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Sucralose costs will affect profits, says Tate & Lyle

By Jess Halliday , 15-Feb-2008

Tate & Lyle has reinforced its expectations that its results for the second half of 2008 will be in line with the first half, but sucralose profits will be hit by exceptional costs.

In its interim results published October 31, the sugar and ingredients firm reported adjusted profit before taxation of £120 million - down 14 per cent in constant currency. However profits from core value added food ingredients increased by 18 per cent. It said at the time that the 2008 financial year was panning out as more challenging than it had expected, largely as a result of difficult conditions in the sugar market and the weak US dollar. In sucralose the firm says all territories have seen sales growth. The opening of a new plant in Singapore ahead of schedule has led to customer de-stocking, and this is expected to be completed by the end of the year. The new plant opened its doors in April 2007 and is seen as an important step in capitalising on the potential of Asia's sweetener demand. At the time of opening the firm said it would reach full capacity within 12 to 18 months to continue the group's global expansion plans. Despite this, though, profits from sucralose have been lower than last year's comparable period, partly due to the costs of establishing the Singapore plant. The site is part of an S$300m (€145m) investment by Tate and Lyle. In addition, the company has had to defend some of its patents relating to sucralose. Recent patent protection activities have included a lawsuit filed with the United States International Trade Commission (ITC) in April 2007 in which it alleged patent infringement by three Chinese manufacturing groups and 18 companies involved in importing and distributing sucralose in the US. Tate & Lyle has been repositioning to reduce its reliance on sugar as a core business, and increasing its presence in value-added ingredients. Nonetheless, it said that it still regards sugar trading as a "valuable activity", and is looking at ways to ensure results from this are more stable in the future. The firm has expressed reassurance at the new package of incentives to encourage sugar producers to give up their quotas introduced in September 2007, as part of the new sugar regime. For now, though, in the four months to January 2008 the division performed in line with the first half of the year, and it is expected to show a loss for the full year. "If supply and demand are brought into balance the impact will be felt in the market only towards the end of the next financial year, so market conditions can be expected to remain difficult in the short term," it said. On-going sugar woes aside, there have been some bright spots for value-added ingredients in the year so far. Tate & Lyle has received initial proceeds totaling £214m from the sale of five of its starch plants to Syral last year. Moreover, the recently acquired GC Hahn business has performed according to expectations and integration is said to be progressing well. Food & industrial ingredients, Americas, has performed "somewhat ahead of expectations with further strong performances from both value added food ingredients and commodity products". It has benefited from feed compounders using more of the by-product corn gluten feed instead of more expensive corn, which has reduced reliance on exports. Sales of high fructose corn syrup picked up after a "weak" summer; and new capacity at its Sagamore plant in Indiana is expected to boost performance in the value-added area.

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