Tate & Lyle profits hit by fall in sweetener price

By Laurence Gibbons

- Last updated on GMT

A fall in the price paid for Tate & Lyle's Splenda sweetener has hit the firm's profits
A fall in the price paid for Tate & Lyle's Splenda sweetener has hit the firm's profits

Related tags Sucralose

Tate & Lyle has reported a fall in profits as a result of an increasingly competitive sweetener market and a decline in beverage sales.

A strong performance for speciality ingredients and food systems was offset by the impact of a prolonged winter and drop in the price for Splenda sucralose, the boss of Tate & Lyle revealed along with the firm’s financial results for the year ending March 31 2013.

On May 29, Tate & Lyle posted earnings before interest and tax (EBIT) of £349M, down 2% from last year. Adjusted profit before tax was down 2% to £322M and earnings per share were also down 2% to 55.7p.

Speciality food ingredients sales were up 4% at £983M, with adjusted operating profit in line with the previous year at £213M.

Bulk ingredients EBIT declined 5% to £172M, with margins stable at 7.9% despite a 6% decline in sales, attributed to a ‘soft’ beverage season and an “unusually prolonged”​ winter, by the firm.

Intensified

Tate & Lyle chief executive Javed Ahmed said the competitive environment for sucralose intensified during the final quarter, driven by an increase in capacity in China and a significant overhang of unsold Chinese sucralose.

As a result, the firm experienced a decline in the price paid by renewed contracts for Splenda sucralose, Ahmed said.

“The delivery of solid profit growth in starch-based speciality ingredients and food systems, along with another year of strong growth in emerging markets, was offset by the impact of the cold spring in the US last year followed by the recent severe and prolonged winter, and an increasingly competitive market for Splenda sucralose,” ​he claimed.

“While we will continue to face sucralose pricing headwinds in the current year, our strong innovation pipeline, robust balance sheet and continued growth in emerging markets means we are well placed to deliver growth over the longer term.”

The firm announced it would invest £100M over the next two years in speciality food ingredients to expand capacity for existing and new products.

Below its estimate

City analyst Shore Capital said the whole results were in line with its expectations, but the Tate & Lyle’s speciality food ingredients and bulk ingredients divisions were below its estimate.

Its analysts Clive Black and Darren Shirley said they were yet to see visible profit from Tate & Lyle’s previous investments.

“Whilst we recognise the considerable heavy lifting that has taken place in upgrading Tate & Lyle’s infrastructure, capability and culture in recent years, we have yet to see such work transfer into more sustained and importantly visible profit growth,”​ they said.

“Indeed, we have more recently been downgrading forecasts in both the bulk ingredients and speciality food ingredients divisions. We retain our hold recommendation but expect downward pressure on the shares today.”

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