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Tate & Lyle sours as supply chain woes provoke profit warning

September 24, 2014
Food & Drink
Tate & Lyle tasted decidedly sour to investors yesterday as it issued a second profit warning in eight months and said that its full-year profits could take a hit of more than £50 million.
 
The sweeteners and food ingredients company said that a severe winter in the United States and “extremely aggressive” sucralose pricing had forced it to revise its guidance yet again. Its full-year profits were now likely to be between £230 million and £245 million, it said, about 20 per cent lower than the £290 million that analysts had expected.
 
The warning came after an earlier one in February and sent the group’s shares down by more than 16 per cent to 610p.
 
Javed Ahmed, the chief executive of Tate & Lyle, said that the first half had been “extremely disappointing” and that “these are not the kind of results that we want to deliver”.
 
He said that the company had suffered significant constraints on its global supply chain after the “prolonged and severe winter in the US”. These had cost the group about £30 million in additional expenses as it was forced to fly orders to customers in Asia and Latin America as soon as products came off American production lines.
 
“That cost us money,” Mr Ahmed said. “We had to maintain customer service levels and fulfill demand and we had to make some tough choices [to meet orders] and we didn’t do that in an efficient manner. Product was coming off the production line and being put on air freight. It’s something we haven’t had to deal with before as we’ve had a cushion of inventory.”
 
He said the group had begun an immediate review of the supply chain and planning processes.
 
Tate & Lyle also is grappling with a glut of sucralose supply and “irrational” pricing from competitors, particularly Chinese producers. Mr Ahmed said that the market remained “extremely competitive and dynamic”.
 
The falling price of Tate & Lyle’s Splenda sucralose sweetener, which forms part of its specialty food ingredients division, could reduce profits by £20 million. In February Tate & Lyle said that it expected “price erosion” of about 15 per cent for the year, but yesterday it revised this upwards to about 25 per cent.
 
Analysts at Canaccord Genuity downgraded Tate & Lyle to “sell” and said: “The fact that Tate has issued such a significant profit warning within two months of the last guidance update points to a serious lack of visibility not only within one of its end markets [sucralose] but also internally.”
 
Tate & Lyle said it was committed to maintaining its dividend, which it dubbed a “cornerstone” of its allocation process.
 
By Deirdre Hipwell
 
Source: The Times

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