Bottom Line: Too much sweetener leaves a bitter aftertaste for investors
IN THE three-and-a-half years since Tate & Lyle sold its iconic sugar and golden syrup business to American Sugar Refining, investors have had a fairly sweet ride.
Since its refocus as an agribusiness – manufacturing sweeteners, corn syrups, dietary fibres and texturants – shares have risen by a third, and as recently as November management seemed to think the firm was on track for “another year of profitable growth”.
All that changed yesterday, when they admitted that profits would be flat on last year, instead of the four per cent rise that analysts had factored in. The problem is a price war in China, where the cost of sucralose – an ingredient that Tate & Lyle helped develop, and which makes up the bulk of its Splenda sweetener – has plummeted in recent months. A year ago the reverse was true, with US firms struggling to get hold of the in-demand ingredient. With prices down 25 per cent since their peak, it’s clearly an unpredictable market.
CEO Javed Ahmed is hoping that the price slump will encourage more firms to switch to sucralose over other, more expensive sugar substitutes. But any shift will take a while to come through. In the meantime, investors might just want to start hunting around for something a little sweeter.