View all newsletters
Receive our newsletter - data, insights and analysis delivered to you
  1. Analysis
July 1, 2010

In the spotlight – Tate & Lyle’s sweet exit from sugar

For nostalgia lovers, this morning's (1 July) news that a so-called 'iconic' UK food brand is set to end up in US hands meant the day would have started with a sour note.

By Dean Best

For nostalgia lovers, this morning’s (1 July) news that a so-called ‘iconic’ UK food brand is set to end up in US hands meant the day would have started with a sour note.

However, Tate & Lyle’s decision to sell its European sugar operations – including Lyle’s Golden Syrup, purported to be the world’s oldest food brand – looks something of a sweet deal for the UK group.

Tate & Lyle has agreed a sale worth GBP211m to American Sugar Refining, a US firm with which the UK ingredients group has struck similar deals in the past.

The US group claims the acquisition of Tate & Lyle’s European sugar operations – after it bought two of the UK firm’s North American sugar businesses in the Noughties – will add to its global scale.

For Tate & Lyle, however, the deal could mark the start of a new chapter for the business. The company, which makes a range of food ingredients, including sucralose brand Splenda has long wanted to focus more on the “value-added” or “speciality” side of its business.

Previous chief executive Iain Ferguson often spoke of his desire to see Tate & Lyle, a company faced with a volatile sugar sector, move in this direction.

Under new boss Javed Ahmed, who joined the business in November, Tate & Lyle is set to finally cut itself free from sugar.

The move has grabbed the headlines in the UK today, in part due to the apparent echoes of Cadbury’s move into US ownership earlier this year but also because sugar is the sector at the heart of the origins of Tate & Lyle. Henry Tate, the forefather of the company, made his first foray into refining in 1859.

However, any hand-wringing at the loss of an ‘iconic’ UK brand and a piece of the country’s manufacturing ‘heritage’ should be tempered by the fact that the deal could be the first step on the road to developing a stronger UK business.

Sugar had been Tate & Lyle’s problem child. The division continued to generate good cash for the business but it was not where long-term growth lay and was beset by the volatility in the sector.

Tate & Lyle should now be able to focus on those “value-added” ingredients without dealing with what Investec analyst Martin Deboo today described as the “challenged business model” of sugar refining in the EU.

Deboo praised the deal, the price Tate & Lyle extracted from American Sugar Refining and dismissed the sale as “no Cadbury”.

“We had been happy to support closure of the sugars business for a net realisation of as little as GBP50m and some modest earnings dilution. Instead the exit is realising GBP211m and should be earnings neutral at least in FY2011,” Deboo said.

“We also think that this is the right deal strategically. Our view has been that cane sugar refining in the EU is a challenged business model and we think that Tate should be able to find better uses for the cash in speciality ingredients.

“The media will focus on the disposal of yet more well-loved British brands to the Americans. But for us this is no Cadbury. Behind the facade of iconic brands lay a crumbling economic model that we think it was beyond Tate to fix.”

The question now is: where does Ahmed take Tate & Lyle from here?

In May, when he announced Tate & Lyle’s annual results, including a slump in profits, Ahmed insisted there was “a real need for making some clear choices and a real need for focus”

In a sign perhaps of things to come, Ahmed said: “We want to become the leading provider of speciality ingredients and food solutions worldwide.”

Ahmed said the group’s speciality ingredients business presented an opportunity for good long-term growth due to the increased demand for health and wellness products.

The Tate & Lyle boss also said there was scope for the group to expand its customers beyond its core client base of large food manufacturers and that the company would look to boost its presence in emerging markets.

The aims are laudable but there does, however, remain much for Ahmed and his team to do.

The recent sale of food ingredients group National Starch came at the wrong time for Ahmed. The starch business would have proved a neat fit for Tate & Lyle but the sale came too early for a company going through a period of transition.

As Darren Shirley, an analyst at Shore Capital, suggested, Ahmed’s plans for Tate & Lyle could take a while to bear fruit.

“Whilst we applaud the ongoing change programme within Tate & Lyle, and the drive to both reduce commodity exposure and increase visibility through speciality food ingredients, to our minds the project is of a medium to long-term nature and we do not expect a short-term turnaround,” Shirley said.

The sale of sugar and syrup, then, is just the first step on a long road for Tate & Lyle.

Related Companies

NEWSLETTER Sign up Tick the boxes of the newsletters you would like to receive. A weekly roundup of the latest news and analysis, sent every Friday. The industry's most comprehensive news and information delivered every other month.
I consent to GlobalData UK Limited collecting my details provided via this form in accordance with the Privacy Policy
SUBSCRIBED

THANK YOU

Thank you for subscribing to Just Food