UK food ingredients group Tate & Lyle plc has said its first-half profits remained flat year-on-year, with growth expected to pick up in the second half.
"Overall, we expect to report adjusted operating profit for the group for the first half in line with our expectations and the prior-year period, which benefited from an exceptionally strong performance from co-products," the group said in a trading update today (27 September).
In the first half of its previous financial year, Tate & Lyle reported earnings of GBP194m.
Tate & Lyle said that the performance of its speciality food ingredients business was hit by the economic difficulties in Europe. Operating profit it expected to be down year-on-year due to lower volume shipments as demand in Europe remains subdued, the company revealed. Profits at the unit were also hit by a strike in Turkey and previously announced changed in fixed costs associated with the business transformation initiatives.
However, Tate emphasised the group had seen an upturn in the second quarter, with "good growth" in sucralose volumes and a strong performance in the US and emerging markets working to offset weakness in Europe.
In bulk ingredients, Tate said first-half operating profit was expected to be up on the year as a strong showing from liquid sweeteners offsetting a tough US ethanol market. Nevertheless, the company conceded "tight" market conditions and concerns surrounding the quantity and quality of US corn crops meant that corn prices remained high, impacting profits at the unit.
"With both divisions having faced headwinds H1 on H1, we think this is a pretty good performance," Panmure analyst Graham Jones wrote in a note to investors. "While Tate flags the current level of uncertainty surrounding the global economy and volatile corn markets, it continues to expect profit growth for the year."
Looking to the remainder of the year, Tate & Lyle said that it expects to gain momentum in the second half, despite the ongoing economic uncertainty in Europe and high corn prices.
"Overall, while recognising the current level of uncertainty around the wider economy and volatile corn markets, we continue to expect to make progress this financial year," the group said.
The company will report its half-year results on 8 November.
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Tate & Lyle PLC Trading Update for six months ending 30 June 2012
Tate & Lyle issues the following trading update for the six months ending 30 September 2012 ahead of the announcement of Half Year Results on Thursday 8 November 2012.
OPERATING PERFORMANCE - CONTINUING OPERATIONS
Overall, we expect to report adjusted operating profit for the Group for the first half in line with our expectations and the prior year period, which benefited from an exceptionally strong performance from co-products.
In Speciality Food Ingredients, we saw an improved performance in the second quarter. Volume growth for the first half is expected to be in line with the market and sales ahead of the prior year period with solid growth in the US and emerging markets offsetting a weaker performance in Europe. We have seen good growth in
Sucralose volumes in the second quarter, although overall volumes in the first half are expected to be lower than the comparative period (which included an unusually large volume from customers' new product launches) primarily due to the more difficult market conditions in Europe. This, together with the impact of the strike in Turkey and the previously announced step change in fixed costs associated with our business transformation initiatives , will result in first half operating profit in this division being lower than the prior year period.
Within Bulk Ingredients, operating profit is expected to be ahead of the comparative period with a strong performance from liquid sweeteners in both the US and Europe more than offsetting ongoing challenging market conditions in US ethanol. Income from co-products returned to more normal levels during the period.
While US corn prices have eased slightly since publication of the USDA's latest supply and demand estimates on 12 September 2012, prices remain high as a result of tight market conditions and continued uncertainty about the size and quality of this year's harvest following the severe drought in the mid-west. European corn prices have followed a similar pattern to the US.
DEBT MANAGEMENT
During the last quarter, we paid the £83 million final dividend for the year ended 31 March 2012 and received £15 million in net proceeds following completion of the disposal of our share in Sucromiles, our former Colombian citric-acid joint venture.
OUTLOOK
In Speciality Food Ingredients, while we expect continued challenging market conditions in Europe, overall we expect to achieve steady volume growth across all major product categories and solid sales growth for the full year.
In Bulk Ingredients, we expect the firm demand for liquid sweeteners in the US to continue and demand in our other food markets to remain stable. In Europe, higher corn prices are expected to reduce isoglucose margins in the second half. Market conditions in US ethanol are expected to remain challenging.
As usual, the outcome of the 2013 calendar year sweetener pricing rounds will influence performance in the final quarter of the financial year.
Overall, while recognising the current level of uncertainty around the wider economy and volatile corn markets, we continue to expect to make progress this financial year.
END
Original source: Tate & Lyle
