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					Tate & Lyle annual report 2003

operating and financial review

                                            Simon Gifford Group Finance Director

Summary of Financial Results               this, relating to interest received on tax   Exceptional Items and Goodwill
Total sales decreased by £777 million      refunds and exchange gains on foreign        Amortisation
to £3,167 million. Discontinued            currency balances, in the results for        Exceptional items totalled a net charge
activities and exchange rate translation   the six months to 30 September 2002.         of £33 million. An impairment charge
on continuing activities reduced sales     In the second half of the financial year     of £39 million was taken as an
by £552 million and £111 million           this was reduced by a £1 million             operating exceptional item primarily
respectively. Sugar trading sales          exchange loss on foreign currency.           to write down the assets of the US
reduced by £154 million. Sales from        The balance was a £7 million credit for      and Mexican citric acid operations
other continuing activities increased      a refund of duty in Mexico, of which         to their recoverable values, following
by £40 million.                            £4 million was interest received. Profit     continued global pressure on selling
                                           before tax, after exceptional items and      prices. The Mexican factory will be
Profit before interest, tax, exceptional   goodwill amortisation was £187 million       closed completely before the end
items and goodwill amortisation            compared with £159 million in the year       of the calendar year 2003.
increased by 18% from £216 million         to 31 March 2002.
to £254 million due mainly to                                                           The balance was an exceptional
improvements at Amylum and the             Diluted earnings per share before            non-operating net profit of £6 million.
completion of the disposal of the loss-    exceptional items and goodwill               Included within this was a £14 million
making US sugar businesses early           amortisation for the year to 31 March        profit following the disposal of the
in the year. Profit before interest        2003 were 33.0p (2002 – 22.1p).              US sugar businesses in November
and tax after exceptional charges          Diluted earnings per share after             2001 and April 2002 and a £12 million
of £33 million (2002 – credits             exceptional items and goodwill               anticipated loss on a planned disposal,
of £8 million) and the goodwill            amortisation were 27.7p                      which was after a £9 million charge for
amortisation charge of £8 million          (2002 – 24.6p).                              goodwill previously written off to
(2002 – £8 million) was £213 million,                                                   reserves. Amortisation of capitalised
compared with £216 million in the          The Board is recommending a 0.5p             goodwill totalled £8 million in the year
year to 31 March 2002.                     per share increase in the final dividend     (2002 – £8 million).
                                           to bring the total dividend for the year
Interest costs reduced from                to 18.3p per share. The proposed             Segmental Analysis of Profit Before
£57 million to £26 million. Of this        dividend is covered 1.8 times by             Interest
reduction, £8 million was due to           earnings before exceptional items and        The following paragraphs refer to
unusual interest income on tax and         goodwill amortisation, an improvement        profit before interest and exceptional
duty. Interest cover improved from         from 1.2 times in the previous year.         items but after the amortisation of
3.3 times to 7.6 times, or 6.8 times       Earnings after exceptional items and         capitalised goodwill. The segmental
excluding the unusual credits.             goodwill amortisation covered the            analysis of continuing and
                                           dividend 1.5 times (2002 – 1.4 times).       discontinued activities for the year
Profit before tax, exceptional items and                                                to 31 March 2002 has been restated
goodwill amortisation was £228 million,    Net debt reduced by £168 million from        to reflect disposals of companies
an improvement of 43%. Profit before       £639 million to £471 million, assisted       completed since the publication of
tax included unusual income of             by £60 million proceeds from                 last year’s Annual Report. Exchange
£11 million. We reported £5 million of     disposals.                                   rate translation reduced Group profit
                                                                                        before interest by £10 million.

Tate & Lyle annual report 2003

Sweeteners & Starches – Americas:           costs were reduced. Energy costs           the near term, and we do not expect
continuing activities                       were lower and rising natural gas          to make a profit from citric acid in the
Profits before exceptional items            prices underscored the importance of       year to 31 March 2004.
and interest fell by £4 million to          our conservation programme. A small
£135 million. Exchange rate                 potato starch plant was closed.            North American Sugar
translation reduced profits by                                                         Redpath, in Canada, had an
£11 million.                                Much of the process development on         exceptional year, once again achieving
                                            1,3-propanediol, which uses corn as        record sales with strong growth in the
Staley                                      a feedstock, is complete. We continue      industrial sector. Food manufacturers
Despite continuing difficult market         to work with DuPont to move this           continue to relocate production from
conditions in Staley’s cereal sweetener     fermentation project to the next stage     the US to Canada, where the cost
and starch business, growth was             of development, providing we can           base is lower. Profits improved due to
experienced in nearly all major product     anticipate an adequate return on           higher sales volumes, lower energy
lines, particularly in higher value added   further investment.                        costs and improved productivity.
food ingredients.                                                                      The increase in the world price of
                                            We are also building a xanthan gum         raw sugar resulted in a stockholding
Higher corn costs were covered by           production facility, scheduled for         gain of £2 million compared with a
price increases, and cost reduction         commissioning in 2004.                     £2 million loss in the previous year.
initiatives continue to enhance results.
                                            In Mexico, high fructose corn syrup        Occidente, our joint venture cane
Food ingredients generated improved         (HFCS) sales were significantly lower      sugar business in Mexico, achieved a
results, particularly through working       at Almex, our joint venture, as the tax    significant improvement in operating
closely with our customers on product       on soft drinks containing HFCS             profit despite an adverse movement
development. Increased sales were           remains in place. Although the industry    in exchange rates. Record sugar
made to export markets and benefits         is suffering from inefficient plant        production from the campaign that
were seen from further integration with     utilisation, prices on the rest of the     ended in June 2002 exceeded 340,000
Amylum in Europe, especially from           product portfolio increased. A long-       tonnes. Technical performance of all
unifying research and development.          running dispute with the government        three mills has improved under new
                                            over import duties was resolved and        operational management.
US sweetener market volumes                 a refund of £7 million has been
remained similar to the prior year, and     recognised in the accounts for the         In Mexico, sugar has replaced HFCS in
the trend continued of bottled water        year ended 31 March 2003, of which         soft drinks since the imposition of the
and fruit-flavoured beverage sales          £3 million is included in profit before    tax on HFCS-containing soft drinks.
increasing at the expense of                interest, with the balance reducing the    This has increased domestic demand
carbonated soft drinks. Price increases     interest charge. Access into Mexico for    for sugar, with the consequence of
for the 2002 calendar year resulted in      US HFCS under the North American           firmer pricing. The prospects for the
stronger overall sweetener margins.         Free Trade Agreement remains               coming year are good with the
The paper industry showed signs of          unresolved between the Mexican and         probability that most of the production
recovery towards the end of the year        US governments.                            will be sold onto the higher price
and margins on industrial starches                                                     domestic market with very little
improved.                                   There remains significant over-supply      exported at world prices.
                                            to the global citric acid market. Prices
Corn costs rose during the year             continued to decline under pressure        A new sugar blending operation in
following a drought which reduced the       from Asian imports, and again we           Mexico was commissioned, in
crop, but this was partially mitigated      managed only a small operating profit,     association with Redpath’s Canadian
by higher corn oil and corn gluten          despite making further significant cost    blending operation, and Occidente has
meal prices. In the 2003 calendar           reductions. Our Mexican plant will         begun to export sugar-containing
pricing round we recovered the higher       close by the end of the calendar           products to the USA.
net corn costs through selling price        year, and an impairment charge has
increases. Ethanol selling prices fell      been taken against this and the US         Sweeteners and Starches – Europe:
sharply in the year both in response to     operation. We anticipate a modest          continuing activities
lower average gasoline prices and as        exceptional charge for the closure,        Profit before exceptional items and
the industry added new capacity.            which will be booked in the year to        interest increased by 23% from
Industry production has increased in        31 March 2004. Plant closures have         £87 million to £107 million. Exchange
anticipation of increased demand from       been announced by competitors in           rate translation increased profits
the banning of methyl tertiary butyl        Ireland, China and the Czech Republic.     by £1 million.
ether (MTBE), the alternative fuel          We announced that part of our UK
oxygenate, in California (now deferred      factory will be converted to produce       Amylum
until January 2004) and the impact of       AstaXin®, a natural source of              Amylum’s cereal sweetener and starch
the US Energy Bill.                         astaxanthin, which is widely used in       business accounted for the majority of
                                            the aquaculture industry. Despite these    the improvement in the sector.
Manufacturing operations continued to       signs of industry rationalisation, the
perform well, and both fixed and unit       market is likely to remain difficult in

Tate & Lyle annual report 2003

operating and financial review

The integration and cost reduction         Lyle’s Golden Syrup sales grew in new       Sugar trading profits were exceptionally
project delivered benefits exceeding       export markets and franchises with          strong and improved mainly through
£35 million, well ahead of the             United Biscuits for McVitie’s Lyle’s        sales of Brazilian raw sugar.
£20 million target. Costs of £10 million   Golden Syrup Cream Biscuits and             Building on the successful
were in line with expectations. The        McVitie’s Lyle’s Black Treacle Cream        implementation of specialist trading
benefits were primarily generated by       Biscuits were established. Lyle’s           software in the previous year, a
lower manning levels, and purchasing       Coffee Syrups consolidated their            thorough review of sugar trading risk
and manufacturing efficiencies.            leading position in the UK retail market    management policies and procedures
                                           and Tate & Lyle Sugars’ product range       was undertaken and recommended
Volumes improved for both sweeteners       was rationalised to concentrate on          actions successfully implemented
and starches. Wheat costs fell             higher added-value lines.                   towards the end of the year.
following good harvests and increased
imports into the EU from Russia and        Capital expenditure was below               Asian Sugar Businesses
the Ukraine. Maize prices were also        depreciation with the businesses            Nghe An Tate & Lyle (NAT&L), the
reduced due to improved crops and          contributing strong cash flow to            Group’s cane sugar business in
the initial impact of imports from         the Group.                                  Vietnam, achieved a further record
countries listed for the first wave of                                                 production of 95,870 tonnes of sugar
accession to the EU. By-product            As part of the integration programme,       in the financial year, 13% higher than
selling prices were also lower. Small      an outsourcing agreement for the            the previous year. NAT&L is now the
pricing gains in certain markets and       provision of IT services in the UK was      largest sugar producer in Vietnam
products (such as vital wheat gluten)      terminated, and this function has been      and its quality is recognised in the
were offset by price reductions            re-absorbed by existing support             marketplace. Selling prices were under
elsewhere.                                 functions within the Group at               pressure as Vietnam achieved surplus
                                           substantially lower cost.                   production over local demand.
Monosodium glutamate pricing
continued to improve and even though       Eastern Sugar                               The remaining investment in Chinese
Orsan reported a small loss for the        The Eastern Sugar Group, our European       sugar factories, which were sold
year, it was less than in prior years.     beet sugar joint venture, experienced a     during the year, did not have a material
Progress towards completing the sale       difficult year and made losses overall.     impact on operating profit.
of Orsan France, particularly as           This was in contrast to a successful
regards obtaining competition authority    previous campaign and profitable            Animal Feed and Bulk Storage:
approvals, remains satisfactory.           year to 31 March 2002. In the Czech         continuing activities
                                           Republic, the developing sugar regime       Profits before exceptional items and
Manufacturing costs decreased despite      collapsed in November 2002 following        interest on continuing activities fell
increased local taxes and higher           a successful challenge in the               from £10 million to £4 million.
insurance and post-retirement costs.       constitutional court and selling prices
Energy costs reduced and forward           plummeted. The government is taking         We announced in February 2002 that
cover mitigated price increases in         steps to stabilise selling prices at more   we would pursue the sale of the
the second half of the year.               normal levels but the volume of sugar       worldwide molasses and storage
                                           in the hands of traders may hinder its      businesses. However, negotiations
The Eaststarch joint venture               effort. We do not anticipate a return       did not produce an offer for the
businesses in Central and Eastern          to profit in the short term prior to the    business as a whole that reflected its
Europe had an excellent year with          Czech Republic’s accession to the EU.       contribution to the Group, and the
higher volumes and improved selling                                                    business was withdrawn from sale
prices aided by lower maize costs.         The Slovakian business had a                as a single entity in September 2002.
Greater stability in Turkey and            satisfactory year. Domestic sales in        We examined other opportunities to
improved operating efficiencies were       Hungary were weak as imports of             maximise returns from the business,
the primary drivers, including the         sugar, sugar substitutes and sugar-         including partial disposals, and sold
benefits of the integration programme.     containing products took market share.      the North American molasses and
The imposition of sweetener quotas in                                                  third party liquid storage businesses
Turkey will limit a repeat performance     Hungary, Slovakia and the Czech             during the year.
in the coming year.                        Republic will accede to the EU in May
                                           2004 and will enter the EU sugar            In the business retained, and in
Tate & Lyle Europe                         regime. Preparations continue in all        contrast to the prior year, international
The UK and Portuguese sugar                countries for accession.                    freight rates increased significantly.
businesses continued to perform                                                        This was as a result of the tensions
satisfactorily. The UK operations          Sweeteners and Starches – Rest              over Iraq and instability in Venezuela.
benefited from the strengthening of        of the World: continuing activities         The limited availability of Thai
the euro. Energy costs were higher         Profits before exceptional items and        molasses and difficult feed markets
following the expiry of a medium-term      interest increased from £4 million to       in both the UK and Germany were
contract in the year to 31 March 2002.     £11 million. Exchange rate translation      contributory factors to the reduction
                                           reduced profits by £1 million.              in profitability. The costs of the

Tate & Lyle annual report 2003

disposal process prior to withdrawing      business and in particular our                 The interest rate for subsidiaries in the
the business as a whole from sale          exposure to the terrorist attacks              year when measured against average
were charged against operating profit      of 11 September 2001. Conditions               net debt was 5.5% (2002 – 6.7%).
in the year to 31 March 2003.              improved in the third party insurance          Interest cover based on profit before
                                           market and, together with good results         exceptional items, goodwill
Other Businesses and Activities:           from internal exposures to the rest            amortisation and interest of Tate & Lyle
continuing activities                      of the Group, led to a positive                PLC and its subsidiaries improved
This segment, which includes head          underwriting result.                           from 3.3 times to 7.6 times. Excluding
office activities, reduced costs                                                          the unusual interest receipts, interest
from £22 million to £10 million,           The Company decided to discontinue             cover was 6.8 times.
primarily because of the negative          writing non-Group risks with effect
impact in the prior year on our captive    from 1 January 2003 and is now in              Profit Before Tax
reinsurance company of the terrorist       the process of running-off the existing        Profit before tax but after exceptional
attacks of 11 September 2001.              third party liabilities. To date, a third of   items and goodwill amortisation
Exchange rate translation reduced          these liabilities have been commuted.          was £187 million, compared with
losses by £1 million.                      The Group continues to believe it              £159 million in the prior year.
                                           can minimise the effect of higher              Exchange rate movements reduced
Tate & Lyle Sucralose                      insurance costs as well as provide             profit before tax by £9 million.
The global commercialisation of            stability by continuing the policy of
sucralose, the no calorie sweetener        retaining risk and premium in its own          Taxation
made from sugar, continues with sales      reinsurance company.                           The Group taxation charge was
growth exceeding expectations.                                                            £57 million (2002 – £39 million).
This business is operated under a          Discontinued Activities                        The effective rate of tax, on profit
Global Alliance Agreement with McNeil      During the year, the major operating           before exceptional items and goodwill
Nutritionals, a Johnson & Johnson          profit impacts were caused by the              amortisation, was 30.7% (2002 – 32.1%).
company. Sucralose is now used as          sales of Western Sugar and the North
an ingredient in over 2,000 products       American molasses and third party              Dividend
worldwide. It was introduced as an         liquid storage businesses.                     A final dividend of 12.8p will be
ingredient to the UK market last year                                                     recommended as an ordinary dividend
and is being used in a number of           The US sugar businesses lost                   to be paid on 6 August 2003 to
carbonated beverages, flavoured            £18 million in the year to 31 March            shareholders on the register on 11 July
waters, alcoholic beverages and            2002. Western Sugar was sold in                2003. This is an increase of 0.5p per
dairy products.                            April 2002 and contributed a small             share. An unchanged interim dividend
                                           operating profit in the year to                of 5.5p was paid on 14 January 2003.
Meanwhile, national approvals were         31 March 2003.                                 Earnings before exceptional items and
granted in the Republic of Ireland                                                        goodwill amortisation covered the
and Netherlands, in advance of the         The US and Canadian molasses and               proposed total dividend by 1.8 times.
anticipated adoption of the EU             third party liquid storage businesses
Sweeteners Directive.                      made a loss prior to their disposal in         Disposals
                                           March 2003.                                    We received £60 million proceeds
A £7 million (US$10 million) licence fee                                                  from the disposal of businesses and
was received from McNeil Nutritionals      Interest, Tax and Dividend                     assets during the year to 31 March
under the Global Alliance Agreement.       Interest                                       2003, compared with £137 million
                                           The net Group interest charge was              in the previous year.
Tate & Lyle Process Technology             £26 million compared with £57 million
(TLPT)                                     in the year to 31 March 2002. Interest         The sale of Domino, the US cane
TLPT, the Group’s sugar technology         income includes £4 million from the            sugar refiner, was completed in
company, improved its profitability        loan notes issued to the purchasers            November 2001. Under the terms
having previously disposed of its          of Domino and Western. During the              of an earn-out clause in the sale
chemical and filter businesses. TLPT       year, interest receivable and similar          agreement, we received deferred
has developed technology for the           income benefited from a number of              proceeds of £8 million in the year.
transformation of raw sugar to liquid      unusual items totalling £8 million.
sugar that could find a ready market       These included recoveries of tax               As reported in last year’s Annual
with the worldwide beverage                interest and, in the joint ventures,           Report, Western, the US beet sugar
manufacturers.                             from interest refunds on duty.                 business, was sold to the Rocky
                                                                                          Mountain Sugar Growers Co-operative.
Tate & Lyle Reinsurance                    Average net debt of Tate & Lyle PLC            Sales proceeds total £51 million,
The Group’s Bermuda-based captive          and its subsidiaries was £530 million,         £17 million of which have been
reinsurance company reported an            a reduction of £294 million on                 received. Loan notes are outstanding
underwriting profit for the year ended     £824 million the previous year.                of £34 million, which will be repaid
31 March 2003. The previous year’s         The reduction in net debt accounted            through instalments by January 2007.
results were adversely affected by         for £20 million of the £31 million             In anticipation of disposal, Western’s
increased claims from third party          reduction in the net interest charge.          assets were written down in previous

Tate & Lyle annual report 2003

operating and financial review

financial years, and £9 million of this    The valuation of the fund at 31 March       The total charge to profit under FRS17
was reversed as a profit on disposal.      2003 has still to be completed, but it      would have been £23 million compared
                                           is not anticipated that the fund will       with £24 million under SSAP24.
The conditional sale of Orsan France,      record a surplus. Accordingly, the
the monosodium glutamate business,         Group has not recognised any                Cash Flow and Balance Sheet
was announced in November 2002 and         amortisation of the surplus indicated       Cash Flow and Debt
satisfactory progress is being made to     by the 31 March 2001 valuation, and         Operating cash flow totalled
completion. The anticipated loss on        this has increased the pension charge       £323 million compared with
disposal charged in these accounts is      by £6 million in the year to 31 March       £445 million in the previous year.
£12 million, of which £9 million results   2003. From 1 April 2002, the UK             There was an operating working
from goodwill previously written off       defined benefit scheme was closed           capital inflow of £36 million but, after
to reserves.                               to new members, and a defined               the reduction in pension provisions
                                           contribution scheme has been                due to supplementary contributions
In December 2002, the Group sold           established.                                of £42 million, there was a net
Well Pure, the Hong Kong holding                                                       £6 million working capital outflow
company for the Group’s majority           SSAP24 spreads pension surpluses            (2002 – £143 million inflow). A net
interests in two cane sugar factories in   and deficits over the service lives         £97 million (2002 – £140 million) was
China. The company was bought by a         of employees. Under SSAP24 the              paid to providers of finance as
group of private Chinese investors and     net pension liability reduced by            dividends and interest. Net taxation
a profit on disposal was made.             £41 million to a net asset of £9 million    paid reduced from £35 million to
                                           and the US healthcare provision             £7 million, reflecting a number of
In December 2002 and March 2003            reduced by £12 million to £118 million.     refunds in the year in the UK and USA.
respectively, the molasses and third                                                   Contributions to the Group’s pension
party liquid storage terminals in the      Under FRS17 the current service cost        funds, both regular and supplementary,
USA and Canada were sold, but both         charged against profit each year is         increased from £3 million in the
still remain subject to closing balance    calculated using corporate bond yields,     previous year to £61 million.
sheet adjustments. Proceeds received       and any change in yields generates
were £18 million and a further             volatility in the pensions charge.          Plant replacement, improvement and
£10 million was recovered from             The use of market values in the balance     expansion expenditure of £75 million
retained receivables.                      sheet is likely to give rise to volatile    was below underlying depreciation of
                                           changes in the amounts reported as          £110 million. Investment expenditure
Retirement Benefits                        pension assets and liabilities.             was £15 million, being primarily an
The charge for retirement benefits,                                                    injection of funds into the Tate & Lyle
calculated under SSAP24, was               If the accounts had been prepared           Employee Benefit Trust which
£24 million, an increase of £11 million    under FRS17, the net position for           purchases shares to satisfy options
over the prior year. The pension charge    all Group defined benefit pension           granted under the Executive Share
has increased by £6 million on the         schemes at 31 March 2003 would              Option Scheme. Disposals of fixed
assumption that the main UK scheme         have been a deficit of £196 million,        assets and businesses generated cash
will no longer record a surplus when       a movement of £146 million from the         of £60 million. Exchange translation,
the actuarial valuation at 31 March        deficit of £50 million that would have      and other non-cash movements,
2003 is completed.                         been recorded under the new standard        increased debt by £21 million.
                                           at 31 March 2002, but an improvement
The UK Tate & Lyle Group Pension           of £54 million from the deficit of          The Group’s net borrowings fell from
Scheme fund was valued at 31 March         £250 million at 30 September 2002.          £639 million to £471 million.
2001 and a valuation as at 31 March        The potential US healthcare liability
2003 is currently underway. The            would have reduced from £117 million        The ratio of net borrowings to earnings
results of the 2001 actuarial valuation    at 31 March 2002 and £111 million at        before interest, tax, depreciation and
indicated no need to resume                30 September 2002 to £104 million           amortisation (EBITDA) (before
contributions at that stage, but           at 31 March 2003.                           exceptional items) has improved from
informal valuations were performed                                                     2.1 times to 1.4 times and the gearing
during the year to 31 March 2003, all      After taking account of deferred tax, the   ratio reduced to 45% at 31 March
of which indicated that the fund had       Group’s net assets at 31 March 2003         2003 (2002 – 59%). During the year,
gone into deficit.                         would have reduced by £138 million          net debt peaked at £605 million in
                                           from £1,044 million under SSAP24 to         April 2002 (April 2001 during the year
Annual cash contributions of around        £906 million if the financial statements    ended 31 March 2002 – £959 million).
£8 million recommenced with effect         had been prepared under FRS17.
from 1 April 2002, and £32 million of                                                  Funding and Liquidity Management
supplementary contributions have           Profit before interest would have           The Group funds its operations
been made in the year to 31 March          increased by £5 million, compared with      through a mixture of retained earnings
2003 to the fund to eliminate              a £9 million reduction in the previous      and borrowing facilities, including
estimated shortfalls, making a             year, and the net interest charge would     capital markets and bank borrowings.
total contribution of £40 million.         have increased by £4 million.

Tate & Lyle annual report 2003

In order to ensure maximum flexibility      years. At the end of the year after         The Board of Tate & Lyle PLC regularly
in meeting changing business needs          subtracting total undrawn committed         reviews these risks and approves
the Group seeks to maintain access to       facilities there was no debt maturing       written policies covering the use of
a wide range of funding sources. The        within 12 months and all debt had a         financial instruments to manage these
Group has a euro medium-term note           maturity of two and a half years or         risks and sets overall risk limits. The
programme and a US commercial               more (2002 – 0% and 51%). The               last review was in April 2003. All the
paper programme. At 31 March 2003,          average maturity of the Group’s gross       Group’s material financial instruments
the Group’s long-term credit ratings        debt was 5.4 years (2002 – 3.2 years).      are categorised as being held either for
from Moody’s and Standard and Poor’s                                                    trading or risk management. Trading of
were Baa2 and BBB respectively.             At the year end the Group held cash         financial instruments within the Group is
                                            and current asset investments of            severely limited, confined only to tightly
Capital markets borrowings include          £172 million (2002 – £135 million) and      controlled areas within the sugar and
the €300 million 5.75% bonds and the        had undrawn committed facilities of         maize pricing operations. The derivative
€150 million Floating Rate Note which       £348 million (2002 – £461 million). These   financial instruments approved by the
mature in 2006 and 2007 respectively.       resources are maintained to provide         Board to manage financial risks include
During the year, the Group issued           liquidity back-up and to meet the           swaps, both interest rate and currency,
£200 million 6.50% Eurosterling bonds       projected maximum cash outflow from         swaptions, caps, forward rate
which mature in 2012, which further         debt repayment and seasonal working         agreements, financial and commodity
extends the maturity profile of             capital needs foreseen for at least a       forward contracts and options, and
Group debt.                                 year into the future at any one time.       commodity futures.

The Group ensures that it has               Funding not Treated as Debt                 Control and Direction of Treasury
sufficient undrawn committed bank           In respect of all financing transactions,   Tate & Lyle’s group treasury function
facilities to provide liquidity back-up     the Group seeks to optimise its             operates within a framework of clearly
for its US commercial paper and other       financing costs. The following items        defined Board approved policies and
short-term money market borrowing           are not included in net debt under          procedures setting out permissible
for the foreseeable future. During the      UK accounting conventions, although         funding and hedging instruments,
year, the Group arranged committed          disclosure is made in the notes to          exposure limits and a system of
bank facilities of US$510 million with      these accounts.                             authorities for the approval of
a core of highly rated banks. These                                                     transactions. Most of the Group’s
new facilities have a maturity date of      At Amylum, the Group receives               financing, interest rate and foreign
five years and they refinanced existing     cash from selling amounts receivable        exchange risks and other treasury
undrawn committed bank facilities with      from customers (note 18). The facility      activities are managed through a
shorter maturity dates. These facilities    allows the sale of up to US$85 million      central treasury company, Tate & Lyle
are unsecured and contain common            (£53 million) of receivables and was        International Finance PLC, whose
financial covenants for Tate & Lyle         fully utilised at both 31 March 2003        operations are controlled by its Board.
and its subsidiary companies that the       and 31 March 2002. Where financially        The treasury company is chaired by
interest cover ratio should not be less     beneficial, operating leases are            the Group Finance Director.
than 2.5 times and the ratio of net debt    undertaken in preference to purchasing
to EBITDA should not be greater than        assets. Commitments under operating         Group interest rate and currency
four times.                                 leases to pay rentals in future years       exposures are concentrated either in
                                            totalled £209 million (2002 – £166          the treasury company or in appropriate
The Group monitors compliance               million) and related primarily to railcar   holding companies through market-
against all its financial obligations       leases in the USA.                          related transactions with Group
and it is Group policy to manage the                                                    subsidiaries. These acquired positions
consolidated balance sheet so as            Net debt of joint ventures and              are managed by the treasury company
to operate well within covenanted           associates totalling £60 million at         within its authorised limits.
restrictions at all times.                  31 March 2003 (2002 – £145 million)
                                            was not consolidated in the Group           Interest Rates
The majority of the Group’s borrowings      balance sheet. Of Tate & Lyle’s             The exposure to fluctuating interest
are raised through the Group treasury       £29 million share of net debt of joint      rates is managed by fixing or capping
company and are then on-lent to the         ventures and associates, £9 million         portions of debt using interest rate
business units on an arms-length basis.     was subject to recourse to the Group.       derivatives to achieve a target level of
                                                                                        fixed/floating rate net debt which aims
The Group manages its exposure to           Control and Governance                      to optimise net interest costs and
liquidity risk by ensuring a diversity of   Management of Financial Risk                reduce volatility in reported earnings.
funding sources and debt maturities.        The main financial risks faced by           The Group amended its policy during
Group policy is to ensure that, after       the Group are liquidity risk, interest      the year, so that out-of-the-money
subtracting the total of undrawn            rate risk, currency risk and certain        caps are excluded in the determination
committed facilities, no more than          commodity price risks. Tate & Lyle also     of fixed rate debt. The Group’s policy
30% of gross debt matures within            faces risks which are non-financial or      is that between 30% and 75% of
12 months and at least 50% has a            non-quantifiable, for example, country      Group net debt is fixed for more than
maturity of more than two and a half        and credit risk.                            one year and that no interest rate

Tate & Lyle annual report 2003

operating and financial review

fixings are undertaken for more than       not represent more than 25%                 Commodities
12 years. At the year end the longest      and other currencies should not             Derivatives are used to hedge
term of any fixed rate debt held by        exceed 10%.                                 movements in the future prices of
the Group was until June 2012. The                                                     commodities in those domestic and
proportion of net debt which was fixed     At the year end, net debt was split         international markets where the Group
for more than one year at the year         by currency: dollars 45%, euro 40%,         buys and sells sugar and maize.
end was 49% (2002 – 66 %), which           sterling 14%, and other currencies          Commodity futures and options are
excludes £121 million of out-of-the-       1%.The weighted average exchange            used to hedge inventories and the
money interest rate options capping        rate used to translate US dollar profits    costs of raw materials for unpriced
euro rates at 5.0%.                        was US$1.54 (2002 – US$1.43),               and prospective contracts not covered
                                           compared with the year-end rate             by forward product sales. The options
If the interest rates applicable to the    of US$1.58 (2002 – US$1.42).                and futures hedging contracts
Group’s floating rate debt rise from the   The only material risks from economic       generally mature within one year and
levels at the end of March 2003 by an      foreign currency exposures are              all are with organised exchanges.
average of 1% over the year to March       to UK sugar refining from sterling
2004, this would reduce Group profit       appreciation against the euro.              Credit Risk
before tax by £1 million.                                                              The Group controls credit risk by
                                           Use and Fair Value of Financial             entering into financial instruments only
Foreign Currency                           Instruments                                 with highly credit-rated authorised
The Group has transactional foreign        In the normal course of business            counterparties. Counterparty positions
currency exposures arising from sales      the Group uses derivative financial         are monitored on a regular basis.
and purchases by subsidiaries in           instruments with off-balance sheet
currencies other than their functional     risk, and non-derivative financial          Going Concern
currencies. The Group’s foreign            instruments included on the                 After making enquiries, the directors
currency exposure management               balance sheet.                              have a reasonable expectation that
policy requires subsidiaries to hedge                                                  the Company and the Group have
transactional currency exposures           The fair value of Group net borrowings      adequate resources to continue in
against their functional currency once     at year end was £525 million against        operational existence for the
they are known mainly through the use      a book value of £471 million (2002 –        foreseeable future. For this reason they
of forward foreign exchange contracts.     fair value £649 million, book value         continue to adopt the going concern
                                           £639 million). Financial instruments        basis in preparing the accounts.
The Group’s accounting policy is to        used to manage the interest rate and
translate profits of overseas companies    currency of borrowings had a fair value
using average exchange rates. It is the    of £4 million liability against a book
Group’s policy not to hedge exposures      value of £2 million asset (2002 – fair
arising from profit translation.           value £3 million liability, book value
                                           £3 million asset). The main types
The Group has significant investment       of instrument used are banker’s
in overseas operations, particularly in    acceptances, loans and deposits,
the Americas and Europe. Movements         interest rate swaps, interest rate          Simon Gifford Group Finance Director
in exchange rates between balance          options (caps or floors), cross-            4 June 2003
sheet dates can affect the sterling        currency interest rate swaps and
value of the Group’s consolidated          currency loans and deposits.
balance sheet. The currency profile of
net debt is managed to mitigate the        The fair value of other financial
effect of these translation exposures      instruments hedging future currency
arising on the Group’s net investment      and commodity transactions was
in overseas operations. This is            £10 million asset against a book
achieved by borrowing in currencies,       value of £9 million asset (2002 –
where practicable and cost effective,      fair value £1 million liability, book
which provides a match for the             value £5 million liability). In currency
Group’s foreign currency assets and        exposure management the instruments
which can be serviced from foreign         used are spot and forward purchases
currency cash flows.                       and sales, and options.

Given the current profile of the Group’s   The fair value of financial instruments
net operating assets and operating         held for trading was £2 million liability
cash flows, the Group aims to maintain     (2002 – £3 million asset) arising in
a target currency profile of net debt      the sugar trading. The net gain
such that US and Canadian dollars          included in operating profit from
combined should exceed 40%, euro           trading financial instruments was
should exceed 25%, sterling should         £3 million (2002 – £4 million profit).


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