VALUE ADDED SEMINAR OCTOBER 2004

Iain Ferguson Chief Executive

Good morning and thank you for attending this seminar. We have a lot we want to share with you, so, could I please ask you all to turn off your mobile phones, blackberries, etc, so that we can all make the most of the time available. Today is all about the exciting growth opportunities offered to the Group by value added products. You will also get the opportunity to meet more of our management team – both formally in presentations and less formally at the demonstration tables and at lunch. Our Chairman, Sir David Lees and Stanley Musesengwa, our Chief Operating Officer are also here today. Obviously we report in approximately two weeks – so we are NOT going to be talking about short term results here today. Most of you will have seen the trading update we published on 23rd September and we have nothing more to add at this point. But let me tell you about what we will be covering

Value Added Seminar 20 October 2004

Page 1

Agenda

Introduction

Iain Ferguson

Financials

Simon Gifford

New Customer Approach

Greg Morency

Break – product displays

2

Bio-products

John Roginski

SPLENDA® Sucralose

Austin Maguire

Conclusion

Iain Ferguson

SPLENDA® is a trademark of McNeil Nutritionals, LLC

I will start off by explaining the strategic fit of value added products and some of the drivers that influence this growth area of our business. Simon will then lift his cassock a little on the financials, (not a pretty sight I’m told) and give you information about what makes up value added, branded and the other segments. We will then go on to, Our new approach to customers. This will be the first opportunity for most of you to meet Greg Morency, our new global Vice President Marketing. Greg joined us in June 2004 as part of my commitment to strengthen our marketing and research and development capabilities. We will then take a 20 minute break for you to get coffee, make those vital phone calls and visit the product displays we have set up, where more of our people will be on hand to talk about our business and our products. After the break, John Roginski will update you on bio-products. John is Vice President, Sales and Marketing, Industrial Products for Tate & Lyle in the US. No meeting in today’s environment would be complete without a SPLENDA® Sucralose[1] session, and Austin Maguire, President of Tate & Lyle Sucralose will give you an update on what is happening in his business. I will come back at the close with a few concluding remarks and we will then take questions. I would ask you to hold your questions until the end and we will have a panel session with all of the presenters. There will then be a short break whilst lunch is set up which will give you an opportunity to visit any of the product displays you have missed, and over lunch you will get a chance to meet with all of the presenters and some of the people you will be meeting at the product demo’s. Each table will have two Tate & Lyle ‘hosts’ – so you will have plenty of chance to chat to them. I hope you find this seminar both informative and fun. We have a lot to tell you, show you, and let you taste! In fact we have so much that the challenge is going to be to get it done in the time available, so let’s get on without any further delay onto the strategic fit and drivers. [1] SPLENDA® is a trademark of McNeil Nutritionals, LLC

Value Added Seminar 20 October 2004

Page 2

Purpose and Vision

•

PURPOSE To create the world’s leading renewable ingredients business

• VISION We will grow by uniting our businesses and developing partnerships to create the world’s leading renewable ingredients business. We will build a consistent global portfolio of distinctive, profitable, high value solutions in products and services for our customers.

3

As you all know, I have been with the Group for about 18 months and launched our new vision in June. When I joined, I inherited a sound strategy and a balance sheet that had been strengthened by four years of focusing on our core businesses through disposals. Our net debt has fallen from around a billion pounds in 2001 to less than half of that last year. Our focus has now turned towards growth – where we have strong opportunities both organically and through partnering. We have a clear strategic purpose to create the world’s leading renewable ingredients business. Since we introduced the strategy in June a lot has happened and we want to tell you about the way we are turning the Vision into Action - driving new business initiatives, creating opportunities and already delivering with our customers.

Value Added Seminar 20 October 2004

Page 3

Vision into Action

•

Change how we go to market

•

Change what we take to market

•

Select where we compete

4

As a Group we will continue to focus on the cost and efficiency of our commodity base which supports value added growth. But what will ensure more growth is developing ‘how we go’ to market and ‘what we take’ to market. Our major customers operate on a global scale. Reflecting this, we have been investing in consumer research, sales and marketing expertise and in research and development. We have improved the way we sell our products and have developed appropriate solution sets for our customers By changing what we take to market through research and development and improved technology we have already developed unique solutions for some of our customers in key market sectors. Greg will expand on these themes in a moment. In addition we are evaluating where we are able to compete to our best advantage, and have strategic teams examining new product opportunities and the potential for geographic expansion - particularly into Asia.

Value Added Seminar 20 October 2004

Page 4

Tate & Lyle Today

CEREAL SWEETENERS & STARCHES Staley • Almex • Citric Acid Amylum • Eaststarch

5

SUGAR

VALUE-ADDED PARTNERSHIPS

TLS/Alcantara • Sugar Trading • United Molasses Eastern Sugar Redpath Sugar Occidente Vietnam

SPLENDA® Sucralose Sorona® Bio 3G AquastaTM Astaxanthin

The DuPont Oval Logo, DuPontTM, Sorona®, and The miracles of scienceTM are trademarks or registered trademarks of E.I. du Pont de Nemours and Company

As I said, we have been through four years of focusing on our core activities through disposal – and have sold more than thirty businesses. You can see that we are now focused on three core business segments. First is our global cereal sweetener and starch business, which includes Staley in America and Amylum in Europe. This segment has delivered value added growth in recent years and we expect this trend to continue. The second is our sugar and molasses business based on European cane sugar refining (in the UK and Portugal), our joint venture sugar beet operations in Eastern Europe together with Redpath in Canada. These businesses provide cash flow for the Group. The third segment is one of growth of value added products through partnering – here we have included SPLENDA® Sucralose (our high intensity sweetener), our joint venture with DuPont to produce Bio 3G for Sorona® polymer, and our joint venture with the US biotech company, Igene, to produce an essential nutrient and pigment for farm raised fish. All of these will be covered later this morning. We are committed to growing the contribution from value added products and the next slide, which most of you will have seen before, demonstrates why this is one of our core strategies.

Value Added Seminar 20 October 2004

Page 5

Choosing How We Will Grow Economics of the Four Segments

Cash Generation per Unit

Cash for Growth Consumer Branded Quota Constrained

Value Added – Excellent Growth Opportunities

Cash and Low Cost/ High Volume Substrate for Growth

Commodity

6

Growth Opportunities

Data: Illustrative not to scale

As you know, we measure the performance of our businesses using the geographic analysis used for reporting. However, I also think of Tate & Lyle in the following four segments: commodity (such as US High Fructose Corn Syrup), quota constrained (which includes the European Union sugar and isoglucose businesses), consumer branded products (mainly our sugar and syrup brands) and value added. This chart is illustrative only but demonstrates how value added margins are underpinned at an input level by the high volume, low-cost substrate generated by our commodity products… and at an investment level by the cash generation of our commodity, quota constrained and consumer branded businesses. Dividing the business into these groups also makes it clear why we have chosen to grow the value added segment. The commodity segment contributes both cash and the efficiencies of scale to ensure we have a competitive value added business – its margins are, as you would expect, low - typically around 3%, and growth prospects are modest. The quota constrained business in the EU enjoys better margins, but cannot grow due to the nature of the regime. The consumer branded products achieve high margins but again have limited growth prospects due to either regime or market pressures. The value added segment has excellent growth opportunities – driven by changing lifestyles leading to consumer demands on the food industry - which in turn drives demand for functional ingredients enabling us to achieve higher margins. We set ourselves the target to grow the contribution from value added and consumer branded products from a base of around 30-35% to 50%. Last year we achieved 54% of profit before interest, exceptional items and goodwill amortisation from 20% of our sales. The maths will demonstrate that typically these added value products enjoy attractive margins. Simon is going to give you more details on the break-down of these segments in a moment. But what drives the growth in our products….

Value Added Seminar 20 October 2004

Page 6

The Silent Partners of Prepared Foods

•

Increasing demand for convenience and nutrition driven by socio-economic change

•

Organic growth opportunities for value-added ingredients

•

Our products help to provide convenience, reduced calories and fat, and improved functionality

What makes value added? Greater degree of processing, technical know-how or intellectual property, sustainable / superior margins, pricing power 7

We have used this description before, the “silent partners of prepared foods”. This is because you can’t touch, see or even identify our products in the final food – although you would certainly miss them if they weren’t there! And, as ingredients, however fantastic their functionality, starches generally look like very similar white powders or milky liquids. The demand for specific benefits such as convenience and low-calorie are part of the evolution in food preparation and product choice that has resulted from changes in the way people live their lives - such as increased working hours and decreasing household size. These are changing how people access food. Recent reports suggest that Americans spend about half of their food budget and consume about one-third of their daily energy on meals and drink consumed outside the home. At the same time the hands on time to prepare a meal has fallen from 60 minutes in the 1980’s to 20 minutes in the 2000’s. To quote the popular TV show the trend seems to be ‘can’t cook, won’t cook’. While this trend is United States-led, it is well established in the UK and there is strong evidence that this move to convenience and ready prepared foods is gaining ground in the rest of Europe. The consumer led demand for convenient and nutritious foods clearly impacts on the demand for our valueadded ingredients – in particular modified starches. Without starches – most prepared foods today would be unpalatable or at the very least unrecognisable. High technology starches really are the silent partners of today’s major food products. But what makes a starch value added? Typically these products will have a greater degree of processing or manufacturing than commodities and will often have specific technical know-how or intellectual property attached. They will deliver higher margins that are sustainable – they have greater pricing power. But today’s value added can become tomorrow’s commodity – citric acid is a classic example of a value added product that has become commoditised. Products can and do move out of value added – our challenge is to keep the innovation pipeline full. When I have spoken about the drivers behind growth in value added, we haven’t just pulled statistics off the internet. To better understand the drivers of our business we have invested in bespoke research, asking consumers what they want.

Value Added Seminar 20 October 2004

Page 7

We Are Asking Consumers What They Want

Health Convenience Pleasure

‘‘

… I don’t have time to cook

from fresh … I don’t want to compromise on taste … my kids need energy and fun products … I want to eat more healthily, not

‘‘

diet … I don’t want to be misled

by brands … the manufacturers have to be responsible …

8

We carried out an extensive piece of consumer research in France, Germany, the UK and the US. Some clear messages came out. Today’s consumers have new drivers – health, convenience and pleasure. Examples of the findings are…. People think that they eat badly and that they must do better. The only real route for the mass market to healthier eating is through processed foods Different consumers blame the manufacturers, retailers, governments or themselves for poor diet. Brands which consumers expect to be healthy and which don’t deliver may get into serious trouble. Many consumers are starting to move away from formal diets to eating their own type of diet. There are opportunities to move nutrition and health benefits to the front of the pack. They are also looking to food manufacturers to take the lead in this area – to deliver against a new set of imperatives.

Value Added Seminar 20 October 2004

Page 8

We are Responding to Evolving Consumer Trends and Customer Needs Today . . .

Yesterday . . .

Consumers are getting more sophisticated, more demanding and increasingly healthconscious

Strong brands Solid distribution Great taste Traditional Ingredients

• Our customers focused on strong brands and great taste

• Healthy, innovative and ‘lifestyle-friendly’ but no taste compromises!

• Products had ingredients understood by consumers

• Our customers need performance ingredients

• Limited ingredient differentiation

• We need to balance, taste, energy, creativity – traditional ingredients and novel ingredients • Its about the experience!

9

This shift in consumer opinions reinforces what we know about our customers’ brands and very much reinforces the logic of our strategy of moving into value added ingredients. It used to be about good brands and great taste. Now it’s about great brands, great taste and healthy diets too. Governments and regulatory bodies are becoming much more active in a variety of nutritional issues. Consumers now increasingly want to choose what they see as healthier alternatives but still do not want to compromise great taste. In excess of 50% of new product development for some customers is dedicated to products aimed at the innovative ‘Healthier’ market. We expect portfolios to shift formulations towards lower-fat, lower calorie positions. Furthermore, retailers and private label have increased the pressure on FMCG customers to compete by innovation. To meet this challenging environment, we are reinventing our portfolio and services to be more advanced in what we offer. We need to invent ingredient solutions which taste great in our customers’ products but come without the fats and the calories. Helping our customers develop products that offer fun, as well as health. Greg will explain what new initiatives we have in this area. One of the other consumer drivers is concern over obesity.

Value Added Seminar 20 October 2004

Page 9

Obesity Trends* Among U.S. Adults 1985

No Data