Sales Dip While Profits Increase at Tate & Lyle
05 Nov 2015 --- Tate & Lyle has announced that profits have increased in the first half of 2015, compared with the same period last year. Sales decreased by 2% (6% in constant currency) to €1.7bn, while adjusted operating profit was 22% higher (12% in constant currency) at €141m (2014 - €114m) with adjusted profit before tax up 28% (18% in constant currency) at €145m (2014 - €113m).
The first outcome is to deliver 70% of Group profits from Speciality Food Ingredients. Growth in Speciality Food Ingredients will be driven by accelerating growth in North America, continuing to drive growth in Asia Pacific and Latin America, and restructuring Europe to enhance margins. In addition, Sucralose has been reset for modest profitability and Food Systems is focused on top line growth. Overall, Speciality Food Ingredients is well positioned to deliver organic growth, supplemented by selected bolt-on acquisitions, and to grow modestly ahead of the market. The second outcome will be to further broaden the geographic spread of Speciality Food Ingredients sales and for Asia Pacific and Latin America sales to account for 30% of Speciality Food Ingredients sales excluding SPLENDA® Sucralose. Over the last five years, it has increased the percentage of sales from Asia Pacific and Latin America, excluding SPLENDA® Sucralose and Food Systems, from 16% in 2011 to 25% in 2015 and it will continue to invest in those regions and to increase its geographic presence beyond North America. The third outcome is to generate sales of $200 million from new products. Having a strong innovation capability is a key pillar for building a high quality and sustainable growth business.
Within Speciality Food Ingredients, volumes overall were flat as we continued to manage capacity constraints ahead of new capacity coming on stream in the second half of the financial year. Sales increased by 5% (3% in constant currency). Adjusted operating profit increased by 28% (19% in constant currency) to €107m reflecting both a strong focus on the mix of sales. Speciality Food Ingredients excluding SPLENDA® Sucralose and Food Systems Volumes declined by 2% percent as the company actively managed existing capacity for improved customer service and product mix. Sales grew by 7% (4% in constant currency). The focus on sales mix and the impact in the comparative period of supply chain disruption, resulted in adjusted operating profits increasing by 29% (21% in constant currency) to €75m.
In North America, volume was 2% lower than in the comparative period. Volume increased strongly in speciality fibres and speciality sweeteners where the company achieved a number of business wins but this was more than offset by declines in lower margin speciality starches. Demand in the North American market remains resilient and it saw momentum build during the half, with volume growth in the second quarter. A focus on sales mix led to sales increasing by 8% (flat in constant currency) to €230m with adjusted operating profit in the region also benefiting from this approach.
In Asia Pacific and Latin America, volume was 9% lower than the comparative period reflecting a decline in Latin America partially offset by growth in Asia Pacific. In Latin America weakening economic conditions and softening consumer demand for products utilising speciality sweeteners led to weaker volume. In Asia Pacific, volume continued to grow, with particularly strong growth in speciality fibres and speciality starches, where the company continues to build its business in the dairy category in China. Sales increased by 16% (14% in constant currency) to €85m as a result of an increasing mix of higher value ingredients and the impact of the termination of crystalline fructose distribution rights previously held by a third party which increased sales in the region, despite the planned loss of some low value sweetener volume in Asia in the comparative period.
In Europe Middle East and Africa (EMEA), volume increased by 4%, with good growth in Eastern Europe and the Middle East and Africa principally in speciality starches. Sales declined by 6% on a reported currency basis (6% growth in constant currency) at €73m.
Splenda Sucralose volume grew 6% as the company pursued a rigorous value-based approach to securing volume by focusing on those customers who fully value the benefits of the product. The rate of decline of selling prices for Splenda Sucralose slowed during the first half with sales increasing by 2% (3% decline in constant currency) to €109m. The consolidation of manufacturing into the single facility in McIntosh, Alabama is on track with the full closure of the Singapore facility expected in Spring 2016. Adjusted operating profit doubled to €14m, reflecting the impact of lower pricing, the benefit from a reduced depreciation charge of €8m as a result of the impairment of the Singapore facility and the lapping of one-off costs resulting from the temporary closure of this facility in the comparative period. In September 2015 the sale of the SPLENDA® Brand consumer table top business by McNeil Nutritionals LLC to Heartland Food Products Group (Heartland) completed.
Volume of new products, being products in the first seven years after launch, increased by 50% with strong and broad based growth across sweeteners, texturants and health and wellness. Sales increased by 56% (44% in constant currency) to €40m.
In sweeteners, the company has now delivered its first commercial sales of Dolcia Prima Allulose low-calorie sugar. The fibres new product portfolio is having significant success in meeting consumer demand for ingredients with added fibre claims with sales of Promitor Soluble Corn Fibre and PromOat Oat Protein more than doubling in the first half.
In Bulk Ingredients, volumes were flat in the first half while sales decreased by 6% (11% in constant currency) to €1bn reflecting the pass through of lower corn costs and lower commodity prices in the US for ethanol and co-products. Adjusted operating profit was 9% lower (15% in constant currency) at €50m.
The annual bulk sweetener pricing round has progressed more quickly than in previous years. For bulk sweeteners, the company has agreed pricing for the large majority of the volume that was available for contracting in this cycle for the 2016 calendar year, achieving moderate margin gains. As previously communicated, toll contracts represent around 75% of US corn sweetener volumes, significantly reducing the volume of our business that is re-contracted in any single year. Contracting for other areas of the Bulk Ingredients business is in progress. North American Sweeteners North American bulk corn sweetener volumes grew by 2%. Following a normal summer season, the US demand for carbonated soft drinks was relatively resilient at only 1.7% lower, and this together with strong sweetener demand in Mexico saw shipments increase overall.
North American industrial starches volume was 5% lower as primary capacity allocated to this business was reduced to provide increased capacity to Speciality Food Ingredients. Overall demand for paper and board remains steady with reduced demand for printing and writing paper offset by increased packaging demand.
Expectations for the full year remain unchanged from the guidance issued with the full year results in May 2015. The longer term outlook for the business is positive.
