The ingredients giant said that volume growth for its zero-calorie sweetener sucralose was “robust albeit, as expected, at lower average selling prices” for the six months ending September 30, while the movement to a single rather than two-plant manufacturing base “continues to deliver substantial cost efficiencies.”
Sucralose cost savings
Chief executive Javed Ahmed said during a conference call: “With sucralose we are making good progress on delivering cost savings with margins in the high 30’s (per cent) expected."
CFO Tim Lodge added: “The ongoing pattern is one of encouraging sales volume growth through long-term incentives based on customers taking higher volumes."
Lodge said that substantial cost savings had been made this year with the realisation of a "single-plant cost base" for sucralose, where Tate scaled-down production from two plants to one earlier this year - mothballing a factory in Alabama and shifting production wholesale to Singapore.
On a broader level, since some of Tate’s products in the EU compete against sugar, strong sugar prices meant the firm could potentially lift it own prices, said Lodge: “Sugar is ceiling compared to how far we can push up prices in the New Year.”
Tate also completed the sale of its EU sugar refining operations for £211 million yesterday as part of “underlying debt reduction”, and the firm said that the “disposal process” of the remaining businesses within its sugars division was “progressing well”.
Tate & Lyle said that, despite higher corn prices within the EU and the US, the firm had benefited from “higher co-product prices during the first half of the year” which it expects to have a “modest impact on profitability on current contracts during the final quarter of 2010.”
Full hedging in the US on grain prices meant profit benefits in Q2 of 2010, said Ahmed, while Europe benefited from higher co-product prices in first half of the year.
Investec analyst Martin Deboo asked during the call how likely it was, given rising EU corn prices, that Tate would be able to secure price increases on new contracts with customers to “recover” the corn cost upsurge.
Ahmed replied: “In the EU our hedging availability is more limited… and this may lead to a modest negative effect on profits in Q4 of 2010.
Stable ingredient growth expected
Within speciality food ingredients as a whole, Tate & Lyle expects to see a continuation of the growth patterns experienced during the first half of 2010.
“Stable demand” for bulk ingredients is expected, although “as usual” the outcome of 2011 sweetener pricing rounds is predicted to affect performance in Q4 of 2010.
However, the firm said that markets for industrial starch remained under pressure due to overcapacity, although the first half of 2010 was “pretty good” with overall volume sales up 7-8 per cent on a year-to-date basis.