Tate & Lyle warns of European sugar glut

Tate said in a trading update that the oversupply will cut earnings at its European sugar business and that the problem will spill over into Tate's competing sweeteners, which are expected to see lower profits margins.

The poor outlook for its European business came as the industry faces big changes after the European Union announced plans to slash its sugar support regime late last year, while all manufacturers face an increase in their energy bills.

Tate's shares slipped as low as 580-1/2 pence but then recovered to be just off 0.4 percent at 590p by 9:05 a.m. valuing the group at around 2.9 billion pounds.

"The market is more competitive with the upcoming changes and there is pressure on all sugar companies," said analyst Richard Workman at Oriel Securities

The EU's plan to cut support prices threatens Tate's profits that it makes from sugars, syrups and sweeteners throughout the EU, which account for 40 percent of the group total.

Tate's (TATE.L: Quote, Profile, Research) update follows its annual round of pricing for its European and North American sugars and sweeteners, with the group expecting a price rise to help offset higher energy costs it faces during its next financial year to March 2007.

It also added that trading since half-year results in early November had continued satisfactorily and the outlook for its year to March 31 was unchanged, which it has said before will reflect satisfactory progress despite higher costs.

In its European sweeteners business, Tate warned 2006 net margins would be below those in calendar year 2005 due higher energy costs and an oversupply of sugar. It sees a decline in earnings from European sugars in the current financial year to March and a further decline in the year to March 2007.

But in its American sweetener pricing rounds the group anticipates a higher total net margin in value-added food ingredient and other products as it expect to recover its higher costs in calendar 2006.

Tate said expansion of production capacity for its zero-calorie sucralose sweetener brand Splenda, which brings in nearly a fifth of overall profits, was on track with a doubling of capacity of its Alabama plant due in April. A new plant is set to come on stream in Singapore in January 2007.