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Hello, and welcome to the Tate & Lyle Q3 trading statement with Nick Hampton, Chief Executive; and Imran Nawaz, Chief Financial Officer. My name is Rosie, and I'll be your coordinator for today's events. Please note, this conference is being recorded. [Operator Instructions] I will now hand you over to Nick Hampton, Chief Executive, to begin today's conference. Thank you.
Thank you, operator. Good morning, and welcome to our third quarter conference call. With me is Imran Nawaz, our Chief Financial Officer. Before Imran and I take your questions, I'd like to make some introductory comments. Overall, I continue to be pleased with our progress in what has been a challenging external environment. We had another solid quarter with the group's underlying performance consistent with the first half and in line with our expectations. In Food & Beverage Solutions, adjusted operating profit performance remained strong. Sales in all regions were ahead of the comparative period due to good price and mix management with volume overall broadly in line. Looking at the regions. Sales growth in North America and Europe, Middle East and Africa was solid, while growth in Asia Pacific and Latin America slower. In Sucralose, as expected, sales and adjusted operating profit were ahead of the comparative period, reflecting good operational performance and phasing of shipments from the first half into the quarter. Moving to Primary Products, which remains on track to deliver steady performance in the full year. In Sweeteners and Starches, profit was higher than the comparative period with strong performance in manufacturing and supply chain and good cost discipline more than offsetting lower sweetener demand from our Bio-PDO joint venture and continued industrial starch softness. In Commodities, profit was ahead of the comparative period due to the earlier phasing of annual contracts. The 2020 calendar year bulk sweetener pricing round is nearing completion with margins broadly in line with the prior year. Our 3 priorities, to sharpen, accelerate and simplify the business, continue to support performance. And our 4-year productivity program is on track. Our balance sheet remains robust, giving us the flexibility to invest for long-term growth. Finally, our guidance for the year ending the 31st of March 2020 is unchanged. And as I said earlier, while the external environment remains challenging, I continue to be pleased with our progress. And with that, Imran and I will open up the call for questions. And operator, I'll hand it back to you. Thank you.
[Operator Instructions] And the first question comes from the line of Arthur Reeves from Barclays.
I have 2. The first is about volumes in FBS. I think it sounds to me from your statement you're guiding to flattish volumes. What do you need to do to get those volumes growing? And the second question is around the challenges you've spoken about twice now, Nick. Can you give us some more details about what the challenges are, what they're doing to your business and how you're overcoming them, please?
Sure. Thank you for joining the call. Let me take the first question first. So I mean, clearly, after 9 months, very happy that performance is consistent in FBS in the first half. So we saw another quarter of progress. Most importantly, solid progress again in North America. We saw Europe return to revenue growth, which is good. And overall, we saw good mix management driving revenue ahead of volume. I think the challenge for us now is we're cycling out to some lower-margin business in Europe, and getting Europe back into volume growth will help progress in volume. We need to see continued performance and progress in North America. And then over time, see emerging markets continue to grow. So it's really the same things we talked about at the first half. So overall, pleased with the shape of the third quarter and it's very consistent with the first half. Then when I look at challenges, what I'm really referring to is I think we're seeing a little bit more challenge on sweeteners and industrial starches in North America than we thought. The team is navigating through that very well. We saw continued steady demand for sweaters in the third quarter and modest improvement in industrial starches, so navigating that very well. The overall global trade environment is challenging at the moment. So we're navigating through some of the noise on trade barriers, et cetera, but nothing really different to the first half. I think we just think that the external environment is a bit more challenging than we anticipated coming into the year. I don't know, Imran, whether you want to add anything to that?
No. I think on the industrial starches, as you mentioned, it's very consistent with what we said at the half, and we did see a bit of an improvement. But the big drivers of the declining paper market domestically as well as the fact that one of our customers have taken out capacity, we have to cycle through that. And the pricing ramp demonstrates, however, that even in a challenging environment, we're able to land flat margins.
Okay. Just a follow-up on volumes. When do you think that you will stop shedding European or EMEA volumes? I think you're trying to move out of texturants, but that must end at some point?
Look, I mean, I expect it to start to cycle out over next year.
The next question comes from the line of Martin Deboo from Jefferies.
It's Martin at Jefferies. I think just 3 quick questions from me. Just remind me, Nick and Imran, on Sucralose. I think we do lap tougher comps in Q4. I mean my expectation is that Sucralose profits for the year will probably be down, which is a contrast to your Q3 commentary. I just want to be absolutely sure I've got the moving parts right on Sucralose. I just want to pick up, there was a comment on phasing of contracts in Commodities. We understand it's something around early settlements of gluten meal contracts. Can you just explain to me how the phasing benefits the profits in Q3 and how that phases during Q3 and Q4 just to understand how things are trending in Primary. And may I have the privilege of asking the coronavirus question. What are you seeing? Remind me what China materiality is. Anything we need to be aware of from that source?
Okay. So let me, Martin, take the third question first and I'll hand the first 2 questions to Imran. Look, let me start with China and coronavirus. I mean clearly, it's a market with huge future potential for us and we're monitoring things closely. And the most important thing at the moment is the safety of our team in China and making sure that we can serve our customers as everything starts up after Chinese New Year. And obviously, there's not much we can say about that evolution at this point. But in terms of materiality for the group, it doesn't change our view on the full year. It's a market with huge future potential. But as you know, the majority of our business is still in developed markets.
And Nick, if I just push you, what is sales materiality of China for the group?
It's a couple of points rather than being any more significant than that. I'd leave it at that.
I'll take maybe the Sucralose questions first. So again, at the -- overall, when you look at the quarter, we were ahead, and really, that was driven by 2 drivers. One was the fact that we had really good operational performance as we've been saying the last year. And at the same time, as you remember, we had a lower volume at the first half that partly will come back into quarter 3 and that is exactly what we saw, as we have indicated. And when I look ahead, last year in quarter 4 is where we had the entire one-off capabilities. So you'll remember, we had roughly GBP 6 million of capability. All of that we have to lap in the coming quarter.
Okay. And Imran, just the point on phasing Commodities. You mentioned that it's...
And also -- sure. So the trading statement refers to Commodity profits being ahead of last year due to the earlier phasing of some annual contracts. I mean that refers to the fact that for some key customers for corn gluten meal, we were able to close out the contract negotiations earlier than last year. And so the timing gives you a bit of a positive variance in terms of how it works. But essentially, when I look at the full year, that reverses itself out in quarter 4 as you lap the fact that you had done similar negotiations last year a bit later and close those out later. I mean stepping back on Commodities themselves, a normalized commodity year, we expect the range of between GBP 10 million and GBP 20 million. When I look at that for the full year, I mean, this will probably be a year where we're at the upper end of that range versus the lower end of that range, which is very consistent with what we talked about at the half as well.
The next question comes from the line of Anton Brink from Kepler.
Two questions from my side. Firstly, can you comment on the reasons for weaker volume growth in LatAm and APAC FBS?Secondly, it seems the sugar harvest has completely filled in the U.S. Is that, in any regard, having an impact on your business and also the negotiations for new unit margin ramp?
So let me take the second question first. As we said in the statement, the contracting round for calendar year 2020 played out as we expected. And we came out with our margins broadly flat versus the prior year, which effectively means that we pass through the net corn cost. So we sort of pursued normal contracting around despite the record sugar crops, and we're pretty much through the contracting round now so we're not seeing any material impact. Imran, I don't know whether you want to comment on Asia and Latin America?
Yes. Look, I mean, again, I think really the key is that what we saw was revenue growth in each and every one of our regions. And when I look at emerging markets, as you know, growth tends to be a little bit lumpier. And in this case, what we saw was some phasing in LatAm of shipments that will fall into Q4 as opposed to Q3. And at the same time, we did see some softness in China dairy.
How big is China dairy?
Well, it's a significant part of the China business, but as Nick mentioned earlier to the earlier question, China itself is not a significant business at the moment of the total pie.
[Operator Instructions] My apologies. We do have another couple of questions in queue. Are you still happy to take those?
Sure. Go ahead.
So the next question comes from the line of James Targett from Berenberg.
Yes. A couple of questions. Firstly, just on the North American FBS market. Some of your peers have been talking about a further slowdown in multinational customer business. And also picking on the dairy segment, I just wondered if you could contextualize that in regards for Tate's sort of Q3? And then, secondly, on FBS profitability. Is there any -- after the magnitude of margin expansion and profit growth we saw in H1, is there anything -- the top line seems to be sort of a similar dynamic. So I just wondered on in terms of profitability for H2, are you expecting anything different?
So firstly, in North America, we continue to see good progress in the third quarter. I mean, clearly, categories they're up and down, as always. There has been some market softness in dairy that's been well reported, but our focus is on expanding our mix of business into growth segments and that's playing out well for us so far this year. So we saw continued volume momentum and good price mix management, which is all very solid progress. If I take your second question on profit. When I look at the shape of FBS, we saw very consistent shape in Q3 than half 1. We're anticipating that to continue through the full year. So there's nothing really that's changed in terms of the kind of flow-through from the top line to the bottom line, which is very encouraging to see. It's part of what we're trying to achieve.
The next question is a follow-up from the line of Martin Deboo from Jefferies.
Can I just ask a question about the sort of international trade environment? The relevance of the question is mainly to the feedstuffs markets, particularly between the U.S. and China. I suppose at a lower level, just a quick reminder of where we are on the USMCA. So it's just a very sort of difficult subject to research. Just value your perspectives on where are we on sort of international trade flows of commodities? And any implications for you from that, positive or negative?
So encouraging progress on USMCA. So it looks like it's moving towards ratification across the U.S., Mexico and Canada, not signed finally yet, but all of the signs seem to be that it's going to get closed out in the near future. So that's obviously positive for us because it maintains open borders between the U.S. and Mexico for the products that we move across the border. On the U.S.-China, lots of ups and downs, but more positive noises. There was even news overnight of reducing of tariffs and the flow of agricultural goods seems to be loosening, which can only be a good thing for the business in the longer term. But as you know, there's a long way to go before that gets resolved.
We have no further questions in the queue. So Nick, I'll hand the call back to you for any concluding remarks.
Thank you, operator. And look, everybody, thank you for joining the call and for your questions. So to summarize, I guess, the business continues to perform well. We delivered another solid quarter of performance. And importantly, our full year guidance remains unchanged. With that, we look forward to seeing you all again on the 21st of May at the full year results presentation. Thank you for joining the call again, and have a good day. Thank you, operator.
Thank you, everyone, for joining today's conference. You may now disconnect your lines. Hosts, please stay connected and await further instructions. Thank you.