Tate & Lyle issues the following interim management statement for the three months ended Dec. 13, 2013.
Third quarter operating performance
In Speciality Food Ingredients, volumes were broadly in line with the prior year period, with strong growth in emerging markets offset by softness in developed markets. Within high intensity sweeteners, volume and sales growth in Splenda® Sucralose were in line with the levels reported during the first half of the year and our expectations. In Bulk Ingredients, we saw an improved performance from US sweeteners and US ethanol relative to the comparative period, but lower returns from co-products held back the division’s performance overall.
In December 2013, we completed the back-to-back purchase, sale and leaseback of our building in Hoffman Estates, US, providing us with greater operating control in managing this facility. The transaction generated a profit of £6 million, the majority of which was included in the Speciality Food Ingredients division.
Excluding the one-off benefit relating to the Hoffman Estates transaction, underlying profits in both divisions were well ahead of the prior year period. However, due to volume softness in developed markets and lower returns from co-products, Group adjusted profit before tax was lower than our expectations.
The 2014 calendar year pricing round is now largely complete.
In Bulk Ingredients, unit margins for liquid corn sweeteners in North America will be modestly lower in the 2014 calendar year. After the soft beverage season in 2013, which was caused by the unusually cold spring and summer, a return to more normal seasonal demand patterns in 2014 should largely offset this. In Europe, sweetener margins are expected to be broadly in line, with lower corn costs offset by a reduction in sugar prices.
In Speciality Food Ingredients, within our starch-based speciality ingredients, we expect overall unit margins in the 2014 calendar year will be modestly higher than the comparative period.
In Splenda Sucralose, we have recently renewed a number of customer contracts, some of which are multi-year. These have been completed in a dynamic market where the competitive environment has intensified, driven we believe by a significant overhang of unsold Chinese sucralose. With these contracts in place, we anticipate the rate of price decline in Splenda Sucralose will increase in the final quarter and, based on what we see today and current market dynamics, expect prices in the 2015 financial year to be around 15 percent lower than the current financial year. We continue to see good long-term opportunities for growth in the market for Splenda Sucralose leading to operational efficiencies as we continue to fill our McIntosh facility.
We are also separately announcing the establishment of a new Splenda Alliance with McNeil Nutritionals. The Alliance includes terms for ongoing supply which will be effective when the current supply agreement expires in April. That agreement was signed in 2004 when the Sucralose business was realigned. The terms of that realignment included the making of annual payments by McNeil to Tate & Lyle based on McNeil’s sales of table top products during the 10 years following the realignment. These payments are not a feature of the new Alliance and accordingly, the final such payment will be received in respect of the year ending 31 March 2014 and is expected to amount to approximately $11 million (£7 million).
Net debt at Dec. 31, 2013 was £253 million (Sept. 30, 2013 – £336 million). While the recent bumper harvest in the US has eased pressure on corn stocks, we continue to maintain prudent levels of corn within our silos for security of supply. Based on current corn prices and exchange rates, we expect the payment for new crop corn held in our silos to result in a net cash outflow in the final quarter.
Overall, we continue to be pleased with the progress we are making and particularly the underlying strength of our Speciality Food Ingredients business. Splenda Sucralose aside, in the 2014 financial year we expect to see profit growth in all product categories across Speciality Food Ingredients. The significant growth delivered in these product categories over the last four years means that they now represent a much larger and more meaningful part of our Speciality Food Ingredients business. This, together with a robust innovation pipeline and strong growth momentum in emerging markets, demonstrates that our long-term strategy of evolving Tate & Lyle into a more global and higher quality business remains firmly on track.
Overall, the Group has made a solid start to the final quarter. As a result of the operating performance in the third quarter and lower Splenda Sucralose pricing in the final quarter, at constant rates of exchange we now expect full year profits for the year ending 31 March 2014 to be broadly in line with the comparative period.