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Tate & Lyle: pricing rounds squeeze EU margins

25-Jan-2005

Pricing rounds in the tough sweeteners market draw to a close with UK starch and sweetener supplier Tate & Lyle expecting a slight fall in margins for Europe.

The maker of successful sucralose product Splenda told the market that while US margins should maintain 2004 levels, facing tighter competition in Europe, margins are likely to feel the squeeze.

The margin difference in the two areas comes despite higher energy costs eating into margins across both geographical zones, and an easing up in global prices for cereal stocks.

In the US, supply and demand are more closely aligned than in Europe, that can see greater flexibility in capacity, a spokesperson for the UK company explained to FoodNavigator.com.

In addition, it's been a tough year for our customers, with little good news, says Tate & Lyle.

A tight year equates to pressure on prices, felt sharply during the pricing rounds.

"After higher energy costs we expect total sweetener and starch net margins to be slightly below those achieved in calendar 2004," the modified starch supplier told the market this week.

Booming sales for its popular sweetener gave Tate & Lyle the necessary leverage for the firm to re-enter the FTSE 100 index after a seven-year break.

Demand for the company's sucralose sugar replacer, 600 times sweeter than sugar and sold under the Splenda brand, continues to grow, with major international players like PepsiCo, General Mills and Unilever introducing the sweetener into a range or reduced-sugar formulations.

In December 2004 the FTSE International, the index compilers, promoted the sweeteners company into the FTSE 100 based on 6 December closing prices.

Stocks with a market capitalisation greater than the 90th biggest stock in the blue chip FTSE 100 index are automatically included into the index while stocks lower than 110th are demoted.

Growing the added value sweetener business has helped Tate & Lyle offset some of the vagaries experienced at its other operations, such as the significantly higher raw material prices for wheat and corn which particularly impacted Amylum, the group's European cereal sweetener and starch business, in the second half of 2003.

"More than 40 per cent of profit (EBITDA) has come from the value added sector of our business that represents 15 per cent of group sales," confirms the spokesperson.

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