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Bitter taste for Tate & Lyle investors as earnings forecast is cut back.

Shares in Tate & Lyle hit ten-year lows yesterday after the sugar and sweeteners group warned of lower first-half profits owing to a weak US sugar market, prompting its broker to cut back earnings forecasts.

'The US sugar market has deteriorated significantly since our second interim report to shareholders last November,' Tate & Lyle said in a trading statement.

Company shares have underperformed the FTSE All-Share index by more than 40 per cent this year.

The shares dived 10p to 222p.

Company broker ABN Amro said it cut its forecasts for pre-tax profits in the current year by 7.4 per cent to pounds 200 million from pounds 216 million, and by 15 per cent for next year - also to pounds 200 million from pounds 235 million - while keeping its rating at 'buy'.

'It's not fresh news that the US 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.'

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 pounds 93 million seen in the comparable period.

In November, the group reported a 35 per cent jump in annual pre-tax profits before exceptional items to pounds 223 million.

'The main reason for (lower profits) is on the US sugar market. This has been signposted before. We said the US sugar market is going to be difficult in this six month period,' said finance director Mr Simon Gifford.

The group said losses had increased at its US sugar unit as an over-supply 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 US sugar market. Its total US businesses comprise around 35 per cent of the group's assets of which US 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,' said Mr Gifford.

All options were open, he said, including an exit from the US sugar business or industry consolidation.

Another food analyst disagreed, saying: '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 US sugar market. There's pressure on margins....and forecasts will have to come down.'

Tate & Lyle said Staley - its US arm, which makes sweeteners from maize and which comprises two-thirds of its US 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 more than pounds 90 million 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,' said Mr Gifford.
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Publication:The Birmingham Post (England)
Date:Mar 30, 2000
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