THERE’S nothing candy-coated in current European economic conditions, and Tate & Lyle has a trading update to prove it. But the erstwhile sugar giant, now a sweetener and starches supplier, still looks on track for its global plan.
Tate & Lyle sold its EU sugar refining business back in July 2010, all part of its “Focus, Fix, Grow” plan. Having completed its exit from sugars by selling its Vietnamese sugar interests in 2011, it is now very much in fix mode – so serious growth may be just around the corner.
The firm now has two interlinked business units – bulk ingredients is intended to drive cash generation for investment in the speciality food ingredients business, which already provides more than half its operating profit, and a play on income growth in urbanising developing markets.
All this hasn’t come without cost – some £100m in all, including the reopening of the McIntosh sucralose plant in Alabama and the creation of a new global innovation centre in Chicago. Perhaps more importantly for the long term, as these results show, Tate & Lyle remains undiversified. While its markets are global enough to offset a short-term dwindling of Europe’s sweet tooth and its product range is relatively wide, it is essentially in the corn-refining business. Getting out of sugar avoids its high and volatile prices, but corn can face similar problems. A poor US harvest has driven prices to the point where margins are being hurt.
Yet even that isn’t all bad news. As Tate & Lyle moves up the value chain, prices for its corn-derived products will be increasing accordingly.
As Tate & Lyle gets into growth mode, the next question is who it wants to buy. Its plan is to accelerate growth through acquisitions. So keep an eye out for sweet deals.