Tate & Lyle shifts focus as profits fall

27-May-2010 - Last updated on 28-May-2010 at 09:26 GMT

Tate & Lyle has announced a major shake-up of its business, shifting focus to specialty food ingredients and away from its traditional sugar business.

The announcement by Tate & Lyle’s new chief executive Javed Ahmed came as the firm reported that profits before tax for the year ended 31 March 2010 fell 7 per cent to £229m (€271m). Sales were down 1 per cent, reaching a total of £3,506m (€4,144m) for the year.

Some analysts had predicted that the firm would put its sugar business up for sale, but Ahmed dispelled these rumours in an investor meeting yesterday morning, saying instead that sugar will remain a lower priority, with focus placed on specialty food ingredients.

Profits from value added ingredients increased 22 per over the last financial year to reach £131m (€155m). Profits from primary ingredients were down 22 per cent to £98m (€116m).

Strategy refocus

“I am announcing today that we are refocusing our strategy, with our Speciality Food Ingredients business being the key focus of investment and long-term growth, as well as making a number of important changes to the Group’s organisation. Through these changes, and a strong focus on operational excellence and execution, we will build the platform to deliver sustainable long-term growth,” said Ahmed.

The firm also said it will scrap the completion of its Fort Dodge corn plant in Iowa due to the high costs involved and the risks associated with future returns. This decision leaves the group with a £217m (€256m) write-off charge.

This follows the announcement earlier in the year that Tate & Lyle mothballed its sucralose manufacturing plant in McIntosh, Alabama, which resulted in a charge of £55m (€65m).

“Looking forward, we anticipate that steady demand patterns for value added food ingredients will continue and, combined with the benefits of a single plant sucralose manufacturing base, we expect a modest improvement in value added food performance in the 2011 financial year,” said he company.

Sales of the branded Splenda product increasing 11 per cent last year to reach £187m (€221m). However, US demand for nutritive sweeteners continued to drop, although this decrease was slightly offset by stronger demand from Mexico – a trend expected to continue moving forward.

Other expectations include lower margins from industrial starches as industry overcapacity will place more pressure on pricing. The firm also expects little near term improvement in ethanol markets, and also highlights constrained profitability from its sugar business next year due to short term supply challenges.