6th Feb 2015 09:26
LONDON (Alliance News) - Shares in Tate & Lyle PLC plummeted on Friday after the company said it expects its full year profit to fall below its guidance on the back of continuing problems in its bulk ingredients business and said it will take action to try and improve its operation and supply chain following prolonged issues.
Shares in the company were down 13% to 579.7 pence on Friday morning, comfortably the worst performer in the FTSE 250.
The sugar company said it expects its profit for the year to the end of March to come in below the guidance it gave in September of GBP230 million to GBP245 million, owing to the weak performance in the bulk ingredients business in the third quarter and expectations this will not improve in the final quarter. The bulk ingredients performance will offset the results from its specialty food ingredients arm, which it expects to be in line with expectations.
The profit warning comes on the back of the fall in first half pretax profit the group posted in November, when it was hit by falling sales across the business and exacerbated by supply chain issues, a weak performance for its Splenda Sucralose arm and the strength of sterling.
Tate's Bulk Ingredients business was weaker year-on-year in the quarter, hit by the impact of lower US sweetener volumes. It blamed constraints in the wider US transportation network, weakening EU sugar prices, which hit bulk sweetener prices in Europe, and a deterioration in ethanol margins near the end of 2014.
The group has been repositioning its bulk ingredients business, meaning tolling contracts now represent around 75% of its US corn sweetener volumes. Contracts for the 2015 calendar year for the remaining 25% of its corn sweetener volumes were renewed at higher unit margins, though it expects the benefit of this to be offset in the fourth quarter and in 2016 by lower volumes and pricing pressure.
The lower volumes will be driven by grind being diverted to its specialty food ingredients business and it expects further pricing pressure in the US ethanol and EU bulk sweetener markets.
Tate & Lyle also said its review of global demand, supply and planning processes announced in September last year has been completed and found there will be no need to increase its capital investment beyond the already announced incremental rise expected to come on stream in the second half of its 2016 financial year.
The review also found improvements are needed in its operating and supply chain processes and said a programme to carry out these improvements is now underway. It reiterated it expects to incur costs of GBP40 million in the year to the end of March as a result of operational and supply chain disruption.
Tate said its specialty food ingredients business performed in line with expectations in the third quarter, with volumes ahead year-on-year on the back of solid growth in its Europe and Asia Pacific markets.
The Splenda Sucralose business also performed in line with expectations, albeit with volumes slightly lower year-on-year. Tate said the sucralose market remained very competitive in the quarter, and it expects this trend to continue, adding it will only compete for volumes in parts of the market where it sees value. Tate added it expects to complete its review on how to improve the Splenda business by the end of its financial year.
In the first half, Splenda had proved the main drag on Tate's performance, 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.
By Sam Unsted; [email protected]; @SamUAtAlliance
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