Investors showed an appetite for Tate & Lyle (TATE) on Thursday, shares in the food ingredients group sweetening up 2.7% to 670.3p on news of a demand pick-up towards the end of the first quarter to 30 June.

Tate & Lyle issued a cautious outlook, warning ‘the full extent of the pandemic’s impact still remains unclear’, although chief executive Nick Hampton also highlighted an improved net debt position as well as a ‘healthy’ new business pipeline, which encouraged fans of the stock.

DEMAND IMPROVES

In a first quarter update, Tate & Lyle said demand improved in June compared to the previous two months as coronavirus restrictions eased and more restaurants, bars, cinemas and other public facilities opened.

One of the globe’s largest makers of sweeteners including high fructose corn syrup, Tate & Lyle’s overall revenue fell 5% in the first quarter. This reflected the impact of lockdowns on out-of-home consumption in North America and Europe, which was only partially offset by the resilience of in-home consumption.

Encouragingly, having witnessed ‘fluctuating demand patterns’ in April and May, both of Tate & Lyle’s divisions saw improved demand in June as lockdowns started to ease.

TASTY LONG-TERM PROSPECT

Tate & Lyle is well positioned to grow with large food and beverage customers and is also well aligned with current healthier eating trends given its provision of plant-based ingredients and solutions to customers.

In the Food & Beverage Solutions division, which makes speciality starches and sweeteners, revenue edged up 1% to £232 million in the first quarter with a boost from new product revenue growth.

While North American revenue was 2% lower amid reduced demand for out-of-home consumption, particularly in the food service sector, the region returned to revenue growth in June as lockdown restrictions eased.

In Asia Pacific and Latin America, revenue was 8% higher reflecting good growth in Asia Pacific as China emerged from lockdown. Latin American revenue grew modestly, slowing as the quarter progressed, the pandemic took hold and the region went into lockdown.

Revenue at Tate’s Primary Products division, which makes high-volume sweeteners and industrial starches (and also sells co-products from the corn milling process as animal nutrition), fell 9% to £420 million, with North American bulk sweetener volume dropping by 12% as fewer people ate outside their homes.

HEALTHY PIPELINE, SOUND FUNDAMENTALS

Tate & Lyle has taken actions to cut costs and conserve cash during the COVID-19 crisis and ended the period with net debt of £384 million, some £67 million lower than at the March year-end.

Hampton was ‘encouraged by the improvement in demand we saw in June and the continued strategic progress we are making, with new product revenue growing 9% in the quarter.’

He flagged a ‘healthy’ new business pipeline and also emphasised the firm's ‘sound’ fundamentals. ‘Demand for ingredients and solutions which enable consumers to enjoy healthier and tastier food and drink is strong, and we have the portfolio of products and technical expertise to help our customers deliver on these trends,’ he enthused.

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Issue Date: 23 Jul 2020