29th Jul 2015 14:05
LONDON (Alliance News) - Tate & Lyle PLC on Wednesday said that trading in the first quarter of its financial year was in line with its expectations and that guidance for the full year remains unchanged.
Shares in Tate & Lyle were trading up 3.6% at 529.50 pence, a top-10 performer in the FTSE 250 Wednesday afternoon.
The sugar and sweeteners company said that the Speciality Food Ingredients business made an encouraging start to the year and performed ahead of the comparative period, as SPLENDA Sucralose performed "solidly" in the quarter to June 30. Volume growth was slightly behind the comparative period, however, although this improved as it exited the quarter, the company said, and it expects volume to strengthen through the remainder of the year.
The Bulk Ingredients business performed steadily and slightly ahead of the comparative period, supported by solid sweetener demand, Tate & Lyle said. However, this was more than offset by the impact of commodities prices, including the continuation of low US ethanol margins.
Back in May when it released its results for its last financial year, Tate & Lyle said it had begun taking steps to evolve the company away from Bulk Ingredients into a Speciality Food Ingredients business, after it reported a huge drop in pretax profit to GBP51 million from GBP277 million the year before, and sales fell to GBP2.4 billion from GBP2.8 billion.
It said at the time that a weak performance from its Bulk Ingredients business contributed to the overall decline, as well as an extremely competitive market for SPLENDA Sucralose.
In order to move away from Bulk Ingredients, 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.
It said the deal 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 also will 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.
On Wednesday, Tate & Lyle said that the process of obtaining regulatory approval for the realignment of the Eaststarch joint venture is progressing well, and the transaction is expected to complete around the end of the second quarter of the current financial year, meaning September 30.
"Overall, before the impact of exchange rate movements and the final timing of the completion of the Eaststarch transaction, expectations for the group?s full-year performance remain unchanged from our guidance in May," Tate & Lyle said in a statement.
While analysts at Berenberg and Shore Capital agreed that Tate & Lyle's trading update was encouraging, Liberum was less convinced.
The broker argued that the group's SPLENDA business no longer fits in with its strategic focus on value-added speciality food ingredients, despite recent restructuring, and endorses the view that management needs to sell the division sooner rather than later.
Liberum said it expects a lack of earnings visibility to remain in the short-term as management realigns its portfolio and pressures on SPLENDA continue.
By Karolina Kaminska; [email protected] @KarolinaAllNews
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