There is generally a tendency for suppliers to see lower orders in economic downturn as customers prefer to run down existing stocks. But some of Tate & Lyle’s customers had built up large stocks well before last October’s crash, during the construction of the new production plant in Singapore in case the change over should affect supply.
Since the new plant opened in 2007 they have been using them the excess before ordering more. The ingredients firm started to see orders rebounding at the end of last year, and the 6 months ended 30 September volume sales were up 15 per cent.
Sales of Splenda sucralose during the period were £101m, up 29 per cent on the comparative period – or 9 per cent in constant currencies.
Even so, the comparative price was lower, as contracts with long-term customers have included volume incentive arrangement and the high intensity sweetener market has become more competitive.
Certainly some new sucralose suppliers have been placing material on the market recently, produced in China and India using first generation technology. This has brought all round price pressure to the market, although Tate & Lyle remains the market leader.
Single plant in Singapore
Tate & Lyle has now moved on to fourth generation sucralose technology, put in place at its new Singapore plant. In May it announced the mothballing of its facility in McIntosh, Wisconsin, not only so that all its sucralose would be made in a more cost-efficient manner but also to being lower freight costs through supply chain optimisation and savings in labour and admin costs.
The decision to mothball McIntosh has brought anticipated cash costs of £55m.
As for supply availability, Tate & Lyle has said it is holding “significant stocks” at McIntosh during the change over period. It expects most of this higher cost material to be used up in the second half of the year.
Moreover, finishing and packing will continue at McIntosh until the end of the year, and the plant will be kept in a state so as to allow production to restart within a few months if necessary.
Up overall
Overall, Tate & Lyle’s results were slightly ahead of expectations in H1, before the exchange rate factor is taken into consideration, new chief executive Javed Ahmed said.
Sales were up from £1698m to £1823m; although adjusted operating profit was down 1 per cent to £148m, net debt was reduced from £1128m to £987m.