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The primary reason for the profits warning and the collapse in the share price has been an overhang of unsold sucralose, the primary component in Splenda. This is due to oversupply from Chinese manufacturers, and has resulted in a price fall of 15% this year. As sales of sucralose account for around a fifth of the company’s profits, Tate & Lyle has been forced to reduce its outlook for the year.
Subsequently, the company has embarked on a purchasing run of operations in China. The manufacturing facility produces polydextrose, which is one of the more successful soluble fibres that can be used for bulking up dietary foods. It also has a beneficial effect to the digestive systems.
Although recent acquisitions will have a longer-term benefit for the company, these are unlikely to materialise in the short term, and the share price is being more directly affected by the profits warning. Even though the shares, at 620p, are hovering around lows last seen in June 2012, a cautious outlook ahead of the release of annual figures would be prudent.