Sector News

Tate & Lyle on the mend amid growing demand for healthy eating

November 6, 2015
Food & Drink

Tate & Lyle appears to be turning over a new leaf as a major restructuring programme and growing demand for healthy foods helped to stabilise margins and sent group profits up 18pc in the first half of the year.

The ingredients giant is in recovery mode following a disastrous couple of years in which supply chain disruption, a factory shutdown and the plummeting price of sucralose led to a string of profit warnings.

Now, it is attempting to transform itself into a purveyor of specialist ingredients – such as sweeteners, salts and starches – for food and beverage producers around the world, while trimming down its lower margin and more volatile bulk ingredients business, which produces things like high fructose corn syrup and industrial acidulants.

Chief executive Javed Ahmed said the FTSE 250 company made good progress on its turnaround strategy in the first-half.

Sales across Tate’s specialty food ingredients division – which produces natural and artifical sweeteners, low-sodium salt and fibres – rose 3pc to £447m, against growing demand from consumers for healthier, low-sugar and high-fibre foods.

Profits in the division jumped 28pc to £76m, as Tate focused on higher-margin products, benefitted from slighly higher pricing and lapped last year’s bleak performance. Revenue from new products also boosted the results, rising 56pc to £28m.

As part of the turnaround plan, Tate is expanding capactiy for the SFI operations, which Mr Ahmed confirmed was currently coming on stream in North America and Europe.

He also used the results announcement to unveil a five-year startegic plan for Tate. The goal is for 70pc of group profits to come from the higher-margin SFI business by 2020, with the balance generated from the now largely North-American based bulk ingredients divison.

Emerging markets are a big area of growth for Tate and Mr Ahmed wants Asia Pacific and Latin America to account for 30pc of SFI profits in five years’ time. Meanwhile, the company has said it wants new products to account for $200m of sales by 2020. The ingredients giant is also set to restructure its European operations, which will cost roughly £15m.

Mr Ahmed said that Tate has launched five new products over the past 18 months and has 22 more in the pipeline.

One of those products, Dolcia Prima, is made from a natural, rare sugar and contains just 10pc the amount of calories found in normal sugar. This has reiceved “very strong customer interest” and Tate has delivered its first commecial order to a client for use in nutritional bars and bakery products.

Tate has also formulated a “clean label” starch for dairy and bakery products. “Clean label starches do what normal starches do but they are natural so can be labelled as such, which is what people like,” said Mr Ahmed.

“Over time, we expect the market for speciality food ingredients to grow at mid-single digits and our objective is to grow modestly ahead of the market and to drive margin expansion.

“We will target stable earnings from core bulk ingredients and to continue to manage commodities to dampen volatility,” he said.

Bulk ingredients sales fell 6pc to £729m, while profits dipped 11pc to £42m in the half-year, reflecting lower corn costs and commodity prices in the US for ethanol and co-products.

Asked if he would consider ditching the bulks business, Mr Ahmed said it had been reshaped and was now “much more steady” and could be managed in a way to reduce volatility.

He added that the business was fully integrated into the wider group “so it is not very simple to separate”.

In February there was sepculation that Tate could be acquired by a bigger rival. Mr Ahmed said there was “always rumour and noise in the marketplace” and that Tate would continue to look at selective, strategic acquisitions.

Source: The Telegraph

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