Food and industrial ingredients drive Tate & Lyle growth

By Jess Halliday

- Last updated on GMT

Related tags Industrial ingredients Value added

Tate & Lyle has reported a strong full year 2007, the third
consecutive year of sales growth and a key one for repositioning
towards value added ingredients. But despite this, EU sugar reform
continues to prove a drag.

The group reported sales from continuing operation of £3.81bn (c €5.6bn) for the 12 months ended March 31, up from £3.46bn (€5.09) the previous year. Operating profit was £333m (€490m). The year has been a key on in the firm's repositioning towards value added ingredients, and the growth story is said to have been driven by the food and industrial ingredients businesses, which achieved operating profit growth of 36 per cent on the prior year. However it had set a target for value added products to contribute 30 per cent to this. In the event, it did not achieve this target, profits from value added products were still said to be 14 per cent higher. "We remain committed to and confident in our strategy to achieve further growth from this part of the business,"​ said the group. But despite the positive results, several factors proved to be flies in the ointment - not least the effects of EU sugar reform. Firstly, global energy prices also added £28m (€41.2m) to its energy costs for the year - a factor that has proved detrimental to the results of many companies across industries. Then, Tate & Lyle has been curtailing its sugar interests with a view to reducing the toll of the new EU sugar regime on its operations. For instance, it closed Eastern Sugar, its Central European sugar processing operations. In what was otherwise described as a "successful year for the group",​ the company said its Spenda sucralose achieved only modest growth, which was disappointing. This was attributed to several factors, including a return to normal product development lifecyles, after the rush to cash in on the Atkin's diet trend; customers using up stocks they had built up as security whilst waiting for Tate & Lyle's new capacity to come on-stream; and lower-than-expected demand from the US carbonated drinks sector. Although Tate & Lyle expects to increase its market share in high intensity sweeteners, which is currently said to be around 28 per cent, and global volume growth of three to four per cent per annum is expected, it does not expect more than a modest increase in operating profit for Splenda sucralose next year either. This is due to higher production costs as the Singapore plant is commissioned, and increased patent defence costs. Tate & Lyle's general drive towards health and wellness and away from sugar has continued past the end of the year, with its proposed acquisition of a majority stake in GC Hahn, a German specialty ingredients group. On the other side of the Atlantic, Tate & Lyle has also disposed of its Canadian sugar refining business Redpath, for £131m (€191.79m). The company is also in advanced discussions over the partial sale of its Food & Industrial Ingredients, Europe division to Syral. It is considering using the profits of the sale (which has an anticipated value of £200m to £220m, or €293m to €323m) as part of a return of capital to shareholders. Although the company is lauding a fine set of results for 2007, it is realistic about the challenges it will face over the next twelve months. For instance, it does not expect a repeat of the ethanol profits it saw this year, which were "unusually high".​ The continuing oversupply of sugar in the EU will have an ongoing negative effect on its sugar refining business. However should the latest proposals for stabilising the market be adopted, the company expects the next prising round to be better, reducing the threat of a further quota reduction as of October 1. "The anticipated partial disposal of Food & Industrial Ingredients, Europe will reduce operating profits, and the commissioning of the Singapore Splenda sucralose facility will increase fixed costs, offsetting the benefits of expected continued growth in sales in this division,"​ said chairman Sir David Lees. On the upside, Tate & Lyle will be bringing on-line new capacity in value-added products at its Sagamore and Loudon facilities. It also expects to benefit from better sweetener pricing in the 2007 round for Food & Industrial Ingredients, Americas.

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