Profits up at Tate & Lyle on strong sucralose gains
combined with a faster than expected decline in European cereal
prices helped the UK firm post a high single-digit rise in profit
for the first half of the year, reports Lindsey Partos.
The London-based supplier of the Splenda sucralose brand has also announced plans today to ramp up production of the sweetener, constructing a new £97 million (€139 million) plant in Singapore to target the Asian market, and joining the firm's only other sucralose production facility based in Alabama, US.
"The new plant will broaden our manufacturing base and help facilitate improved access to the Asian and European markets. Sucralose has enjoyed success in Japan since the first products were launched there in 1999 and we aim to replicate this success across the region," said Iain Ferguson, chief executive of Tate & Lyle.
The move to build in Singapore, as opposed to the more obvious choice of China, was influenced by a package Singapore offered the firm, notably the protection of the 30-odd sucralose patents in a secure intellectual property environmnent, and access to a highly skilled workforce.
A lift in demand for the company's sugar replacer, 600 times sweeter than sugar and sold under the Splenda brand, has offered relief for the company recently hit by squeezed margins, higher raw material prices in its starch business and the threat of sugar reform in the EU.
"We believe the functionality and useability of our sucralose ingredient - its 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 recently 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.
Sucralose was developed jointly by US firm McNeil Specialty Products and Tate & Lyle but under an agreement earlier this year Tate & Lyle became the sole manufacturer of sucralose, selling the Splenda sucralose brand as an ingredient to food and beverage companies. McNeil Nutritionals buys sucralose from Tate & Lyle, and sells the ingredient as a tabletop product.
The market for the ingredient (E955) holds considerable potential, proven by the Tate & Lyle demand, 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.
A recent report on the US food additives market by analysts Freedonia suggests that alternative sweeteners in particular hold considerable potential - growing 8.3 per cent year on year until 2008. Sales in the US alone will rise from a small base of $81 million in 1998 to $189m in 2008, the report predicts.
Tate & Lyle, which also makes a range of branded sugars and industrial starches, posted pretax profits of £130 million (€187 million) for the first six months to 30 September this year, up from £110 million for the year before, exceeding analysts' forecasts in the £125 million range.
The group that owns the European cereal sweetener and starch business Amylum, hit last year by dramatic rises in cereal prices, said it had made an excellent start to its financial year, adding that although the second half is expected to benefit from the growth of sucralose, the necessity to rebuild stocks will have some short-term adverse impact on the profitability of the product in the period.
Growing the added value business has helped 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 in the second half of 2003. Revenue gained from sucralose is slated to find its way into extending the value-added ingredients portfolio at Amylum.
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.