6th Nov 2014 13:18
LONDON (Alliance News) - Tate & Lyle PLC posted a big fall in pretax profit for the first half on Thursday, hit by falling sales across the business which were impacted by supply chain issues, weakness in its Splenda Sucralose arm and the strength of sterling, though analysts were mixed on whether it is now set for growth or whether its woes will continue.
The FTSE 250-listed sugar producer said pretax profit for the first half to the end of September was down to GBP104 million from GBP173 million a year earlier, down 40% on a reported basis and down 34% in constant currencies. The group hiked its interim dividend despite the profit fall, up to 8.2 pence per share from 7.8 pence a year ago.
Sales dropped to GBP1.38 billion from GBP1.74 billion the year before, down 21% on a reported basis and 13% in constant currencies.
The group was hit by operational and supply chain disruption costs totalling GBP31 million, with the effect of price erosion on Splenda Sucralose put at GBP18 million.
The company was hit by the prolonged winter weather conditions in the US, which caused problems in its plants there entering the new financial year. That was compounded in the first quarter, when an industrial accident resulted in the Splenda Sucralose factory in Singapore being shut down for an extended period.
The Splenda Sucralose business was the main drag on the company's earnings, with operating profit in the division substantially lower year-on-year and the average level of pricing expected to be around 25% lower than in the comparable period a year ago.
The group said it maintains its full-year outlook, with expectations that a solid performance in its Specialty Food Ingredients business will be more than offset by a weaker performance for the Splenda Sucralose unit and additional supply chain costs.
The company said it expects adjusted pretax profit for the year to be between GBP230 million and GBP245 million.
Tate & Lyle shares were down 1.2% to 601.5 pence on Thursday.
Analysts expressed mixed views on the results, suggesting that though the results were reassuring, the structural issues of its market are enough to give cause for concern.
Jefferies said the first half results for the FTSE 250-listed sugar company were "reassuring", at least with the backdrop of lowered expectations and its second quarter profit warning.
The broker said the numbers were slightly ahead of expectations and there is some underlying momentum in its Speciality Food Ingredients business, excluding its Sucralose woes, and its cost guidance on supply chain disruption is holding firm.
It said that while there is reason for caution, particularly the weak progress for its Bulk Ingredients business against industry peers and its "non-undemanding valuation", the first half results look like a "platform from which to rebuild".
That view is backed by the company's decision to hike its dividend by 5%, Jefferies added, saying the increase implies confidence at Tate & Lyle in both its strategy and a profit rebound in 2016.
Berenberg also noted the strong performance for the Speciality Food Ingredients business, but said that while some of the issues for the company in the first half do look like one-offs, the structural fall in Sucralose prices and concerns over the demand for high-fructose corn syrup is likely to continue to drag on profitability.
Where Jefferies sees a likely return to profit in 2016, Berenberg also warned it expects earnings to be below 2014 levels out to 2017, meaning it it struggling to see value in the stock.
By Sam Unsted; [email protected]; @SamUAtAlliance
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