increase by £5 million in ﬁnancial year 2015 and a further £4 million the year after. Conclusion The transformation of Tate & Lyle remains ﬁrmly on track and our strategy of becoming a leading global provider of speciality food ingredients will continue to create long-term value for our shareholders. Excluding SPLENDA® Sucralose, Speciality Food Ingredients has grown strongly over the last four years and well ahead of the wider market, underpinned by the good progress we have made in emerging markets, innovation and working more closely with our customers. While we are operating in an intensely competitive, dynamic market for sucralose, we continue to see good volume growth opportunities and are well placed to secure this growth. Following the implementations of our global IS/IT platform over the summer, we will have completed virtually all the business transformation initiatives we set out to deliver four years ago. We have strengthened our ﬁnancial position, which provides us with the resources to invest in the business and the ﬂexibility to make acquisitions where we see high quality opportunities to accelerate organic growth. Since 2010, we have built a more robust, more global and higher-quality business that is capable of generating sustained growth over the long term. I would like to thank all of our employees across Tate & Lyle for their continued hard work and dedication over the last year and look forward to working alongside them in continuing to deliver our objectives over the next ﬁnancial year and beyond. Key performance indicators (KPIs) Our KPIs for the year ended 31 March 2014 are detailed on pages 18 and 19. Outlook In Speciality Food Ingredients, we expect to deliver volume growth across all major product categories but a lower proﬁt contribution from SPLENDA® Sucralose is expected to offset a good performance elsewhere in the division. Proﬁts in this division are expected to be more evenly weighted between the ﬁrst and second halves than the previous ﬁnancial year. In Bulk Ingredients, we now anticipate a slower start in the US in our ﬁrst quarter associated with the prolonged and severe winter, combined with lower European sugar prices in our second half, to outweigh a better performance across other product categories. Overall, and before the impact of currency movements3, while we expect the Group’s performance for the full year to be slightly lower than the comparative period, we are well placed to deliver growth in the longer term. Javed Ahmed Chief Executive 28 May 2014 2 Source: Innova Market Insights. 3 The estimated annual movement in operating profit and profit before tax caused by a one cent movement in the US dollar is £1.7 million and £1.6 million respectively. Tate & Lyle PLC Annual Report 2014 | 09 i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Strategic Report OUR MARKETPLACE Speciality Food Ingredients The global market for speciality food ingredients is large and growing, underpinned by strong consumer trends: convenience, health and wellness and ‘clean label’. Focus and depth Our strategy is to focus on three core platforms and to have deep expertise within each one: Sweeteners Texturants Health and wellness Global speciality food ingredients market Approximately US$35 billion* 1 14% Sweeteners 2 20% Texturants 3 14% Functional food ingredients 4 8% Colours and preservatives 5 33% Flavour 6 11% Other 1 6 5 4 2 3 Tate & Lyle Speciality Food Ingredients: 1. Sweeteners (cid:116)(cid:1) SPLENDA® Sucralose (cid:116)(cid:1) Speciality corn-based sweeteners (cid:116)(cid:1) PUREFRUITTM Monk Fruit Extract (cid:116)(cid:1) TASTEVA® Stevia Sweetener 2. Texturants (cid:116)(cid:1) Speciality food starches (cid:116)(cid:1) Food stabiliser systems 3. Health and wellness (cid:116)(cid:1) PROMITOR® Soluble Corn Fiber (cid:116)(cid:1) STA-LITE® Polydextrose (cid:116)(cid:1) SODA-LO® Salt Microspheres (cid:116)(cid:1) PromOat® Beta Glucan * Sources: Leatherhead; SRI; LMC International; Company analysis. Convenience Health and wellness ‘Clean label’ (cid:116)(cid:1) Changes in consumer lifestyles continue to increase the demand for packaged and convenience foods, for consumption both at home and ‘on the go’ (cid:116)(cid:1) Product launches with a ‘convenient’ claim increased globally by 25% in 2013 (cid:116)(cid:1) Increasing urbanisation has driven growth in Asia Paciﬁc and Latin America where launches of convenience products increased by 23% and 40% respectively in 2013 (cid:116)(cid:1) Consumers are increasingly aware of the link between diet and health and are seeking products enhanced or fortiﬁed with ingredients such as ﬁbre (cid:116)(cid:1) The number of product launches containing ﬁbres increased by 47% globally in 2013 with growth across both developed and developing markets (cid:116)(cid:1) In 2013, product launches containing ﬁbres were up by 65% in Asia Paciﬁc and by 51% in Europe (cid:116)(cid:1) Food and beverage manufacturers are launching more ‘clean label’ products in response to increasing consumer demand for more natural products across a broad range of categories (cid:116)(cid:1) The fastest growing ‘clean label’ categories are baby food, soups, soft drinks, cereals and spreads (cid:116)(cid:1) ‘Clean label’ product launches increased globally by 27% in 2013 Global convenience product launches1, 2 Global product launches containing fibres1, 3 Global ‘clean label’ product launches1, 4 +25% 151,499 +13% +47% 9,809 +29% +27% 50,236 +13% 2011 2012 2013 2011 2012 2013 2011 2012 2013 Source: Innova Market Insights. 1 Data shown is based on calendar years. 2 Definition: product launches that have at least one of these claims – convenient consumption, easy-to-prepare, ready prepared, time saving. 3 Definition: product launches containing fibres in their formulation. 4 Definition: product launches claiming no additives/preservatives, natural, organic and/or without genetically modified organisms (non GMO). 10 | Tate & Lyle PLC Annual Report 2014 Bulk Ingredients Bulk ingredients operates in a mature, consolidated industry, manufacturing largely commodity products, where the level of proﬁtability is related to the level of industry capacity utilisation. Steady sustained cash generation Our strategy is to generate sustained long-term cash ﬂows to help fund growth in Speciality Food Ingredients: Optimise margins Optimise and ﬁll grind capacity Ensure security of raw material supply Dampen volatility US corn wet milling industry output by major product category in 2013 (75bn lbs)* 1 44% Liquid Sweeteners (commercial weight) 2 10% Starch 3 11% Ethanol 4 35% Co-products 1 4 3 2 Tate & Lyle Bulk Ingredients: 1. Liquid Sweeteners (cid:116)(cid:1) High fructose corn syrup (cid:116)(cid:1) Glucose (cid:116)(cid:1) Dextrose 2. Starch (cid:116)(cid:1) Industrial starch 3. Ethanol 4. Co-products (cid:116)(cid:1) Corn oil (cid:116)(cid:1) Corn gluten feed (cid:116)(cid:1) Corn gluten meal * Sources: Compiled by the Corn Refiners Association based on 2013 data from the U.S. Department of Agriculture, Renewable Fuels Association, American Coalition for Ethanol, press reports, and industry data compiled for CRA by Veris Consulting, Inc. Corn marketing year ended 31 August 2013. NB Includes approximately 95% of US corn milling industry. i S t r a t e g c R e p o r t G o v e r n a n c e Corn market dynamics Bulk corn sweeteners Industrial markets (cid:116)(cid:1) Corn is the main raw material in the corn wet milling industry which, in the US, processes around 11% of the corn crop annually (cid:116)(cid:1) A good harvest in the US in 2013, as a result of favourable growing conditions, helped ease tight market conditions and saw corn supplies restored to more normal levels (cid:116)(cid:1) As a result of a more balanced demand and supply situation, US corn prices reduced signiﬁcantly during the summer of 2013 with corn prices in Europe following a similar pattern (cid:116)(cid:1) Demand for US bulk corn sweeteners, including high fructose corn syrup (HFCS), is closely linked to the consumption of beverages and carbonated soft drinks in particular, both in the US and Mexico (cid:116)(cid:1) During 2013, a softer beverage season caused by the cold spring in the US reduced consumption of beverages thereby weakening domestic demand for HFCS across the industry (cid:116)(cid:1) Mexican imports of US HFCS were also held back as a result of lower Mexican sugar prices (used as a substitute for HFCS) (cid:116)(cid:1) The paper industry, which provides a major source of demand for industrial starches in the US, saw a reduction in operating rates during the year as a result of a modest decrease in demand (cid:116)(cid:1) In Europe, additional starch capacity reduced industrial starch prices and margins during the year (cid:116)(cid:1) US ethanol industry margins recovered during the year and moved into positive territory as a result of improved demand and supply dynamics US and European spot corn price (c/bushel)5 US carbonated soft drinks sales volume year-on-year change (%)6 ) u b / c ( n r o c S U 900 800 700 600 500 400 300 US corn EU corn A p r 1 2 J u l 1 2 O c t 1 2 J a n 1 3 A p r 1 3 J u l 1 3 O c t 1 3 J a n 1 4 M a r 1 4 300 250 200 150 100 ) t m / € ( n r o c U E 13 weeks to end June 2013 September 2013 December 2013 -3.1% -2.9% March 2014 -2.6% -6.3% 0% -10% i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n 5 Source: Bloomberg. 6 Source: IRI Infoscan Reviews, Total U.S. Multi-Outlet and Convenience (FDM, WMT, Dollar, Club, Convenience Stores). Tate & Lyle PLC Annual Report 2014 | 11 Strategic Report OUR BUSINESS MODEL Turning raw materials into distinctive, high-quality ingredients and solutions for our customers Through our facilities across the world we: Collaborate closely with our customers to help them develop new concepts, adapt formulations and get products to market faster Draw on the deep sector knowledge of our food scientists and ideas sourced from outside the Company to develop and commercialise the next generation of speciality food ingredients Apply our manufacturing know-how and supply chain expertise to turn raw materials into high quality food ingredients for delivery to our food and beverage customers worldwide. Our operations Page 6 Our Strategy in Action Pages 16 and 17 12 | Tate & Lyle PLC Annual Report 2014 Raw materials Sourcing raw materials Most of our ingredients are produced from crops, predominantly corn. Ensuring we have a reliable source of corn for our plants is essential. This involves developing long-term, mutually beneﬁcial relationships with growers, farmers and other commercial partners to secure supply; understanding commodity markets; and hedging costs where feasible. Supply chain ethics are important to us. We apply clear standards, both operational and ethical, to our suppliers, and work with them to help them meet our compliance needs. This is essential if we are to meet our customers’ requirements for traceability, quality and ethical standards throughout the supply chain. Developing sustainable products Page 36 Speciality Food Ingredients Innovation and Commercial Development Bulk Ingredients i S t r a t e g c R e p o r t G o v e r n a n c e Customers Innovation and Commercial Development (ICD) Both divisions, but principally Speciality Food Ingredients are supported by the ICD group. ICD brings together research and development, platform management, global marketing and open innovation into one global team, to provide an integrated approach to developing and commercialising innovative new products and technologies. Customers i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Producing high-quality ingredients We operate through two global divisions – Speciality Food Ingredients and Bulk Ingredients. Our production facilities include a network of corn wet mills in North America and Europe which manufacture both bulk and speciality products. In addition to the plants shared by the two divisions to make corn-based products, we produce sucralose through two, large-scale, continuous processing facilities in the US and Singapore, and operate a number of smaller-scale blending facilities where we make food stabiliser systems. Each division has its own sales force and commercial operations to provide the necessary focus and expertise for customers in their respective end markets. Understanding our markets Customer insights drive all that we do. We analyse the markets we operate in globally and we use market research to gain insights into consumers’ dietary habits, their perceptions of ingredients, and their nutritional expectations of food and drinks. We use these insights to drive our own product development, to differentiate ourselves from our competitors and to help our customers meet consumer needs. Tate & Lyle PLC Annual Report 2014 | 13 Strategic Report OUR STRATEGY How we are delivering on our strategy Our vision Our vision is to become a leading global provider of speciality food ingredients and solutions. Our strategy is to deliver this vision through: A disciplined focus on growing our Speciality Food Ingredients division through: – deeper customer understanding – continuous innovation – stronger positions in high-growth markets Driving our Bulk Ingredients division for sustained cash generation to fuel this growth. Our Strategy in Action Pages 16 and 17 14 | Tate & Lyle PLC Annual Report 2014 Deep customer engagement We believe that getting closer to our customers, developing a better understanding of their needs and changing the ways we interact with them is a key part of delivering sustainable long-term growth. Innovation Creating a world-class innovation capability is a key part of our growth strategy. The Innovation and Commercial Development group (ICD) provides a fully integrated approach to developing and commercialising innovation to meet our customers’ needs. New markets and customer channels Our aim is to build our presence significantly in emerging markets and in those parts of the speciality food ingredients market where historically we have been under-represented, specifically in SMEs and private label. Sustained cash generation Within Bulk Ingredients our strategy is to provide stable, long-term cash flow to help fund growth in Speciality Food Ingredients. S p e c a i l i t y F o o d I n g r e d e n t s i B u k I l n g r e d e n t s i Global network Our global Commercial and Food Innovation Centre in Chicago, USA is helping us transform the way we work with our customers. It has: (cid:116)(cid:1) Full sensory capabilities (cid:116)(cid:1) Full culinary capabilities (cid:116)(cid:1) High-tech food laboratories (cid:116)(cid:1) A pilot plant (cid:116)(cid:1) Global communications capabilities. We have also developed a global network of regional applications and technical services facilities enabling us to interact directly with customers across our markets, helping them develop new concepts and get them to market faster. Progress 2015 Priorities Increased level of customer interaction at our global Commercial and Food Innovation Centre and our other client-facing facilities worldwide Step change in the way we are perceived by food and beverage customers in the speciality food ingredients industry Broaden customer interaction through our global network of innovation, applications and technical services facilities Improve quality and size of customer project pipeline Convert more customer relationships into strategic partnerships Ideas within our innovation pipeline are derived from three sources: In-house innovation (part of ICD) (cid:116)(cid:1) New products or technologies generated by in-house scientists Open innovation (part of ICD) (cid:116)(cid:1) Leverages our global network of research institutions, start-ups and universities (cid:116)(cid:1) Provides route to market for technologies or products close to commercial launch Tate & Lyle venture funds (cid:116)(cid:1) Invests in early-stage speciality food ingredients concepts by partnering with research institutions, other venture funds, universities and entrepreneurs. Progress 2015 Priorities Addition of PromOat® Beta Glucan, PrOatein™ Oat Protein and PULPIZ® Pulp Extender to our speciality food ingredients portfolio Commercialisation of recent innovations such as SODA-LO® Salt Microspheres Continued to progress projects through the innovation pipeline which remains robust Launch new products from within our innovation pipeline Increase sales from recently launched products Continue to leverage open innovation network and partnerships Expanding in new markets (cid:116)(cid:1) Building dedicated speciality food ingredients businesses in both Asia Paciﬁc and Latin America. (cid:116)(cid:1) Forming direct selling relationships with local food and beverage manufacturers as well as multinationals. (cid:116)(cid:1) Investing in local infrastructure with the opening of satellite applications and technical services facilities in the emerging markets. SMEs and private label (cid:116)(cid:1) Changing the way we access and work with SMEs and private label customers by developing more direct relationships. Progress Continued strong organic growth in Asia Paciﬁc and Latin America 2015 Priorities Deliver another year of strong organic growth in emerging markets Expanded presence in Asia Paciﬁc through Tate & Lyle Howbetter and agreement to acquire Winway Biotechnology Established new applications and technical services facilities in Singapore and direct sales presence in Japan Complete acquisition of Winway Biotechnology and continue to expand our presence in emerging markets Leverage dedicated resources to develop relationships with both SMEs and food service customers We aim to achieve sustained cash generation by: (cid:116)(cid:1) Dampening earnings volatility by diversifying our income streams into new areas (cid:116)(cid:1) Optimising margins by gradually moving the corn that we grind away from markets that are in long-term structural decline into higher margin speciality food ingredients (cid:116)(cid:1) Ensuring the security of our supply of raw materials (cid:116)(cid:1) Reducing costs and continuing to improve operational efﬁciency. Progress 2015 Priorities Bulk Ingredients performance held back by challenges posed by a soft beverage season, severe and prolonged winter weather and lower co-product returns Further investment in corn storage capacity for security of supply Optimise margins by improving product mix and delivering further operational efﬁciencies Further divert corn grind to Speciality Food Ingredients division Further investment in strengthening security of raw material supply Leverage fermentation assets and expertise to drive diversiﬁcation Tate & Lyle PLC Annual Report 2014 | 15 i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Strategic Report OUR STRATEGY IN ACTION Deep customer engagement Innovation We continued to see an increase in customer interaction through our global Commercial and Food Innovation Centre in Chicago, USA and our global network of applications and technical services facilities. Customer visits to the Centre increased by 10% in the year, while just under one-ﬁfth of all customer visits to our six main customer-facing laboratories took place in the emerging markets. We also saw an increase in the number of visitors from the key areas of marketing, R&D and senior management leading to growth in the number of customer projects being generated. As the level of customer interaction has increased so too has customers’ perception of our capabilities, with the results from a survey carried out during the year revealing that 63% of our customers believe we are ‘exceeding their expectations’. This level of satisfaction is approaching ‘best in class’ and is a positive lead indicator for future growth. Our innovation pipeline remains strong, and as at 31 March 2014 comprised a total of 35 projects, including ten in the ﬁnal stages. The composition of the pipeline is well balanced across our three Speciality Food Ingredients platforms, including 36% in health and wellness, reﬂecting our focus on increasing our presence in this area. During the year, we brought PULPIZ® Pulp Extender to market, a texturant used to replace tomato paste in a range of applications. In May 2013, we acquired Biovelop, the manufacturer of PromOat® Beta Glucan, which has also brought a new, high value, speciality ﬁbre PrOateinTM Oat Protein into our portfolio. We continue to see strong customer interest in our novel salt-reduction ingredient SODA-LO® Salt Microspheres with our focus now turning to converting customer projects into sales and broadening the range of applications in which SODA-LO® Salt Microspheres can be used. Impact of visiting Commercial and Food Innovation Centre in Chicago, USA on customer satisfaction* Innovation pipeline by stage of development (number of projects) At 31 March 2014 Exceeds expectations As expected Almost as expected 10% 48% 42% 8% 29% 63% All customers in survey Customers in survey collaborating at the global Commercial and Food Innovation Centre * Survey conducted between October and December 2012, and March and April 2013. 16 | Tate & Lyle PLC Annual Report 2014 Sweeteners Texturants Health and wellness Bulk Ingredients 13 8 7 4 3 Stage 1 Stage 2 Stage 3 Stage 4 Stage 5 New markets and customer channels Sustained cash generation Tate & Lyle Howbetter’s Food Systems blending facility Grain elevator at Fowler, Indiana, USA We delivered another strong performance in the emerging markets of Asia Paciﬁc and Latin America with double-digit volume growth in the period. The investment we have made to increase sales coverage and in our applications and technical services facilities in these regions, including the opening of a new facility in Singapore during the year, is providing an excellent platform to attract new customers and engage directly with them in the local market, share ideas and develop new projects. The creation of Tate & Lyle Howbetter and the agreement to acquire Winway Biotechnology, a manufacturer of polydextrose speciality ﬁbre, strengthens our presence in Asia Paciﬁc as we continue to invest in growing our speciality food ingredients business in these faster growing markets. As envisaged when we started our business transformation programme four years ago, we are developing a more geographically diverse company with a reduced reliance on the developed markets and an improved risk proﬁle. While a number of challenges held back the performance of our Bulk Ingredients division during the year, including the very cold spring and extremely cold and prolonged winter in the US, overall we have delivered a steady performance from this part of the business over the last four years. This has been achieved against a backdrop of very signiﬁcant volatility in the corn market through: (cid:116)(cid:1)a relentless focus on efﬁciency and cost reduction (cid:116)(cid:1)trading up to higher margin products (cid:116)(cid:1)diverting the corn that we grind to new areas like green chemistry (cid:116)(cid:1)investing in projects to help dampen risk within the division, such as expanding our network of corn elevators to enhance the security of supply. We will maintain this same disciplined approach as we look to deliver a steady performance from this division and to ensure it continues to generate a sustained source of cash to grow our Speciality Food Ingredients division. SFI sales by region 2014* Bulk Ingredients adjusted operating profit (£m) 1 52% North America 2 24% Europe & Middle East 3 19% Emerging markets 4 5% Rest of world 172 182 172 157 3 4 1 2 * Calculated based on SFI’s Latin America and Asia Pacific sales of single ingredients (excluding Japan, Australia and New Zealand). 2011 2012 2013 2014 Tate & Lyle PLC Annual Report 2014 | 17 i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Strategic Report KEY PERFORMANCE INDICATORS Measuring our success against our strategy Performance We focus on a number of financial performance measures to ensure that our strategy successfully delivers increased value for our shareholders. What we measure Why we measure it Sales of speciality food ingredients To ensure we are successful in growing the division which is the key area of strategic focus for the business. Performance metric for the Group Bonus Plan. Adjusted operating proﬁt2 To track the underlying performance of the business and to ensure sales growth translates into increased proﬁts. Performance metric for the Group Bonus Plan. Return on capital employed2: adjusted proﬁt before interest, tax and exceptional items divided by adjusted average invested operating capital3 for continuing operations. Cash conversion cycle4: controllable working capital divided by quarterly sales, multiplied by the number of days in the quarter. Net debt to EBITDA multiple5: the number of times the Group’s net borrowing exceeds its trading cash ﬂow. EBITDA is earnings before exceptional items, interest, tax, depreciation and amortisation. Interest cover5: the number of times the proﬁt of the Group exceeds interest payments made to service its debt. To ensure that we continue to generate a strong rate of return on the assets that we employ and have a disciplined approach to capital investment. Performance metric for the Performance Share Plan. To track how efﬁcient we are in turning increased sales into cash and to ensure that working capital is managed effectively. Performance metric for the Group Bonus Plan. To ensure that we have the appropriate level of ﬁnancial gearing and that we generate sufﬁcient proﬁts to service our debt. These measures are a key focus for banks and providers of both debt and equity capital. Chief Executive’s Review Pages 7 to 9 Financial strength We look at measures of ﬁnancial strength to ensure that we maintain the ﬁnancial ﬂexibility to grow the business whilst maintaining investment-grade credit ratings. Group Financial Results Pages 24 to 28 Corporate responsibility1 It is important that we act responsibly and consider carefully the impact our activities have on all stakeholders including employees, customers and the communities in which we operate. Corporate Responsibility Pages 32 to 37 Recordable incident rate: the number of injuries per 200,000 hours that require more than ﬁrst aid, for employees and contractors. Lost-work case rate: the number of injuries that resulted in lost-work days per 200,000 hours, for employees and contractors. The safety of our employees and contractors is of paramount importance. Ensuring safe and healthy conditions at all our locations is essential to our operation as a successful business. Safety performance is a speciﬁc consideration that the Remuneration Committee may factor into decisions on pay. 1 Measured on a calendar year basis. 2 Prior year numbers restated for IAS 19 (Revised 2011) ‘Employee Benefits’. 3 Defined as shareholders’ equity excluding net debt, net tax assets/liabilities and net retirement benefit obligations. 4 Defined as controllable working capital divided by quarterly sales, multiplied by the number of days in the quarter on a four-quarter rolling basis (a reduction in the number of days represents an improvement). 18 | Tate & Lyle PLC Annual Report 2014 How we have performed Comment £887m £947m £983m 2012 2013 2014 £346m £356m £349m 2012 2013 2014 21.4% 19.7% 19.2% 2012 2013 2014 36 days 42 days 39 days 2012 2013 2014 1.1x 1.0x 0.8x 2012 2013 2014 11.1x 11.1x 11.6x 2012 2013 2014 0.85 0.85 0.58 2011 2012 2013 0.21 0.26 0.13 2011 2012 2013 Volume growth of 4% in SFI with value sales growth held back by lower prices for SPLENDA® Sucralose and lower corn prices. Growth of 1% in Speciality Food Ingredients with a good performance in Europe, Asia Paciﬁc and Latin America offset by a lower contribution from the US and SPLENDA® Sucralose. A reduction in Bulk Ingredients of 4% as a result of weakened demand for bulk sweeteners and lower co-product returns. Reduction in adjusted operating proﬁt combined with slight increase in operating assets. Lower ﬁnished goods inventories in the US, and signiﬁcantly lower corn prices in the US. Ratio remains well inside our internal maximum threshold of 2.0x. The improvement reﬂects the reduction in net debt during the year. Ratio remains well above our internal minimum threshold of 5.0x. Change +4% (constant currency)6 Change -1% (constant currency)6 Change -50bps7 Change Improved by 3 days Change Improved 0.2x Change Improved 0.5x While our safety KPIs were the lowest levels recorded, we are saddened to report that our Group safety performance this year was completely overshadowed by three fatal accidents: two during and one after the end of the reporting year. Further details are provided in the Chairman’s Statement on page 4, the Chief Executive’s Review on page 8 and the Corporate Responsibility section on page 33. 5 Net debt, EBITDA, profit and interest are defined under the Group’s bank covenant conditions and are based on unrounded numbers. Net debt is calculated using average rates of exchange. 6 Changes in constant currency are calculated by retranslating comparative period results at current period exchange rates. 7 Basis points (one hundred basis points equates to one percentage point). Tate & Lyle PLC Annual Report 2014 | 19 i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Strategic Report SPECIALITY FOOD INGREDIENTS Performance overview Growth in Speciality Food Ingredients through focus and depth Speciality Food Ingredients develops, produces and markets distinctive, high-quality ingredients for food and beverage customers across the world. By leveraging our manufacturing facilities, innovative technology and formulation expertise, we help them create more cost-effective, better tasting products for consumers. Speciality Food Ingredients works closely with our Innovation and Commercial Development group to develop a pipeline of new products. Sales £983m 2013 – £947m Adjusted operating profit £213m 2013 – £213m Sales Adjusted operating proﬁt Adjusted operating margin “We delivered another strong performance in emerging markets which are becoming a more meaningful part of the division. While we face a headwind from lower SPLENDA® Sucralose prices, we are well placed to capitalise on strong consumer trends as we leverage the investment we have made to diversify the business both geographically and through innovation.” Olivier Rigaud 20 | Tate & Lyle PLC Annual Report 2014 Year ended 31 March 2013 £m 947 213 22.5% 2014 £m 983 213 21.7% Reported +4% 0% -80bps Change Constant currency +4% +1% -70bps Market conditions and trends The global market for speciality food ingredients, and particularly those areas of the market where we operate, continues to beneﬁt from a number of strong underlying consumer trends: health and wellness, convenience and ‘clean label’. Consumers are increasingly aware of the link between diet and health. The rising incidence of diabetes and obesity in both developed and developing markets is driving consumers, manufacturers and governments to focus on ‘healthier’ products. In addition to products which address calorie and weight management, consumers are also increasingly seeking solutions for heart health, including lower sodium products, and digestive health, including ﬁbre-enhanced products. The number of global product launches containing ﬁbres or making a low sodium claim increased by 47%1 and 37%1 respectively in calendar year 2013, with growth across both developed and developing markets. Changes in consumer lifestyles continue to increase the demand for packaged and convenience foods, for consumption both at home and ‘on the go’. Product launches with a ‘convenient’ claim increased globally by 25%1 in calendar year 2013 and, whilst demand continues to grow in developed markets, increasing levels of urbanisation are driving demand for convenience products in developing markets as well. Demand for convenience is a key driver for speciality ingredients that provide added functionality such as stability, texture and extended shelf-life. Food and beverage manufacturers are launching more ‘clean label’ products in response to increasing consumer demand for more natural products across a broad range of categories. Global ‘clean label’ product launches increased by 27%1 in calendar year 2013, responding to increasing consumer awareness of food processing, origination of ﬁnished and unﬁnished goods, and ingredient labelling. Against the backdrop of continuing tough macroeconomic conditions in many countries and tighter household budgets, coupled with high raw materials prices, cost-optimisation continues to be a theme with food and beverage customers looking at ways to reduce costs and provide more value-based alternatives for consumers without compromising on taste. Financial performance Within Speciality Food Ingredients, volumes grew by 4% and sales increased by 4% (also up 4% in constant currency) to £983 million (2013 – £947 million) with good volume growth in Asia, Europe and Latin America, held back by a softer performance in the US where volumes were slightly lower than the comparative period. Adjusted operating proﬁt was in line with the prior year (up 1% in constant currency) at £213 million (2013 – £213 million) as a result of lower selling prices for SPLENDA® Sucralose and a lower contribution from the US. This result includes the majority of the £6 million one-off gain from the purchase, sale and leaseback of our building in Hoffman Estates, US, and £7 million representing 1 Source: Innova Market Insights. the ﬁnal annual payment received from McNeil Nutritionals as part of the realignment of the sucralose business back in 2004. Operating margins reduced by 80 basis points to 21.7% (2013 – 22.5%). The effect of currency translation was to decrease adjusted operating proﬁt by £2 million. This division comprises three broad product categories: starch-based speciality ingredients, high intensity sweeteners and Food Systems. Starch-based speciality ingredients Sales increased by 7% (7% in constant currency) to £595 million (2013 – £559 million) with volume growth of 5%. While percentage operating margins were slightly lower, operating proﬁt was ahead of the prior year. While we expect to deliver another year of good volume growth in ﬁnancial year 2015, the level of sales value growth is expected to be lower as a result of the signiﬁcant reduction in corn prices. In food starches, we saw volume growth across all regions with particularly strong growth in Latin America and Europe. In Europe, our strong innovation capability and new products, such as CREAMIZTM and PULPIZ® Pulp Extender, helped us maintain a healthy leadership position in speciality starches in the region, particularly within the convenience food and dairy categories. In speciality corn sweeteners, we saw growth across all regions outside the US including very strong growth as in the previous year in Latin America, where we continued to expand our business in the beverage and dairy categories. Our success in this region over the past few years is a good example of how we are steadily broadening the geographic mix of the business and reducing our reliance on developed markets. Our ﬁbres range continues to beneﬁt from the strong consumer interest in health and wellness, and we saw volume growth across all regions during the period, with particularly strong growth once again in Asia. The planned acquisition of Winway Biotechnology will provide us with an excellent platform from which to accelerate the growth of our specialty ﬁbres business not only in China but across Asia as a whole. High intensity sweeteners Sales in this category, which comprises SPLENDA® Sucralose and our no-calorie, natural sweeteners, were in line with the comparative period (up 1% in constant currency) at £198 million (2013 – £198 million), with volumes 5% higher. Engaging with customers Launch of TASTEVA® Stevia Sweetener in Latin America TASTEVA® Stevia Sweetener is our new, natural-source, stevia-based sweetener. Launched in 25 countries in just 18 months, it is making excellent progress in the market, in particular in Latin America where it has already exceeded its sales targets for the ﬁrst year. TASTEVA® Stevia Sweetener is tapping into consumer demand for natural, low-calorie ingredients, particularly sweeteners – and is being recognised by customers for its superior taste compared with other stevia-based sweeteners. TASTEVA® Stevia Sweetener allows customers to replace more sugar than they could with other competing stevia products (which retain a bitter taste if used in high quantities), without using masking or modifying agents, thus improving the nutritional proﬁle and consumer appeal of their brands. In SPLENDA® Sucralose, the renewal of a number of large customer contracts during the ﬁnal quarter, including some on a multi-year basis, against the backdrop of an intensely competitive market environment, resulted in an increase in the rate of price decline in SPLENDA® Sucralose during the ﬁnal quarter with the reduction in price for the full year outweighing volume growth. Demand for no-calorie natural sweeteners continues to grow with 2,860 product launches during calendar year 2013 incorporating stevia, an increase of 56% on the prior year. Against this backdrop, we continued to see good volume growth in our natural no-calorie sweeteners, particularly our stevia-based, natural- source sweetener TASTEVA® Stevia Sweetener, with a number of customer product launches during the year. While we continue to see good opportunities for further growth and a strong pipeline for our natural no-calorie sweeteners, the overall contribution to this product category remains relatively small. Food Systems Sales were in line with last year (down 1% in constant currency) at £190 million (2013 – £190 million), with volumes 6% lower, reﬂecting our decision to focus on higher margin blends, which more than offset good volume growth in developing markets. Despite the lower volumes, Fruit juice containing TASTEVA® Stevia Sweetener with stevia leaf we delivered good operating proﬁt growth driven by improved product mix, tight cost control and lower prices for some raw materials. Our recently opened technical and commercial facility in Roggenhorst, Germany is helping us work more closely with customers and strengthen our pipeline of new products. The creation of Tate & Lyle Howbetter provides us with a solid platform from which to expand our Food Systems business in China and more broadly across the region. As well as bringing new customers, its high quality local blending capabilities are helping to strengthen our offering to existing customers. It also enables us to leverage additional know- how and expertise across our network of Food Systems businesses globally. Tate & Lyle PLC Annual Report 2014 | 21 i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Strategic Report BULK INGREDIENTS Performance overview Stable long-term cash ﬂows to fuel our growth Bulk Ingredients manufactures and markets a range of products including sweeteners, industrial starches, ethanol, acidulants and animal feed, for food and beverage, industrial and agricultural customers around the world. Bulk Ingredients also partners with a number of bio-based materials companies seeking expertise in the commercialisation of green chemistry fermentation. One such partnership is our joint venture with DuPont which manufactures Bio-PDO®, a bio-based ingredient used in the textile and plastics industries. Sales £2,164m 2013 – £2,309m Adjusted operating profit £172m 2013 – £182m Sales Adjusted operating proﬁt Adjusted operating margin Year ended 31 March 2013 £m 2 309 182 7.9% 2014 £m 2 164 172 7.9% Reported -6% -5% 0 bps Change Constant currency -6% -4% +10 bps “We coped well with a number of challenges during the year as we continue to provide a steady source of cash to support growth in Speciality Food Ingredients. Looking ahead, our focus remains on optimising margins, maintaining efﬁcient assets and seeking to further dampen the risk proﬁle of the division.” Market conditions A good corn harvest in the US with production increasing by around 30% compared with the previous year and a recovery in the stocks-to-use ratio to more normal levels, resulted in a signiﬁcant reduction in corn prices in the summer. However, during the last quarter of the ﬁnancial year, corn prices increased steadily, driven by rising demand from US ethanol and exports. The latest production estimate from the USDA1 for the 2014/15 harvest is broadly in line with the prior year at 13.9 billion bushels. The unusually cold spring in the US in 2013, constrained demand for carbonated soft drinks, a key end market for bulk liquid corn sweeteners. In the three-month period to the end of June 2013, US carbonated soft drinks sales volume declined by 6.3%2 against the comparative period, with sales volume over the whole year 3% lower. In addition to softer domestic demand, lower Mexican sugar prices resulted in a 24%3 reduction in exports of US HFCS to Mexico. The protracted severe cold winter weather in the US also created operational and supply chain challenges across the industry, particularly during the quarter ended 31 March 2014. World sugar prices, which provide a reference price for some of our products, continued to decline steadily during 2013 as supply was increased following consecutive years of surplus. However, towards the end of the ﬁnancial year, prices stabilised reﬂecting ongoing weather risks and the potential impact of these on the Brazilian crop. In Europe, sugar prices started to decline in the second half of the ﬁnancial year, reﬂecting an increase in stock levels following the steps taken by the European Union in the 2012/13 sugar year to increase imports, and lower consumer demand due to the cold spring. The paper industry, which provides a major source of demand for industrial starches in the US, saw a reduction in operating rates during the 2013 calendar year as a result of lower demand. In Europe, additional starch capacity reduced industrial starch prices, putting pressure on margins. Conditions in the US ethanol industry improved steadily during the year, following a boost from the large corn crop which drove production costs down and made US ethanol a more cost competitive fuel. Increased demand, which tightened ethanol inventories, combined with logistical difﬁculties impacting the supply side in the second half of the ﬁnancial year caused by the severe cold weather, also helped improve ethanol pricing fundamentals. Matt Wineinger 22 | Tate & Lyle PLC Annual Report 2014 1 USDA is the US Department of Agriculture. 2 Source: IRI Infoscan Reviews, Total US Multi-Outlet and Convenience (FDM, WMT, Dollar, Club, Convenience Stores). 3 Source: US Census Bureau, HTS Export data. A combination of tight supplies, reﬂecting the limited availability of good quality corn in the lead up to the new harvest last year and increased demand, kept prices high for corn gluten feed particularly during the second half of the ﬁnancial year. Conversely, corn oil prices were lower as a result of the increased supply of corn distillers’ oil from the dry mill ethanol industry. Financial performance Bulk Ingredients volumes decreased by 1% and sales were 6% lower (6% lower in constant currency) at £2,164 million (2013 – £2,309 million) largely due to the pass through of lower corn prices. Adjusted operating proﬁt was 5% lower (4% lower in constant currency) at £172 million (2013 – £182 million) as a result of the soft US beverage season, which reduced demand for liquid corn sweeteners, lower returns from co-products and, in the ﬁnal quarter, the impact of the protracted severe cold winter in the US. This result includes a one-off gain of £3.5 million in the ﬁrst half from the on-sale of Orsan China (a monosodium glutamate producer in which Tate & Lyle previously held a stake and which was sold in 2009). The effect of currency translation was to decrease adjusted operating proﬁt by £2 million. This division comprises three broad product categories: sweeteners; industrial starches, acidulants and ethanol; and co-products. Sweeteners In the Americas, bulk corn sweetener volumes decreased by 2% largely as a result of lower HFCS volumes caused by the cold spring which reduced demand for carbonated soft drinks during the second quarter. Sales decreased by 6% (down 6% in constant currency) to £889 million (2013 – £942 million) as a result of the lower volumes and the reduction in corn prices following the large corn crop. Despite lower volumes, proﬁts were ahead of the comparative period as a result of the modest increase in HFCS unit margins secured in the 2013 calendar year contracting round. Operating proﬁts from Almex, our Mexican joint venture, were lower than the comparative period reﬂecting reduced volumes and lower margins as a result of greater competition from Mexican sugar. In Europe, sales of bulk corn sweeteners increased by 1% (ﬂat in constant currency) to £148 million (2013 – £146 million), with volumes 1% higher than the prior year. We saw the beneﬁt of higher unit margins throughout the year, driven in the ﬁrst half by sugar prices (which provide the Security of supply Investment in grain elevators Our network of 14 grain elevators (silos), located in the US corn belt, makes an essential contribution to ensuring we have a reliable, high-quality source of corn for our US plants. Corn can deteriorate if not stored well, so there is an advantage to keeping the storage in our own hands; moreover many of our elevators have forged long-term relationships with producers who provide a consistent supply of locally- produced corn each year. Over the last few years we have been adding capacity at existing elevators as well as acquiring new ones, and with that, increasing the number of farmers we buy corn from each year. reference price for isoglucose (HFCS) in the EU) staying high for longer than expected and, in the second half, lower raw material costs following a good corn crop. As a result, overall proﬁts for the full year were ahead of the comparative period. Industrial starches, acidulants and ethanol Sales decreased by 5% (3% in constant currency) to £635 million (2013 – £667 million). In industrial starches, volumes were 2% higher. In the US, where we contract for longer periods than in Europe, proﬁt was ahead of the prior year as a result of ﬁrmer pricing and slightly higher volumes. In Europe, lower prices, reﬂecting the pass through of lower corn costs and increased competition, put pressure on margins and reduced proﬁts compared with last year. This part of the business remains particularly sensitive to changes in the macroeconomic environment. In US ethanol, which represents a small part of our business, the improvement in market conditions, particularly during the second half, resulted in a better performance and a reduction in operating losses. Grain elevator at Francesville, Indiana, USA Proﬁt in our citric acid business was lower than the prior year, with reduced volumes more than offsetting lower raw material costs. Our Bio-PDO® joint venture delivered an improved performance during the period as a result of slightly higher volumes and lower corn costs. Co-products Sales of co-products decreased by 11% (down 11% in constant currency) to £492 million (2013 – £554 million). Overall returns from co-products were £7 million lower than our expectations at the start of the year, driven by corn gluten feed and corn oil which more than offset higher returns from corn gluten meal. Since over 80% of our US corn grind is utilised to produce Bulk Ingredients, the majority of this impact is recorded within this product category. Tate & Lyle PLC Annual Report 2014 | 23 i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Strategic Report GROUP FINANCIAL RESULTS “ Our robust balance sheet provides us with a solid platform allowing us to invest a further £100 million in Speciality Food Ingredients growth over the next two years.” Tim Lodge 24 | Tate & Lyle PLC Annual Report 2014 Highlights Strong free cash ﬂow generation of £227 million Balance sheet remains strong with £126 million reduction in net debt to £353 million Investment of £100 million over the next two years in expansion and cost reduction projects within Speciality Food Ingredients Additional steps taken to reduce pension risk including buy-in of liabilities of the Amylum UK Pension Scheme Sales from continuing operations of £3,147 million (2013 – £3,256 million) were 3% lower than the prior year (3% in constant currency). Sales in Speciality Food Ingredients increased by 4% (4% in constant currency) to £983 million (2013 – £947 million), with sales volumes increasing by 4%. Sales in Bulk Ingredients decreased by 6% (6% in constant currency) to £2,164 million (2013 – £2,309 million), with volumes 1% lower. Adjusted operating proﬁt decreased by 2% (1% in constant currency) to £349 million (2013 – £356 million). In Speciality Food Ingredients, adjusted operating proﬁt was in line (up 1% in constant currency) with the prior year at £213 million (2013 – £213 million). Bulk Ingredients adjusted operating proﬁt decreased by 5% (4% in constant currency) to £172 million (2013 – £182 million). Adjusted net ﬁnance expense (excluding net retirement beneﬁt interest) decreased from £29 million to £27 million, largely driven by the repayment of our £100 million bond in June 2012 and lower interest rates on our ﬂoating rate debt. Both adjusted proﬁt before tax and adjusted diluted earnings per share decreased by 2% (ﬂat in constant currency) to £322 million (2013 – £327 million) and 55.7p (2013 – 56.6p) respectively. On a statutory basis, proﬁt before tax from continuing operations decreased by 4% (down 2% in constant currency) to £290 million (2013 – £301 million) and proﬁt for the year from total operations was in line at £273 million (2013 – £273 million), with the current period beneﬁting from an exceptional income tax credit of £28 million following the favourable resolution of outstanding tax matters in Spain. Basis of preparation At the beginning of the year, the Group adopted IAS 19 (Revised 2011) ‘Employee Beneﬁts’ which introduced a change to the way the Group accounts for deﬁned beneﬁt pension plans. The change modiﬁes the basis on which the ﬁnancing charge is calculated by applying the discount rate to the net deﬁned beneﬁt obligation and requires the recognition of scheme administration costs within operating proﬁt. Comparative information for 2013 has been restated on a consistent basis and an explanation and analysis of the effect of the changes is presented in Note 43. For the year ended 31 March 2014, the new requirements increased statutory net ﬁnance costs by £8 million (31 March 2013 – £6 million) and reduced operating proﬁt by £2 million (31 March 2013 – £2 million). With the exception of the changes arising from the adoption of IAS 19 (Revised 2011) the Group’s principal accounting policies are unchanged compared with the year ended 31 March 2013. Adjusted performance measures We report adjusted performance measures because they provide both management and investors with valuable additional information on the performance of the business. The following items are excluded from these adjusted measures: (cid:116)(cid:1)exceptional items (Note 7) (cid:116)(cid:1)amortisation of intangible assets acquired through business combinations (Note 15) (cid:116)(cid:1)net retirement beneﬁt interest (Note 30) (cid:116)(cid:1)tax on adjusting items (cid:116)(cid:1)results of discontinued operations (Note 12). This adjusted information is used internally for analysing the performance of the business. A reconciliation of reported and adjusted information is included in Note 42. Impact of changes in exchange rates In comparison to the prior year, the Group’s reported ﬁnancial performance was adversely affected by currency translation. A weakening of the average US dollar exchange rate against sterling was only partially offset by the strengthening of other currencies, which has slightly reduced proﬁts. The movement in period-end exchange rates, particularly the weaker US dollar, led to a reduction in net debt as a result of the translation of dollar- denominated debt. Summary of ﬁnancial results Year ended 31 March Continuing operations Sales Adjusted operating proﬁt Adjusted net ﬁnance expense Adjusted proﬁt before tax Exceptional items Amortisation of acquired intangible assets Net retirement beneﬁt interest Proﬁt before tax Income tax expense Proﬁt for the year from continuing operations Proﬁt for the year from discontinued operations Proﬁt for the year Earnings per share – continuing operations Basic Diluted Adjusted earnings per share – continuing operations Basic Diluted Dividends per share Interim paid Final proposed Net debt At 31 March 2013 Restated1 £m Change (reported) % Change (constant currency) % 3 256 356 (29) 327 (12) (10) (4) 301 (46) 255 18 273 54.9p 53.8p 57.7p 56.6p 7.4p 18.8p 26.2p -3% -2% -2% -4% -4% -3% -1% 0% -2% -2% 0% 2% -3% -2% 0% -2% 5.4% 5.3% 5.3% 2014 £m 3 147 349 (27) 322 (14) (10) (8) 290 (45) 245 28 273 52.8p 52.1p 56.5p 55.7p 7.8p 19.8p 27.6p 353 479 26.3% 1 Restated for the adoption of IAS 19 (Revised 2011) ‘Employee Benefits’. The average and closing exchange rates used to translate reported results were as follows: US dollar:sterling Euro:sterling Average rates Closing rates 2014 2013 1.59 1.57 1.19 1.24 2014 2013 1.67 1.52 1.21 1.18 Central costs Central costs, which include head ofﬁce, treasury and reinsurance activities, decreased by £3 million to £36 million, largely as a result of lower staff-related costs. Energy costs Energy costs were higher than the prior year at £177 million (2013 – £170 million), as a result of the increased price of energy used in many regions, in particular the US, which more than offset positive variances relating to efﬁciency and input mix. We have covered approximately 66% of our estimated energy needs for ﬁnancial year 2015, albeit at higher prices than in ﬁnancial year 2014 which we will look to mitigate through further efﬁciencies. Exceptional items from continuing operations Year ended 31 March 2014 2013 £m £m (14) (20) Business transformation costs Gain on disposal of joint venture – Sucromiles Net exceptional charge – (14) 8 (12) During the year ended 31 March 2014, an exceptional charge of £14 million (see Note 7) was recognised in continuing operations, relating to business transformation costs, speciﬁcally the implementation of the common global IS/IT platform. This compares to a net exceptional charge in the comparative year of £12 million, with £20 million of business transformation costs partially offset by a credit of £8 million from the disposal of our share in Sucromiles SA, our former Colombian citric-acid joint venture. The tax impact of net exceptional items within continuing operations was a £9 million credit (2013 – £5 million credit). Tate & Lyle PLC Annual Report 2014 | 25 i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Strategic Report ADDITIONAL FINANCIAL INFORMATION Net ﬁnance expense After excluding net retirement beneﬁt interest, net ﬁnance expense from continuing operations decreased to £27 million (2013 – £29 million) with a reduction in underlying net interest expense driven by the repayment of our £100 million bond in June 2012 and lower interest rates on our ﬂoating rate debt. The effective tax rate on adjusted proﬁt of 18.5% (2013 – 18.0%) includes tax credits in relation to prior year adjustments in the US. As a result of these tax beneﬁts in ﬁnancial year 2014, and our expectation of further changes in the geographic mix of proﬁts, we anticipate the effective tax rate will be higher in ﬁnancial year 2015 at a little over 20%. Taxation Our tax policy is to manage our obligations in compliance with all relevant tax laws, disclosure requirements and regulations. We seek to ensure that our approach to tax and the tax payments we make in all territories in which we have operations are fully consistent with local requirements, taking into account available tax incentives and allowances, and are aligned with the Group’s wider business strategy. Discontinued operations and legacy issues During the year, the Group recognised a proﬁt from discontinued operations of £28 million which wholly comprised a non-cash exceptional income tax credit arising from the favourable resolution of outstanding tax matters associated with the starch facilities which formed part of the Group’s former Food & Industrial Ingredients, Europe segment. During the prior year, the Group recognised a proﬁt of £18 million from discontinued operations which comprised: an exceptional gain of £26 million on the completion of the sale of its Vietnam Sugar operations, its remaining Israel Sugar assets and other assets, all of which related to the Group’s former Sugars segment; partially offset by an operating loss of £8 million that was incurred by these businesses. Earnings per share Adjusted diluted earnings per share from continuing operations at 55.7p (2013 – 56.6p) were 2% lower (ﬂat in constant currency). Adjusted basic earnings per share from continuing operations decreased by 2% (down 1% in constant currency) to 56.5p. Total basic earnings per share were ﬂat at 58.8p (2013 – 58.6p) with the discontinued operations result reﬂecting the one-off beneﬁt from the aforementioned £28 million exceptional tax credit. Dividend The Board is recommending a 5.3% increase in the ﬁnal dividend to 19.8p (2013 – 18.8p) per share making a full year dividend of 27.6p (2013 – 26.2p) per share, up 5.3% on the prior year. Subject to shareholder approval, the proposed ﬁnal dividend will be due and payable on 1 August 2014 to all shareholders on the Register of Members on 27 June 2014. In addition to the cash dividend option, shareholders will continue to be offered a Dividend Reinvestment Plan (DRIP) alternative. We seek to develop good, open working relationships with tax authorities and to engage with them proactively, recognising that tax legislation can be complex and may be subject to differing interpretations. In instances where this might arise, we seek to engage with the relevant tax authorities in open discussion of any such differences as early as possible to remove uncertainty and obtain resolution. Tate & Lyle’s tax strategy and the management of tax risk is primarily the responsibility of the Chief Financial Ofﬁcer and the Vice President, Group Tax and is reviewed by the Board and the Audit Committee to ensure responsible tax practices are maintained across the Group’s businesses. Our tax rate is sensitive to the geographic mix of proﬁts and reﬂects a combination of higher rates in certain jurisdictions such as the US, nil effective rates in Singapore (due to pioneer status which we were granted in 2008 to reﬂect our investment in innovative technology) and the UK, and rates that lie somewhere in between, for example, in certain East European countries. Our UK earnings are now relatively small following the sale of our sugars and molasses businesses. Less than 1% of total Group sales (2014 – £22 million) are derived from our UK operations which are offset by our corporate costs, primarily the interest we pay on our borrowings. As a result, we pay no corporation tax in the UK. We do, however, pay and collect other taxes in the UK, including payroll taxes, VAT and business rates. Our total tax contribution to the UK Exchequer was in excess of £21 million during the year ended 31 March 2014. 26 | Tate & Lyle PLC Annual Report 2014 Assets Gross assets of £2,527 million at 31 March 2014 were £260 million lower than the prior year principally driven by a weakening of the US dollar which reduced the sterling value of assets and a reduction in working capital. Net assets increased by £14 million to £1,050 million with proﬁts generated in the year being largely offset by dividend payments, foreign exchange losses on the translation of overseas subsidiaries, the post-tax effect of retirement beneﬁts and share repurchases. Retirement beneﬁts We maintain pension plans for our employees in a number of countries. Some of these arrangements are deﬁned beneﬁt pension schemes and, although we have now closed the main UK scheme and US salaried scheme to future accrual, certain obligations remain. In the US, we also provide medical beneﬁts as part of the retirement package. During the year, we took further steps to reduce our pension risk. In September, the trustees of the Amylum UK Pension Scheme agreed a buy-in of the liabilities of the scheme. In addition, the assets and liabilities of the deﬁned beneﬁt pension plan in the Netherlands were transferred to a new collective deﬁned contribution plan and the deﬁned beneﬁt plan was closed to future accrual. This transfer was treated as a settlement on which the Group recognised a gain of £4 million. The net deﬁcit on our retirement beneﬁt plans decreased by £45 million to £220 million (2013 – £265 million). The net deﬁcit on the Group’s pension plans decreased by £19 million to £166 million (2013 – £185 million), with an increase in the underlying deﬁcit more than offset by employer’s contributions of £43 million and favourable currency movements. The liabilities associated with unfunded retirement medical plans in the US decreased by £26 million to £54 million (2013 – £80 million), principally due to a favourable claims experience, an increase in the applicable discount rate and favourable currency movements. Net debt (£m) (479) 391 17 (29) 35 (124) (353) (159) (5) 2013 PBIT/ Other operating Working capital including pensions Capex Dividends Other Exchange 2014 Share issue/ purchase Net interest paid decreased by £4 million to £31 million principally as a result of the repayment of our £100 million bond in June 2012 and lower interest rates on our ﬂoating rate debt. Net income tax payments were £23 million (2013 – £18 million). Free cash inﬂow (representing cash generated from continuing operations after working capital, interest, taxation and capital expenditure) at £227 million was £117 million higher than the prior year largely as a result of the working capital inﬂow of £38 million during the period (2013 – outﬂow of £107 million). During the year we spent £29 million on the repurchase of ordinary shares to satisfy share option schemes. Parent company cash dividends paid were £124 million, £7 million higher than the prior year. Financial risk factors Our key ﬁnancial risk factors are market risks, such as foreign exchange, transaction and translation exposures, and credit and liquidity risks. Please refer to Note 21 of the Financial Statements for a discussion of these risk factors. Off balance sheet arrangements In the ordinary course of business, to manage our operations and ﬁnancing, we enter into certain performance guarantees and commitments for capital and other expenditure. The aggregate amount of indemnities and other performance guarantees, on which no material loss has arisen, including those related to joint ventures and associates, was £1 million at 31 March 2014 (2013 – £2 million). We aim to optimise ﬁnancing costs in respect of all ﬁnancing transactions. Where it is economically beneﬁcial, we choose to lease rather than purchase assets. Leases for property, plant and equipment where the lessor assumes substantially all the risks and rewards of ownership are treated as operating leases, with annual rentals charged to the income statement over the term of the lease. Commitments under operating leases to pay rentals in future years totalled £174 million (2013 – £189 million) and related primarily to railcar leases in the USA. Rental charges for the year ended 31 March 2014 in respect of continuing operations were £17 million (2013 – £19 million). Net debt Net debt was lower than the prior year at £353 million (2013 – £479 million). Free cash ﬂow from continuing businesses of £227 million was partially offset by dividend payments of £124 million and the repurchase of £29 million of ordinary shares to satisfy the Group’s share option schemes. There was a favourable exchange rate impact on net debt of £35 million principally as a result of the weakening of the US dollar against sterling. The Group’s $500 million 5% bond matures in November 2014 and has therefore been reclassiﬁed from non-current to current borrowings. During the year, net debt peaked at £497 million in April 2013. The average net debt was £372 million, a reduction of £61 million from £433 million in the prior year. Cash ﬂow Operating cash ﬂow from continuing operations was £440 million (2013 – £297 million). An inﬂow within working capital of £38 million was mainly driven by lower ﬁnished goods inventories and lower corn prices in the US. The cash ﬂow impact of the Group’s retirement beneﬁt plans amounted to £43 million (2013 – £42 million). Year ended 31 March 2014 2013 £m £m Adjusted operating proﬁt from continuing operations Depreciation/amortisation Share based payments Other non-cash items Working capital before retirement beneﬁts and exceptional cash items Net retirement beneﬁt obligations Cash expenditure on exceptional items Operating cash ﬂow Capital expenditure Operating cash ﬂow less capital expenditure Net interest and tax paid Free cash ﬂow 349 108 8 (6) 356 98 13 – 38 (43) (107) (42) (14) 440 (159) 281 (54) 227 (21) 297 (134) 163 (53) 110 Capital expenditure of £159 million, including a £45 million investment in intangible assets, was 1.5 times the depreciation and amortisation charge of £108 million and, as in the prior year, includes expenditure on our business transformation initiatives and, in particular, the implementation of the global IS/IT system. We expect the ratio of capital expenditure to depreciation/amortisation in the ﬁnancial year 2015 to approach 2.0 times reﬂecting an additional £100 million of capital investment over the next two years in our Speciality Food Ingredients division. Tate & Lyle PLC Annual Report 2014 | 27 i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Strategic Report ADDITIONAL FINANCIAL INFORMATION | CONTINUED Use and fair value of ﬁnancial instruments In the normal course of business we use both derivative and non-derivative ﬁnancial instruments. The fair value of Group net borrowings at the year end was £387 million against a book value of £353 million (2013 – fair value £529 million; book value £479 million). Derivative ﬁnancial instruments used to manage the interest rate and currency of borrowings had a fair value of £29 million asset (2013 – £38 million asset). The main types of instrument used are interest rate swaps, interest rate options (caps or ﬂoors) and cross-currency interest rate swaps. The fair value of other derivative ﬁnancial instruments hedging future currency and commodity transactions was £1 million asset (2013 – £nil). When managing currency exposure, we use spot and forward purchases and sales, and options. The fair value of other derivative ﬁnancial instruments accounted for as held for trading was a £20 million asset (2013 – £21 million asset). As set out in the sections and note referenced above, the market conditions of the areas in which the Group operates have been affected, and are likely to continue to be affected, by large movements in input prices. However, with some 70% of revenues from food and beverage ingredients, the Group has a measure of resilience (although not immunity) to economic challenges. In addition, the Group has access to considerable ﬁnancial resources through its facilities as described in Note 21 to the Financial Statements. In making their assessment of the going concern basis, the Directors have reviewed the maturities of these facilities, the headroom available from them and the Group’s ability to meet the covenant requirements of certain of them. As a consequence, the Directors believe that the Group is well placed to manage its business risks successfully. After making enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Annual Report. Fair value estimation The fair value of derivative ﬁnancial instruments is based on the market price of comparable instruments at the balance sheet date if they are publicly traded. The fair value of the forward currency contracts was determined based on market forward exchange rates at the balance sheet date. The fair values of short-term deposits, receivables, payables, loans and overdrafts with a maturity of less than one year are assumed to approximate their book values. The fair values of bonds, bank and other loans, including ﬁnance lease liabilities due in more than one year, are estimated by discounting the future contractual cash ﬂows at the current market interest rate available to the Group for similar ﬁnancial instruments, adjusted for the fair valuation effects of currency and interest rate risk exposures, where those instruments form part of related hedging relationship agreements, ﬁnancial and commodity forward contracts and options, and commodity futures. The values of certain items of merchandisable agricultural commodities that are included in inventories are based on market prices. Going concern The Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in this Strategic Report. The ﬁnancial position of the Group, its cash ﬂows, liquidity position and borrowing facilities are described in the same sections. In addition, Note 21 to the Financial Statements includes the Group’s objectives, policies and processes for managing its capital; its ﬁnancial risk management objectives; details of its ﬁnancial instruments and hedging activities; and its exposures to credit risk and liquidity risk. 28 | Tate & Lyle PLC Annual Report 2014 RISKS Our risk framework Effectively managing the risks we face Tate & Lyle is exposed to a number of risks which might have a material adverse effect on our reputation, operations and ﬁnancial performance. i S t r a t e g c R e p o r t G o v e r n a n c e 5 Review and monitor risks 1 Identify risks 4 Respond to risks Our risk framework 2 Assess risks and interactions 3 Prioritise risks The Board has overall responsibility for the Group’s system of risk management and internal control. The schedule of matters reserved to the Board ensures that the Directors control, among other matters, all signiﬁcant strategic, ﬁnancial and organisational risks. Approach The Group’s enterprise-wide risk management and reporting process helps management to identify, assess, prioritise and mitigate risk. This bottom-up process involves a rolling programme of workshops, facilitated by the risk management team, held around the Group. The current and forward-looking risks identiﬁed are collated and reported through functional and divisional levels to the Group Executive Committee. These risks are also reviewed by the Board on a top-down basis to assess the key risks facing Tate & Lyle. This dual approach culminates in the identiﬁcation of the Group’s key business, ﬁnancial, operational and compliance risks with associated action plans and controls to mitigate them where possible (and to the extent deemed appropriate taking account of costs and beneﬁts). This output is reviewed by the Board. As part of the annual risk assessment process, the Board also reviews emerging and ‘black swan’ risks facing the Group. Responsibility for managing each key risk and the associated mitigating controls is allocated to an individual executive within each division. As part of the process, senior executive management formally conﬁrms once a year that these key risks are being managed appropriately within their operations and that controls have been examined and are effective. The conﬁrmations and any exceptions are discussed at the Audit Committee and Corporate Responsibility Committee, and, where appropriate, reported to the Board. Key risks Key risks and uncertainties identiﬁed as part of the risk management process undertaken during the year, together with some of the mitigating actions we are taking, are set out on pages 30 and 31. It is not possible to identify or anticipate every risk that may affect the Group. Our overall success as a global business depends, in part, upon our ability to succeed in different economic, social and political environments and to manage and to mitigate these risks. During the year ended 31 March 2014, the Board and the Group Executive Committee undertook an exercise to consider the nature and extent of the Group’s risk appetite. The results of this exercise, which includes a retrospective review of how the prior year risk appetite has been applied in practice, are used as part of the Group’s strategic planning activities, and in considering ongoing mitigating actions. The Group’s risk management process continues to follow the Committee of Sponsoring Organizations of the Treadway Commission (COSO) Enterprise Risk framework. The COSO framework provides a process to manage the risk of failure to achieve business objectives and assurance against material loss or mis-statement. Tate & Lyle PLC Annual Report 2014 | 29 i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Strategic Report RISKS | CONTINUED Risks Impact and description Examples of mitigating actions Safety Failure to act safely and to maintain the safe and continuous operation of our facilities. Strategy Failure to grow in speciality food ingredients. Innovation Failure to innovate and commercialise new products. The safety of our employees, contractors, suppliers, and the communities in which we operate is paramount. We must operate within local laws, regulations, rules and ordinances relating to health, safety and the environment, including emissions. The operation of plants involves many risks, which could cause a temporary or permanent stoppage in production and could have a material adverse effect on the Group. The Group’s strategy is to become the leading global provider of speciality food ingredients and solutions. The ability to deliver the strategy may be impacted by a number of factors such as delivering growth in emerging markets, acquisitions, customer readiness to adopt new ingredients and launch products using them, competitor actions, and growing key product or product families. Failure to deliver on this strategy over the longer term would negatively affect the Group’s credibility and reputation. Failure to identify important consumer trends and provide innovative solutions, and the inability to successfully commercialise new products, could impact the delivery of the Group’s strategy. This would affect its performance and reputation. Quality Failure to maintain the quality of our products and high standards of customer service. The safety of consumers of our products is critical. Poor quality or sub-standard products or poor customer service could have a negative impact on our reputation and relationships with customers. (cid:116)(cid:1) Health and safety policies and procedures at all facilities with dedicated staff to ensure they are embedded and measured (cid:116)(cid:1) Regular review of performance and policies by the Corporate Responsibility Committee (cid:116)(cid:1) Business continuity capabilities in place to enable supply, as quickly as practicable, of product to customers from alternative sources in the event of a natural disaster or major equipment or plant failure (cid:116)(cid:1) Maintain suitable insurance programme against customary risks (cid:116)(cid:1) Programme of global compliance audits; senior executives also undertake annual executive audits at the majority of our sites (cid:116)(cid:1) Investments are being made to increase the Group’s sales and technical resources, including in emerging markets (cid:116)(cid:1) New staff recruited and existing staff developed to upgrade skill sets particularly in customer-facing areas and innovation (cid:116)(cid:1) Internal capabilities have been enhanced to help promote growth through acquisition (cid:116)(cid:1) Global programme has been established to enhance customer account management, planning and execution (cid:116)(cid:1) Three platforms have been established in Innovation and Commercial Development – sweeteners, texturants and health and wellness – to drive new product development and innovation in speciality food ingredients (cid:116)(cid:1) Innovation and Commercial Development team works closely with customers and other external organisations to identify emerging trends (cid:116)(cid:1) Open innovation team actively scouts for breakthrough technologies and opportunities across industries and universities (cid:116)(cid:1) Global marketing organisation established to provide launch support for new product initiatives as well as base business expansion (cid:116)(cid:1) Prioritise ‘partnership’ opportunities with customers to accelerate development cycles and time to market for new ingredients (cid:116)(cid:1) Multiple steps in process testing in all product lines and strict quality control procedures to prevent release of product without full quality control clearance (cid:116)(cid:1) Policies, procedures and performance reviewed regularly by the Corporate Responsibility Committee (cid:116)(cid:1) Third-party audit programme in place, supplemented by internal global compliance audits (cid:116)(cid:1) Recall simulation exercises undertaken People Failure to attract, develop and retain key personnel. Performance, knowledge and skills of employees are central to success. We must attract, integrate and retain the talent required to fulﬁl our ambitions and deliver the Group’s strategy. Inability to retain key knowledge and adequately plan for succession could have a negative impact on Company performance. (cid:116)(cid:1) Remuneration policies designed to attract, retain and reward employees with ability and experience to execute Group strategy (cid:116)(cid:1) Talent development strategy to provide opportunities for employees, as well as training to close skill gaps (cid:116)(cid:1) Single global performance appraisal and talent planning processes and system in place (cid:116)(cid:1) Increased Board-level focus on succession planning for business- critical roles Legal and regulatory Failure to comply with legislation and regulation. The Group operates in diverse markets and therefore is exposed to a wide range of legal and regulatory frameworks. We must understand and comply with all applicable legislation. Any breach could have a ﬁnancial impact and damage our reputation. (cid:116)(cid:1) Regular monitoring and review of changes in law and regulation in such areas as health and safety, environment, quality, food safety and corporate governance (cid:116)(cid:1) Global regulatory team, supported by external consultants, monitors local regulatory requirements affecting our products and how these change over time (cid:116)(cid:1) Legal teams maintain compliance policies in areas such as anti-trust and anti-corruption law; and provide ongoing training to employees 30 | Tate & Lyle PLC Annual Report 2014 Risks Impact and description Examples of mitigating actions Raw materials Fluctuations in prices and availability of raw materials, energy, freight and other operating inputs. Margins may be affected by ﬂuctuations in crop prices due to factors such as variations in local or regional harvest and weather conditions, crop disease, climate change, crop yields, alternative crops and co-product values. In some cases, due to the basis for pricing in sales contracts, or due to competitive markets, we may not be able to pass on to customers the full increase in raw material prices or higher energy, freight or other operating costs. Additionally, margins may be affected by customers not taking expected volumes. (cid:116)(cid:1) Strategic relationships with suppliers and trading companies including multi-year agreements (cid:116)(cid:1) Balanced portfolio of supply and tolling contracts in operation with customers to manage balance of raw material prices and product sales prices and volume risks (cid:116)(cid:1) Raw material and energy purchasing policies to provide security of supply (cid:116)(cid:1) Expanding network of corn elevators to enhance security of supply (cid:116)(cid:1) Putting in place new or back-up supply sources in case primary suppliers face localised challenges Key projects Failure to implement the Group’s programme to transform its operational capabilities. The Group has committed to a programme to transform its operational capabilities, primarily by implementing common ways of working supported by a global IS/IT platform and global shared services. Issues arising in the implementation of this project would have an adverse impact on the Group’s ability to achieve its strategy. (cid:116)(cid:1) Ongoing reﬁnements to programme based on lessons learnt in the process (e.g. phased go-live approach to mitigate the deployment risk) (cid:116)(cid:1) Dedicated internal resources allocated to the project, working in conjunction with business teams (cid:116)(cid:1) Formal steering committee (executive management) and Board/ Audit Committee review of project progress against agreed milestones and timelines (cid:116)(cid:1) Appointment of a highly experienced programme manager i S t r a t e g c R e p o r t G o v e r n a n c e Reputation Failure to counter negative perceptions of the Group’s products. We must be fully prepared to counter unexpected/unfounded negative publicity about our products and seek to ensure the science behind our ingredients is supported by credible sources and is clearly communicated. Failure to do so would have a negative impact on the Group’s performance and reputation. (cid:116)(cid:1) Innovation and Commercial Development and regulatory experts substantiate relevant product claims prior to launch (cid:116)(cid:1) Media relations advisors monitor coverage in both print and electronic media of the Group and its products and develop action plans to deal with any negative publicity (cid:116)(cid:1) Participation in trade organisations and industry-wide initiatives to promote and protect our products Finance Failure to manage the balance sheet, particularly during periods of economic uncertainty. We must manage our ﬁnances within strictly controlled parameters, particularly when external ﬁnancial conditions are uncertain and highly changeable. The change programme currently being undertaken by the Group consists of a number of capital expenditure projects which, if not delivered successfully, could negatively affect the Group’s performance and reputation. (cid:116)(cid:1) Capital expenditure procedures to control and monitor allocation and spend (cid:116)(cid:1) All new investments are evaluated against clear strategic and ﬁnancial criteria; those approved are subject to greater scrutiny and have clear execution milestones (cid:116)(cid:1) External resources and expertise used where required (cid:116)(cid:1) Exposure to liquidity risk is managed by ensuring we maintain access to a wide range of funding sources, and by effective management of our cash resources Finance Failure to maintain an effective system of internal financial controls. Without effective internal ﬁnancial controls, we could be exposed to ﬁnancial irregularities and losses from acts which could have a signiﬁcant impact on the ability of the business to operate. We must safeguard business assets and ensure accuracy and reliability of records and ﬁnancial reporting. (cid:116)(cid:1) Policies to ensure that key tasks are segregated to safeguard assets (cid:116)(cid:1) Finance and capital expenditure manuals set out procedure (cid:116)(cid:1) Chief Executive and Chief Financial Ofﬁcer undertake detailed quarterly business and ﬁnancial reviews (cid:116)(cid:1) Additional control processes put in place in recognition of the elevated risks posed by the implementation of the new global IS/IT system Tate & Lyle PLC Annual Report 2014 | 31 i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Strategic Report CORPORATE RESPONSIBILITY Our sustainability journey We approach corporate responsibility (CR) from a stakeholder perspective; in terms of our workplace, the environment, our marketplace and the communities of which we are a part. We seek to continually improve the way that we manage, perform in and report on CR matters. Corporate responsibility governance Management and performance Reporting and communication Workplace We deeply regret three fatal accidents that occurred at our sites during the last year: these tragic accidents and our response are reported on pages 4, 8 and 33. Environment We were included in the FTSE 350 Climate Disclosure Leadership Index for the second year running in 2013, having scored once again in the top 10% of the FTSE 350 companies responding. Marketplace We implement controls to promote and ensure responsible and ethical conduct by our employees, business partners and in our supply chain (see pages 36 and 37). Community We have expanded community involvement in the year providing support locally and globally in the areas of well-being, education and environment (see page 37). Engagement This year we have engaged with customers and other key stakeholders and used this feedback to review how we report on and communicate about CR matters. Reporting The scope, principles and methodologies we use in reporting CR performance are provided in ‘CR Reporting Criteria Annual Report 2014’ available at www.tateandlyle.com/ CR2014. Our internal audit function reviewed the CR information and data in this Annual Report to conﬁrm its accuracy. We gained independent external assurance over selected environmental data on pages 35 and 36 in this Annual Report from Bureau Veritas UK Ltd. Their assurance statement can be found at www.tateandlyle.com/CR2014. Employees by division as at 31 March 2014 1 49% Bulk Ingredients 2 42% Speciality Food Ingredients 3 9% Central functions Employees by geography as at 31 March 2014 1 46% North America 2 37% Europe, Middle 3 10% Latin America 4 7% Asia Pacific East & Africa 3 1 2 4 1 3 2 Governance of CR matters is overseen by the Board’s Corporate Responsibility Committee (see page 51). The Chief Executive is the director with speciﬁc responsibility for CR matters. CR matters are part of the Group’s risk management and reporting processes (see page 29). Our policies and control arrangements addressing human rights include: (cid:116)(cid:1)our Code of Ethics and the internal and external communication and training undertaken around it (cid:116)(cid:1)the Company’s position and practices on equal opportunities and diversity (cid:116)(cid:1)the Company’s Speak Up (whistleblowing) arrangements (see page 45) (cid:116)(cid:1)our controls for managing standards in the supply chain (see page 37). Workplace Our employees are critical in delivering our strategy. The key CR considerations for us in terms of our workplace are safety and how we manage our relationship with employees. In line with our Values, we believe that everyone should be safe at work and be treated fairly and with respect. Employee proﬁle At 31 March 2014, Tate & Lyle employed 4,523 people (2013 – 4,326). Our employee base has increased in the last year primarily due to the formation of Tate & Lyle Howbetter in China, and the acquisition of Biovelop, the Swedish oat beta glucan manufacturer. 32 | Tate & Lyle PLC Annual Report 2014 Safety We have no higher priority than safety, for our employees and for everyone who comes to our sites. Our ultimate goal is to have no accidents and no injuries. Our Executive Safety Steering Committee, chaired by our Chief Executive, met throughout the year to review our safety performance and improvement programmes. Our senior executives are personally involved in safety management and undertake annual executive audits at the majority of our sites around the world. Performance We deeply regret the deaths during the last year of an employee at our manufacturing facility in the Netherlands who fell from height, an external truck driver working at our joint-venture site in Hungary who died in an industrial accident, and a contractor in Singapore who died from burns after a hot water escape in April 2014. A further contractor remains in a critical condition in hospital in Singapore. These tragic accidents were thoroughly investigated, both internally and externally. Actions, based on preliminary ﬁndings, have been taken to prevent this type of accident reoccurring and so that we may learn from these tragic events. Further details are provided in the Chairman’s Statement on page 4 and the Chief Executive’s Review on page 8. i S t r a t e g c R e p o r t G o v e r n a n c e Safety performance² Recordable incident rate Number of injuries requiring treatment beyond first aid per 200,000 hours Number of incidents combined (2013) 44 Tate & Lyle employees Contractors 1.55 1.43 0.55 0.63 0.94 0.43 2011 2012 2013 US industry sector employee averages 20123 and Tate & Lyle employees 2013 6.5 Beverage and tobacco 5.4 Food manufacturing 3.7 Construction 3.4 Private industry 2.3 Chemical manufacturing 1.5 Energy products manufacturing 0.43 Tate & Lyle Lost-work case rate Number of injuries that resulted in lost-work days per 200,000 hours Fatalities 2013 21 2012 0 2011 0 10 Number of cases combined (2013) Tate & Lyle employees Contractors 1 One employee and one external truck driver. One of our contractors also had a fatality in April 2014. The safety performance indicators, recordable incident rate and lost-work case rate, saw a 32% and 49% reduction respectively during the year, to reach our lowest levels ever recorded. However, safety is about people, not just numbers, and we can never do too much to keep ourselves and our colleagues safe. Recordable incident rate Lost-work case rate Change versus 2012 Change versus 2013 2012 0.43 -32% 0.09 -53% 0.94 -34% 0.22 -49% 0.58 -32% 0.13 -49% 2013 Employees Contractors Combined External benchmarking To put our safety performance in context and because many of our employees are located in the US, we compare our results with US industry averages, as shown in the graphs opposite. 0.43 0.31 0.17 0.19 0.22 0.09 2011 2012 2013 US industry sector employee averages 20123 and Tate & Lyle employees 2013 1.9 Beverage and tobacco 1.4 Construction 1.3 Food manufacturing 1.0 Private industry 0.7 Chemical manufacturing 0.5 Energy products manufacturing 0.09 Tate & Lyle 2 We report safety performance by calendar year. 3 Source: US Department of Labor, November 2013. Tate & Lyle PLC Annual Report 2014 | 33 i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Strategic Report CORPORATE RESPONSIBILITY | CONTINUED Safety milestones Five of our US plants between them won 15 US Corn Reﬁners Association (CRA) Safety Awards during the year. Twenty-ﬁve of our facilities did not experience a recordable injury in 2013, compared to 20 in 2012. Safety initiatives Safety projects and activities progressed during the year included: (cid:116)(cid:1)Contractor safety programme: we improved contractors’ safety by increased monitoring, sharing best practices, and closer relationships (cid:116)(cid:1)Safety competency: we trained managers and supervisors on safety leadership and ownership; training for safety representatives included courses on scaffolding and excavation (cid:116)(cid:1)Hand safety: a third party conducted glove surveys; we purchased additional cut-resistant gloves and knives with retractable blades; and installed glove-type awareness boards (cid:116)(cid:1)Safety awareness: we held our annual Global Safety Week where many employees and their families, and contractors, took part in activities across our sites worldwide. Occupational health and well-being We contract with external occupational health professionals to monitor and safeguard the health of employees at work, and to provide information, advice and support to them on general health and wellness matters. Relationship with employees Our Values deﬁne what we stand for and how we behave with our customers, suppliers, investors, the communities we operate in and with each other. We believe in equal opportunities for all, regardless of gender, sexual orientation, age, marital status, disability, race, religion or other beliefs and ethnic or national origin. Our policies, practices and procedures for recruitment, training and career development promote equality of opportunity. We are committed to treating people with disabilities fairly in all respects, including regarding applications, training, promotion and career development. An employee who becomes disabled would, where appropriate, be offered retraining for a more suitable role. Diversity and inclusion We believe in a culture where all employees contribute to the performance of the Company and have the opportunity to develop fully according to their individual abilities. We aim to attract a diverse workforce that reﬂects the communities in which we operate. In 2011 we 34 | Tate & Lyle PLC Annual Report 2014 Our Values ntability P u o c c A e r f o r mance Value s Safety Core Values A c h i e v e m e n t Respect Integrity C r e a t i v it y Spee d ork w T e a m established a Diversity and Inclusion Council. It works on creating awareness of diversity and inclusion issues, tracking inclusion metrics, and championing our diversity and inclusion programme across the Company. Progress during the year included: (cid:116)(cid:1)Continued increase in awareness among senior managers of diversity and inclusion issues, having included consideration of these issues in their annual performance objectives (cid:116)(cid:1)Embedding a focus on diversity in our recruitment practices (cid:116)(cid:1)Enhanced cultural diversity from the acquisition of Biovelop, the Swedish oat beta glucan manufacturer, and the formation of Tate & Lyle Howbetter in China. Employee engagement We believe that employees who are engaged (by which we mean committed to the Group, its goals, values and strategy, and to each other) are happier and ultimately deliver better results. Good internal communication is essential to this. We communicate with our employees in a number of ways, from Company-wide media including our intranet and our quarterly employee magazine which is published in 13 languages, to face-to-face dialogue such as site-wide meetings, functional meetings and small group or team meetings. We continue to invest in helping employees and managers stay up to date with the latest requirements of their roles; courses provided during the year included a supervisors’ development programme, people management development programme, stakeholder management and inﬂuencing, and sales training. In 2013 we conducted our second employee survey to obtain employees’ Gender diversity as at 31 March 2014 Board of Directors 1 7 (70%) Men 2 3 ( 30%) Women 1 2 Senior managers and statutory directors1 1 117 (81%) Men 2 27 ( 19%) Women 1 2 All employees2 1 2,860 (73%) Men 2 1,035 (27%) Women 1 2 1 Gender diversity for senior managers, excluding statutory directors, is 43 (77%) men and 13 (23%) women. 2 Excludes joint-venture employees. candid opinions about Tate & Lyle and to facilitate conversations about how we can make the Company a better place to work. Participation increased to 84%, while the overall survey score was just above 3.6 on a scale of 1 to 5 (where 5 is the best score), also an increase compared to the prior year. The results highlighted areas of progress and strength as well as areas where we can improve. These have been translated into action plans for individual teams as well as the Company as a whole. Environment We aim to operate our business with a strong regard for environmental sustainability. By using resources such as energy and water more efﬁciently, and reducing waste, we aim to improve our environmental sustainability while also controlling operating costs. Implementing our business strategy, by growing our Speciality Food Ingredients division, is gradually changing the shape of our manufacturing operations to produce more speciality products (see page 20) which typically involve additional manufacturing steps compared with our Bulk Ingredients division. This can drive some increase in resource use and waste, which we are working to mitigate through efﬁciency and waste reduction projects and programmes. Environmental performance¹ We work to address environmental considerations across the life cycle of our products, from our agricultural supply chain to how our products are packaged and transported. and health and safety management standards. Additionally, our rolling programme of external, independent environmental compliance audits assures compliance with regulatory requirements. Our environmental policy and standards apply to all our activities globally and we aim to integrate environmental considerations into all major decisions. Our facilities operate under local environmental authorisations and permits and we require strict compliance with these at all times. If a site breaches an operating limit we seek to take steps immediately to resolve the issue and prevent reoccurrence. Our internal global compliance audit programme conﬁrms compliance with our environmental and food safety, quality Within our own operations and joint ventures we focus on those aspects of our activities that have the greatest potential impact on the environment, namely the use of energy (and consequent air emissions and carbon footprint), water use, and waste management. Beyond our own operations we focus our attention on our agricultural raw material and ingredient supply chain, the transportation of our products to our customers, and our product packaging. i S t r a t e g c R e p o r t G o v e r n a n c e Energy use GJ per tonne production Primary carbon footprint3 Tonnes CO2e per tonne production Water use Cubic metres per tonne production Waste to landfill Tonnes per 1,000 tonnes production 4.562 0.3752 4.302 7.212 4.42 4.49 4.562 0.373 0.368 0.3752 4.27 4.18 4.302 7.92 7.05 7.212 i F n a n c a i l 2011 2012 2013 2011 2012 2013 2011 2012 2013 2011 2012 2013 1 We report environmental performance by calendar year. 2 Refers to 2013 data that has been externally assured by Bureau Veritas UK Ltd. Their assurance statement is at www.tateandlyle.com/CR2014. 3 Previously we have reported carbon footprint in tonnes of carbon dioxide (CO2); we now report in tonnes of carbon dioxide equivalent (CO2e) across all years. Environmental sustainability targets and achievements We have four medium-term environmental sustainability targets. Target by end of 2016 Reduce CO2e emissions from energy use by 12.5% per tonne of production (baseline year 2008)4 Calendar year 2013 status 10% reduction in CO2e emissions per tonne of production versus 2008 Implement packaging reduction programmes with customers representing >50% of sales (£) Programmes initiated with customers representing >20% of sales (£) Implement transport efﬁciency programmes with customers representing >50% of sales (£) Programmes initiated with customers representing >25% of sales (£) Implement sustainable agricultural sourcing programmes for our top 20 agricultural raw materials and ingredients by volume Overall, we are currently working on sustainable agricultural sourcing across 30 raw materials/ ingredients. During the year we established new sustainable sourcing criteria for four agricultural raw materials/ingredients Example In calendar year 2014, we will be implementing an energy project at our Sagamore, Indiana, US plant that will reduce our greenhouse gas emissions by up to 56,000 tonnes CO2e per year In 2013 we changed from a paper-foil-paper sack to a paper-plastic-paper sack for several products that improves recyclability (and thereby reduces resource use) Four high-efﬁciency, low emission ‘methane diesel’ trucks are dedicated to our central European distribution, utilising liqueﬁed natural/ bio gas We utilise an externally conducted sustainability risk assessment of our agricultural raw materials/ingredients to help us decide how to focus our work on sustainable agriculture 4 We recognise that installing new air emissions control equipment at several locations over the next few years and the manufacture of more speciality products will make it more challenging to reduce our energy use and CO2e emissions in the medium term. Tate & Lyle PLC Annual Report 2014 | 35 S t a t e m e n t s U s e f u l I n f o r m a t i o n Strategic Report CORPORATE RESPONSIBILITY | CONTINUED Operational performance During the year we saw the impact of: (cid:116)(cid:1)some of our Bulk Ingredients plants running below capacity – which reduces their environmental efﬁciency, due to lower demand for carbonated soft drinks caused by unusually cold and wet weather (cid:116)(cid:1)changes in our production mix – with the manufacture of more speciality products (cid:116)(cid:1)some site-speciﬁc factors causing temporary environmental efﬁciency impacts, such as works to implement a new process sequence at Loudon, US and from taking equipment off-line at Decatur, US for scheduled replacement. In calendar year 2013, compared with 2012 our performance was as follows: (cid:116)(cid:1)Energy use per tonne of production increased by 1.6%. Since 2008 we have reduced energy use per tonne of production by 8%. (cid:116)(cid:1)Carbon footprint from energy use increased by 1.9% per tonne of production. Since 2008 we have reduced CO2e emissions per tonne of production by 10%. In calendar year 2014 we will be implementing an energy project at our Sagamore, Indiana, US which we anticipate will reduce our emissions by up to 56,000 tonnes CO2e per year. (cid:116)(cid:1)Water use per tonne of production increased by 2.8%. Since 2008 we have reduced water use per tonne of production by 6%. Water re-use and recycling projects implemented at Dayton, Ohio, US during the last two years are saving more than 500,000 cubic meters of water annually. (cid:116)(cid:1)Waste to landﬁll increased by 2.2% per tonne of production. Since 2008 we have reduced waste to landﬁll per tonne of production by 25%. We are working to improve our environmental performance by focusing on: (cid:116)(cid:1)Capital projects and operational practices to reduce our impact (cid:116)(cid:1)Working with our suppliers and others to promote sustainable agriculture (cid:116)(cid:1)Working with our customers on reducing our combined environmental impact associated with transport and packaging. Group greenhouse gas (GHG) emissions for the period 1 January to 31 December 2013 in tonnes of carbon dioxide equivalent (tCO2e) were: (cid:116)(cid:1)From combustion of fuel and operation of facilities (Scope 1) 2,270,489 tCO2e1 (cid:116)(cid:1)From electricity, heat, steam and cooling purchased (Scope 2) 1,224,731 tCO2e1 (cid:116)(cid:1)In total (Scope 1 and 2) 3,495,220 tCO2e1 which equates to an intensity of 0.375 tCO2e1 per tonne of production. We have reported on all of the material emission sources required under The Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013. We report GHG emissions in line with the GHG Protocol Corporate Accounting and Reporting Standard. The scope, principles and methodology we use are provided in ‘CR Reporting Criteria Annual Report 2014’ at www.tateandlyle.com/CR2014. Marketplace The food and beverage industry is our largest market sector and comprises over 70% of Group sales. Other industry sectors we sell into include industrial, animal feed and personal care. CR in the marketplace for us is about: the safety, integrity and functionality of our products; the origin of our agricultural raw materials; the conduct of our commercial relationships; and the standards within our supply chain. Product safety and quality Our products adhere to the highest standards of food safety, quality and traceability. Products that are safe and to the correct speciﬁcation are of the utmost importance to us. To ensure this, all of our manufacturing facilities are externally certiﬁed to the Global Food Safety Initiative each year and we have well-established processes and procedures globally to ensure that we comply with this standard. Our control arrangements include in- process testing, an annual global compliance audit programme, and independent food safety audits of every manufacturing site. The ability to trace and recall product is tested annually both globally and locally at each facility. Developing sustainable products Our aim is to help our customers provide consumers with healthy, nutritious foods and beverages as part of a normal balanced diet. We aim to ensure that our ingredients, and any claims we make regarding their beneﬁts or efﬁcacy, are supported by clear, demonstrated science. In line with our strategy, we focus particularly on growing our Speciality Food Ingredients division, and as such the majority of our new product development is in this area. Many of our speciality sweeteners and ﬁbres improve stability, thereby helping to extend consumer product shelf life and assist in avoiding food waste, which is an important food industry sustainability issue. Our health and wellness platform delivers innovative ingredients with substantiated health beneﬁts to customers worldwide. For example, PromOat® Beta Glucan, a product we acquired in 2013, is a natural component of wholegrain Swedish oats that allows foods and beverages to help lower cholesterol levels and promote digestive and intestinal health. Our raw materials and ingredients are largely derived from renewable agricultural sources, principally corn, and in addition we consider sustainability matters throughout the product lifecycle. To this end, for our innovation pipeline, we use a sustainability evaluation tool to: (cid:116)(cid:1)Undertake a sustainability risk assessment at an early stage in the product development process, to identify any potential concerns (cid:116)(cid:1)Evaluate sustainability issues as we proceed with product development, to avoid or reduce any potential adverse impacts such as the use of energy and non-renewable resources, and to leverage positive impacts such as product health and wellness beneﬁts. Conduct of commercial relationships We are committed to ensuring a safe, open and responsible culture in all our business dealings wherever we operate, in line with our Code of Ethics. The Code is made available in 13 languages and is communicated internally via our intranet, through local ‘Ethics Ambassadors’ across the business, and through training programmes. Externally, the Code is integrated into our supplier and business partner relationships. We support our employees and business partners in coming forward with any information concerning actual or alleged breaches of the Code of Ethics. As part of our Speak Up process, we provide access to an independent, anonymous third-party reporting service, through free phone numbers in 47 countries and by email. Information on accessing this service is communicated across the Company, and externally via our corporate website. Any issues reported are investigated by members of our Speak Up Committee, a group of senior Tate & Lyle executives who are responsible for ensuring that any concerns are investigated and that appropriate action is taken. 1 Refers to data that has been externally assured by Bureau Veritas UK Ltd. Their assurance statement can be found at www.tateandlyle.com/CR2014. 36 | Tate & Lyle PLC Annual Report 2014 Standards in our supply chain We operate a tiered, risk-based approach to CR matters in our supply chain. (cid:116)(cid:1)Our Code of Ethics sets out the ethical standards and behaviours we require our employees and business partners to follow in conducting the Company’s business. It is communicated to our suppliers through our contracts and other engagement with them. (cid:116)(cid:1)Our purchase contract terms and conditions include: the requirement for our suppliers to uphold international business standards and to be fully compliant with all applicable laws and regulations, including but not limited to those regarding freedom of association and collective bargaining, non- discrimination, anti-corruption/anti- bribery, and the prevention of child or forced labour; that they comply with the standards, expectations and commitments in our Code of Ethics; and that they require comparable compliance of their own suppliers. (cid:116)(cid:1)Our Procurement function has in place a global procedure whereby the environmental, social and governance risks associated with supply contracts are evaluated, based on: ﬁrstly, the source country, where independent ratings of human rights risk are applied; and secondly, the items being supplied, with reference to an external sustainability risk assessment of our agricultural raw materials/ingredients. If the source country is identiﬁed as being of high or medium risk for human rights, or the contract is for a higher risk item, enhanced control arrangements are put in place. Our sustainable agriculture programme speciﬁcally addresses environmental, social and governance matters in our agricultural raw materials/ingredient supply chain (see page 35). In addition, having used the ‘Sedex’ social and ethical compliance system (www.sedexglobal.com) across our own manufacturing facilities for a number of years, we are now starting to use it in our supply chain as one of the tools to promote and assure good CR practices. Tate & Lyle is a member of the FTSE4Good indices of companies meeting global corporate responsibility standards; the screening criteria for which include supply chain risks and control arrangements. Community We have a strong history of community involvement and during the year we continued to support communities local to our operations and globally. Our approach For Tate & Lyle, community involvement is about having a positive and lasting relationship with the community: changing lives for the better. We focus on three speciﬁc areas: (cid:116)(cid:1)Well-being: to provide practical assistance in the area of well-being from health issues including nutrition to general welfare, such as supporting food banks (cid:116)(cid:1)Education: to develop young people’s knowledge and understanding of science, technology, engineering and mathematics (STEM subjects), and their preparedness for a career in a STEM- based discipline, either academically or vocationally (cid:116)(cid:1)Environment: to promote environmental sustainability and good environmental management, addressing issues of climate change, natural resources and conservation Overview of the year In the year ended 31 March 2014, charitable donations were £501,000 (2013 – £376,000). We aim to increase our investment in community involvement each year, in line with the growth of our business. Local programmes/partnerships We seek to engage with local communities where our principal manufacturing, R&D and ofﬁce facilities are located. Employees at each location can make their own decision as to the speciﬁc projects they support and the partnerships that they develop. As a result we support a range of initiatives and organisations in our local communities. (cid:116)(cid:1)Well-being: we supported a wide variety of local health and well-being initiatives this year, including United Way community programmes at several locations in the US. For the second year running, our e-Christmas card supported the homeless charity Crisis at Christmas in London, UK and the Northern Illinois Food Bank in Chicago, USA: both organisations provided practical, immediate assistance to those in need over the holiday period. Community spend by area Year ended 31 March 2014 1 39% Well-being 2 34% Education 3 18% Environment 4 9% Other 4 1 3 2 (cid:116)(cid:1)Education: this year we supported local schools, colleges and universities. For example: by assisting with new equipment purchases, running a road safety event for children at local schools, and providing scholarship funds to help students access higher education. (cid:116)(cid:1)Environment: this year we supported a number of environmental initiatives, including improvement works to local park and conservation areas, and tree planting. Global partnerships We have made good progress in developing our global partnership programmes during the year. On well-being, we have continued to be a partner with the Global Alliance for Improved Nutrition (GAIN – www.gainhealth.org), and we contributed $50,000 to disaster relief by the Red Cross following the Philippines typhoon in November 2013. For education, we are implementing an undergraduate bursary/scholarship programme across selected universities internationally, assisting undergraduates to access courses in STEM disciplines. For environment, we are a corporate partner of the environmental research and engagement charity Earthwatch (http://eu.earthwatch.org), with which we have established a project on the ecology, conservation and sustainable harvesting of seaweed. The Strategic Report from page 1 to page 37 of this Annual Report was approved by the Board on 28 May 2014. On behalf of the Board Lucie Gilbert Company Secretary 28 May 2014 Tate & Lyle PLC Annual Report 2014 | 37 i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Governance BOARD OF DIRECTORS Sir Peter Gershon CBE Chairman and Chairman of the Nominations Committee Liz Airey Non-Executive Director and Chairman of the Audit Committee Joined the Board as an independent Non-Executive Director and Chairman Designate in February 2009. Appointed Chairman in July 2009. Aged 67. Skills and experience Sir Peter has broad business experience gained in large and complex international organisations and has held various leadership roles in the UK private and public sector. He was formerly Chairman of Premier Farnell plc; Chief Executive of the Ofﬁce of Government Commerce; Managing Director of Marconi Electronic Systems; and a member of the UK Defence Academy Advisory Board. Other directorships (cid:116)(cid:1) Chairman of National Grid plc (cid:116)(cid:1) Member of HM Government Efﬁciency and Reform Board (cid:116)(cid:1) Chairman of the Aircraft Carrier Alliance (cid:116)(cid:1) Member of the advisory board of The Sutton Trust Joined the Board in January 2007. Aged 55. Skills and experience Liz was an investment banker and has extensive ﬁnancial experience in the UK and internationally. She was formerly Finance Director of Monument Oil and Gas plc. Other directorships (cid:116)(cid:1) Chairman of the Unilever UK Pension Fund (cid:116)(cid:1) Senior Independent Director of Jupiter Fund Management PLC (cid:116)(cid:1) Senior Independent Director of Dunedin Enterprise Investment Trust PLC Javed Ahmed Chief Executive William Camp Non-Executive Director and Chairman of the Corporate Responsibility Committee Joined the Board as Chief Executive in October 2009. Aged 54. Joined the Board in May 2010. Aged 65. Skills and experience Javed has extensive international experience from a wide variety of senior management roles. He started his career with Procter & Gamble and then spent ﬁve years with Bain & Co. before joining Benckiser (later Reckitt Benckiser plc) in 1992 where he gained signiﬁcant experience of international consumer goods markets and held positions including Senior Vice President, Northern Europe; President, North America; Executive Vice President, North America, Australia and New Zealand; and Executive Vice President, Europe. Other directorships (cid:116)(cid:1) Member of Mosaic Advisory Board Skills and experience Bill worked for 22 years for Archer Daniels Midland Company, before retiring in 2007, and held a variety of management positions including Executive Vice President, Asia Strategy; Executive Vice President, Processing; and Senior Vice President, Global Oil Seeds, Cocoa and Wheat Milling. Other directorships (cid:116)(cid:1) Senior Advisor, Naxos Capital (cid:116)(cid:1) Director of Culligan International Tim Lodge Chief Financial Ofﬁcer Douglas Hurt Non-Executive Director Joined the Board in December 2008 as Group Finance Director. Aged 49. Skills and experience Tim joined the Group in 1988 and has held a number of senior operational and ﬁnancial roles, both in the UK and internationally, including Managing Director of Zambia Sugar; Group Financial Controller; Finance Director of the Food & Industrial Ingredients, Europe division; and Director of Investor Relations. He is a Fellow of the Chartered Institute of Management Accountants. Other directorships None Joined the Board in March 2010. Aged 57. Skills and experience Douglas is a Chartered Accountant. He held a number of ﬁnancial and operational roles, including US and European senior management positions, at GlaxoSmithKline before joining IMI plc as Finance Director in 2006. Other directorships (cid:116)(cid:1) Finance Director of IMI plc Our governance structure Certain responsibilities are delegated to four Board Committees, details of which are provided on pages 47 to 51 and on page 64. Audit Committee Liz Airey (Chairman) Douglas Hurt, Anne Minto Remuneration Committee Robert Walker (Chairman) William Camp, Sir Peter Gershon Anne Minto, Dr Ajai Puri Nominations Committee Sir Peter Gershon (Chairman) Javed Ahmed, Liz Airey, William Camp, Douglas Hurt, Virginia Kamsky, Anne Minto, Dr Ajai Puri, Robert Walker Corporate Responsibility (CR) Committee William Camp (Chairman) Liz Airey, Sir Peter Gershon, Virginia Kamsky, Dr Ajai Puri 38 | Tate & Lyle PLC Annual Report 2014 Virginia Kamsky Non-Executive Director Robert Walker Senior Independent Director and Chairman of the Remuneration Committee Joined the Board in December 2012. Aged 60. Joined the Board in January 2006. Aged 69. Skills and experience Ginny is Chairman and Chief Executive Ofﬁcer of Kamsky Associates, Inc. She also served as an Executive Vice President of Foamex International, Inc. and held a variety of leadership roles at Chase Manhattan Bank. Other directorships (cid:116)(cid:1) Non-executive director of Dana Holding Corporation (cid:116)(cid:1) Member of the US Secretary of the Navy Advisory Panel (cid:116)(cid:1) Trustee of the China Institute in America Skills and experience Robert spent over 30 years with Procter & Gamble, McKinsey and ﬁnally, PepsiCo, where he was responsible for the company’s beverage operations in Europe, the Middle East and Africa. Other directorships (cid:116)(cid:1) Chairman of Travis Perkins plc (cid:116)(cid:1) Chairman of Enterprise Inns plc Anne Minto OBE Non-Executive Director Lucie Gilbert Company Secretary Joined the Board in December 2012. Aged 60. Appointed Company Secretary in August 2012. Aged 42. Skills and experience Anne was Group Director of Human Resources at Centrica plc from 2002 until her retirement in 2011. She previously held senior management roles at Shell UK and Smiths Group plc and was Deputy Director-General of the Engineering Employers’ Federation. Other directorships (cid:116)(cid:1) Non-executive director and Chairman of the Remuneration Committee of Shire PLC (cid:116)(cid:1) Trustee of the University of Aberdeen Development Trust (cid:116)(cid:1) Non-executive director of ExlService Holdings, Inc. Skills and experience Lucie was appointed Deputy Company Secretary in 2008 and previously held senior company secretarial roles in several listed companies, including Experian PLC and Brit Insurance Holdings PLC. Lucie is a Fellow of the Institute of Chartered Secretaries and Administrators and an Associate of the Chartered Insurance Institute. Directorships None i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l Dr Ajai Puri Non-Executive Director Joined the Board in April 2012. Chairman of the Research Advisory Group. Aged 60. Skills and experience Ajai has a PhD in Food Science from the University of Maryland, USA. He was President – Research, Development and Product Integrity and a member of the Executive Board of Koninklijke Numico N.V. from 2003 to 2007. Prior to this, Ajai held various management positions with The Coca-Cola Company, culminating in Senior Vice President Technical, The Minute Maid Company. Other directorships (cid:116)(cid:1) Member of the supervisory board of Nutreco N.V. (cid:116)(cid:1) Non-executive director of Barry Callebaut AG (cid:116)(cid:1) Non-executive director of Britannia Industries Limited Our Group Executive Committee The Group Executive Committee oversees the development and execution of the Group’s strategy, and has overall responsibility for achieving business results. The members of the Committee are listed opposite. Javed Ahmed Chief Executive Tim Lodge Chief Financial Ofﬁcer Robert Gibber Executive Vice President, General Counsel Rob Luijten Executive Vice President, Human Resources Gabriella Parisse President, Innovation and Commercial Development Olivier Rigaud President, Speciality Food Ingredients Matt Wineinger President, Bulk Ingredients Tate & Lyle PLC Annual Report 2014 | 39 S t a t e m e n t s U s e f u l I n f o r m a t i o n Governance STATEMENT FROM THE CHAIRMAN The governance arrangements we have in place have proven to be sound, as evidenced in the external Board effectiveness review Introduction Dear shareholder Effective governance is a key component of the way Tate & Lyle manages its business and risks. The governance arrangements we have in place have proven to be sound, as evidenced in the external Board effectiveness review. Board composition Robert Walker, our Senior Independent Director, joined the Board at the start of 2006 and we anticipate that he will retire from the Board after serving a full nine years. In preparation for this, we have commenced work on planning for his successor as Senior Independent Director and as Chairman of the Remuneration Committee. In addition, the Nominations Committee has recommended that an additional non-executive director join the Board, ideally prior to Robert’s departure. To this end, a clear speciﬁcation has been drawn up and shared with the appointed search consultants, Spencer Stuart. We will of course announce any changes to the Board and speciﬁc roles as soon as the process has concluded and the Board reaches a decision. Board effectiveness review The last external Board effectiveness review was conducted in 2011 and the Board agreed that the 2014 review should be externally facilitated. We felt that additional beneﬁts could also be derived from a review which was undertaken from a diversity and inclusion perspective and chose Schneider Ross to facilitate the review. The review concluded that the Board and its Committees operate effectively and identiﬁed some areas for further action, details of which are set out on page 44. Reporting to shareholders The UK Government and other regulatory bodies have introduced a number of new reporting requirements which now apply to Tate & Lyle. These include a new edition of the UK Corporate Governance Code which provides that the Directors should state that they consider that the Annual Report and Accounts, taken as a whole, is ‘fair, balanced and understandable’. In preparation for this, we enhanced our processes for producing the Annual Report. Each of the directors has conﬁrmed that he or she considers the Annual Report 2014 to be fair, balanced and understandable. Focus for 2015 We regularly review the Board’s areas of focus. The key areas to which we will continue to devote signiﬁcant time at Board and Committee level are as follows: (cid:116)(cid:1)Safety, including the effectiveness of new initiatives to improve hazard identiﬁcation and accident prevention at all our sites (cid:116)(cid:1)The performance of the Speciality Food Ingredients division and its products, including SPLENDA® Sucralose (cid:116)(cid:1)Customer engagement (cid:116)(cid:1)The Group’s innovation pipeline (cid:116)(cid:1)Strategic initiatives, including acquisition opportunities (cid:116)(cid:1)Talent management, senior recruitment and succession planning activities. Sir Peter Gershon Chairman 28 May 2014 40 | Tate & Lyle PLC Annual Report 2014 Sir Peter Gershon CORPORATE GOVERNANCE UK Corporate Governance Code The UK Corporate Governance Code, dated September 2012 (the Code) and issued by the Financial Reporting Council, is applicable to companies with a premium listing on the London Stock Exchange. As such, we are required to state how we have applied the principles contained in the Code and to disclose whether we have complied with the provisions of the Code during the year. Throughout the year from 1 April 2013 to 31 March 2014 the Company has complied fully with the Code. This Governance section of the Annual Report, including the Directors’ Remuneration Report plus the disclosures contained in the Risks section on pages 29 to 31, provide details of how the Company applies the principles and complies with the provisions of the Code. The Directors’ responsibilities for the preparation of ﬁnancial statements are explained in the Directors’ Statement of Responsibilities on page 73. Their statement on going concern is on page 28. Further information on the Code can be found on the Financial Reporting Council’s website, www.frc.org.uk. The Board The role of the Board The Board is collectively responsible for promoting the success of the Company and for providing entrepreneurial leadership within a framework of prudent and effective controls that enable risk to be assessed and managed. It sets the Company’s objectives, ensures that the Company has the necessary ﬁnancial resources and people to meet them, and reviews management’s performance. The Board also sets the Company’s Values and ensures that its obligations to shareholders and others are met. There is a schedule of matters reserved to the Board for decision, which includes approval of: (cid:116)(cid:1)Group strategy (cid:116)(cid:1)Annual budget and operating plans (cid:116)(cid:1)Major capital expenditure, acquisitions or divestments (cid:116)(cid:1)Interim dividends (cid:116)(cid:1)Full-year and half-year results and interim management statements (cid:116)(cid:1)Board and Company Secretary appointments (cid:116)(cid:1)Senior management structure and responsibilities (cid:116)(cid:1)Treasury policies (cid:116)(cid:1)Directors’ conﬂicts of interest (cid:116)(cid:1)Systems of internal control and risk management. Board Committees The Board has delegated certain responsibilities to Committees, details of which can be found on pages 47 to 51 and on page 64. Governance structure Board Audit Committee Corporate Responsibility Committee Nominations Committee Remuneration Committee Chief Executive The Research Advisory Group (RAG) is chaired by Dr Ajai Puri and comprises external subject matter experts and senior Tate & Lyle managers. The RAG’s remit covers reviewing the innovation pipeline and providing insight into how leading-edge science and technology can be applied to enhance the Group’s speciality food ingredients portfolio. The RAG meets regularly, principally at the global Commercial and Food Innovation Centre in Chicago, USA and Dr Puri provides regular updates to the Board on the work of the RAG. Operation of the Board Board meetings The Board and its Committees meet regularly according to a schedule linked to key events in the Company’s corporate calendar. Ad hoc meetings are also arranged to consider matters requiring review and decision outside the scheduled meetings. Six scheduled Board meetings were held during the year ended 31 March 2014, including one held at the global Commercial and Food Innovation Centre in Chicago, USA and one at the Group’s ofﬁces in Shanghai, China. Three additional Board meetings were also held to consider proposals relating to the Group’s business transformation programme and to review operational performance. The Board also met offsite for one day to focus on strategy. The rolling programme of items for discussion by the Board is reviewed at each Board meeting and updated to reﬂect topical matters. All substantive agenda items have comprehensive brieﬁng papers which are distributed via the electronic Board portal, generally ﬁve working days before the meeting. In the few instances where a director is unable to attend a meeting, his or her comments on the brieﬁng papers are given in advance to the Chairman. Research Advisory Group Executive Committee Meetings are structured to facilitate open debate, and all directors participate in discussing safety, strategy, trading, ﬁnancial performance and risk management. Members of executive management attend Board meetings and regularly make presentations. The Chairman continued to hold a short discussion with the non-executive directors collectively both immediately before and after each scheduled Board meeting. Directors’ attendance at Board meetings Directors as at 31 March 2014 Sir Peter Gershon Javed Ahmed Tim Lodge Liz Airey William Camp Douglas Hurt Virginia Kamsky Anne Minto Dr Ajai Puri Robert Walker Number of meetings 9 9 9 9 9 9 9 9 9 9 Number of meetings attended 9 9 9 9 9 9 9 9 8 9 During the year, Dr Ajai Puri was unable to attend a meeting that was held outside the usual schedule due to unavoidable business commitments and he provided input on the agenda items to the Chairman prior to the meeting. Tate & Lyle PLC Annual Report 2014 | 41 i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Governance CORPORATE GOVERNANCE | CONTINUED Summary of the Board’s work during the year During the year, the Board continued to oversee the ongoing transformation of the Group’s culture and business and considered all matters within its remit, focusing in particular on the following: (cid:116)(cid:1)Safety (cid:116)(cid:1)The performance of the Speciality Food Ingredients (SFI) and Bulk Ingredients (BI) divisions and the Innovation and Commercial Development group (ICD), including the impact of the global Commercial and Food Innovation Centre The Chief Executive Key responsibilities include: (cid:116)(cid:1)Proposing strategy to the Board and delivering it (cid:116)(cid:1)Running the business (cid:116)(cid:1)Communicating the Board’s expectations with regard to culture, values and behaviours (cid:116)(cid:1)Ensuring the Board is aware of the executive directors’ views on business issues. The Senior Independent Director Key responsibilities include: (cid:116)(cid:1)The Group’s approach to customer (cid:116)(cid:1)Acting as a sounding board engagement and collaboration for the Chairman (cid:116)(cid:1)The ongoing implementation of the project to create one global IS/IT platform (cid:116)(cid:1)Talent management and succession (cid:116)(cid:1)Conducting an annual review of the Chairman’s performance (cid:116)(cid:1)Being available to shareholders planning activities. In the 2015 ﬁnancial year, the Board will focus in particular on the areas listed on page 40. Board allocation of time The chart below shows the approximate time the Board has spent discussing agenda items during the year, separated into broad categories. Board allocation of time 1 34% Strategy 2 24% Execution of strategy 3 18% Risk 4 13% Business results 5 11% Governance 1 5 4 3 2 Division of responsibilities The roles of the Chairman, Chief Executive and Senior Independent Director are separated and their responsibilities are set out in writing and agreed by the Board. The Chairman Key responsibilities include: (cid:116)(cid:1)The effective operation, leadership and governance of the Board (cid:116)(cid:1)Ensuring the effectiveness of the Board, and each director individually (cid:116)(cid:1)Setting the style and tone of Board discussions (cid:116)(cid:1)Ensuring the directors receive accurate, timely and clear information. if they have any concerns that they have been unable to resolve through the normal channels. Board effectiveness Board diversity As set out in the Board’s statement on diversity, published on the Group’s website, the Directors believe that Board composition is a key element of Board effectiveness and each member, and potential member, of the Board must be able to demonstrate the skills, experience and knowledge required to contribute to the effectiveness of the Board. Subject to that overriding principle, the Directors believe that the Board’s perspective and approach can be greatly enhanced through gender, age and cultural diversity. It is the Board’s policy to consider overall Board balance and diversity when appointing new directors. Board composition At the date of this Annual Report, the Board comprised ten directors with deep knowledge and experience in diverse business sectors within global markets: the Chairman, who has no executive responsibilities; two executive directors; and seven non-executive directors. The names and biographies of the directors are on pages 38 and 39. Tenure of non-executive directors 1 0 to 3 years – 3 directors 2 4 to 6 years – 2 directors 3 7 to 9 years – 2 directors 3 1 2 Independence With the exception of the Chairman, who is presumed under the Code not to be independent, the Board considers all the non-executive directors to be independent. The Senior Independent Director, Robert Walker, is available to shareholders if they have any issues or concerns which they have not resolved through the usual channels, and leads the annual review of the Chairman’s performance. The non-executive directors have a wide range of skills and knowledge and combine broad business and commercial experience with independent and objective judgement. The terms and conditions of appointment of the non-executive directors can be inspected at the Company’s registered ofﬁce and will be available for inspection at the Annual General Meeting (AGM). As part of the annual Board effectiveness review, each director goes through a formal performance review process. All directors completed this process during the year and, in line with the Code, Robert Walker and Liz Airey, who have served for over six years, have both been subject to a particularly rigorous review. Time commitment All directors have disclosed any signiﬁcant external commitments to the Board and conﬁrmed that they continue to have sufﬁcient time to discharge their duties to Tate & Lyle. The other signiﬁcant commitments of the Directors are set out on pages 38 and 39. The time commitment of all non-executive directors and the Chairman is reviewed annually and the Board is comfortable that all Directors continue to devote the necessary time to the Company. During the year, the Board met without the Chairman present to consider his request to chair the Aircraft Carrier Alliance. The Chairman assured the Board that he would continue to be able to devote sufﬁcient time to his duties at Tate & Lyle and the Board unanimously agreed to his request. Advice and support The appointment and removal of the Company Secretary is a matter for the Board as a whole. All directors have access to the advice and services of the Company Secretary, Lucie Gilbert, who is responsible for ensuring that Board processes are followed and that applicable rules and regulations are complied with. There is also a formal procedure whereby directors can obtain independent professional advice, if necessary, at the Company’s expense. 42 | Tate & Lyle PLC Annual Report 2014 Information and professional development The Chairman, assisted by the Company Secretary, is responsible for ensuring that the directors receive accurate, timely and clear information on all relevant matters. Directors receive ongoing training and updates on relevant issues as appropriate, taking into account their individual qualiﬁcations and experience. Bespoke training sessions were held during the year, including sessions on the speciality food ingredients market in Asia Paciﬁc. The Company Secretary helps directors undertake any other professional development they consider necessary to assist them in carrying out their duties. Visits to external events, including the Food Ingredients Europe Exhibition, were also arranged to help non-executive directors in particular to gain a deeper insight into the Group’s operating environment. During the year, in addition to the Board’s visits to Chicago, Shanghai and Singapore, the Chairman and the non-executive directors visited 13 of the Group’s sites in Europe and the USA as part of their independent site visit programme. These visits provide directors with the opportunity to interact with local management and gain in-depth knowledge about the challenges being faced by the Group’s operations across the world. Over the past three years, the Chairman and non-executive directors have visited 21 of the Group’s principal locations as part of this programme. Asia Pacific is a key growth region for the Group and in January 2014 the Board visited the SFI facilities in Shanghai and Singapore. The visit enabled directors to increase their understanding of the challenges and opportunities of the local markets and to meet staff based at these locations. Directors’ induction programme On appointment to the Board, directors receive background reading about the Group and details of Board procedures and other matters related to governance. The Company Secretary then works with each of the new directors to deliver a tailored induction programme. No new directors joined the Board during the ﬁnancial year. A detailed summary of the induction programme undertaken by directors in the previous ﬁnancial year is included in the Annual Report 2013. Performance evaluation A review of the Board’s effectiveness is undertaken each year. The process is led either internally or by an external facilitator. Following an external review in 2011, the Chairman led the process in 2012 and 2013. 2013 Board effectiveness review The progress made since the 2013 evaluation is summarised below. Recommendations Update on actions Increase the amount of time spent on understanding the market and how customer relationships are managed. Enhance knowledge of the innovation pipeline. Increase the Directors’ focus on talent management and succession planning. Identify and implement improvements to Board reporting in respect of the performance of SFI. Two Global Enterprise Account Directors have presented to the Board and additional time is allocated to reviewing customer engagement. The Board undertook a review of the innovation pipeline and key ICD processes during its visit to the global Commercial and Food Innovation Centre. The Board delegated this action to the Nominations Committee which focused on this at each of its subsequent meetings during the year. Board reporting has been enhanced. i S t r a t e g c R e p o r t G o v e r n a n c e 2014 Board effectiveness review The Board agreed that the 2014 review should be externally facilitated. Given the importance of inclusive leadership and the changes to the Board in the previous ﬁnancial year, the Directors felt that it would be particularly beneﬁcial for the review to reﬂect on diversity and inclusion. After careful consideration of providers, Schneider Ross, an independent external consultancy ﬁrm specialising in diversity and inclusion, was retained to undertake the review. Schneider Ross held conﬁdential one-to- one interviews with directors and members of the leadership team who regularly attend Board and/or Committee meetings plus three external advisers. The discussions focused on the behavioural aspects of Board effectiveness including how the Board works together, the quality of inputs, discussions and decision-making, and speciﬁc themes such as succession planning. Following the interviews and, working in conjunction with the Company Secretary, questionnaires were produced to solicit further feedback on the overall effectiveness, performance and processes of the Board and each of its Committees. Thirty individuals, including regular attendees and four external advisors, were invited to complete these questionnaires anonymously. The key results and recommendations were presented to the Board by Schneider Ross. The results were grouped into three broad areas: (cid:116)(cid:1)Mechanics: for instance processes, structure, membership and operation of the Board and its Committees (cid:116)(cid:1)Dynamics: including leadership, the Tate & Lyle Values in practice in the boardroom, quality of discussions, debate and decision-making (cid:116)(cid:1)Speciﬁcs: including strategy, customer engagement, talent management and succession planning, and risk appetite. The Board deliberated each of Schneider Ross’s recommendations and an action plan was agreed; examples are provided in the table on page 44. In addition, each Committee considered the output from Schneider Ross’s review of the Committees. Each of the reviews indicated that the Committees were operating effectively and made a number of recommendations for further consideration. Examples of the agreed actions are set out in each of the separate reports of the Audit Committee and the Corporate Responsibility (CR) Committee. With regard to the Remuneration Committee, following consideration of the report from Schneider Ross, that Committee agreed a number of actions including increased communication with all Remuneration Committee members prior to Committee meetings and reﬁnements to the Remuneration Committee’s programme of activity for the year ending 31 March 2015. Tate & Lyle PLC Annual Report 2014 | 43 i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Governance CORPORATE GOVERNANCE | CONTINUED 2014 Board effectiveness review Area Agreed actions Mechanics (cid:116)(cid:1) Ways to further improve the support for incoming presenters to be considered and implemented. (cid:116)(cid:1) A working party to be established to identify ways to enhance site visits. Dynamics (cid:116)(cid:1) Chief Executive to meet with executives who attend Board meetings immediately afterwards to discuss how the Board operated as a whole and to reﬂect on any learnings. (cid:116)(cid:1) Thinking styles of candidates for the Board and Executive Committee to be taken into consideration once skill set and experience has been conﬁrmed. (cid:116)(cid:1) Undertake an externally-facilitated session for the Board focusing on boardroom dynamics, relationships and how to make even better use of Board diversity. Speciﬁcs (cid:116)(cid:1) Building on the progress made in 2013, further proposals to be developed to drive customer centricity in the boardroom. (cid:116)(cid:1) Board Committees to oversee the executive focus on building an inclusive culture. (cid:116)(cid:1) Revisit the timing and location of the scheduled Board meetings, in particular the timing of the annual Board strategy day. Progress will be monitored by the Chairman and Company Secretary throughout the 2015 ﬁnancial year and regular updates will be provided to the Board. With regard to the performance of individual directors, the review concluded that all directors continued to make an effective contribution to the Board’s work, were well prepared and informed about issues they needed to consider, and that their commitment remained strong. The Chairman also provided individual feedback to each director and the Senior Independent Director provided feedback to the Chairman. The performance of the Chief Executive and Chief Financial Ofﬁcer was also considered by the Nominations Committee, in line with its terms of reference. During the year, the non-executive directors met without the Chairman, under the chairmanship of the Senior Independent Director, to discuss the Chairman’s performance. These reviews also concluded that both the Chairman and Chief Executive continued to fulﬁl their responsibilities effectively. Re-election of directors The Company’s Articles of Association require all directors to seek re-election by shareholders at least once every three years. In addition, any directors appointed by the Board must stand for re-election at the ﬁrst AGM following his or her appointment. Any non-executive directors who have served for more than nine years are subject to annual re-election. The Code provides that all directors should seek re-election on an annual basis and all directors will seek re-election at the forthcoming AGM. The directors standing for re-election, with the exception of Javed Ahmed and Tim Lodge, do not have service contracts. At no time during the year has any director had any material interest in a contract with the Group, being a contract of signiﬁcance in relation to the Group’s business. A statement of directors’ interests in Company shares is set out on page 71. Directors’ conﬂicts of interest As permitted under the Companies Act 2006, the Company’s Articles of Association allow directors to authorise conﬂicts of interest and the Board has a policy and procedures for managing and, where appropriate, authorising, actual or potential conﬂicts of interest. Under those procedures, directors are required to declare all directorships or other appointments to organisations that are not part of the Group and which could result in actual or potential conﬂicts of interest, as well as other situations which could result in a potential conﬂict of interest. The Board is required to review directors’ actual or potential conﬂicts of interest at least annually. Directors are required to disclose proposed new appointments to the Chairman before taking them on, to ensure that any potential conﬂicts of interest can be identiﬁed and addressed appropriately. Any potential conﬂicts of interest in relation to proposed directors are considered by the Board prior to their appointment. 44 | Tate & Lyle PLC Annual Report 2014 Directors’ indemnities and insurance cover As at the date of this Annual Report, indemnities are in force under which the Company has agreed to indemnify the directors, to the extent permitted by the Companies Act 2006, against claims from third parties in respect of certain liabilities arising out of, or in connection with, the execution of their powers, duties and responsibilities as directors of the Company or any of its subsidiaries. The directors are also indemniﬁed against the cost of defending a criminal prosecution or a claim by the Company, its subsidiaries or a regulator provided that where the defence is unsuccessful the director must repay those defence costs. These indemnities are qualifying indemnity provisions for the purposes of Sections 232 to 234 of the Companies Act 2006 and copies are available for inspection at the registered ofﬁce of the Company during business hours on any weekday except UK public holidays. The Company also maintains directors’ and ofﬁcers’ liability insurance cover, the level of which is reviewed annually. Accountability Internal control The Board has overall responsibility for the Group’s system of internal control and risk management and for reviewing its effectiveness. The objective of internal control within Tate & Lyle is to support efﬁcient implementation of the Group’s strategy and effective operations whilst enabling it to respond appropriately to signiﬁcant business, operational, ﬁnancial, compliance and other risks to achieving the Company’s objectives. The system of internal controls is designed to safeguard the assets of the Group and to ensure the reliability of ﬁnancial information for both internal use and external publication and to comply with guidance published by the Financial Reporting Council, ‘Internal Control: Revised Guidance for Directors’ (formerly the Turnbull Guidance). The Board recognises that internal control systems are designed to identify and manage, rather than eliminate, the risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurance against material mis-statement or losses and the breach of laws and regulations. Internal control system The Board determines the level of risk that it is prepared to accept in the business (risk appetite) and oversees the strategies for signiﬁcant risks that have been identiﬁed. Executive management works within the risk appetite and develops the mechanisms and processes to direct the organisation, through setting the tone and expectations from the top, delegating authority and monitoring compliance. Line management has primary responsibility for compliance with Group policies, principles and compliance requirements. In certain functions, notably safety and product quality, executive management has also established separate assurance teams to oversee the effective execution of controls. The risk management function works with executive management and the divisions to help identify, measure, monitor and report signiﬁcant risks. The units report regularly on progress with the implementation of the Group’s strategy, including its impact on the risk environment. Key risks are reviewed regularly by the Board. Further information on the Group’s risk management process can be found on page 29. The internal audit function provides independent and objective assessment of the appropriateness and effectiveness of the Group’s internal control systems to the Audit and CR Committees, and to the Board. It has the authority to review any relevant aspect of the business and a duty to report on any material weaknesses. The Group has a risk-based internal audit plan which is approved by the Audit and CR Committees. It is updated regularly to reﬂect changes to the control environment. The ﬁndings from audits are discussed with executive management and action plans put in place where appropriate. Progress against these plans is monitored regularly by the internal audit function. Summaries of both audits and progress on any actions are discussed regularly at meetings of the Audit and CR Committees. The Board also commissions external specialists to supplement internal processes as appropriate. Given the ongoing signiﬁcant business transformation activity, in addition to regular reports from the internal audit function, the Board continued to receive reports from external specialists retained to review key elements of the transformation programme. Key features of the internal control system The Group’s internal control system has a number of key features which ensure that risk is monitored and managed throughout the year, including those listed below. (cid:116)(cid:1)The schedule of matters reserved to the Board ensures that the Directors control, among other matters, all signiﬁcant strategic, ﬁnancial and organisational issues. (cid:116)(cid:1)A clear organisational structure and limits of authority in respect of items such as capital expenditure, pricing and contract authorisation. (cid:116)(cid:1)A comprehensive planning and budgeting system for all items of expenditure with an annual budget approved by the Board. Performance is reported monthly against budget and prior year results; signiﬁcant variances are investigated; and revised forecasts for the current ﬁnancial year and ﬁnancial projections for future years are prepared regularly. (cid:116)(cid:1)The Group has comprehensive safety, product quality assurance and environmental management systems. Where appropriate, these are independently certiﬁed to internationally recognised standards; they are also subject to a regular independent audit process. (cid:116)(cid:1)The Audit and CR Committees oversee the operation of controls and report regularly to the Board. If a failure of control has a material impact, then a detailed investigation, analysis and action plan would be provided to and considered by the Audit Committee, the CR Committee and the Board (as appropriate). Speak Up (whistleblowing) Speak Up, the Group’s whistleblowing programme, has been in place for a number of years in all operations controlled by the Group. This programme, which is monitored by the Audit and CR Committees, is designed to enable employees, contractors, customers, suppliers or other stakeholders to raise concerns conﬁdentially in cases where conduct is deemed to be contrary to the Group’s Values. It may include, for example, actions that may endanger safety; unethical practices; or criminal offences. The Speak Up programme provides a number of alternative ways to raise concerns including a telephone reporting line, email, and a web-based reporting facility. The multilingual communication facilities are operated by independent service providers who submit a report to the Speak Up Committee for investigation. Reports received during the year were kept strictly conﬁdential and the concerns identiﬁed were referred to appropriate managers within the Group for resolution. Where appropriate, action was taken to address the issues raised. The reports were analysed and monitored to ensure the process continued to be effective. Controls over ﬁnancial reporting The ﬁnancial reporting control system covers the ﬁnancial reporting process and the Group’s process for preparing consolidated accounts, and includes policies and procedures which provide for: (cid:116)(cid:1)The maintenance of records that, in reasonable detail, accurately and fairly reﬂect transactions including the acquisition and disposal of assets (cid:116)(cid:1)Reasonable assurance that transactions are recorded as necessary to permit preparation of ﬁnancial statements in accordance with International Financial Reporting Standards (cid:116)(cid:1)Reasonable assurance regarding the prevention or timely detection of unauthorised use of the Group’s assets. In addition, speciﬁc disclosure controls and procedures are in place to support the approval of the Group’s ﬁnancial statements. Twice a year, representatives from SFI and BI certify that their reported information provides a true and fair view of the state of the ﬁnancial affairs of their division and its results for the period. The results of this ﬁnancial disclosure process are reported to the Audit Committee. Joint ventures All material joint ventures follow either the Group’s formal systems of internal control, or their own internal control procedures. These separate procedures are subject to review by the Group’s internal audit function, and the Group works with its partners to ensure that action plans are in place to address any issues identiﬁed during those reviews. Tate & Lyle PLC Annual Report 2014 | 45 i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Governance CORPORATE GOVERNANCE | CONTINUED 2014 review of the effectiveness of internal controls Values and behaviours Financial controls Compliance controls Operational controls Risk management process Responses to questionnaires reviewed by Global Ethics Director and internal audit function Output discussed by Audit Committee in April and May Output discussed by Corporate Responsibility Committee in March and May Responses reviewed by Global Ethics Director and internal audit function Annual General Meeting The 2014 AGM will be held at The Queen Elizabeth II Conference Centre in London on Thursday 24 July 2014 at 11.00 am. Full details are set out in the Notice of Meeting. Shareholders have the opportunity to put questions to the Board at the AGM on matters relating to the Group’s operations and performance. Resolutions are decided by means of a poll and the votes received in respect of each Resolution, together with the level of abstentions, are notiﬁed to the London Stock Exchange and published on the Company’s website. Shareholders are offered the choice of receiving shareholder documentation, including the Annual Report, electronically or in paper format, as well as the choice of submitting proxy votes either electronically or by post. Relations with shareholders Shareholder communications The Chief Executive, Chief Financial Ofﬁcer and Group VP, Investor and Media Relations maintain a regular programme of visits and presentations to institutional shareholders both in the UK and overseas. The Chairman also undertook separate visits to institutional shareholders and the Senior Independent Director met with a number of institutional shareholders. Feedback on interaction with institutional shareholders is provided to all directors. The Investor Relations team provides the Board with a report on any meetings with major institutional shareholders at each scheduled Board meeting. All directors receive copies of analysts’ reports on the Company. In addition, the Company’s external advisors give an annual brieﬁng on investors’ perceptions of Tate & Lyle and its investor relations activities. The non-executive directors are encouraged to attend the full-year and half-year results presentations. The Company aims to present a balanced and clear assessment in all its communications with shareholders. Key announcements, ﬁnancial reports and other information about the Group can be found on the Company’s website, www.tateandlyle.com. 2014 review of the effectiveness of the system of internal control The effectiveness of the Group’s internal control system is monitored throughout the year and once a year the Board, with the assistance of the Audit and CR Committees, conducts its own review of the effectiveness of the systems of risk management and internal control. In 2014, this review was once again facilitated by the internal audit function and covered the period from the start of the ﬁnancial year to the date of this Annual Report. The process included a two-stage review to facilitate discussion with the Audit and CR Committees discussing the results of the two-stage review at their meetings in March, April and May 2014 and the Board then discussed the output at its meeting in May 2014. The 2014 review covered ﬁnancial, operational and compliance controls, Values and behaviours and the risk management process, and included questionnaires and representation letters completed by management. The internal audit function monitored and selectively checked the results of this review, ensuring that the responses from management were consistent with the results of its work during the year. As part of this process, areas for enhancements to internal controls, and associated action plans to deliver them, were identiﬁed. Delivery of these enhancements is being monitored by the Audit Committee or CR Committee as appropriate. The Board considers that none of the areas identiﬁed for enhancement in relation to the review constituted a signiﬁcant weakness. Remuneration The Board has delegated to the Remuneration Committee responsibility for agreeing the remuneration policy for the Chairman, Chief Executive, Chief Financial Ofﬁcer and senior executives. The Chairman is a member of the Remuneration Committee but is not involved in any aspect of his own remuneration. The Directors’ Remuneration Report on pages 52 to 71 sets out the remuneration policy and the way in which the established policy has been implemented. 46 | Tate & Lyle PLC Annual Report 2014 AUDIT COMMITTEE REPORT Introduction Dear shareholder I am pleased to report on the activities of the Audit Committee. Members of the Committee take an active role in understanding aspects of the business and the challenges it faces and, as part of this, the Committee visited the global Shared Service Centre in Łód´z, Poland during the year. This provided us with an opportunity to meet with the local leadership team and conduct a detailed review of operations. In addition to our usual matters, including the ﬁnancial results for the full year and half year and the interim management statements, applicable accounting policies and going concern assumptions, we continued to undertake in-depth reviews of key topics. These included risk management processes, the management of commodities risk and, together with the members of the Corporate Responsibility Committee, IT security. We also considered the timing of the tender of the external audit contract. As explained in the Chief Executive’s Review, implementation of the global IS/IT platform is ongoing and the Committee believes that continuity of the external auditors plays a very important role in managing risk effectively during this transition to new systems, processes and ways of working. We have therefore agreed to undertake a tender after the Board considers that the platform is operating satisfactorily across all our material operations. In the meantime, we are undertaking preliminary work to prepare ourselves and the business for the tender. In preparation for this year’s audit, I attended part of PwC’s initial planning meeting where I was able to meet with members of the global audit team. The Committee collectively met the US audit partner as part of our annual programme. I led a review of the Committee’s effectiveness, supplementing the activities s undertaken as part of the external Board effectiveness review, explained on page 43. Both of these reviews concluded that the Committee was functioning effectively y and identiﬁed a number of areas for further action. These include: increasing the membership of the Committee; reviewing detailed scoping documents for r the in-depth reviews to enhance the value e Liz Airey gained from them; and furthering interaction with divisional senior ﬁnance management. I look forward to meeting with shareholders at the forthcoming AGM on 24 July 2014. Liz Airey Chairman of the Audit Committee i S t r a t e g c R e p o r t G o v e r n a n c e Composition and constitution Main responsibilities of the Audit Committee The Audit Committee, which comprises three non-executive directors, oversees the Group’s ﬁnancial reporting and internal controls and provides a formal reporting link with the external auditors. The Committee’s terms of reference, which are reviewed annually, are available on the Company’s website, www.tateandlyle.com. These include: (cid:116)(cid:1)Overseeing the Group’s ﬁnancial reporting process and monitoring the integrity of the ﬁnancial statements and formal announcements relating to the Group’s ﬁnancial performance (cid:116)(cid:1)Reviewing signiﬁcant ﬁnancial reporting issues and accounting policies and disclosures in ﬁnancial reports (cid:116)(cid:1)Reviewing the effectiveness of the Group’s internal control procedures and risk management systems (cid:116)(cid:1)Reviewing the effectiveness of the internal audit function (cid:116)(cid:1)Overseeing the Group’s relationship with the external auditors including the level of fees (cid:116)(cid:1)Reviewing and monitoring the external auditors’ independence and objectivity and the effectiveness of the audit process (cid:116)(cid:1)Making recommendations to the Board on the appointment or reappointment of the Group’s external auditors. Meetings during the year ended 31 March 2014 The Committee met six times during the year and the minutes of each meeting are made available to all directors via the Board portal. Membership of the Committee and attendance during the year were as follows: Directors as at 31 March 2014 Liz Airey1 Douglas Hurt Anne Minto Number of meetings 6 6 6 Number of meetings attended 6 6 6 1 Committee Chairman. All the Committee members have extensive management experience in large international organisations. It is a requirement of the Code that at least one Committee member has recent and relevant ﬁnancial experience. Two members meet this requirement: Liz Airey was an investment banker and former ﬁnance director of Monument Oil and Gas plc, and Douglas Hurt is Finance Director at IMI plc and is a member of the Institute of Chartered Accountants in England and Wales. The Chief Financial Ofﬁcer; VP, Group Audit and Assurance; Group VP, Finance and Control; Executive VP, General Counsel; and representatives of the external auditors are normally invited to attend each meeting. The Chairman of the Board and Chief Executive attend meetings of the Committee by invitation. In addition, the Committee continues to enhance its exposure to the business through its programme of key topics for in-depth review, which involves operational and other key senior managers presenting to the Committee. The VP, Group Audit and Assurance and the external auditors have direct access to, and meet regularly with, the Chairman of the Committee outside formal Committee meetings. Tate & Lyle PLC Annual Report 2014 | 47 i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Governance AUDIT COMMITTEE REPORT | CONTINUED Independence of the external auditors The Group’s external auditors are PricewaterhouseCoopers LLP (PwC) and the Committee operates a policy to safeguard its objectivity and independence. This policy sets out certain disclosure requirements by the external auditors to the Committee; restrictions on the employment of the external auditors’ former employees; and partner rotation. During the year, the Committee reviewed the processes that the external auditors have in place to safeguard their independence, and received a letter from the external auditors conﬁrming that, in their opinion, they remained independent. Work undertaken during the year The Committee maintains a formal calendar of items for consideration at each meeting and within the annual audit cycle to ensure that its work is in line with the requirements of the Code. In addition to the activities outlined in the statement from the Committee Chairman, during the year and up to the date of this Annual Report, the work undertaken by the Committee fell under four main areas: ﬁnancial reporting, oversight of the external auditors, oversight of the internal audit function, and internal control and risk management. The Committee’s work in each of these areas is described below. The policy also sets out the circumstances in which the external auditors may be permitted to undertake non-audit services. The Chief Financial Ofﬁcer and Chairman of the Committee have authority to approve the provision of certain services up to £100,000 or £250,000 respectively. The Committee must approve any proposed non-audit services that exceed those thresholds. Such proposals must be justiﬁed and, if appropriate, subject to tender. In addition, the policy speciﬁes the services which are not permitted under any circumstances, such as the provision of remuneration advice and internal audit outsourcing. The Committee reviews the policy on an annual basis and considers quarterly reports which set out the ongoing non- audit services provided by the auditors and the fees incurred. In April 2014, the European Parliament adopted proposals which include certain restrictions around the provision of non-audit services by the auditors and a 70% non-audit services fee cap. These proposals are likely to come into force at EU level during 2014 and the Committee will revise the policy to reﬂect the new requirements as they take effect in the UK. A breakdown of the fees paid to the external auditors in respect of audit- and non-audit-related work is included in Note 8. The total amount paid in respect of the Group audit, audit of subsidiaries and joint ventures and the half-year review was £2 million and £0.2 million was paid in respect of non-audit-related services. Fees paid in respect of non-audit-related services therefore comprised 9% of the total fees paid to PwC. Financial reporting At each of its meetings during the year, the Audit Committee reviewed accounting papers prepared by management and determined, with the perspective of the external auditors, the appropriateness of key accounting policies, estimates and judgments. The signiﬁcant issues that the Committee considered in relation to the ﬁnancial statements for the year ended 31 March 2014 are listed below. (cid:116)(cid:1)Reported and adjusted earnings: the Committee considered management’s review of reported and adjusted earnings, to ensure that signiﬁcant one-off items of income and expense had been correctly classiﬁed, and that external disclosure of these items was appropriate. (cid:116)(cid:1)Commodity risk: the Group uses corn commodity contracts to manage and hedge its corn book in the US. The valuation of the corn book, which is underpinned by a number of judgments, has a material impact on the reported results of the Group. The Committee participated in a detailed information session led by both executive and local US management covering the key commodity risks and the risk management framework in place to mitigate these risks. In addition to this session, the Committee considered the work performed by the external auditors before concluding that the judgments made in determining the valuation were appropriate. (cid:116)(cid:1)Retirement obligations: a number of judgments have to be made when calculating the fair value of the Group’s legacy retirement obligations. The Committee reviewed the assumptions proposed by management (reﬂecting advice from the Group’s external actuary) which have driven a reduction in the pension and healthcare net liability (see Note 30) and considered reports from the external auditors before agreeing that the assumptions were reasonable. In addition, the Committee reviewed and agreed management’s proposed accounting treatment for both the September 2013 full buy-in of the Amylum UK deﬁned beneﬁt pension scheme, having adopted the calculations performed by the external actuary and the December 2013 transfer of the deﬁned beneﬁt obligation of Tate & Lyle Netherlands BV. (cid:116)(cid:1)Taxation: the Group operates in a number of tax jurisdictions and provisioning for potential direct tax exposures with local tax authorities is underpinned by a range of judgments. The Committee reviewed the Group’s principles and processes for managing tax risks during the year and reviewed the key judgments made in estimating the Group’s tax charge along with the key disclosures, including a statement of tax principles, proposed to be included in the Annual Report (set out on page 26 and in Notes 11 and 29). The Committee was satisﬁed that the judgments made in estimating the Group’s tax charge were reasonable, and that the tax disclosures to be made in the Annual Report were appropriate. In addition to the above items, the Committee reviewed management’s annual goodwill impairment assessment paper, considering future performance of the underlying divisions, including discussion of the discount rates used and forecast assumptions and sensitivities. The Committee was satisﬁed that no impairment charges, or reversal of impairments, were required. Separate papers on the Group’s existing and emerging litigation risks were presented to the Committee and duly considered. There have been no substantive developments in any material case in the current year. External audit PwC (or its predecessor ﬁrms) has been the Company’s auditors since 1989. The lead audit partner is rotated on a ﬁve-yearly basis and, as set out in last year’s report, the lead audit partner changed with effect from the beginning of the 2014 ﬁnancial year in line with this requirement. 48 | Tate & Lyle PLC Annual Report 2014 Internal audit Following a competitive tender process, the Committee retained Independent Audit Limited to conduct a review of the effectiveness of the internal audit function, the last external review having been undertaken in 2010. The review concluded that the internal audit function had continued to strengthen since that time and make a signiﬁcant contribution to the internal governance of the Group. A number of areas for incremental improvement were agreed and implemented, including enhancements to the function’s charter and planning cycle. Internal control and risk management The Committee continued to receive and consider regular reports from management and the VP, Group Audit and Assurance on the effectiveness of the Group’s risk management system. The reports from the latter included the ﬁndings from reviews of internal ﬁnancial controls and actions to address any weaknesses in those controls. Throughout the year, the Committee focused in particular on the impact of the implementation of the new IS/IT platform and associated changes to the control environment, together with any potential impact on ﬁnancial reporting processes. It also reviewed controls to mitigate fraud risk and the Group assurance map outlining the key risks and associated assurance processes. In addition, the Committee reviewed the output from the annual review of the effectiveness of internal ﬁnancial reporting controls and then reported to the Board on that review. As set out on page 48, the Committee undertook a detailed review of the Group’s approach to managing corn and the associated hedging processes during the year. During this session the Committee considered the controls in place and how they are being enhanced with the implementation of the global IS/IT platform. The Committee will continue to keep these activities under review during the year ending 31 March 2015. Following the conclusion of the audit for the year ended 31 March 2013, the Committee conducted an internal review of the effectiveness of the auditors (the last external review having been undertaken in 2010). As part of the process, the Committee reviewed the auditors’ performance against criteria set at the start of the audit, together with feedback from management at Group level and at divisional level and considered the most recent public report on the inspection of PwC which was issued by the FRC in May 2013. The Committee concluded that the external audit process was operating effectively and that PwC continued to provide effective and independent challenge to management. The review identiﬁed a number of areas for process enhancements which were implemented and incorporated into the criteria set for the audit in respect of the year ended 31 March 2014. The Code states that FTSE 350 companies should tender the provision of audit services at least every ten years or explain their approach, if different. The Competition Commission has published additional proposals that are expected to come into effect in October 2014. These require FTSE 350 companies to put their statutory audit engagement out to tender at least every ten years. In addition to this, in April 2014 the European Parliament adopted proposals which include the requirement that audit ﬁrms of all EU companies listed on a regulated market are subject to retender after ten years and rotate off after 20 years. These proposals are likely to come into force at EU level during 2014. The Committee continues to consider legal and regulatory developments in this regard. The Committee discussed the timing of a tender on a regular basis during the ﬁnancial year ended 31 March 2014. In light of the output of the effectiveness review and the ongoing implementation of the global IS/IT platform, the Committee agreed to undertake a tender after the Board considers that the platform is operating satisfactorily across all material operations. The Committee has recommended to the Board that PwC continue to act as auditors to the Group. PwC has indicated its willingness to continue in ofﬁce, and a resolution that PwC be reappointed will be proposed at the AGM. As explained in the letter from the Chairman of the Committee, activities are underway to prepare the Group for the tender. i S t r a t e g c R e p o r t G o v e r n a n c e The global Shared Service Centre (the Centre) in Łódź, Poland is the principal location for handling the financial transactional activities and processes for Tate & Lyle. The Committee has monitored its development since its establishment in 2011. In October 2013, the Committee visited the Centre and met with senior managers to understand more about the control environment in place and the progress the Centre had made in achieving its other objectives, which include supporting decision making across the Group through the prompt delivery of centralised management information, and providing high quality, consistent advice, support and resolution. i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Tate & Lyle PLC Annual Report 2014 | 49 Governance NOMINATIONS COMMITTEE REPORT I look forward to meeting with shareholders at the forthcoming AGM on 24 July 2014. Sir Peter Gershon Chairman of the Nominations Committee Introduction Dear shareholder One of the key areas of focus for the Committee is succession planning and during the year we focused on both Board succession plans and executive succession planning and talent management. As explained in my statement on page 40, Robert Walker, Senior Independent Director and Chairman of the Remuneration Committee, is expected to retire during the current ﬁnancial year after serving a full nine years on the Board. In preparation for this, we commenced work on planning for his successor as Senior Independent Director and as Chairman of the Remuneration Committee. We also reviewed the needs of the Board in light of this imminent retirement and have drawn up a speciﬁcation for an additional non-executive director. We have retained Spencer Stuart to assist with this search. The Executive Vice President, HR presented to us at a number of our meetings to provide us with regular updates on the progress of the executive succession planning and talent management activities. We will continue to monitor progress for these two core activities during the ﬁnancial year ending 31 March 2015. Schneider Ross, who performed the external review of Board effectiveness, undertook a review of the Committee’s effectiveness. The review concluded that the Committee was functioning effectively and recommended that the Committee continue to maintain its clear focus on succession planning going forward. Sir Peter Gershon Composition and constitution Main responsibilities of the Nominations Committee The Nominations Committee comprises the Chairman of the Company, the Chief Executive and all of the non-executive directors. It ensures that the balance of skills and experience of the Board remains appropriate for the needs of the Group. The Committee’s terms of reference, which are reviewed annually, are available on the Company’s website, www.tateandlyle.com. These include: (cid:116)(cid:1)Reviewing the size and composition of the Board, including succession planning, and the leadership needs of the Group generally (cid:116)(cid:1)Recommending candidates for appointment as executive and non- executive directors and as Company Secretary, taking into account the balance of the Board and the required blend of skills and experience, bearing in mind the need for diversity (cid:116)(cid:1)Making recommendations on the process for the appointment of the Chairman of the Board (cid:116)(cid:1)Reviewing annually the performance of each member of the Group Executive Committee and reporting on that review to the Remuneration Committee. Work undertaken during the year During the year and up to the date of this Annual Report, in addition to the work set out in the Chairman’s letter above, the work undertaken by the Nominations Committee included: Succession planning The Committee reviewed succession plans for Executive Committee roles and the progress of action plans to address any gaps. The Committee continues to review progress on a regular basis. Performance evaluation The Committee undertook a performance evaluation of each member of the Group Executive Committee and reported its conclusions to the Remuneration Committee. Membership of Board Committees The Committee reviewed the composition of each of the Board’s Committees in conjunction with recommendations from the relevant chairmen. The Committee agreed with the conclusions of the Audit Committee effectiveness review that an additional member should join that committee. To that end, the speciﬁcation for the new non-executive director covers the experience and skills required by members of our Audit Committee. In addition, the Committee recommended that Virginia Kamsky join the CR Committee. The Board agreed with the recommendation and she joined the CR Committee with effect from 1 April 2014. Meetings during the year ended 31 March 2014 The Committee met three times during the year. Membership of the Committee and attendance during the year were as follows: Directors as at 31 March 2014 Sir Peter Gershon1 Javed Ahmed Liz Airey William Camp Douglas Hurt Virginia Kamsky Anne Minto Dr Ajai Puri Robert Walker 1 Committee Chairman. Number of meetings 3 3 3 3 3 3 3 3 3 Number of meetings attended 3 3 3 3 3 3 3 3 3 The Committee has a formal calendar of items for consideration at each meeting and meets at least twice a year. 50 | Tate & Lyle PLC Annual Report 2014 CORPORATE RESPONSIBILITY COMMITTEE REPORT Introduction Dear shareholder As explained in the Corporate Responsibility section on page 33, the Group has no higher priority than safety, so we were all shocked and saddened by the tragic fatalities at three of our plants over the last year. In each case, we investigated the circumstances surrounding the accidents and the actions taken by management based on the preliminary ﬁndings of these investigations immediately after the events, as well as ensuring all necessary co-operation was given to the local regulatory investigations. We also worked with management to ensure all necessary assistance was available to support the families and others affected by these incidents. We are sponsoring a management initiative to refocus and refresh our approach to safety. The oversight of ongoing safety initiatives will continue to be a key focus for the Committee this year. We undertook a detailed review of the Group’s approach to tackling cyber security and received a report on progress in this regard during the year. We will continue to monitor the ongoing efforts to mitigate this risk across the Group. The annual review of Committee effectiveness, undertaken by Schneider Ross, indicated that the Committee continues to operate effectively. It recommended some areas for process improvement, such as the timing of meetings where the discussion topics overlap with the interests of the Audit Committee, for example IT security. In addition, the review highlighted topics for increased focus, such as initiatives to drive and embed inclusion across the organisation, and we have adjusted our agenda to address these suggestions. William Camp Last, but by no means least, we welcome Virginia Kamsky as an additional Committee member from 1 April 2014 and we have put in place an induction programme for her, reﬂecting our wide remit. I look forward to meeting with shareholders at the forthcoming AGM. William Camp Chairman of the CR Committee i S t r a t e g c R e p o r t G o v e r n a n c e Composition and constitution Main responsibilities of the Corporate Responsibility Committee The Committee comprises four non-executive directors and the Chairman of the Company. The Committee oversees the Group’s processes and measures used to manage social, environmental and ethical risks and associated internal controls. The Committee’s terms of reference, which are reviewed annually, can be found on the Company’s website, www.tateandlyle.com. These include: (cid:116)(cid:1)Monitoring the Group’s approach to corporate responsibility and ensuring it aligns with Group strategy (cid:116)(cid:1)Reviewing the effectiveness of the Group’s policies and procedures relating to a safe working environment (cid:116)(cid:1)Approving, or recommending to the Board for approval, CR policies (cid:116)(cid:1)Reviewing the implementation of appropriate environmental policies (cid:116)(cid:1)Monitoring the effectiveness of workplace policies concerning employee relations, equal opportunities, travel, entertainment and conﬂicts of interest (cid:116)(cid:1)Reviewing whistleblowing arrangements (cid:116)(cid:1)Satisfying itself that the Group has appropriate policies, systems and controls in place in respect of the risks falling within the Committee’s remit. Meetings during the year ended 31 March 2014 The Committee met four times during the year. Membership of the Committee and attendance during the year were as follows: Safety The Committee discussed the Group’s initiatives to improve workplace safety performance and received regular reports from the VP, Global Safety. Directors as at 31 March 2014 William Camp1 Liz Airey Sir Peter Gershon Dr Ajai Puri Number of meetings 4 4 4 4 Number of meetings attended 4 4 4 4 1 Committee Chairman. Virginia Kamsky joined the committee on 1 April 2014. As she did not serve during the year under review, she is excluded from the above analysis. Work undertaken during the year During the year and up to the date of this Annual Report, in addition to the work outlined in the Committee Chairman’s letter, the work undertaken by the CR Committee included the following: Product safety continued to be an area of focus and the VP, Global Quality and Food Safety provided regular updates on the operation of the Group’s quality assurance processes. Diversity and inclusion The Committee received an update on the implementation of diversity and inclusion initiatives and agreed further reﬁnements to the external reporting of the Group’s gender diversity. Business practices The Committee reviewed the effectiveness of the independent conﬁdential reporting (whistleblowing) line. Further information on this is on page 45. Charitable donations The Committee received an update on implementation of the global community involvement programme, and also approved a proposed education partnership strategy as set out on page 37. Environment The VP, Sustainability provided the Committee with updates on the Group’s environmental performance and initiatives on a regular basis. Internal control The Committee received regular reports from management and the VP, Group Audit and Assurance in respect of the policies, systems and controls in place in respect of the risks falling within the Committee’s remit. The Committee reviewed the output from the annual review of the effectiveness of controls falling within its terms of reference and then reported to the Board on this review. Tate & Lyle PLC Annual Report 2014 | 51 i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Governance DIRECTORS’ REMUNERATION REPORT Chairman’s introduction Dear shareholder The purpose of this introductory letter to the Directors’ Remuneration Report for the year ended 31 March 2014, is to provide some context for the Committee’s decision-making during the year, and to summarise the key points of the Report. Hopefully, this will make reading the detailed Report that follows somewhat easier. Guiding principles Our philosophy remains unchanged: the Company’s remuneration framework should be simple, and provide for a close alignment between executive remuneration and shareholders’ interests. We aim to achieve this primarily by making a signiﬁcant proportion of pay conditional on the achievement of stretching performance conditions and by ensuring that executives maintain signiﬁcant personal shareholdings in the Company. We were ‘early adopters’ of features such as claw back provisions (which apply to both annual bonus and long-term share awards), and the ‘single-ﬁgure’ and ‘pay scenario’ disclosures that have now been adopted into standard reporting. Business performance and remuneration outcomes for the year The Committee judges that the Company made further progress in executing its strategy despite facing a number of challenges that held back ﬁnancial performance. Proﬁt growth in starch-based speciality ingredients and Food Systems and strong growth in emerging markets, were offset by the impact of cold weather, including the extremely cold and prolonged US winter, and an increasingly competitive market for sucralose. Good momentum in emerging markets, a robust innovation pipeline and a strong balance sheet, bodes well for the longer term. With regard to the ﬁnancial metrics used in our incentive plans: (cid:116)(cid:1)Annual Bonus Plan. Growth in net sales (less cost of raw materials) of 2.0% and like-for-like proﬁt growth of 0.5% (in constant currency) for the year ended 31 March 2014 demonstrate continued progress in the context of signiﬁcant year- on-year proﬁt growth over prior periods. The cash conversion cycle improved by 4.8%. As a result, the Committee has approved annual bonus payments in the range of up to 3% of base salary for executive directors. (cid:116)(cid:1)Performance Share Plan. Adjusted earnings per share has grown by 7.2% on a compound annual basis over the three ﬁnancial years ended 31 March 2014; and adjusted return on capital employed in the year to 31 March 2014 is 19.2%, which is signiﬁcantly above our cost of capital. As a result, the awards granted under the Performance Share Plan will vest at 63.4%. In conﬁrming these outcomes, the Committee discussed the Company’s health and safety performance during the past year. Key committee activities during the year The last signiﬁcant changes in the Company’s remuneration arrangements were made in 2010, to introduce the Annual Bonus Plan and the Performance Share Plan in their current forms, receiving signiﬁcant support from shareholders at the 2010 Annual General Meeting (AGM). Four years on, the Committee felt it would now be appropriate to undertake a detailed review to test the continued appropriateness of the performance metrics used in our current incentive framework. This review conﬁrmed that these metrics remain closely aligned with Net sales less raw materials change vs prior year – per bonus metric (%) Adjusted diluted EPS long-term incentive metric (pence) Tate & Lyle PLC adjusted closing share price (pence) 4.6 2.0 16.0 56.0 56.6 55.7 900 800 700 600 500 400 300 2012 2013 2014 2012 2013 2014 03-2009 03-2010 03-2011 03-2012 03-2013 03-2014 Adjusted PBTEA change vs prior year – per bonus metric (%) Adjusted ROCE long-term incentive metric (%) 28.0 3.9 0.5 21.4 19.7 19.2 2012 2013 2014 2012 2013 2014 52 | Tate & Lyle PLC Annual Report 2014 Approval of the remuneration policy for the year ahead In view of the discussion above, we have made no changes to our remuneration design or framework at this time, and the report on remuneration policy, which we ask shareholders to support at the AGM, is consistent with our approach to date and the arrangements which shareholders have previously approved. I trust we can count on your support. Robert Walker Chairman of the Remuneration Committee i S t r a t e g c R e p o r t G o v e r n a n c e Chairman’s introduction continued our strategic objectives and that remuneration outcomes have been closely aligned with business performance. The chart below illustrates this alignment in respect of the Annual Bonus Plan through to the end of the ﬁnancial year to which this Report relates. The chart shows relative year-on-year growth in sales and proﬁts (both key metrics in the Annual Bonus Plan) against a trend line in bonus outcomes over the same period: Relative annual sales growth Relative annual proﬁt growth Trend line in bonus outcomes 2011 2012 2013 2014 Based on this review, the Committee concluded that the choice of our ﬁnancial metrics across the annual bonus and long-term share plan remain appropriate. Looking ahead, we will of course continue to review targets on an annual basis to ensure that these remain appropriately stretching and aligned with the business strategy and outlook. I can conﬁrm that the Committee has made no change to the structure of the remuneration package for the year ahead, and executive directors’ salaries remain unchanged since 1 April 2012, the second year of no increase. Engagement with shareholders As part of our annual cycle of activity, in addition to the normal shareholder engagement activities which the Board undertakes, I write to our key institutional shareholders in my capacity as Remuneration Committee Chairman in order to offer a meeting to discuss any shareholder issues or concerns. This year, I have already written to our top 20 shareholders; this is a larger number than in the past to ensure that we consult on the widest possible basis. g It is a reﬂection of the signiﬁcant levels ort for our current of shareholder support for our current remuneration arrangements that ements that shareholders had no issues to raise with issues to raise with me as part of that process. As a group, ocess. As a group, ed their strong support shareholders indicated their strong support for our approach, which was reﬂected in hich was reﬂected in a 96% vote to approve our remuneration ve our remuneration report resolution at the AGM in 2013. he AGM in 2013. Robert Walker About these Reports The information regarding directors’ remuneration is presented in two Reports: the ﬁrst relates to our remuneration policy (the Directors’ Remuneration Policy Report), and the second relates to the way in which our established policy has been implemented during the year under review (the Annual Report on Remuneration). Resolutions to approve each of these Reports will be proposed at the AGM. It is our intention that the policy approved by shareholders will apply for a period of three years, and will not be put to an annual shareholder vote, although we intend to report on both policy and implementation each year. These Reports have been prepared in accordance with the requirements of the Companies Act 2006 (the Act) and Schedule 8 of the Large and Medium Sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 (the Regulations), the Listing Rules of the UK Listing Authority and the UK Corporate Governance Code. PricewaterhouseCoopers LLP has audited such content as required by the Act (the information on pages 67 to 71 marked as ‘(audited)’). Resolutions to approve each Report will be proposed at the AGM on 24 July 2014. Directors’ Remuneration Policy Report Introduction This Report sets out the Company’s policy in relation to directors’ remuneration. This approach was originally established in 2010 in connection with the review of the business strategy following Javed Ahmed’s appointment as Chief Executive, and the policy is fundamentally unchanged from that set out in the 2011, 2012 and 2013 Annual Reports. Subject to shareholder approval at the AGM on 24 July 2014, the Committee will operate within this policy from that date. The Committee will retain discretion on speciﬁc aspects of policy and implementation, as described in this report along with an overriding discretion to determine bonus outcomes and judge the level at which share awards vest, in order to ensure that payments are consistent with the underlying health and performance of the business, within the maximum opportunity stated in the policy tables. The Committee may make minor changes to the policy without seeking shareholder approval, for example to beneﬁt the administration of arrangements, or to take account of changes in legislation. Any such changes will be disclosed in the relevant Annual Report. Tate & Lyle PLC Annual Report 2014 | 53 i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Governance DIRECTORS’ REMUNERATION REPORT | CONTINUED Remuneration strategy and key principles The Company’s remuneration strategy, and supporting principles which apply consistently across employee, management and executive populations, is summarised in the table below. Remuneration strategy Key principles The Company’s remuneration strategy is to provide packages that enable the Company to recruit, retain and motivate high-calibre individuals in the markets in which we operate to deliver superior operational performance and outstanding ﬁnancial results (cid:116)(cid:1) Base pay and beneﬁts are generally positioned at local market ‘median’ levels (cid:116)(cid:1) For all employees, our pay for performance framework provides for meaningful differentiation in salary progression and opportunities for career progression, based on each individual’s contribution (cid:116)(cid:1) The total package opportunity should provide meaningful reward for superior performance and encourage the achievement of genuinely stretching short-term and long-term objectives (cid:116)(cid:1) Below executive level, key individuals who have a speciﬁc accountability for driving annual and longer-term performance may be selected to participate variously in our sales incentive plan, the Annual Bonus Plan, and/or the Performance Share Plan (cid:116)(cid:1) Alignment with shareholders’ long-term interests is carefully preserved, for example through: a signiﬁcant proportion of pay being based on performance; effective governance around remuneration decisions; a considered approach to setting performance targets; the adoption of shareholding guidelines at senior executive levels; and claw back provisions on incentive awards (cid:116)(cid:1) All aspects of remuneration are designed to encourage a focus on long-term, sustained performance and risk management (cid:116)(cid:1) Our approach is intended to be equitable and transparent and operate across the Group, recognising that we recruit talented individuals and operate in an international market (cid:116)(cid:1) Outcomes must be achieved in a way that is consistent with the Group’s core Values and Code of Ethics, and that fosters sustainable, proﬁtable growth The charts below illustrate the international nature of our business – although we are UK-listed and headquartered in London, a very signiﬁcant proportion of our people, our shareholders, and our customers are based outside the UK. Accordingly, it is important that our remuneration arrangements are appropriately competitive in that international context. Our sales1 1 2% UK 2 59% US Our shareholders2 3 17% Other European countries 4 22% Rest of world 1 50% UK 2 40% US 3 4% Other European countries 4 6% Rest of world Our people3 1 4% UK 2 46% US 3 35% Other European countries 4 15% Rest of world 1 2 4 3 3 4 1 2 1 2 4 3 1 Sales by destination (from continuing operations) as per Note 4 to the Financial Statements. 2 Shareholders are represented by an analysis of the largest 20 institutional shareholdings (covering 48% of the register at 31 March 2014). 3 Includes all joint-venture employees. A clear link between our strategy and directors’ remuneration The Company’s remuneration arrangements place a clear emphasis on driving Company performance, through incentives that are directly linked to the key performance indicators (KPIs) which come from our business strategy. In this way, we maintain a keen focus on delivering long-term growth, thereby enhancing long-term value for shareholders. The table opposite summarises the KPIs that we use to measure the Group’s success against our strategy. The right-hand column describes how these KPIs link directly to remuneration arrangements. Key Performance Indicators Pages 18 and 19 54 | Tate & Lyle PLC Annual Report 2014 Key performance indicators Link to directors’ remuneration Financial results Adjusted operating proﬁt This is a key determinant of awards under the Annual Bonus Plan. Adjusted diluted EPS growth Awards under the Performance Share Plan depend on this metric. Dividend per share Net debt The dividend has a direct impact through individual executive share ownership and dividend equivalents on deferred bonus awards. Objectives are reﬂected in incentive plan target setting, but this metric does not directly impact remuneration. Performance and ﬁnancial strength (in addition to the above) Speciality food ingredients sales growth Informs the sales target in the Annual Bonus Plan that is set by the Committee each year. Return on capital employed Awards under the Performance Share Plan depend on this metric. Cash conversion cycle This is a performance metric in the Annual Bonus Plan. Net debt to EBITDA and interest cover Objectives are reﬂected in Annual Bonus Plan targets, but this metric does not directly impact remuneration. Corporate responsibility Safety metrics Safety and broader corporate responsibility matters are speciﬁc factors that the Committee may factor into decisions on pay and annual incentive plan outcomes. i S t r a t e g c R e p o r t G o v e r n a n c e Key components of directors’ remuneration As a Committee, we believe that our approach to remuneration provides a relatively simple but effective overall framework that is aligned with long-term success and returns to shareholders. The executive directors’ remuneration consists of base salary, annual bonus, long-term incentives, and retirement and other beneﬁts as described in the table overleaf. Claw back provisions apply to incentive awards following release (as described in the policy table on pages 56 to 59), and a strong alignment with shareholders’ interests is maintained through signiﬁcant personal shareholding requirements imposed on each director. The key components of the remuneration framework for executive directors are summarised in the graphic below, and the full policy in relation to each item is described in the tables that follow. Fixed Variable (short-term) Variable (long-term) Base salary: providing ﬁxed remuneration which reﬂects the market value of the role Annual bonus: to deliver the Company’s annual ﬁnancial performance objectives Long-term share incentive: to deliver shareholder value linked to efﬁcient use of capital and proﬁtable long-term growth Employment / retirement beneﬁts: consistent with local market practice Claw back provisions mean cash and share incentives may be recouped in speciﬁc circumstances Personal share ownership: strengthens alignment between executives and shareholders Tate & Lyle PLC Annual Report 2014 | 55 i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Governance DIRECTORS’ REMUNERATION REPORT | CONTINUED Executive directors’ remuneration policy table Purpose and alignment with strategy Operation Opportunity Base salary (short-term, ﬁxed remuneration) To provide ﬁxed remuneration that reﬂects the market value of the individual, his or her skills and experience and performance (cid:116)(cid:1) Base salaries are positioned at around the median of the relevant market based on company size and operations (for UK directors, the Committee currently has regard to the 50th to 130th largest UK-listed companies), and taking account of personal performance, as well as individual circumstances (e.g. following promotion into a new role) (cid:116)(cid:1) Base salary reviews take into account increases awarded to employees below executive level, and the impact on pension and other consequences of increases (cid:116)(cid:1) Increases arising from the normal annual review will normally be limited to the local market increase applicable to employees at the same location generally. However, the Committee may use its discretion to award a higher or lower increase to ensure that salaries remain appropriately aligned with the external market, and to reﬂect changes in experience, role or responsibility Employment and retirement beneﬁts (short-term, ﬁxed remuneration) To provide employment and retirement beneﬁts in line with the relevant local market (cid:116)(cid:1) Retirement beneﬁts are provided by way of deﬁned contribution arrangements, or an equivalent cash allowance (cid:116)(cid:1) Other employment beneﬁts include car (or car allowance), health insurance, group income protection and, where appropriate, life cover (cid:116)(cid:1) The value of retirement and/or cash beneﬁts in lieu of pension is set by reference to external market practice (using the same market reference point as for base salary), and is subject to periodic review (cid:116)(cid:1) The value of non-cash beneﬁts is determined by the cost of provision, e.g. third-party health insurance premiums Annual bonus (short-term, performance-related remuneration) To support the Company’s strategy by rewarding the achievement of the Company’s annual performance objectives (cid:116)(cid:1) The discretionary Annual Bonus Plan (cid:116)(cid:1) No bonus is payable if performance is rewards the achievement of ﬁnancial and other objectives established by the Committee for the relevant ﬁnancial year (cid:116)(cid:1) The bonus award is made, subject to the Committee’s approval, following the end of the ﬁnancial year and the audit of full-year results (cid:116)(cid:1) The bonus award may comprise cash and deferred shares, depending on the level of award that is made below ‘threshold’, regardless of performance against other metrics (cid:116)(cid:1) The ‘target’ bonus is 75% of base salary for the Chief Executive, and 50% of base salary for the Chief Financial Ofﬁcer (cid:116)(cid:1) The maximum cash bonus is 100% of base salary; any annual bonus above 100% of base salary is delivered in Tate & Lyle PLC shares which are deferred for two years (cid:116)(cid:1) The maximum cash and share bonus is 175% of base salary (cid:116)(cid:1) Deferred shares carry the right to receive a cash payment in lieu of the dividend that would have been paid on those shares between award and release 56 | Tate & Lyle PLC Annual Report 2014 Performance framework Commentary (cid:116)(cid:1) Base salary is a ﬁxed element of the remuneration package, paid monthly (cid:116)(cid:1) Employees generally participate in a merit-based review, which means that the general market increase which applies will be sufﬁcient to maintain competitiveness against the local market, while individual high performers may be rewarded with higher salary increases (cid:116)(cid:1) Beneﬁts are a ﬁxed part of the remuneration package, and typically accrue monthly (cid:116)(cid:1) Retirement beneﬁts are deﬁned contribution in nature, limiting the ﬁnancial risk and potential costs to the Company (cid:116)(cid:1) Performance is assessed over the relevant ﬁnancial year (cid:116)(cid:1) Performance metrics are selected by the Committee at the start of the relevant year, and are drawn from key ﬁnancial metrics. Additionally, the Committee may select quantiﬁable metrics that are aligned with our strategic and/or operational objectives on a personal or collective basis (cid:116)(cid:1) Targets for each metric are set at the start of each ﬁnancial year, taking account of the business strategy, performance in previous years, market expectations and the prevailing economic climate (cid:116)(cid:1) The greatest weighting will be given to ﬁnancial performance; speciﬁcally, a minimum proﬁt hurdle applies before any bonus is payable against any of the metrics (cid:116)(cid:1) The ﬁnal bonus award is made at the Committee’s discretion. Subject to the overall maximum, the Committee may make appropriate adjustments to ensure that the bonus outcomes are a fair reﬂection of the underlying performance of the Company and may also take into account factors such as Group safety, operational performance, and personal performance (cid:116)(cid:1) A consistent framework applies to employees generally – salaries are positioned by reference to the local market median, and salary reviews take into account local market increases, external benchmarking, and personal performance (cid:116)(cid:1) No changes to the policy for executive directors have been made in the year or are proposed for the year ahead (cid:116)(cid:1) The provision of employment and retirement beneﬁts to executive directors is consistent with our policy and approach for employees generally: appropriate beneﬁts are provided in line with local competitive market practice (cid:116)(cid:1) No changes to the policy for executive directors have been made in the year or are proposed for the year ahead (cid:116)(cid:1) Claw back provisions apply, which means cash and share elements may be recouped in speciﬁc circumstances during the two-year period following the end of the ﬁnancial year to which the bonus relates (cid:116)(cid:1) The discretionary Annual Bonus Plan applies to a broad population who have roles which allow them to contribute materially to the successful delivery of the Company’s annual performance objectives. The Annual Bonus Plan operates within a consistent framework for all participants, with ﬁnancial targets typically set by reference to the business area that is most relevant to the employee’s role (cid:116)(cid:1) No changes to the policy for executive directors have been made in the year or are proposed for the year ahead Tate & Lyle PLC Annual Report 2014 | 57 i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Governance DIRECTORS’ REMUNERATION REPORT | CONTINUED Executive directors’ remuneration policy table continued Purpose and alignment with strategy Operation Opportunity Performance Share Plan (long-term, performance-related remuneration) To support the Company’s strategy by incentivising sustained proﬁt growth and capital efﬁciency over successive three-year performance periods, and to help retain senior executive talent (cid:116)(cid:1) Awards over Tate & Lyle PLC shares may be made, at the Committee’s discretion, on an annual basis taking an individual executive’s contribution and performance into account (cid:116)(cid:1) Awards will only vest to participants if demanding ﬁnancial performance requirements have been achieved over a period of at least three ﬁnancial years commencing with the ﬁnancial year in which the award is made (cid:116)(cid:1) The Committee has the ﬂexibility to make awards of up to 300% of base salary (at the time of award) if appropriate to ensure market competitiveness and taking account of the Company’s performance (cid:116)(cid:1) The award will lapse entirely if threshold performance targets are not achieved (cid:116)(cid:1) Only 15% of any award made to executive directors vests for achieving threshold performance Personal share ownership requirements (this information is provided here to explain a key feature of the remuneration framework, but these requirements do not form part of the binding ‘policy’) To strengthen long-term alignment of interests between senior executives and the Company’s shareholders (cid:116)(cid:1) Executive directors are subject to individual minimum share ownership requirements (cid:116)(cid:1) Speciﬁed holdings must be built up over an initial ﬁve-year period following the adoption of the policy (or appointment, if later) and retained for the duration of employment (cid:116)(cid:1) Share ownership requirements for executive directors are as follows: – Chief Executive: four times base salary – Chief Financial Ofﬁcer: three times base salary Other (potential) beneﬁts Operation Opportunity To address speciﬁc commercial or administrative situations, the following beneﬁts may be provided: (cid:116)(cid:1) Director relocation and associated beneﬁts, including international healthcare (cid:116)(cid:1) Payment in lieu of dividend on speciﬁc share awards (cid:116)(cid:1) UK savings-related share options (Sharesave Plan) (cid:116)(cid:1) If a director is required to relocate at the Company’s request, e.g. as a result of changing business requirements, additional beneﬁts may arise in accordance with the Group relocation policy. Beneﬁts may include (without limitation): relocation assistance; health cover; travel; accommodation; and tax equalisation (cid:116)(cid:1) Certain share awards carry the right to receive a cash payment in lieu of the dividend that would have been paid on those shares pending delivery (cid:116)(cid:1) The Company operates a Sharesave Plan which is open to all employees in the UK, and provides a mechanism for employees to purchase shares at a discounted price through savings that accumulate from monthly deductions from net salary (cid:116)(cid:1) No directors currently receive relocation beneﬁts (cid:116)(cid:1) The cost of provision will be determined by the policy and will depend on the speciﬁc circumstances (cid:116)(cid:1) Speciﬁc beneﬁts and the cost of provision would be approved by the Remuneration Committee at the time (cid:116)(cid:1) The value of any payment in lieu of dividend will depend on: the value of the relevant dividends paid over the relevant period, and the number of shares to which the participant is entitled (cid:116)(cid:1) The value of individual grants is capped by reference to maximum participant savings (monthly savings/deductions from salary may not exceed HMRC limits, and a savings contract may run for a three- or ﬁve-year period) 58 | Tate & Lyle PLC Annual Report 2014 Performance framework Commentary (cid:116)(cid:1) Long-term performance is assessed over three ﬁnancial years, commencing with the year in (cid:116)(cid:1) Claw back provisions apply to awards which the award is made (cid:116)(cid:1) Awards are subject to the achievement of ﬁnancial performance metrics which are conﬁrmed by the Committee in advance of each new grant. Two performance metrics have applied to awards made since 2010, and equal weight has been given to each: – Growth in adjusted diluted earnings per share from continuing operations (EPS) over the three-year performance period – Adjusted return on capital employed (ROCE) achieved at the end of the performance period (cid:116)(cid:1) These metrics were selected because together they represent key determinants of shareholder value creation: measuring the effectiveness of strategic investment decisions and the quality of earnings generated. If material changes to the metrics or weightings are proposed, the Committee would consult with key shareholders in advance of making a new award (cid:116)(cid:1) Targets for each new award are carefully considered by the Committee ahead of the grant of awards in any year, to ensure these remain appropriately stretching over the three-year performance period, taking into account: the business strategy and long-term ﬁnancial plan, market expectations and the prevailing economic climate made from 2013, which means they may be recouped in speciﬁc circumstances during the two-year period following the end of the performance period (as described on page 69) (cid:116)(cid:1) Participation in the Performance Share Plan is extended to a targeted population of senior executives who are expected to make material individual contributions to the successful delivery of the Company’s strategy and long-term performance. All awards under the Performance Share Plan are subject to the same performance framework, ensuring alignment and focus on our ﬁnancial goals (cid:116)(cid:1) Before any shares are released at the end of the performance period, the Committee must also be satisﬁed that the level of vesting determined by performance against these targets is justiﬁed by the broader underlying ﬁnancial performance of the Company (cid:116)(cid:1) No changes to the policy for executive directors have been made in the year or are proposed for the year ahead i S t r a t e g c R e p o r t G o v e r n a n c e (cid:116)(cid:1) The value of an individual director’s interests in shares is directly affected by share price performance Performance framework (cid:116)(cid:1) Relocation beneﬁts are ﬁxed in accordance with Group policy (cid:116)(cid:1) The payment in lieu of dividend is a beneﬁt attached to speciﬁc awards, where applicable conditions have been satisﬁed at vesting. Accordingly, no additional performance conditions apply (cid:116)(cid:1) No performance conditions are attached to Sharesave awards because the Sharesave Plan is an all-employee scheme (cid:116)(cid:1) Similar share ownership requirements extend to Executive Committee members (at three times base salary), and to a broader group of executives in senior leadership roles (at a level equal to their base salary) (cid:116)(cid:1) No changes to the policy for executive directors have been made in the year or are proposed for the year ahead Commentary (cid:116)(cid:1) Any such beneﬁts would be payable in accordance with policies applicable more generally to employees within the Group (cid:116)(cid:1) The value of any payment in lieu of dividends will be included in the ‘single ﬁgure’ table in the year the payment is made (cid:116)(cid:1) Executive directors are entitled to participate in the Sharesave Plan because the plan must be open to all employees in the UK Tate & Lyle PLC Annual Report 2014 | 59 i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Service contracts The Company’s policy regarding executive directors’ service contracts and appointment terms is to take account of market practice, and to ensure that provisions in relation to notice periods or termination payments are not excessive, as well as to ensure that contracts provide appropriate protection for the Company, for example in relation to restrictions on competition, solicitation of customers or employees, and the protection of intellectual property. Executive directors are employed under service contracts commencing on dates as follows: Javed Ahmed (Chief Executive) – 1 October 2009; Tim Lodge (Chief Financial Ofﬁcer) – 4 December 2008; and provide for six months’ notice from the executive or 12 months’ notice from the Company. Service contracts for executive directors and letters of appointment for the Chairman and non-executive directors are available for inspection at the Company’s registered ofﬁce. Beyond the items disclosed in this Report, there are no further obligations on the Company which could give rise to a remuneration or loss of ofﬁce payment to a director. Governance DIRECTORS’ REMUNERATION REPORT | CONTINUED Remuneration policy for the Chairman and non-executive directors Terms of appointment The Chairman and non-executive directors have letters of appointment and do not have service contracts or notice periods. Under the terms of their appointment, they are usually expected to serve on the Board for between three and nine years, subject to their re-election by shareholders. The Company Chairman and non-executive directors receive a fee for their services, and do not participate in the Group’s incentive or pension schemes, do not receive any other beneﬁts, and have no right to compensation if their appointment is terminated. Chairman and non-executive directors’ fees Non-executive directors’ fees (excluding the Chairman) are reviewed annually by the Chairman and executive directors of the Board. The Chairman’s fee is reviewed annually by the Committee (excluding the Chairman). Aggregate fees depend on the responsibilities assumed by each non- executive director. A basic fee is paid to the Chairman, to the Senior Independent Director and to each non-executive director. In addition, supplemental fees are payable to each Committee chairman. Accordingly, supplemental fees are paid to the chairmen of the Audit, Corporate Responsibility, and Remuneration Committees as well as to the chairman of the Research Advisory Group, to reﬂect the extra responsibilities required by each of these positions. Increases in fees arising from the normal annual review will generally be limited to the market increase applicable to UK employees generally. However, a higher or lower increase may be awarded to ensure that fees paid are commensurate with those paid by other UK-listed companies over time and are set at a level to retain individuals with the necessary experience and ability to make a substantial contribution to the Group. Status of previously approved remuneration policy statements It is intended that provisions consistent with previously disclosed directors’ remuneration policies and/or incentive plans previously approved by shareholders will continue to apply after the resolution to adopt the remuneration policy set out in this Policy Report is approved. Such provisions will allow, without limitation: (cid:116)(cid:1)Contractual commitments entered into before the policy takes effect, or before an individual was subject to this policy on directors’ remuneration, to be honoured (cid:116)(cid:1)The satisfaction of awards and/or commitments made in relation to short-term and long-term incentive plan awards (providing they were consistent with the policy in effect at the time the original award/commitment was made). Such arrangements shall remain in effect and be included in the current remuneration policy by reference, even if they are not speciﬁcally provided for within the policy set out in this Policy Report. Executive directors’ external appointments The Board believes that the Company can beneﬁt from executive directors holding external non-executive directorships. Such appointments are subject to approval by the Board and are normally restricted to one position for each executive director. Fees may be retained by the executive director concerned. Additional share plan disclosures Potential impact of mergers and acquisitions or other corporate activity In the context of a merger or acquisition, or other relevant corporate activity, any potential impact on the incentive plans would be speciﬁcally considered by the Committee. In such circumstances, the Committee retains the authority to vary the performance target or the vesting outcome to ensure that outcomes are equitable for both the participant and shareholders. Change of control and voting All of the Company’s share plans contain provisions relating to a change of control. Outstanding awards would normally vest and become exercisable on a change of control, subject to the satisfaction of any performance conditions at that time, and in proportion to the time served during the performance period. 60 | Tate & Lyle PLC Annual Report 2014 Policy on the terms of directors’ appointment In order to ensure the continued growth and success of the business over time, the Company must have the ﬂexibility to appoint new individuals to the Board, either by way of internal promotion or external appointment, on terms that are sufﬁcient to attract and motivate individuals of the highest calibre. The following key principles describe our intended approach in these circumstances (and are consistent with the principles that apply to the broader employee population). (cid:116)(cid:1)The starting point for negotiating any package on appointment will be the structure of the annual package in the ‘future policy on remuneration’ that has been approved by shareholders and is current at the time of the appointment. (cid:116)(cid:1)We will review the appropriateness of the total package (both ﬁxed and variable elements), to ensure that it is appropriate in the context of relevant external market practice, the complexity and scope of the role, the particular needs and requirements of the Company at the time, internal relativities, and the appointee’s skills, experience and qualiﬁcations. (cid:116)(cid:1)To respond to speciﬁc circumstances and/or to allow for differences in practice over time and by location, the Committee accepts that employment beneﬁts may need to be structured differently from the speciﬁc provisions in place for current directors. The Committee therefore retains ﬂexibility to make appropriate adjustments in provision, as considered appropriate, to provide market- referenced beneﬁts which are necessary or appropriate in the proper performance of the role, for example in relation to: healthcare and insurance; transport and security; and provision for retirement. (cid:116)(cid:1)Where an appointment requires an individual to relocate, internationally or otherwise, the Company may agree to make payment(s) to offset certain expenses incurred as a consequence of relocation or may provide beneﬁts in line with our global/domestic mobility policy, on appointment and on an ongoing basis, depending on the circumstances. Such beneﬁts may include, without limitation: travel; relocation and tax- related assistance; and similar beneﬁts on repatriation at the end of the term. (cid:116)(cid:1)The current policy provides for a maximum level of variable remuneration that is equivalent to 475% of base salary in the ﬁnancial year of appointment. This is consistent with the aggregate current maximum award under the Annual Bonus Plan (including any deferred shares) and the maximum award value under our Performance Share Plan, although the balance between short-term and long-term elements may be different from the current policy, and awards may be made on different terms. (cid:116)(cid:1)Where an internal candidate is appointed, contractual commitments that have been made prior to appointment to the Board, along with any beneﬁts and/or incentive awards that have been awarded at that time, may remain in effect and be honoured, even if they would not otherwise be consistent with the shareholder-approved remuneration policy in effect at the time. (cid:116)(cid:1)In order to secure the appointment of a suitable external candidate, the Committee retains the ﬂexibility to provide additional compensation for the value of incentive awards or other beneﬁts that are forfeited on leaving a former employer. In such circumstances, the Committee may make use of cash and/or shares, as it considers appropriate in the circumstances. The Committee will exercise careful judgment in formulating the terms on which such a compensatory award will be made, taking into account the form of award(s) that are forfeited, the timeframes over which they may otherwise have been earned and any performance conditions that would have applied. This policy is intended to enable the Committee to structure an offer on terms that it considers to be in the best interests of the Company and its shareholders. Depending on the circumstances, and any restrictions or requirements that may apply, the Company may consult with key shareholders as part of this process and/or disclose terms on which a new appointment is made through the Regulatory Information Service, or in the following Annual Report. Policy on payments in connection with loss of ofﬁce It is the Company’s policy that executive directors are normally employed on contracts that provide for not more than 12 months’ notice from the Company and at least six months’ notice from the executive. To protect the Company’s interests, restrictive covenants (non- compete/non-solicitation) apply for a period of 12 months following termination, less any period of ‘garden leave’. The Chief Executive and Chief Financial Ofﬁcer are each employed on contracts consistent with this policy. The Committee’s policy in respect of the treatment of executive directors leaving the Company is summarised in this section. The key principles are that the framework is designed to support a smooth transition from the Company, encouraging an orderly transfer of responsibilities, and taking into account the interests of shareholders in securing the sustained performance of the business beyond the executive’s departure. Termination for dishonesty or misconduct are circumstances in which the executive would retain the minimum contractual entitlements on departure (as described in column ‘A’ of the table on page 62), consistent with the need to avoid providing any element of reward for failure. An executive’s departure in compassionate circumstances such as death or permanent disability would generally result in the most beneﬁcial terms being received (as described in column ‘B’ of the table on page 62). The terms that will apply if an executive departs from the Company in other circumstances would be considered at the Committee’s discretion and approved on a case-by-case basis, in keeping with the principles above. Such circumstances would potentially result in treatment that is more favourable than the minimum but no more generous than that which applies in the compassionate circumstances described above. Tate & Lyle PLC Annual Report 2014 | 61 i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Governance DIRECTORS’ REMUNERATION REPORT | CONTINUED Summary of policy on payments in connection with loss of ofﬁce (A) Termination for dishonesty or misconduct (B) Death or permanent disability Fixed elements of remuneration: (cid:116)(cid:1) Base salary (cid:116)(cid:1) Pension (cid:116)(cid:1) Beneﬁts Annual bonus awards Cash elements, including accrued holiday pay, are paid pro rata to the termination date. Non-cash beneﬁts may continue to be provided until the termination date, or paid as a cash equivalent (based on the cost of provision) on a pro rata basis. Cash elements, including accrued holiday pay, are paid pro rata to the end of the relevant notice period. Non-cash beneﬁts may continue to be provided until the end of the notice period, or paid as a cash equivalent (based on the cost of provision) on a pro rata basis. No discretionary bonus would be awarded in these circumstances. More generally, no discretionary bonus will normally be awarded unless an individual is in active employment on the payment date (for cash awards) and/or the award date (for deferred share awards). Dishonesty or misconduct may lead to the operation of claw back provisions within the terms of the plan. Any discretionary bonus that is payable will be approved on a case-by-case basis by the Committee. Any bonus will normally be pro-rated to reﬂect the portion of the ﬁnancial year prior to cessation, and would be paid at the normal time, reﬂecting the extent to which the original performance targets have been met. However, within a discretionary bonus framework, the Committee retains the ﬂexibility to approve the timing and amount of the bonus on some other basis. Deferred share awards Unvested deferred shares will lapse. Vested awards that have not been transferred/ released/exercised prior to cessation will lapse. Previously vested but unexercised awards may be released in the normal way. In respect of unvested awards: Dishonesty or misconduct may lead to the operation of claw back provisions within the terms of the plan. (cid:116)(cid:1) If a participant dies, a deferred bonus award will vest in full on that date Long-term share incentive (Performance Shares Plan)1 Unvested awards will lapse. Vested awards that have not been transferred, released or exercised prior to cessation will lapse. Dishonesty or misconduct may lead to the operation of claw back provisions within the terms of the plan. (cid:116)(cid:1) In the event of permanent disability, a deferred bonus award will continue on its existing terms, unless the Committee exercises its discretion to approve the release of the award on an earlier date. In the event of a change of control, an award may, at the Committee’s discretion, be released on or prior to the event, or be exchanged for a replacement award with an acquiring company. Previously vested but unexercised awards may be released during a period ending six months following cessation. In respect of unvested awards: (cid:116)(cid:1) Awards made in prior years will remain in effect and, unless the Committee determines that awards should vest on some other basis, an individual may receive a proportion of the potential award depending on the extent to which the original performance conditions have been achieved at the end of the normal performance period (cid:116)(cid:1) Other than in the case of death or permanent disability, awards will generally be reduced to reﬂect the proportion of the performance period which has elapsed prior to cessation. The same provisions apply in the event of a change of control, but for the fact that the achievement of performance conditions will be assessed when the change of control is effective. Provision for payments in lieu of notice, and requirements for mitigation The Company has the option to make a payment in lieu of notice in relation to the ﬁxed elements of remuneration only (base salary, pension, and contractual beneﬁts). Depending on the circumstances, such a payment may be subject to a duty of mitigation. The Chief Financial Ofﬁcer’s contract gives the Company the contractual right to phase the payments and to reduce them if the executive mitigates his loss. Other elements of remuneration described in the table are not affected by these provisions. 1 Savings-related share options granted under the HMRC-approved Sharesave Plan will vest or lapse in keeping with HMRC regulations applicable to the circumstances at the relevant date. In addition to contractual rights to any payment on loss of ofﬁce, any employee, including executive directors, may have statutory and/or common law or other rights to certain additional payments, for example in a redundancy situation. Similarly, additional consideration may be provided, if necessary, to secure speciﬁc agreements following separation (for example an enhanced non-compete provision) that protect the Company’s interests. Depending on the role and circumstances of departure, a director who has been relocated may be repatriated in accordance with previously agreed terms. The Company may pay some or all of the costs incurred by the executive in respect of legal, ﬁnancial, outplacement or other relevant personal advisory services and/or expenses in connection with relocation. The Committee will approve such arrangements on a case-by-case basis, with a view to maintaining compliance with regulatory requirements and consistency with internal Company policies that may apply. 62 | Tate & Lyle PLC Annual Report 2014 Application of remuneration policy The tables and charts below illustrate the application of the remuneration policy described in this report, by showing the value that may be delivered from each element of the package under different performance scenarios. Element/value (£000s) Base salary Pension allowance Other beneﬁts Annual bonus1 Performance Share Plan2 Total potential value Chief Executive Chief Financial Ofﬁcer Below threshold 721 252 20 – – 993 Threshold 721 252 20 – 324 1 317 Target 721 252 20 541 1 244 2 778 Stretch 721 252 20 1 262 2 163 4 418 Below threshold 406 102 14 – – 522 Threshold 406 102 14 – 183 705 Target 406 102 14 203 700 1 425 Stretch 406 102 14 711 1 218 2 451 £5m £4m £3m £2m £1m £0 100% Below threshold 49% 29% 22% 45% 19% 36% 25% 75% Threshold Target Stretch Composition of remuneration: Performance Share Plan Annual Bonus Plan Base salary, pension and other benefits 26% 74% 49% 14% 37% 50% 29% 21% Threshold Target Stretch 100% Below threshold i S t r a t e g c R e p o r t G o v e r n a n c e 1 Annual bonus shows cash and deferred shares. No bonus is paid at or below threshold; the target opportunity is 75% of base salary for the Chief Executive and 50% for the Chief Financial Officer, while the maximum is 175%. 2 The maximum award is 300% of base salary. 15% vests at threshold, and the ‘target’ shown is half way between threshold and stretch (i.e. 57.5% of maximum). Consideration of shareholder views The remuneration strategy and policy described here were established in 2010 following a review and extensive consultation with major shareholders. Shareholders overwhelmingly approved the continuing use of the Performance Share Plan as our long-term incentive at the AGM in 2012. The Committee (led by the Committee Chairman) engages with our major institutional shareholders each year speciﬁcally on remuneration topics, alongside the Board’s wider-ranging shareholder engagement programme. The Committee also receives regular updates on investors’ views and corporate governance matters. These lines of communication ensure that emerging best practice principles are factored into the Committee’s decision making during the year. Statement of consideration of employment conditions elsewhere in the Company The principles on which we base remuneration decisions for executives (as described on page 54) are broadly consistent with those on which we base remuneration decisions for all employees. In particular, the Committee takes into account the general pay and employment conditions of other employees of the Company when making decisions on executive directors’ remuneration. This includes considering the levels of base salary increase for employees below executive level, and ensuring that the same principles apply in setting performance targets for executives’ incentives as for other employees of the Group. The Committee also reviews information on bonus payments and share awards made to the broader management of the Group when determining awards and outcomes at executive director level. Tate & Lyle PLC Annual Report 2014 | 63 i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Governance DIRECTORS’ REMUNERATION REPORT | CONTINUED Annual Report on Remuneration Introduction As explained on page 53, this Report sets out how our established remuneration policy has been implemented during the year. The Report also covers details relating to the composition and key responsibilities of the Remuneration Committee and provides more information on how our incentive plans operate. Implementation of the remuneration policy in the ﬁnancial year ending 31 March 2015 The Company intends to implement the approved directors’ remuneration policy for the ﬁnancial year ending 31 March 2015. Remuneration Committee consideration of matters relating to directors’ remuneration The Remuneration Committee comprises independent non-executive directors and the Chairman of the Board. The Committee met four times during the year. Membership and attendance during the year were as follows: Directors as at 31 March 2014 Robert Walker (Committee Chairman) Sir Peter Gershon William Camp Anne Minto Dr Ajai Puri Number of meetings 4 4 4 4 4 Meetings attended 4 4 4 4 4 The Company Secretary serves as secretary to the Committee. The Chief Executive, the Executive Vice President, Human Resources, the Vice President, Global Compensation and Beneﬁts and the Executive Vice President, General Counsel are normally invited to attend meetings to assist the Committee, although none is present or involved when his or her own remuneration is discussed. Main responsibilities of the Remuneration Committee The main responsibilities of the Committee include: (cid:116)(cid:1)Assessing the appropriateness of executive remuneration in the context of the Company’s strategy and priorities as well as overall competitiveness, taking into account data from independent, external sources (cid:116)(cid:1)Setting the detailed remuneration of the executive directors, designated members of senior management, and the Company Chairman (in consultation with the Chief Executive), including: base salary or fees, annual bonus, long-term incentives, beneﬁts and contract terms (cid:116)(cid:1)Setting performance targets for awards made to senior executives under the Annual Bonus Plan and the long-term incentive plan and reviewing performance outcomes (cid:116)(cid:1)Reviewing the broader operation of the Annual Bonus and Performance Share Plans, including participation and overall award levels. The Committee has a formal calendar of items for consideration. The Committee’s terms of reference, which are reviewed annually, are available on the Company’s website, www.tateandlyle.com. Committee advisor The Committee appointed Deloitte LLP as external advisor to the Committee, following a review and competitive tender process during 2012. As part of its annual processes, the Committee considered and conﬁrmed that advice received from Deloitte LLP is objective and independent. Deloitte LLP is a signatory to the Remuneration Consultants’ Code of Conduct, giving additional conﬁdence to the Committee that the advice received is objective and independent of conﬂicts of interest. Fees charged by Deloitte LLP for the provision of remuneration advice to the Committee amounted to £51,750 for the year ended 31 March 2014 in accordance with standard terms of business and a work plan that primarily reﬂects the Committee’s planned activities during the year. During the year, Deloitte LLP also provided services to the rest of the Group on internal audit, corporate ﬁnance, systems, tax compliance and accounting. Statement of shareholder voting A resolution to approve the Directors’ Remuneration Report was passed at the AGM on 24 July 2013. The voting outcome, which has previously been disclosed, was as follows: Resolution Directors’ Remuneration Report Total for Number of votes 293 142 434 % of vote 95.92 Total against Number of votes 12 471 975 % of vote 4.08 Votes withheld1 Number of votes 593 308 1 Votes withheld are not counted in the calculation of the proportion of votes for or against a resolution. On 24 July 2013, there were 466,378,765 ordinary shares in issue (excluding treasury shares). 64 | Tate & Lyle PLC Annual Report 2014 Chart showing total shareholder return and Chief Executive pay The chart, as required under the Regulations, illustrates the cumulative total shareholder return (TSR) performance of Tate & Lyle PLC against the FTSE 100 Index over the past ﬁve years. The FTSE 100 Index is considered to be an appropriate benchmark for this purpose since it is a broad equity market index with constituents comparable in size to Tate & Lyle over the ﬁve-year period. The graph shows the value of £100 invested in the FTSE 100 Index and Tate & Lyle in the ﬁve years from 31 March 2009. The table provides the accompanying statistics required by the Regulations: a total compensation ﬁgure (determined on the same basis as for the single ﬁgure) for amounts paid to the individual serving as Chief Executive, and the proportion of any annual bonus and long-term incentive (LTI) that vested in the year (as a percentage of the maximum opportunity). 450 400 350 300 250 200 150 100 50 0 Tate & Lyle PLC (ordinary shares) FTSE 100 31 March 2009 31 March 2010 31 March 2011 31 March 2012 31 March 2013 31 March 2014 Chief Executive1 total remuneration (£000s per single ﬁgure) Annual bonus (% of maximum) LTI vesting (% of maximum) Javed Ahmed Iain Ferguson 977 1 312 86% 0% 3 277 nil 100% 81% 11 198 170 58% 100% 5 367 n/a 18% 100% 2 729 n/a 1.6% 67.7% 1 Javed Ahmed has served as Chief Executive since his appointment on 1 October 2009. Iain Ferguson was Chief Executive in the period until that date. The total remuneration figure shown for the year ended 31 March 2012 includes the value from a number of one-off compensatory awards made to Javed Ahmed on his appointment, as disclosed and explained in the 2009 and 2012 Annual Reports. Comparison of movement in Chief Executive and broader employee remuneration Change in value: year ended 31 March 2014 vs 31 March 2013 Chief Executive Broader employee population2 Base salary 0% +2.7% Value of benefits 0% +20% Annual bonus3 -91% -56% 2 The broader employee population refers to a global population of salaried employees for salary comparison and the UK employee population for the benefits comparison, reflecting the context in which executive directors’ salaries and benefits are determined; and refers to the global group of participants in the Annual Bonus Plan for the bonus comparison, so that the combination of business performance across our divisions that contributes to the Group’s results is appropriately represented. 3 Includes deferred shares where applicable. Relative importance of spend on pay Remuneration paid to or receivable by all employees of the Group Distributions to shareholders (by way of dividend and purchase of ordinary shares into treasury) Year ended 31 March 2013 £234m £140m Year ended 31 March 2014 £225m £153m % change -3.8% +9.3% Tate & Lyle PLC Annual Report 2014 | 65 i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Governance DIRECTORS’ REMUNERATION REPORT | CONTINUED The sections that follow provide more information on remuneration decisions and the operation of incentive plans during the year ended 31 March 2014. Base salary Executive directors’ salaries are reviewed annually, with effect from 1 April. At the 2014 review, the Committee agreed that no changes would be made to executive director salaries for the year ahead, taking current market positioning into account. The average increase awarded to other UK-based employees was approximately 2.7%. Executive directors’ base salaries as at 1 April (£) Javed Ahmed Tim Lodge 2014 721 000 405 820 2013 721 000 405 820 % change nil nil Chairman’s and non-executive directors’ fees Fees are reviewed annually, in accordance with our stated policy, by the Committee (excluding the Chairman) in respect of the Chairman’s fee, and by the Chairman and the executive directors in respect of other non-executive directors’ fees. Taking into account the competitiveness of current fees against the comparable market position, and the time commitment required of each role, the adjustments in the table below were approved with effect from 1 April 2014. The aggregate increase is broadly in line with the rate of increase applicable to UK-based employees (being approximately 2.7%). Fees (per annum) as at 1 April (£) Basic fees Chairman1 Non-executive director Senior Independent Director Supplemental fees (per annum) Chairman of Audit Committee Chairman of Remuneration Committee Chairman of Corporate Responsibility Committee Chairman of Research Advisory Group 2014 2013 % change 324 500 62 850 72 850 16 650 12 500 11 100 23 300 315 950 61 500 68 600 16 300 10 850 10 850 22 800 2.7% 2.1% 6.2% 2.2% 15.2% 2.3% 2.2% 1 The Chairman’s fee includes his role as Chairman of the Nominations Committee. Annual bonus The bonus structure described here applied to the year ended 31 March 2014; we propose to retain this structure for the coming year. The bonus focuses performance on three objectives: proﬁtability; sales performance; and cash conversion. Before any bonus is payable, a minimum level of proﬁt has to be achieved by the Company, regardless of performance against other metrics. For each performance metric, there is a corresponding multiplier, which varies between threshold, target and stretch levels of performance. Once the minimum proﬁt threshold is achieved, bonuses are calculated by applying the multipliers which have the effect of increasing or decreasing the value of the bonus depending on performance against each metric in turn. To achieve the maximum payout, performance against all three metrics must be at or above the stretch level. Step 1 Step 2 Step 3 Target bonus (% of base salary) Chief Executive (75%) Chief Financial Ofﬁcer (50%) X Proﬁtability multiplier (once minimum threshold is achieved) X Sales performance multiplier X Cash conversion multiplier = Bonus achieved (as % of base salary) Proﬁt performance is the most important of the three metrics, so multipliers for the proﬁtability factor are more heavily geared than for the other two metrics, that is, improvements in proﬁtability have the greatest impact on bonus payments. All multipliers and their weightings are agreed by the Committee when targets are set at the start of the year, reﬂecting the importance of each of the metrics in the context of the progress made against the Company’s long-term business strategy. 66 | Tate & Lyle PLC Annual Report 2014 Annual bonus for the year ended 31 March 2014 (audited) The table below provides further information on each metric. The Committee considers that bonus targets are commercially sensitive because they may reveal information about the business plan in the year ahead that may damage our competitive advantage, and accordingly does not disclose these on a prospective basis. However, we continue our practice of reporting the level of performance required to achieve maximum bonus for the year just ended relative to the prior year’s performance, and the level of performance actually achieved against those targets. Bonus objective Proﬁtability Sales performance Cash conversion Metric Deﬁnition Rationale PBTEA Net sales less cost of raw materials Cash conversion cycle Adjusted proﬁt before tax, exceptional items, amortisation and net retirement beneﬁt interest Gross sales net of associated selling costs, less the costs of raw materials used in production Measures the underlying proﬁt generated by the business and whether management is converting growth into proﬁt effectively Measures whether management is growing the business: by assessing growth after deducting the cost of raw materials, this metric better reﬂects the value added by the business The number of days between cash expenditure and collection, taking account of inventory, payables and receivables; based on the average of the four quarter-end results Measures whether the business is managing its working capital and converting proﬁt into cash effectively Performance required for maximum bonus 11.4% improvement vs prior year 8.0% improvement vs prior year 6.7% improvement vs prior year Actual performance 0.5% improvement vs prior year 2.0% improvement vs prior year 4.8% improvement vs prior year Bonus outcome Between threshold and target Between threshold and target Between target and stretch i S t r a t e g c R e p o r t G o v e r n a n c e Comments on actual performance Speciality Food Ingredients – operating proﬁt growth of 1% with good volume growth in Asia Paciﬁc, Europe and Latin America offset by slightly lower US volumes and lower SPLENDA® Sucralose prices; Bulk Ingredients – operating proﬁt 4% lower as a result of soft US beverage season, lower returns from co- products and the impact of the protracted severe cold winter in North America Lower sales largely driven by the impact of pass through of signiﬁcantly lower corn prices in Bulk Ingredients and starch-based speciality ingredients This improved by three days as a result of lower inventory levels in the US and signiﬁcantly lower corn prices Performance is measured on the basis of constant exchange rates for the Group’s continuing operations. The Committee reviews and approves the performance outcomes, considers the Group’s safety performance and then may make adjustments on an exceptional basis to ensure that the results are a true reﬂection of the underlying strength and performance of the Company. On the basis of these performance outcomes, an annual bonus was awarded by the Committee of 2.81% of base salary for the Chief Executive and 1.88% of base salary for the Chief Financial Ofﬁcer for the year ended 31 March 2014. Deferral and claw back provisions Any bonus amount up to 100% of base salary is paid in cash. Any excess above 100% of base salary is paid in the form of deferred shares. The shares are released after two years subject to the executive remaining in service with the Company, and carry the right to receive a payment in lieu of dividend between award and release. Both the cash and share elements are subject to claw back provisions, which mean that they may be recouped in whole or in part, at the discretion of the Committee in the exceptional event that results were found to have been misstated or if an executive commits an act of gross misconduct. Long-term incentive – Performance Share Plan The Performance Share Plan (PSP) was reviewed in 2010 to provide a long-term incentive that is consistent with the business strategy. We speciﬁcally consulted with shareholders in detail at that time and again when we renewed the PSP on the same key terms in 2012. The PSP closely aligns executive directors’ and senior executives’ interests with the strategy and with the interests of shareholders over the long term, and is therefore an important component of the overall package. At the 2012 AGM, 98% of shareholder votes were cast in support of the resolution to approve the PSP. Tate & Lyle PLC Annual Report 2014 | 67 i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Governance DIRECTORS’ REMUNERATION REPORT | CONTINUED Maximum award level Since the 2010 AGM, awards to the executive directors and other senior executives have been granted at the discretion of the Committee, with ﬂexibility for the Committee to make awards of up to 300% of base salary where necessary to ensure market competitiveness, while taking into account Company performance. Performance conditions The release of awards depends on the Group’s performance during the three-year performance period beginning on 1 April in the year of the award. For awards made since 2010, the performance conditions comprised two elements, explained in the table below, consistent with the principles established following the review and consultation with shareholders at that time. Metric Deﬁnition Weighting Rationale Vesting schedule Adjusted diluted earnings per share (EPS) Adjusted return on capital employed (ROCE) Performance is measured by comparing the compound annual growth rate (CAGR) of the Company’s adjusted diluted EPS from continuing operations over the three-year performance period against pre-determined targets Performance is measured by the adjusted ROCE on continuing operations achieved at the end of the three-year performance period against the pre-determined targets1 50% of the award depends on this metric 50% of the award depends on this metric The Committee selected this metric as it is a key determinant of shareholder value creation The Committee selected this metric as it is a good indicator of the effectiveness of strategic investment decisions and of the quality of earnings generated EPS performance (CAGR) Below 6% 6% Between 6% and 15% At or above 15% Vesting outcome (% of maximum) Nil 15% On a straight line between 15%2 and 100% 100% ROCE performance Below 13.4% 13.4% Between 13.4% and 16.4% At or above 16.4% Vesting outcome (% of maximum) Nil 15% On a straight line between 15%2 and 100% 100% 1 The ROCE outcome would be adjusted downward in the event of any asset impairment (adding this back into capital employed); this is to encourage a prudent investment strategy. For this reason, in the event of there being an impairment of assets during the performance period, the ROCE figure for PSP purposes can be significantly lower than the unadjusted ROCE number reported in the Company’s accounts. 2 Under the special arrangements that were agreed in 2009 on the Chief Executive’s appointment, 25% of his 2011 award vests at threshold performance. The Committee reviews the appropriateness of metrics and targets ahead of the grant of awards in any year to ensure these remain sufﬁciently stretching. In practice, no changes to the performance targets have been made since they were established in 2010, and accordingly shares awarded under the PSP in 2011, 2012 and 2013 vest in accordance with the schedule set out in the table above. Before any shares are released, the Committee must also be satisﬁed that the level of vesting determined by performance against these targets is justiﬁed by the broader underlying ﬁnancial performance of the Company. 2011 PSP awards vesting by reference to the period ended 31 March 2014 (audited) PSP awards made in 2011 were dependent on EPS growth and ROCE targets as described above, with each condition applicable to half of the award. Performance against these conditions and the vesting outcome is indicated in the table below. Performance condition EPS growth ROCE Weighting Performance outcome Vesting outcome for this element Combined vesting outcome 50% 50% 7.2% growth 18.9% 26.8% 100% Based on the combination of EPS and ROCE performance, the Committee has conﬁrmed that 63.4% of the PSP awards made in 2011 have vested Under the arrangements agreed in 2009 on the Chief Executive’s appointment, 25% of the award made to Javed Ahmed in 2011 vests at threshold. Accordingly, the EPS element vests at 35.4%, the ROCE element vests at 100%, and the overall combined award vests at 67.7%. In conﬁrming these outcomes, the Committee also considered the broader underlying ﬁnancial performance of Tate & Lyle over the performance period, to ensure that vesting results based on these performance outcomes were consistent with a broader view of the ﬁnancial health and performance of the business. 68 | Tate & Lyle PLC Annual Report 2014 Claw back provisions Awards made under the PSP from 1 April 2013 are subject to claw back provisions for a period following the vesting date and extending to the ﬁfth anniversary following the date of grant. During this period, the Committee may determine that an award will lapse wholly or in part (or may require that a participant shall repay up to 100% of the value of any award that has vested by virtue of performance), in the event of circumstances including the following: material misstatement of ﬁnancial results; misconduct which justiﬁes, or could justify, summary dismissal of the participant; or if information has emerged which would have affected the value of the original award that was granted to a participant, or the level at which the performance conditions were judged to have been satisﬁed. Single ﬁgure table (audited) Year ended 31 March Chairman Sir Peter Gershon Executive directors Javed Ahmed Tim Lodge Non-executive directors Liz Airey William Camp Douglas Hurt Virginia Kamsky Anne Minto Dr Ajai Puri Robert Walker Former directors Evert Henkes Salary/fees 2014 2013 Benefits1 2014 2013 Annual Bonus 2014 2013 PSP Shares2 2014 2013 Pension 2014 2013 316 307 – – – – – – – – 721 406 721 406 23 15 20 14 20 8 233 87 1 712 903 4 141 1 956 252 101 252 101 78 72 62 62 62 84 79 – 76 67 60 20 20 82 70 47 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – Other remuneration 2014 2013 – – – – – – – – – – – – – – – – – – – – – – Total 2014 2013 316 307 2 728 1 433 5 367 2 564 78 72 62 62 62 84 79 – 76 67 60 20 20 82 70 47 i S t r a t e g c R e p o r t G o v e r n a n c e 1 Benefits for executive directors include health insurance and car allowance. 2 PSP awards were released to participants based on the achievement of performance conditions over the period ended 31 March 2014 (as described on page 68). PSP awards vested following the Remuneration Committee meeting in May 2014 and are valued at a share price of 668.50 pence, being the closing share price on 27 May 2014 which is the vesting date. Total pension entitlements (audited) Directors participate in arrangements that are deﬁned contribution in nature. Contributions made to or in lieu of pension in respect of each director during the year are shown in the single ﬁgure table. As a deferred member of the Group Scheme, Tim Lodge’s total accrued pension from the Group Scheme at the end of the year amounted to £193,340 per annum (31 March 2013 – £188,000). The Scheme was closed to future accrual from April 2011; the year-on-year change relates only to the inﬂation-linked contractual uplift in deferred pension values that applies under the Scheme rules. His normal retirement date is the end of the month in which he attains age 62. No additional beneﬁts would arise in the event of his early retirement. Termination and loss of ofﬁce payments (audited) There have been no payments to past directors and no loss of ofﬁce payments made during the year. Share awards made during the year (audited) Award Javed Ahmed Performance Share Plan Performance Share Plan Tim Lodge Type of award Nil cost option Nil cost option Date of grant 2 July 2013 Number of shares Face value of award3 267 418 £2 163 010 Face value as % of salary3 300% 2 July 2013 150 518 £1 217 465 300% Performance conditions4 50% adjusted diluted EPS growth; 50% adjusted ROCE Performance period Three ﬁnancial years ending 31 March 2016 % of vesting at threshold 15% 3 Under the terms of the Plan approved by shareholders, the number of shares comprising an award in any year is calculated based on the average share price over the last three months of the preceding financial year, being 808.85 pence for the 2013 award. 4 Performance conditions are described on page 68. Tate & Lyle PLC Annual Report 2014 | 69 i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Governance DIRECTORS’ REMUNERATION REPORT | CONTINUED Share awards made in prior years (audited) The table below sets out the current position of share-based awards made to executive directors. As at 1 April 2013 (number) Awards vested during year (number) Awards lapsed during year (number) Awards exercised during year (number) As at 31 March 2014 (number) Market price on date awards granted (pence) Market price on date awards vested (pence) Vesting date Javed Ahmed Share-incentive arrangements on recruitment: Compensatory Award A1 Compensatory Award C2,3 Long-term incentive Award A2,3 Long-term incentive Award B2,4,5 Long-term incentive Award C2,6 Performance Share Plan2,7: 2012 Deferred shares from annual bonus8: 2011 bonus year Tim Lodge Performance Share Plan2,7: 2008 2009 20106 2011 2012 Deferred shares from annual bonus8: 2010 bonus year9 2011 bonus year 419 403 257 870 656 640 473 042 378 337 310 567 2 010 26 088 151 999 223 381 212 950 174 805 – – – 473 042 – – – – – 223 381 – – 51 683 1 131 51 683 – – – – – – – – – – – – – – – – – – – – – – 419 403 257 870 656 640 473 042 444.90 444.90 444.90 440.20 632.50 676.50 676.50 875.50 378 337 590.50 310 567 671.00 2 010 676.50 – – – 26 088 151 999 223 381 – – – 394.25 294.25 440.20 611.00 676.50 875.50 – – 212 950 590.50 174 805 671.00 – – 01/10/11 29/05/12 29/05/12 28/05/13 After 31/03/14 After 31/03/15 29/05/14 24/05/11 29/05/12 28/05/13 After 31/03/14 After 31/03/15 51 683 – – 1 131 611.00 676.50 816.50 – 31/05/13 29/05/14 1 2 3 4 5 This award, to compensate Javed Ahmed for certain long-term incentives given up by him as a consequence of leaving his former employer, is not subject to performance conditions. The shares were available to exercise from 1 October 2011, being the second anniversary of Javed Ahmed joining the Company and will remain exercisable until 30 September 2017. Pending delivery, he receives a payment in lieu of dividend on these shares which is subject to the deduction of tax. In the event of a change in control, the shares will be delivered immediately. The three-year performance period for these awards begins on the first day of the financial year in which the award is granted. This award is subject to the same performance conditions as PSP awards made in 2009. This award is subject to the same performance conditions as PSP awards made in 2010. 2010 PSP awards vested in full, based on the achievement of adjusted diluted EPS growth and adjusted ROCE performance, as described in the Annual Report 2013. This award is subject to the same performance conditions as PSP awards made in 2011. 6 7 The performance conditions for PSP awards made in 2011, 2012 and 2013 are 50% adjusted diluted EPS and 50% adjusted ROCE, as described in this Report. 8 Deferred shares granted under the Annual Bonus Plan (as described on page 67). The full value of these awards has been disclosed previously in the emoluments table(s) in the relevant bonus year(s). For example, the values of deferred shares relating to performance in the year ended 31 March 2012 are included in the emoluments table for the year ended 31 March 2012 (contained within the Annual Report 2012). 9 The shares awarded in relation to the 2010 bonus vested at the end of their two-year deferral period. All-employee schemes (audited) Details of the directors who were in ofﬁce for any part of the ﬁnancial year, and who hold or held options to subscribe for ordinary shares of the Company, are set out in the table below. Savings-related share options are options granted under the HMRC-approved Sharesave Plan. Options are not subject to performance conditions and are normally exercisable during the six-month period following the end of the relevant three- or ﬁve-year savings contract. As at 1 April 2013 (number) Options granted during year (number) Options exercised during year (number) Options lapsed during year (number) As at 31 March 2014 (number) Exercise price (pence) 3 720 2 471 – – – – – – 3 720 418.00 2 471 607.00 Exercise period 01/03/15 to 31/08/15 01/03/18 to 31/08/18 Chief Executive (Javed Ahmed) Savings-related options 2009 Chief Financial Ofﬁcer (Tim Lodge) Savings-related options 2012 70 | Tate & Lyle PLC Annual Report 2014 Statement of directors’ shareholding and share interests (audited) Personal share ownership requirements (policy on executive share ownership) The Committee and executive management believe that personal investment in Company shares is an important part of our overall remuneration framework. Material personal investment in Company shares serves to strengthen the long-term alignment of interests between senior executives and the Company’s shareholders. Our executive shareholding requirements are more demanding and extend to a greater number of senior executives in the Group when compared with similar UK-listed companies. (cid:116)(cid:1)The Chief Executive has a target share ownership requirement of four times base salary, and his shareholding currently exceeds this target. (cid:116)(cid:1)The Chief Financial Ofﬁcer has a target shareholding of three times base salary, and his shareholding currently exceeds this target. (cid:116)(cid:1)Other Executive Committee members are subject to the share ownership policy, with target holdings at three times salary. (cid:116)(cid:1)This policy was extended to a broader group of executives from 2011 who have senior leadership roles within the Company. The shareholding target for this group is equal to their base salary. The Committee monitors progress against the share ownership requirements annually. Directors’ interests (audited) The interests held by each person who was a director during the ﬁnancial year in the ordinary shares of 25p each in the Company are shown below. All of the interests set out in the table are beneﬁcially held and no director had interests in any class of shares other than ordinary shares. The table also summarises the interests in shares held through the Company’s various share plans. Chairman Sir Peter Gershon Executive directors Javed Ahmed Tim Lodge Non-executive directors Liz Airey William Camp Douglas Hurt Virginia Kamsky Anne Minto Dr Ajai Puri Robert Walker Interest in shares1 Shares – conditional on performance2 Shares – not conditional on performance3 Options – not conditional on performance4 Total 82 080 – – – 82 080 1 204 457 316 391 956 322 538 273 1 808 965 1 131 3 720 2 471 3 973 464 858 226 16 000 2 200 10 000 5 000 8 600 2 018 22 162 – – – – – – – – – – – – – – – – – – – – – 16 000 2 200 10 000 5 000 8 600 2 018 22 162 1 Includes shares owned by connected persons. 2 Includes awards under the Performance Share Plan and the special arrangements that were put in place to facilitate Javed Ahmed’s recruitment which are subject to performance conditions. 3 Includes deferred share awards made under the Annual Bonus Plan, and vested but unexercised awards granted to Javed Ahmed in connection with his appointment. 4 Includes HMRC-approved Sharesave Plan awards. There were no changes in directors’ interests in the period from 1 April 2014 to 28 May 2014. The market price of the Company’s ordinary shares at the close of business on 31 March 2014 was 667.50 pence, and the range during the year ended 31 March 2014 was 624.0 pence to 883.0 pence. On behalf of the Board Robert Walker Chairman of the Remuneration Committee 28 May 2014 Tate & Lyle PLC Annual Report 2014 | 71 i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Governance DIRECTORS’ REPORT About the Directors’ Report The Directors’ Report comprises the Governance section from pages 38 to 51, the Directors’ Report on pages 72 and 73 and the Useful Information section from pages 141 to the inside back cover. Other information that is relevant to the Directors’ Report, and which is incorporated by reference into the Directors’ Report, is disclosed as follows: (cid:116)(cid:1)Likely future developments of the Company (throughout the Strategic Report) (cid:116)(cid:1)Human rights (page 32) (cid:116)(cid:1)Greenhouse gas emissions (pages 35 and 36) (cid:116)(cid:1)Relationship with employees (page 34) (cid:116)(cid:1)Financial instruments (Note 21). Results and dividend A review of the results can be found on pages 1 to 37. An interim dividend of 7.8p per ordinary share was paid on 3 January 2014. The Directors recommend a ﬁnal dividend of 19.8p per ordinary share to be paid on 1 August 2014 to shareholders on the register on 27 June 2014, subject to approval at the 2014 Annual General Meeting (AGM). The total dividend for the year is 27.6p per ordinary share (2013 – 26.2p). Research and development The Group spent £33 million (2013 – £32 million) on research and development during the year. Articles of Association The Articles of Association set out the internal regulation of the Company and cover such matters as the rights of shareholders, the appointment or removal of directors, and the conduct of the Board and general meetings. Copies are available on request and are displayed on the Company’s website, www.tateandlyle.com. In accordance with the Articles of Association, directors can be appointed or removed by the Board or by shareholders in general meeting. Amendments to the Articles of Association have to be approved by at least 75% of those voting in person or by proxy at a general meeting of the Company. Subject to UK company law and the Articles of Association, the Directors may exercise all the powers of the Company, and may delegate authorities to committees, and may delegate day-to- day management and decision making to individual executive directors. Details of the Board Committees can be found on pages 47 to 51 and on page 64. 72 | Tate & Lyle PLC Annual Report 2014 Share capital As at 31 March 2014, the Company had nominal issued ordinary and preference share capital of £119 million comprising £117 million in ordinary shares, including £0.6 million in treasury shares and £2 million in preference shares. To satisfy obligations under employee share plans, the Company issued 9,983 ordinary shares during the year and reissued 2,443,619 ordinary shares from treasury. The Company issued 2,914 shares during the period from 1 April 2014 to 28 May 2014. Further information about share capital is in Note 24. Information about options granted under the Company’s employee share plans is in Note 26. The Company was given authority at the 2013 AGM to make market purchases of up to 46,639,912 of its own ordinary shares. The Company purchased 3,045,000 of its own ordinary shares during the year ended 31 March 2014; these shares are held in treasury to satisfy awards made under performance share plans. This authority will expire at the 2014 AGM and approval will be sought from shareholders for a similar authority to be given for a further year. Restrictions on holding shares There are no restrictions on the transfer of shares and prior approval is not required from the Company nor from other holders for such a transfer. No limitations are placed on the holding of shares and no share class carries special rights of control of the Company. There are no restrictions on voting rights other than those outlined below on preference shares. The Company is not aware of any agreements between shareholders that may restrict the transfer or exercise of voting rights. Shareholders’ rights Holders of ordinary shares have the rights accorded to them under UK company law, including the rights to receive the Company’s annual report and accounts, attend and speak at general meetings, appoint proxies and exercise voting rights. Holders of preference shares have limited voting rights and may not vote on: the disposal of surplus proﬁts after the dividend on the preference shares has been provided for; the election of directors or their remuneration; any agreement between the directors and the Company; or the alteration of the Articles of Association dealing with any such matters. Further details regarding the rights and obligations attached to share classes are contained in the Articles of Association which are available on the Company’s website, www.tateandlyle.com. DTR Rule 5 disclosure As at 28 May 2014, the Company had been notiﬁed under Rule 5 of the Disclosure and Transparency Rules of the following holdings of voting rights in its shares: Number of shares2 % held2 9.97 4.98 46 514 801 22 890 148 Black Rock, Inc AXA S.A.1 Artemis Investment Management LLP1 Invesco Limited1 Schroders plc TIAA-CREF Investment Management, LLC and 18 348 821 Teachers Advisors, INC. Barclays Global Investors1 17 568 133 23 207 193 23 111 061 21 252 858 4.97 4.95 4.56 3.94 3.59 1 Notification was made over 12 months ago; as permitted under Rule 5, shareholders may not be required to notify us of subsequent changes within certain ranges. 2 As at the date in the notification to the Company. Change of control The Company has a committed bank facility of US$800 million, which matures in 2016. Under the terms of this facility, the banks can give notice to Tate & Lyle to prepay outstanding amounts and cancel the commitments where there is a change of control of the Company. The Company is the guarantor of a £200 million bond issue by its subsidiary, Tate & Lyle International Finance PLC, dated 25 November 2009, which is repayable in 2019. Under the terms of the bond issue, noteholders have the option to request an early repayment where there is a change of control of the Company. All of the Company’s share plans contain provisions relating to a change of control. Further information is on page 60. Political donations Again this year, in line with the Group’s policy, no political donations were made in the European Union (EU). Outside the EU, the Group’s US business made contributions during the year totalling US$22,000 (£14,000) (2013 – US$19,000; £12,000) to state political party committees and to the campaign committees of state candidates afﬁliated to the major parties. In all, ten separate donations were made, the largest being of $5,000 and the smallest $300. US$14,000 (£9,000) (2013 – US$8,000; £5,000) was also contributed by the Tate & Lyle Political Action Committee (PAC). Nine separate donations were made, the largest being of $4,000 and the smallest $1,000. The PAC is funded entirely by US employees. Employee contributions are entirely voluntary and no pressure is placed on US employees to participate. No funds are provided to the PAC by Tate & Lyle but under US law, an employee- funded PAC must bear the name of the employing company. DIRECTORS’ STATEMENT OF RESPONSIBILITIES The Directors are responsible for preparing the Annual Report, the Directors’ Remuneration Report and the Financial Statements in accordance with applicable law and regulations. Company law requires the Directors to prepare ﬁnancial statements for each ﬁnancial year. Under that law the Directors have prepared the Group Financial Statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union, and the Parent Company Financial Statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the ﬁnancial statements unless they are satisﬁed that they give a true and fair view of the state of affairs of the Company and the Group and of the proﬁt or loss of the Group for that period. In preparing these ﬁnancial statements, the Directors are required to: (cid:116)(cid:1)Select suitable accounting policies and then apply them consistently (cid:116)(cid:1)Make judgements and accounting estimates that are reasonable and prudent (cid:116)(cid:1)State whether IFRSs as adopted by the European Union and, with regard to the Parent Company Financial Statements, applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Group and Parent Company Financial Statements respectively (cid:116)(cid:1)Prepare the ﬁnancial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufﬁcient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the ﬁnancial position of the Company and the Group and enable them to ensure that the ﬁnancial statements and the Directors’ Remuneration Report comply with the Companies Act 2006 and, as regards the Group Financial Statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the UK governing the preparation and dissemination of ﬁnancial statements may differ from legislation in other jurisdictions. Each of the directors, whose names and functions are listed on pages 38 and 39, conﬁrm that, to the best of his or her knowledge: (cid:116)(cid:1)The Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s and the Group’s performance, business model and strategy (cid:116)(cid:1)The Group Financial Statements, which have been prepared in accordance with IFRSs as adopted by the EU, and the Parent Company Financial Statements in accordance with UK Accounting Standards, give a true and fair view of the assets, liabilities, ﬁnancial position and proﬁt of the Group and Parent Company (cid:116)(cid:1)The Strategic Report and the Directors’ Report include a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces. Disclosure of information to auditors So far as each director is aware, there is no relevant audit information of which the Company’s auditors are unaware; and he or she has taken all the steps that he or she ought to have taken as a director in order to make himself or herself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information. The Directors’ Report on pages 38 to 51, pages 72 and 73 and pages 141 to the inside back cover and the Directors’ Remuneration Report from pages 52 to 71 of this Annual Report were approved by the Directors on 28 May 2014. On behalf of the Board Lucie Gilbert Company Secretary 28 May 2014 i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Tate & Lyle PLC Annual Report 2014 | 73 Financial Statements INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF TATE & LYLE PLC Report on the Group ﬁnancial statements Our opinion In our opinion the Group ﬁnancial statements of Tate & Lyle PLC and its subsidiaries (collectively ‘the Group’), deﬁned below: (cid:116)(cid:1) give a true and fair view of the state of the Group’s affairs as at 31 March 2014 and of the Group’s proﬁt and cash ﬂows for the year then ended; (cid:116)(cid:1) have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union; and (cid:116)(cid:1) have been prepared in accordance with the requirements of the Companies Act 2006 and Article 4 of the IAS Regulation. This opinion is to be read in the context of what we say in the remainder of this report. What we have audited The Group ﬁnancial statements, which are prepared by Tate & Lyle PLC, comprise: (cid:116)(cid:1) the consolidated statement of ﬁnancial position as at 31 March 2014; (cid:116)(cid:1) the consolidated income statement and consolidated statement of comprehensive income for the year then ended; (cid:116)(cid:1) the consolidated statement of changes in equity and consolidated statement of cash ﬂows for the year then ended; and (cid:116)(cid:1) the notes to the consolidated ﬁnancial statements, which include a summary of signiﬁcant accounting policies and other explanatory information. The ﬁnancial reporting framework that has been applied in their preparation comprises applicable law and IFRSs as adopted by the European Union. Certain disclosures required by the ﬁnancial reporting framework have been presented elsewhere in the Annual Report 2014 (‘the Annual Report’), rather than in the notes to the Group ﬁnancial statements. These are cross-referenced from the Group ﬁnancial statements and are identiﬁed as audited. What an audit of ﬁnancial statements involves We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (‘ISAs (UK & Ireland)’). An audit involves obtaining evidence about the amounts and disclosures in the ﬁnancial statements sufﬁcient to give reasonable assurance that the ﬁnancial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: (cid:116)(cid:1) whether the accounting policies are appropriate to the Group’s circumstances and have been consistently applied and adequately disclosed; (cid:116)(cid:1) the reasonableness of signiﬁcant accounting estimates made by the Directors; and (cid:116)(cid:1) the overall presentation of the ﬁnancial statements. In addition, we read all the ﬁnancial and non-ﬁnancial information in the Annual Report to identify material inconsistencies with the audited Group ﬁnancial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Overview of our audit approach Materiality We set certain thresholds for materiality. These helped us to determine the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and on the ﬁnancial statements as a whole. Based on our professional judgement, we determined materiality for the Group ﬁnancial statements as a whole to be £15 million, which represents approximately 5% proﬁt before tax from continuing operations. We agreed with the Audit Committee that we would report to them misstatements identiﬁed during our audit above £1 million as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons. Overview of the scope of our audit The Group is primarily structured across two divisions being Speciality Food Ingredients and Bulk Ingredients with a central support function. The Group ﬁnancial statements are a consolidation of the Group’s reporting units, spread across the two divisions, which comprise the Group’s operating businesses and centralised functions covering 35 countries. In establishing the overall approach to the Group audit, we determined the type of work that needed to be performed at the reporting units by us, as the Group engagement team, or component auditors from other PwC network ﬁrms operating under our instructions. Where the work was performed by component auditors, we determined the level of involvement we needed to have in the audit work at those reporting units to be able to conclude whether sufﬁcient and appropriate audit evidence had been obtained as a basis for our opinion on the Group ﬁnancial statements as a whole. Accordingly, we identiﬁed six reporting units which, in our view, required an audit of their complete ﬁnancial information, either due to their size or their risk characteristics. In addition, speciﬁc audit procedures on certain balances and transactions were performed at a further nine reporting units. The procedures described above provided coverage of 78% of the Group’s sales and 70% of the Group’s proﬁt before tax from continuing operations. This, together with additional procedures at a Group level, including the audit of individual transactions that were material to the Group in operating businesses not subject to an audit of their complete ﬁnancial information or where speciﬁc audit procedures were not undertaken by component auditors, gave us the evidence we needed for our opinion on the Group ﬁnancial statements as a whole. Areas of particular audit focus In preparing the ﬁnancial statements, the Directors made a number of subjective judgements, for example in respect of signiﬁcant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. We primarily focused our work in these areas by assessing the Directors’ judgements against available evidence, forming our own judgements, and evaluating the disclosures in the ﬁnancial statements. In our audit, we tested and examined information, using sampling and other auditing techniques, to the extent we considered necessary to provide a reasonable basis for us to draw conclusions. We obtained audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both. We considered the following areas to be those that required particular focus in the current year. This is not a complete list of all risks or areas of focus identiﬁed by our audit. We discussed these areas of focus with the Audit Committee. Their report on those matters that they considered to be signiﬁcant issues in relation to the ﬁnancial statements is set out on page 48. 74 | Tate & Lyle PLC Annual Report 2014 Area of focus Commodity risk The Group uses corn and other commodity contracts to manage and economically hedge its corn book within the US. The US corn book, comprising the commodity contracts, inventory and purchase and sales contracts for corn and co-products, are marked to fair value at the end of each reporting period. The valuation at each reporting period has a substantial impact on the reported results of the US business and the Group. Furthermore, the valuation can require a high level of judgement. Refer to Notes 3, 19 and 20 to the Group ﬁnancial statements. Direct tax provisions The Directors are required to exercise signiﬁcant judgement when determining the appropriate amount to provide in respect of potential direct tax exposures relating to challenges by the tax authorities on cross border arrangements and transfer pricing in various countries. Refer to Notes 3, 11 and 29 to the Group ﬁnancial statements. We focused on this area because of the inherent judgements required in estimating the amount of provision required. Changes in assumptions can materially affect the levels of provisions recorded in the ﬁnancial statements. Retirement benefit obligation liabilities The Group operates material deﬁned beneﬁt pension plans, giving rise to pension plan liabilities in the UK and the US. The Group also operates a signiﬁcant retirement medical scheme in the US. We focused on this area because of the magnitude of the deﬁned beneﬁt pension plan liability and the retirement medical scheme in the context of the overall statement of ﬁnancial position. Levels of judgement and technical expertise are required in choosing appropriate assumptions to measure the plans and scheme liabilities. Changes in key assumptions can have a material impact on the calculation of the liabilities. Refer to Notes 3 and 30 to the Group ﬁnancial statements. Fraud in revenue recognition Auditing Standards (ISAs (UK & Ireland)) presume there is a risk of fraud in revenue recognition because of the pressure management may feel to achieve the planned results. The Group’s focus on revenue and proﬁt targets as a key performance indicator creates incentive for revenue to be recorded in the incorrect period. Therefore, we focused on whether transactions have been recorded in the period in which the Group becomes entitled to record revenue. Risk of management override of internal controls Auditing Standards (ISAs (UK & Ireland)) require that we consider this. How the scope of our audit addressed the area of focus We obtained an understanding of the risks associated with the valuation and pricing methodology used at the year end and compared it to the underlying accounting policy. We conﬁrmed the open commodity positions with brokerage houses and re-performed market price valuations for contracts on a sample basis to test the accuracy of the valuation. We tested manual adjustments that were made to the valuations to check the rationale on which they were based. In instances where commodities are not readily traded on an open market, we performed trend analyses against similar market traded commodities. We obtained a detailed understanding of the Group’s tax strategy and assessed key technical tax issues and risks related to business and legislative developments. We recalculated management’s valuations of direct tax provisions and determined whether the calculations were in line with the Group’s methodology and principles and whether they had been applied consistently with previous years. We challenged the key underlying assumptions, having due regard for on-going correspondence between Group entities and local tax authorities. i S t r a t e g c R e p o r t G o v e r n a n c e We obtained an understanding of the assumptions used by the Group’s actuaries and management in calculating the retirement beneﬁt obligations for the deﬁned beneﬁt pension plans in the UK and the US, and the retirement medical scheme in the US. Having formed that understanding we challenged the key actuarial assumptions (including pension increases, salary increases, inﬂation, discount rates and mortality), by comparing these to benchmark ranges based on market conditions and expectations at 31 March 2014 and comparison across the wider pensions industry. We also conﬁrmed whether the methods used by management to determine key assumptions had been consistently applied year-on-year and evaluated the rationale for any changes in approach. We tested the reconciliation of the opening to closing liability for accuracy taking into account the movements in key assumptions over the year and any changes made to beneﬁts provided within the schemes. We compared membership census data used in the actuarial models to the payroll data held by the Group to determine that the data used in the actuarial calculations was complete and represented only genuine members. We challenged the appropriateness of management’s revenue recognition policies, particularly regarding the appropriate recording of sales around the year end date. We performed a combination of testing of the ﬁnancial controls around revenue recognition and testing of revenue recorded during the year, and testing of sales transactions and credit notes around the year-end date to determine whether the criteria for recording revenue had been met. We tested revenue recorded through manual adjustments to determine whether those manual entries corresponded to revenue transactions that had occurred in the period and met the Group’s revenue recognition policies. We tested key reconciliations and manual journal entries. We also considered whether there was evidence of bias by management in the signiﬁcant accounting estimates and judgements relevant to the ﬁnancial statements. Furthermore, we assessed the overall control environment of the Group, including the arrangements for staff to ‘whistle-blow’ inappropriate actions, and interviewed senior management and the Group’s internal audit function. We incorporated a number of unpredictable audit procedures into our work, including the audit of certain immaterial balances. Tate & Lyle PLC Annual Report 2014 | 75 i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Financial Statements INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF TATE & LYLE PLC | CONTINUED This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Other matter We have reported separately on the Parent Company ﬁnancial statements of Tate & Lyle PLC for the year ended 31 March 2014 and on the information in the Directors’ Remuneration Report that is described as having been audited. John Waters (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London 28 May 2014 Notes: (a) The maintenance and integrity of the Tate & Lyle website (www.tateandlyle.com) is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. (b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Going Concern Under the Listing Rules we are required to review the Directors’ statement, set out on page 28, in relation to going concern. We have nothing to report having performed our review. As noted in the Directors’ statement, the Directors have concluded that it is appropriate to prepare the Group ﬁnancial statements using the going concern basis of accounting. The going concern basis presumes that the Group has adequate resources to remain in operation, and that the Directors intend it to do so, for at least one year from the date the Group ﬁnancial statements were signed. As part of our audit we have concluded that the Directors’ use of the going concern basis is appropriate. However, because not all future events or conditions can be predicted, these statements are not a guarantee as to the Group’s ability to continue as a going concern. Opinions on other matter prescribed by the Companies Act 2006 In our opinion the information given in the Strategic Report and the Directors’ Report for the ﬁnancial year for which the Group ﬁnancial statements are prepared is consistent with the Group ﬁnancial statements. Other matters on which we are required to report by exception Adequacy of information and explanations received Under the Companies Act 2006 we are required to report to you if, in our opinion we have not received all the information and explanations we require for our audit. We have no exceptions to report arising from this responsibility. Directors’ remuneration Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of Directors’ remuneration speciﬁed by law have not been made. We have no exceptions to report arising from this responsibility. Corporate Governance Statement Under the Listing Rules we are required to review the part of the Corporate Governance Statement relating to the Parent Company’s compliance with nine provisions of the UK Corporate Governance Code (‘the Code’). We have nothing to report having performed our review. On page 73 of the Annual Report, as required by the Code Provision C.1.1, the Directors state that they consider the Annual Report taken as a whole to be fair, balanced and understandable and provides the information necessary for members to assess the Group’s performance, business model and strategy. On page 48, as required by C.3.8 of the Code, the Audit Committee has set out the signiﬁcant issues that it considered in relation to the Group ﬁnancial statements, and how they were addressed. Under ISAs (UK & Ireland) we are required to report to you if, in our opinion: (cid:116)(cid:1) the statement given by the Directors is materially inconsistent with our knowledge of the Group acquired in the course of performing our audit; or (cid:116)(cid:1) the section of the Annual Report describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee. We have no exceptions to report arising from this responsibility. Other information in the Annual Report Under ISAs (UK & Ireland), we are required to report to you if, in our opinion, information in the Annual Report is: (cid:116)(cid:1) materially inconsistent with the information in the audited Group ﬁnancial statements; or (cid:116)(cid:1) apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in the course of performing our audit; or (cid:116)(cid:1) is otherwise misleading. We have no exceptions to report arising from this responsibility. Responsibilities for the ﬁnancial statements and the audit Our responsibilities and those of the Directors As explained more fully in the Directors’ Statement of Responsibilities set out on page 73, the Directors are responsible for the preparation of the Group ﬁnancial statements and for being satisﬁed that they give a true and fair view. Our responsibility is to audit and express an opinion on the Group ﬁnancial statements in accordance with applicable law and ISAs (UK & Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. 76 | Tate & Lyle PLC Annual Report 2014 CONSOLIDATED INCOME STATEMENT Continuing operations Sales Operating proﬁt Finance income Finance expense Proﬁt before tax Income tax expense Proﬁt for the year from continuing operations Proﬁt for the year from discontinued operations Proﬁt for the year Proﬁt for the year attributable to: – owners of the Company – non-controlling interests Proﬁt for the year Earnings per share Continuing operations: – basic – diluted Continuing and discontinued operations: – basic – diluted Analysis of adjusted proﬁt before tax from continuing operations Proﬁt before tax Adjusted for: – exceptional items – amortisation of acquired intangible assets – net retirement beneﬁt interest Adjusted proﬁt before tax * Restated for the adoption of IAS 19 (Revised 2011) ‘Employee Benefits’ (see Note 43). The Notes on pages 82 to 133 form part of these financial statements. Notes 4, 5 4, 6 10 10 11 12 12 13 13 7 15 10, 30 Year ended 31 March Restated* 2013 £m 2014 £m 3 147 325 2 (37) 290 (45) 245 28 273 273 – 273 3 256 334 1 (34) 301 (46) 255 18 273 272 1 273 pence pence 52.8p 52.1p 58.8p 58.0p £m 290 14 10 8 322 54.9p 53.8p 58.6p 57.4p £m 301 12 10 4 327 Tate & Lyle PLC Annual Report 2014 | 77 i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Financial Statements CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Proﬁt for the year Other comprehensive (expense)/income Items that may be reclassiﬁed to proﬁt or loss Fair value loss on cash ﬂow hedges Fair value loss on cash ﬂow hedges transferred to proﬁt or loss Fair value loss on available-for-sale ﬁnancial assets (Loss)/gain on currency translation of foreign operations Fair value gain/(loss) on net investment hedges Currency translation gain transferred to proﬁt or loss on disposal of foreign operations Tax expense relating to the above items Items that will not be reclassiﬁed to proﬁt or loss Retirement beneﬁt plans: – actual return lower than interest on plan assets – net actuarial gain/(loss) Tax expense relating to the above items Total other comprehensive expense Total comprehensive income Analysed by: – continuing operations – discontinued operations Total comprehensive income Attributable to: – owners of the Company – non-controlling interests Total comprehensive income * See Note 43. The notes on pages 82 to 133 form part of these financial statements. Notes 25 25 18 25 25 37 11 30 30 11 Year ended 31 March Restated* 2013 £m 273 2014 £m 273 (1) – – (130) 50 – – (81) (29) 19 (22) (32) (113) 160 132 28 160 160 – 160 (3) 4 (1) 57 (30) (14) (6) 7 (13) (132) (6) (151) (144) 129 117 12 129 127 2 129 78 | Tate & Lyle PLC Annual Report 2014 CONSOLIDATED STATEMENT OF FINANCIAL POSITION ASSETS Non-current assets Goodwill and other intangible assets Property, plant and equipment Investments in associates Available-for-sale ﬁnancial assets Derivative ﬁnancial instruments Deferred tax assets Trade and other receivables Retirement beneﬁt surplus Current assets Inventories Trade and other receivables Current tax assets Derivative ﬁnancial instruments Cash and cash equivalents Assets held for sale TOTAL ASSETS EQUITY Capital and reserves Share capital Share premium Capital redemption reserve Other reserves Retained earnings Equity attributable to owners of the Company Non-controlling interests TOTAL EQUITY LIABILITIES Non-current liabilities Trade and other payables Borrowings Derivative ﬁnancial instruments Deferred tax liabilities Retirement beneﬁt deﬁcits Provisions for other liabilities and charges Current liabilities Trade and other payables Current tax liabilities Borrowings and bank overdrafts Derivative ﬁnancial instruments Provisions for other liabilities and charges TOTAL LIABILITIES TOTAL EQUITY AND LIABILITIES Notes 15 16 17 18 20 29 23 30 22 23 20 33 18 24 24 25 27 28 20 29 30 31 27 28 20 31 2014 £m 389 865 6 28 23 7 1 – 1 319 418 314 1 79 396 1 208 – 1 208 2 527 117 406 8 58 460 1 049 1 1 050 2 439 2 45 220 10 718 315 40 339 50 15 759 1 477 2 527 At 31 March 2013 £m 356 958 6 27 54 8 3 12 1 424 510 383 4 86 379 1 362 1 1 363 2 787 117 406 8 139 366 1 036 – 1 036 3 821 21 24 277 15 1 161 382 53 75 60 20 590 1 751 2 787 The Notes on pages 82 to 133 form part of these financial statements. The consolidated ﬁnancial statements on pages 77 to 133 were approved by the Board of Directors on 28 May 2014 and signed on its behalf by: Javed Ahmed, Tim Lodge Directors Tate & Lyle PLC Annual Report 2014 | 79 i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Financial Statements CONSOLIDATED STATEMENT OF CASH FLOWS Cash ﬂows from operating activities Proﬁt before tax from continuing operations Adjustments for: – depreciation of property, plant and equipment – exceptional items, net of cash ﬂow impact – amortisation of intangible assets – share-based payments – other non-cash items – ﬁnance income – ﬁnance expense Change in working capital Change in net retirement beneﬁt obligations Cash generated from continuing operations Interest paid Income tax paid Net cash generated from operating activities in discontinued operations Net cash generated from operating activities Cash ﬂows from investing activities Purchase of intangible assets Purchase of property, plant and equipment Proceeds on disposal of property, plant and equipment Acquisitions of businesses, net of cash acquired Disposal of businesses, net of cash disposed Disposal of joint ventures, net of cash disposed Purchase of available-for-sale ﬁnancial assets Disposal of available-for-sale ﬁnancial assets Interest received Net cash used in investing activities Cash ﬂows from ﬁnancing activities Proceeds from issue of ordinary shares Purchase of own shares Cash inﬂow from additional borrowings Cash outﬂow from repayment of borrowings Repayment of capital element of ﬁnance leases Dividends paid to owners of the Company Dividends paid to non-controlling interests Net cash used in ﬁnancing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents Balance at beginning of year Net increase/(decrease) in cash and cash equivalents Currency translation differences Balance at end of year * See Note 43. Year ended 31 March Restated* 2013 £m 2014 £m 290 97 – 21 8 (6) (2) 37 38 (43) 440 (33) (23) – 384 (45) (114) 34 (15) 3 – (4) 2 2 (137) – (29) 4 (46) (2) (124) – (197) 50 379 50 (33) 396 301 91 (9) 17 13 – (1) 34 (107) (42) 297 (36) (18) 8 251 (42) (92) 3 – 36 15 (4) – 1 (83) 1 (23) 24 (117) (2) (117) (2) (236) (68) 446 (68) 1 379 Notes 16 15 26 10 10 32 37 37 37 18 18 24 14 34 34 33 A reconciliation of the movement in cash and cash equivalents to the movement in net debt is presented in Note 34. The Notes on pages 82 to 133 form part of these financial statements. 80 | Tate & Lyle PLC Annual Report 2014 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY At 1 April 2012 Year ended 31 March 2013 – Restated* Proﬁt for the year Other comprehensive income/(expense) Total comprehensive income Share-based payments (includes tax credit of £2 million) Purchase of own shares Proceeds from shares issued Non-controlling interests in subsidiaries sold Dividends paid (Note 14) At 31 March 2013 Year ended 31 March 2014 Proﬁt for the year Other comprehensive expense Total comprehensive (expense)/income Share-based payments Purchase of own shares Non-controlling interests in subsidiaries acquired Initial recognition of put option on non-controlling interest (Note 37) Dividends paid (Note 14) At 31 March 2014 * See Note 43. Share capital and share premium (Note 24) £m 523 Capital redemption reserve £m 8 Other reserves (Note 25) £m 128 Attributable to the owners of the Company £m 1 033 Retained earnings £m 374 Non- controlling interests £m 25 – – – – – – – – 523 – – – – – – – – 523 – – – – – – – – 8 – – – – – – – – 8 – 11 11 – – – – – 139 – (81) (81) – – – – – 58 272 (156) 116 15 (23) 1 – (117) 366 273 (32) 241 8 (29) – (2) (124) 460 272 (145) 127 15 (23) 1 – (117) 1 036 273 (113) 160 8 (29) – (2) (124) 1 049 1 1 2 – – – (25) (2) – – – – – – 1 – – 1 i S t r a t e g c R e p o r t G o v e r n a n c e Total equity £m 1 058 273 (144) 129 15 (23) 1 (25) (119) 1 036 273 (113) 160 8 (29) 1 (2) (124) 1 050 Other comprehensive income/(expense) recognised in retained earnings relates wholly to retirement beneﬁt plans. An analysis of other comprehensive income/(expense) recognised in other reserves by component of equity is presented in Note 25. At 31 March 2014, retained earnings included a deduction of £37 million (2013 – £29 million) for the cumulative cost of own shares held in relation to share-based incentive plans. Further information on own shares is presented in Note 24. Dividends on ordinary shares in respect of the ﬁnancial year Per ordinary share: – interim paid – ﬁnal proposed The Notes on pages 82 to 133 form part of these financial statements. Year ended 31 March 2014 pence 7.8p 19.8p 27.6p 2013 pence 7.4p 18.8p 26.2p Tate & Lyle PLC Annual Report 2014 | 81 i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1 Basis of preparation Description of business Tate & Lyle PLC (the Company) is a public limited company incorporated and domiciled in the United Kingdom. The Company’s ordinary shares are listed on the London Stock Exchange. The Company, its subsidiaries and proportionately consolidated joint ventures (together ‘the Group’) provides ingredients and solutions to the food, beverage and other industries. The Group operates from more than 30 production facilities around the world. The Group’s continuing operations comprise two operating segments: Speciality Food Ingredients and Bulk Ingredients. Segment information is presented in Note 4. Accounting period The Group’s annual ﬁnancial statements are drawn up to 31 March. These ﬁnancial statements cover the year ended 31 March 2014 with comparative amounts for the year ended 31 March 2013. Basis of accounting The consolidated ﬁnancial statements on pages 77 to 133 have been prepared on the going concern basis in accordance with International Financial Reporting Standards (IFRS) as adopted for use in the European Union and those parts of the Companies Act 2006 that are applicable to companies reporting under IFRS. The consolidated ﬁnancial statements have been prepared under the historical cost convention, modiﬁed in respect of the revaluation to fair value of available-for-sale ﬁnancial assets, derivative ﬁnancial instruments, assets classiﬁed as held for sale and assets held by deﬁned beneﬁt pension plans. The Group’s principal accounting policies are set out in Note 2. Company ﬁnancial statements The Company has not adopted IFRS and prepares its separate ﬁnancial statements in accordance with applicable law and UK Accounting Standards (UK GAAP). The Company’s separate ﬁnancial statements are set out on pages 135 to 140. Going concern For the reasons set out on page 28, the Directors have adopted the going concern basis in preparing the Company’s and the Group’s ﬁnancial statements. Reconciliations of the adjusted performance measures to the most directly comparable measures presented in accordance with IFRS are presented in Note 42. Accounting standards adopted during the year At the beginning of the year, the Group adopted a number of new or revised accounting standards that are outlined below. With the exception of the changes arising from the adoption of IAS 19 (Revised 2011) ‘Employee Beneﬁts’, the Group’s principal accounting policies are unchanged compared with the year ended 31 March 2013. IAS 19 (Revised 2011) ‘Employee Beneﬁts’ IAS 19 (Revised 2011) caused the Group to change the way it accounts for deﬁned beneﬁt pension and other retirement beneﬁt plans. It had no impact on the Group’s ﬁnancial position but it changed the allocation of movements in the deﬁcits or surpluses on the plans within and between proﬁt or loss and other comprehensive income. Comparative amounts for 2013 have been restated on a consistent basis. An explanation and analysis of the effect of IAS 19 (Revised 2011) on the Group’s results for the year and the prior year is presented in Note 43. IFRS 13 Fair Value Measurement IFRS 13 established a single source of guidance for measuring fair value and introduced consistent disclosures about fair value measurements. From the Group’s perspective, IFRS 13 is relevant to the measurement of available-for-sale ﬁnancial assets, derivative ﬁnancial instruments, assets classiﬁed as held for sale and assets held by deﬁned beneﬁt pension plans, and in relation to impairment testing and in accounting for business combinations. IFRS 13 was adopted prospectively from 1 April 2013 so there was no change in any fair values determined in previous periods. IAS 1 (Revised 2011) Presentation of Financial Statements IAS 1 (Revised 2011) had no overall impact on the amount of other comprehensive income, but requires that items of other comprehensive income that may be reclassiﬁed to proﬁt or loss are presented separately from those that will not be reclassiﬁed to proﬁt or loss. Other standards At the beginning of the year, the Group adopted various minor improvements to accounting standards arising from the IASB’s 2009 – 2011 review cycle and Amendments to IFRS 7 Disclosures – Offsetting Financial Assets and Financial Liabilities. Discontinued operations In the Group’s ﬁnancial statements, the results, assets and liabilities and cash ﬂows of discontinued operations are presented separately from those of continuing operations. An operation is classiﬁed as discontinued if it is a component of the Group that: (i) has been disposed of, or meets the criteria to be classiﬁed as held for sale; and (ii) represents a separate major line of business or geographic area of operations or will be disposed of as part of a single co-ordinated plan to dispose of a separate major line of business or geographic area of operations. Fair value measurement Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the signiﬁcance of the inputs to the fair value measurement in its entirety, as follows: (cid:116)(cid:1) Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can assess at the measurement date (cid:116)(cid:1) Level 2 inputs are inputs, other than quoted prices included in Level 1, that are observable for the asset or liability either directly or indirectly (cid:116)(cid:1) Level 3 inputs are unobservable inputs for the asset or liability. Use of adjusted measures Tate & Lyle presents adjusted performance measures including adjusted operating proﬁt, adjusted proﬁt before tax and adjusted earnings per share that are used for internal performance analysis and incentive compensation arrangements for employees and are presented because they provide investors with valuable additional information about the performance of the business. For the periods presented, adjusted performance measures exclude, where relevant, exceptional items, the amortisation of acquired intangible assets, net retirement beneﬁt interest and tax on those adjustments. Adjusted performance measures reported by the Group are not deﬁned terms under IFRS and may therefore not be comparable with similarly-titled measures reported by other companies. The Directors do not regard these measures as a substitute for, or superior to, the equivalent measures presented in accordance with IFRS. 82 | Tate & Lyle PLC Annual Report 2014 2 Principal accounting policies Basis of consolidation (a) Subsidiaries A subsidiary is an entity controlled, either directly or indirectly, by the Company, where control is the power to govern the ﬁnancial and operating policies of the entity so as to obtain beneﬁts from its activities. Control generally exists where the Group owns a shareholding that gives it more than one half of the voting rights in the entity. A non-controlling interest in a subsidiary represents the share of the net assets of the subsidiary that is attributable to the equity interest in the subsidiary that is not owned by the Group. The Group’s income and expenses, assets and liabilities and cash ﬂows include those of each of its subsidiaries from the date on which the Company obtains control until such time as control is lost. All intra-Group transactions, balances, income and expenses are eliminated on consolidation. (b) Joint ventures A joint venture is a contractual arrangement under which the Group and other parties undertake an activity that is subject to joint control, whereby strategic ﬁnancial and operating policy decisions require unanimous consent of the Group and the other parties. The Group’s interests in jointly controlled entities are accounted for by proportionate consolidation, whereby the Group’s share of the income and expenses, assets and liabilities and cash ﬂows of those entities are combined on a line-by-line basis in the ﬁnancial statements with those of the Company and its subsidiaries. Intra-Group balances and unrealised proﬁts or losses on transactions between the Group and joint ventures are normally eliminated to the extent of the Group’s interest in the joint venture. Losses are, however, recognised in full where they represent a reduction in the net realisable value of a current asset or an impairment loss. (c) Associates An associate is an entity over which the Group has signiﬁcant inﬂuence. Signiﬁcant inﬂuence is the power to participate in ﬁnancial and operating policy decisions but not to control or jointly control them. Signiﬁcant inﬂuence generally exists where the Group holds more than 20% and less than 50% of the shareholders’ voting rights. Associates are accounted for under the equity method, whereby the Group’s share of the proﬁt or loss, other comprehensive income and net assets are shown on one line of the relevant primary ﬁnancial statements. Losses of an associate in excess of the Group’s interest in the entity are not recognised, except to the extent that the Group has incurred obligations or made payments on behalf of the associate. Unrealised proﬁts or losses on transactions between the Group and its associates are normally eliminated to the extent of the Group’s interest in the associate. Losses are, however, recognised in full where they represent a reduction in the net realisable value of a current asset or an impairment loss. The consolidated ﬁnancial statements are presented in pounds sterling which is the Company’s functional currency. Business combinations A business combination is a transaction or other event in which the Group obtains control over a business such that it becomes a subsidiary. Business combinations are accounted for using the acquisition method. Goodwill arising in a business combination represents the excess of the sum of the consideration transferred, the amount of any non-controlling interest in the acquired business and, in a business combination achieved in stages, the fair value at the acquisition date of the Group’s previously held equity interest, over the net total of the identiﬁable assets and liabilities of the acquired business at the acquisition date. Any shortfall is recognised immediately as a gain in the income statement. Consideration transferred represents the sum of the fair values at the acquisition date of the assets given, liabilities incurred or assumed and equity instruments issued by the Group in exchange for control over the acquired business. Acquisition-related costs are charged to the income statement in the period in which they are incurred. Identiﬁable assets and liabilities of the acquired business are measured at their fair value at the acquisition date, except for certain items that are measured in accordance with the relevant Group accounting policy, including retirement beneﬁt obligations and deferred tax assets and liabilities. Any non-controlling interest in the acquired business is measured either at fair value or at the non-controlling interest’s proportionate share of the identiﬁable assets and liabilities of the business. Put options issued by the Group over non- controlling interests are initially recognised as a liability measured at fair value with a corresponding charge directly to equity. Subsequently, the liability is measured at amortised cost using the effective interest method and changes in its carrying amount are recognised in the income statement. Changes in the Group’s ownership interest in a subsidiary that do not result in a loss of control are accounted for within equity. Any gain or loss on loss of control is recognised in the income statement. Foreign currency translation At entity level, transactions in foreign currencies are translated into the entity’s functional currency at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the exchange rate ruling at the period-end date. Currency translation differences arising at entity level are recognised in the income statement. On consolidation, the results of foreign operations are translated into pounds sterling at the average rate of exchange for the period and their assets and liabilities are translated into pounds sterling at the exchange rate ruling at the period-end date. Currency translation differences arising on consolidation are recognised in other comprehensive income and taken to the currency translation reserve. In the event that a foreign operation is sold, the gain or loss on disposal recognised in the income statement is determined after taking into account the cumulative currency translation differences arising on consolidation of the operation subsequent to the adoption of IFRS. In the cash ﬂow statement, the cash ﬂows of foreign operations are translated into pounds sterling at the average exchange rate for the period. Revenue recognition (a) Sales of goods and services Sales comprise the amount receivable in the ordinary course of business, net of value added and sales taxes, for goods and services provided. It comprises the fair value of the consideration received or receivable for the sale of goods and services. Sales are recognised at the point or points at which the Group has performed its obligations in connection with the contractual terms of the sales agreement, primarily at the point of delivering to the customer, and in exchange obtains the right to consideration. (b) Interest income Interest income is recognised on a time- proportion basis using the effective interest rate method. (c) Dividend income Dividend income is recognised when the right to receive payment is established. Exceptional items Exceptional items comprise items of income and expense, including tax items, that are material in amount and unlikely to recur and which merit separate disclosure in order to provide an understanding of the Group’s underlying ﬁnancial performance. Examples of events giving rise to the disclosure of material items of income and expense as exceptional items include, but are not limited to, impairment events, signiﬁcant business transformation activities, disposals of operations or signiﬁcant individual assets, litigation claims by or against the Group and the restructuring of components of the Group’s operations. Borrowing costs Borrowing costs directly arising from the purchase, construction or production of an asset are capitalised as part of the cost of that asset. Tate & Lyle PLC Annual Report 2014 | 83 i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | CONTINUED 2 Principal accounting policies continued Goodwill Goodwill arising in a business combination is recognised as an intangible asset and is allocated to the cash-generating unit (‘CGU’) or group of CGUs that is expected to beneﬁt from the synergies of the business combination. Goodwill is not amortised but is tested for impairment annually and whenever there are events or changes in circumstances that indicate that its carrying amount may not be recoverable. Goodwill is carried at cost less any recognised impairment losses. Other intangible assets Other intangible assets are stated at cost less accumulated amortisation and any recognised impairment losses. All intangible assets recognised by the Group have ﬁnite useful lives. (a) Acquired in business combinations An intangible resource acquired in a business combination is recognised as an intangible asset if it is separable from the acquired business or arises from contractual or legal rights. Acquired intangible assets, for example, patents and customer relationships, are amortised on a straight-line basis so as to charge their cost, which represents their fair value at the date of acquisition, over the periods of their expected beneﬁt to the Group, which are in the range three to 15 years. (b) Other intangibles Other intangible assets mainly comprise certain product development expenditure, marketing- related intangibles, computer software costs and assets under construction relating to the common global IS/IT system. Costs incurred on the development, design and testing of new or improved products are capitalised only when the technical and commercial feasibility of the product has been proven and prior to the product going into full production. Research and other development expenditures are charged to the income statement in the period in which they are incurred. Other intangibles include marketing-related intangibles relating to the SPLENDA® Sucralose alliance with McNeil Nutritionals, LLC. Other intangible assets are amortised on a straight-line basis so as to charge their cost over the periods of their expected beneﬁt to the Group, which are in the range three to ten years. Capitalised costs in respect of the global IS/IT system will be amortised once the system is deployed into the Group’s businesses. Property, plant and equipment Land and buildings mainly comprise manufacturing sites and administrative facilities. Plant and machinery mainly comprises equipment used in the manufacturing and operating process. Assets under the course of construction comprise property, plant and equipment which is in the process of being completed and not ready for use. Property, plant and equipment is stated at historical cost less accumulated depreciation and impairment. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic beneﬁts associated with the expenditure will ﬂow to the Group and the cost of the item can be measured reliably. All repairs and maintenance expenditures are charged to the income statement during the period in which they are incurred. Depreciation is calculated using the straight-line method to allocate the cost of each asset to its residual value over its useful economic life as follows: Freehold land Freehold buildings Leasehold property Bulk liquid storage tanks Plant and machinery No depreciation 20 to 50 years Period of the lease 12 to 20 years 3 to 28 years Residual values and useful lives are reviewed at each period-end date and adjusted if appropriate. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing the disposal proceeds with the carrying amount and are included in the income statement. Leased assets Leases of property, plant and equipment where the Group assumes substantially all the risks and rewards of ownership are classiﬁed as ﬁnance leases. Assets held under ﬁnance leases are capitalised at the lower of the fair value of the leased asset and the present value of the minimum lease payments. The corresponding leasing commitments, net of ﬁnance charges, are included in liabilities. Leasing payments are analysed between capital and interest components so that the interest element is charged to the income statement over the period of the lease at a constant periodic rate of interest on the remaining balance of the liability outstanding. Depreciation on assets held under ﬁnance leases is charged to the income statement, and depreciated over the shorter of the lease term and its useful life. All other leases are treated as operating leases with annual rentals charged to the income statement, net of any incentives granted to the lessee, over the term of the lease with incentives recognised over the period of the lease at a constant periodic rate. Impairment of non-ﬁnancial assets Goodwill, other intangible assets and property, plant and equipment are tested for impairment whenever events or circumstances indicate that their carrying amounts may not be recoverable. Additionally, goodwill is subject to an annual impairment test. An asset is impaired to the extent that its carrying amount exceeds its recoverable amount. An asset’s recoverable amount represents the higher of the asset’s value in use and its fair value less costs to sell. An asset’s value in use represents the present value of the future cash ﬂows expected to be derived from continued use of the asset. Fair value less costs to sell is the amount obtainable from the sale of the asset in an arm’s length transaction between knowledgeable, willing parties, less the costs of disposal. Where it is not possible to estimate the recoverable amount of an individual asset, the recoverable amount is determined for the CGU to which the asset belongs. An asset’s CGU is the smallest group of assets that includes the asset and generates cash inﬂows that are largely independent of the cash inﬂows from other assets or groups of assets. Goodwill does not generate cash inﬂows independently of other assets and is, therefore, tested for impairment at the level of the CGU or group of CGUs to which it is allocated. Value in use is based on estimates of pre-tax cash ﬂows discounted at a pre-tax discount rate that reﬂects the risks speciﬁc to the CGU to which the asset belongs. Where necessary, impairment of non-ﬁnancial assets other than goodwill is recognised before goodwill is tested for impairment. When goodwill is tested for impairment and the carrying amount of the CGU or group of CGUs to which it is allocated exceeds its recoverable amount, the impairment is allocated ﬁrst to reduce the carrying amount of the goodwill and then pro-rata to the other non-ﬁnancial assets belonging to the CGU or group of CGUs on the basis of their respective carrying amounts. Impairment losses are recognised in the income statement. Impairment losses recognised in previous periods for assets other than goodwill are reversed if there has been a change in the estimates used to determine the asset’s recoverable amount, but only to the extent that the carrying amount of the asset does not exceed its carrying amount had no impairment been recognised in previous periods. Impairment losses recognised in respect of goodwill cannot be reversed. 84 | Tate & Lyle PLC Annual Report 2014 2 Principal accounting policies continued Inventories Inventories are stated at the lower of cost and net realisable value with the exception of certain items of merchandisable agricultural commodities which are stated at market value, in line with regional industry accounting practices. Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the ‘ﬁrst in/ ﬁrst out’ or weighted average cost methods, appropriate to the materials and production processes involved. Net realisable value represents the estimated selling price less all estimated costs to completion and costs to be incurred in marketing, selling and distribution. Provisions are made for any slow moving, obsolete or defective inventories. Financial instruments (a) Trade receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Signiﬁcant ﬁnancial difﬁculties of the debtor, probability that the debtor will enter bankruptcy or ﬁnancial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash ﬂows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the income statement within operating expenses. When a trade receivable is uncollectable, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against operating expenses in the income statement. (b) Trade payables Non-current and current trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method. (c) Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less and, for the purposes of the cash ﬂow statement only, bank overdrafts where the legal right of offset exists. (d) Available-for-sale ﬁnancial assets Equity instruments held by the Group and designated as available-for-sale are carried at fair value, with movements in fair value recognised in other comprehensive income. Where fair value cannot be reliably measured, the assets are approximated at cost. Cumulative fair value gains or losses on an asset are recycled through the income statement when the asset is disposed or impaired. A signiﬁcant or prolonged decline in the fair value of a security below its cost is considered as an indicator that the securities are impaired. Impairments are recognised in the income statement. (e) Borrowings Borrowings are initially measured at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost using the effective interest rate method, whereby any difference between the proceeds (net of transaction costs) and the initial fair value is recognised in the income statement over the period of the borrowings. As explained under ‘Hedge accounting’ below, the carrying amount of a borrowing may be subject to adjustment where it is a hedged liability in a fair value hedge. Borrowings are classiﬁed as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after period-end date. Dividends on preference shares are recognised in the income statement as interest expense. (f) Derivative ﬁnancial instruments The Group uses derivative ﬁnancial instruments to reduce its exposure to commodity price, currency exchange rate and interest rate movements. The Group does not hold or issue derivatives for speculative purposes. All derivative ﬁnancial instruments held by the Group are recognised as assets or liabilities measured at their fair values at the period-end date. As explained under ‘Hedge accounting’ below, unless and to the extent that a derivative is in a designated and effective cash ﬂow or net investment hedging relationship, fair value gains and losses on derivatives are recognised in the income statement. Derivative ﬁnancial instruments that are not in a designated hedging relationship are classiﬁed as held for trading. (g) Embedded derivatives Where an embedded derivative is not closely related to the host contract and where the host contract itself is not already recognised at fair value, movements in the fair value of the embedded derivative are separated from the associated transaction and, except where the embedded derivative is designated as a cash ﬂow hedging instrument, recognised in the income statement. (h) Offsetting ﬁnancial instruments Financial assets and ﬁnancial liabilities are offset and the net amount presented in the statement of ﬁnancial position where there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. Hedge accounting For a hedging relationship to qualify for hedge accounting, it must be documented at inception together with the Group’s risk management objective and strategy for initiating the hedge and it must both be expected to be highly effective in offsetting the changes in cash ﬂows or fair value attributed to the hedged risk and actually be highly effective in doing so. (a) Cash ﬂow hedges Hedging relationships are classiﬁed as cash ﬂow hedges where the hedging instrument hedges exposure to variability in cash ﬂows that is attributable either to a particular risk associated with a recognised asset or liability (such as interest payments on variable rate debt), a highly probable forecast transaction (such as commodity purchases) or the foreign currency risk in a ﬁrm commitment (such as the purchase of an item of equipment). Where a hedging relationship is classiﬁed as a cash ﬂow hedge, to the extent that the hedge is effective, changes in the fair value of the hedging instrument are recognised in other comprehensive income rather than in the income statement. When the hedged item affects the income statement, the cumulative fair value gain or loss recognised in other comprehensive income is transferred to the income statement. When a hedged ﬁrm commitment results in the recognition of a non-current asset, the initial carrying amount of the asset is adjusted for the cumulative fair value gain or loss. If the hedging instrument expires or is sold, or if the hedging relationship no longer meets the conditions for hedge accounting, the cumulative fair value gain or loss remains in equity until the forecast transaction is recognised in the income statement. If a hedged forecast transaction is no longer expected to occur, the cumulative fair value gain or loss is immediately transferred to the income statement. (b) Net investment hedges A net investment hedge is the hedge of the currency exposure on the retranslation of the Group’s net investment in a foreign operation. Net investment hedges are accounted for similarly to cash ﬂow hedges. Changes in the fair value of the hedging instrument are, to the extent that the hedge is effective, recognised in other comprehensive income. In the event that the foreign operation is disposed of, the cumulative fair value gain or loss recognised in other comprehensive income is transferred to the income statement where it is included in the gain or loss on disposal of the foreign operation. Tate & Lyle PLC Annual Report 2014 | 85 i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | CONTINUED value of the policy is deemed to be equivalent to the present value of the related beneﬁt obligations. A deﬁcit or surplus is recognised on each plan which represents the difference between the present value of the beneﬁt obligation and the fair value of the plan assets. Where a plan is in surplus, the surplus recognised is limited to the present value of any amounts that the Group expects to recover by way of refunds or a reduction in future contributions. The deﬁned beneﬁt cost recognised in the income statement comprises the current service cost, any past service cost and the net interest on the deﬁcit or surplus. Gains or losses on curtailments or settlements of the plans are also recognised in the income statement in the period in which the curtailment or settlement occurs. Remeasurements of the deﬁcit or surplus are recognised in other comprehensive income. Current service cost represents the increase in the present value of the beneﬁt obligation due to beneﬁts accrued during the period, less employee contributions. Past service cost represents the change in the present value of the beneﬁt obligation that arises from beneﬁt changes that are applied retrospectively to beneﬁts accrued in previous years. Any past service cost is recognised in full in the period in which the beneﬁt changes are made. Net interest on the deﬁcit or surplus is calculated by applying the discount rate that is used in measuring the present value of the beneﬁt obligation to the deﬁcit or surplus. Plan administration costs incurred by the Group are also recognised in the income statement. Remeasurements comprise differences between the actual return on plan assets (less asset management expenses) and the interest on the plan assets and actuarial gains and losses. Actuarial gains and losses represent the effect of changes in the actuarial assumptions made in measuring the present value of the beneﬁt obligation and experience differences between those assumptions and actual outcomes. Actuarial gains and losses are recognised in full in the period in which they occur. (b) Deﬁned contribution plans Contributions made by the Group to deﬁned contribution pension schemes are recognised in the income statement in the period in which they fall due. 2 Principal accounting policies continued Hedge accounting (c) Fair value hedges Hedging relationships are classiﬁed as fair value hedges where the hedging instrument hedges the exposure to changes in the fair value of a recognised asset or liability that is attributable to a particular risk (such as the fair value of ﬁxed rate debt). ﬁnancial statements and its tax base used in the computation of taxable proﬁt. Deferred tax is accounted for using the liability method, whereby deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable proﬁts will be available in the foreseeable future against which deductible temporary differences can be utilised. Where the hedging relationship is classiﬁed as a fair value hedge, the carrying amount of the hedged asset or liability is adjusted by the change in its fair value attributable to the hedged risk and the resulting gain or loss is recognised in the income statement where, to the extent that the hedge is effective, it offsets the fair value gain or loss on the hedging instrument. Provisions A provision is a liability of uncertain timing or amount that is recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is more likely than not that a payment will be required to settle the obligation and the amount can be estimated reliably. Where the effect is material, the expected future payments are discounted using a pre-tax discount rate that reﬂects current market assessments of the time value of money and, where appropriate, the risks speciﬁc to the liability. The unwinding of any discount is recognised in the income statement within ﬁnance expense. Provision is made for restructuring costs when a detailed formal plan for the restructuring has been determined and the plan has been communicated to those affected by it. Gains from the expected disposal of assets are not taken into account in measuring restructuring provisions. Provisions are not recognised for future operating losses. Provisions are recognised for onerous contracts to the extent that the beneﬁts expected to be derived from a contract are lower than the unavoidable cost to the Group of meeting its obligations under the contract. Income taxes Current tax is the amount of tax payable or recoverable in respect of the taxable proﬁt or loss for the period. Taxable proﬁt differs from accounting proﬁt because it excludes income and expenses that are recognised in the period for accounting purposes but are either not taxable or not deductible for tax purposes or are taxable or deductible in earlier or subsequent periods. Current tax is calculated using tax rates that have been enacted or substantively enacted at the period-end date. Deferred tax is tax expected to be payable or recoverable on temporary differences between the carrying amount of an asset or liability in the 86 | Tate & Lyle PLC Annual Report 2014 Deferred tax assets and liabilities are not recognised if the temporary differences arise from the initial recognition of goodwill or from the initial recognition of other assets and liabilities in a transaction other than a business combination that affects neither accounting proﬁt nor taxable proﬁt. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in foreign subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that it will not reverse in the foreseeable future. Deferred tax is calculated using the enacted or substantively enacted rates that are expected to apply when the asset is recovered or the liability is settled. Current tax assets and liabilities are offset when there is a legally enforceable right to set off the amounts and management intends to settle on a net basis. Deferred tax assets and liabilities are offset when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. Current and deferred tax is recognised in the income statement unless it relates to an item that is recognised in the same or a different period outside the income statement, in which case it too is recognised outside the income statement, either in other comprehensive income or directly in equity. Retirement beneﬁts As described in Note 30, the Group operates pension plans in most of the countries in which it operates. Deﬁned beneﬁt pension plans are principally in the UK and the US and, until December 2013, in the Netherlands, and the Group operates a number of deﬁned contribution pension plans. The Group also operates deﬁned beneﬁt retirement medical plans in the US. (a) Deﬁned beneﬁt plans A valuation of each of the deﬁned beneﬁt plans for accounting purposes is carried out annually at 31 March by independent qualiﬁed actuaries. Beneﬁt obligations are measured using the projected unit credit method and are discounted using the market yields on high quality corporate bonds denominated in the same currency as, and of similar duration to, the beneﬁt obligations. Plan assets are measured at their fair value at the period-end date. Where a plan holds a qualifying insurance policy, the fair (b) Financial instruments IFRS 9 Financial Instruments will eventually replace IAS 39 Financial Instruments: Classiﬁcation and Measurement. IFRS 9 is being issued in stages. While the sections dealing with the classiﬁcation and measurement of ﬁnancial instruments have been issued, the IASB is currently revisiting certain aspects of them. The section of the standard dealing with the impairment of ﬁnancial assets is still under development. During the year, the IASB issued the section dealing with hedge accounting that sets out a new hedge accounting model that is intended to be more closely aligned with how entities undertake risk management activities when hedging ﬁnancial and non-ﬁnancial exposures. In February 2014, the IASB tentatively decided to defer the effective date of IFRS 9 and it is not now expected to become mandatory for the Group until the year ending 31 March 2019 (though this will be subject to its endorsement for use in the European Union). (c) Other pronouncements With effect from 1 April 2014, the Group adopted Amendments to IAS 39 Novation of Derivatives and Continuation of Hedge Accounting, which clariﬁes that, provided certain conditions are met, hedge accounting need not be discontinued where a hedging derivative is novated. Also with effect from 1 April 2014, the Group adopted Amendments to IAS 32 Offsetting Financial Assets and Liabilities, which clariﬁes the conditions that must be met in order to set off ﬁnancial assets and ﬁnancial liabilities, and Amendments to IAS 36 Recoverable Amount Disclosures for Non-Financial Assets. Subject to its endorsement for use in the European Union, with effect from 1 April 2015, the Group will adopt Amendments to IAS 19 Deﬁned Beneﬁt Plans: Employee Contributions, which clariﬁes how employee contributions that are linked to service should be attributed to periods of service and when such contributions may be treated as a reduction in the service cost that is recognised in the income statement. Also with effect from 1 April 2015, the Group will adopt various minor improvements to accounting standards arising from the IASB’s 2010 – 2012 and 2011 – 2013 review cycles. 2 Principal accounting policies continued Share-based incentives As described in Note 26, the Company operates share-based compensation plans under which it grants awards over its ordinary shares to its own employees and to those of its subsidiaries. All of the awards granted under the existing plans are classiﬁed as equity-settled awards. The Group recognises a compensation expense that is based on the fair value of the awards measured at the grant date using the Black-Scholes option pricing formula. Fair value is not subsequently remeasured unless relevant conditions attaching to the award are modiﬁed. Fair value reﬂects any market performance conditions and all non-vesting conditions. Adjustments are made to the compensation expense to reﬂect actual and expected forfeitures due to failure to satisfy service conditions or non-market performance conditions. Generally, the resulting compensation expense is recognised in the income statement on a straight-line basis over the vesting period and a corresponding credit is recognised in equity. In the event of the cancellation of an award, whether by the Group or a participating employee, the compensation expense that would have been recognised over the remainder of the vesting period is recognised immediately in the income statement. Dividends Dividends on the Company’s ordinary shares are recognised when they have been appropriately authorised and are no longer at the Company’s discretion. Accordingly, interim dividends are recognised when they are paid and ﬁnal dividends are recognised when they are declared following approval by shareholders at the Company’s AGM. Dividends are recognised as an appropriation of shareholders’ equity. Own shares Own shares represent the Company’s ordinary shares that are held by the Company in treasury or by a sponsored Employee Beneﬁt Trust that are used to satisfy awards made under the Company’s share-based incentive plans. When own shares are acquired, the cost of purchase in the market is deducted from equity. Gains or losses on the subsequent transfer or sale of own shares are also recognised in equity. Assets held for sale An asset or group of assets is classiﬁed as held for sale if its carrying amount will be principally recovered through a sale transaction rather than through continuing use in the business, it is available for immediate sale in its present condition and management has committed to, and has initiated, a plan to sell the asset which, when initiated, was expected to result in a completed sale within 12 months. Assets that are classiﬁed as held for sale are measured at the lower of their carrying amount when they were classiﬁed as held for sale and their fair value less costs to sell. Accounting standards issued but not yet adopted A number of new or revised accounting standards have been issued that are relevant to the Group but had not been adopted at 31 March 2014. With the exception of IFRS 11 Joint Arrangements, the Directors do not expect that these standards will have a material impact on the Group’s reported results, cash ﬂows or ﬁnancial position. (a) Consolidation, joint arrangements and associates With effect from 1 April 2014, the Group adopted ﬁve related standards dealing with consolidation, joint arrangements and associates. IFRS 10 Consolidated Financial Statements IFRS 10 replaces the parts of the existing IAS 27 Consolidated and Separate Financial Statements that deal with consolidated ﬁnancial statements and SIC-12 Consolidation – Special Purpose Entities. IFRS 10 establishes a single control model for consolidation that applies to all entities, including special purpose entities. IFRS 11 Joint Arrangements IFRS 11 will change signiﬁcantly the accounting for the Group’s interests in joint ventures in the consolidated ﬁnancial statements. At present, the Group’s interests in joint ventures are accounted for by proportionate consolidation. IFRS 11 prohibits the use of proportionate consolidation and requires that joint ventures are accounted for using the equity method of accounting. While these changes will have no net impact on the Group’s results or ﬁnancial position, they will affect many of the individual line items in the consolidated ﬁnancial statements. In the 2015 ﬁnancial year, comparative amounts for the 2014 ﬁnancial year will be restated on a consistent basis. An explanation and analysis of the effect of IFRS 11 is presented in Note 44. IAS 27 (Revised 2011) Separate Financial Statements IAS 27 was revised such that it now deals only with the requirements for separate ﬁnancial statements because the requirements for consolidated ﬁnancial statements are now contained in IFRS 10. IAS 28 (Revised 2011) Investments in Associates and Joint Ventures IAS 28 was revised as a consequence of the issuance of IFRS 11 in order to set out the requirements for the application of the equity method when accounting for joint ventures. IFRS 12 Disclosure of Interests in Other Entities IFRS 12 is a new and comprehensive standard that prescribes disclosure requirements for all forms of interests in other entities, including joint ventures and associates. Tate & Lyle PLC Annual Report 2014 | 87 i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | CONTINUED 3 Critical accounting estimates and judgements In order to prepare these consolidated ﬁnancial statements in accordance with the accounting policies set out in Note 2, management has used estimates and judgements to establish the amounts at which certain items are recorded. Critical accounting estimates and judgements are those that have the greatest impact on the ﬁnancial statements and require the most difﬁcult, subjective and complex judgements about matters that are inherently uncertain. Estimates are based on factors including historical experience and expectations of future events that management believe to be reasonable. However, given the judgemental nature of such estimates, actual results could be different from the assumptions used. The critical accounting estimates and judgements are set out below. Taxation The Group operates in a large number of tax jurisdictions around the world. Tax regulations generally are complex and in some jurisdictions agreeing tax liabilities with local tax authorities can take several years. Consequently, at the period-end date, tax liabilities and assets are based on management’s best estimate of the future amounts that will be settled. While the Group aims to ensure that the estimates recorded are accurate, the actual amounts could be different from those expected. Deferred tax assets mainly arise from asset impairments and retirement beneﬁt obligations that the Group expects to recover at some time in the future and by their nature the amounts recorded are therefore dependent on management’s judgement about future events. Further details are set out in Notes 11 and 29. Derivatives and hedge accounting The Group uses derivative ﬁnancial instruments to reduce its exposure to commodity price, currency exchange rate and interest rate movements. In particular, the Group uses corn and other commodity contracts to manage and hedge its corn book in the US. The US corn book is comprised of the commodity contracts, inventory and contracts for the purchase and sale of corn and co-products, some elements of which are expected to mature in more than 12 months’ time, and is measured at fair value at each period-end date. The valuation of the corn book, which is underpinned by a number of judgements, has a material impact on the reported results of the Group. At 31 March 2014, the Group recognised derivative assets of £102 million (including commodity pricing contracts of £65 million) and derivative liabilities of £52 million (including commodity pricing contracts of £45 million). The fair value of derivatives continually changes in response to changes in prevailing market conditions affecting future corn and other commodity prices, currency exchange rates and interest rates. Where practicable, the Group uses hedge accounting to mitigate the impact of changes in the fair value of its hedging instruments on the income statement, but the Group’s results may be affected by these fair value changes where hedge accounting cannot be applied or due to hedge ineffectiveness. Retirement beneﬁts The Group operates deﬁned beneﬁt pension plans in the UK and the US and unfunded retirement medical plans in the US. Generally, a deﬁcit or surplus is recognised on each plan which represents the difference between the present value of the beneﬁt obligation and the fair value of the plan assets (any surplus may be restricted in certain circumstances). At 31 March 2014, the present value of the beneﬁt obligations on the plans was £1,525 million (2013 – £1,672 million), including £54 million (2013 – £80 million) in respect of the unfunded medical plans. The present value of the beneﬁt obligations is based on actuarial estimates of the future beneﬁts that will be payable to the members of the plans. As such, the beneﬁt obligations are based on a number of assumptions, changes to which could have a material impact on the reported amounts. With regard to the pension plans, the present value of the beneﬁt obligations is most sensitive to assumed life expectancies, expected future price inﬂation rates and the discount rate applied to the beneﬁt obligations. At 31 March 2014, an increase of one year in life expectancy would have increased the obligations by £68 million, an increase in future price inﬂation of 50 basis points would have increased the obligations by £75 million and a reduction in the discount rate of 100 basis points would have increased the obligations by £255 million. At 31 March 2014, the assets held by the pension plans amounted to £1,305 million (2013 – £1,407 million), of which £346 million (2013 – £275 million) comprised qualifying insurance policies. Plan assets are measured at their fair value at the period-end date. The fair values of qualifying insurance policies held by the plans are deemed to be equivalent to the present value of the related beneﬁt obligations. Otherwise, the carrying amounts of the plan assets are affected more by market risks, including interest rate risk, and other risks than by assumptions made in estimating the fair values of unquoted assets. Whilst changes in the assumptions used in determining the present value of the beneﬁt obligations will have an impact on the Group’s income statement through their effect on the service cost and the net interest on the deﬁcit or surplus in the plans, most of the impact of such changes, together with ﬂuctuations in the actual return on the plan assets, will be reﬂected in other comprehensive income. Full details of the assumptions made, which are based on advice from the Group’s actuaries, are set out in Note 30. Impairment of assets Asset impairments have the potential to signiﬁcantly impact operating proﬁt. In order to determine whether impairments are required the Group estimates the recoverable amount of the asset. This calculation is usually based on projecting future cash ﬂows over a ﬁve-year period and using a terminal value to incorporate expectations of growth thereafter. A discount factor is applied to obtain a current value (‘value in use’). The ‘fair value less costs to sell’ of an asset is used if this results in an amount in excess of ‘value in use’. Estimated future cash ﬂows for impairment calculations are based on management’s expectations of future volumes and margins based on plans and best estimates of the productivity of the assets in their current condition. Future cash ﬂows therefore exclude beneﬁts from major expansion projects requiring future capital expenditure where that expenditure has not been approved at the period-end date. Future cash ﬂows are discounted using a discount rate based on the Group’s weighted average cost of capital, adjusted if appropriate for circumstances speciﬁc to the asset being tested. The weighted average cost of capital is impacted by estimates of interest rates, equity returns and market- and country-related risks. The Group’s weighted average cost of capital is reviewed on an annual basis. If the cash ﬂow or discount rate assumptions were to change because of market conditions, the level of impairment could be different and could result in the asset impairment being increased or reversed, in part or in full, at a future date. Goodwill impairment is never reversed. Sensitivities are performed around the discount rate and operating proﬁt growth which are considered the critical assumptions in the review. Further details are set out in Notes 15 and 16. Provisions The Group recognises a provision where a legal or constructive obligation exists at the period-end date and a reliable estimate can be made of the likely outcome. Where appropriate, future cash outﬂows that are expected to arise over a number of years are discounted to a present value using a relevant discount rate. At 31 March 2014, provisions included amounts for insurance claims payable by the Group’s reinsurance company, legal matters, employee termination and other restructuring costs. Although provisions are reviewed on a regular basis and adjusted for management’s best current estimates, the judgemental nature of these items means that future amounts settled may be different from those provided. Further details are set out in Note 31. 88 | Tate & Lyle PLC Annual Report 2014 4 Segment information Segment information is presented in the ﬁnancial statements on a consistent basis with the information presented to the Board for the purposes of allocating resources within the Group and assessing the performance of the Group’s businesses. Continuing operations comprise two operating segments: Speciality Food Ingredients and Bulk Ingredients. Central, which comprises central costs including head ofﬁce, treasury and reinsurance activities, does not meet the deﬁnition of an operating segment under IFRS 8 ‘Operating Segments’ but no sub-total is shown for the Group’s operating segments in the tables below so as to be consistent with the presentation of segment information to the Board. The Board uses adjusted operating proﬁt as the measure of the proﬁtability of the Group’s businesses. Adjusted operating proﬁt is, therefore, the measure of segment proﬁt presented in the Group’s segment disclosures. Adjusted operating proﬁt represents operating proﬁt before speciﬁc items that are considered to hinder comparison of the trading performance of the Group’s businesses either year-on-year or with other businesses. During the periods presented, the items excluded from operating proﬁt in arriving at adjusted operating proﬁt were the amortisation of acquired intangible assets and exceptional items. An analysis of total assets and total liabilities by operating segment is not presented to the Board but it does receive segmental analysis of net working capital (inventories, trade and other receivables, less trade and other payables). Accordingly, the amounts presented for segment assets and segment liabilities in the tables below represent those assets and liabilities that comprise elements of net working capital. Analysis by business segment Year ended 31 March 2014 Segment sales External sales (Note a) Segment results Adjusted operating proﬁt/(loss) Adjusting items: Exceptional items Amortisation of acquired intangible assets Operating proﬁt/(loss) Finance income Finance expense Proﬁt before tax Other segment information Capital investments (Note b) Depreciation Amortisation of intangible assets Share-based payments At 31 March 2014 Segment assets Working capital items Other assets Total assets Segment liabilities Working capital items Other liabilities Total liabilities Net working capital Continuing operations Speciality Food Ingredients £m Bulk Ingredients £m Notes Central £m 7 15 10 10 16 15 26 983 213 – (10) 203 93 38 18 2 2 164 172 – – 172 66 55 2 1 242 447 – (36) (14) – (50) 34 4 1 5 44 Total £m 3 147 349 (14) (10) 325 2 (37) 290 193 97 21 8 733 (94) (181) (42) (317) 148 266 2 416 Discontinued operations (Note 12) £m Total operations £m – – – – – – – – – – – – – – – 3 147 349 (14) (10) 325 2 (37) 290 193 97 21 8 733 1 794 2 527 (317) (1 160) (1 477) 416 (a) The Group’s internal structure is such that there are no inter-segment sales. (b) Capital investments comprise the cost of acquisition of businesses and capital expenditure on property, plant and equipment, intangible assets and investments. Tate & Lyle PLC Annual Report 2014 | 89 i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | CONTINUED 4 Segment information continued Continuing operations Speciality Food Ingredients £m Bulk Ingredients £m Notes Central* £m Total* £m Discontinued operations (Note 12) £m Total operations* £m Restated* – Year ended 31 March 2013 Segment sales External sales (Note a) Segment results Adjusted operating proﬁt/(loss) Adjusting items: Exceptional items Amortisation of acquired intangible assets Operating proﬁt/(loss) Finance income Finance expense Proﬁt before tax Other segment information Capital investments (Note b) Depreciation Amortisation of intangible assets Share-based payments 7 15 10 10 16 15 26 At 31 March 2013 Segment assets Working capital items Other assets Total assets Segment liabilities Working capital items Other liabilities Total liabilities Net working capital 947 213 (3) (10) 200 43 36 15 3 2 309 182 8 – 190 66 52 1 3 304 566 – (39) (17) – (56) 34 3 1 7 23 3 256 356 (12) (10) 334 1 (34) 301 143 91 17 13 893 (115) (223) (46) (384) 189 343 (23) 509 10 (8) 26 – 18 – – 18 – – – – 3 (1) 2 3 266 348 14 (10) 352 1 (34) 319 143 91 17 13 896 1 891 2 787 (385) (1 366) (1 751) 511 * Restated for the adoption of IAS 19 (Revised 2011) Employee Benefits, which increased Central costs by £2 million and increased net finance expense by £6 million (see Note 43). Geographical information The United Kingdom is the home country of the Parent Company. Sales (from continuing operations) and non-current assets, other than ﬁnancial instruments, deferred tax assets and retirement beneﬁt assets in the principal territories are as follows: United Kingdom United States Other European countries Rest of world Total Sales by destination Year ended 31 March 2013 £m 63 1 965 502 726 3 256 2014 £m 64 1 858 520 705 3 147 Sales by origin Year ended 31 March 2013 £m 23 2 404 528 301 3 256 2014 £m 22 2 282 546 297 3 147 Location of non-current assets At 31 March 2013 £m 38 829 309 147 1 323 2014 £m 42 763 321 135 1 261 Concentration of revenue During 2014, one customer contributed 11% of the Group’s external sales from continuing operations (2013 – none over 10%). 90 | Tate & Lyle PLC Annual Report 2014 5 Sales from continuing operations Analysis of sales by category: Sales of goods (excluding share of sales of joint ventures) Share of sales of joint ventures Total 6 Operating proﬁt Analysis of operating expenses/(income) by nature: External sales Operating expenses/(income) Cost of inventories (included in cost of sales) Staff costs (of which £129 million (2013 – £125 million) was included in cost of sales) Gain on settlement of deﬁned beneﬁt pension plan Depreciation of property, plant and equipment: – owned assets (of which £90 million (2013 – £86 million) was included in cost of sales) – leased assets (included in cost of sales) Exceptional items Amortisation of intangible assets: – acquired intangible assets – other intangible assets Operating lease rentals: – plant and machinery Research and development expenditure (Decrease)/increase in allowance for doubtful debts Gain on disposal of property, plant and equipment Other operating expenses Total operating expenses Operating proﬁt * See Note 43. Note 17 Year ended 31 March 2013 £m 2 780 476 3 256 2014 £m 2 707 440 3 147 Year ended 31 March 2014 Discontinued operations £m – Continuing operations £m 3 147 Notes 5,12 Restated* Year ended 31 March 2013 Discontinued operations £m 10 Continuing operations £m 3 256 9 30 16 16 7 15 15 23 1 961 245 (4) 92 5 14 10 11 17 33 (1) (3) 442 2 822 325 – – – – – – – – – – – – – – – 2 066 256 – 87 4 12 10 7 19 32 1 (1) 429 2 922 334 6 – – – – (26) – – – – 2 (1) 11 (8) 18 Tate & Lyle PLC Annual Report 2014 | 91 i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | CONTINUED 7 Exceptional items Exceptional items recognised in arriving at operating proﬁt were as follows: Continuing operations Business transformation costs Gain on disposal of interest in joint venture – Sucromiles Discontinued operations Gain on disposal of businesses – Vietnam Sugar Gain on disposal of assets – Molasses Total exceptional (expense)/income before tax Year ended 31 March 2013 £m 2014 £m (14) – (14) – – – (14) (20) 8 (12) 21 5 26 14 Continuing operations During the year, the Group incurred further business transformation costs on the implementation of a common global IS/IT platform and, in the prior year, also on the implementation of the global Shared Services Centre, of which £14 million (2013 – £18 million) did not meet the criteria to be capitalised. During the prior year, the Group also incurred costs of £2 million to complete the relocation of employees and restructuring associated with establishing the Commercial and Food Innovation Centre in Chicago, USA. During the prior year, the Group completed the disposal of its share in Sucromiles SA, its Colombian citric acid joint venture, on which it recognised a gain of £8 million (including cumulative currency translation gains transferred from other comprehensive income). Exceptional items are analysed by operating segment in Note 4. Proﬁt for the year from continuing operations includes an income tax credit of £9 million (2013 – credit of £5 million) in relation to exceptional items (see Note 11). Tax credits on exceptional costs are only recognised to the extent that losses incurred will result in tax recoverable in the future. Discontinued operations During the year, the Group recognised an exceptional income tax credit of £28 million in discontinued operations (see Note 12). During the prior year, the Group completed the sale of its Vietnam Sugar operations on which it recognised a gain of £21 million (including cumulative currency translation gains transferred from other comprehensive income). Also during the prior year, the Group completed the sale of land and buildings of its former Molasses business on which it recognised a gain of £5 million. Exceptional items recognised during the prior year had no impact on the income tax expense of discontinued operations. 8 Auditors’ remuneration Fees payable to the Company’s auditors, PricewaterhouseCoopers LLP, and its associates were as follows: Fees payable for the audit of the Company and consolidated ﬁnancial statements Fees payable for other services: – the audit of the Company’s subsidiaries and joint ventures – audit-related services – tax advisory services Fees in respect of the audit of the Group’s pension schemes Total Year ended 31 March 2013 £m 0.7 2014 £m 0.7 1.3 – 0.1 2.1 0.1 2.2 1.2 0.3 – 2.2 0.1 2.3 Audit-related services in the prior year related to review work performed on the controls conﬁgured within the common global IS/IT platform. 92 | Tate & Lyle PLC Annual Report 2014 9 Staff costs Staff costs were as follows: Wages and salaries Social security costs Other pension costs: – deﬁned beneﬁt pension schemes – deﬁned contribution pension schemes Retirement medical beneﬁts Share-based payments Total Year ended 31 March 2014 Discontinued operations £m – – Continuing operations £m 209 18 Year ended 31 March 2013 Discontinued operations £m – – Continuing operations £m 210 22 5 3 2 8 245 – – – – – 4 4 3 13 256 – – – – – Notes 30 30 30 26 The monthly average number of people employed by the Group, excluding associates’ employees and including the Group’s proportionate share of people employed by joint ventures, is set out below. As required by the Companies Act 2006, this includes part-time employees: By business segment Continuing operations Speciality Food Ingredients Bulk Ingredients Central Discontinued operations Total Year ended 31 March 2014 2013 1 802 2 233 432 4 467 – 4 467 1 731 2 187 404 4 322 60 4 382 At 31 March 2014, the Group employed 4,523 (2013 – 4,326) people (all in continuing operations). Central includes shared service employees who perform activities for the whole Group, including the Speciality Food Ingredients and Bulk Ingredients segments. Key management compensation Salaries and short-term employee beneﬁts Retirement beneﬁts Share-based payments Total Year ended 31 March 2013 £m 5 1 6 12 2014 £m 5 1 4 10 Key management is represented by the Group Executive Committee and the Company’s directors. Remuneration details of the Company’s directors are given in the Directors’ Remuneration Report on pages 52 to 71. Members of the Group Executive Committee are identiﬁed on page 39. The aggregate emoluments of directors in respect of qualifying services to the Company were £2 million (2013 – £2 million). As determined in accordance with the Companies Act 2006, the aggregate gains made by the directors on the exercise of share options were £4 million (2013 – £1 million). Tate & Lyle PLC Annual Report 2014 | 93 i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | CONTINUED 10 Finance income and ﬁnance expense Finance income Interest receivable Total ﬁnance income Finance expense Interest payable on bank and other borrowings Fair value hedges: – fair value loss on interest rate derivatives – fair value adjustment of hedged borrowings Fair value loss on derivatives not designated as hedges Finance lease interest Net retirement beneﬁt interest Total ﬁnance expense Net ﬁnance expense * See Note 43. Notes 20 20 30 Year ended 31 March Restated* 2013 £m 2014 £m 2 2 (28) (20) 20 – (1) (8) (37) (35) 1 1 (28) – 1 (1) (2) (4) (34) (33) Finance expense is shown net of borrowing costs of £2 million (2013 – £2 million) capitalised within intangible assets at a capitalisation rate of 3.9% (2013 – 3.8%). Interest payable on other borrowings includes £0.2 million (2013 – £0.2 million) of dividends in respect of the Group’s 6.5% cumulative preference shares. Finance income and ﬁnance expense relate wholly to continuing operations. 11 Income tax expense Analysis of charge for the year Continuing operations Current tax: – UK – overseas Deferred tax: Charge for the year Adjustments in respect of previous years Income tax expense * See Note 43. Note 29 Year ended 31 March Restated* 2013 £m 2014 £m – 43 43 7 (5) 45 – 23 23 27 (4) 46 Proﬁt for the year from continuing operations reﬂected an income tax expense of £45 million (2013 – expense of £46 million), including an income tax credit of £9 million (2013 – credit of £5 million) in respect of exceptional items (see Note 7). Adjustments to deferred tax in respect of prior years totalled a credit of £5 million (2013 – credit of £4 million). The amount recognised in the current year reﬂects non-recurring tax credits in relation to prior years in the US, following a detailed review of underlying tax information. The amount recognised in the 2013 ﬁnancial year principally related to the settlement of prior year tax in a number of jurisdictions. The standard rate of corporation tax in the United Kingdom reduced from 23% to 21% with effect from 1 April 2014 and will reduce further to 20% from 1 April 2015. The tax on the Group’s proﬁt before tax differs from the standard rate of corporation tax in the United Kingdom as follows: Proﬁt before tax Corporation tax charge thereon at 23% (2013 – 24%) Adjusted for the effects of: – items not taxable – losses not recognised – adjustments to tax in respect of previous years – different tax rates applied on overseas earnings Total 94 | Tate & Lyle PLC Annual Report 2014 Year ended 31 March Restated* 2013 £m 301 72 2014 £m 290 67 (2) 3 (5) (18) 45 (5) 9 (4) (26) 46 11 Income tax expense continued The Group’s effective tax rate is sensitive to the geographic mix of proﬁts and losses and reﬂects a combination of higher tax rates in certain jurisdictions such as the US, nil effective tax rates in the UK (due to brought forward tax losses) and in Singapore (due to having ‘pioneer status’ awarded by the government in 2008) and rates that lie somewhere in between, for example, in certain eastern European countries. Our tax rate is favourably affected by our internal ﬁnancing which involves borrowing by our US operations from the UK, the interest on which has the effect of reducing the amount of tax payable in the US. The Group’s effective tax rate on continuing operations, calculated on the basis of the income tax expense as a proportion of proﬁt before tax of £290 million (2013 – £301 million), was 15.6% (2013 – 15.3%). This compares with the standard rate of corporation tax in the UK of 23% (2013 – 24%). The Group’s adjusted effective tax rate on continuing operations, calculated on the basis of the adjusted income tax expense of £60 million (2013 – £59 million) as a proportion of adjusted proﬁt before tax of £322 million (2013 – £327 million) was 18.5% (2013 – 18.0%). Discontinued operations Proﬁt for the year from discontinued operations reﬂected an exceptional income tax credit of £28 million (2013 – £nil) as explained in Note 12. Tax charge relating to components of other comprehensive income Retirement beneﬁt obligations Cash ﬂow hedges Tax losses Tax charge relating to components of other comprehensive income Deferred tax Tax on items recognised directly in equity Current tax credit on share-based payments Deferred tax charge on share-based payments Total * See Note 43. Note 29 Year ended 31 March Restated* 2013 £m (6) (1) (5) (12) (12) 2014 £m (22) – – (22) (22) Year ended 31 March 2013 £m (3) 1 (2) 2014 £m (1) 1 – 12 Discontinued operations During the year, the Group recognised a non-cash exceptional income tax credit of £28 million following the favourable resolution of outstanding tax matters associated with the starch facilities which formed part of the Group’s former Food & Industrial Ingredients, Europe segment. During the prior year, the Group completed the sale of its Vietnam Sugar operations and the disposal of land and buildings of its former Molasses business, which related to the Group’s former Sugars segment, on which it recognised an exceptional gain before tax of £26 million. Sales Adjusted operating proﬁt/(loss) Exceptional items Operating proﬁt/(loss) Proﬁt/(loss) before tax Income tax credit Proﬁt/(loss) for the year Non-controlling interests Proﬁt/(loss) attributable to owners of the Company Note 7 7 Year ended 31 March 2014 £m – – – – – 28 28 – 28 Vietnam Sugar £m 9 3 21 24 24 – 24 (1) 23 Other £m 1 (11) 5 (6) (6) – (6) – (6) 2013 Total £m 10 (8) 26 18 18 – 18 (1) 17 Tate & Lyle PLC Annual Report 2014 | 95 i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | CONTINUED 13 Earnings per share Basic Basic earnings per share is calculated by dividing the proﬁt attributable to owners of the Company by the weighted average number of ordinary shares in issue during the year, excluding an average of 3.5 million shares (2013 – 3.5 million shares) held by the Company or the Employee Beneﬁt Trust to satisfy awards made under the Group’s share-based incentive plans. Proﬁt attributable to owners of the Company (£million) Weighted average number of ordinary shares in issue (millions) Basic earnings per share Year ended 31 March 2014 Restated* Year ended 31 March 2013 Continuing operations Discontinued operations 245 464.1 52.8p 28 464.1 6.0p Total 273 464.1 58.8p Continuing operations Discontinued operations 255 464.2 54.9p 17 464.2 3.7p Total 272 464.2 58.6p Diluted Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue to assume conversion of all potentially dilutive ordinary shares. Potentially dilutive ordinary shares arise from awards made under the Group’s share-based incentive plans. Where the vesting of these awards is contingent on satisfying a service or performance condition, the number of potentially dilutive ordinary shares is calculated based on the status of the condition at the end of the period. Potentially dilutive ordinary shares are actually dilutive only when the average market price of the Company’s ordinary shares during the period exceeds their exercise price (options) or issue price (other awards). The greater any such excess, the greater the dilutive effect. The average market price of the Company’s ordinary shares during the year was 788p (2013 – 720p). The dilutive effect of share-based incentives was 6.4 million shares (2013 – 9.3 million shares). Proﬁt attributable to owners of the Company (£million) Weighted average number of diluted ordinary shares (millions) Diluted earnings per share Year ended 31 March 2014 Year ended 31 March 2013 Restated* Continuing operations Discontinued operations 245 470.5 52.1p 28 470.5 5.9p Total 273 470.5 58.0p Continuing operations Discontinued operations 255 473.5 53.8p 17 473.5 3.6p Total 272 473.5 57.4p Adjusted earnings per share Adjusted earnings per share measures are calculated based on proﬁt for the year from continuing operations attributable to owners of the Company before adjusting items as follows: Notes 7 15 10 Year ended 31 March Restated* 2013 £m 255 2014 £m 245 14 10 8 (15) 262 56.5p 55.7p 12 10 4 (13) 268 57.7p 56.6p Continuing operations Proﬁt attributable to owners of the Company Adjusting items: – exceptional items – amortisation of acquired intangible assets – net retirement beneﬁt interest – tax effect of the above adjustments Adjusted earnings Adjusted basic earnings per share Adjusted diluted earnings per share * See Note 43. 96 | Tate & Lyle PLC Annual Report 2014 14 Dividends on ordinary shares Dividends on ordinary shares in respect of the ﬁnancial year: Per ordinary share: – interim dividend paid – ﬁnal dividend proposed Total dividend Year ended 31 March 2013 pence 2014 pence 7.8 19.8 27.6 7.4 18.8 26.2 The Directors propose a ﬁnal dividend for the ﬁnancial year of 19.8p per ordinary share that, subject to approval by shareholders, will be paid on 1 August 2014 to shareholders who are on the Register of Members on 27 June 2014. Dividends on ordinary shares paid in the year: Final dividend paid relating to the prior year Interim dividend paid relating to the year Total dividend paid Year ended 31 March 2013 £m 83 34 117 2014 £m 88 36 124 Based on the number of ordinary shares outstanding at 31 March 2014, the ﬁnal dividend for the ﬁnancial year is expected to amount to £92 million. i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Tate & Lyle PLC Annual Report 2014 | 97 Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | CONTINUED 15 Goodwill and other intangible assets Cost At 1 April 2013 Subsidiaries acquired Additions at cost Currency translation differences At 31 March 2014 Accumulated amortisation and impairment At 1 April 2013 Amortisation charge Currency translation differences At 31 March 2014 Net book value at 31 March 2014 Cost At 1 April 2012 Additions at cost Currency translation differences At 31 March 2013 Accumulated amortisation and impairment At 1 April 2012 Amortisation charge Currency translation differences At 31 March 2013 Net book value at 31 March 2013 (a) Goodwill The carrying amount of goodwill is allocated as follows: Allocated by geographical area United States Europe Allocated by business segment Speciality Food Ingredients Bulk Ingredients Total Patents and other intellectual property £m Other acquired intangible assets £m Total acquired intangible assets £m Goodwill £m Other intangible assets £m 217 10 – (11) 216 – – – – 216 217 – – 217 – – – – 217 34 5 – – 39 28 3 – 31 8 33 1 – 34 27 1 – 28 6 119 – – (5) 114 68 7 (3) 72 42 116 – 3 119 57 9 2 68 51 370 15 – (16) 369 96 10 (3) 103 266 366 1 3 370 84 10 2 96 274 116 – 57 (7) 166 34 11 (2) 43 123 70 43 3 116 27 7 – 34 82 2014 £m 55 83 138 77 1 78 216 Total £m 486 15 57 (23) 535 130 21 (5) 146 389 436 44 6 486 111 17 2 130 356 At 31 March 2013 £m 60 85 145 71 1 72 217 (i) Impairment tests carried out during the year Goodwill is tested for impairment annually and whenever there is an indication of impairment at the level of the cash-generating unit (CGU) or group of CGUs to which it is allocated. Tate & Lyle is principally managed as an integrated network in the United States and Europe, with a large amount of interdependency between plants servicing both the Speciality Food Ingredients and Bulk Ingredients segments. Goodwill is therefore tested for impairment on a geographical basis, except where it can be allocated to a speciﬁc CGU or group of CGUs. A description of the impairment tests conducted in relation to the most signiﬁcant goodwill amounts are set out below. In each case, the recoverable amount was calculated based on value in use. Value in use was calculated based on budgets and plans covering the next ﬁve years that have been approved by the Board. Cash ﬂows were projected during the ﬁve-year period based on budgeted gross margin and management’s expectations of market developments. Beyond the ﬁve-year plan, cash ﬂows were assumed to grow at the long-term growth rate for the relevant geographical markets based on forecasts included in industry reports. Cash ﬂows were discounted using pre-tax rates that are based on the Group’s weighted average cost of capital adjusted, where appropriate, to reﬂect differences between the risk proﬁle of the geographical areas or CGUs concerned and that of the Group as a whole. United States Goodwill allocated to the United States relates to the Staley acquisition in 1988. Cash ﬂows beyond the ﬁve-year plan were assumed to grow at 2% per annum in perpetuity based on the long-term growth rate for this geographic market. Cash ﬂows were discounted using a pre-tax rate of 10.1% (2013 – 10.1%). Signiﬁcant headroom exists and management concluded that no impairment is required. 98 | Tate & Lyle PLC Annual Report 2014 15 Goodwill and other intangible assets continued Europe Goodwill allocated to Europe relates to the acquisition in 2000 of the minority of 34% of shares of the former Amylum business. Cash ﬂows beyond the ﬁve-year plan were assumed to grow at 2% per annum in perpetuity based on the long-term growth rate for this geographic market. Cash ﬂows were discounted using a pre-tax rate of 10.1% (2013 – 10.1%). Signiﬁcant headroom exists and management concluded that no impairment is required. Speciality Food Ingredients Goodwill allocated to the Speciality Food Ingredients segment includes £61 million (2013 – £63 million) that relates to the acquisition of G.C. Hahn and Company in June 2007 and that of Cesalpinia Foods in December 2005. As these businesses are integrated for operating purposes, they are tested for impairment as one CGU. Cash ﬂows beyond the ﬁve-year plan were assumed to grow at 2% per annum in perpetuity based on the long-term growth rate for the geographic markets in which these businesses operate. Cash ﬂows were discounted using a pre-tax rate of 10.1% (2013 – 10.1%). Management concluded that no impairment is required. (ii) Possibility of impairment in the near future Management considers that there is no reasonably possible change in one or more of the key assumptions used in the impairment tests that would give rise to an impairment loss during the coming year. (b) Other intangible assets Other intangible assets include capitalised development costs with a carrying amount of £77 million (2013 – £47 million) relating to the common global IS/IT platform, of which £51 million (2013 – £20 million) is under construction and will not be amortised until it is deployed into the business. In May 2014, the system was successfully deployed across our European operations and we remain on track to implement it in the US and Singapore by the end of the summer. Management considers that the costs capitalised to date are fully recoverable by way of incremental beneﬁts over the system’s useful life of seven years. Additions to other intangible assets during the year included a marketing-related intangible of £10 million relating to the establishment of a renewed SPLENDA® Sucralose alliance with McNeil Nutritionals, LLC. and capitalised borrowing costs of £2 million (2013 – £2 million). i S t r a t e g c R e p o r t G o v e r n a n c e 16 Property, plant and equipment Cost At 1 April 2013 Additions at cost Subsidiaries acquired Transfers on completion Disposals and write-offs Currency translation differences At 31 March 2014 Accumulated depreciation and impairment At 1 April 2013 Depreciation charge Disposals and write-offs Currency translation differences At 31 March 2014 Net book value at 31 March 2014 Cost At 1 April 2012 Additions at cost Transfers on completion Disposals and write-offs Currency translation differences At 31 March 2013 Accumulated depreciation and impairment At 1 April 2012 Depreciation charge Disposals and write-offs Currency translation differences At 31 March 2013 Net book value at 31 March 2013 Land and buildings £m Plant and machinery £m Assets in the course of construction £m 494 18 1 11 (32) (41) 451 223 11 (2) (17) 215 236 444 2 33 (5) 20 494 209 11 (5) 8 223 271 2 108 16 2 75 (5) (182) 2 014 1 453 86 (4) (124) 1 411 603 1 932 7 103 (19) 85 2 108 1 327 80 (17) 63 1 453 655 32 80 – (86) – – 26 – – – – – 26 82 86 (136) – – 32 – – – – – 32 Total £m 2 634 114 3 – (37) (223) 2 491 1 676 97 (6) (141) 1 626 865 2 458 95 – (24) 105 2 634 1 536 91 (22) 71 1 676 958 In December 2013, the Group completed the back-to-back purchase, sale and leaseback under an operating lease of its building at the global Commercial and Food Innovation Centre in Chicago, USA. The transaction generated a one-off gain of £6 million, which comprised a gain of £3 million on the recognition of the remainder of the lease incentive on the original lease and a gain of £3 million on the sale of the property. The majority of the gain was included in the results of the Speciality Food Ingredients segment. Tate & Lyle PLC Annual Report 2014 | 99 i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | CONTINUED 16 Property, plant and equipment continued Impairment reviews Management conducted an impairment test on the plant in Dayton, Ohio, on which an impairment was recognised in previous years. The recoverable amount of the plant was calculated based on value in use, with estimated future cash ﬂows based on internal forecasts of future gross margins for the next ﬁve years and by calculating a terminal value beyond that ﬁve-year period based on a growth rate of 2% per annum in perpetuity. Cash ﬂows were discounted using a pre-tax discount rate of 12.1%, which was adjusted upwards to take into account the risk associated with the regulatory and competitive environment in which the plant operates. Management concluded that neither further impairment nor reversal of previous impairment was required. Management conducted impairment reviews of other property, plant and equipment during the year and concluded that there were no indicators of impairment. Leased assets Property, plant and equipment includes plant and machinery held under ﬁnance leases with a net book value of £15 million (2013 – £18 million). 17 Investments in associates and joint ventures Associates At 31 March 2013 and 31 March 2014 The Group’s principal associate, which is accounted for under the equity method, is identiﬁed in Note 41. The amounts equity accounted in the Group income statement and statement of ﬁnancial position are summarised below: Income statement Sales Expenses Proﬁt before and after tax Statement of ﬁnancial position Assets Liabilities Net assets £m 6 Year ended 31 March 2013 £m 4 (4) – 2014 £m 4 (4) – 2014 £m 13 (7) 6 At 31 March 2013 £m 13 (7) 6 Joint ventures The Group’s principal joint ventures, which are proportionately consolidated, are listed in Note 41. The amounts proportionately consolidated in the Group income statement and statement of ﬁnancial position (after the elimination of the Group’s share of transactions and balances with the Company’s subsidiaries) are summarised below: Sales Expenses Proﬁt before tax Income tax expense Proﬁt for the year Note 5 Year ended 31 March 2014 Discontinued operations £m – – – – – Continuing operations £m 440 (366) 74 (13) 61 Year ended 31 March 2013 Discontinued operations £m – – – – – Continuing operations £m 476 (428) 48 (14) 34 100 | Tate & Lyle PLC Annual Report 2014 17 Investments in associates and joint ventures continued Statement of ﬁnancial position Assets Non-current assets Cash and cash equivalents Other current assets Total Liabilities Non-current borrowings Other non-current liabilities Current borrowings Other current liabilities Total Net assets There are guarantees in respect of banking facilities of a joint venture totalling £9 million (2013 – £9 million). 18 Available-for-sale ﬁnancial assets At 1 April 2012 Additions Fair value loss Currency translation differences At 31 March 2013 Additions Disposals Currency translation differences At 31 March 2014 Presented in the statement of ﬁnancial position as follows: Non-current assets Assets held for sale Total 2014 £m 139 50 109 298 2 4 18 48 72 226 i S t r a t e g c R e p o r t G o v e r n a n c e At 31 March 2013 £m 173 73 158 404 7 19 31 56 113 291 £m 24 4 (1) 1 28 4 (2) (2) 28 Note 38 2014 £m 28 – 28 At 31 March 2013 £m 27 1 28 Available-for-sale ﬁnancial assets primarily comprise £28 million (2013 – £28 million) of unlisted securities. The fair values of non-current available-for- sale ﬁnancial assets are approximated at cost where fair value cannot be reliably measured. The carrying value of the available-for-sale ﬁnancial assets are denominated in the following currencies: US dollar Sterling Euro Total US dollar-denominated assets include £nil (2013 – £1 million) classiﬁed as assets held for sale. 2014 £m 23 5 – 28 At 31 March 2013 £m 18 8 2 28 Tate & Lyle PLC Annual Report 2014 | 101 i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | CONTINUED 19 Financial instruments by category Set out below is a comparison by category of carrying values and fair values of all of the Group’s ﬁnancial assets and ﬁnancial liabilities as at 31 March 2014 and 31 March 2013. Available-for-sale ﬁnancial assets Trade and other receivables Cash and cash equivalents Derivative ﬁnancial instruments – assets Borrowings Derivative ﬁnancial instruments – liabilities Trade and other payables Total Available-for-sale ﬁnancial assets Trade and other receivables Cash and cash equivalents Derivative ﬁnancial instruments – assets Borrowings Derivative ﬁnancial instruments – liabilities Trade and other payables Total Amortised cost £m – 302 396 – (778) – (315) (395) Derivatives in a hedging relationship £m – – – 35 – (5) – 30 Amortised cost £m – 372 379 – (896) – (382) (527) Derivatives in a hedging relationship £m – – – 56 – (17) – 39 Notes 18 23 33 20 28 20 27 Notes 18 23 33 20 28 20 27 Held for trading £m – – – 67 – (47) – 20 Held for trading £m – – – 84 – (64) – 20 Available- for-sale £m 28 – – – – – – 28 Available- for-sale £m 27 – – – – – – 27 At 31 March 2014 Total carrying value £m 28 302 396 102 (778) (52) (315) (317) Total carrying value £m 27 372 379 140 (896) (81) (382) (441) Fair value £m 28 302 396 102 (812) (52) (315) (351) At 31 March 2013 Fair value £m 27 372 379 140 (946) (81) (382) (491) Trade and other receivables presented above excludes £13 million (2013 – £14 million) relating to prepayments. Trade and other payables presented above excludes £2 million (2013 – £3 million) relating to social security. Included in borrowings are items in a hedging relationship which are held at amortised cost, with a fair value adjustment applied, as they are in a fair value hedge. Fair value hierarchy Set out on page 103 is how the Group’s ﬁnancial instruments measured at fair value, ﬁt within the following fair value hierarchy: (cid:116)(cid:1) Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1) (cid:116)(cid:1) Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly (level 2) (cid:116)(cid:1) Inputs for the asset or liability that are not based on observable market data (level 3). 102 | Tate & Lyle PLC Annual Report 2014 19 Financial instruments by category continued The following tables illustrate the Group’s ﬁnancial assets and liabilities measured at fair value at 31 March 2014 and 31 March 2013: Assets at fair value Available-for-sale ﬁnancial assets Derivative ﬁnancial instruments: – currency swaps – interest rate swaps – forward foreign exchange contracts – commodity pricing contracts Assets at fair value Liabilities at fair value Derivative ﬁnancial instruments: – currency swaps – interest rate swaps – forward foreign exchange contracts – commodity pricing contracts Liabilities at fair value Assets at fair value Available-for-sale ﬁnancial assets Derivative ﬁnancial instruments: – currency swaps – interest rate swaps – forward foreign exchange contracts – commodity pricing contracts Assets at fair value Liabilities at fair value Derivative ﬁnancial instruments: – currency swaps – interest rate swaps – forward foreign exchange contracts – commodity pricing contracts Liabilities at fair value Notes Level 1 £m Level 2 £m At 31 March 2014 Total £m Level 3 £m 18 20 20 20 20 20 20 20 20 – – – – 10 10 – – – (14) (14) – 3 33 1 13 50 (2) (5) – (10) (17) 28 – – – 42 70 – – – (21) (21) 28 3 33 1 65 130 (2) (5) – (45) (52) Notes Level 1 £m Level 2 £m At 31 March 2013 Total £m Level 3 £m 18 20 20 20 20 20 20 20 20 – – – – 11 11 – – – (21) (21) – 2 59 1 14 76 (13) (10) (2) (14) (39) 27 – – – 53 80 – – – (21) (21) 27 2 59 1 78 167 (13) (10) (2) (56) (81) Level 1 ﬁnancial instruments The fair value of ﬁnancial instruments traded in active markets (commodity futures) is based on quoted market prices at the period-end date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. Level 2 ﬁnancial instruments The fair values of ﬁnancial instruments that are not traded in an active market (interest rate swaps, cross currency swaps, commodity pricing contracts and forward foreign exchange contracts) are determined by using valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as possible on entity-speciﬁc estimates. The fair value of interest rate swaps, currency swaps and forward foreign exchange contracts is calculated as the present value of the future cash ﬂows based on observable inputs drawn from interest yield curves sourced from a reputable third-party source. Level 3 ﬁnancial instruments The fair value of ﬁnancial instruments is based on unobservable inputs that are supported by little or no market activity at the statement of ﬁnancial position date. These inputs generally reﬂect the entity’s own assumptions about how a market participant would reasonably be expected to determine the price of a ﬁnancial instrument. For commodity pricing contracts, in evaluating the signiﬁcance of fair value inputs, the Group generally classiﬁes assets or liabilities as level 3 when their fair value is determined using unobservable inputs that individually, or when aggregated with other unobservable inputs, represent more than 10% of the fair value of the observable inputs of the assets or liabilities. An explanation of the key inputs used in calculating the fair value of these contracts is set out in Note 3 under the heading ‘Derivatives and hedge accounting’. Tate & Lyle PLC Annual Report 2014 | 103 i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | CONTINUED 19 Financial instruments by category continued Available-for-sale ﬁnancial assets which are analysed at level 3 primarily represent investments in unlisted securities. The fair values of the unlisted securities are principally approximated at cost. Values are adjusted for permanent impairments and fair value movements as disclosed in Note 18. For ﬁnancial instruments in level 3, the Group does not consider that changes to inputs to reasonable alternatives would have a material impact on the income statement or equity. The following table reconciles the movement in the Group’s ﬁnancial instruments classiﬁed in level 3 of the fair value hierarchy: Commodity pricing contracts – assets £m 22 Commodity pricing contracts – liabilities £m (22) Available- for-sale assets £m 23 53 – – (22) 53 42 – – (53) 42 (21) – – 22 (21) (21) – – 21 (21) – (1) 4 1 27 – (2) 4 (1) 28 Total £m 23 32 (1) 4 1 59 21 (2) 4 (33) 49 At 31 March 2014 Liabilities £m Assets £m At 31 March 2013 Liabilities £m Assets £m 3 20 – 23 6 4 3 13 36 1 1 64 66 66 102 23 79 102 (2) – – (2) (2) – (3) (5) (7) – (1) (44) (45) (45) (52) (2) (50) (52) 2 45 7 54 7 – – 7 61 1 1 77 79 79 140 54 86 140 (13) – (8) (21) (2) – – (2) (23) (2) – (56) (58) (58) (81) (21) (60) (81) At 1 April 2012 Total gains or losses: – in operating proﬁt – in other comprehensive income Purchases Settlements At 31 March 2013 Total gains or losses: – in operating proﬁt – in other comprehensive income Purchases Settlements At 31 March 2014 20 Derivative ﬁnancial instruments Non-current derivative ﬁnancial instruments used to manage the Group’s net debt proﬁle Currency swaps: – net investment hedges Interest rate swaps: – fair value hedges – held for trading Current derivative ﬁnancial instruments used to manage the Group’s net debt proﬁle Interest rate swaps: – accrued interest – fair value hedges – held for trading Total derivative ﬁnancial instruments used to manage the Group’s net debt proﬁle Other current derivative ﬁnancial instruments Forward foreign exchange contracts: – cash ﬂow hedges Commodity pricing contracts: – cash ﬂow hedges – held for trading Total other derivative ﬁnancial instruments Total derivative ﬁnancial instruments Presented in the statement of ﬁnancial position as follows: Non-current derivative ﬁnancial instruments Current derivative ﬁnancial instruments 104 | Tate & Lyle PLC Annual Report 2014 20 Derivative ﬁnancial instruments continued The ineffective portion recognised in operating proﬁt that arises from cash ﬂow hedges amounts to £nil (2013 – £1 million gain). The ineffective portion recognised in operating proﬁt that arises from net investment hedges amounts to £nil (2013 – £nil). The ineffective portion recognised in net ﬁnance expense that arises from fair value hedges amounts to £nil (2013 – £1 million gain). Cash ﬂow hedges The Group employs forward foreign exchange contracts and commodity pricing contracts to hedge cash ﬂow risk associated with forecast transactions. The notional principal amounts of the outstanding forward foreign exchange contracts are as follows: US dollar Singapore dollar Brazilian real Mexican peso Euro Other 2014 £m (55) 49 25 (16) 2 (3) At 31 March 2013 £m (36) 32 34 (29) 1 (3) Gains and losses recognised in the hedging reserve in equity (Note 25) on forward foreign exchange and commodity pricing contracts at 31 March 2014 are expected to be reclassiﬁed to the income statement at various dates until December 2016. Fair value hedges The Group employs interest rate swap contracts to hedge interest rate risks associated with its borrowings. The notional principal amounts of the outstanding interest rate swap contracts applied in fair value hedging relationships as of 31 March 2014 were £345 million (2013 – £364 million). Net investment hedges The Group employs currency swap contracts to hedge the currency risk associated with its net investments in subsidiaries located primarily in the United States and Europe. The notional principal amounts of the outstanding currency swap contracts applied in net investment hedging relationships as of 31 March 2014 were £147 million (31 March 2013 – £158 million). Within net investment hedging gains/losses, a fair value gain of £12 million (2013 – £5 million loss) on translation of the currency swap contracts to pounds sterling at the period-end date was recognised in the translation reserve in shareholders’ equity (Note 25). In addition, at 31 March 2014, of the Group’s borrowings, a total of £456 million (2013 – £495 million) are designated as hedges of the net investments in overseas subsidiaries. Debt-related derivatives held for trading Some of the Group’s interest rate swap contracts hedge the Group’s exposure to interest rate risk, but do not qualify for hedge accounting. The notional amounts of the outstanding interest rate swap contracts not designated within hedge relationships as of 31 March 2014 were £210 million (2013 – £231 million). Trading contracts Commodity pricing contracts held for trading relate to the Group’s commodity trading activities which are undertaken for the purposes of supporting underlying operations. Tate & Lyle PLC Annual Report 2014 | 105 i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | CONTINUED 21 Financial risk factors Management of ﬁnancial risk The key ﬁnancial risks faced by the Group are credit risk, liquidity risk, and market risks, which include interest rate risk, foreign exchange risk and certain commodity price risks. The Board of Tate & Lyle PLC regularly reviews these risks and approves written policies covering the use of ﬁnancial instruments to manage these risks and sets overall risk limits. The derivative ﬁnancial instruments approved by the Board to manage ﬁnancial risks include swaps, both interest rate and currency, caps, forward rate agreements, foreign exchange and commodity forward contracts and options, and commodity futures. The Chief Financial Ofﬁcer retains the overall responsibility for management of ﬁnancial risk for the Group. Most of the Group’s ﬁnancing, interest rate and foreign exchange risk are managed through the Group treasury company, Tate & Lyle International Finance PLC, whose operations are controlled by its board. The treasury company is chaired by the Chief Financial Ofﬁcer and has other board members who are independent of the treasury function. Group interest rate and currency exposures are concentrated either in the treasury company or in appropriate holding companies through market-related transactions with Group subsidiaries. Tate & Lyle International Finance PLC arranges funding and manages interest rate, foreign exchange and bank counterparty risks within limits approved by the Board of Tate & Lyle PLC. Commodity price risks are managed through divisional commodity trading functions in the United States and Europe. These functions are controlled by divisional management who are responsible for ratifying general strategy and overseeing performance on a monthly basis. Commodity price contracts are categorised as being held either for trading or for hedging price exposures. Commodity contracts held for trading within the Group are limited, conﬁned only to tightly controlled areas within corn pricing. Market risks Foreign exchange management Tate & Lyle operates internationally and is exposed to foreign exchange risks arising from commercial transactions (transaction exposure), and from recognised assets, liabilities and investments in overseas operations (translation exposure). Transaction exposure The Group’s policy requires subsidiaries to hedge transactional currency exposures against their functional currency once the transaction is committed or highly probable, mainly through the use of forward foreign exchange contracts. The amounts recognised in equity from derivative ﬁnancial instruments designated as cash ﬂow hedges are released to the income statement and offset against the movement in underlying transactions only when the forecast transactions affect the income statement. Translation exposure The Group manages the foreign exchange exposure to net investments in overseas operations, particularly in the United States and Europe, by maintaining a percentage of net debt in US dollars and euro to mitigate the effect of these risks. This is achieved by borrowing principally in US dollars and euro, which provide a partial match for the Group’s major foreign currency assets. The Group also manages its foreign exchange exposure to net investments in overseas operations through the use of currency swap contracts. The amount deferred in equity from derivative ﬁnancial instruments designated as net investment hedges is offset against the foreign currency translation effect of the net investment in overseas operations, and is released to the income statement upon disposal of those investments. A weakening of the US dollar and euro against sterling would result in exchange gains on net debt denominated in these currencies which would be offset against the losses on the underlying foreign currency assets. At the year end, net debt amounting to £353 million (2013 – £479 million) was held in the following currencies: net borrowings of US dollars 114% (2013 – 108%) and of euro nil% (2013 – 3%); and net deposits of pounds sterling 10% (2013 – 10%) and other currencies 4% (2013 – 1%). The Group’s interest cost through the income statement is impacted by changes in the relevant exchange rates. The following table illustrates only the Group’s sensitivity to the ﬂuctuation of the major currencies on its ﬁnancial assets and liabilities, as deﬁned and set out in Note 19: Sterling/US dollar 10% change Sterling/euro 10% change At 31 March 2014 At 31 March 2013 Income statement –/+£m – 3 Equity –/+£m 37 6 Income statement –/+£m – – Equity –/+£m 48 6 Interest rate management The Group has an exposure to interest rate risk, arising principally from changes in US dollar, sterling and euro interest rates. This risk is managed by ﬁxing or capping portions of debt using interest rate derivatives to achieve a target level of ﬁxed/ﬂoating rate net debt, which aims to optimise net ﬁnance expense and reduce volatility in reported earnings. The Group’s policy is that between 30% and 75% of Group net debt (excluding the Group’s share of joint venture net debt) is ﬁxed or capped (excluding out-of-the-money caps) for more than one year and that no interest rates are ﬁxed for more than 12 years. At 31 March 2014, the longest term of any ﬁxed rate debt held by the Group was until November 2019 (2013 – November 2019). The proportion of net debt at 31 March 2014 (excluding the Group’s share of joint-venture net debt) that was ﬁxed or capped for more than one year was 40% (2013 – 64%). The Group considers a 100 basis point change in interest rates a reasonably possible change except where rates are less than 100 basis points. In these instances it is assumed that the interest rates increase by 100 basis points and decrease to zero for the purpose of performing the sensitivity analysis. The impact is calculated with reference to the gross debt and cash held as at 31 March 2014 assuming that other variables remain unchanged. As at 31 March 2014, if interest rates increase by 100 basis points, there would be no impact on the Group’s proﬁt before tax (2013 – decrease by £1 million). If interest rates decrease by 100 basis points, or less where applicable, Group proﬁt before tax will increase by £1 million (2013 – increase by £1 million). 106 | Tate & Lyle PLC Annual Report 2014 21 Financial risk factors continued Price risk management Tate & Lyle participates mainly in three markets: food and beverage; industrial ingredients; and animal feed. Food and beverage and industrial ingredients are the most signiﬁcant. All ingredients are produced from renewable crops, predominantly corn (maize). Tate & Lyle is exposed to movements in the future prices of commodities in those domestic and international markets where the Group buys and sells corn and energy for production. Commodity pricing contracts (futures, forwards and options) are used where available to hedge inventories and the costs of raw materials for unpriced and prospective contracts not covered by forward product sales. In most cases, these hedging contracts mature within one year and are either traded on recognised exchanges or over the counter. The table below illustrates the sensitivity of the Group’s commodity pricing contracts as at 31 March to the price movement of commodities: Corn 50% change At 31 March 2014 At 31 March 2013 Income statement –/+£m 1 Equity –/+£m – Income statement –/+£m 3 Equity –/+£m – The majority of the Group’s commodity pricing contracts are held for trading and changes in mark-to-market values of these contracts are taken directly into the income statement. Amounts deferred in equity from commodity pricing contracts designated as cash ﬂow hedges are released to the income statement and offset against the movement in underlying transactions when they occur. Credit risk management Counterparty credit risk arises from the placing of deposits and entering into derivative ﬁnancial instrument contracts with banks and ﬁnancial institutions, as well as credit exposures inherent within the Group’s outstanding receivables. The Group manages credit risk by entering into ﬁnancial instrument contracts only with highly credit-rated authorised counterparties which are reviewed and approved annually by the Board. The Group has Board approved maximum counterparty exposure limits for speciﬁed banks and ﬁnancial institutions based on the long-term credit ratings of Standard & Poor’s and Moody’s (typically single A long-term credit ratings or higher). Trading limits assigned to commercial customers are based on ratings from Dun & Bradstreet and Credit Risk Monitor. In cases where published ﬁnancial ratings are not available or inconclusive, credit application, reference checking, and obtaining of customers’ conﬁdential ﬁnancial information such as liquidity and turnover ratio, are required to evaluate customers’ credit worthiness. Analysis of amounts set off The following tables set out the ﬁnancial assets and ﬁnancial liabilities which are subject to offsetting, enforceable master netting arrangements and similar agreements. Amounts which are set off against ﬁnancial assets and liabilities in the Group’s statement of ﬁnancial position are set out below. Amounts not offset but which could be offset under certain circumstances are also shown. i S t r a t e g c R e p o r t G o v e r n a n c e At 31 March 2014 Trade and other receivables Derivative ﬁnancial assets Cash and cash equivalents Total Trade and other payables Derivative ﬁnancial liabilities Bank loans and overdrafts Total At 31 March 2013 Trade and other receivables Derivative ﬁnancial assets Cash and cash equivalents Total Trade and other payables Derivative ﬁnancial liabilities Bank loans and overdrafts Total Gross financial assets/ (liabilities) £m 302 102 396 800 Gross financial (liabilities)/ assets set off £m – – – – Net financial assets/ (liabilities) £m 302 102 396 800 Related amounts not set off £m – (5) – (5) (315) (52) (778) (1 145) – – – – (315) (52) (778) (1 145) – 5 – 5 Gross financial assets/(liabilities) £m 372 140 379 891 Gross financial (liabilities)/assets set off £m – – – – Net financial assets/(liabilities) £m 372 140 379 891 Related amounts not set off £m – (21) – (21) (382) (81) (896) (1 359) – – – – (382) (81) (896) (1 359) – 21 – 21 Net £m 302 97 396 795 (315) (47) (778) (1 140) Net £m 372 119 379 870 (382) (60) (896) (1 338) Amounts which do not meet the criteria for offsetting on the statement of ﬁnancial position but could be settled net in certain circumstances principally relate to derivative transactions under ISDA (International Swaps and Derivatives Association) agreements where each party has the option to settle amounts on a net basis in the event of default of the other party. Tate & Lyle PLC Annual Report 2014 | 107 i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | CONTINUED 21 Financial risk factors continued Analysis of maximum credit exposure Counterparties’ positions are monitored on a regular basis to ensure that they are within the approved limits and there are no signiﬁcant concentrations of credit risks. The Group considers its maximum exposure to credit risk at the year end date is as follows: Cash and cash equivalents Trade and other receivables Derivative ﬁnancial instruments – assets Available-for-sale ﬁnancial assets Held for sale assets 2014 £m 396 302 102 28 – At 31 March 2013 £m 379 372 140 27 1 The Group’s trade receivables are short term in nature and largely comprise amounts receivable from business customers. Concentrations of credit risk with respect to trade receivables are limited due to the Group’s having a number of key quality customers and a customer base which is large, unrelated and internationally dispersed. Liquidity risk management The Group manages its exposure to liquidity risk and ensures maximum ﬂexibility in meeting changing business needs, by maintaining access to a wide range of funding sources, including capital markets and bank borrowings. Capital market issues outstanding at 31 March 2014 include the US$500 million 5.00% 144A bond maturing in November 2014, the US$250 million 6.625% 144A bond maturing in June 2016, and the £200 million 6.75% bond maturing in November 2019. The Group ensures that it has sufﬁcient undrawn committed bank facilities to provide liquidity back-up to cover its funding requirements for the foreseeable future. The Group has a core committed bank facility of US$800 million which matures in July 2016. This facility is unsecured and contains common ﬁnancial covenants for Tate & Lyle and its subsidiary companies that the pre-exceptional and amortisation interest cover ratio should not be less than 2.5 times and the multiple of net debt to EBITDA, as deﬁned in our ﬁnancial covenants, should not be greater than 3.5 times. The Group intends to reﬁnance the core committed bank facility no later than 12 months prior to the facility’s maturity in July 2016. The Group monitors compliance against all its ﬁnancial obligations and it is Group policy to manage the consolidated statement of ﬁnancial position so as to operate well within these covenanted restrictions. In both the current and comparative reporting period, the Group complied with its ﬁnancial covenants at all measurement points. The majority of the Group’s borrowings are raised through the Group treasury company, Tate & Lyle International Finance PLC, and are then on-lent to the business units on an arm’s length basis. Current Group policy is to ensure that, after subtracting the total of undrawn committed facilities, no more than 10% of gross debt matures within 12 months and at least 35% has a maturity of more than 2.5 years. At 31 March 2014, after subtracting total undrawn committed facilities, there was no gross debt maturing within 12 months (2013 – none) and 29% of gross debt maturing within 2.5 years (2013 – none). The average maturity of the Group’s gross debt was 3.9 years (2013 – 4.6 years). At the year end, the Group held cash and cash equivalents of £396 million (2013 – £379 million) and had committed facilities of £480 million (2013 – £527 million) of which £480 million (2013 – £527 million) was undrawn. These resources are maintained to provide liquidity back-up and to meet the projected maximum cash outﬂow from debt repayment, capital expenditure and seasonal working capital needs foreseen for at least a year into the future at any one time. The table below analyses the Group’s non-derivative ﬁnancial liabilities and derivative assets and liabilities based on the remaining period at the statement of ﬁnancial position date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash ﬂows. Liquidity analysis Borrowings including ﬁnance leases Interest on borrowings Trade and other payables Derivative contracts: – receipts – payments Commodity contracts Liquidity analysis Borrowings including ﬁnance leases Interest on borrowings Trade and other payables Derivative contracts: – receipts – payments Commodity contracts 108 | Tate & Lyle PLC Annual Report 2014 <1 year £m (337) (38) (315) 99 (86) (16) <1 year £m (77) (41) (382) 93 (80) (44) 1–5 years £m (166) (69) (2) At 31 March 2014 > 5 years £m (255) (14) – 244 (226) (4) – – – 1–5 years £m (518) (99) (3) At 31 March 2013 > 5 years £m (262) (30) – 271 (251) (3) – – – 21 Financial risk factors continued Included in borrowings are £2,394,000 of 6.5% cumulative preference shares. Only one year’s worth of interest payable on these shares is included in the less than one year category. Interest on borrowings is calculated based on borrowings held at year end without taking into account future issues. Floating-rate interest is calculated using forward interest rates derived from interest rate yield curves as at year end. Derivative contracts include currency swaps, forward exchange contracts and interest rate swaps. All commodity pricing contracts such as options and futures are shown separately under commodity contracts. Commodity contracts include only net settled commodity derivative contracts and gross settled commodity purchase contracts with negative fair values. Purchase contracts outﬂows represent actual contractual cash ﬂows under the purchase contracts and not their fair values. Cash outﬂows from the purchase contracts are offset by cash inﬂows received from sale contracts; however, these inﬂows are not included as part of this analysis. Financial assets and liabilities denominated in currencies other than pounds sterling are converted to pounds sterling using year end exchange rates. Capital risk management The Group’s primary objectives in managing its capital are to safeguard the business as a going concern; to maintain a progressive dividend policy; to maintain sufﬁcient ﬁnancial ﬂexibility to undertake its investment plans; and to retain as a minimum an investment grade credit rating which enables consistent access to debt capital markets. The Group’s ﬁnancial proﬁle and level of ﬁnancial risk is assessed on a regular basis in the light of changes to the economic conditions, business environment, the Group’s business proﬁle and the risk characteristics of its businesses. Tate & Lyle has contractual relationships with Moody’s and Standard & Poor’s (S&P) for the provision of credit ratings, and it is the Group’s policy to keep them informed of all major developments. At 31 March 2014, the long-term credit rating from Moody’s was Baa2 (stable outlook) and from S&P was BBB (stable outlook). The Group is committed to maintaining investment grade credit ratings. i S t r a t e g c R e p o r t G o v e r n a n c e The Group regards its total capital as follows: Net debt Equity attributable to owners of the Company Total capital Note 34 2014 £m 353 1 049 1 402 At 31 March 2013 £m 479 1 036 1 515 The Board has set two ongoing key performance indicators (KPIs) to measure the Group’s ﬁnancial strength. The target levels for these ﬁnancial KPIs are that the ratio of net debt/EBITDA should not exceed two times and interest cover should exceed ﬁve times. These ratios are calculated on the same basis as the external ﬁnancial covenants noted above. The ratios for these KPIs for the ﬁnancial years ended 31 March 2014 and 31 March 2013 are: Net debt/EBITDA Interest cover 22 Inventories Raw materials and consumables Work in progress Finished goods Total Year ended 31 March 2013 times 1.0 11.1 2014 times 0.8 11.6 2014 £m 241 21 156 418 At 31 March 2013 £m 267 21 222 510 Finished goods inventories of £4 million (2013 – £5 million) are carried at realisable value, this being lower than cost. Inventories of £150 million (2013 – £164 million) are carried at market value. During the year, no net impairment charge was recognised against inventories (2013 – £nil). Tate & Lyle PLC Annual Report 2014 | 109 i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | CONTINUED 23 Trade and other receivables Non-current trade and other receivables Other receivables Total Current trade and other receivables Trade receivables Less: allowance for doubtful debts Trade receivables – net Prepayments and accrued income Margin deposits Other receivables Total The carrying amounts of trade and other receivables were denominated in the following currencies: US dollar Euro Sterling Other Total 2014 £m 1 1 2014 £m 276 (8) 268 13 13 20 314 2014 £m 172 103 11 29 315 At 31 March 2013 £m 3 3 At 31 March 2013 £m 340 (10) 330 14 18 21 383 At 31 March 2013 £m 222 95 11 58 386 Allowance for doubtful debts Trade receivables are subject to limited credit risk because the Group has a number of key customers of good credit quality and a large number of internationally dispersed customers. Trade receivables are regularly reviewed for collectability and an allowance has been established for doubtful debts against which trade receivables are written-off when they are no longer considered to be collectible. Movements on the allowance for doubtful debts were as follows: At 1 April Net credit/(expense) for the year (Note 6) Currency translation differences At 31 March Year ended 31 March 2013 £m (7) (3) – (10) 2014 £m (10) 1 1 (8) As at 31 March 2014, trade receivables of £22 million (2013 – £31 million) were past due but not impaired because they were considered to be collectible. The ageing analysis of these trade receivables was as follows: Up to 30 days past due 1–3 months past due Total Trade receivables are not generally interest-bearing but interest may be charged to customers on overdue amounts. 2014 £m 22 – 22 At 31 March 2013 £m 28 3 31 110 | Tate & Lyle PLC Annual Report 2014 24 Share capital and share premium At 31 March 2013 and 31 March 2014 Ordinary share capital £m 117 Share premium £m 406 Total £m 523 Ordinary shares carry the right to participate in dividends and each share entitles the holder to one vote on matters requiring shareholder approval. Allotted, called up and fully paid equity share capital At 1 April Allotted under share option schemes At 31 March Year ended 31 March 2014 Year ended 31 March 2013 Shares 468 192 900 9 983 468 202 883 £m 117 – 117 Shares 468 160 519 32 381 468 192 900 £m 117 – 117 Own shares Own shares represent the Company’s ordinary shares that are acquired to meet the Group’s expected obligations under share-based incentive arrangements (see Note 26). Own shares are held either by the Company in treasury or by an Employee Beneﬁt Trust that was established by the Company. Movements in own shares held were as follows: At 1 April Purchased in the market Transferred to employees At 31 March Year ended 31 March 2014 Cost £m 29 29 (21) 37 Number 4 413 175 3 545 000 (3 251 746) 4 706 429 Year ended 31 March 2013 Cost £m 23 23 (17) 29 Number 3 795 558 3 500 000 (2 882 383) 4 413 175 During the year, 3,045,000 (2013 – 2,000,000) shares were purchased into treasury at a cost of £25 million (2013 – £13 million) and 500,000 (2013 – 1,500,000) shares were purchased into the Employee Beneﬁt Trust at a cost of £4 million (2013 – £10 million). During the year, 2,443,619 (2013 – 2,703,843) shares held in treasury and 808,127 (2013 – 178,540) shares held in the Employee Beneﬁt Trust were transferred to employees to satisfy vested share awards. At 31 March 2014, 2,442,914 (2013 – 1,841,533) shares were held in treasury with a market value of £16 million (2013 – £16 million) and 2,263,515 (2013 – 2,571,642) shares were held in the Employee Beneﬁt Trust with a market value of £15 million (2013 – £22 million). At 31 March 2014, own shares held represented 1.0% (2013 – 0.9%) of the Company’s called up share capital. i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l Analysis of ordinary shareholders Number of shares of 25p each Up to 500 501 – 1 000 1 001 – 1 500 1 501 – 2 000 2 001 – 5 000 5 001 – 10 000 10 001 – 200 000 200 001 – 500 000 Above 500 000 Total Number of holdings 4 815 3 873 1 955 1 242 2 024 538 616 121 146 15 330 At 31 March 2014 % Total % 31.4 25.3 12.8 8.1 13.2 3.5 4.0 0.8 0.9 100.0 1 270 548 3 026 174 2 441 124 2 237 815 6 261 691 3 772 112 30 537 962 38 693 792 379 961 665 468 202 883 0.3 0.6 0.5 0.5 1.3 0.8 6.5 8.3 81.2 100.0 S t a t e m e n t s U s e f u l I n f o r m a t i o n Tate & Lyle PLC Annual Report 2014 | 111 Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | CONTINUED 25 Other reserves At 1 April 2012 Other comprehensive income Loss on cash ﬂow hedges Loss on cash ﬂow hedges transferred to proﬁt or loss Loss on revaluation of available-for-sale ﬁnancial assets Gain on currency translation of foreign operations Loss on net investment hedges Gain transferred to proﬁt or loss on disposal of foreign operations Tax relating to the above items At 31 March 2013 Other comprehensive income Loss on cash ﬂow hedges Loss on currency translation of foreign operations Gain on net investment hedges Tax relating to the above items At 31 March 2014 Hedging reserve £m 2 Currency translation reserve £m 28 Other reserves £m 98 (3) 4 – – – – (1) 2 (1) – – – 1 – – – 56 (30) (14) – 40 – (130) 50 – (40) – – (1) – – – – 97 – – – – 97 Total £m 128 (3) 4 (1) 56 (30) (14) (1) 139 (1) (130) 50 – 58 26 Share-based incentives The Company operates share-based incentive arrangements for the executive directors, senior executives and other eligible employees under which awards and options are granted over the Company’s ordinary shares. All of the arrangements under which awards and options were outstanding during the 2014 and 2013 ﬁnancial years are classiﬁed as equity-settled. During the year, the compensation expense recognised in proﬁt or loss in respect of share-based incentives was £8 million (2013 – £13 million). Background Performance Share Plan The Group’s principal ongoing share-based incentive arrangement is the Performance Share Plan (PSP). Participation in the PSP is restricted to the executive directors and other senior executives. Awards made under the PSP normally vest provided the participant remains in the Group’s employment during the performance period and the Group achieves earnings per share (EPS) and return on capital employed (ROCE) targets. Up to 50% of each award vests dependent on the compound annual growth rate of the Group’s adjusted diluted EPS from continuing operations reaching speciﬁed levels over the performance period. Up to 50% of each award vests dependent on the Group’s adjusted ROCE from continuing operations reaching speciﬁed levels at the end of the performance period. The performance period is the period of three ﬁnancial years beginning with the ﬁnancial year in which the award is granted. During the 2014 and 2013 ﬁnancial years, the Group recognised an expense in relation to share-based incentives that were awarded to the Chief Executive Ofﬁcer in 2009, 2010 and 2011 that were subject to the same performance conditions that applied to awards made under the PSP in those years. From 2012, the Chief Executive Ofﬁcer has participated in the PSP. Further information on the PSP is set out in the Directors’ Remuneration Report on pages 52 to 71. Group Bonus Plan – Deferred Element Bonuses earned under the Group Bonus Plan are normally paid in cash up to 100% of the base salary of the participating executive. Any excess above 100% of base salary is paid in the form of deferred shares that are released after two years subject to the executive remaining in the Group’s employment. During the vesting period, payments in lieu of dividends are made in relation to the deferred shares. Further information on the Group Bonus Plan is set out in the Directors’ Remuneration Report. Sharesave Plan Options are granted from time-to-to time under the Company’s Sharesave Plan, which is open to all employees in the UK. It offers eligible employees the option to buy shares in the Company after a period of three or ﬁve years funded from the proceeds of a savings contract to which they contribute on a monthly basis. Executive Share Option Scheme Options are outstanding under the Company’s legacy executive share option scheme. The last grant of options was made under this scheme in 2004 and those options vested in 2007. 112 | Tate & Lyle PLC Annual Report 2014 26 Share-based incentives continued Movements in the year Movements in the awards outstanding during the year were as follows: Outstanding at 1 April Granted Exercised Lapsed Outstanding at 31 March Exercisable at 31 March Year ended 31 March 2014 Weighted average exercise price pence 10p 11p 14p 20p 10p 16p Awards Number 10 838 115 2 591 210 (3 261 729) (309 212) 9 858 384 1 981 524 Year ended 31 March 2013 Weighted average exercise price pence 16p 8p 29p 7p 10p 29p Awards Number 11 270 273 2 718 602 (2 914 764) (235 996) 10 838 115 1 875 237 The weighted average market price of the Company’s ordinary shares on the dates on which awards were exercised during the year was 817p (2013 – 654p). Awards granted in the year During the year, PSP awards were granted over 2,548,235 shares (2013 – 2,673,024 shares) and Sharesave options were granted over 42,975 shares (2013 – 37,210 shares). The compensation expense recognised in relation to these awards is based on the fair value of the awards at their respective grant dates. The weighted average fair values of the awards granted during the year and the principal assumptions made in measuring those fair values were as follows: i S t r a t e g c R e p o r t G o v e r n a n c e Fair value at grant date Principal assumptions Share price on grant date Expected life of the awards Risk-free interest rate Dividend yield on the Company’s shares Volatility of the Company’s shares Year ended 31 March 2014 Year ended 31 March 2013 PSP 752p Sharesave 198p PSP 619p Sharesave 209p 817p 782p 3 years 3.3/5.3 years 0.45%/0.9% 3.5% 30% – 3.5% n/a 679p 3 years – 4.0% n/a 759p 3.3/5.3 years 0.65%/1.2% 4.0% 35% The fair value of the awards was measured using the Black-Scholes option pricing formula, taking into account factors such as non-transferability, exercise restrictions and behavioural considerations. Expected volatility was based on the historical volatility of the market price of the Company’s shares over the expected life of the awards. No deferred shares were granted under the Group Bonus Plan during the year. During the prior year, 8,368 deferred shares were granted in relation to annual bonuses earned during the year ended 31 March 2012. Awards outstanding at the end of the year The range of exercise prices and the weighted average remaining contractual life of awards outstanding at the end of the year were as follows: Exercise price Nil 200p to 399p 400p to 799p Total At 31 March 2014 Weighted average contractual life months 48.2 14.2 34.5 47.7 Awards Number 9 638 499 98 694 121 191 9 858 384 At 31 March 2013 Weighted average contractual life months 49.1 14.6 37.6 48.4 Awards Number 10 573 265 167 358 97 492 10 838 115 Tate & Lyle PLC Annual Report 2014 | 113 i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | CONTINUED 27 Trade and other payables Non-current payables Accruals and deferred income Total Current payables Trade payables Social security Accruals and deferred income Other payables Total 28 Borrowings Non-current borrowings Unsecured borrowings 2,394,000 6.5% cumulative preference shares of £1 each Industrial Revenue Bonds 2016–2036 (US$77,655,000) 5.0% Guaranteed Notes 2014 (US$500,000,000) 6.625% Guaranteed Notes 2016 (US$250,000,000) 6.75% Guaranteed Notes 2019 (£200,000,000) Total Bank loans Variable unsecured loans (US$) Total Other borrowings Obligations under ﬁnance leases Total Total non-current borrowings 2014 £m 2 2 2014 £m 216 2 63 34 315 2014 £m 2 47 – 157 214 420 2 2 17 17 439 At 31 March 2013 £m 3 3 At 31 March 2013 £m 264 3 79 36 382 At 31 March 2013 £m 2 51 341 177 224 795 5 5 21 21 821 On a return of capital on a winding-up, the holders of 6.5% cumulative preference shares shall be entitled to £1 per share, in preference to all other classes of shareholders. Holders of these shares are entitled to vote at meetings, except on the following matters: any question as to the disposal of the surplus proﬁts after the dividend on these shares has been provided for; the election of directors; their remuneration; any agreement between the directors and the Company; or the alteration of the Articles of Association dealing with any such matters. Current borrowing Unsecured borrowings 5.0% Guaranteed Notes 2014 (US$500,000,000) Industrial Revenue Bonds 2013 (US$14,345,000) Bank overdrafts Short-term loans Total Other borrowings Obligations under ﬁnance leases Total current borrowings 2014 £m 304 – 6 27 337 2 339 At 31 March 2013 £m – 9 8 56 73 2 75 Included within borrowings are £345 million (2013 – £363 million) of borrowings subject to fair value hedges, of which amortised cost has been increased by £24 million (2013 – £46 million) in the table above. Secured borrowings Lease liabilities are effectively secured as the rights to the leased asset revert to the lessor in the event of default. 114 | Tate & Lyle PLC Annual Report 2014 28 Borrowings continued Fair values The fair values of the Group’s borrowings compared with their book values are as follows: Non-current unsecured borrowings Non-current bank loans Other non-current borrowings Current borrowings Total Book value £m 420 2 17 339 778 At 31 March 2014 Fair value £m 451 2 17 342 812 Book value £m 795 5 21 75 896 At 31 March 2013 Fair value £m 845 5 21 75 946 The fair value of borrowings has been determined using either quoted market prices, broker dealer quotations or discounted cash ﬂow analysis. Interest rate risks and maturity of borrowings The maturity proﬁle of the Group’s non-current borrowings is as follows: One to two years Two to ﬁve years After ﬁve years Total non-current borrowings 2014 £m 9 164 266 439 At 31 March 2013 £m 344 191 286 821 Floating rate borrowings bear interest based on relevant national LIBOR equivalents. If the interest rates applicable to the Group’s ﬂoating rate debt and cash held as at 31 March 2014 rise by an average of 1% over the year ending 31 March 2015, there would be no impact on the Group’s proﬁt before tax (2013 – decrease by £1 million). Taking into account the Group’s interest rate and cross currency swap contracts, the effective interest rates of its borrowings are as follows: 2,394,000 6.5% cumulative preference shares of £1 each Industrial Revenue Bonds 2013–2036 (US$92,000,000) 5.0% Guaranteed Notes 2014 (US$500,000,000) 6.625% Guaranteed Notes 2016 (US$250,000,000) 6.75% Guaranteed Notes 2019 (£200,000,000) 2014 £m 6.5% 0.1% 2.8% 4.1% 4.3% At 31 March 2013 £m 6.5% 0.2% 2.9% 4.2% 4.8% Short-term loans and overdrafts Current short-term loans mature within the next 12 months and overdrafts are repayable on demand. Both short-term loans and bank overdrafts are arranged at ﬂoating rates of interest and expose the Group to cash ﬂow interest rate risk. Credit facilities and arrangements Tate & Lyle International Finance PLC holds a US$800 million ﬁve year committed multi-currency club facility with a core of highly-rated banks that was arranged in July 2011. As at 31 March 2014, this committed facility remains undrawn. The facility has a value of £480 million (2013 – £527 million) and matures in July 2016. This facility incurs commitment fees at market rates prevailing when the facility was arranged. The facility may only be withdrawn in the event of speciﬁed events of default. In addition, the Group has substantial uncommitted facilities. Finance lease commitments Amounts payable under ﬁnance lease commitments are as follows: Within one year Between one and ﬁve years After ﬁve years Total Less future ﬁnance charges Present value of minimum lease payments At 31 March 2014 Present value of minimum lease payments £m 2 9 8 19 Minimum lease payments £m 4 10 11 25 (6) 19 At 31 March 2013 Present value of minimum lease payments £m 2 11 10 23 Minimum lease payments £m 4 14 13 31 (8) 23 Tate & Lyle PLC Annual Report 2014 | 115 i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | CONTINUED 29 Deferred tax Deferred tax is calculated on temporary differences arising between the carrying amount of assets and liabilities for accounting purposes and their respective tax values. Deferred tax liabilities arise where the carrying amount is higher than the tax value (more tax deduction has been taken). This can happen where we invest in capital assets, as governments often encourage investment by allowing tax depreciation to be recognised faster than accounting depreciation. This reduces the tax value of the asset relative to its carrying amount. Deferred tax liabilities are generally provided on all taxable temporary differences. Deferred tax assets arise where the carrying amount is lower than the tax value (less tax beneﬁt has been taken). This can happen where we have trading losses, which cannot be offset in the current period but can be carried forward and we consider it probable that we will be able to offset the losses against future taxable proﬁts. Movements in deferred income tax net assets/(liabilities) in the year are as follows: Deferred tax At 1 April 2012 Charged to the income statement – restated* Charged to other comprehensive income – restated* Charged directly to equity Currency translation differences At 31 March 2013 Charged to the income statement Charged to other comprehensive income Charged directly to equity Currency translation differences At 31 March 2014 £m 12 (23) (12) (1) 8 (16) (2) (22) (1) 3 (38) Of the amounts of deferred tax charged to the income statement and other comprehensive income, a charge of £1 million (2013 – £1 million) arose from changes in tax rates. There was no impact from the imposition of new taxes. Deferred tax assets in respect of unutilised tax losses of £614 million (2013 – £571 million) have not been recognised to the extent that they exceed taxable proﬁts against which these assets may be recovered. No unrelieved tax losses expired under current tax legislation in the year ended 31 March 2014. The total deferred tax on unremitted earnings is £3 million (2013 – £4 million) of which £nil (2013 – £nil) has been recognised. The Group has not recognised the amount as it is able to control the timing of the reversal of these temporary differences and it is probable that they will not reverse in the foreseeable future. The aggregate amount of temporary differences arising from unremitted proﬁts at the period-end date was approximately £3 million (2013 – £4 million). Other deferred tax liabilities principally relate to deferred tax on acquired intangible assets. Other deferred tax assets principally relate to deferred tax on provisions. The movements in deferred tax assets and liabilities during the year are as follows: Capital allowances in excess of depreciation £m (115) – (12) (10) (137) – 4 12 (121) Other £m (33) 3 (8) 8 (30) 3 23 2 (2) Total £m (148) 3 (20) (2) (167) 3 27 14 (123) Deferred tax liabilities At 1 April 2012 Transfers between categories Charged to the income statement Currency translation differences At 31 March 2013 Transfers between categories Credited to the income statement Currency translation differences At 31 March 2014 116 | Tate & Lyle PLC Annual Report 2014 29 Deferred tax continued Deferred tax assets At 1 April 2012 Transfers between categories Credited/(charged) to the income statement – restated* Charged to other comprehensive income – restated* Charged directly to equity Currency translation differences At 31 March 2013 Transfers between categories (Charged)/credited to the income statement Charged to other comprehensive income Charged directly to equity Currency translation differences At 31 March 2014 Retirement benefit obligations £m 74 – 25 (6) – 7 100 – (6) (22) – (8) 64 Share-based payments £m 7 – 2 – (1) (1) 7 – (1) – (1) – 5 Tax losses £m 78 – (33) (5) – 2 42 – (23) – – (3) 16 Other £m 1 (3) 3 (1) – 2 2 (3) 1 – – – – Total £m 160 (3) (3) (12) (1) 10 151 (3) (29) (22) (1) (11) 85 Deferred tax assets and liabilities are offset where there is a legally enforceable right of offset and there is an intention to settle the balances net. As a result of these offsets, the deferred tax balances are presented in the statement of ﬁnancial position as follows: i S t r a t e g c R e p o r t G o v e r n a n c e Deferred tax liabilities Deferred tax assets Net deferred tax liability * See Note 43. 2014 £m (45) 7 (38) At 31 March 2013 £m (24) 8 (16) 30 Retirement beneﬁt obligations (a) Plan information (i) Pensions The Group operates a number of deﬁned beneﬁt pension plans, principally in the UK and the US and, until December 2013, in the Netherlands. Generally, the pension beneﬁts provided under these plans are determined based on the pensionable salary and period of pensionable service of the individual members. Most of the plans are funded and the plan assets held separately from those of the Group in funds that are under the control of trustees. The extent of the powers of the trustees, in particular in respect of funding and investment strategy, varies and is dependent on local regulations and the rules of each plan. Payments made by the Group to the plans principally comprise funding contributions agreed with the trustees that are determined in accordance with local regulations to ensure that appropriate funding levels are maintained and funding deﬁcits are eliminated over a reasonable period of time. All of the signiﬁcant deﬁned beneﬁt pension plans operated by the Group are closed to new entrants and most are closed to future accrual. The Group operates deﬁned contribution pension plans in a number of countries. Contributions payable by the Group to these plans during the year amounted to £3 million (2013 – £4 million). (ii) Other beneﬁts The Group’s subsidiaries in the US provide unfunded retirement medical plans to the majority of their employees. Such plans provide ﬁnancial assistance in meeting various costs including medical, dental and prescription drugs. Employees are required to contribute to the cost of beneﬁts received under the plans. The Group meets the remaining costs of providing these beneﬁts in the period in which they are incurred. (b) Summary of ﬁnancial effect At the beginning of the year, the Group adopted IAS 19 (Revised 2011) ‘Employee Beneﬁts’, which changed the way in which it accounts for deﬁned beneﬁt pension and other retirement beneﬁt plans and certain of the related disclosure requirements. An explanation and analysis of the ﬁnancial effect of these changes on the periods presented is set out in Note 43. Where necessary, comparative information for the prior year presented below has been restated to reﬂect these changes. Tate & Lyle PLC Annual Report 2014 | 117 i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | CONTINUED 30 Retirement beneﬁt obligations continued (i) Analysis of amounts presented in the income statement Charged/(credited) to operating proﬁt Deﬁned beneﬁt plans: – Current service cost Pension plans Medical plans – Gain on settlement – Plan administration expenses Deﬁned contribution plans Net charge to operating proﬁt Charged/(credited) to ﬁnance expense Interest on beneﬁt obligations Interest on plan assets Net charge to ﬁnance expense Year ended 31 March 2013 £m 2014 £m 5 2 (4) 2 5 3 8 64 (56) 8 4 3 – 2 9 4 13 69 (65) 4 During the year, the assets and liabilities of the deﬁned beneﬁt pension plan in the Netherlands were transferred to a new collective deﬁned contribution plan and the deﬁned beneﬁt plan was closed. For accounting purposes, this transfer was treated as a settlement on which the Group recognised a gain of £4 million (of which £2 million was attributed to the Bulk Ingredients segment and £2 million was attributed to the Speciality Food Ingredients segment). (ii) Analysis of amounts presented in other comprehensive income Return on plan assets Actual return on plan assets (net of asset management expenses) Interest on plan assets Actual return lower than interest on plan assets Actuarial gains/ (losses) Gain/(loss) from changes in ﬁnancial assumptions Loss from changes in demographic assumptions (Loss)/gain from experience against assumptions Net actuarial gain/(loss) Year ended 31 March 2013 £m 2014 £m 27 (56) (29) 60 (40) (1) 19 52 (65) (13) (134) (2) 4 (132) During the year, the trustees of the Amylum UK Pension Scheme agreed a full buy-in of its beneﬁt obligations at a cost of £82 million (which was partially funded by an additional contribution from the Group of £6 million). For accounting purposes, the related beneﬁt obligation was valued at £69 million such that there was a loss on plan assets of £13 million. During the prior year, the trustees of the Tate & Lyle Group Pension Scheme in the UK agreed a partial buy-in in relation to current pensioners at a cost of £347 million. For accounting purposes, the related beneﬁt obligation was valued at £266 million such that there was a loss on plan assets of £81 million. (iii) Analysis of deﬁned beneﬁt liability At 31 March 2014 At 31 March 2013 Pensions £m Medical benefits £m Total £m Pensions £m Medical benefits £m (1 425) (46) (1 471) 1 305 (166) – (166) (166) – (54) (54) – (54) – (54) (54) (1 425) (100) (1 525) 1 305 (220) – (220) (220) (1 539) (53) (1 592) 1 407 (185) 12 (197) (185) – (80) (80) – (80) – (80) (80) Total £m (1 539) (133) (1 672) 1 407 (265) 12 (277) (265) Beneﬁt obligations: Funded plans Unfunded plans Fair value of plan assets Net deﬁcit Presented in the statement of ﬁnancial position: Retirement beneﬁt surplus Retirement beneﬁt deﬁcit 118 | Tate & Lyle PLC Annual Report 2014 30 Retirement beneﬁt obligations continued (iv) Analysis of movements in the net deﬁcit At 1 April 2012 Year ended 31 March 2013 – (Increase)/decrease in the beneﬁt obligation – Increase in the fair value of plan assets At 31 March 2013 Year ended 31 March 2014 – Decrease in the beneﬁt obligation – Decrease in the fair value of plan assets At 31 March 2014 Pensions £m (36) Medical benefits £m (104) (194) 45 (185) 121 (102) (166) 24 – (80) 26 – (54) Total £m (140) (170) 45 (265) 147 (102) (220) (c) Deﬁned beneﬁt obligations (i) Principal assumptions Pensions For accounting purposes, the beneﬁt obligation of each plan has been calculated in accordance with IAS 19 based on data gathered for the most recent actuarial valuation and by applying assumptions made by the Group on the advice of independent actuaries. As required by local regulations, actuarial valuations of the US pension plans are carried out each year and those of the UK pension plans are carried out at least every three years. An actuarial valuation at 31 March 2013 of the Tate & Lyle Group Pension Scheme in the UK has commenced. Whilst the valuation has not yet been ﬁnalised, the Group has used the data gathered in relation to the valuation as the basis for measuring the related beneﬁt obligation. An actuarial valuation of the Amylum UK Pension Scheme was last carried out at 30 June 2011. Principal assumptions used in calculating the beneﬁt obligation were as follows: i S t r a t e g c R e p o r t G o v e r n a n c e Inﬂation rate Expected rate of salary increases Expected rate of pension increases: – Deferred pensions – Pensions in payment Discount rate Inﬂation rate Expected rate of salary increases Expected rate of pension increases: – Deferred pensions – Pensions in payment Discount rate UK CPI 2.4%/ RPI 3.4% n/a 2.4% 3.2% 4.2% UK CPI 2.5%/ RPI 3.5% n/a 2.5% 3.4% 4.2% At 31 March 2014 US Other countries 2.5% 3.5% n/a n/a 4.3% 2.0% 2.0% 1.6% 1.6% 3.5% At 31 March 2013 US Other countries 2.5% 3.5% n/a n/a 3.9% 2.0% 2.0% 0.9% 0.9% 3.1% Assumptions regarding future mortality rates of members of the Group’s pension plans are based on published statistics and taking into account the proﬁle of the plan members. On this basis, the average life expectancies assumed for members of the plans are as follows: Male aged 65 now Male aged 65 in 20 years’ time Female aged 65 now Female aged 65 in 20 years’ time At 31 March 2014 At 31 March 2013 UK 23 years 26 years 24 years 27 years US 19 years 20 years 21 years 22 years UK 22 years 25 years 23 years 25 years US 19 years 21 years 21 years 22 years Shorter longevity assumptions are used for members who retire on grounds of ill health. Medical beneﬁts Principal assumptions used in calculating the beneﬁt obligation are medical cost inﬂation and the discount rate applied to the expected beneﬁt payments. Management assumed medical cost inﬂation at 6.0% per annum (2013 – 7.0%), grading down to 5% by 2016, and used a discount rate of 4.1% (2013 – 3.7%). Tate & Lyle PLC Annual Report 2014 | 119 i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | CONTINUED 30 Retirement beneﬁt obligations continued (ii) Analysis of movements in the beneﬁt obligation At 1 April 2012 Year ended 31 March 2013 Service cost Plan administration costs Interest on beneﬁt obligation Actuarial gains/(losses): – Changes in ﬁnancial assumptions – Changes in demographic assumptions – Experience against assumptions Net actuarial (loss)/gain Employees' contributions Beneﬁts paid Currency translation differences (Increase)/decrease in the beneﬁt obligation At 31 March 2013 Year ended 31 March 2014 Service cost Plan administration costs Interest on beneﬁt obligation Actuarial gains/(losses): – Changes in ﬁnancial assumptions – Changes in demographic assumptions – Experience against assumptions Net actuarial (loss)/gain Employees’ contributions Beneﬁts paid Transfer on settlement Currency translation differences (Increase)/decrease in the beneﬁt obligation At 31 March 2014 UK £m (867) – (2) (43) (132) – – (132) – 47 (1) (131) (998) – (2) (41) 23 (39) (7) (23) – 49 – 2 (15) (1 013) US £m (468) Other countries £m (63) Pension benefits Total £m (1,398) Medical benefits £m (104) (1) – (20) (26) (1) 2 (25) – 25 (30) (51) (519) (1) – (19) 21 (1) 3 23 – 26 – 45 74 (445) (3) – (2) (7) (1) – (8) (1) 2 – (12) (75) (4) – (1) (2) – 1 (1) (1) 2 67 – 62 (13) (4) (2) (65) (165) (2) 2 (165) (1) 74 (31) (194) (1 592) (5) (2) (61) 42 (40) (3) (1) (1) 77 67 47 121 (1 471) (3) – (4) 31 – 2 33 – 3 (5) 24 (80) (2) – (3) 18 – 2 20 – 4 – 7 26 (54) (iii) Maturity of obligations At 31 March 2014, the weighted average duration of the signiﬁcant deﬁned beneﬁt obligations was as follows: Pension plans: – UK – US Medical beneﬁts At 31 March 2014, the beneﬁts expected to be paid by the plans over the next ten years were as follows: Beneﬁt payments: – Within 12 months – Between 1 to 2 years – Between 2 to 5 years – Between 5 to 10 years UK £m 49 49 150 263 US £m Other countries £m Pension benefits Total £m Medical benefits £m 24 25 78 140 – – – – 73 74 228 403 4 4 12 19 Total £m (1,502) (7) (2) (69) (134) (2) 4 (132) (1) 77 (36) (170) (1 672) (7) (2) (64) 60 (40) (1) 19 (1) 81 67 54 147 (1 525) Duration 18 years 12 years 9 years Total £m 77 78 240 422 120 | Tate & Lyle PLC Annual Report 2014 30 Retirement beneﬁt obligations continued (d) Plan assets (i) Investment strategy Principal risks The deﬁned beneﬁt pension plans expose the Group to actuarial risks such as interest rate, longevity, inﬂation and investment risk. Interest rate risk Inﬂation risk Volatility in the ﬁnancial markets can have a signiﬁcant effect on the beneﬁt obligation as the calculation of the obligation involves discounting based on yields on AA-rated corporate bonds. A decrease in the bond yield will increase the beneﬁt obligation. Inﬂation risk arises where pensionable salaries, deferred pensions or pensions in payment are subject to inﬂation increases. A higher rate of inﬂation will lead to a higher beneﬁt obligation. Longevity risk Investment risk Longevity (or life expectancy) represents a risk because the longer members of the plans live the higher beneﬁt payments to them will be. An increase in life expectancy beyond that assumed will increase the beneﬁt obligation. If the return on the plan assets is lower than the discount rate applied to the beneﬁt obligation, there will be an increase in the deﬁcit (or reduction in the surplus) on the plan. Mitigation of risk The Group encourages the trustees of the plans to adopt an investment policy that seeks to mitigate these risks, which involves investing a signiﬁcant proportion of the plan assets in liability-driven investment portfolios that mitigate interest rate, inﬂation and investment risks. The Group seeks to ensure that, as far as is practicable, the investment portfolios of the funded plans are invested in long-term ﬁxed interest securities with maturities and in currencies that match the expected future beneﬁt payments as they fall due. In the UK, interest rate derivatives are used to achieve close matching where matching ﬁxed-interest securities are not available in the market. Most of the inﬂation risk for the Group arises in the UK since deferred pensions and pensions in payment in the US do not attract inﬂation increases. Inﬂation risk is mitigated by holding index-linked government bonds and corporate bonds and, in the UK, inﬂation derivatives. At 31 March 2014, £346 million (2013 – £275 million) of the beneﬁt obligation was matched by qualifying insurance policies that also mitigate longevity risk. The plans also maintain a portfolio of return-seeking investments, principally in the form of equities and property. i S t r a t e g c R e p o r t G o v e r n a n c e (ii) Plan assets by category Equities – quoted Corporate bonds – quoted Government bonds – quoted Property – unquoted Insurance policies – unquoted Other assets – unquoted Equities – quoted Corporate bonds – quoted Government bonds – quoted Property – unquoted Insurance policies – unquoted Other assets – unquoted UK £m 237 148 105 45 343 96 974 UK £m 204 180 166 57 272 120 999 Other countries £m At 31 March 2014 Total £m – – – – – – – 332 321 148 62 346 96 1 305 US £m 95 173 43 17 3 – 331 US £m Other countries £m At 31 March 2013 Total £m 144 117 52 29 3 1 346 21 9 20 – – 12 62 369 306 238 86 275 133 1 407 Plan assets do not include any direct investments in securities issued by the Group or any property occupied by or other assets used by the Group. Assets are classiﬁed as quoted only if they have a quoted market price in an active market as deﬁned by IFRS 13 ‘Fair Value Measurement’. All other assets are classiﬁed as unquoted. Tate & Lyle PLC Annual Report 2014 | 121 i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | CONTINUED 30 Retirement beneﬁt obligations continued (iii) Analysis of movements in the plan assets At 1 April 2012 Year ended 31 March 2013 Interest on plan assets Actual return (lower)/higher than interest on plan assets Employer’s contributions Employees’ contributions Beneﬁts paid Currency translation differences (Decrease)/increase in fair value of plan assets At 31 March 2013 Year ended 31 March 2014 Interest on plan assets Actual return (lower)/higher than interest on plan assets Employer’s contributions Employees’ contributions Beneﬁts paid Transfer on settlement Currency translation differences Decrease in fair value of plan assets At 31 March 2014 UK £m 1 005 US £m 302 Other countries £m 55 50 (35) 26 – (47) – (6) 999 42 (41) 24 – (49) – (1) (25) 974 13 18 20 – (25) 18 44 346 13 12 18 – (26) – (32) (15) 331 2 4 2 1 (2) – 7 62 1 – 1 1 (2) (63) – (62) – Total £m 1 362 65 (13) 48 1 (74) 18 45 1 407 56 (29) 43 1 (77) (63) (33) (102) 1 305 (e) Funding of the plans A full valuation is performed by actuaries for the trustees of each plan to determine the level of funding required. Employer contributions are agreed between the trustees of each plan and the Group on the basis of these valuations. The assumptions used by the trustees for funding purposes may differ from the assumptions made by the Group for accounting purposes. As a result, the funding deﬁcits or surpluses on the plans may be very different from the accounting deﬁcits or surpluses. During the year ending 31 March 2015, the Group expects to contribute approximately £33 million to its deﬁned beneﬁt pension plans and to pay approximately £4 million in relation to retirement medical beneﬁts. (f) Sensitivity analysis At 31 March 2014, the sensitivity of the net deﬁcit on the plans to changes in the principal assumptions was as follows (assuming in each case that the other assumptions are unchanged): Change in assumption +/- Increase/(decrease) in obligation Decrease in assumption £m Increase in assumption £m 50 bp 1 year 100 bp 50 bp 100 bp 75 68 (206) 2 (5) (59) (68) 255 (2) 6 Pension plans Inﬂation rate Life expectancy Discount rate Medical beneﬁts Medical cost inﬂation Discount rate 122 | Tate & Lyle PLC Annual Report 2014 31 Provisions for other liabilities and charges At 1 April 2012 Provided in the year Released in the year Utilised in the year Exchange and other movements At 31 March 2013 Provided in the year Released in the year Utilised in the year Exchange and other movements At 31 March 2014 Provisions are expected to be utilised as follows: – within one year – after more than one year Total Insurance funds £m 11 3 (2) (2) – 10 2 (1) (4) (1) 6 Restructuring and closure provisions £m 4 2 – – – 6 – – (2) – 4 Other provisions £m 13 9 (5) (2) 4 19 – (1) (2) (1) 15 Total £m 28 14 (7) (4) 4 35 2 (2) (8) (2) 25 2014 £m 15 10 25 At 31 March 2013 £m 20 15 35 i S t r a t e g c R e p o r t G o v e r n a n c e Insurance funds represent amounts provided by the Group’s captive insurance subsidiary in respect of the expected level of insurance claims. These provisions are expected to be utilised within ﬁve years. Restructuring and closure provisions relate to restructuring within the Group and are expected to be utilised within ﬁve years. Other provisions primarily relate to Group legal matters and previously disposed businesses and are expected to be utilised within ﬁve years. i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Tate & Lyle PLC Annual Report 2014 | 123 Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | CONTINUED Year ended 31 March 2013 £m (47) (38) (20) (6) 4 (107) 2014 £m 65 37 (57) (4) (3) 38 2014 £m 238 158 396 2014 £m 396 396 At 31 March 2013 £m 223 156 379 At 31 March 2013 £m 379 379 At 31 March 2013 £m 64 214 80 21 379 32 Change in working capital Continuing operations Decrease/(increase) in inventories Decrease/(increase) in receivables Decrease in payables Increase in derivative ﬁnancial instruments (excluding debt-related derivatives) (Decrease)/increase in provisions for other liabilities and charges Decrease/(increase) in working capital 33 Cash and cash equivalents Cash at bank and in hand Short-term bank deposits Total Presented in the ﬁnancial statements as follows: Cash and cash equivalents Total The effective interest rate on short-term deposits was 0.3% (2013 – 0.3%), with an average maturity of two days (2013 – two days). The carrying amount of cash and cash equivalents are denominated in the following currencies: Euro US dollar Sterling Other Total 34 Net debt Reconciliation of the increase/(decrease) in cash and cash equivalents to the movement in net debt: 2014 £m 70 248 52 26 396 Year ended 31 March 2013 £m (68) 95 27 13 – (43) (3) (476) (479) 2014 £m 50 44 94 – (3) 35 126 (479) (353) Net increase/(decrease) in cash and cash equivalents Net decrease in borrowings Decrease in net debt resulting from cash ﬂows Fair value and other movements Debt acquired on acquisition of subsidiaries Currency translation differences Decrease/(increase) in net debt in the year Net debt at beginning of year Net debt at end of year 124 | Tate & Lyle PLC Annual Report 2014 34 Net debt continued Movements in the Group’s net debt are as follows: At 1 April 2012 (Increase)/decrease resulting from cash ﬂows Fair value movements/other Reclassiﬁcation Currency translation differences At 31 March 2013 Decrease resulting from cash ﬂows Fair value movements/other Reclassiﬁcation Debt acquired on acquisition of subsidiaries Currency translation differences At 31 March 2014 Balances at 31 March 2014 comprise: Non-current assets Current assets Non-current liabilities Current liabilities Net debt is denominated in the following currencies: Cash and cash equivalents £m 424 (46) – – 1 379 50 – – – (33) 396 – 396 – – Borrowings and finance leases Current £m (141) 77 7 (12) (6) (75) 39 – (304) (3) 4 (339) – – – (339) Non-current £m (805) 2 1 12 (31) (821) 5 21 304 – 52 (439) Derivatives £m 24 16 5 – (7) 38 – (21) – – 12 29 – – (439) – 23 13 (2) (5) Euro US dollar Sterling Other Total 35 Contingent liabilities Trade guarantees Trade guarantees Assets held for sale £m 22 (22) – – – – – – – – – – – – – – 2014 £m 1 (401) 33 14 (353) Total £m (476) 27 13 – (43) (479) 94 – – (3) 35 (353) 23 409 (441) (344) At 31 March 2013 £m (12) (521) 49 5 (479) 2014 £m 1 At 31 March 2013 £m 2 Trade guarantees have been given in the normal course of business by the Group at both 31 March 2014 and 31 March 2013. These are in respect of Revenue and Customs, ECGD recourse agreements, letters of credit and tender and performance bonds. Sale of EU Sugars As previously announced, American Sugar Holdings (ASR) raised a number of claims totalling in the region of £40 million that it believes it has under the Share and Business Sale Agreement relating to its acquisition of the Group’s EU Sugars business in September 2010. These claims in large part relate to the turbulence in the supply of raw sugar to the EU during the period prior to closing and the increase in certain rolling re-export commitments of the business. Some, but not all, of these issues were considered in the expert adjudication on the closing accounts in which, as noted in the Annual Report 2012, the expert strongly supported Tate & Lyle’s position. ASR (through its subsidiary T&L Sugars Limited) has now commenced formal proceedings in respect of these claims which the Group intends to defend vigorously. Other claims The Group is subject to claims and litigation generally arising in the ordinary course of its business, some of which are for substantial amounts. All such actions are strenuously defended but provision is made for liabilities that are considered likely to arise on the basis of current information and legal advice and after taking into account the Group’s insurance arrangements. While there is always uncertainty as to the outcome of any claim or litigation, it is not expected that claims and litigation existing at 31 March 2014 will have a material adverse effect on the Group’s ﬁnancial position. Tate & Lyle PLC Annual Report 2014 | 125 i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | CONTINUED 36 Commitments Capital commitments Commitments for the purchase of intangible assets Commitments for the purchase of property, plant and equipment Total 2014 £m 1 39 40 At 31 March 2013 £m 6 21 27 Operating lease arrangements Operating lease payments represent rentals payable by the Group for certain of its land, buildings, plant and equipment. Certain operating lease agreements allow for renewal at the end of the original term at the option of the Group. At the period-end date, the Group has outstanding commitments under non-cancellable operating leases which fall due as follows: Within one year Between one year and ﬁve years After ﬁve years Total 2014 £m 21 68 85 174 At 31 March 2013 £m 24 77 88 189 37 Acquisitions and disposals Year ended 31 March 2014 Acquisitions On 17 May 2013, the Group acquired a 100% equity interest in Biovelop, an early-stage Swedish manufacturer of oat beta glucan. The acquisition broadened the Group’s health and wellness offering and added a clean-label, speciality ﬁbre with strong health claims to its existing corn-based portfolio. On 8 October 2013, the Group acquired a 51% equity interest in Jiangsu Howbetter Food Co., Ltd, a leading Food Systems business in China. The new venture, Tate & Lyle Howbetter, provides the Group with local infrastructure and capabilities to accelerate the growth of its Food Systems business in China. At the acquisition date, the Group entered into put and call option arrangements whereby at a future date it could be required to purchase, or could itself opt to purchase, the 49% non-controlling interest in Tate & Lyle Howbetter for an amount in cash based on the future results of that business. The Group initially recognised a liability of £2 million in relation to the put option and a corresponding debit to equity attributable to owners of the Company. Goodwill of £10 million was recognised on business combinations during the year, which was determined as follows: Cash consideration Non-controlling interests (share of net assets acquired) Less: Net assets acquired Goodwill Cash ﬂows: Cash consideration paid Cash outﬂow on acquisitions 2014 £m 15 1 (6) 10 15 15 Goodwill recognised during the year was attributable to the broadening of the Group’s product offering and other synergies expected to be achieved with the Group’s existing businesses. None of the goodwill recognised during the year is expected to be deductible for tax purposes. Businesses acquired during the year contributed revenue of £2 million and a loss before tax of £2 million to the Group’s results. Had they been acquired at the beginning of the year, their contribution to the Group’s results would not have been materially different. Acquisition-related costs were less than £1 million. Disposal On 31 May 2013, the on-sale by the acquirer of Orsan China (a monosodium glutamate producer in which Tate & Lyle held a stake that was sold in 2009) resulted in a one-off operating gain of £3 million. 126 | Tate & Lyle PLC Annual Report 2014 37 Acquisitions and disposals continued Year ended 31 March 2013 Disposals Continuing operations Sucromiles On 1 August 2012, the Group completed the disposal of its share in Sucromiles SA (Sucromiles), its Colombian citric acid joint venture, to its former joint-venture partner, Organizacion Ardila Lulle, for consideration of £20 million. After transferring a cumulative currency translation gain to the income statement, there was a gain on disposal of £8 million that was recognised as an exceptional item within continuing operations. Discontinued operations Vietnam Sugars On 29 June 2012, the Group completed the sale of Vietnam Sugar to TH Milk Food Stock Company for consideration of £45 million. After transferring a cumulative currency translation gain to the income statement, there was a gain on disposal of £21 million that was recognised as an exceptional item within discontinued operations. Molasses On 20 March 2013, the Group completed the sale of land and buildings with book value of £2 million relating to the former Molasses business to W&R Barnett Ltd. Cash consideration totalled £7 million resulting in a gain on disposal of £5 million that was recognised as an exceptional item within discontinued operations. EU Sugars During the prior year, the Group received £2 million in respect of a working capital settlement from its disposal of the EU Sugars business to American Sugar Reﬁning in September 2010. No change to the loss on disposal was recorded. Other During the prior year, the Group disposed of the remaining assets of its Israel Sugar business, resulting in a gain of £2 million, which was offset by losses on the disposal of other assets relating to the Group’s discontinued Sugar operations. A net gain of £34 million was recognised on disposals of businesses during the prior year, which may be analysed as follows: i S t r a t e g c R e p o r t G o v e r n a n c e Goodwill and intangible assets Property, plant and equipment Derivative ﬁnancial instruments – assets Inventories Trade and other receivables Trade and other payables Derivative ﬁnancial instruments – liabilities Cash and cash equivalents Taxation Total assets disposed Non-controlling interests disposed Net assets disposed Total consideration Other items: – Disposal costs – Currency translation differences transferred to proﬁt or loss Net gain on disposal Reported as: – Exceptional items (Note 7) – Non-exceptional items: – Gain on disposal – Loss on disposal Total Cash ﬂows: – Cash consideration – Cash disposed Net cash inﬂow on disposals Continuing operations £m – 3 – 9 9 (6) – 5 – 20 – 20 Discontinued operations £m 2 20 4 10 13 (3) (4) 22 (1) 63 (25) 38 20 – 8 8 8 – – 8 20 (5) 15 61 (3) 6 26 26 2 (2) 26 58 (22) 36 2013 Total £m 2 23 4 19 22 (9) (4) 27 (1) 83 (25) 58 81 (3) 14 34 34 2 (2) 34 78 (27) 51 Tate & Lyle PLC Annual Report 2014 | 127 i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | CONTINUED 38 Assets classiﬁed as held for sale At 31 March 2013, the Group’s investment in Mitr Lao Sugar Company was classiﬁed as held for sale. It was sold during the year for £1 million which resulted in no gain or loss. 39 Related party disclosures Identity of related parties The Group has related party relationships with its subsidiaries, joint ventures and associates, the Group’s pension schemes and with key management being its directors and executive ofﬁcers. No related party relationships with close family members of the Group’s key management existed in the current or comparative year. Subsidiaries, joint ventures and associates Transactions entered into by the Company with subsidiaries and between subsidiaries as well as the resultant balances of receivables and payables are eliminated on consolidation and are not required to be disclosed. The Group’s share of transactions entered into by the Company and its subsidiaries with joint ventures and between joint ventures as well as the Group’s share of the resultant balances of receivables and payables are eliminated on consolidation. For transactions and balances with joint ventures, there is an element which is not eliminated on consolidation relating to the external joint-venture partner which is required to be disclosed. Transactions and balances with and between joint ventures are as shown below. There are no such transactions with associates. Continuing operations Sales of goods and services – to joint ventures Purchases of goods and services – from joint ventures Receivables – due from joint ventures Payables – due to joint ventures Financing – loans to joint ventures – deposits from joint ventures The Group had no material related party transactions containing unusual commercial terms. The Group provides guarantees in respect of banking facilities of a joint venture totalling £9 million (2013 – £9 million). Key management compensation Key management compensation is disclosed in Note 9. Year ended 31 March 2013 £m 2014 £m 154 304 2014 £m 10 21 8 12 174 279 At 31 March 2013 £m 15 21 20 53 128 | Tate & Lyle PLC Annual Report 2014 40 Currency exchange rates The principal exchange rates used to translate the results, assets and liabilities and cash ﬂows of the Group’s foreign operations into pounds sterling were as follows: Average rate US dollar Euro Year-end rate US dollar Euro 41 Principal subsidiaries, joint ventures and associates Subsidiaries based in the United Kingdom1 G.C. Hahn and Company Limited Tate & Lyle Industries Limited Tate & Lyle International Finance PLC2 Tate & Lyle Investments Limited2 Tate & Lyle LLC 1 Registered in England and Wales, except Tate & Lyle LLC which is registered in Delaware, USA. 2 Direct subsidiaries of Tate & Lyle PLC. Type of business Blending Holding company In-house treasury company Holding company Holding company Year ended 31 March 2013 £1 = 2014 £1 = 1.59 1.19 2014 £1 = 1.67 1.21 1.57 1.24 At 31 March 2013 £1 = 1.52 1.18 Percentage of equity attributable to Tate & Lyle PLC 100 100 100 100 100 i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Tate & Lyle PLC Annual Report 2014 | 129 Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | CONTINUED 41 Principal subsidiaries, joint ventures and associates continued Subsidiaries operating overseas Country of incorporation or registration Argentina Company Tate & Lyle Argentina SA Australia Belgium Bermuda Brazil Chile China France Germany Gibraltar Italy Mexico Morocco Netherlands Tate & Lyle ANZ Pty Limited Tate & Lyle Services (Belgium) N.V. Tate & Lyle Management & Finance Limited Tate & Lyle Brasil S.A.1 G.C. Hahn & Co. do Estabilizantes e Tecnologia para Alimentos Ltda. Tate & Lyle Chile Commercial Ltda Tate & Lyle Howbetter Co. Ltd1 Tate & Lyle Trading (Shanghai) Co. Ltd1 G.C. Hahn & Co. Food Stabiliser Business (Shanghai) Ltd.1 G.C. Hahn & Cie. S.A.R.L. Tate & Lyle Ingredients France S.A.S. G.C. Hahn & Co. Stabilisierungstechnik GmbH G.C. Hahn & Co. Cooperationsgeschaft mbH Tate & Lyle Insurance (Gibraltar) Limited Tate & Lyle Italia S.P.A. Tate & Lyle Mexico, S. de R.L.de C.V. Tate & Lyle Morocco SA Nederlandse Glucose Industrie B.V. Tate & Lyle Netherlands B.V. Poland Singapore South Africa G.C. Hahn & Co. Technika stabilizowania Sp.z.o.o. Tate & Lyle Global Shared Services Sp.z.o.o Tate & Lyle Singapore Pte Ltd Tate and Lyle South Africa Proprietary Limited Spain Sweden USA G.C. Hahn Estabilizantes y Tecnologia para Alimentos Tate & Lyle Sweden AB Staley Holdings LLC Tate & Lyle Custom Ingredients LLC Tate & Lyle Finance LLC TLHUS, Inc. Tate & Lyle Ingredients Americas LLC Tate & Lyle Sucralose LLC TLI Holding LLC 1 Non-coterminous year end. Joint ventures Country of incorporation or registration Bulgaria Hungary Mexico Netherlands Romania Slovakia Turkey USA Company Amylum Bulgaria EAD1,2 Hungrana Kft1,2 Almidones Mexicanos SA2 Eaststarch C.V. Amylum Romania S.R.L.1 Amylum Slovakia, spol s.r.o.1 Amylum Nisasta Sanayi Ve Ticaret Anonim Sireketi1 DuPont Tate & Lyle Bio Products Company, LLC Type of business Cereal sweeteners and starches, sucralose distribution Sucralose distribution and blending Holding company Management and ﬁnance Citric acid, sucralose distribution, cereal sweeteners and starches Blending Cereal sweeteners and starches, sucralose distribution Blending Sucralose distribution, cereal sweeteners and starches Blending Blending Research and development centre Blending Holding company Reinsurance Blending Sucralose distribution Cereal sweeteners and starches Holding company Cereal sweeteners and starches, sucralose distribution Blending Holding company High-intensity sweeteners Blending, cereal sweeteners and starches Blending Oat beta glucan Holding company Blending In-house banking Holding company Cereal sweeteners and starches High-intensity sweeteners In-house banking Type of business Cereal sweeteners and starches Cereal sweeteners and starches Cereal sweeteners and starches Holding company Cereal sweeteners and starches Cereal sweeteners and starches Cereal sweeteners and starches Industrial ingredients Percentage of equity attributable to Tate & Lyle PLC 100 100 100 100 100 100 100 51 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 (100) (50) Percentage of equity attributable to Tate & Lyle PLC3 50 25 50 50 50 50 50 50 (100) (100) (100) 1 Share capital held by Eaststarch C.V. 2 Non-coterminous year end. 3 The proportion of shares held by Tate & Lyle PLC, its subsidiaries, joint ventures and associates is shown in brackets where it is different from the percentage of equity attributable to Tate & Lyle PLC. 130 | Tate & Lyle PLC Annual Report 2014 41 Principal subsidiaries, joint ventures and associates continued Associate Country of incorporation or registration Thailand Company Tapioca Development Corporation1 Type of business Starch production 1 Indirect associate of Tate & Lyle PLC. Percentage of equity attributable to Tate & Lyle PLC 33.3 The results, assets and liabilities and cash ﬂows of those entities whose ﬁnancial years are not coterminous with that of the Group are consolidated or proportionately consolidated in the Group’s ﬁnancial statements on the basis of management accounts for the year ended 31 March. A full listing of the Company’s subsidiaries, joint ventures and associates is available from the Company Secretary at the Company’s registered ofﬁce at 1 Kingsway, London WC2B 6AT. 42 Reconciliation of adjusted performance measures For the reasons set out in Note 1, Tate & Lyle presents adjusted performance measures including adjusted operating proﬁt, adjusted proﬁt before tax and adjusted earnings per share. For periods presented, these adjusted performance measures exclude, where relevant, exceptional items, the amortisation of acquired intangible assets, net retirement beneﬁt interest, tax on those adjustments and an exceptional tax item in discontinued operations. The following table shows the reconciliation of the adjusted performance measures to the most directly comparable measures presented in accordance with IFRS. £m (unless otherwise stated) Continuing operations Sales Operating proﬁt Net ﬁnance expense Proﬁt before tax Income tax expense Proﬁt for the year Basic earnings per share Diluted earnings per share Effective tax rate Discontinued operations Sales Operating proﬁt/(loss) Net ﬁnance expense Proﬁt/(loss) before tax Income tax credit Proﬁt/(loss) for the year Non-controlling interests Proﬁt/(loss) attributable to shareholders Basic earnings/(loss) per share Diluted earnings/(loss) per share Total operations Sales Operating proﬁt Net ﬁnance expense Proﬁt before tax Income tax expense Proﬁt for the year Non-controlling interests Proﬁt attributable to shareholders Basic earnings per share Diluted earnings per share Effective tax rate * See Note 43. Reported Year ended 31 March 2014 Adjusting items Adjusted 3 147 325 (35) 290 (45) 245 52.8p 52.1p 15.6% – – – – 28 28 – 28 – 24 8 32 (15) 17 3.7p 3.6p – – – – (28) (28) – (28) 6.0p 5.9p (6.0)p (5.9)p 3 147 325 (35) 290 (17) 273 – 273 58.8p 58.0p 5.9% – 24 8 32 (43) (11) – (11) (2.3)p (2.3)p 3 147 349 (27) 322 (60) 262 56.5p 55.7p 18.5% – – – – – – – – – – 3 147 349 (27) 322 (60) 262 – 262 56.5p 55.7p 18.5% Reported 3 256 334 (33) 301 (46) 255 54.9p 53.8p 15.3% 10 18 – 18 – 18 (1) 17 3.7p 3.6p 3 266 352 (33) 319 (46) 273 (1) 272 58.6p 57.4p 14.4% Restated* Year ended 31 March 2013 Adjusting items Adjusted – 22 4 26 (13) 13 2.8p 2.8p – (26) – (26) – (26) – (26) (5.6)p (5.5)p – (4) 4 – (13) (13) – (13) (2.8)p (2.7)p 3 256 356 (29) 327 (59) 268 57.7p 56.6p 18.0% 10 (8) – (8) – (8) (1) (9) (1.9)p (1.9)p 3 266 348 (29) 319 (59) 260 (1) 259 55.8p 54.7p 18.5% Tate & Lyle PLC Annual Report 2014 | 131 i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Financial Statements NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS | CONTINUED 43 Adoption of IAS 19 (Revised 2011) ‘Employee Beneﬁts’ At the beginning of the year, the Group adopted IAS 19 (Revised 2011) Employee Beneﬁts, which changed the way it accounts for deﬁned beneﬁt pension and other retirement beneﬁt plans. IAS 19 (Revised 2011) had no effect on the Group’s ﬁnancial position but it changed the allocation of movements in the net deﬁcits or surpluses on the plans within and between the income statement and other comprehensive income. In previous years, the Group’s income statement reﬂected an expected return on the plan assets and an interest cost on the beneﬁt obligation. Differences between those assumptions and the actual outcomes were included in the net actuarial gain or loss that was recognised in other comprehensive income. Under the revised standard, the Group’s income statement reﬂects a net interest cost or credit calculated by applying the discount rate used in measuring the present value of the beneﬁt obligation to the deﬁcit or surplus on the plan. Essentially, therefore, in the Group’s income statement the expected return on the plan assets has been replaced by an interest credit. Differences between the actual return on the plan assets and the interest credit are recognised on a separate line in other comprehensive income. Asset management costs continue to be deducted in arriving at the actual return on plan assets. Plan administration costs that were previously deducted in arriving at the actual return on the plan assets are now charged to operating proﬁt. Comparative amounts for 2013 have been restated on a consistent basis. An analysis of the effect of IAS 19 (Revised 2011) on the Group’s results for 2014 and 2013 is presented below. £m unless otherwise stated Continuing operations Sales Operating proﬁt Finance income Finance expense Proﬁt before tax Income tax expense Proﬁt for the year from continuing operations Proﬁt for the year from discontinued operations Proﬁt for the year Other comprehensive expense Total comprehensive income Continuing operations Basic earnings per share Diluted earnings per share Total operations Basic earnings per share Diluted earnings per share Year ended 31 March 2014 Year ended 31 March 2013 Under previous policy Effect of IAS 19R As reported As previously reported Effect of IAS 19R As restated 3 147 327 2 (29) 300 (49) 251 28 279 (119) 160 54.1p 53.4p 60.1p 59.3p – (2) – (8) (10) 4 (6) – (6) 6 – (1.3)p (1.3)p (1.3)p (1.3)p 3 147 325 2 (37) 290 (45) 245 28 273 (113) 160 52.8p 52.1p 58.8p 58.0p 3 256 336 3 (30) 309 (49) 260 18 278 (149) 129 56.0p 54.9p 59.7p 58.5p – (2) (2) (4) (8) 3 (5) – (5) 5 – (1.1)p (1.1)p (1.1)p (1.1)p 3 256 334 1 (34) 301 (46) 255 18 273 (144) 129 54.9p 53.8p 58.6p 57.4p 132 | Tate & Lyle PLC Annual Report 2014 44 Future adoption of IFRS 11 ‘Joint Arrangements’ With effect from 1 April 2014, the Group adopted IFRS 11 Joint Arrangements which will change signiﬁcantly the accounting for its interests in joint ventures. In these ﬁnancial statements, the Group’s interests in joint ventures are accounted for by proportionate consolidation, whereby the Group’s share of the income and expenses, assets and liabilities and cash ﬂows of joint ventures are combined on a line-by-line basis with those of Tate & Lyle PLC and its subsidiaries. IFRS 11 prohibits the use of proportionate consolidation and requires that joint ventures are accounted for using the equity method of accounting. Under the equity method of accounting, the Group’s share of the after tax proﬁts and losses of the joint ventures will be shown on one line of the consolidated income statement, its share of their net assets will be shown on one line of the consolidated statement of ﬁnancial position and the consolidated statement of cash ﬂows will reﬂect cash ﬂows between the Group and the joint ventures (investments in and dividends from joint ventures) within cash ﬂows from investing activities. While these changes will not affect the Group’s earnings or its net assets, they will affect many of the individual line items presented in the Group’s ﬁnancial statements. Comparative amounts for 2014 will be restated on a consistent basis in the Group’s ﬁnancial statements for future periods. We present below an analysis of the effect of IFRS 11 on selected line items. As currently reported £m Elimination of proportionate consolidation £m Adoption of equity accounting £m As will be restated £m Consolidated proﬁt or loss and comprehensive income Year ended 31 March 2014 Continuing operations Sales Operating proﬁt Finance income Finance expense Share of proﬁt after tax of joint ventures Proﬁt before tax Income tax expense Proﬁt from continuing operations Proﬁt from discontinued operations Proﬁt for the year Other comprehensive expense Total comprehensive income Consolidated cash ﬂows Year ended 31 March 2014 Net cash inﬂow from operating activities Net cash outﬂow from investing activities Net cash outﬂow from ﬁnancing activities Net cash inﬂow Consolidated assets and liabilities At 31 March 2014 Non-current assets Current assets Total assets Total equity Non-current liabilities Current liabilities Total equity and liabilities 3 147 325 2 (37) – 290 (45) 245 28 273 (113) 160 384 (137) (197) 50 1 319 1 208 2 527 1 050 718 759 2 527 (393) (74) – – – (74) 13 (61) – (61) 22 (39) (98) 116 – 18 (137) (146) (283) (224) (6) (53) (283) – – – – 61 61 – 61 – 61 (22) 39 – – – – 224 – 224 224 – – 224 2 754 251 2 (37) 61 277 (32) 245 28 273 (113) 160 286 (21) (197) 68 1 406 1 062 2 468 1 050 712 706 2 468 Going forward, the Group will present segment and adjusted ﬁnancial information on a proportionate consolidation basis since this reﬂects the management of our joint ventures on an integrated basis with the Group’s subsidiaries. Tate & Lyle PLC Annual Report 2014 | 133 i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Financial Statements INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF TATE & LYLE PLC Responsibilities for the ﬁnancial statements and the audit Our responsibilities and those of the Directors As explained more fully in the Directors’ Statement of Responsibilities set out on page 73, the Directors are responsible for the preparation of the Parent Company ﬁnancial statements and for being satisﬁed that they give a true and fair view. Our responsibility is to audit and express an opinion on the Parent Company ﬁnancial statements in accordance with applicable law and ISAs (UK & Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Other Matter We have reported separately on the Group ﬁnancial statements of Tate & Lyle PLC for the year ended 31 March 2014. John Waters (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London 28 May 2014 (a) The maintenance and integrity of the Tate & Lyle website (www.tateandlyle.com) is the responsibility of the Directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. (b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Report on the Parent Company ﬁnancial statements Our opinion In our opinion the Parent Company ﬁnancial statements, deﬁned below: (cid:116)(cid:1) give a true and fair view of the state of the Parent Company’s affairs as at 31 March 2014; (cid:116)(cid:1) have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and (cid:116)(cid:1) have been prepared in accordance with the requirements of the Companies Act 2006. This opinion is to be read in the context of what we say in the remainder of this report. What we have audited The Parent Company ﬁnancial statements, which are prepared by Tate & Lyle PLC, comprise: (cid:116)(cid:1) the Parent Company balance sheet as at 31 March 2014; (cid:116)(cid:1) the notes to the Parent Company ﬁnancial statements, which include a summary of signiﬁcant accounting policies and other explanatory information. The ﬁnancial reporting framework that has been applied in their preparation comprises applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). In applying the ﬁnancial reporting framework, the Directors have made a number of subjective judgements, for example in respect of signiﬁcant accounting estimates. In making such estimates, they have made assumptions and considered future events. Certain disclosures required by the ﬁnancial reporting framework have been presented elsewhere in the Annual Report 2014 (“the Annual Report”) rather than in the notes to the Parent Company ﬁnancial statements. These are cross-referenced from the Parent Company ﬁnancial statements and are identiﬁed as audited. What an audit of ﬁnancial statements involves We conducted our audit in accordance with International Standards on Auditing (UK & Ireland) (“ISAs (UK & Ireland)”). An audit involves obtaining evidence about the amounts and disclosures in the ﬁnancial statements sufﬁcient to give reasonable assurance that the ﬁnancial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: (cid:116)(cid:1) whether the accounting policies are appropriate to the Parent Company’s circumstances and have been consistently applied and adequately disclosed; (cid:116)(cid:1) the reasonableness of signiﬁcant accounting estimates made by the Directors; and (cid:116)(cid:1) the overall presentation of the ﬁnancial statements. In addition, we read all the ﬁnancial and non-ﬁnancial information in the Annual Report to identify material inconsistencies with the audited Parent Company ﬁnancial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinions on other matters prescribed by the Companies Act 2006 In our opinion: (cid:116)(cid:1) The information given in the Strategic Report and the Directors’ Report for the ﬁnancial year for which the Parent Company ﬁnancial statements are prepared is consistent with the Parent Company ﬁnancial statements. (cid:116)(cid:1) The part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006. Other matters on which we are required to report by exception Adequacy of accounting records and information and explanations received Under the Companies Act 2006 we are required to report to you if, in our opinion: (cid:116)(cid:1) we have not received all the information and explanations we require for our audit; or (cid:116)(cid:1) adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or (cid:116)(cid:1) the Parent Company ﬁnancial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns. We have no exceptions to report arising from this responsibility. Directors’ remuneration Under the Companies Act 2006 we are required to report to you if, in our opinion, certain disclosures of Directors’ remuneration speciﬁed by law have not been made. We have no exceptions to report arising from this responsibility. Other information in the Annual Report Under ISAs (UK & Ireland), we are required to report to you if, in our opinion, information in the Annual Report is: (cid:116)(cid:1) materially inconsistent with the information in the audited Parent Company ﬁnancial statements; or (cid:116)(cid:1) apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Parent Company acquired in the course of performing our audit; or (cid:116)(cid:1) is otherwise misleading. We have no exceptions to report arising from this responsibility. 134 | Tate & Lyle PLC Annual Report 2014 PARENT COMPANY BALANCE SHEET Fixed assets Tangible assets Investments in subsidiary undertakings Investment in associate Total Current assets Debtors Cash at bank Creditors – amounts falling due within one year Net current (liabilities)/assets Total assets less current liabilities Creditors – amounts falling due after more than one year Net assets Capital and reserves Called up share capital Share premium account Capital redemption reserve Proﬁt and loss account Total shareholders’ funds Notes 2 3 4 5 6 7 10 11 11 11 i S t r a t e g c R e p o r t G o v e r n a n c e 2014 £m 13 999 1 1 013 1 501 1 1 502 (1 533) (31) 982 (2) 980 117 406 8 449 980 At 31 March 2013 £m 9 1 006 1 1 016 1 535 – 1 535 (1 407) 128 1 144 (2) 1 142 117 406 8 611 1 142 The Parent Company’s ﬁnancial statements on pages 135 to 140 were approved by the Board of Directors on 28 May 2014 and signed on its behalf by: Javed Ahmed, Tim Lodge Directors The Notes on pages 136 to 140 form part of these financial statements. i F n a n c a i l Tate & Lyle PLC Registered number: 76535 S t a t e m e n t s U s e f u l I n f o r m a t i o n Tate & Lyle PLC Annual Report 2014 | 135 Financial Statements NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS 1 Principal accounting policies Accounting basis Tate & Lyle PLC (the Company) is a public limited company incorporated and domiciled in the United Kingdom. The Company’s ordinary shares are listed on the London Stock Exchange. The Company’s ﬁnancial statements are prepared under the historical cost convention in accordance with the Companies Act 2006 and applicable UK accounting standards. The Company’s principal accounting policies are unchanged compared with the year ended 31 March 2013. For the reasons set out on page 28, the Company’s ﬁnancial statements are prepared on a going concern basis. As permitted by Section 408(2) of the Companies Act 2006, the Company’s proﬁt and loss account and statement of total recognised gains and losses are not presented in these ﬁnancial statements. Proﬁt and loss account disclosures are presented in Note 14. Tangible ﬁxed assets Tangible ﬁxed assets are stated at historical purchase cost less accumulated depreciation. Cost includes the original purchase price of the asset and the costs attributable to bringing the asset to its working condition for its intended use. Depreciation is provided on a straight-line basis to write off the cost of tangible ﬁxed assets over their estimated useful life. Tangible ﬁxed assets comprise furniture, ﬁxtures, ﬁttings and computer software which are depreciated over a period of ﬁve to ten years. Impairment reviews are undertaken if there are indications that the carrying values may not be recoverable. Investments An undertaking is regarded as a subsidiary undertaking if the Company has control over its operating and ﬁnancial policies. An undertaking is regarded as an associate if the Company holds a participating interest and has signiﬁcant inﬂuence, but not control, over its operating and ﬁnancial policies. Signiﬁcant inﬂuence generally exists where the Company holds more than 20% and less than 50% of the shareholders’ voting rights. Investments in subsidiary undertakings and in associates represent interests that are directly owned by the Company and are stated at cost less amounts written-off for any permanent diminution in value. Amounts owed by or to subsidiary undertakings Amounts owed by or to subsidiary undertakings are stated at amortised cost using the effective interest method. Amounts owed by subsidiary undertakings are written off where deemed unrecoverable. Research and development All expenditure on research and development is charged to the proﬁt and loss account when incurred. 136 | Tate & Lyle PLC Annual Report 2014 Leases Operating lease payments are charged to the proﬁt and loss account on a straight-line basis over the lease term. Retirement beneﬁts The Company participates in a deﬁned beneﬁt pension scheme in which certain of its subsidiaries also participate. The Company, which is not the principal employer, cannot identify its share of the underlying assets and liabilities of the scheme. Accordingly, as permitted by FRS 17 Retirement Beneﬁts, the Company accounts for the scheme as a deﬁned contribution scheme and charges its contributions to the scheme to the proﬁt and loss account in the periods in which they fall due. Deferred tax Deferred tax is recognised on a discounted full provision basis on timing differences between the recognition of gains and losses in the ﬁnancial statements and their recognition for tax purposes that have arisen but not reversed at the balance sheet date. Deferred tax is not recognised on permanent differences or on timing differences arising on unremitted proﬁts of overseas subsidiaries. Deferred tax assets are recognised only to the extent that it is considered more likely than not that there will be sufﬁcient future taxable proﬁts to permit tax relief of the underlying timing differences. Foreign currency translation Transactions denominated in foreign currencies are translated into pounds sterling at the exchange rate ruling on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated into pounds sterling at the exchange rate ruling on the balance sheet date. Currency translation differences are credited or charged to the proﬁt and loss account. Non-monetary assets denominated in foreign currencies are not usually retranslated. An investment in an overseas subsidiary undertaking or associate is, however, retranslated if it is ﬁnanced by foreign currency borrowings and the borrowings are designated as a hedging instrument in relation to the investment. If this is the case, the resulting translation gain or loss on the investment is recognised in the proﬁt and loss account where, to the extent that the hedge is effective, it will be offset by the translation gain or loss on the related borrowings. Share-based incentives As described in Note 26 to the Group ﬁnancial statements, the Company operates share- based incentive plans under which it grants awards over its ordinary shares to its own employees and to those of its subsidiary undertakings. All of the awards granted under the existing plans are classiﬁed as equity-settled awards. For awards granted to its own employees, the Company recognises an expense that is based on the fair value of the awards measured at the grant date using the Black-Scholes option pricing formula. Fair value reﬂects any market performance conditions and all non-vesting conditions. Adjustments are made to the compensation expense to reﬂect actual and expected forfeitures due to failure to satisfy service conditions or non-market performance conditions. Generally, the expense is recognised in the proﬁt and loss account on a straight-line basis over the vesting period and a corresponding credit is recognised in the proﬁt and loss account reserve. For awards granted to employees of its subsidiary undertakings, the Company recognises a capital contribution to the subsidiary and a corresponding credit to equity calculated on the same basis as the expense that it recognises for awards to its own employees. Provisions Provisions are recognised when the Company has a present obligation as a result of a past event, it is probable that a transfer of economic beneﬁts will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Guarantees From time to time, the Company provides guarantees to third parties in respect of the indebtedness of its subsidiary undertakings and joint ventures. The Directors consider these guarantees to be insurance arrangements and, therefore, the Company recognises a liability in respect of such guarantees only in the event that it becomes probable that the guarantee will be called upon and the Company will be required to make a payment to the third party. Own shares Own shares represent the Company’s ordinary shares that are held by the Company in treasury or by a sponsored Employee Beneﬁt Trust that are used to satisfy awards made under the Company’s share-based incentive plans. When own shares are acquired, the cost of purchase in the market is deducted from the proﬁt and loss account reserve. Gains or losses on the subsequent transfer or sale of own shares are also recognised in the proﬁt and loss account reserve. Dividends Dividends on the Company’s ordinary shares are recognised when they have been appropriately authorised and are no longer at the Company’s discretion. Accordingly, interim dividends are recognised when they are paid and ﬁnal dividends are recognised when they are declared following approval by shareholders at the Company’s AGM. Dividends are recognised as an appropriation of shareholders’ funds. Details of dividends paid and proposed are set out in Note 12. 2 Tangible ﬁxed assets Cost At 1 April 2013 Additions Transfer to a subsidiary At 31 March 2014 Accumulated depreciation At 1 April 2013 Charge for the year At 31 March 2014 Net book value at 31 March 2013 Net book value at 31 March 2014 3 Investments in subsidiary undertakings Cost At 1 April 2013 Currency translation differences At 31 March 2014 Impairment At 1 April 2013 Provision for impairment Currency translation differences At 31 March 2014 Net book value at 31 March 2013 Net book value at 31 March 2014 i S t r a t e g c R e p o r t G o v e r n a n c e £m 12 9 (4) 17 3 1 4 9 13 £m 1 565 (2) 1 563 559 7 (2) 564 1 006 999 A list of the Company’s principal subsidiaries is presented in Note 41 of the Group ﬁnancial statements. The provision for impairment during the year reﬂects an adjustment to the recoverable amount of the Company’s investment in Tate & Lyle Ventures Ltd and Tate & Lyle Services Belgium NV. The directors believe that the carrying value of the investments is supported by the value of their underlying net assets. During the year, the Company made capital contributions to subsidiary undertakings in respect of share-based incentive awards granted to their employees of £nil (2013 – £7 million). 4 Investment in associate The Company holds a 16.6% interest of ordinary shares in Tapioca Development Corporation, a company incorporated in Thailand. 5 Debtors Due within one year Amounts owed by subsidiary undertakings Other debtors Total 2014 £m 1 495 6 1 501 At 31 March 2013 £m 1 531 4 1 535 The effective interest rate applicable to amounts owed by subsidiary undertakings at 31 March 2014 is 2.1% (2013 – 2.3%). Amounts owed by subsidiary undertakings are receivable on demand. There is no security for non-trading amounts. Tate & Lyle PLC Annual Report 2014 | 137 i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Financial Statements NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS | CONTINUED 6 Creditors – amounts falling due within one year Amounts owed to subsidiary undertakings Other creditors Accruals and deferred income Total 2014 £m 1 518 6 9 1 533 At 31 March 2013 £m 1 392 5 10 1 407 The effective interest rate applicable to amounts owed to subsidiary undertakings at 31 March 2014 was 2.2% (2013 – 2.3%). Amounts owed to subsidiary undertakings are repayable on demand. There is no security for non-trading amounts. 7 Creditors – amounts falling due after more than one year Preference shares Total 2014 £m 2 2 At 31 March 2013 £m 2 2 On a return of capital on a winding-up, the holders of 6.5% cumulative preference shares shall be entitled to £1 per share, in preference to all other classes of shareholders. Holders of these shares are entitled to vote at meetings, except on the following matters: any question as to the disposal of the surplus proﬁts after the dividend on these shares has been provided for; the election of directors; their remuneration; any agreement between the directors and the Company; or the alteration of the Articles of Association dealing with any such matters. 8 Contingent liabilities At 31 March 2014, the Company had given guarantees in respect of loans and overdraft facilities of certain of its subsidiaries and joint ventures totalling £1,535 million (2013 – £1,645 million), against which amounts drawn totalled £859 million (2013 – £938 million). Other trade guarantees have been given in the normal course of business by Tate & Lyle PLC in respect of Revenue and Customs, ECGD recourse agreements, letters of credit, and tender and performance bonds. 9 Financial commitments Operating lease rentals payable during the year were £1 million (2013 – £1 million). Operating lease commitments for land and buildings fall due as follows: Within one year Later than one year and no later than ﬁve years After ﬁve years Total At 31 March 2014, the Company had outstanding capital commitments of £nil (2013 – £5 million). 2014 £m 1 6 11 18 At 31 March 2013 £m 1 6 12 19 138 | Tate & Lyle PLC Annual Report 2014 10 Called up share capital Allotted, called up and fully paid equity share capital At 1 April Allotted under share option schemes At 31 March 11 Reconciliation of movements in shareholders’ funds At 1 April 2012 Year ended 31 March 2013 Proﬁt for the year Proceeds from shares issued Purchase of own shares Share-based payments Ordinary dividends paid (Note 12) At 31 March 2013 Year ended 31 March 2014 Loss for the year Purchase of own shares Share-based payments Ordinary dividends paid (Note 12) At 31 March 2014 Year ended 31 March 2014 Year ended 31 March 2013 Shares 468 192 900 9 983 468 202 883 £m 117 – 117 Shares 468 160 519 32 381 468 192 900 Called up share capital £m 117 Share premium account £m 406 Capital redemption reserve £m 8 Profit and loss account £m 525 – – – – – 117 – – – – 117 – – – – – 406 – – – – 406 – – – – – 8 – – – – 8 212 1 (23) 13 (117) 611 (11) (29) 2 (124) 449 £m 117 – 117 Total £m 1 056 212 1 (23) 13 (117) 1 142 (11) (29) 2 (124) 980 i S t r a t e g c R e p o r t G o v e r n a n c e At 31 March 2014, the proﬁt and loss account reserve was stated after a deduction of £37 million (2013 – £29 million) for the cumulative cost of own shares held indirectly in an Employee Beneﬁt Trust or directly as treasury shares in relation to share-based compensation plans. Further information on own shares is presented in Note 24 to the Group ﬁnancial statements. Ordinary shares carry the right to participate in dividends and each share entitles the holder to one vote on matters requiring shareholder approval except for ordinary shares held in the Employee Beneﬁt Trust or as treasury shares. The amount available for the payment of dividends by the Company at 31 March 2014 was £449 million (2013 – £611 million). 12 Dividends Dividends on ordinary shares in respect of the ﬁnancial year: Per ordinary share: – interim dividend paid – ﬁnal dividend proposed Total dividend Year ended 31 March 2013 pence 2014 pence 7.8p 19.8p 27.6p 7.4p 18.8p 26.2p The Directors propose a ﬁnal dividend for the ﬁnancial year of 19.8p per ordinary share that, subject to approval by shareholders, will be paid on 1 August 2014 to shareholders who are on the Register of Members on 27 June 2014. Final dividend paid relating to the prior year Interim dividend paid relating to the year Total dividend paid Year ended 31 March 2013 £m 83 34 117 2014 £m 88 36 124 Based on the number of ordinary shares outstanding at 31 March 2014, the ﬁnal dividend for the ﬁnancial year is expected to amount to £92 million. 13 Related parties As permitted by FRS 8 Related Party Disclosures, related party transactions with the Company’s wholly-owned subsidiaries are not disclosed. There were no transactions with other related parties except for the provision of guarantees in respect of banking facilities of a joint venture totalling £9 million (2013 – £9 million). Tate & Lyle PLC Annual Report 2014 | 139 i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Financial Statements NOTES TO THE PARENT COMPANY FINANCIAL STATEMENTS | CONTINUED 14 Proﬁt and loss account disclosures The Company recognised a loss for the year of £11 million (2013 – proﬁt of £212 million). Fees payable to the Company’s auditors, PricewaterhouseCoopers LLP, for the audit of the Company’s ﬁnancial statements amounted to £0.1 million (2013 – £0.1 million). The Company employed an average of 136 people (including directors) during the year (2013 – 121). Staff costs are shown below: Wages and salaries Social security costs Other pension costs Share-based incentives Total Year ended 31 March 2013 £m 11 3 1 6 21 2014 £m 11 1 1 3 16 Directors’ emoluments disclosures are provided in the Directors’ Remuneration Report on pages 52 to 71 and in Note 9 of the Group ﬁnancial statements. At 31 March 2014, 5,862,890 (2013 – 6,073,157) outstanding share options were attributable to employees and directors of the Company as follows: Year issued 2010 2011 2012 2013 2008 2009 2010 2011 2012 2013 2008 2009 2010 2011 2012 2013 2003 2009 2009 2009 2010 2011 2011 2012 Number of shares 5 532 13 398 14 819 12 170 2 672 4 464 4 989 7 063 13 442 6 762 7 506 16 559 49 986 1 047 850 1 222 200 1 142 877 96 022 419 403 257 870 656 640 473 042 378 337 4 496 4 791 Subscription prices (pence) 488.00 552.00 607.00 652.00 376.00 418.00 488.00 552.00 607.00 652.00 – – – – – – 325.00 – – – – – – – Dates normally exercisable 2014 2015 2016 2017 2014 2015 2016 2017 2018 2019 2011–2018 2012–2018 2013–2019 2014–2020 2015–2021 2016–2022 2007–2014 2011–2017 2012–2018 2012–2018 2013–2019 2014–2020 2013–2019 2014–2020 Sharesave Scheme – 3 year options Sharesave Scheme – 5 year options Performance Share Plan Executive share option scheme Javed Ahmed – compensatory awards Javed Ahmed – long-term incentive awards Group Bonus Plan 140 | Tate & Lyle PLC Annual Report 2014 INFORMATION FOR INVESTORS Shareholding enquiries General enquiries Information on how to manage your shareholdings can be found at www.shareview.co.uk. The website also provides answers to commonly asked shareholder questions and has links to downloadable forms, guidance notes and company history fact sheets. Email enquiries (Equiniti Shareview Enquiry Service) If your question is not answered by the information provided online you can send your enquiry via secure email from the above website. You will be asked to complete a structured form and to provide your shareholder reference number, name and address. You will also need to provide your email address if this is how you would like to receive your response. Telephone enquiries 0871 384 2063 (for UK calls)1 +44 (0)121 415 0235 (for calls from outside the UK). 1 Calls to this number are charged at 8p per minute plus network extras. Lines are open from Monday to Friday, 8.30 am to 5.30 pm UK time (excluding UK public holidays). Written enquiries Equiniti Limited, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA. Individual Savings Account (ISA) Tate & Lyle’s ordinary shares can be held in an ISA. For information, please call the Equiniti ISA Helpline on 0871 384 2244. Tate & Lyle website and share price information Tate & Lyle’s website provides direct links to other Group company sites and to sites providing ﬁnancial and other information relevant to the Company. The share price is available on the website with a 20-minute delay. www.tateandlyle.com Financial calendar 2014 Annual General Meeting Announcement of half-year results for the six months to 30 September 2014 Announcement of full-year results for the year ending 31 March 2015 2015 Annual General Meeting 24 July 2014 6 Nov 20141 28 May 20151 29 July 20151 1 Provisional date. Dividends paid on ordinary shares during the year ended 31 March 2014 Payment date 2 Aug 2013 3 Jan 2014 Final 2013 Interim 2014 Dividend description Dividend per share 18.8p 7.8p Dividend calendar for dividends on ordinary shares Announced Payment date 1 Provisional date. 2 Subject to approval of shareholders. 2014 final 29 May 2014 1 Aug 20142 2015 interim 6 Nov 20141 2 Jan 20151 2015 final 28 May 20151 31 July 20151,2 Dividends paid on 6½% cumulative preference shares Paid each 31 March and 30 September. Capital gains tax The market values on 31 March 1982 for the purposes of indexation up to April 1998 in relation to capital gains tax of Tate & Lyle PLC shares then in issue were: Ordinary share of £1 each Equivalent value per ordinary share of 25p 6½% cumulative preference share 201.00p 50.25p 43.50p Tate & Lyle American Depositary Shares (ADSs) The Company’s shares trade in the USA on the over the counter (OTCQX) market in the form of ADSs and these are evidenced by American Depositary Receipts (ADRs). The shares are traded under the ticker symbol TATYY. Each ADS is equivalent to four ordinary shares. For more information, contact The Bank of New York Mellon at: BNY Mellon Shareowner Services PO Box 30170 College Station TX 77842-3170 Tel: +1 888 269 2377 (for US calls) +1 201 680 6825 (for calls from outside the US) On 10 April 2007, Tate & Lyle was approved for the International PremierQX tier of International OTCQX. This provides a gateway to US securities markets for international companies that are listed on a qualiﬁed international exchange. Tate & Lyle’s ADR is identiﬁed with an International PremierQX logo and investors can ﬁnd current ﬁnancial information and other disclosures on www.otcqx.com and www.pinksheets.com. Electronic communications Shareholder documents are only sent in paper format to shareholders who have elected to receive documents in this way. This approach enables the Company to reduce printing and distribution costs and its impact on the environment. Shareholders who have not elected to receive paper copies are sent a notiﬁcation whenever shareholder documents are published, to advise them how to access the documents via the Tate & Lyle website, www.tateandlyle.com. Shareholders may also choose to receive this notiﬁcation via email with a link to the relevant page on the website. Shareholders who wish to receive email notiﬁcation should register online at www.shareview.co.uk, using their shareholder reference number that is either on their share certiﬁcate or other correspondence. Beware of share fraud Shareholders should be very wary of any unsolicited calls or correspondence offering to buy or sell shares at a discounted price. These calls are typically from fraudsters operating ‘boiler rooms’. Boiler rooms use increasingly sophisticated means to approach investors and often leave their victims out of pocket. If you are concerned that you may have been targeted by fraudsters please contact the FCA Consumer Helpline on 0800 111 6768. Tate & Lyle PLC Annual Report 2014 | 141 Tate & Lyle PLC Annual Report 2014 | 141 i S t r a t e g c R e p o r t G o v e r n a n c e i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n Useful Information FIVE-YEAR SUMMARY Per share information Earnings per share: – basic2 – adjusted basic2 Earnings per share: – diluted2 – adjusted diluted2 Dividends per ordinary share Closing share price at 31 March Closing market capitalisation at 31 March (£million) Business ratios Interest cover (times)3 Adjusted proﬁt before tax divided by net ﬁnance expense Gearing Net debt as a percentage of total net assets2 Adjusted operating margin Adjusted operating proﬁt as a percentage of sales2 Return on net operating assets Adjusted operating proﬁt as a percentage of average net operating assets2 Dividend cover (times) Basic earnings per share divided by dividends per share2 Adjusted basic earnings per share divided by dividends per share2 Year ended 31 March 2014 58.8p 56.5p 58.0p 55.7p 27.6p 667.5p 3 125 11.6x 34% Restated1 2010 Restated1 2011 Restated 1 2012 Restated 1 2013 4.6p 40.0p 4.6p 40.0p 22.9p 454.2p 2 092 5.8x 84% 8.1% 33.7p 48.1p 33.2p 47.3p 23.7p 577.5p 2 703 6.9x 48% 9.6% 63.8p 57.4p 62.7p 56.4p 24.9p 705.0p 3 301 11.1x 45% 58.6p 55.8p 57.4p 54.7p 26.2p 850.0p 3 980 11.1x 46% 11.1% 10.7% 11.1% 14.0% 20.0% 22.8% 21.5% 22.2% 0.2x 1.7x 1.4x 2.0x 2.6x 2.3x 2.2x 2.1x 2.1x 2.0x 1 Restated for the adoption of IAS 19 (Revised 2011) Employee Benefits. 2 These metrics have been calculated using the results of both continuing and discontinued operations. 3 Interest cover has been calculated using the same basis as set out in the Group’s external bank covenants. 142 | Tate & Lyle PLC Annual Report 2014 Employment of capital Goodwill and intangible assets Property, plant and equipment Other non-current assets Working capital Net pension deﬁcit Net assets held for sale (excluding cash included in net debt) Net operating assets Net debt Net tax asset/(liability) Total net assets Capital employed Called up share capital Reserves Non-controlling interests Results summary Continuing operations Sales Adjusted operating proﬁt Amortisation of acquired intangible assets Exceptional items Operating (loss)/proﬁt Adjusted net ﬁnance expense Net retirement beneﬁt interest expense Net ﬁnance expense (Loss)/proﬁt before tax Income tax credit/(expense) (Loss)/proﬁt for the year from continuing operations Proﬁt/(loss) for the year from discontinued operations Non-controlling interests Proﬁt for the year attributable to owners of the Company Continuing operations Adjusted proﬁt before tax3 (Loss)/earnings per share: – basic – diluted 2010 £m 340 1 208 21 302 (257) 18 1 632 (814) 36 854 115 712 827 27 854 2011 £m 320 855 24 279 (139) 62 1 401 (464) 36 973 117 833 950 23 973 2012 £m 325 922 28 370 (140) 63 1 568 (476) (34) 1 058 117 916 1 033 25 1 058 i S t r a t e g c R e p o r t G o v e r n a n c e 2013 £m 356 958 33 497 (265) 1 1 580 (479) (65) 1 036 117 919 1 036 – 1 036 At 31 March 2014 £m 389 865 34 412 (220) – 1 480 (353) (77) 1 050 117 932 1 049 1 1 050 Year ended 31 March Restated1,2 2010 £m Restated1 2011 £m Restated1 2012 £m Restated1 2013 £m 2 533 266 (14) (298) (46) (53) (14) (67) (113) 98 (15) 40 (4) 21 213 (3.3)p (3.3)p 2 720 319 (13) (5) 301 (54) (13) (67) 234 (45) 189 (29) (4) 156 265 40.9p 40.3p 3 088 346 (12) 68 402 (30) (4) (34) 368 (69) 299 2 (4) 297 316 64.2p 63.0p 3 256 356 (10) (12) 334 (29) (4) (33) 301 (46) 255 18 (1) 272 327 54.9p 53.8p 2014 £m 3 147 349 (10) (14) 325 (27) (8) (35) 290 (45) 245 28 – 273 322 52.8p 52.1p i F n a n c a i l S t a t e m e n t s U s e f u l I n f o r m a t i o n 1 Restated for the adoption of IAS 19 (Revised 2011) Employee Benefits. 2 Restated to reflect the former Sugars businesses which have been classed as discontinued operations. 3 Adjusted profit before tax excludes exceptional items, the amortisation of acquired intangible assets and net retirement benefit interest. Tate & Lyle PLC Annual Report 2014 | 143 Useful Information GLOSSARY A Acidulants Ingredients such as citric acid that are used to add a ‘sour’ taste to foods and soft drinks and to act as a preservative. Adjusted operating proﬁt (PBITEA) Operating proﬁt (as deﬁned separately), adjusted for amortisation of acquired intangible assets and net exceptional items. Adjusted proﬁt before tax (PBTEA) Proﬁt before taxation (as deﬁned separately), adjusted for amortisation of acquired intangible assets, net exceptional items and net retirement beneﬁt interest. Aﬂatoxin A by-product of a grain fungus, present in the 2012 US corn harvest. B BI Bulk Ingredients division. Bio-PDO® Multi-purpose monomer propanediol made from corn sugar (as opposed to being made from a petrochemical source). Used in cosmetics, detergents, carpets and textiles. C Carbon dioxide equivalent (CO2e) One metric tonne of carbon dioxide or an amount of any other greenhouse gas with an equivalent global warming potential, calculated consistently with international carbon reporting practice. CCC Cash conversion cycle, deﬁned for the purposes of the Annual Bonus Plan as the number of days between cash expenditure and collection, taking account of inventory, payables and receivables; based on the average of the four quarter-end results. ‘Clean label’ A term used in the food and beverage industry generally to refer to simpler ingredient lists for consumer appeal. Detailed interpretations may vary. Constant currency Changes in constant currency are calculated by retranslating comparative period results at current period exchange rates. Continuing operations Operations of the Group excluding any discontinued operations (as deﬁned separately). Continuous process facility A facility designed to manufacture a ﬁnished product via continuous process (rather than a batch process). Co-products Corn gluten feed, corn gluten meal and corn oil. Corn gluten feed The largest Tate & Lyle co-product, used by dairy and beef cattle markets. CR Corporate responsibility. D Discontinued operations An operation is classiﬁed as discontinued if it is a component of the Group that: (i) has been disposed of, or meets the criteria to be classiﬁed as held for sale; and (ii) represents a separate major line of business or geographic area of operations or will be disposed of as part of a single co-ordinated plan to dispose of a separate major line of business or geographic area of operations. E EFSA European Food Safety Authority. F Food Systems The Tate & Lyle blending business which is part of SFI and which sources ingredients and uses them to develop bespoke combinations of ingredients for customers. Formulations science This is the study of how ingredients interact in complex mixtures to deliver speciﬁc attributes. In food, multiple food components are blended to create desired texture, ﬂavour, appearance, and taste. Formulation science is used to develop predictions of how combinations of ingredients will impact these important performance attributes. This is an interdisciplinary science that includes chemistry, materials science and elements of measurement science, statistics and mathematical modelling. Functional food ingredients Ingredients that offer beneﬁts that go beyond the basic nutritional role of the ingredient. For example, some carbohydrates are reported to have other beneﬁts such as improved gastrointestinal function. G Greenhouse gas (GHG) Any of the following: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydroﬂuorocarbons (HFCs), perﬂuorocarbons (PFCs), sulphur hexaﬂuoride (SF6). H HAMULSION® food system A thickening agent comprising a blend of different ingredients. HFCS High fructose corn syrup, also called isoglucose in Europe. I ICD Innovation and Commercial Development group, supporting our two business divisions, SFI and BI. K KPI Key performance indicator. N Natural A ‘natural’ description usually refers to a food ingredient that is present in nature and has been minimally processed. However, interpretations vary as does the legal and regulatory landscape in different countries. O Operating proﬁt (also referred to as proﬁt before interest and tax (PBIT)) Sales less net operating expense. P Proﬁt before tax (PBT) Sales, less net operating expense, less net ﬁnance expense. PROMITOR® Soluble Corn Fiber A prebiotic soluble ﬁbre. PromOat® Beta Glucan A soluble ﬁbre made from wholegrain oats used to bring the health beneﬁts of oat beta glucan to food and beverages. PULPIZ® Pulp Extender A starch that mimics tomato pulp texture and taste. PUREFRUIT™ Monk Fruit Extract A zero-calorie sweetener made from monk fruit. R REZISTA® speciality food starch A modiﬁed starch made from waxy corn which builds and protects texture in foods. S Separations science Technology and techniques used to isolate individual compounds from complex mixtures. It includes distillation, ﬁltration, and a variety of other techniques. SFI Speciality Food Ingredients division. SME Small- and medium-sized enterprises. For Tate & Lyle, this means regional or global customers with turnover below the level of approximately £500 million. SODA-LO® Salt Microspheres A salt-reducing ingredient made from salt. SPLENDA® Sucralose A zero-calorie sweetener made from sugar. STA-LITE® Polydextrose A soluble ﬁbre with prebiotic properties made from corn and used to provide body and texture in reduced calorie, no-added sugar and high-ﬁbre foods. T TASTEVA® Stevia Sweetener A zero-calorie sweetener made from stevia. Trading cash ﬂows The Group’s adjusted operating proﬁt stated before the non-cash charges for depreciation and amortisation. U USDA US Department of Agriculture. 144 | Tate & Lyle PLC Annual Report 2014 DEFINITIONS/EXPLANATORY NOTES Non-reliance statement This Annual Report has been prepared solely to provide additional information to shareholders to assess the Group’s strategy and the potential of that strategy to succeed, and should not be relied upon by any other party or for any other purpose. Cautionary statement This Annual Report contains certain forward- looking statements with respect to the ﬁnancial condition, results, operations and businesses of Tate & Lyle PLC. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that may occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts. Nothing in this Annual Report should be construed as a proﬁt forecast. Tate & Lyle PLC Tate & Lyle PLC is a public limited company listed on the London Stock Exchange and is registered in England and Wales. More information about Tate & Lyle can be found on the Company’s website, www.tateandlyle.com. Basis of preparation Unless stated otherwise, the Group’s ﬁnancial statements are prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU. Amortisation Unless stated otherwise, the use of the word ‘amortisation’ on pages 1 to 73 in this Annual Report relates to the amortisation of intangible assets acquired through business combinations. Continuing operations Unless stated otherwise, all comments in this Annual Report refer to the continuing operations adjusted to exclude exceptional items, amortisation of intangible assets acquired through business combinations and net retirement beneﬁt interest. A reconciliation of reported and adjusted information is included in Note 42. Deﬁnitions In this Annual Report, ‘Company’ means Tate & Lyle PLC; ‘Tate & Lyle’ or ‘Group’ means Tate & Lyle PLC and its subsidiary and joint-venture companies. Environmental statement This Annual Report has been printed on UPM Fine offset, a paper produced using wood ﬁbre from fully sustainable forests with Forest Stewardship Council® (FSC®) certiﬁcation. All pulps used are elemental chlorine free and the manufacturing mill holds the ISO 14001 and the EMAS accreditations for environmental management. Printed in the UK by Pureprint using vegetable inks and their Alcofree and Pureprint environmental printing technology. Pureprint is a CarbonNeutral® company, is registered to the Environmental Management System ISO 14001 and is FSC chain-of-custody certiﬁed. If you have ﬁnished with this Annual Report and no longer wish to retain it, please pass it on to other interested readers or dispose of it in your recycled paper waste. The CO2 emissions from the production and distribution of this Report have been offset through the purchase of carbon credits in the Pureprint Gold programme. The offsets are always in Gold Standard accredited projects and currently come from the Basa Magogo project in South Africa. The ﬁrst Gold Standard project of its kind in the world, this innovative behaviour-change programme teaches local communities in South Africa to burn coal more efﬁciently thereby reducing carbon emissions and reducing health risks by producing less smoke. Registered ofﬁce Tate & Lyle PLC 1 Kingsway London WC2B 6AT Tel: +44 (0)20 7257 2100 Fax: +44 (0)20 7257 2200 Company number: 76535 www.tateandlyle.com Credits Photography Peter Wynn Thompson Rob White Designed and produced by C O N R A N D E S I G N G R O U P www.tateandlyle.com

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