Tate & Lyle PLC
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Tate & Lyle PLC
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Good morning, everyone, and welcome to the results for the 6 months to the 30th of September 2019.
Let me start by giving you a brief overview of the first half. Our 3 priorities to Sharpen, Accelerate and Simplify our business have gained real traction across the organization and are supporting our performance. As a result, we made encouraging progress in the first half, with both business divisions performing in line with our expectations.
Food & Beverage Solutions performed well. Price and mix management drove good sales growth on flat volume and combined with operational leverage, led to double-digit profit growth. Sucralose delivered solid results, while in Primary Products, despite good performance from our manufacturing and supply chain network, profit was lower as market conditions remain challenging. Both divisions benefited from productivity gains and cost discipline.
During the half, we were also proud to establish an important new program to support sustainable agriculture for corn farmers in the U.S. I will come back to this in a minute. Looking briefly at the financial results. We continue to make solid progress. Group sales were up 2% and adjusted profit before tax was up 3%. Statutory profits were up 45% on a reported basis due to lower net exceptional costs.
We managed our true trading divisions as one integrated business to optimize overall returns for shareholders. This approach continues to serve us well, with earnings per share 3% higher. Cash delivery was once again strong, with free cash flow GBP 19 million higher. The Board has declared an interim dividend of 8.8p per share, an increase of 2.3%. Overall, we are performing as we expected, and our guidance for the full year is unchanged.
Let’s take a brief look at today’s agenda. I will start with an update on the business. Imran will run through the financial results in more detail and talk to the outlook, and then I will come back with a summary, before we take questions.
I want to begin with our purpose, which continues to be a very powerful motivator for our people and, importantly, resonates strongly with our key customers. Our purpose is Improving Lives for Generations. Our people passionately believe that through our purpose, we can successfully grow our business and have a positive impact on society.
We live our purpose through 3 main pillars: firstly, we support healthy living by using our ingredients and expertise to help people make healthier and tastier choices when they eat and drink, and to lead more balanced lifestyles; secondly, we help build thriving communities where we operate; and thirdly, we care for the planet we live on and help protect it for the benefit of future generations.
Our purpose touches all parts of our business, but let me give you just 2 examples of significant steps we have taken in the first half in relation to this third pillar. In September, we announced a multiyear partnership with Land O’Lakes SUSTAIN to support sustainable agriculture on 1.5 million acres of U.S.-grown corn. This is equivalent to every single acre of corn we buy globally each year, and we are the first corn miller to launch a sustainable agriculture program of this kind.
Under the program, participating farmers in the Midwest receive customized support to measure and help improve greenhouse gas emissions, nitrogen efficiency, water usage, wind erosion and soil quality. I was recently in Indiana to meet some of the farmers enrolled in this program. It was really encouraging to hear how it will significantly improve their conservation efforts and make their farms more efficient, helping to support family businesses for generations to come.
We’re also working to increase energy efficiency and reduce carbon emissions in our business. During the half, the Board approved the construction of a new natural gas-fired combined heat and power system at our Lafayette South corn wet mill in Indiana. This new system, which will replace the coal boiler at the site, is due to complete in the second half of 2021. It will deliver significant improvements in energy and operational efficiency and substantially reduce greenhouse gas emissions.
Along with our Loudon facility in Tennessee, Lafayette South is one of only 2 corn wet mills in the U.S. to be awarded ENERGY STAR certification by the U.S. Environmental Protection Agency in recognition of their superior energy efficiency. This new investment will improve that performance even further.
Turning now to the markets our 2 businesses serve, starting with Food & Beverage Solutions. This business continues to operate in an attractive growing market driven by some major global trends. Consumers continue to seek healthier alternatives from their food and drink and want greater transparency with cleaner labels and more natural ingredients. An increase in vegan and flexitarian diets is driving demand for more plant-based options and people continue to reduce the amount of sugar in their diets.
Food & Beverage Solutions has a deep understanding of these trends and each presents significant opportunities. Our expertise in sweeteners, texture and fiber enrichments, together with our insight in our focus categories, means we can develop solutions for our customers to meet consumer demands. This expertise is increasingly valued by our customers and is being translated into top line growth. The division saw sales growth of 4% overall with especially good growth of 6% in North America and 8% in Asia Pacific and Latin America.
Sugar reduction continues to be a key driver of growth and represents about 1/3 of the projects in our customer pipeline. Many sugar reduction projects use our soluble fibers, not only because they allow the amount of sugar to be lowered, but also provide nutritional benefits such as digestive health, low glycemic response and calcium absorption, all without impacting taste. In North America, for example, fiber sales grew 29% in the half.
Fat reduction also continues to be a key trend. In China, we continue to see good growth in dairy as customers look to reformulate existing products and launch new products lower in sugar, fat and calories. This is reflected in a 24% increase in sales of our speciality food starches in the Asia-Pacific region during the half. I want to now look more closely at one region to show how these trends are working in practice.
In Latin America, the regulatory landscape is changing rapidly. In Peru and Chile, regulations are already in place requiring additional labeling on front-of-pack to demonstrate that a product is high in sugar, fat or salt. In Brazil and Mexico, similar proposals are moving towards adoption. This provides both challenges for our customers and opportunities for us. With our strong technical expertise, deep category insight and broad portfolio of products, we provide a unique solutions tool kit to help reduce sugar, calories and fat in our customers’ products. On this slide, I’ve highlighted 3 products where we have supported customers to reformulate their products so that new additional labeling is required.
In the last 6 months, this has helped drive a 13% increase in sales of fibers and a 43% increase in sales of natural sweeteners in the region. Our customer pipeline in Latin America has also grown by 34% over the last year as new and existing customers increasingly seek our support to reformulate their products. This is not only happening in Latin America. We are seeing similar trends in many countries across the world.
Turning now to Primary Products. As expected at the start of the year, market conditions were challenging. In bulk sweeteners, demand for carbonated soft drinks in the U.S. continued to decline by 1.6% and U.S. exports to Mexico were slightly lower. We also had to manage the impact of corn price volatility. The industrial starch market was particularly challenging as demand was impacted by the closure of paper capacity at a customer’s facility, higher paper imports into the U.S. and weaker demand for paper and packaging. In packaging, we saw the growth in demand being reset as e-commerce operators undertook optimization initiatives.
It is to the credit of the Primary Products team that they offset these headwinds in the first half through good operational and supply chain performance, strong focus on customer service and cost discipline. We expect these market headwinds will persist in the near term and so Primary Products continues to execute against a clear set of actions. It is focused on managing its portfolio to maximize margins, increasing operational efficiency and diversifying capacity towards new and growing markets. A good example of this is the launch of 5 new TEXTURLUX starches during the half targeted at personal care markets. These starches provide bio-based solutions for thickening and stabilizing hand creams and other skincare applications. We have seen encouraging early traction with customers for these starches.
The 3 key priorities we set out in May 2018 to accelerate business performance are making a real difference to the performance of the business. On Sharpen, we continue to significantly increase the number of interactions we have with our customers, with the number of customer calls and meetings focused on growth increasing by 20%. We are also collaborating with customers in new ways, such as our innovative Fiber Symposiums and Healthink workshops. Healthink brings together customers, academia, trade associations, NGOs and our technical experts to look at ways to drive thinking on healthier food and drink, and how our ingredients and solutions can be used to tackle the increasing levels of obesity, diabetes and digestive health concerns.
We also continue to strengthen our network of application labs. And in the last few weeks, I was excited to open our new and expanded labs in both São Paulo and Singapore. We have also made good progress on accelerating portfolio development. We continue to improve the overall balance of our innovation portfolio mainly by increasing the number of line extensions. In the first half, we introduced new stevia and clean-label starch line extensions aimed at the clean-label starch market and sugar reduction. This contributed to a 12% increase in revenue from New Products. We also further expanded our global open innovation network. Through our relationship with Terra, a leading West Coast food and agriculture incubator, we partnered with 3 more start-ups on early-stage developments in areas such as food safety.
Finally, our program to simplify our business continues to make good progress and our commitment to deliver $100 million of productivity benefits over a 4-year period remains on track. Our Simplify priority has really been embraced by our employees, and we have a substantial pipeline of simplification projects in place across the business, particularly in our manufacturing and supply chain network. Capital investments are being made to reduce energy costs and increase efficiency, and we are also introducing systems and processes to automate and reduce bureaucracy, such as new tools for recipe management and remote working.
So to summarize, we have made an encouraging start to the year and delivered financial results in line with our expectations. Our 3 priorities are actively supporting performance. The business has good momentum and our strategic progress is clear.
With that, I will hand you over to Imran.
Thank you, Nick, and good morning, everyone.
Turning now to our financial performance. Consistent with previous presentations, I will focus on adjusted measures for continuing operations. Items with percentage growth are in constant currency, unless I indicate otherwise.
Overall, we’ve had a solid start to the year with the business performing as we expected. Group sales were up 2% and profit before tax was up 3%, with good progress in Food & Beverage Solutions and slightly lower profit in Primary Products. Adjusted diluted EPS was up 3%, with growth reduced by 1 percentage point following the adoption of IFRS 16. Free cash flow continued to be strong at GBP 171 million, up GBP 19 million. Finally, as Nick already mentioned, the Board has decided to increase the interim dividend by 2.3%.
Let me now go through the key factors driving profit growth. Food & Beverage Solutions operating profit was up GBP 9 million driven by good price and good mix management. Sucralose performed solidly as lower volume was offset by good customer mix. Primary Products profit was GBP 4 million lower, principally reflecting weaker demand in industrial starch as well as the lapping of a onetime insurance credit of GBP 4 million in the comparative period.
Cost discipline has been strong across the business, positively impacting both divisions. Central costs were also lower by GBP 2 million. Interest costs were GBP 2 million higher principally following the adoption of IFRS 16. And the share of profit after tax from joint ventures was in line with the comparative period. Finally, the impact of foreign exchange was to increase profits by GBP 10 million to GBP 181 million.
Turning now to our divisional performance. Let’s start with Food & Beverage Solutions. Volume was in line with the comparative period. Sales growth of 4% was driven by good price and good mix management. Profits grew 11%, and were driven by strong operating leverage on the back of 4% sales growth.
Let’s take a look at our regions. In North America, top line momentum continued, with volume up 1% and sales up a strong 6%. This was driven by progress across the beverage, bakery and dairy categories, particularly to deliver both sugar and calorie reductions.
In Asia Pacific and Latin America, volume increased by 3% and sales by 8%. In Asia Pacific, we saw good sales growth in China as well as in Southeast Asia. In Latin America, sales growth was strong in Mexico. In Europe, Middle East and Africa, volumes were down 3%, although sales were in line with the comparative period. That is as we continued to exit lower-margin texturant business to improve our mix.
On a like-for-like basis, excluding the disposal of the oats business from last year, sales actually grew by 1% in EMEA. The expansion of our facility in Slovakia used to double our capacity of high-grade maltodextrin used in categories such as baby food, opened in October 2019.
Finally, sales of New Products were up 12%, with strong growth in fibers and continued good growth in clean label and non-GMO texturants. New Products now represent 11% of Food & Beverage Solutions sales.
Turning to Sucralose. Volume and sales were 6% and 5% lower, respectively, principally due to shipment phasing. Good customer mix management combined with cost discipline meant that operating profit was just 1% lower.
Moving to Primary Products, which also includes Commodities. Total volume was 2% lower than the comparative period and operating profit was 5% lower. Sweetener volumes were in line with the comparative period, reflecting strong customer service and strong operational performance despite demand for carbonated soft drinks in the U.S. continuing to be soft.
Industrial starch volume was 12% lower, mainly due to the closure of capacity at a customer’s facility as well as market declines in both paper and packaging, as Nick explained earlier. Profit from Sweeteners and Starches was 5% lower, with good performance in sweeteners and productivity gains in manufacturing offsetting cost inflation and weaker volumes in industrial starch. The comparative period had benefit – had benefited from a GBP 4 million insurance recovery. Commodity profits themselves, overall, were in line with comparative period.
On this slide, we show the remaining components of profit before tax. Central costs were GBP 2 million lower, while net finance expense was GBP 2 million higher, principally following the adoption of IFRS 16. The effective rate of tax was 60 basis points lower at 20.9% primarily due to the impact of the pension buy-in. Reflecting this pension transaction, we now expect the adjusted effective tax rate for the 2020 fiscal year to be in the 20% to 22% range.
Finally, turning to exceptional items. We recognized an exceptional cost of GBP 11 million in the half. This comprised of 2 elements: A, a GBP 5 million charge for simplification as part of our $100 million productivity program; and B, a GBP 6 million charge for the closure of our small noncore savory ingredients business in Primary Products. Significant capital would’ve been required to sustain that business, so we have decided to stop production at the end of this calendar year.
Turning to cash and the balance sheet. During the first half, we took 2 actions to further strengthen and derisk our balance sheet. First, we priced $200 million of long-term debt, which will be used to refinance a maturing debt facility at lower cost. Second, we supported the trustees of our main UK pension scheme in completing a GBP 930 million insurance buy-in to meet the scheme’s future obligations without any incremental funding by the group. That will create an annual cash benefit of GBP 20 million from the 2021 financial year onwards.
Cash management itself continues to be strong. Adjusted free cash flow was GBP 19 million higher at GBP 171 million, GBP 2 million higher on a like-for-like basis excluding the impact of IFRS 16. Capital expenditure was GBP 73 million, so GBP 11 million higher as we continue to invest in growth and cost reduction projects. We continue to expect capital expenditure for the 2020 financial year to be between GBP 140 million and GBP 160 million. Net debt increased by GBP 128 million to GBP 465 million. The adoption of IFRS 16 increased underlying debt by – increased net debt by GBP 173 million and therefore the underlying net debt was actually lower by GBP 45 million. Our reported net debt-to-EBITDA ratio is now at 1x.
So in summary, a good start to the year and the financial position of the company is strong. The business performed as we said it would, and our outlook for the year remains unchanged. We continue to expect earnings per share growth in constant currency to be broadly flat to low single digit. And with that, I’ll hand you back to Nick.
Thank you, Imran. To conclude, I am pleased with our financial performance in the first half. While we continue to face external cost pressures and some market challenges, the business has good momentum and we continue to make strategic progress. The passion of our employees to deliver on our purpose of Improving Lives for Generations, combined with the positive momentum behind our 3 key priorities to Sharpen, Accelerate and Simplify the business, are making a real impact.
There is a greater sense of urgency across the organization and we continue to take the necessary steps to invest in long-term growth, whether that be organically through new capacity and strengthening our business in emerging markets or with acquisitions where they make strategic sense. This is a business with real growth potential, and I believe we’ve got the portfolio, the people and capabilities to unlock that potential.
Finally, I would like to thank my entire team across the whole of the Tate & Lyle organization for their hard work, their passion and their commitment over the last 6 months, which has led to the solid financial results we are presenting today.
So with that, Imran and I would be happy to take your questions. Before we do that, 2 requests from me. When – firstly, when you ask the question, could you give us your name and organization? Secondly, I’d actually like to ask the first question. The first question that’s clearly on all of your minds at the moment, which is what is it with that stupid beard? Now I have to confess it’s not my sharpest look, but there is a story behind this. Somebody very close to me was diagnosed with prostate cancer earlier in the year. As you know, this is Movember, so I’ve chosen to participate in Movember to signal the dangers of prostate cancer. So please, if you’re a man like me of an uncertain age, get tested regularly.
With that, we’d be happy to take your questions. Imran? Martin?
Thank you. Martin Deboo, Jefferies. I guess the main question is why do you not upgrade in the full year guidance. You’ve beaten expectation – market expectation – I don’t know about your expectations, but you’ve beaten the market by about GBP 9 million on the EBIT line which would be about a 3% upgrade if you carried it through to the full year. And you’re guiding to a lower tax rate, which is relevant to giving guidance to EPS. So why not upgrade full year? Are you feeling worse about H2? Or are you just being trademark cautious? And can I have one quick – I’ve got a few, but I’ll just do one and then maybe come back later. The – is the cogen at Lafayette material to either CapEx on the sort of cash flow side? Or – and is it material cost benefit on the P&L side?
So let me take the first question in the round on guidance. So let me start with we feel terrific about the first half because the balance looks right. The growth part of the business is doing what we said it would do and the Primary Products business performed really well in a tougher market. When I look at the second half, I think there are 3 key things for us to think through.
The first is we expect to see continued progress on the solutions side of the business. We don’t see any change in that momentum as we go into the second half. When I look at the Primary Products business, I think about 2 things. The contract round is coming up and we’re still very early in the contract round and we need to see how that plays out. And secondly, we want to see how the industrial starch market plays out as it starts to correct for what happens in the first half. So we’re being a little bit cautious about Primary Products in the second half. And then the third thing I’d add is, if you remember, we are lapping a one-off upside on Sucralose that has some impact on the year-on-year comps. That’s really the sort of in the round. But I don’t know, Imran, whether you’d want to add anything to that or – and to maybe take the cogen question so...
Yes. Sure. So on the guidance question, as Nick said, I’m trying to balance continued progress in FBS first half, second half, continued productivity first half, second half. But then second half, you’ve got the industrial starch headwind, which I don’t think will go away. I think the Sucralose grade was around GBP 6 million, that’s not a small number. And then a new contracting round, and the way that I look at industrial starch is a new headwind that wasn’t part of the – when we had done the full year outlook. But then again the tax rate lower is also a new benefit. And I kind of see the 2 offset each other out.
So given the fact that the first half played itself out exactly as we thought it would, no reason to change the outlook in any shape or form. In terms of the cogen, yes, it is a significant capital investment. It is funded within the GBP 140 million to GBP 160 million CapEx range. It also have significant productivity benefits, which is nice. It goes with the purpose and profit. And it’s – the way I’m looking at it, it’s part of the $100 million commitment that we’ve laid out. It plays a critical role in fact.
Thank you. John Ennis from Goldman. My first one is on price/mix in the North American Food & Beverage Solutions business. I wondered if you could detail which products or categories you’re really driving that strong price mix growth for North America. And whether you can comment on if that pricing has also been something some of your competitors have taken.
And then the second question is on cost savings within Food & Beverage Solutions. It seems to me that a reasonable driver of the 11% EBIT growth of that division, part of that must be driven by some of your cost-saving initiatives. I wonder if you could give us the magnitude, where they are coming from. And I think, Nick, you’ve already sort of answered this, but whether those savings can be, I guess extrapolated in the second half of the year.
So let’s touch North America. I think we’ve seen significant shift in momentum in the business over the last 18 months, which is good. And 1% volume is a pretty tidy number in North America for you to start. To translate that into 6% revenue growth shows really strong mix shift and some pricing coming through because you’ve got some corn price accretion as well. But where is the mix coming from? Not surprisingly, from the New Products that are already on-trend. So things like fiber, things like the natural sweeteners. We’ve got things like the clean-label starches. Those are all the products that we’ve been launching with the deliberate aim to shift the mix positively going forward, and that’s no different in North America to the rest of the world.
Then when you look at the business in total, what you see is we’re starting to get the operating leverage from those investments that we’ve made. So if you get good mix and then you start to leverage the investments you’ve made to drive growth, the P&L already starts to behave in a very different way. And clearly, we’ll look to see that continue into the second half. The balance of that will be clear as we see how mix evolves. Imran, do you want to...
Yes. I mean when you look at the P&L on FBS, you’ve got 4% revenue translating to 11% profit growth. And what is nice in that sort of construct is you get the benefit of price/mix and cost savings push through. The cost-saving program overall is really well on track. You’ll remember we had called out $30 million in the first year. I think we’re on track to hit now the normal run rate. When I look at the components of that, I would say it’s now closer to 50-50 between overheads and global ops productivity, whereas in the first year it was 60% overheads and 40% global ops productivity.
A couple of questions. Could you explain how the new management structure is changing your time of how much was being spent on Food & Beverage Solutions beforehand and now that you’re – you’ve got regional responsibilities, how that means your time spent between that and the other divisions? And then secondly, could you give us a bit more color on how to think about the e-commerce product optimization initiatives? Because that was presented as a growth opportunity, e-commerce, but it seems now that your customers are perhaps reducing. Is it a volume effect? Is that a price effect? How do you think about that and is this an ongoing trend you see happening?
So let’s take the management structure to start with. So we’ve worked really hard in the last 2 to 3 years to upgrade the capability of our regional teams and you are seeing that come through in the growth. We’ve got 4 terrific general managers. So the change in structure really is a reflection of wanting to flatten and simplify the structure and make sure I stay close to the regional teams. And that’s proving to play out. Now I’ve always tried to stay close to what’s going on in the business.
So in terms of time spent, not significantly different because when I started this 18 months ago, I said I wanted to get out and spend time with customers. So when I’m out with customers, I’m out with the teams as well. There’s not a significant shift. And actually, what it’s helping is speed up decision-making a little bit as well. So it’s been a positive development across the business and a reflection of the strength of the talent in the organization for us to be honest.
On the e-commerce opportunity, I think what we’re seeing is we’re seeing a reset of the base of that business of which I suspect we would see it grow going forward. So there’s no reason to assume that the amount of online shopping is going to go down anytime soon in the U.S. But it’s clear the e-commerce players are trying to take a more responsible approach to how they use packaging. That’s created a reset and I would expect we’ll see growth off that new base. But it’s still early to tell.
Just in specific, do you expect that base to be established this full year? Or is there a roll-on effect into next year?
I think we’ll be much clearer when we get to the end of the second half. Because obviously we’ve seen a step down in the first half. Let’s see how that plays out, and then we’ll have much better information when we get to the end of the year.
Thank you.
Arthur Reeves, Barclays. I want to go back to John’s point, really, but maybe over longer terms and not all for the second half. But what we’re seeing is good growth in parts of – good volume growth in parts of FB&S, offset by obviously negative growth elsewhere. How long before you stop selling the lower-margin products? And could we expect to see volume growth in this business eventually? Or is it always going to be the case that you’re bleeding at one end and growing at the other?
So let me start with volume. I think you have to break this out into the regional picture as well. So North America, as I’ve already said, look, saw terrific momentum both volume and revenue in the first half. And 1% volume in North America is not to be sniffed at. Go to the Emerging Markets, we saw 3% volume, 8% revenue. Now the emerging market growth is never going to be linear, but we’re clearly going to see growth on both going forward because demand is growing.
The thing that really held volume back in the first half was Europe because we’re trading out of low-value business there. We expect over time to see a return to growth in Europe. We’ve got capacity coming online which will help that. I think Imran talked about the maltodextrin capacity, it is a very high-value product focused on baby food. So we would expect to see sequential improvement in volume growth going forward starting, we hope, in the second half. Anything to add?
No. That was pretty good.
It’s Alicia Forry with Investec. So a couple – a few questions from me. Just coming back on FBS, which we’ve touched on before, you saw significant margin expansion in the period to a level of margin that we haven’t seen in many years in that part of the business. So I appreciate what you said about mix and exiting lower-margin contracts, but how should we think about margins in FBS in H2 and beyond given your comments about continued momentum in that part of the business over the balance of the year? So 11% EBIT growth is pretty high, comments on that would be helpful.
And then you mentioned the uncertain geopolitical landscape in your outlook comments. I’m just wondering if you’re currently seeing any effect, either directly or indirectly, from the trade wars between the U.S. and China, and U.S. and EU, and if that’s impacting your business at all. And then finally on interest. Could you update us on the interest cost that you expect now that we’ve got the IFRS 16 impact? Should we just double the impact that we saw in H1? Or is there going to be more of a factor in H2 we need to consider in our models?
Yes. Let me take the middle question on geopolitics. I’ll let – I’ll leave Imran to think about the margin and the interest cost. Broadly, when we look at the geopolitical landscape, the biggest uncertainty for us for the last couple of years has been NAFTA, the USMCA. That has landed in a sensible place based upon the legislation that’s been proposed. We need to see it enacted. But it hasn’t changed the dynamic of trading with Mexico, that’s good.
If I look at the U.S.-EU trading tensions, 2 things. We’re blessed by not having to worry much about Brexit because not much of our business is in the UK. And secondly, if you think about Europe, we’re sourcing within Europe everything that we sell. Not least because of the inability to use GM corn in Europe. Then that leaves China, the U.S., and have we seen an impact as a result because of the tariff imposition? Yes, we have. Has it been significant? No, it hasn’t and we’ve absorbed it into the business.
What it does do I think is rightly forces to ask the right question about at what point do we put more local capability in Asia as we grow? As the business scales, we’ll no doubt end up with more local capacity over time. And of course, when these geopolitical events happen, it does force you to sharpen your thinking on that, which is a good thing.
Yes. Let me just take your third question first and then your first question. The third question was on interest expense. Think of the second half pretty much as a carbon copy of the first. So the IFRS impact will be the same, then maybe a little bit of lower interest expense just because we have refinanced the debt. But that impact won’t be material until next year, so we go that way.
In terms of the margin expansion, look, and as I said, the team in FBS has really done a nice job around the world to take the 4% revenue to the 11% profit growth, and that has expanded margins on a – in a percentage basis as well. As I look ahead into the second half, what I’m thinking about is the productivity piece should continue. We continue to have cost inflation, I mean we continue to see that in the ingredient lines as well as in transportation. And we need to price some of that through and corn cost as well. And as we play that through, we’ll see how we end the year. But the idea of growing volumes, revenues ahead and then getting operating leverage is something that’s important. I mean [that’s as well why] we’re doing the whole productivity projects in there. Martin?
Sorry, this is a really tiny one. But you’re going to have to flow with it. You mentioned texturants, I thought it sounded really interesting. Why would you put that in primary? That just feels like a Speciality product to me. So it just begs the question of what gets allocated where? And I...
Is it – these are always a spectrum, why does it sit there? Because it came out of the technical expertise in the industrial starch team. And if you think about the Bio-PDO JV, which is playing in a different space, that led to some thinking about – because the bio-based materials are really quite on trend in a lot of new categories. Industrial starch comes from plants, actually it’s quite a good carrier, and that led to a piece of kind of very innovative thinking that is launched in New Products. Would you be surprised that texturants is a higher-margin product than a sort of basic industrial starch? No, you wouldn’t. I mean that’s another example of how we’re trying to trade up margins in Primary Products as well.
So a couple on Sucralose. You mentioned about phasing volumes. Last year was obviously a very distorted year for volumes, very – strong in the first half, stronger in the second half. Does that – can I understand what you mean by phasing in terms of the second half, should we expect to see H1 volumes come in? Or have we got – still got a phasing issue in H2? And then secondly on – following up on the question on FBS margins. With that, do you need productivity beyond the existing productivity program to keep margins growing? I know it’s early to be talking about it now. But is this – a lot of staples companies are basically putting their hands up and saying we need to restructure, kind of into perpetuity, given our model. Do you have anything to comment around that?
So let me take the second question first and maybe you can take the Sucralose one. Look, do we need productivity beyond the existing to sustain margin expansion, beyond the 4-year period? Yes, we probably will, because like every business, we’re going to have to continue to improve how we do business. But we’ve got a very clear line of sight to the $100 million. That takes us another couple of years out.
The trick for us as we think about building the continuous improvement mentality into the business is how we continue looking 3 years out on a rolling basis. And look, over time, we’ll update guidance on where we’re going with productivity. We’re very comfortable today that we’ve got clear line of sight to the $100 million, and that’s what’s driving the leverage that you’re seeing in the short term and we should see it help over the next few years.
Sucralose. The way I look at Sucralose is essentially nothing has changed versus what we said at the year-end. Shipment phasing really just means our customer orders came in and therefore what was shipped one half – one side of the year to the other, so I expect those shipments to be caught up in the second half.
When I step back in to look at total Sucralose performance, what was good in the first half is that we managed by [custom recent] productivities to offset the price slippage that we continue to have. Those dynamics in the industry haven’t changed. Again, maybe it’s worthwhile remembering when thinking about Sucralose, that GBP 6 million that we have to lap in the second half, so the – and the outlook takes that into account. But by and large, no real change in how to think about Sucralose.
Okay. Well, if there are no more questions, firstly, thank you all for your continued interest in the business. As I said, we’re very encouraged by our first half performance and we look forward to seeing you at our full year results in 6 months’ time. Thank you.
Thank you.