Tate & Lyle to Exit Europe Corn Syrup, Seeks to Revive Splenda Unit-Update

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 [e-mail]

Subscribe to WSJ: http://online.wsj.com?mod=djnwires