In January, Tate warned that profits in its Staley syrup and starch operation in the US would fall by more than $50m this year. With the price of maize, a key ingredient, having doubled over the past 12 months and new capacity in the milling industry up 20 per cent or so this year, things look even worse. Analysts expect the contribution from Staley, half the group's pounds 311m profits in 1994/5, to halve this year to an underlying figure of just under pounds 80m.
The market for Staley's high-fructose corn syrup continues to grow at over 4 per cent a year on the back of the apparently inexorable rise in the consumption of soft drinks like Coca-Cola. But that means it could take another three years for the over-capacity to be absorbed by the market. With world grain stocks at an all-time low at around 12 per cent of consumption, the outlook must be for the squeeze on Staley to continue into 1997.
So first-half results yesterday showing pre-tax profits up 10 per cent at pounds 168m for the six months to 30 March are largely of historical interest. The figures did, however, bear the scars of the 1996 sale contracts negotiated by Staley with customers in January. Although matching forward maize contracts mean the business is protected from future raw material rises, the margin from North American sweeteners and starches has still slumped from 11.7 per cent to 8.9 per cent in the first half.
The underlying rise in operating profits from pounds 72m to pounds 77.8m in Europe was insufficient to offset the damage across the Atlantic. The promise of Tate is still in developing markets,whose returns should be "well into double figures" this year on an investment so far of pounds 150m.
But that will make little difference to immediate problems. Profits of pounds 300m this year would put the shares, down 14p at 462p, on to a forward multiple of 11. Unattractive for now.