Clive Black, director, head of research at Shore Capital, described the performance outlined in the company’s interim management statement as “one step forward, one step back”.
The company achieved lower year-on-year pre-tax profit in its SFI division, said Black. “Once again there is a modicum of mellowness in the division that Tate’s wishes to drive and be renowned for in the future.”
“Volumes and revenues are ahead year-on-year, but the activities in the US fared better than in Europe and sales in the latter are described as ‘weaker’.” Sucralose volumes were also down year-on-year, when compared with a very strong performance last year, said Black.
Industrial action in Turkey in its SFI division during the first quarter had cost Tate & Lyle about £2m, said Black.
However, the company had delivered robust results in bulk ingredients. “A strong performance is claimed from liquid sweeteners in the US and Europe, offsetting the anticipated, but described as ‘highly challenging conditions in US ethanol and more normal co-product returns’.”
Black concluded that Tate & Lyle “remains a commodity-driven business”.
Rocketing corn prices
The company admitted rocketing corn futures prices, which Black said had risen by 62% from mid-June to mid-July, looked set to make an impact on performance during the rest of the year. Black cautioned that higher prices could drive up the company’s debt levels.
“Since mid-June 2012, corn prices in the US have increased significantly as a result of the severe and ongoing drought in the mid-west and concerns over the impact this will have on this year’s harvest and corn supplies overall,” said Tate & Lyle chairman Peter Gershon.
“Continued dry and hot conditions in central Europe have also driven up European corn prices. It is not clear how the current volatility in the corn price and markets that drive co-product demand and pricing will impact the business over the remainder of the year. As in previous years, we will continue our strategy of maintaining full corn silos in the US to secure supply against the backdrop of tight market conditions.”