Sour European markets dent Tate sales

TATE AND LYLE, the world's largest starch and sweeteners business, put a brave face on the effect of the 14-year low in the sugar price on its interim results and warned of forthcoming redundancies.

The figures tell a tale of two cycles. Staley, the company's US-based speciality sweeteners business, benefited from lower raw material costs and higher prices. However, the commodity sugar businesses, in particular the European Amylum operation, experienced tough markets.

Group sales fell by pounds 108m, including a pounds 57m currency hit, to pounds 2.1bn. Underlying pre-tax profits rose 10 per cent to pounds 96m, including pounds 5m from asset sales. US sales accounted for 77 per cent of profits.

Larry Pillard, chief executive, said Tate would make UK job cuts as part of a programme to save pounds 15m annually within two years. He stressed the presence in speciality sweeteners - "Our strategy is to add value to carbohydrates" - but the speciality side yields only 30 per cent of profits.

Amylum, which makes starches from potato and wheat, delivered flat profits despite pounds 300m investment. The European sweeteners industry has overcapacity and Tate's rivals are investing in new plant. Yesterday Tate's shares fell 7.5p to 436p as a Italian rival warned of poor trading but still planned to raise capacity. "They're walking into the valley of death in Europe," said David Lang of Investec Henderson Crosthwaite.

Although the capital expenditure benefits are yet to kick in, a turnaround at Amylum depends on European rivals collectively raising prices - unlikely in the next six months. A poor potato harvest this summer would exacerbate Amylum's difficulties.

HSBC Securities forecasts pre-tax profits for the year of pounds 215m and earnings of 32.1p per share. On a long-term view the shares are good value on a forward p/e of 13.5, but do not expect them to skyrocket just yet.