Nov 8, 2017 in Analysis

Tate and Lyle PLC

In the recent times, the market environment for most companies operating in the same field has drastically changed. This is due to raised competition on such aspects as service delivery, high fuel prices and increased taxation levels among others. As a result, it has become crucial for investors to carefully evaluate the financial performance of a given firm in relations to these changing economic factors. It is notable that analysis of a financial situation of a given firm is one of the crucial yardsticks documenting the existing as well as the future financial condition. Williams, Haka, Bettner and Carcello (2008) argue that financial statements help the stakeholders, such as investors, to understand what is happening to a company in a given period. Financial analysis is also crucial to the managers, since it guides them when conducting strategic planning, thus increasing the sustainability of a firm, both in the short and long run (Campbell, Stonehouse and Houstone 2002). One of the companies, which have significantly expanded across the globe, despite many emerging challenges such as the recent global economic crises is Tate & Lyle. This paper will critically examine the corporate governance disclosures and the remuneration report of Tate & Lyle Plc as well as their usefulness to the reader of the financial statements. To achieve this, financial ratios will be used to compare the Tate & Lyle Plc with its closest rivals, such as Monster Beverage Company, Coca Cola Company and PepsiCo; moreover, the general performance of the industry will be discussed.

Tate & Lyle Company Background and the Company`s Competitors

It is notable that by 2011 the sweetener market across the globe was estimated to be worth $56 billion, 80% of which is categorised as caloric, which means sugar or HFCS. The remaining 20% is non-caloric that falls under natural and artificial sweeteners (seekingalpha.com 2012). Artificial sweeteners include Splenda and Aspartame, while erythritol, monk fruit and stevia are considered to be natural sweeteners. Artificial sweeteners  have significantly dominated the zero calorie market, although the situation is expected to change in the near future.  For instance, it was estimated that in the U.S. in 2011 the sales proceeds from stevia were estimated to be $2 billion. One of the companies, which have significantly contributed to this industry, is Tate & Lyle.

Tate & Lyle, a multinational agribusiness based in the U.K., is the biggest sugar refining company in the European region. It is also the leading manufacturer of industrial ingredients and renewable foods, which are obtained from renewable crop substances, predominately sugarcane and corn (Nicholls, 2011). The end products of this company include sucralose (splenda), starch, sugar, alcohol, molasses, high fructose syrup from corn and critic acid. Listed on the LSE (London Stock Exchange), the sales revenues of the firm has continued to grow, with a total net being £ 167 million in the FY 2011 (Yahoo Finance 2012). With plants and offices in at least 24 countries across the globe, the firm is estimated to have the workforce of approximately 5,819 in 2011, an 8.7% increase, when compared with the previous year. The firm was formed in 1912 in the United Kingdom and it was founded due to the merger of two notable rival companies namely Sons and Abram Lyle & Sons Henry Tate. In1949, the firm introduced its “Mr. Cube” brand, which was part of its marketing campaign aimed at fighting the aspect of nationalisation that had been introduced by the then ruling Labour Government.

In 1976, the firm acquired a 33% stake in Amylum, a starch-based firm, located in the European region (Hugill 1978). The values of the firm clearly indicate what the firm stands for as well as its behaviours towards suppliers, customers and communities it operates in and with each other. The three notable core values include respect, integrity and safety and this forms the basis on which the company has been enormously built over the last century. As indicated in the figure below, the performance values include creativity, accountability, teamwork, achievement and speed and this helps to specify the need for the business to thrive in the ever increasing competitive business environment.

To raise its activities on both domestic and international markets, the firm formed a partnership with HRG Digital with an aim of integrating promotions in 2012 and combined online and in-store activities (Tate & Lyle Plc 2012). This way, the sales turnover has increased, thus raised profitability in the FY 2011. The company also participates in CSR activities. For instance, in East London where the firm is based, it has initiated programs such as centers of education and health as well as arts programmes, thus resulting to social development (Tate & Lyle Plc 2012).  There are other global companies engaged in sweetener market, thus becoming closest competitors to Tate & Lyle. They include Ingredion Inc., Coca Cola Company, Stevia First Corp. and Monster Beverage Company among others.

Corporate Governance Disclosures

The importance of corporate governance in any firm can never be underestimated. Bowen (1994) defines corporate governance as the way in which the power possessed by an organisation is exercised towards the stewardship of the total portfolio of resources and assets of the corporation. The main objective of this is to increase as well as maintain the value of the shareholders along with the satisfaction of other stakeholders such as the government and general public among others in the context of the mission and vision of the organisation (Denton 1998). According to ACCA (Association of Chartered Certified Accountants), corporate governance ought to encompass fundamental values of accountability, transparency, responsibility and fairness.

According to ACCA, there are three notable roles played by ACCA. One of the roles is to ensure that the board, which serves as the representatives of an organisation protects available resources as well as allocates them, thus making planned progress towards the defined purpose of an organisation. It also ensures effective management and governing of an organisation, thus creative accountability to the shareholders. Further, corporate governance ensures that shareholders and other stakeholders have the ability to hold the board accountable for all their activities. Association of Chartered Certified Accountants (2009) notes that  the need to transparently disclose the structure of the corporate governance, issue and process faced by a business is inherent to all the three factors indicated above. Goergen (2012) argues that organisations need to effectively demonstrate their high level authentic commitment to these values, thus creating as well as sustaining confidence of the stakeholders, investors and stakeholder.

The recent global financial crises have significantly sharpened the lens in which the structures of corporate governance are held into account, as well as the expectation around the issue of transparency. These issues are raising the bar for increased proactive and comprehensive disclosure from forward-thinking organisations such as Tate & Lyle. For Tate & Lyle, the Board of Directors includes Sir Peter Gershon, who serves as the chairman as well as the head of corporate responsibility and nomination committee; he joined the Board in July 2009. The Chief Executive Officer is Javed Ahmed, while Tim Lodge serves as the Chief Financial Officer. Other board members include Liz Airey, William Camp and Evert Henkes among others. According to Sir Peter Gershon, Tate & Lyle has continued to make notable progress in the FY 2012, through delivering good financial, operating performance as well as attaining a number of critical milestones on transformational programmes adopted by the firm (Tate & Lyle Plc 2012). In March 2012, the company was able to open commercial and food innovation center in the U.S., a facility which will help the company improve the level of service delivery across the globe. The company has also had the ability to re-venture in production of SPLENDA Sucralose facility in Alabama.

The cost, which was incurred in order to start this facility, was £ 12 million in regard to capital expenditure and operating expenses are estimated to be £ 1 million. The firm has also improved its safety performance, through reduction in both lost-time accident rate and overall safety performance and this is estimated to keep going forward. In its evaluation process, the Board of Governance of Tate & Lyle has adopted fair value estimation method. This is an instrument, which is based on the market price of the comparative instruments at the balance sheet date.

Corporate Governance Disclosures and Impact on Financial Statements

It is clear that effective corporate governance has an enormous effect on the short and long-term performance of Tate & Lyle. This is clearly indicated by the improved performance of financial ratios, which measure the value of shareholders.

Return on Equity

Return on Equity serves as an indicator of the profitability of a company, through measurement of the profit generated out of money invested by stock owners.

 (Weygandt, Kieso, & Kell 1996)

Ratio

Tate & Lyle Plc

2012

Monster Beverage Company

 2012

Coca Cola Company 2012

PepsiCo 2012

Industry Average 2012

Return on Equity

(NI/equity)

13.5490%

28.6209%

18.9666%

16.6579%

11.0821%

As compared to the other firms, it is clear that for Tate & Lyle Plc ROE value is recommendable in comparison to the industry average.

Dividend Cover

Divided cover is a ratio of the net income of a firm, in comparison to the dividends paid to the shareholders. It is calculated as indicated below.

Dividend Cover = Earnings per Share/Dividend per Share

Ratio

Tate & Lyle Plc

Monster Beverage Company

Coca Cola Company

PepsiCo

Industry Average

Dividend Cover  for the FY 2012

2.61

1.93

1.62

2.70

1.88

Dividend Cover  for the FY 2011

2.32

1.82

1.55

2.64

1.92

From the above, it is clear that a 2.61 ratio in regard to Dividend cover for Tate & Lyle Plc can be regarded as safe for investors as it indicates the strength of a firm to pay its dividends (Bloomberg.com 2012). A ratio of 1.5 is considered risky; while a ratio below 1.0 means that the firm is using its retained earnings from previous FY to pay its dividends.  Since the industry average is above 1.5 for the FY 2011 and 2012, it is an indication that most of the companies in this sector are profitable, hence they have higher ability to pay dividends.

Earnings per Share

This measures the potential dividends of a company, which can be used to pay the shareholders and it is calculated as follows:

 (Weygandt, Kieso, & Kell 1996)

Ratio

Tate & Lyle Plc

2012

Monster Beverage Company

 2012

Coca Cola Company 2012

PepsiCo 2012

Industry Average 2012

Earnings per Share

0.5720

1.8200

1.9450

4.1800

1.5621

As compared to the competitors, it is clear that the earnings per share for Tate & Lyle Plc are lower, indicating that the company is investing in new ventures such as the re-invention of  Sucralose facility in Alabama, USA, among others mentioned above.

Dividend Yield

This indicates the dividend for every share and it is expressed as a total percentage of the prevailing market price of the particular share. It is given by the formula below.

 (Weygandt, Kieso, & Kell 1996)

Ratio

Tate & Lyle Plc

2012

Monster Beverage Company

 2012

Coca Cola Company 2012

PepsiCo 2012

Industry Average 2012

Dividend Yield

0.87%

0.52%

0.66%

0.83%

0.71%

To most of the investors, Tate & Lyle Plc offers one of the best alternatives to invest, as it is 0.16% higher than the market value, 0.04 and 0.35% higher as compared to PepsiCo and Monster Beverage Company respectively (Bloomberg.com 2012).

Price Earnings (P/E) Ratio

This ratio indicates the market price of the shares as a part of the earnings per share and it is calculated as follows:

(Weygandt, Kieso and Kell 1996)

Ratio

Tate & Lyle Plc

2012

Monster Beverage Company

 2012

Coca Cola Company 2012

PepsiCo 2012

Industry Average 2012

Price Earnings (P/E) Ratio

0.8850

1.9673

1.3037

1.1450

0.7703

As compared to the industry average, it is evident that Tate & Lyle Plc is recommendable, by 12.96%, though lower as compared to the competitors such as Monster Beverage Company and PepsiCo by 22.70 and 28.05% respectively (Bloomberg.com 2012). Williams Haka Bettner and Carcello (2008) argue that the higher the value of P/E ratio, the better the firm in regard to offering investment opportunities to the general public among other potential investors. However, this value keeps on fluctuating, depending on the prevailing market price of a share, and this is affected by aspects such as government policies on investment opportunities, political stability among other aspects. Under this category, Monster Beverage Company can be regarded as the best firm.

Dividends per Share

This ratio measures the number of dividends, which the organisation pays to the shareholders and it is calculated as indicated below.

To most investors, higher value of dividends per share is preferred as it is an indication of improved chances to maximise their returns.

Remuneration Report and Its Impact on Financial Statements

According to Evert Henkes, the Head of the Remuneration Committee at Tate & Lyle Plc, the approach to remuneration remains one of the significant parts of the business strategy, thus driving the cultural change, and thus leading to growth as well as to the improved performance. This is also crucial in delivering value for its shareholders (Tate & Lyle Plc 2012). For instance, from 2009 there has been a period of outperformance and this demonstrates success in the strategic direction adopted by the company. The salary of the senior executives is determined taking into consideration the broader workforce. For instance, in April 2012, the base salary of the Chief Executive Officers was raised by 3.0%. Meanwhile, other United Kingdom employees were given a 3-4% increase in their salaries. For instance, Javed Ahmed and Tim Lodge`s salaries increased from £700,000 to 721,000 and from £394,000 to 405,820 respectively. Therefore, the remuneration offered to the employees and the directors has a direct impact on the cash flow and profitability of the firm as well as the value of the shareholders.

Profitability Ratios
Profits are used as the yardsticks of determining the overall success of any firm. However, it should also be compared to other crucial ratios such as return on capital employed ratio among others.

Price to Book Value

Assets are recorded on balance sheet at cost. Book value helps to indicate the worthiness of the company if the assets were sold off to repay the debts (Williams et.al 2008). The remaining amount after debt payment is the companies’ book value.

From the table, for the FY 2012, Monster Beverage Company has the highest price to book value, 54.12% higher than the industry average. However, Tate & Lyle Plc has the price-to-book value, which is 19.67% lower as compared to the industry average. Although P/B value does not indicate the ability of a firm in generating cash or profit equivalents for its shareholders, high ratio implies that the investors expects the management to create healthy value from given set of assets. Therefore, there is the need for Tate & Lyle Plc to ensure that the above is obtained at all costs.

Cash Flow and Stock Market Indicators

Another important aspect, which is affected by remuneration strategies, adopted by the company is the cash flow. Cash flow is crucial to the healthy success of any business, both in the short as well as long term. For most businesses, it is possible to operate in the short- and medium-term without making any profit (making losses) (Weygandt, Kieso and Kell, 1996). However, it is impossible to survive without adequate cash to cater for the operating expenses. Based on this argument, it is clear that healthy cash flow determines the survival of a firm, both in the short- and long-term. For Tate & Lyle Plc, the net cash, generated from the operating expenses increased by 37.22% to £ 231 million in comparison to FY 2011. For the year 2012, earnings per share rose to 30.2 pence, a clear indicator that Tate & Lyle Plc is a profitable investment opportunity. Further, the earning efficiency, as highlighted by the profitability ratio, provides investors with a positive signal about the firm.

Conclusion

It is evident that Tate & Lyle Plc is one the most successful companies of our times. The company has significantly expanded across the globe, despite many emerging challenges such as the recent global economic crisis. The firm is the leading manufacturer of industrial ingredients and renewable foods, which are obtained from renewable crop substances, predominately sugarcane and corn. Through effective corporate governance, the firm has had improved performance in such aspects as liquidity, profitability ratios, cash flows and stock market indicators among other aspects. In order to improve performance in the long run, there is the need to improve the aspects related to the corporate governance disclosures and remuneration, thus raising investors’ confidence.

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