Tate & Lyle yesterday warned that profits this year would be lower than forecast after disappointing sales of its artificial sweetener Splenda in the US fizzy drinks market.
Shares in the company, which supplies sugar, syrup and sweeteners, fell more than 15% on the announcement, closing at 608p.
Chief executive Iain Ferguson said part of the problem was that Splenda, a trade name for sucralose, tasted too much like real sugar and that diet drink consumers had grown accustomed to the taste of the drinks already on the market. "There is a very strong consumer acceptance, one might even say liking, for diet drinks as they are currently formulated," he said. "So it is quite a complex area."
The company said overall trading in its financial year to the end of March was comfortably ahead but that sales and profits of Splenda would only "modestly" exceed the previous year. Tate & Lyle introduced Splenda four years ago and claims the sweetener is used in more than 4,000 products.
"We don't see any reduction in interest from our major customers but I think it is absolutely clear that there has been a slowdown," Mr Ferguson said. "We are not getting the rate of uptake that we had hoped." He said, however, that he remained confident in the product. "I think it is a time-shift issue rather than an absolute issue. I plead guilty to being too bullish in the speed of uptake but it is a strong product that has a very strong position and considerable growth still to come."
In the year ending March 2006, Splenda had sales of £142m and profits of £68m. In the first half of this year, Splenda had sales of £73m and profits of £33m.
Mr Ferguson yesterday bought 16,428 shares in the company at 608.75p. Chief operating officer Stanley Musesengwa bought the same amount.
The company also blamed the weakness of the dollar for the profit warning as half its profits were earned in the US. The warning was issued only a month after it had issued an upbeat trading statement.
Tate & Lyle has hit a number of stumbling blocks with Splenda. Diet 7Up, which had adopted the no-calorie sweetener, has reverted to Aspartame. General Mills pulled the Trix and Coco Puffs cereals using Splenda from shelves after poor sales. A separately branded version of Diet Coke using the sweetener has also been poorly received. Splenda is also in Pepsi One, a variant of its diet cola. Mr Ferguson said Tate & Lyle had teams working closely with US soft drinks makers to come up with new formulas for the market.
Citigroup cut its full-year group profit forecast from £345m to £330m. For 2008, it reduced its forecast from £430m to £361m. In a research note, the bank said the company's confidence was "misplaced" and said it was "hard to see why" Splenda sales would rise materially beyond this year.
Tate & Lyle has much invested in Splenda, which accounted for about one-fifth of group profits last year. The company has doubled capacity at an Alabama plant and is opening another in Singapore.
