By Ed Ballard
LONDON--Tate & Lyle PLC (TATE.LN), a U.K. ingredients maker
battered by a string of profit warnings, said Tuesday it will exit
its European corn-syrup business and restructure its ailing
specialty ingredients division.
The FTSE 250-listed company has issued three profit warnings
since February 2014 as a glut of low-cost sweeteners produced in
China eroded the profitability of its Splenda product, part of its
specialty food ingredients division.
Tate will sell part of its bulk ingredients business, which
sells low-margin products such as corn syrup. Archer Daniels
Midland Co. (ADM) will pay Tate 240 million euros ($258 million)
for Tate's 50% stake in the companies' EastStarch European corn
milling joint venture.
The sale will reduce earnings but allow Tate to focus on
reversing the fortunes of its specialty food ingredients business,
Tate said. It will close a facility in Singapore to cut costs,
consolidating production at a plant in McIntosh, Alabama. The
restructuring will result in a 185 million pounds ($276 million)
charge.
"Overall, the actions announced today streamline and further
focus Tate & Lyle as it continues to transition to a global
Specialty Food Ingredients business supported by cash generation
from Bulk Ingredients," said Chief Executive Officer Javed
Ahmed.
Shares dropped 3% at the start of trading before recovering
their losses. Analysts' enthusiasm for the move, which leaves Tate
more focused on the potentially more profitable specialty
ingredients arm, was tempered by concern about the loss of earnings
from bulk ingredients.
Martin Deboo, an analyst at Jefferies, said the deal with ADM
completed unfinished business from 2007, when Tate exited much of
its operations in Western Europe. Cost-cutting in the specialty
ingredients division will "hopefully" return the sucralose business
to profit, he added.
Tate assured shareholders that despite the lost earnings from
the bulk ingredients business, it is sticking with its current
dividend program, promising to increase this year's payout by 1.4%
to 28 pence. Still, analysts at Citi fretted that payments could
come under threat. The "cover ratio" of earnings to dividend
payouts will drop to 1.3 times after the restructure, they
predicted.
"Tate will become a much more predictable business, but we think
this is a low level of cover," wrote Citi's Adam Spielman.
At 0823 GMT, shares were unchanged at 653 pence.
Write to Ed Ballard at ed.ballard@wsj.com
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