Tate & Lyle Profits Dip on Sugar

22/05/08 Tate and Lyle has said in a preliminary results announcement that adjusted profit before taxation was down 11% at £244 million (down 7% in constant currency). The reduction in profit before tax more than accounted for by international sugar trading operating loss of £9 million from £22 million profit in prior year. There was a £11 million adverse impact from exchange translation. Profits from core value added food ingredients at £89 million increased 13% in constant currency. Food & Industrial Ingredients, Americas achieved a fourth year of record profits increasing 13% over the prior year in constant currency; now represents almost 60% of the Group’s adjusted operating profit before central costs.

Food & Industrial Ingredients, Europe’s sales prices increased ahead of expectations but profits lower in constant currency due to higher corn costs. Sugar refining profits reduced due to challenging market conditions. Sucralose sales increased by 6% in constant currency; 30% increase in new product launches.

Sir David Lees, Chairman, said: “2008 was a year of significant change and progress for Tate & Lyle. We successfully achieved a number of steps to reshape our business in line with our strategy to build a stronger value added business on a low-cost commodity base. This reshaping process is largely complete and, taken together with some important changes in the management structure, the Group is now well-positioned to benefit from the growth opportunities in our chosen markets. “The Board is recommending an increase in the full year dividend of 5% to 22.6p per share, reflecting its confidence in the outlook for the Group.”

Iain Ferguson, Chief Executive, said: “The Group’s profit from continuing operations was adversely affected by a very disappointing performance in international sugar trading and by the weak US dollar. In international sugar trading, we have taken the necessary actions to restructure its activities and re-focus management priorities to ensure that this year’s result is not repeated. The profitability of the rest of the Group’s operations was encouraging, demonstrating considerable resilience in the face of both the unprecedented increase in global commodity prices and the impact of the EU sugar regime reform. Food & Industrial Ingredients, Americas once again performed strongly achieving a fourth consecutive year of record profits. The 13% increase in profits from core value added food ingredients and the 6% increase in SPLENDA Sucralose sales, both in constant currency, were also pleasing and demonstrate the good progress we are making to grow our business in those areas of strategic focus and investment.

“We expected 2008 to be a year of transition and that proved to be the case. With our strategic reshaping largely complete, our priority is clear – to deliver our longer term target of a return on net operating assets of 20%. With all that we have achieved this year, and with the new management structure in place, we now have the platform from which that longer term target can be delivered and we are committed to that goal.”

Looking forward to the year to 31 March 2009, Tate & Lyle anticipates the Food & Industrial Ingredients businesses in the Americas and Europe, which together accounted for 72% of the Group’s continuing operating profit before central costs in the 2008 financial year, will make further progress benefiting in the Americas both from improved HFCS pricing achieved for the 2008 calendar year and from additional value added capacity now on-stream. In Europe the results will be significantly influenced by European cereal prices following the 2008 harvest.

The EU sugar regime reforms have proved successful in eliminating all but 6% of the quota production capacity targeted for reduction. Surplus refined sugar stocks will need to be absorbed over at least the first half of the year, during which time the market is likely to remain very difficult and challenging. “However, we look forward to market equilibrium being re-established during the second half of our financial year which, together with the actions we have taken on international sugar trading, should enable a progressive restoration of margins in the Sugars business,” the company said.

The SPLENDA Sucralose business is now fully invested. Whilst the incremental impact of a first full year of costs associated with the Singapore facility will restrict profit growth in the first half-year, Tate & Lyle expects continued sales growth to offset these costs and to lead to improved profits in the full year.