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September 29, 2011 11:04 pm
While byproduct sales delivered windfall gains, Thursday’s trading statement showed sales of the food ingredient company’s main starches were also robust in the six months to September 30.
The update was welcomed by the market and Tate & Lyle’s share price closed up 3 per cent at 630½p. Several analysts upgraded full-year earnings estimates.
Volume growth of Sucralose, the sweetener Tate & Lyle jointly discovered, were up by the “mid teens” year on year in the first half, boosted by customers launching products mainly in emerging markets such as Brazil and China.
However, high sugar prices have also helped, as customers switch to cheaper alternatives. Sucralose is 600 times sweeter than sugar and, on a sweetness equivalent, well below half the price at current market rates.
Tim Lodge, chief financial officer, said the main audience for Sucralose was still companies striving to cut the calorific content of their products as part of the effort against obesity and diseases such as diabetes.
“We are seeing some price optimisation by customers saying they will use [Sucralose] for cost reasons rather than calorie management reasons but it’s pretty small,” he said. “But once customers change, and it works, why would they switch back?”
For the second half, Mr Lodge anticipates that growth of Sucralose will fall back to about 10 per cent.
Sales of byproducts – essentially as animal feed or for edible oils – may also be less robust. These prices track the price of corn closely, since there is a direct substitution in feedstock, with a relatively short six-week time lag.
Last year, Tate & Lyle garnered £16m of additional net profit from byproducts, again boosted by higher corn prices. Some £5m of that fell in the first half, compared with an expected £10m this first half.
Martin Deboo, analyst at Investec Securities, said that while the strength in Sucralose would not persist in the second half, the growth “corroborates our view that Sucralose is a beneficiary of renewed commercial emphasis and spillover effects from high sugar prices”.
The sugar and sweetener industry’s annual round of price negotiations with customers in the food and drink markets kicks off shortly. Mr Lodge said that capacity utilisation had been “reasonably tight and therefore we are not in a bad position going into these discussions”.
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