Sweetener business booms for Tate & Lyle
will offset a dip in figures at the firm's European starch
operations as long term investment in added-value ingredients
starts to pay off.
In an interim statement today, the British sugar and starch group painted an upbeat picture for the past five months, advising profit before tax had 'exceeded our budgetary expectations'.
A lift in demand for the London-based company's sugar replacer, 600 times sweeter than sugar and sold under the Splenda brand, has offered relief for the company hit by squeezed margins and higher raw material prices in its starch business.
"We believe the functionality and useability of our sucralose ingredient - it's stability and taste-retention - across a range of applications, from baked goods to ice cream, goes some way to explaining the appeal of our product," a spokesperson for Tate & Lyle told FoodNavigator.com.
Sucralose is permitted in 40 countries, but has only recently been accepted onto the EU25 market through an amendment to the 1994 EU Sweeteners Directive (94/35/EC), cleared in February this year.
The market for the ingredient (E955) holds considerable potential as rising health concerns drive consumers towards sugar free products and food makers introduce zero-calorie or low-calorie sugar substitutes into their new product formulations. Although a recent report from analysts Mintel suggests that while there is robust growth within the new sucralose-based artificial sweeteners, sales are not yet of sufficient size to affect overall industry trends.
Retail sales of sugar and artificial sweeteners in the US were weak between 1997 and 2002, with industry sales decreasing from $2.7 billion to $2.5 billion. In 2000, however, the rate of contraction in sales slowed. Mintel estimates 2002 year end sales to be nearly unchanged from 2001.
Sucralose was developed jointly by US firm McNeil Specialty Products and Tate & Lyle. The London firm became the sole manufacturer of Splenda earlier this year after reaching an agreement with McNeil Nutritionals whereby the British group is responsible for worldwide sales of the Splenda brand to food and beverage makers while McNeil targets retail (tabletop) and foodservice sales. The product is produced at one sole plant, slated for a £24 million face-lift, in Alabama, US.
Growing the added value business should also help Tate & Lyle offset some of the vagaries experienced at its other operations, such as the significantly higher raw material prices for wheat and corn which particularly impacted Amylum, the group's European cereal sweetener and starch business, in the second half of 2003.
This, and other factors such as adverse currency exchange rates, left Tate & Lyle with a full-year sales performance which was virtually unchanged from the year before at £3.2 billion, although a good performance in the US (in local currency terms) allowed the company to lift pre-tax profits by nearly 20 per cent.
But according to Tate & Lyle, current relief on corn and wheat commodity prices, due to improved stocks on better global harvests, is soon to have an impact on the bottom line.
"Improvements are better than we had expected," said the Tate & Lyle spokesperson, adding that the full benefits of better prices will be felt in figures for the first quarter of 2005.
A recent risk management activity saw the firm ending a long running lawsuit in the US that might have cost billions of euros had the case reached court. Staley, the US starch unit of the firm settled 'reluctantly because not guilty' and agreed to pay out £55 million (€89m) to settle an anti-trust lawsuit on high fructose corn syrup, a popular sweetener used by soft drinks giant Coca-Cola and PepsiCo.
AE Staley joined US firms ADM and Cargill, which have respectively already made $400 million (€331m) and $24 million (€19.8m) settlements under the same lawsuit.