News Column

Tate & Lyle Profit Flat As Winter Stills US Demand For Fizzy Drinks

May 29, 2014

Rowena Harris-Doughty

LONDON (Alliance News) - Sweeteners and starches firm Tate & Lyle PLC Thursday reported flat profit and a drop in sales for its most recent financial year, hit by a soft US beverage sector and weaker sales of its bestselling brand, no-calorie sweetener Splenda sucralose.

The group said that solid profit gains in starch-based speciality ingredients, together with robust growth in emerging markets, was offset in the year by the cold winter weather in the US and an increasingly competitive market for its Splenda sucralose sweetener.

It said sweetener volumes in both of its divisions - Speciality Food Ingredients and Bulk Ingredients - were held back by a soft US beverage sector.

Having warned back in February that impending price declines for its Splenda sucralose were expected to hit full-year results, and trading in the new financial year, Tate & Lyle reiterated again Thursday that based on current market dynamics, it expects average prices in the 2015 financial year to be around 15% lower than the financial year just ended.

"While we will continue to face sucralose pricing headwinds in the current year, our strong innovation pipeline, robust balance sheet and continued growth in emerging markets means we are well placed to deliver growth over the longer term," said Chief Executive Javed Ahmed in a statement.

The British-based multinational agribusiness posted a lower pretax profit of GBP290 million for the financial year ended March 31, down from GBP301 million a year earlier, as revenues in the year fell by 3.4% to GBP3.15 billion from GBP3.26 billion the prior year. Net profit for the year was flat at GBP273 million.

The group declared a 5.3% increase in its dividend for the year to 27.6 pence from 26.2 pence.

Splenda sweetener is one of the company’s bestselling brands, and earnings growth prospects deteriorated for Tate & Lyle over the course of the year as weak drink sales in the US and a competitive sucralose market weighed on profits and sentiment.

Tate & Lyle operates through two global business units - Speciality Food Ingredients and Bulk Ingredients - and its products continue to sell well in Asia and Latin America.

The group posted a 4% sales rise in its Speciality Food Ingredients division driven by strong volume growth in emerging markets and Europe, which it said is being partially offset by the a competitive US market. It said its performance in the division was also supported by the acquisition of oat beta-glucan business Biovelop. Beta glucan is used in cosmetics and personal care products.

"In Speciality Food Ingredients, we expect to deliver volume growth across all major product categories but a lower profit contribution from Splenda sucralose is expected to offset a good performance elsewhere in the division," the company said in a statement.

The group said that notwithstanding the competitive market environment and the headwind of lower prices, its continues to see good long-term volume growth opportunities in the global market for sucralose, supported by rising obesity rates.

However its Bulk Ingredient division saw a drop in profits, again held back by a soft beverage season in the US, which it said reduced demand for liquid corn sweeteners which is used in cereals, baking and soft drinks.

"In Bulk Ingredients, we now anticipate a slower start in the US in our first quarter associated with the prolonged and severe winter, combined with lower European sugar prices in our second half, to outweigh a better performance across other product categories," the company added.

Tate & Lyle said it will invest GBP100 million in capital expenditure over the next two year in its Speciality Food Ingredients business to expand capacity at its plants in Europe and the US for existing products and new products its hopes to launch in the next 12 to 18 months.

"The pipeline is well balanced with a number of line extensions, next generation and breakthrough projects across our sweeteners, texturants, health and wellness and bulk ingredients platforms," Tate & Lyle said. Texturants are starch and gums added to foods and beverages.

The group reduced its net debt in the year to GBP353 million, down from GBP479 million a year earlier.

The company's shares plummeted earlier in the year when its cut its full-year profit expectations, reversing to rise 7% at the end of April on media reports that Bunge Ltd, the US agribusiness conglomerate, was readying a takeover bid.

"While we have always seen Bunge as the most plausible strategic buyer of Tate, we think an approach in the near term is unlikely," said Jefferies analyst in a note earlier this week.

Tate & Lyle shares were one of the biggest gainers on the FTSE 250 Thursday morning, up 2.3% at 690.00 pence.

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Source: Alliance News

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