Tate & Lyle profits driven by sweetener success

By Anthony Fletcher

- Last updated on GMT

Related tags Sucralose Tate & lyle

Increased demand for Tate & Lyle's calorie-free sweetener has
helped the company to record a first-half profit increase of 59 per
cent and successfully fend off spiralling raw material costs.

Profits of £33 million from the firm's Splenda sucralose business were £7 million higher than in the comparative period last year, contributing significantly to a net income in the six months to 30 September of £94 million, up from £59 million a year earlier.

This figure exceeded most analyst expectations, and enabled the company's chief executive Iain Ferguson to issue a confident outlook in his announcement of interim results.

"We have delivered a good start to the financial year despite higher energy and transport costs across our businesses with Splenda sucralose continuing to make good progress,"​ he said.

"Whilst higher energy and transport costs will continue to impact profitability in the secondhalf of this financial year, we expect the results of the group for the year as a whole to reflectsatisfactory progress."

On the back of rising health concerns in society, sweeteners are enjoying considerable growth as food and beverage makers seek to slice the calories from their formulations - and Splenda is winning the battle of the sweeteners. Nearly fifty per cent of the 942 new food and drink product launches featuring sweeteners contained only sucralose, reports analysts Mintel, for January to June 2005.

By comparison, 300 products (32 per cent) were made with the amino acid sweetener aspartame, and 184 (about 20 per cent) products with the high intensity sugar replacer Acesulfame K, roughly 200 times sweeter than sugar.

Tate & Lyle fully intends to capitalise on the success of its patent-protected Splenda product. The UK-based company plans to triple production with a new plant in Singapore and a 40 million-pound factory expansion in McIntosh, Alabama. The market for sweeteners is pitched to grow at about 8.3 per cent year on year until 2008, far outpacing industry growth currently around 3 to 4 per cent.

Tate & Lyle also revealed that sales and profit from cereal-based starches and by-products rose in both North America and Europe, though European sugar profits fell. Ferguson said in June that the European Commission's proposed new sugar regime would cut operating profit by £20 million in the year ending March 31, 2006, £60 million the following year, and £85 million in the year to 31 March 2009.

Chairman Sir David Lees said earlier this year that the most significant part of these impacts would be felt in the Food & Industrial Ingredients, Europe division, which produces isoglucose and other products, which compete with and are typically priced at a discount to sugar.

The changes could even force Tate & Lyle to close its refinery in London, the world's biggest facility of its kind.

In addition, rocketing fuel costs could begin to eat into profits. Prices for crude oil, both a key raw material and energy supplier for the food industry, recently topped a record $70 a barrel.

Tate & Lyle finance director Simon Gifford said that energy costs are likely to rise £30 million in the 12 months to 31 March, before increasing to £40 million the following fiscal year.

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