Tate & Lyle sweetens outlook after strong first half

The FTSE 250 group, which takes less than 2% of its revenues from the UK, enjoyed a £15m increase in earnings during the six months to 30 September from movements in currencies, particularly the collapse of the pound, and if current rates prevail it estimated full year earnings would be inflated by a total of around £40m.

This helped sales increase 13% to £1.3bn in the half, when otherwise they would have been up just 1%.

Adjusted profit before tax was up 37% to £140m, 22% stronger without currency benefits, with reported PBT up 83% to £128m.

The profit growth was driven by strong performance in both divisions, with a 12% increase in speciality food ingredients from all regions apart from North America and 18% increase in sales from New Products to US$51m.

Bulk ingredients delivered a 36% increase in profits thanks to solid demand in the key summer beverage season and margins, strong manufacturing performance and a benefit from the one-off sell-down of excess inventory in Sucralose.

"We continued to strengthen execution across the business, leading to further improvement in customer service and supply chain performance," said chief executive Javed Ahmed.

Turning to the outlook, he said "we expect adjusted profit before tax in constant currency for the full year to be higher than we anticipated coming into the year driven by the strong first half performance, with performance in the second half remaining in line with our expectations”.

Analysts at Societe Generale said PBT was well ahead of consensus £130-132m and that it would expect upgrades to earnings forecasts, though there are inevitably some issues still to work on, the most pressing being weak US SFI volumes and continued weakness in its small ethanol business.

"We would expect further consensus EPS upgrades today to capture strong 1H trading and the revised currency guidance. Investors should also be encouraged by the FCF performance, which looks strong to us. However, with the progress the stock has made this year, and given no change to the company’s guidance for constant currency 2H expectations, the market reaction might be slightly muted by the stock’s strong performance particularly since Brexit.

"Despite a strong 1H, the company expects 2H to be more in line with its expectations given that the annual HFCS negotiations haven’t yet concluded."