The Investment Column: Tate & Lyle

UNTIL RECENTLY, Tate & Lyle, the world's largest sweeteners business, had underperformed the market for several years. This year, however, a slight recovery has been under way.

The sugar industry over-invested earlier in the decade and there's now too much of the sweet stuff around, so Tate & Lyle has been pursuing a cost-cutting programme. At last, that's starting to bear fruit.

The closure of a wheat processing factory in Bordeaux and a sugar refinery in Brooklyn, New York, helped the company post pre-tax profits up 35 per cent in the year.

However, Larry Pillard, chief executive, confessed to making a small strategic error by choosing to hold sugar prices firm in the United States, prompting volumes to fall 10 per cent, with a resulting fall in market share.

The group warned that sugar prices in the US would remain depressed for the foreseeable future as a result of a bumper harvest.

Despite this, the group's Staley sweeteners subsidiary and its newly acquired citric acid operations made strong gains, helping the US operations boost profits 50 per cent.

In Europe, Tate's Amylum starch processing outfit - which eschews genetically modified raw material - made strong gains, benefiting from the absence of fresh start-up costs in the second half. The group is also seeing higher starch prices in Europe.

Not only is the group enjoying stronger cashflow, but Mr Pillard says he is only just starting to see the benefits of the cost-cutting. The momentum will accelerate as further costs are removed in all the group's businesses.

Analysts expect pre-tax profits of around pounds 240m and earnings of 35p per share this year, rising to pounds 311m and 45p in 2001. Mr Pillard is now proving his commitment to delivering shareholder value and the turnaround, still in its early stages, is starting to gather pace. The shares, up 27p at 427p, are good value.

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