Sucralose prices to keep falling

by Jeff Gelski
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LONDON — Price erosion for sucralose should be about 25% in the 2015 financial year, according to a Sept. 23 trading update from Tate & Lyle, P.L.C. Back in February, the company anticipated an erosion of about 15% for the high-intensity sweetener. In the first half of the current fiscal year, the average level of price erosion for sucralose was higher than anticipated, according to the London-based company.

Javed Ahmed, chief executive of Tate & Lyle, said the “irrational behavior” of some companies in the sucralose market makes the market difficult to read.

“So whether they look at, the competition looks at economics in the same way we do, well, I can’t guess that, but clearly at some point if you’re not covering your costs, it’s hard to do business at that point,” Mr. Ahmed said in a Sept. 23 trading statement call. “So that’s, when I say irrational, that’s what I mean. We probably can never estimate a competitor’s costs completely to the penny, but we think we’ve probably got a fairly good range of what we think that cost structure is because the technology we know they’re using is something we were using a number of years ago, and we’ve moved on to a continuous processing technology, which we know gives us a cost advantage.”

Tate & Lyle’s low inventories in the United States led to about a £10 million ($16.4 million) reduction in first-quarter profits. A disruption to Tate & Lyle’s global supply chain then persisted longer than anticipated because of plant network challenges, low inventory levels and misalignments between consumer demand and available inventory. As a result, Tate & Lyle expects to incur additional non-recurring costs of about £20 million in the second quarter ended Sept. 30, bringing total first-half costs to about £40 million.

“The key No. 1 priority was to ensure that we serviced our customers, and if we had to air-freight stuff, we air-freighted stuff,” Mr. Ahmed said. “That cost us money.”

Further non-recurring costs should be about £10 million in the second half of the financial year. Mr. Ahmed has instigated a review of the company’s planning and supply chain processes. Nick Hampton, chief financial officer, will lead the review.

In the first half of this fiscal year, Tate & Lyle expects adjusted profit before tax in the range of £95 million ($155.5 million) to £105 million ($171.9 million). Adjust profit before tax for the full fiscal year should be in the range of £230 million to £245 million. The company plans to give full six-month results on Nov. 6.

The company expects to introduce two new products in the next few weeks, Mr. Ahmed said.

“In this particular case, we’re talking about one specifically in the specialty starches and one in the sweeteners area,” he said.
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