Tate & Lyle has revealed a 64% slump in profits at its sugars division thanks to higher energy costs and a market glut.

The British sweeteners and ethanol group said that, while the division's sales rose 20% to £1.05bn in the year to the end of March, margins were squeezed by a surplus of sugar in Europe, a "highly competitive" UK market and higher fuel bills.

Pre-tax profits slumped from £33m to £12m, with the main sugar products business falling into a loss.

Europe's bountiful sugar supplies reflected delays in implementing cuts to European Union quotas. Brussels is axing 6m tonnes of output to fix a generous subsidy regime which inspired huge overproduction.

  "The actual timing of the quota surrender was later than initially expected, and the market has therefore been characterised by surplus stocks, albeit reducing," Tate & Lyle said.

'Stronger margins' 

Nonetheless, Tate forecast sugar profits recovering from October, the deadline for Brussels' reforms.

"There are clear signs of improving market conditions resulting from the completion of the voluntary quota surrender from October 2009," Tate said.

"We expect our European sugar business to benefit from stronger refining margins."

However, Tate said the division's rebound will be curbed somewhat by an outbreak of grassy green shoot disease at its Vietnamese sugar business, which "has reduced the cane available from our growers and will depress profits in the 2010 financial year".

Market reaction

The comments came as Tate unveiled a 3.5% slide to £247m in pre-tax profits for the year, excluding one-off effects, on revenues up 23% at £3.55m.

Profits at the group's US division also fell, hurt by the strong dollar and the weak ethanol market.

However, Tate's sucralose unit, which makes a no-calorie sweetener, and its European business raised contributions.

Tate shares closed 2.25p lower at 290p in London.