Tate & Lyle announces major business realignment
Tate & Lyle PLC, London, recently announced the exit from the substantial part of its European Bulk Ingredients business and the restructuring of its SPLENDA Sucralose business to further focus on and strengthen Speciality Food Ingredients.
Tate & Lyle and Archer Daniels Midland Co. (ADM), Chicago, have signed an agreement to realign Eaststarch C.V. (Eaststarch), their joint venture corn wet milling business in Europe, in which each owns a 50 percent equity share. Eaststarch was formed in 1992, and owns and operates three corn wet mills located in Slovakia, Bulgaria and Turkey, and has a 50 percent equity share in Europe’s largest corn wet mill in Hungary. Eaststarch produces a range of products, predominantly bulk ingredients, which are sold to a number of multinational and regional food and industrial customers.
Under the terms of the agreement, Tate & Lyle will:
- Strengthen its Specialty Food Ingredients business by acquiring full ownership of the more speciality-focused plant in Slovakia.
- Substantially reduce its European Bulk Ingredients footprint by exiting the predominantly Bulk Ingredients plants in Bulgaria, Turkey and Hungary.
- Receive a cash sum of 240 million euros at closing, subject to customary closing adjustments, including for net cash and working capital, and an additional payment of up to 20 million euros in 2019 conditional on future corn and sugar pricing.
- Continue to supply its European customers with crystalline fructose, a specialty sweetener, by being appointed as distributor for crystalline fructose produced from the plant in Turkey under a long-term agreement.
- Focus its European business on Speciality Food Ingredients by appointing ADM as exclusive agent for Bulk Ingredients produced from the plant in Slovakia and Tate & Lyle’s wholly-owned corn wet mill in the Netherlands under a long-term agreement.
Completion is conditional upon regulatory clearances, which are expected in the summer. Net cash proceeds from this agreement to be received by Tate & Lyle will be retained to provide flexibility to invest for growth in Speciality Food Ingredients.
In the year ended March 31, 2014, Eaststarch had adjusted operating profit of 107 million euros and gross assets of 518 million euros, of which the group has a 50 percent share. Due to lower EU sugar prices, the results of Eaststarch for the year ended March 31, 2015, are expected to be around 23 percent lower, at about 83 million euros.
In the past 18 months, industry economics for sucralose have changed significantly and, against this backdrop, the company has undertaken a detailed analysis of its SPLENDA Sucralose business to evaluate how to maximize returns.
Demand for sucralose remains strong, driven largely by consumer desire for more calorie-reduced food and drink, and by the superior taste and functionality that sucralose delivers. However, a substantial increase in capacity in the market, particularly over the past two years, which is now well in excess of demand, has driven a significant change in industry behaviour and economics, and Tate & Lyle says it does not expect this to change materially in the midterm.
To maximize returns in a competitive market, Tate & Lyle has decided to re-focus the SPLENDA Sucralose business in two ways. Firstly, the company says it will take a rigorous valued-based approach to securing volume by focusing on the areas where it sees value with customers who fully value the benefits of its SPLENDA Sucralose product, including quality, provenance, food safety and responsible manufacturing and environmental practices. Secondly, it says it will materially lower the manufacturing cost base of the business by consolidating all production into its U.S. facility and closing its Singapore facility.
From spring 2016 onward, all production of SPLENDA Sucralose will be consolidated into Tate & Lyle’s facility in McIntosh, AL. Over the next 12 months, there will be a phased transfer of production from Singapore to McIntosh, after which the Singapore facility will be closed permanently. The McIntosh facility operating at a higher scale and utilization level than it does currently will provide a materially lower-cost manufacturing position from which to operate.
Tate & Lyle says it expects to invest around 18 million euros to consolidate production in McIntosh. This mainly relates to the transfer of equipment from Singapore to McIntosh, and for additional equipment at McIntosh to produce all its SPLENDA Sucralose product forms. When the transfer is complete in spring 2016, the company says its McIntosh facility will be capable of supplying customers’ existing and ongoing needs.
Singapore remains the location for Tate & Lyle’s regional head office and Applications Centre for Asia Pacific, and a key hub for the future development of our Speciality Food Ingredients business in the region.
In the year ended March 31, 2014, adjusted operating profit for SPLENDA Sucralose was 62 million euros. As a result of the significantly changed industry economics over the past 18 months, profits are expected to fall by 75 percent, to around 16 million euros in the year ended March 31, 2015. Tate & Lyle says it anticipates further price erosion in the year ending March 31, 2016. As a result, it expects this business will be around breakeven in the year ending March 31, 2016, with some anticipated transition costs offsetting a lower depreciation charge. Looking further ahead, in its 2017 financial year, the company expects this business to return to modest profitability.
The restructuring of the European Bulk Ingredients business is expected to give rise to a pre-tax exceptional profit on disposal of approximately 60 million euros, subject to exchange rate movements and the timing of completion.
In total, the company says it will recognize exceptional charges of around 185 million euros. These include charges of around 120 million euros to be recognized in the year ended March 31, 2015, and a further exceptional charge to be recognized in the year ending March 31, 2016, of around 65 million euros. These exceptional charges consist of:
- An exceptional charge of around 165 million euros for the restructuring of the SPLENDA Sucralose business. This consists of around 115 million euros for the impairment of the full carrying value of the Singapore facility to be recognized in the year ended March 31, 2015, and anticipated cash closure costs of up to 50 million euros to be recognized in the year ending March 31, 2016.
- An exceptional charge of up to 20 million euros in relation to the restructuring of the company’s European operations to be predominantly recognized in the year ending March 31, 2016. This consists of up to 15 million euros of anticipated exceptional cash costs and around 5 million euros of noncash items.