T&L boss digs in as profits melt at halfway

A profit warning last month sent Tate shares slumping 30% and led to a chorus of calls for chief executive Ferguson and finance director John Nicholas to go.

In one of the more excoriating City attacks on the Tate & Lyle executives, broker Dresdner Kleinwort said this week: "Management credibility has taken a major dent in 2007 and investors have already begun to question the suitability of Iain Ferguson for the role of chief executive officer."

Ferguson, however, today shrugged off the calls, saying it had not occurred to him to resign despite a near-50% plunge in Tate & Lyle shares during 2007.

"The chairman [ex-GKN boss Sir David Lees] and I have spoken to all our major shareholders," said Ferguson.

"The board has said it has total confidence in the management team. We have said all along that this year would be a year of transition with difficult management issues."

Core to Ferguson's planned shake-up of Tate & Lyle is to migrate the business to what it calls "value-added" food ingredients and its so-called wonder product, Splenda, the sucralose sweetener, and get it away from its exposure to traditionally volatile commodity markets.

Reporting underlying pre-tax profits of £120 million for the six months to the end of September, down from £149 million, Ferguson blamed the group's old core sugar commodity market and the weak dollar.

He said £18 million of the profit fall came from its sugar trading business with a further £10 million dive on the translation of earnings into sterling from the US dollar. The group does 80% of its business in the US.

Sugar trading had been comparatively hit by an exceptionally strong first half in 2006, he said, while the cost of the physical distribution of raw sugar has escalated due to soaring shipping rates as suitable vessels are snapped up to feed the delivery of other goods to the Chinese and Indian economic booms.

The group indicated it now expects profits for the full year to come in at £240 million against £281 million in the year to last March. Ferguson said he signalled that after getting good visibility on costs after earlier-than-expected sweetener pricing rounds for 2008.

That, plus a 5% rise in the interim dividend to 6.5% helped Tate & Lyle shares stage a partial rally, rising 14p, to 4451/2p.

Analysts said there was relief that there was no more obvious bad news from a group on which they have had to downwardly revise forecasts four times since January.

Tate & Lyle said: "The 2008 financial year is proving to be more challenging than expected at the beginning of the year. We are confident that our strategy to focus on our value-added business leaves us well placed to create value for our shareholders in the years ahead."

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Broker Numis says the shares a hold Hold with a target price of 450p.
Broker Panmure Gordon says it belives the shares are worth 415p and retains its Hold rating