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LONDON -- When sweeteners group Tate & Lyle announced its fourth
profits warning within a year, the company's long-suffering shareholders
let out a collective groan and prepared to nurse even greater losses.
The previous three years had been, in the words of one senior analyst,
"horrific" for investors, whose shares had slumped from a high
of 580 pence to a 211.5 pence low.
Rocketing energy prices and suffocating oversupply in the key North
American sugar market were, according to senior executives, the principal
reasons behind the plummeting profits.
The task ahead, says Chairman David Lees as he told of a depressing 90
million-pound (U.K.) fall in full-year profits in March, was clear.
"Our challenge," he admits to assembled analysts, "is to
restore profitability to an acceptable level and revitalise the group for
the benefit of our shareholders."
Road to recovery
Seven months on and there are signs that this recovery may not be too
far away. Even the normally cynical city appears to have been placated by
the actions of Tate's management to re-energise the company and get rid of
the poorly performing parts of the business -- principally the U.S. sugar
interests.
The fact that Lees and chief executive Larry Pillard still are in
employment after such a string of gloomy announcements illustrates the
level of sympathy for Tate across the Square Mile.
"The shares are beginning to bottom out a bit, but they've been a
ghastly performer because of the collapse in sugar profitability and a
huge increase in energy costs," says David Lang, an analyst at
Investec Henderson Crosthwaite. "The management is restructuring the
business, getting rid of value-destroying assets and raising the
value-added content with joint ventures. I think they are doing the right
things."
Buyers have started to embrace Tate again and their affection has
pushed the share price up from 249 pence at the beginning of the year to
2903/4 pence as the London markets closed Oct. 26 -- a healthy increase of
16 percent.
At the end of some trading sessions two weeks ago, increases of about 8
percent had been recorded -- a result of anticipation of the company's
results on 8 November. Company executives are barred from commenting
during the run-up to the results announcement.
'Range of initiatives'
Julian Hardwick, an analyst at ABN Amro, believes the management
deserves praise for introducing a "range of initiatives" to turn
things around. The easing of energy prices also are expected to create a
far more bearable work climate.
As well as exiting American sugar interests, he says, the move to focus
on starch and sweeteners operations -- principally taking full control of
Staley and Amylum -- are worthy of praise.
The last 18 months also has seen the disposal of Bundaberg, the
Australian sugar-milling group, a string of other smaller animal feed
businesses, plus agreeing to a joint venture with Dupont for developing
bio-based polymers.
"I don't think anyone believes the management could have done
anything better or differently to get through these difficulties,"
Hardwick says. "They have gone about addressing the problem areas in
a very sensible fashion and have worked their way through them very
effectively.
If the company's efforts are as successful as the city anticipates --
and external factors such as energy prices do not tear further holes in
the profits -- the smiles soon could return to investors' faces. |