Tate & Lyle to restructure struggling Splenda sucralose unit

British food ingredients maker Tate & Lyle announced a major restructuring on Tuesday, saying it would exit most of its European bulk ingredients business and make changes to its struggling Splenda sucralose unit.

Tate plans to exit bulk ingredients plants in Bulgaria, Turkey and Hungary, selling its stake in a European corn wet-milling joint venture to its partner Archer Daniels Midland . It will take full ownership of a more specialty-focused plant in Slovakia.

Specialty ingredients, such as artificial sweeteners and dietary fibres, involve special technology or patents, and therefore are much more profitable than undifferentiated bulk ingredients such as high-fructose corn syrup.

Tate’s strategy for some time has been to shift away from bulk ingredients, which are also vulnerable to fluctuations in commodity prices.

“Tate have bought an option on a brighter future,” said Jefferies analyst Martin Deboo.

Tate will receive 240 million euros ($256.46 million) in cash when the transaction closes, expected in the summer. After that, Tate would generate 55 percent of its profits from specialty ingredients, up from 50 percent now.

“The realignment strengthens our focus on specialty food ingredients and also our balance sheet,” Chief Executive Officer Javed Ahmed said.

Yet within specialty ingredients, Tate’s sucralose business has been hammered over the past year by competition from cheaper Chinese rivals. Profit in that business fell 75 per cent to 16 million pounds in the financial year to March 2015.

Tate had already announced it was reviewing strategic options for the business, leading to speculation it might be sold.

Instead, Tate said it would aim to fix the business by focusing on customers that care about quality, safety and provenance more than price. It also plans to cut costs by closing a Singapore factory by the spring of 2016 and consolidating production at its facility in Alabama.

Tate predicted the sucralose business would be around breakeven in the current financial year ending in March 2016, and to return to “modest profitability” in the year ending March 2017.

It sees one-time net charges of around 125 million pounds ($185.76 million).

The company also said it would recommend an unchanged final dividend for the year ended March 2015 that would make the total for the year 28 pence per share, representing an increase of 1.4 percent. The company plans to recommend a similar dividend payment for the current year as well.

Reuters