28th May 2015 12:14
LONDON (Alliance News) - Tate & Lyle PLC Thursday reported a huge drop in profit in its recently-ended financial year after suffering from issues in its supply chain, a weak performance from its Bulk Ingredients business and tough market conditions for its SPLENDA Sucralose products, but said it is taking steps to evolve the company away from Bulk Ingredients into a Speciality Food Ingredients business.
The FTSE 250-listed sugar and sweeteners company reported a drop in pretax profit in the year to March 31 to GBP51 million from GBP277 million the year before, as sales fell to GBP2.4 billion from GBP2.8 billion.
Tate & Lyle said its performance was hit by operational and supply chain issues experienced in the first half of the year, which led to additional costs of order fulfilment totalling GBP20 million and missed sales opportunities. It said that the unusually prolonged and severe 2013-14 winter in the US caused operational difficulties in its plants, meaning it entered the 2015 financial year with much lower inventories than normal. The SPLENDA Sucralose facility in Singapore also had to take an extended shutdown in the first quarter due to an industrial accident.
Volatility and lower pricing in the second half in some commodity markets in which its Bulk Ingredients business operates, and a continued extremely competitive market for SPLENDA Sucralose also hit the business, Tate & Lyle said. Adjusted operating profit for SPLENDA was GBP16 million, 73% lower than the GBP62 million reported in the prior year.
Still, Tate & Lyle said it will increase its dividend for the full year to 28.0 pence from 27.6p, an increase of 1.4%.
"It has been a very challenging year for the group, but with the necessary actions underway we are firmly focused on improving our performance and continuing the evolution of Tate & Lyle into a global Speciality Food Ingredients business supported by cash generated from Bulk Ingredients," Chief Executive Javed Ahmed said in a statement.
In April, Tate & Lyle signed an agreement with US food ingredient provider Archer Daniels Midland Co, to realign its Eaststarch CV corn wet milling joint venture business in Europe, in which both parties own a 50% stake in.
The terms of the agreement will allow Tate & Lyle to strengthen its Speciality Food Ingredients business by acquiring full ownership of the more speciality-focused plant in Slovakia, exit and transfer the predominately Bulk Ingredients plants in Bulgaria, Turkey and Hungary to ADM, and focus its European business on Speciality Food Ingredients by appointing ADM as exclusive agent for Bulk Ingredients produced from the plant in Slovakia and Tate & Lyle?s wholly-owned corn wet mill in The Netherlands under a long-term agreement.
It said the agreement will also provide the company with EUR240 million in cash at closing, and an additional payment of up to EUR20 million in 2019 conditional on future corn and sugar pricing.
"The year ahead will be one of structural change as we realign the Eaststarch joint venture and SPLENDA Sucralose, embed changes to improve our global supply chain capabilities, and bring on line additional growth capacity for Speciality Food Ingredients. We anticipate that, in this year of change, adjusted profit before tax for the year ending 31 March 2016 will be broadly in line with the 2015 financial year on a pro-forma basis assuming the Eaststarch transaction completes in the summer as expected," Tate & Lyle said.
"The longer term outlook for the business remains positive. We expect the global market for Speciality Food Ingredients to grow at mid-single digits and our objective is to grow modestly ahead of the market via organic growth supplemented by bolt-on acquisitions. We continue to target sustained cash flows from Bulk Ingredients and to dampen volatility where possible. As the mix of the group moves towards our higher margin Speciality Food Ingredients business augmented by operational improvements, over time we expect to steadily enhance group profit and returns on capital," the company added.
However, Liberum analyst Robert Waldschmidt said it will take substantial work before Tate & Lyle can deliver sustainable long-term growth.
"A combination of structural and one-off issues led to two profit warnings in calendar 2014 and a 3rd in 2015. We expect a lack of visibility will linger longer than expected as Tate addresses these issues," Waldschmidt said.
Tate & Lyle shares are down 3% at 581.68 pence, amongst the worst performers in the FTSE 250 Thursday afternoon.
By Karolina Kaminska; [email protected] @KarolinaAllNews
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