Tate & Lyle Announces Major Restructuring Program, Exits European Bulk Sweeteners

21 Apr 2015 --- Tate & Lyle has announced the exit from the substantial part of its European Bulk Ingredients business and the re-structuring of its Splenda Sucralose business to further focus on and strengthen Speciality Food Ingredients. The move comes after months of speculation about the possible sale of Splenda, most recently to Japanese firm Ajinomoto. Splenda will remain within the group, but all production will move to its US plant, with the closure of its Singapore plant.

Tate & Lyle chief executive, Javed Ahmed, said in a webcast that while Splenda continues to be in great demand, problems in the last 18 months have arisen from over-supply. This had led to profits from the division decreasing by 75% in 2015 to £16m. By moving all production to the US site, operating costs, particularly for energy, will significantly decrease.

As part of the restructuring, Tate & Lyle has signed an agreement with ADM to re-align its Eaststarch corn wet milling joint venture in Europe. Under the re-alignment, Tate & Lyle will strengthen its Speciality Food Ingredients business by acquiring full ownership of the more speciality-focused plant in Slovakia; substantially reduce its European Bulk Ingredients footprint by exiting the predominantly Bulk Ingredients plants in Bulgaria, Turkey and Hungary; and receive €240 million in cash on completion of the transaction.

As a result of the re-alignment, Tate & Lyle will: substantially exit from bulk sweeteners in Europe for good value and before a decision on potential future capital investment is required arising from the reform of the EU Sugar Regime in 2017; the proportion of Group adjusted operating profit from Speciality Food Ingredients will increase from 50% to around 55%, and in Europe will effectively become all of the profit.

With regard to Splenda, the company will re-focus and re-structure the division to maximise returns. Tate & Lyle will pursue a rigorous value-based strategy by consolidating all Splenda Sucralose production into one facility in Alabama, US and closing the Singapore facility in Spring 2016. This will ensure the future cost base will be materially lower and hopes to allow the Splenda business to breakeven in the year ending 31 March 2016 and to return to modest profitability in the year ending 31 March 2017.

The move positions Splenda as a more focused, low-cost and sustainable business.

Javed Ahmed, Chief Executive, Tate & Lyle said: “By re-aligning the Eaststarch joint venture we will focus in Europe on Speciality Food Ingredients, and our Bulk Ingredients will become a predominantly North American business with strong market positions and efficient, scale assets.

“We are re-structuring Splenda Sucralose as a more sustainable business. Our broader Speciality Food Ingredients business has an expanding global footprint and a steady flow of new products targeted at the higher growth health and wellness space, and is well-positioned for future growth.

“Overall, the actions announced today streamline and further focus Tate & Lyle as it continues to transition to a global Speciality Food Ingredients business supported by cash generation from Bulk Ingredients.”

Had the transaction taken effect from 1 April 2014, Group adjusted operating profit in the year ended 31 March 2015 would have been reduced by £32 million and diluted earnings per share would have been reduced by around 5.5 pence.  Depending on the timing of completion of the transaction and the final transition arrangements, Tate & Lyle anticipates the reduction on Group earnings will be somewhat lower in the year ending 31 March 2016. The company anticipates that, following the impact of re-structuring the European operations, from the start of the year ending 31 March 2017 the dilution in earnings as a result of the transaction will be around 3 pence per share. 

The reform of the EU Sugar Regime in October 2017 brings with it the potential need for capital investment in bulk sweeteners.  Tate & Lyle’s strategy since 2010 has been to invest for growth in Speciality Food Ingredients and, therefore, the re-alignment of the joint venture at this time enables Tate & Lyle to realise good value from its Bulk Ingredients’ assets before a decision on capital investment is required.

In the past 18 months, industry economics for sucralose have changed significantly and, against this backdrop, Tate & Lyle has undertaken a detailed analysis of our Splenda Sucralose business to evaluate how to maximise returns. 

Demand for sucralose remains strong driven largely by consumer desire for more calorie-reduced food and drink, and by the superior taste and functionality that sucralose delivers.  However, a substantial increase in capacity in the market, particularly over the past two years, which is now well in excess of demand, has driven a significant change in industry behaviour and economics, and the company does not expect this to change materially in the medium term. 

From Spring 2016, all production of Splenda Sucralose will be consolidated into Tate & Lyly's facility in McIntosh, Alabama, US.  Over the next 12 months there will be a phased transfer of production from Singapore to McIntosh, after which the Singapore facility will be closed permanently. The McIntosh facility operating at a higher scale and utilisation level than it does currently will provide a materially lower-cost manufacturing position from which to operate. 

The company expects to invest around £18 million to consolidate production in McIntosh.  This mainly relates to the transfer of equipment from Singapore to McIntosh, and for additional equipment at McIntosh to produce all Splenda Sucralose product forms.  When the transfer is complete in Spring 2016, McIntosh will be capable of supplying our customers’ existing and ongoing needs.  McIntosh and Singapore both use the same process and manufacture to the same specification and, therefore, product quality and service to customers will not be impacted.

In the year ended 31 March 2014, adjusted operating profit for Splenda Sucralose was £62 million.  As a result of the significantly changed industry economics over the past 18 months, profits are expected to fall by 75% to around £16 million in the year ended 31 March 2015.  It continues to anticipate further price erosion in the year ending 31 March 2016. Looking further ahead, in our 2017 financial year, Tate & Lyle expects this business to return to modest profitability.

The re-structuring of the European Bulk Ingredients business is expected to give rise to a pre-tax exceptional profit on disposal of approximately £60 million subject to exchange rate movements and the timing of completion.