Tate remains cautious as profits dip

Sugar and ingredients group Tate & Lyle today warned over uncertain prospects as it unveiled an 18% fall in underlying profits.

Sugar and ingredients group Tate & Lyle today warned over uncertain prospects as it unveiled an 18% fall in underlying profits.

Although current trading is in line with hopes, the firm said a global recession and its impact on demand made the outlook “difficult to predict with confidence”.

The firm’s focus on more resilient food and drink sectors – accounting for 70% of sales – gave it some immunity to the downturn, it said.

But sales of industrial starches used in papers and packaging were down by between 20% and 25% in the dire economic climate.

The company added that easing corn prices would be critical to prospects after “unprecedented” rises last year.

Corn is used to make ethanol, an alcohol used in fuel. Following the oil price spike to 147 dollars a barrel, there was a oversupply of ethanol on the market which combined with higher corn prices to hammer margins.

Tate last month mothballed a new US corn processing plant at Fort Dodge, Iowa until conditions improve.

The firm’s pre-tax profits adjusted for currency effects were down 18% to €283m in the year to March 31.

Other factors denting the group included a 66% fall in sugar operating profits to €13.7m due to an oversupply in Europe and an “extremely competitive” UK market.

It expects conditions to improve later this year following the completion of EU sugar reforms, which have led to lower prices.

Sales of sucralose sweetener were down by 4% at constant currency as the firm cut selling prices, although its Splenda product upped its share of the market from 23% to 25%.

The group is moving all sucralose production to Singapore – and taking a €111m hit on the mothballing of its Alabama plant – to protect margins.

Last year the firm lost a battle against Chinese manufacturers after claims that they breached patents on its sucralose sweetener on imports into the US.

Numis Securities analyst Nicholas Ceron said: “We remain negative about margin outlook for this business. The group has mothballed its Alabama plant, implying that volume demand is well below their expectations.”

Shares edged lower following the cautious tone of the results. There were “no reasons to be optimistic,” Mr Ceron added.

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