Tate & Lyle Issues Profit Warning

23 Sep 2014 --- Tate & Lyle has issued a profit warning, due to an “extremely disappointing” performance for its first half year.

The company, which owns low-calorie sweetener Splenda, reported of supply constraints due to severe weather in the US, which caused problems with US corn plants. Its supply chain was also affected by an industrial incident at its Singapore plant.

“The Group’s performance in the first half has been extremely disappointing as we have faced significant manufacturing and supply chain challenges, and intense competition in Splenda Sucralose,” said chief executive Javed Ahmed.

Supply Chain

As stated in our Interim Management Statement in July (July IMS), supply constraints arising from the prolonged and severe winter in the US caused operational difficulties in our US corn plants and led to us entering the financial year with much lower inventories than usual, leading to a reduction in first quarter profits of around £10 million. Our supply chain was also affected by the extended shutdown in the first quarter of the Splenda Sucralose facility in Singapore.

However, the disruption to our global supply chain persisted longer than we anticipated, caused by challenges in our plant network, low absolute levels of inventory and misalignments between customer demand and inventory availability (particularly from the emerging markets). As a result, we expect to incur additional non-recurring costs in the second quarter of around £20 million, taking the total costs for the first half to around
£40 million.

While inventories are now being re-built and our global supply chain is progressively returning to normal, we anticipate further non-recurring costs of around £10 million in the second half of the financial year.

Splenda Sucralose

Volume for Splenda Sucralose in the first half is expected to be ahead of the comparative period, but lower than anticipated at the time of July IMS, caused by a combination of supply constraints and our decision not to compete for certain volumes where we did not see value. The global market for sucralose continues to be extremely competitive. We now expect the average level of price erosion in the first half to be higher than we previously anticipated, and in the 2015 financial year to be around 25% compared with our previous guidance of 15% as communicated in February 2014.

Speciality Food Ingredients (ex-Splenda Sucralose)

Excluding Splenda Sucralose, Speciality Food Ingredients continues to perform well, albeit overall volume growth in the first half has been held back by supply constraints. We expect to deliver double digit volume growth in the emerging markets, and also good volume growth in Food Systems and in Europe. North American volume, however, is expected to be lower than the comparative period due to supply constraints.

Bulk Ingredients

Bulk Ingredients performed solidly in the second quarter and our expectations for the first half remain broadly unchanged. The performance of this division is expected to be lower at constant currency than the comparative period, largely as a result of the impact of the severe and prolonged winter in the first quarter.

STRATEGIC PROGRESS

On 1 August 2014, we completed the acquisition of Winway Biotechnology Nantong Co. Ltd, a leading producer of polydextrose dietary fibre in China. This acquisition provides an excellent platform from which to accelerate the growth of our speciality fibres business in Asia Pacific.

Our innovation pipeline remains robust and we are preparing to launch two exciting new products in the next few weeks. We are also actively pursuing a number of other initiatives to accelerate the delivery of our speciality food ingredients-focused strategy.

In August, we successfully implemented our global IS/IT platform in our North American business and in Singapore, and are now focused on fully embedding the new processes and systems.

FIRST HALF PERFORMANCE AND OUTLOOK FOR THE FULL YEAR

Despite continuing good demand across Speciality Food Ingredients and a solid performance in Bulk Ingredients, significant operational and supply chain issues together with a lower Splenda Sucralose performance, now leads us to expect Group adjusted profit before tax for the first half to be in the range of £95 million to £105 million.

For the second half, we expect Speciality Food Ingredients excluding Splenda Sucralose and Bulk Ingredients to continue to perform solidly, but this will be more than offset by a softer performance in Splenda Sucralose and additional supply chain costs. This, together with the first half performance, now leads us to expect Group adjusted profit before tax for the full year to be in the range of £230 million to £245 million.

As usual, performance in the final quarter of the financial year will be influenced by the outcome of the calendar year pricing round, and also assumes normal weather patterns.

JAVED AHMED, CHIEF EXECUTIVE, SAID:

“I have instigated an immediate review of our planning and supply chain processes, led by our Chief Financial Officer, to ensure they fully reflect the needs of the business going forward. Despite current operational challenges, I continue to be encouraged by our robust innovation pipeline, the strength of the Speciality Food Ingredients business excluding Splenda Sucralose, and continued growth in emerging markets. We remain firmly focused on taking the necessary actions to improve the Group’s performance and to deliver on our strategy.”