6 Nov, 2008 - Tate & Lyle continues to trade soundly. Sales grew by 25% to £1,698 million (£1,359 million) in the six months to 30 September 2008. Group operating profit increased by 3% to £150 million (£145 million) and profit before tax was 4% higher at £128 million (£123 million).
Highlights
• Excellent results from Food & Industrial Ingredients, Americas, which achieved a 30% increase in adjusted operating profits (25% in constant currency)
• Adjusted operating profits from core value added food ingredients 3 increased by 28% (20% in constant currency)
• Sucralose sales ahead by 11% (7% in constant currency), in line with our strategy to grow volume (up 20%)
• Exposure to commodity pricing volatility reduced through the sale of international Sugar Trading
• Four-year major capital investment programme near completion
– New value added capacity in Singapore and Sagamore, Indiana on-stream and operating in line with our plans
– Corn wet mill in Loudon, Tennessee will be capable of full output at the beginning of the next financial year
– New corn wet mill in Fort Dodge, Iowa on track for mechanical completion by March 2009
• Interim dividend increased by 4.6% to 6.8p per share
Financial strength
• Net debt increased by 8% from 31 March 2008 to £1,128 million but remained flat in constant currency
• Conservative debt maturity profile
• Notwithstanding this final year of heavy capital expenditure, solid cash flows underpin our progressive dividend policyge translation accounted for a £78 million improvement in sales, a £9 million improvement in operating profit and an £8 million improvement in profit before tax. Adjusted diluted earnings per share increased by 15% to 19.1 pence (16.6 pence).
We have successfully weathered difficult and volatile commodity markets in the first half year, particularly in Food & Industrial Ingredients, Americas, which delivered a very strong performance with a 30% increase in operating profit over the comparative period and generated two-thirds of the Group’s adjusted operating profit before central costs. It is our largest division and has been the focus of the majority of our recent investment for growth. A key aspect of our strategy is to grow our value added business, and core value added food ingredient profits grew by 28% in the six months as we benefited from increased production capacity at Sagamore, Indiana and from the acquisition of Hahn in Europe.
As widely reported, the EU sugar market has been extremely difficult for all participants as it undergoes reform. The impact of this is reflected in the losses made in our refining operations in the period. We continue to believe in a strong future for our EU cane refineries due to their unique competitive position as we emerge from the most challenging period of the reform process.
Sugar prices also affect Food & Industrial Ingredients, Europe, although considerably less so following the restructuring of this division over the past two years. The sale of five starch plants in September 2007 and the acquisition of Hahn in June 2007 have not only reduced the absolute size of our exposure to cereal-based sweeteners in the EU but have also increased the proportion of the division’s operating profits from core value added food ingredients to 68% in the half year.
Higher corn and energy prices affected profits, but were partially offset by a full period contribution from Hahn. Sucralose sales grew by 11% in the period although operating profits were slightly lower due to changes in customer mix. Energy costs increased by 21% to £91 million, due to higher prices.
Reported profits benefited from strengthening US and European exchange rates. With over 80% of operating profit in the first half reported in US dollars, reported results are sensitive to the strengthening US currency. The average exchange rate used in the translation of profits was US$1.93 to £1, compared with US$2.00 in the six months to 30 September 2007. The period end rate was US$1.78 (US$2.03). The US dollar has continued to strengthen significantly against sterling since the period end. On 4 November 2008, the rate was US$1.61 to £1.
As we near the end of the four-year reshaping of the Group and the completion of the remaining major capital projects, we are now fully focused on delivering returns on the asset base, generating stronger free cash flow across the business and making progress towards our longer term target of a 20% Return on Net Operating Assets.