Tate & Lyle: sucralose to sparkle on lacklustre balance sheet

Related tags Tate European union Sucralose

Days after EU ministers at the Agriculture Council huddled together
to chew over impending changes to the sugar regime, leading
sweeteners group Tate & Lyle tells the market that no surprises
are in store for 2005.

With the annual round of pricing for US sweeteners contracts now complete the UK firm said that trading for 2005 was in line with expectations, adding that the US operation, Staley, would perform 'slightly better' but the European starch business Amylum 'slightly worse'.

The carbohydrate ingredients firm reported in January that some of its 2004 sweetener sales contracts at Staley had increased prices. That the loop is now closed and operations predicted to improve implies that gains were made on some of the major contracts negotiated since January.

Tate & Lyle has not sparkled in recent months, like other suppliers working intimately with wheat and corn, it has been knocked by rising raw material prices and squeezed margins. Announcing third quarter results in January 2004 the group warned that the European starch operations of Amylum - 20 per cent of group profits - were hit by a 'very competitive market place' , predicting that 2005 profits would be 'significantly below' those of 2004. "The company is in line with the forecast range - there are no surprises,"​ a spokesman for the sweeteners group tells FoodNavigator.com.

Weaker vital wheat gluten prices have also excacerbated the situation, the company said in January. Wheat gluten is a protein sold to bakers to improve the quality of bread flour and despite the fact that the 2003 wheat harvest was low, protein levels were actually high, pushing the price down.

Light in the forthcoming financial year will come from an extended drive into added-value ingredients, in particular a new sucralose arrangement with McNeil Nutritionals - a division of Johnson & Johnson - announced last month that leaves Tate as the sole manufacturer of this high intensity sweetener used in a range of foods including granola bars, energy drinks and dairy products.

"We're on track to complete the agreement by the beginning of April,"​ the Tate & Lyle spokesman added.

Under the realignment, Tate will be the exclusive supplier of sucralose for use in the splenda brand in retail markets, as well as the sole supplier of the ingredient - 600 times sweeter than sugar - to the food industry. The move will allow the firm to derive two sales streams from the ingredient: one from McNeil Nutritionals and one from the food and beverage manufacturers.

"It's an important part of our growing value-added offering and is experiencing strong growth in the US and Japan,"​ the Tate & Lyle spokesman told FoodNavigator.com.

Cleared just last month by the European Commission for use throughout the EU25 under an amendment to the 1994 EU Sweeteners Directive (94/35/EC), sucralose was originally jointly developed by McNeil Specialty Products and Tate & Lyle. Today, the product has approval for use in foods and beverages in more than 40 countries across the world including Canada, Australia and Mexico.

Commenting on the McNeil Nutritionals-Tate deal at the time, investment bank Goldman Sachs said the UK company has a long association with sucralose and "investors should feel comfortable with Tate's ability to integrate and successfully manage the strong underlying growth in demand for the product,"​ said the bank.

Although not to the extent of peer sugar players Danisco and Associated British Foods, immient change to the EU's heavily subsidised sugar regime - slated for 2006 - will have an impact on the bottom line for Tate.

Goldman Sachs predicts that while sugar accounted for 40 per cent of ABF's EBITA in 2002 and 47 per cent of Danisco's, for Tate & Lyle, the impact of change on their sugar business is likely to be lower as operating margins for their EU sugar operations are only around the 10 per cent level.

Under the aegis of the Commission, European ministers met up at an Agriculture Council meeting earlier this week to discuss the reform. Keeping all tightly under wraps, a Commission spokesperson told FoodNavigator.com, "we are preparing a proposal - that will take into account stakeholder views - to be ready sometime in June."​ Sugar producers and sweetener suppliers must wait to find out the outcome.

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