Tate & Lyle Profits Fall on Sugar Prices, Sucralose Competition

30 May 2014 --- Tate & Lyle has reported that sales for the year were £3,147 million (US$5,266 million) (2013 – £3,256 million (US$5,448 million)), 3% lower than the prior year (3% in constant currency) with sales in Speciality Food Ingredients up 4% (4% in constant currency) to £983 million (2013 – £947 million) and 6% lower in Bulk Ingredients (6% in constant currency) at £2,164 million.

Adjusted operating profit was 2% lower (1% in constant currency) at £349 million (2013 – £356 million) with adjusted operating profit in Speciality Food Ingredients in line with the prior year at £213 million (up 1% in constant currency) and 5% lower (4% in constant currency) in Bulk Ingredients at £172 million (2013 – £182 million). Adjusted profit before tax was 2% lower (flat in constant currency), at £322 million (2013 – £327 million), and adjusted diluted earnings per share were 2% lower (flat in constant currency) at 55.7p (2013 – 56.6p).

Javed Ahmed, Chief Executive, said: “During the year, we continued to make steady progress in executing our strategy. The delivery of solid profit growth in starch-based speciality ingredients and Food Systems, along with another year of strong growth in emerging markets, was offset by the impact of the cold spring in the US last year followed by the recent severe and prolonged winter, and an increasingly competitive market for SPLENDA Sucralose. While we will continue to face sucralose pricing headwinds in the current year, our strong innovation pipeline, robust balance sheet and continued growth in emerging markets means we are well placed to deliver growth over the longer term.”

In Speciality Food Ingredients, Tate & Lyle expects to deliver volume growth across all major product categories but a lower profit contribution from SPLENDA Sucralose is expected to offset a good performance elsewhere in the division. Profits in this division are expected to be more evenly weighted between the first and second halves than the previous financial year.

In Bulk Ingredients, Tate & Lyle now anticipate a slower start in the US in the first quarter associated with the prolonged and severe winter, combined with lower European sugar prices in their second half, to outweigh a better performance across other product categories.

Overall, and before the impact of currency movements, while the company expects the Group’s performance for the full year to be slightly lower than the comparative period, they are well placed to deliver growth in the longer term.

“During the year, we continued to make steady progress in executing our strategy. The delivery of profit growth in starch-based speciality ingredients and Food Systems, along with another year of strong growth in emerging markets, was offset by the impact of the cold spring in the US last year followed by the recent severe and prolonged winter, and an increasingly competitive market for SPLENDA Sucralose,” a statement read.

Since May 2010, Tate & Lyle have made steady progress executing its strategy and growing Speciality Food Ingredients, having delivered average annual volume growth of 5% and compound annual operating profit growth of 7% during that period. Excluding SPLENDA Sucralose, where an increasingly competitive environment held back growth of the division as a whole, we have delivered a strong performance across the rest of Speciality Food Ingredients, with compound annual profit growth of 12% during the same four-year period.

This growth has been achieved by rigorously following through on the key priorities set out in May 2010, when Tate & Lyle outlined a path to grow for Speciality Food Ingredients division by: diversifying our business geographically through building our presence in faster growing, emerging markets and hence reducing our reliance on developed markets; broadening our product portfolio through the development of a world-class innovation capability; and forming stronger relationships with our customers through much greater collaboration with them.

Tate & Lyle delivered another strong performance in Asia Pacific and Latin America with double-digit volume growth during the period, as we continued to leverage the strength of our brand, our ingredients portfolio and our applications expertise in these regions. Our successful expansion into the emerging markets, which now represent 19% of Speciality Food Ingredients sales, is a result of the investments we have made in building strong local teams and infrastructure, which have been key enablers in forming direct and higher quality relationships with regional food and beverage customers.

During the year, they opened an applications and technical service laboratory in Singapore (the new hub of our Asia Pacific operations), and established a sales office in Japan.

We have also strengthened our presence through acquisition. In October 2013, we acquired a 51% equity interest in Jiangsu Howbetter Food Co., Ltd, a leading Food Systems business in China. By combining Tate & Lyle’s global blending capabilities and extensive recipe expertise with Howbetter’s strong local expertise and infrastructure, Tate & Lyle Howbetter provides the company with an excellent platform from which to accelerate the growth of our Food Systems business in China.

In March 2014, Tate & Lyle announced the signing of an agreement to acquire Winway Biotechnology (Winway), a leading producer of polydextrose fibre in China. Winway will provide us with our third global polydextrose facility complementing our existing facilities in the Netherlands and the US. The acquisition, which is subject to government approval (expected in the next few months), will allow us to further accelerate the growth of our speciality fibres business in Asia Pacific and to expand our health and wellness offering globally.

The company’s Innovation and Commercial Development group (ICD) launched five new products during the year including PULPIZ Pulp Extender, a speciality food starch that replaces tomato pulp in a range of applications. ICD also continued to play a key role in the commercialisation of our recently launched ingredients, particularly our salt reduction ingredient SODA-LO Salt Microspheres and our stevia-based, no-calorie, natural sweetener TASTEVA Stevia Sweetener. During the year, a number of customers launched products incorporating these ingredients and we continued to work closely with customers on formulation, product prototyping and testing to convert the increasing number of customer projects in the pipeline into sales.

Tate & Lyles innovation pipeline remains strong with a total of 35 products at various stages of development including ten in the final stages, some of which we plan to launch over the next 12-18 months. The pipeline is well balanced with a number of line extensions, next generation and breakthrough projects across our sweeteners, texturants, health and wellness and bulk ingredients platforms.

Our global marketing team is an integral part of the innovation and commercialisation process. In addition to developing clear value propositions and positioning for our ingredients, this team is also developing consumer-focused strategies for specific applications in the beverage, ‘clean label’, convenience and dairy categories.

At the start of the year, the company acquired Biovelop, an early-stage manufacturer of oat beta glucan which added a ‘clean label’, speciality fibre with strong EFSA1 health claims to our existing corn-based fibre-portfolio. During the year, high levels of customer interest in PromOat Beta Glucan has helped to build a strong pipeline. Work to expand capacity at our plant in Kimstad, Sweden has begun and we expect this will come on line in the current financial year.

As announced in February 2014, the competitive environment for sucralose intensified during the final quarter, driven by an increase in capacity in China and a significant overhang of unsold Chinese sucralose. Against this backdrop, Tate & Lyle renewed a number of customer contracts for SPLENDA Sucralose, including some on a multi-year basis, and as a result experienced an increase in the rate of price decline in SPLENDA Sucralose in the final quarter. As previously announced, with these contracts in place and based on current market dynamics, the company expect average prices in the 2015 financial year to be around 15% lower than the 2014 financial year.

Notwithstanding the competitive market environment and the headwind of lower prices, Tate & Lyle continue to see good long-term volume growth opportunities in the global market for sucralose driven by a number of factors:
• Given rising rates of obesity and diabetes globally, increased consumer focus on health and wellness is continuing to drive food and beverage manufacturers to reduce or replace sugar content in their products. The imposition of taxes by governments on food and beverage products with high levels of sugar or calories is also creating opportunities and increasing demand for sucralose;
• Sucralose continues to be the high intensity sweetener of choice because the combination of its superior taste profile and heat stability that enable it to be incorporated in a wide range of food, beverage and other applications. This provides an opportunity for sucralose to continue to replace other high intensity sweeteners that have already been incorporated into low calorie products in the market as well as replacing sugar. In calendar year 2013, 6,373 new products were launched globally incorporating sucralose, a 54% increase over the prior year (2012 – 4,142 launches) compared with 3,633 for aspartame (up 4% on 2012) and 2,860 for stevia (up 56% on 2012) where the company also have a strong offering through TASTEVA, according to Innova Market Insights data. As a result, sucralose’s value share of the global high intensity sweetener market continues to grow, standing at 35% for calendar year 2013;
• Tate & Lyle also see good growth potential in the tabletop market where we now have full freedom to operate worldwide.

“While we expect the global market for sucralose to remain competitive, our priority remains to increase volumes by both growing and taking a greater share of the global market for sucralose, by leveraging our unparalleled applications and formulations expertise and providing our customers with the highest standards of quality, traceability and reliability in the industry. Specifically, our focus over the next year will be to continue to renew existing customer contracts, aggressively pursue new business opportunities globally (including those relating to the substitution of other artificial high intensity sweeteners given the increasing price competitiveness of SPLENDA Sucralose) and drive further cost savings and efficiencies through our two large-scale continuous production facilities in the US and Singapore,” the company writes.