Tate & Lyle wields axe to bolster profits

Tate & Lyle is to withdraw from European bulk ingredients and take an axe to its sucralose business in a restructuring that it hopes will draw a line under a tumultuous year marked by three profit warnings.

The British food ingredients maker said on Tuesday it had agreed a deal with Archer Daniels Midland to sell the US commodities group its corn wet mills in Europe - principally Bulgaria, Turkey and Hungary. It will also take full ownership of a speciality food ingredients plant in Slovakia that it co-owned with ADM.

The move will see it receive €240m in cash.

The group will also slash costs in its sucralose business, which has been hard hit by a sharp fall in international prices. It will close two factories in Alabama and Singapore, which the group said would lead to the sucralose business breaking even in the next financial year and returning to profitability in the year ending March 2017.

The restructuring costs will amount to an exceptional charge £185m this year - of which £165m will have been incurred in the sucralose turnround.

Javed Ahmed, chief executive, said the measures would "materially lower" the cost base of its Splenda sucralose business.

The sale of European bulk ingredients follows that of the sugar refining business, from which it pulled out in 2010 soon after Mr Ahmed became chief executive.

His policy has been to shift the business away from bulk commodities - including sugar - into the more profitable speciality ingredients business, which includes sweeteners and starches.

But Tate & Lyle has continued to suffer volatility - especially in its once highly profitable sucralose business, which has been flooded by cheap products from Chinese manufacturers that have dragged down prices. It said operating profits in sucralose were expected to fall by 75 per cent to £16m in the year to March 31 2015.

The plunging price of sugar has eaten into its European sweetener profits, while low oil prices have hit ethanol prices.

Supply chain problems in the US have also been behind the three profit warnings in its current financial year. The shares, which have underperformed the FTSE 100 by more than 20 per cent over the past three years, were flat in early London trading.

Analysts at Liberum said the restructuring was "a good step forward".

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