Tate & Lyle has released a trading update ahead of full-year results. Fourth-quarter trading was as expected, and results are set to be in line with previous guidance.
Excluding the recently acquired CP Kelco, revenue is expected to fall 5% with cash profit (EBITDA) up 4% (guidance 4-7%) - both also in line with market consensus.
The CP Kelco integration is progressing well, with cash profit (EBITDA) margin expected to rise 0.9% over the year. Work to improve the net debt to cash profit ratio following the acquisition is progressing ahead of expectations.
The shares were up 3.4% in early trading.
Our view
Tate & Lyle’s latest update highlighted the successful integration efforts with CP Kelco and reassuring performance for the quarter and year. Despite market scepticism around its acquisition, the group remains confident about the combined growth potential.
The promised demand acceleration into the second half of Tate’s financial year hasn’t materialised, and when combined with pricing pressure, means revenue is under pressure in key segments like food & beverage solutions.
We’re also monitoring the potential impact from new weight loss drugs, though we remain sceptical about whether these will move the dial.
On a more positive note, Tate’s making good on its promise to streamline operations and focus on the most profitable parts of the business. The margin benefits are coming through, and an underlying cash profit (EBITDA) margin of 24.9% at the half year mark was a step up from the prior year.
The core business is in food & beverage solutions, with smaller units focusing on European sweeteners and the sugar alternative Sucralose. But it's the core business, specifically solution-based partnerships, that we see as a key growth driver. This is where it partners with customers to create bespoke solutions to their dietary and nutritional needs. Deeper relationships and closer ties add an element of stickiness to the business and enable Tate & Lyle to leverage its technical expertise.
The £1.4bn CP Kelco deal, a leading provider of pectin, speciality gums and other nature-based ingredients, was a key part of the plan to become a leader in the speciality space. So far, the integration is going well, with strong volume growth last calendar year and progress on improving margins. The combination is expected to help drive additional sales, but it’s a little early to call this a success – something to watch.
The acquisition added some debt to what is otherwise a rock-solid balance sheet. We aren’t concerned, as we see efforts towards balancing leverage progressing well - with levels still well within the target range and good cash generation can support an orderly reduction should management want to take that route.
The renewed focus on speciality ingredients and solutions, a strong management team, and a balance sheet with enough firepower to expand all give scope for optimism. We don’t think the valuation looks too demanding, now that takeover rumours have been stripped out, but there are genuine question marks around the outlook for the coming year and medium-term targets look stretched.
Tate & Lyle key facts
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