Tate & Lyle Profits Down In Line With Expectations, Restructuring Yet to Reap Rewards

28 May 2015 --- British ingredients supplier Tate & Lyle has posted its full year 2014 figures following last month’s restructuring announcement. In line with expectations, sales fell 14% to $4.13bn, while profits were down 30% to $344m.

The troubled company, which owns the world’s largest sweetener brand, Splenda, has suffered at the hands of low raw ingredient prices and fierce competition on the sweeteners market. In April it announced that it would divest the bulk of its ingredients business and completely restructure its sweeteners arm. Profits for Splenda were down by $70.7m (73%) from $95.26m to $24.58.

It has warned that profits are not expected to improve in the coming year but the company is, however, optimistic about the future. The restructuring program, it says, will bear fruit over time.

CEO Javed Ahmed, said: “It has been a very challenging year for the Group, but with the necessary actions underway we are firmly focused on improving our performance and continuing the evolution of Tate & Lyle into a global Speciality Food Ingredients business supported by cash generated from Bulk Ingredients.

“The fundamentals of our Speciality Food Ingredients business and demand for our products remain strong. We have a portfolio of products with leading market positions, an expanding global footprint, and a steady flow of new products focused on major consumer trends, particularly in the health and wellness space; our Speciality Food Ingredients business is well-positioned for the future.”

The company went on to say, in a statement: “The year ahead will be one of structural change as we re-align the Eaststarch joint venture and Splenda Sucralose, embed changes to improve our global supply chain capabilities, and bring on line additional growth capacity for Speciality Food Ingredients. We anticipate that, in this year of change, adjusted profit before tax for the year ending 31 March 2016 will be broadly in line with the 2015 financial year on a pro-forma basis8 assuming the Eaststarch transaction completes in the summer as expected.

“The longer term outlook for the business remains positive. We expect the global market for speciality food ingredients to grow at mid-single digits and our objective is to grow modestly ahead of the market via organic growth supplemented by bolt-on acquisitions. We continue to target sustained cash flows from Bulk Ingredients and to dampen volatility where possible. As the mix of the Group moves towards our higher margin Speciality Food Ingredients business augmented by operational improvements, over time we expect to steadily enhance Group profit and returns on capital.”

In April, the company announced plans to restructure the Splenda business. The main restructuring theme will be around combining the two Splenda facilities into one, more profitable site. This will involve the closure of the Singapore facility and it’s merger with the company’s US manufacturing facility.

Tate & Lyle found that, while 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, a substantial increase in industry capacity, particularly over the past two years, had led to supply being well in excess of demand. This had caused industry behaviour and economics to change significantly a situation that the company does not expect to change materially in the medium term.

The company said: “We announced our Splenda Sucralose business would be re-focused in two ways. First, by taking a rigorous valued-based approach to securing volume by focusing on the areas where we see value with customers who fully value the benefits of the product including quality, provenance, food safety and responsible manufacturing and environmental practices.

“Secondly, by materially lowering the manufacturing cost base of the business by consolidating all production into our McIntosh, Alabama facility in the US from Spring 2016. After a phased transition over the next 12 months, the Singapore facility will close permanently. We expect 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 our Splenda Sucralose product forms. When the transfer is complete in Spring 2016, McIntosh will be capable of supplying our customers’ existing and ongoing needs.”

The company said it expects the business to return to modest profitability by 2017.