Tate & Lyle sees a less sweet future

The sugar and sweeteners group Tate & Lyle unveiled strong half-year profits yesterday but warned that changes to the European Union's sugar regime meant there would be tougher times ahead. The shares closed down 12p at 776p.

Underlying pre-tax profits climbed by 27 per cent to £173m in the six months to September, driven by a strong performance from the North American sweeteners and starches business, which generates nearly half of group profits. Profits in the US jumped 58 per cent.

However, the company warned that profits in the second half would be lower as a result of last year's EU subsidy reforms and higher wheat prices in Europe. The EU has agreed to open up its sugar market to overseas farmers and to cut sugar prices by 36 per cent over the next four years.

Tate & Lyle recently said it would close its five sugar beet factories in eastern Europe and put its European starch business up for sale to curb its exposure to the reforms. That will leave it with only one European business: sugar cane, which it will bring into Europe through Lisbon and its historic headquarters in east London.

Iain Ferguson, the chief executive, was sanguine about the reforms, saying the company would benefit in the long run and would be selling more sugar in Europe than before by 2009.

The firm had previously admitted that it would take a hit from the EU changes. City analysts now predict an annual pre-tax profit of £348m for the group, up from £295m last year.

Mr Ferguson described the US business as the firm's engine of growth.Tate & Lyle's strategy is to move away from commodity-type businesses and focus on value-added sugars and food ingredients.