Tate profits by cutting out sugar

Healthier consumers want products with lower calories and less sugar

Tate & Lyle, the UK sugarmaker, has seen annual profits rise by 14%, driven by strong demand for a zero-calorie sweetener used in Coca-Cola and Pepsi.

Pre-tax profit was £224m ($406m) in the year to 31 March from £197m a year earlier, topping market expectations.

Sales rose to £3.3bn from £3.2bn, and sales of the sweetener Splenda increased to £115m from £70m.

But Tate's shares fell after the company said that European Union market reforms are likely to hit its profits.

Tate's stock was down 4.5% at 463 pence by early afternoon.

Adverse effect

Sugar prices are likely to slide across the EU after Brussels lost a World Trade Organisation ruling on subsidies to farmers.

Reform will adversely affect the future performance of our European sugar and food & industrial ingredients businesses David Lees, Tate & Lyle chairman Check Tate & Lyle's share price

As a result, the European Commission is proposing extensive reforms to sugar production including a reduction in price support to growers.

Tate said it would have to assess the impact of new proposals - due to come into effect in 2006 - when they are published later this month.

"Reform will adversely affect the future performance of our European Sugar and Food & Industrial Ingredients businesses, although we cannot quantify the consequences at this stage," chairman David Lees said in a statement.

Any dip in the price of sugar was unlikely to have a knock-on effect on the cost of Splenda, the company stressed.

The company is currently producing as much Splenda as it can and it plans to build new production facilities in the US to meet the increasing demand for the product.

To help allay investor concerns further, Tate said it would increase its dividend payment by 3.2 % to 19.4 pence per share.