SHARES in Tate & Lyle plummeted by 16 per cent yesterday after the food ingredients group cut its full-year profit forecasts and warned that its Splenda sweetener faced intense competition from generic rivals.
The company said it expected prices for sucralose – the main ingredient of its Splenda sweetener – to be around 15 per cent lower in 2015 compared with this financial year because of a glut of unsold sucralose from China.
Tate & Lyle said it had recently renewed a number of customer contracts but that these had been completed in an increasingly competitive environment driven by “an overhang of unsold Chinese sucralose”.
It now expects profit for the year to 31 March to be in line with the previous year, when it posted a profit of £327m. That is four per cent below analysts’ expectations for earnings of around £340m.
The drop in shares yesterday sparked speculation that the company could be vulnerable to a takeover from a Chinese firm.
One analyst however highlighted that most activity from Chinese firms has been around food brands, such as Weetabix, rather than ingredients businesses. Alongside falling sweetener prices, the FTSE 100 group also blamed weak sales volumes in developed markets for lower than expected profits in the third quarter to 31 December.
The unusually cold spring and summer in 2013 hit margins of Tate & Lyle’s corn-based sweeteners, which are used to make soft drinks. However, it said “a return to more normal seasonal demand patterns in 2014 should largely offset this”.
The group is trying to shift its focus away from lower margin bulk commodities such as corn towards its speciality food ingredients division, which includes sucralose. It said all products in this division would report profit growth in the year to the end of March.
Separately the group also said it has struck a new alliance with its Splenda-maker McNeil Nutritionals ahead of the expiry of its 10-year deal in April.