Tate & Lyle PLC (Tate & Lyle) announces 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.

KEY HIGHLIGHTS

1. Realignment of Eaststarch European joint venture

2. Refocus and e SPLENDA Sucralose to maximise returns

3. Overall financial impact of Eaststarch realignment and sucralose restructuring

4. Dividend

Javed Ahmed, chief executive, Tate & Lyle said:
“By realigning the Eaststarch joint venture we will focus in Europe on Speciality Food Ingredients, and our Bulk Ingredients will become a predominantly North American business with strong market positions and efficient, scale assets.

“We are restructuring SPLENDA Sucralose as a more sustainable business. Our broader Speciality Food Ingredients business has an expanding global footprint and a steady flow of new products targeted at the higher growth health and wellness space, and is well-positioned for future growth.

“Overall, the actions announced today streamline and further focus Tate & Lyle as it continues to transition to a global Speciality Food Ingredients business supported by cash generation from Bulk Ingredients.”

REALIGNMENT OF EASTSTARCH EUROPEAN JOINT VENTURE
Tate & Lyle and Archer Daniels Midland Co. (ADM) 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:

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 31 March 2014, Eaststarch had adjusted operating profit of £107 million and gross assets of £518 million of which the Group has a 50 percent share.  Due to lower EU sugar prices, the results of Eaststarch for the year ended 31 March 2015 are expected to be around 23 percent lower at about £83 million.

Had the transaction taken effect from 1 April 2014, Group adjusted operating profit in the year ended 31 March 2015 would have been reduced by £32 million and diluted earnings per share would have been reduced by around 5.5 pence.  Depending on the timing of completion of the transaction and the final transition arrangements, we anticipate the reduction on Group earnings will be somewhat lower in the year ending 31 March 2016.  We anticipate that, following the impact of restructuring the European operations, from the start of the year ending 31 March 2017 the dilution in earnings as a result of the transaction will be around 3 pence per share. 

As part of the Group’s full-year results communication on 28 May 2015, we will provide pro-forma financial information illustrating the impact of the transaction on our reported Group financial results for the year ended 31 March 2015.

The reform of the EU Sugar Regime in October 2017 brings with it the potential need for capital investment in bulk sweeteners.  Tate & Lyle’s strategy since 2010 has been to invest for growth in Speciality Food Ingredients and, therefore, the realignment of the joint venture at this time enables Tate & Lyle to realise good value from its Bulk Ingredients’ assets before a decision on capital investment is required.

REFOCUSING AND ING SPLENDA SUCRALOSE TO MAXIMISE RETURNS
In the past 18 months, industry economics for sucralose have changed significantly and, against this backdrop, we have undertaken a detailed analysis of our SPLENDA Sucralose business to evaluate how to maximise 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 we do not expect this to change materially in the medium term. 

To maximise returns in a competitive market, we have decided to refocus the SPLENDA Sucralose business in two ways.  Firstly, we will take a rigorous valued-based approach to securing volume by focusing on the areas where we see value with customers who fully value the benefits of our SPLENDA Sucralose product including quality, provenance, food safety and responsible manufacturing and environmental practices.  Secondly, we will materially lower the manufacturing cost base of the business by consolidating all production into our facility in the US, and closing the Singapore facility which will not be cost competitive going forward.  These actions will position SPLENDA Sucralose as a more focused, low-cost and sustainable business.

From Spring 2016, all production of SPLENDA Sucralose will be consolidated into our facility in McIntosh, Alabama, US.  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 utilisation level than it does currently will provide a materially lower-cost manufacturing position from which to operate. 

We expect to invest around £18 million 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 our SPLENDA Sucralose product forms.  When the transfer is complete in Spring 2016, McIntosh will be capable of supplying our customers’ existing and ongoing needs.  McIntosh and Singapore both use the same process and manufacture to the same specification and, therefore, our product quality and service to customers will not be impacted.

The Singapore facility has played an important role in establishing the prominent position of SPLENDA Sucralose in the global high intensity sweetener market.  However, the combined effect of lower market pricing and higher energy and other production costs at the location, has led us to conclude that the Singapore facility will not be cost competitive going forward.  Singapore remains the location for our 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 31 March 2014, adjusted operating profit for SPLENDA Sucralose was £62 million.  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 in the year ended 31 March 2015.  We continue to anticipate further price erosion in the year ending 31 March 2016.  As a result, we expect this business will be around breakeven in the year ending 31 March 2016 with some anticipated transition costs offsetting a lower depreciation charge.  Looking further ahead, in our 2017 financial year, we expect this business to return to modest profitability.

We intend to disclose the headline financial performance of SPLENDA Sucralose in our results announcement for the year ended 31 March 2015 on 28 May 2015, and to continue with this disclosure thereafter.

SPLENDA Sucralose is an integral ingredient in many of our customers’ products, and sucralose continues to be the most incorporated high intensity sweetener in new product launches globally.  The fundamental changes we are making to how we approach the market and our manufacturing footprint will position SPLENDASucralose as a more focused, low-cost and sustainable business.

EXCEPTIONAL ITEMS RELATING TO THE BUSINESS REALIGNMENT
The restructuring of the European Bulk Ingredients business is expected to give rise to a pretax exceptional profit on disposal of approximately £60 million subject to exchange rate movements and the timing of completion.

In total, exceptional charges of around £185 million will be recognised. These include charges of around £120 million to be recognised in the year ended 31 March 2015, and a further exceptional charge to be recognised in the year ending 31 March 2016 of around £65 million.  These exceptional charges consist of: