Tate & Lyle has issued its third profit warning in a year after it was hit by falling oil and sugar prices in the third quarter of its financial year.
The warning sent shares in the food ingredients producer down almost 14% to 573.5p. They have fallen 26% in the past year as the group has published a series of warnings on its trading.
The group issued its first profit warning of the past year nearly 12 months ago, when it reported a big drop in prices of its sucralose artificial sweetener and weak sales in developed markets.
Tate & Lyle, which no longer produces the sugar that made it a household name, is the latest company to be affected by falling commodity prices. Oil companies have cut investment plans and mining companies have been hit by falling demand for metals as the world economy shows signs of slowing down.
In an update published earlier than scheduled, Tate & Lyle said profits at its main bulk ingredients business fell in the three months to the end of December. Prices in Europe of isoglucose, its corn sweetener, were reduced by the falling price of sugar. The falling oil price squeezed margins for ethanol, another Tate & Lyle product, used in petrol.
Demand for artificial sweeteners fell in the US as the popularity of fizzy drinks took a sharp dip and the company said sales lost owing to US transport problems had gone to competitors.
Chief executive Javed Ahmed said: “The group had a challenging quarter. Bulk ingredients faced a combination of industry-related issues in the quarter … we expect these issues to continue to impact this division in the fourth quarter and beyond.
“We don’t think ethanol is going to bounce back any time soon and for European sugar there is no reason to believe that is coming back any time soon.”
Tate & Lyle said annual profits for the year ending on 31 March would be slightly below the £230m-£245m range it gave in September, when it reduced its full-year guidance. Adjusted pre-tax profit last year was £322m, indicating that profit for the current year is likely to fall by about 30%.
Supply chain problems caused by a harsh US winter were responsible for September’s warning as Tate & Lyle was left with low stocks to meet demand from Asia and Latin America.
Ahmed said on Friday that most of the £40m of lost orders would not be recovered because they had gone to competitors. The loss of so much business took analysts by surprise.
The company’s net debt increased to £466m at the end of December from £383m three months earlier, caused by acquisitions and spending to fix supply chain problems. Asked about the security of Tate & Lyle’s dividend, Ahmed said the group had a strong balance sheet despite the increase in borrowing.
Ahmed said: “It’s been a very difficult year for the company.” He said the results reinforced the group’s attempts to reduce its exposure to volatile commodity prices.
Tate & Lyle has been trying to move into higher-margin speciality ingredients such as oat proteins and artificial sweeteners.
Source: www.theguardian.com