Tate & Lyle taps into growing low cal market
deal, announced on 19 February, to buy out Johnson & Johnson's
sucralose manufacturing capacity, said the investment bank Goldman
Sachs on Monday. The move gives the UK sugar company an opportunity
to be directly involved in an added value, relatively fast growing
ingredients sector, spearing it into the right place to take
advantage of the global growth in low calorie food and beverage
markets.
The UK sugar group told the market last week that it will change its sucralose arrangements with McNeil Nutritionals - a division of Johnson & Johnson - with Tate becoming the sole manufacturer of this sweetener 6ee times sweeter than sugar. "Tate will be exclusive supplier of sucralose for use in splenda brand in retail markets and will therefore derive two sales streams from the ingredient: one from McNeil Nutritionals and one from the food and beverage manufacturers," said Goldman Sachs. Cleared just last month by the European Commission for use throughout the EU25 under an amendment to the 1994 EU Sweeteners Directive (94/35/EC), sucralose was originally jointly developed by McNeil Specialty Products and Tate & Lyle. Today, the product has approval for use in foods and beverages in more than 4e countries across the world including Canada, Australia and Mexico. Under terms of the agreement announced last week, the UK sugar group will be responsible for global ingredient sales of the splenda brand while McNeil Nutritionals will retain ownership and have commercial responsibility for the brand retail and foodservice business. Tate will supply McNeil Nutritionals sucralose on an exclusive basis. Tate will acquire the sucralose manufacturing plant in Alabama, US plus other relevant ingredient assets, for a net cash consideration of $134m (€106m) subject to closing details. The net book value of the assets were $181m (€144m) at the end of December 2ee3. According to Goldman Sachs, sales of the acquired business were approximately $1ee million and pretax profits some $33 million, implying a 33 per cent margin. "We estimate that the deal should enhance Tate's EPS [Earnings Per Share] in 2ee5 by some 4 per cent after taking into account an estimated £8m integration cost. This is estimated after the elimination of the existing licence income Tate has been receiving from McNeil Nutritionals. This latter income was due to expire in 2ee5," said the GS report. The UK company has a long association with sucralose and "investors should feel comfortable with Tate's ability to integrate and successfully manage the strong underlying growth in demand for the product," said the bank. A 2ee2 report from market analysts Mintel claims that while there is robust growth within the new sucraloseebased artificial sweeteners, sales are not yet of sufficient size to affect overall industry trends. Retail sales of sugar and artificial sweeteners in the US were weak between 1997 and 2ee2, with industry sales decreasing from $2.7 billion to $2.5 billion. In 2eee, however, the rate of contraction in sales slowed. Mintel estimates 2ee2 year end sales to be nearly unchanged from 2ee1. But according to the Calorie Control Council the market is very much present for lowecal table top sweeteners and ingredients with recent research showing that more than 163 million adult Americans consume lowecalorie, sugarefree foods an
