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LONDON, March 29 (Reuters) - Shares in Tate & Lyle Plc hit
10-year lows on Wednesday after the sugar and sweeteners group
warned of lower first half profits owing to the weak U.S. sugar
market, prompting its broker to cut back earnings forecasts.
``The U.S. sugar market has deteriorated significantly since
our second interim report to shareholders last November,'' Tate
& Lyle said in a trading statement.
Tate and Lyle shares, which have underperformed the FTSE
All-Share index by more than 40 percent this year, hit a low of
195 pence, down 37 pence or 16 percent, valuing the firm at 890
million pounds ($1.41 billion). The shares had edged back to 219p
by 1035 GMT.
Company broker ABN Amro said it cut its forecasts for pre-tax
profits in the current year by 7.4 percent to 200 million pounds
from 216 million, and by 15 percent for next year also to 200
million from 235 million, while keeping its rating at ``buy.''
``It's not new news that the U.S. sugar market is bad but
confirmation from the company is not going to be good for the
shares,'' said one food analyst.
``Shareholders want them to be growing sales, enhancing margins
and operating in value-added areas. And they are not doing this,
and worse, they are hugely exposed to commodity prices,'' he
added.
The group said that as a result, pre-tax profits before re-organisation
costs and exceptional items for the six months to March 25, 2000,
would fall below the equivalent 93 million pounds ($147.8 million)
seen in the comparable period.
In November, the group reported a 35 percent jump in annual
pre-tax profits before exceptional items to 223 million pounds.
``The main reason for (lower profits) is on the U.S. sugar
market. This has been signposted before. We said the U.S. sugar
market is going to be difficult in this six month period,''
Finance Director Simon Gifford said in a telephone interview.
U.S. SUGAR HIT BY OVERSUPPLY
The group said losses had increased at its U.S. sugar unit as
an oversupply of beet and sugar cane after unusually large crops
drove selling prices to their lowest levels since 1979.
Tate & Lyle said it was undertaking a fundamental review of
the strategic options open to it for the U.S. sugar market. Its
total U.S. businesses comprise around 35 percent of the group's
assets of which U.S. sugar comprises one-third.
``We are not going to be in a position where we are going to
allow ourselves to continue to make losses,'' Gifford said.
He said that all options were open, including an exit from the
U.S. sugar business or industry consolidation.
``Tate can't exit from these businesses, they are ingrained.
They have to ride it out. The market's been shocked by the scale
and the longevity of weakness in the U.S. sugar market. There's
pressure on margins at Staley....and forecasts will have to come
down,'' another food analyst said.
Tate & Lyle said Staley, its U.S. arm which makes
sweeteners from maize and which comprises two-thirds of its U.S.
business, would report higher operating profits in the first half.
European sugar performed well and provided strong cashflow, but
the strength of sterling would likely hit margins. Its majority
owned Amylum starch operation in Europe continued to make good
progress.
Focusing on its key activities, Tate made disposals in the
first half that realised over 90 million pounds and more sales
sales, including animal feeds, were in the pipeline.
``You should expect to see over the following 12 months further
proceeds coming in from disposals,'' Gifford added.
($1 equals .6293 Pound) |