Tate & Lyle sees opportunity in bars, other sub-categories

by Jeff Gelski
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Tate & Lyle sugar
Tate & Lyle said its larger customers saw lower consumer demand for their products.
 

LONDON – Tate & Lyle, P.L.C. will continue to focus more on higher growth sub-categories, including energy and nutrition bars, that may benefit from the company’s expertise in sugar reduction, calorie reduction and fiber enrichment, the London-based company said while giving financial results for the fiscal year ended March 31.

North America volume in Tate & Lyle’s specialty food ingredients business division slipped by 3% in the fiscal year due to softer demand in the overall U.S. food and beverage market. Sales rose 9% to £357 million ($463 million) from £327 million in North America in specialty food ingredients, but they were down 3% in constant currency change.

Tate & Lyle said its larger customers saw lower consumer demand for their products. Tate & Lyle now is targeting sub-categories in health and nutrition and gave energy and nutrition bars as one example. Tate & Lyle’s volume in energy and nutrition bars grew by 9% in the fiscal year.

Javed Ahmed, Tate & Lyle
Javed Ahmed, c.e.o. of Tate & Lyle

“This more targeted sub-category approach is beginning to demonstrate some encouraging progress, but it's still early days, and we have more work to do,” said Javed Ahmed, chief executive, in a May 25 earnings call. “However, what is encouraging is that the new business we are winning is high-quality business with good margins. That said, it is not yet sufficient to offset the softness experienced by our larger customers in the current market environment.

“To accelerate progress, we are investing in further strengthening our customer-facing capabilities in areas such as sales, applications development, technical service and nutrition expertise. The new business we are securing gives us confidence in our ability to grow ahead of the U.S. market over time, and I expect us to make progress against this objective as we move through the 2018 financial year.”

An analyst in the investors’ call asked Mr. Ahmed what percentage of North American revenue comes from larger customers.

“Well, we don't break out, obviously, what percentage of our business goes to the larger customers,” he said. “Suffice to say, it's a predominant percentage of our business.

He added, “I think it would be actually a bit spurious to give you a complete number in terms of one big number in terms of how that business declined in total because there were pockets. We actually grew with some of those customers. Some of the customers found growth a bit more challenging. So it's blended. Clearly, overall, they declined, and we didn't offset it quite with the business that we are winning.”

Companywide, Tate & Lyle reported adjusted profit before tax of £271 million ($ million) in the fiscal year, which was up 40% from £193 million in the previous fiscal year and up 20% in constant currency change. Sales of £2,753 million ($ million) were up 17% from £2,355 million and up 2% in constant currency change.

“Both business divisions performed well during the year,” Mr. Ahmed said of specialty food ingredients and bulk ingredients. “It was particularly pleasing to see good margin growth in core specialty food ingredients, significantly improved sucralose results and the extremely strong bulk ingredients performance.”

The company’s specialty food ingredients division had adjusted operating profit of £181 million in the fiscal year, up 21% from £150 million in the previous fiscal year and up 5% in constant currency change. Fiscal-year sales of £996 million in specialty food ingredients were up 11% from £897 million but down 3% in constant currency change.

Within specialty food ingredients, adjusted operating profit for sucralose increased by 77% in constant currency to £52 million as the company benefited from a transition to a single manufacturing facility in McIntosh, Ala. Tate & Lyle closed its sucralose manufacturing facility in Singapore in March of 2016.

“The decision we took two years ago to reposition this business by making fundamental changes to the way we approach the market and to our manufacturing footprint has served us well,” said Nick Hampton, chief financial officer and director, in the earnings call. “Customer engagement throughout this repositioning has been very good, and sucralose is now a more focused, low-cost and sustainable business. As a result, the business had a very strong year.”

Also within specialty ingredients, volume of new products, which represents products in the first seven years after launch, grew by 37%. Fiscal-year sales of new products rose by 22% to reach $105 million, representing the first time the sales had eclipsed $100 million.

In Tate & Lyle’s bulk ingredients division, adjusted operating profit was £129 million for the fiscal year, up 54% from £84 million in the previous fiscal year and up 32% in constant currency change. The bulk ingredients division reported fiscal-year sales of £1,757 million, up 21% from £1,458 million and up 4% in constant currency change.

Three consecutive good harvests in the United States have contributed to a period of stable and lower corn prices for the U.S. corn wet milling industry, Mr. Ahmed said. North American bulk sweetener volume was flat despite a modest decline in consumption. Consumption of regular carbonated soft drinks is the main driver of high-fructose corn syrup demand in the United States, where consumption of those drinks declined by 0.7% in the year ended March 31, Tate & Lyle said in reporting data from Information Resources, Inc.

Mr. Ahmed addressed the issue of the U.S. administration seeking to reform the North American Free Trade Agreement, which could affect the sweetener industry.

“This is a complex area with a number of variables, and until we have clarity on the nature of the any proposed changes, it is difficult to estimate what the impact, if any, will be on our business,” he said. 
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