Tate & Lyle weathers rough 2004

- Last updated on GMT

Related tags: Raw material costs, Sucralose, Tate & lyle

Long term investments in added-value products contributed to
British starch group Tate & Lyle's end of year results with
strong US performance offsetting squeezed margins due to surging
raw material prices. A lift in demand for its zero-calorie
sweetener Splenda prompted the food ingredients firm this month to
expand the US factory that makes the sucralose ingredient.

The London-based firm saw sales, at €4.79 billion for the year ended 31 March, 2004 remaining flat and identical to 2003 with pre-tax profits slipping by a wisp of 0.4 per cent.

"In achieving this outturn we have overcome adverse exchange rate movements and substantially higher net raw material costs for wheat and corn in Europe in the latter part of the year,"​ said Sir David Lees, chairman of Tate & Lyle. Wheat and corn are used to manufacture starches and syrups.

The chairman warned that the cost increases - not fully recovered in 2004 - might also be felt in the 2005 balance sheet, the "2005 financial year remains challenging for the group,"​ he said.

Certainly, as investment bankers Goldman Sachs state, exposure to volatile raw material costs has undermined the group's near-term prospects of recovery. However, the longer term is steadily being strengthened by investments in added-value projects - such as the sugar replacement Splenda .

Tate & Lyle became the sole manufacturer of Splenda earlier this year after reaching an agreement with its US partner McNeil Nutritionals. The British group is also responsible for the worldwide sales of Splenda to food and beverage manufacturers, while McNeil covers the retail and foodservice sales of the brand. The expansion of the sucralose plant announced last week at McIntosh, Alabama, will cost some £16 million, and is expected to be completed in January 2006. Tate & Lyle said that the project would be funded from existing resources.

A stronger performance from the firm's US arm, Staley, including improvements in citric acid operations helped the group offset weaker performances at Amylum and Redpath.

Imminent reforms to the current subsidised European sugar regime - expected around 2006 - will have an impact on the bottom line for Tate & Lyle and the firm still remains vulnerable to ongoing fluctuations in the raw material costs.

New market opportunities for ingredients suppliers of sucralose were ushered in earlier this year in February when long awaited rules on the use of the sweetener sucralose entered into European law.

Cleared previously by some European countries the amendment to the 1994 EU Sweeteners Directive (94/35/EC) paves the way for harmonisation at a European level, permitting the use of sucralose (E955) throughout the EU25.

As well as providing harmonisation for the movement of sucralose between European member states, the rules open up new sales routes for suppliers of this sweetener 600 times sweeter than sugar. A market holding considerable potential as rising health concerns drive consumers towards sugar free products.

A major player in the sucralose market, Tate & Lyle claims that more than 3,500 products are now sweetened with sucralose.

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