Tate & Lyle profit dips after soft market in U.S. beverages

by Jeff Gelski
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LONDON — Sales increased for Tate & Lyle P.L.C. in the six months ended Sept. 30, but profit slipped as a soft beverage market in the United States affected sweetener sales.

“While our overall results were held back by a soft beverage season in the U.S., which affected both divisions, the business performed solidly in the first half with good sales growth in specialty food ingredients supported by particularly strong volume growth in emerging markets,” said Javed Ahmed, chief executive of London-based Tate & Lyle, when financial results were given Nov. 7. “We continue to be pleased with the progress we are making in delivering our long-term strategy.”

First-half operating profit of £176 million ($282 million) compared with £186 million in the first half of the previous fiscal year. Adjusted operating profit of £187 million compared with £194 million in the same time period of the previous year. Adjusted operating profit was before a net exceptional charge of €6 million in the first half of 2013, which compared with £2 million in the first half of 2012, and amortization of intangible assets acquired through business combinations of £5 million, which compared with £6 million in the first half of 2012.

Sales for the six months ended Sept. 30 increased 7% (3% in constant currency) to £1,737 million ($2,784 million) from £1,631 million.

In the company’s specialty food ingredients division, adjusted operating profit of £112 million in the first half was up from £108 million in the first half last year. First-half sales increased 10% (7% in constant currency) to £519 million from £471 million.

Slightly lower volumes in the United States partially offset growth in emerging markets and Europe. Volume growth of 6% in high-intensity sweeteners was held back by the softer demand for beverages in the United States. Splenda sucralose selling prices were slightly lower than expected.

“The global sucralose market continues to be an attractive and growing market,” Tate & Lyle said. “We saw some price erosion as we renewed contracts with our customers, some of which are multi-year and some of which involve the provision of a broader range of ingredients and services.

“As with our other product categories, this is a competitive process, and, as well as renewing existing customer relationships, we are actively pursuing incremental sucralose volume by forming relationships with new customers. Based on what we see today, we anticipate a similar level of price erosion in Splenda sucralose for the full year as that seen in the first half.”

Also within the specialty food ingredients division in the first half, starch-based specialty ingredients sales grew by 15% (13% in constant currency) to £314 million. Tate & Lyle said the rate of sales growth reflected a pass through of higher corn prices at the time of the last calendar year pricing round. The company expects that trend to reverse in 2014 because of a reduction in corn prices since July of this year.

In Tate & Lyle’s bulk division in the first half of the fiscal year, adjusted operating profit was £92 million, down from £101 million. Sales increased 5% (2% in constant currency) to £1,218 million from £1,160 million.

Sales of bulk sweeteners increased 1% to £518 million, but sales were down 2% in constant currency.

“During the period, we experienced lower HFCS volumes as a result of a soft beverage season in the U.S,” Tate & Lyle said. “As a result, operating profits within this product category were somewhat lower than the comparative period.”

Tate & Lyle said it will monitor any impact a tax will have on beverage demand in Mexico and on Mexican imports of U.S. high-fructose corn syrup. The Mexican government on Oct. 31 approved a tax of one peso per liter on soft drinks. The tax is expected to be signed into law in January of 2014.
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