Tate & Lyle sees profits turning sour

Shares in Tate & Lyle slumped 10 per cent yesterday after the sugar and sweetener group warned that the soaring cost of raw materials would hit profits next year.

Shares in Tate & Lyle slumped 10 per cent yesterday after the sugar and sweetener group warned that the soaring cost of raw materials would hit profits next year.

The group, which turns cereals into sweeteners that it sells to soft drinks companies, said wheat and maize costs had risen by up to 50 per cent against a year earlier. It admitted that profits from its amylum sweeteners arm in its next financial year would be "significantly below those of 2004", sending its shares 30.5p lower to 273p.

Analysts warned that plunging profits could put the group's dividend payout, which is not covered by its cash flow, at risk. Charlie Mills at CSFB slashed his pre-tax profit forecast for the year to March 2005 to £200m from £240m, while David Lang at Investec Securities cut his to £190m from £235m.

A Tate & Lyle spokesman rebuffed suggestions that the company had failed to prepare for the effects of the hot summer last year, which caused the wheat price to shoot up. "It isn't possible to buy forward very easily in Europe. Wheat is quite an illiquid market," he said.

Tate & Lyle, which is trying to reinvent itself as a more predictable value-added food business, said that wheat prices had surged by 20 per cent since November, putting the profit margin it built into contracts agreed then under pressure. It has been unable to raise its own prices enough to cover the difference.

The group, whose chief executive Iain Ferguson joined from Unilever last May, expects to meet market forecasts for its current financial year to 31 March because a "satisfactory performance" in the United States will offset its weaker amylum result. Any boost from its more profitable US business next year will be wiped out by the weak dollar, it added.

Tate & Lyle warned that it would have to take steps to reduce costs at its amylum arm, but declined to give further details.

Although the company signalled that some jobs will be lost, the spokesman could not say how many posts would be affected. The group has 9,500 staff worldwide, including those employed by its joint ventures.