Tate & Lyle plc chief executive Javed Ahmed has insisted his move to refocus the business on value-added ingredients will continue to drive growth in the coming year.
Ahmed’s comments came despite some concerns in the City that Tate & Lyle’s profit growth will be limited in the next 12 months.
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In a filing today (31 May), Tate & Lyle booked an 11% increase in full-year operating profits on a constant-currency basis as “good” sales growth was partially offset by higher input costs.
Profit growth at the company’s bulk ingredients arm rose by 13% when measured on a constant currency basis, despite a 2% drop in volumes, driven by co-product returns and an improved performance in European industrial starches. Tate & Lyle’s speciality food ingredients arm saw profits rise 5% in constant currencies, although margins weakened from 25.6% to 24.1%.
Under Ahmed, the UK-based sweeteners and starches group has embarked on a transformation programme in a bid to boost profitability. The company has increased its focus on value-added speciality products, such as its Splenda sucralose sweetener and food ingredients, and moved away from areas like sugar refining.
“We expect to see progress on profits, and continue to see top-line growth from our speciality food ingredient this year,” Ahmed said on a conference call following the results release. “In speciality ingredients we expect to deliver good sales growth… although we expect margins to be slightly down.”
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By GlobalDataSucralose sales volumes rose by 12% in the year, with a slowing rate of price deflation. Ahmed said he expects the business to generate high single-digit growth from sucralose in the long-term.
While bulk ingredients volumes turned negative in the second half of the year, mainly due to weakness in Europe, Ahmed said it is “a business where we can execute better”. In the long-term, he insisted Tate & Lyle does expect volume growth from the unit.
Dirk Van Vlaanderen, an analyst at Tate house brokerage Jeffries, said the increased focus on value-added ingredients left the company well-placed for future growth.
“Management continue to mould the business in the right direction for the long term and after a successful year, 2013 will be another year of investment,” he said.
However, Panmure Gordon analyst Graham Jones said earnings growth would be “limited” in the coming year.
“Given an assumption of zero windfall gains from co-products, an additional GBP8m depreciation from the US sucralose factory coming on stream, and an estimated GBP11m higher fixed costs from business transformation projects, we see EPS growth as being limited this year,” he wrote in a note to investors.
Investec analyst Martin Deboo concurred that the outlook for 2013 was “muted”.
“Tate are guiding to ‘progress’ in FY13 which looks to reflect underlying momentum in speciality food ingredients offset by a GBP40m of cost and margin headwinds. The recently stronger dollar would increase our forecasts by circa 1% but, in the round, our and consensus expectations of 4% profit growth look to be in the ballpark,” he said.
