Tate & Lyle has been progressing toward this milestone since its Capital Markets Day presentation in 2018, where the British sweetener and ingredient company outlined its new strategic priorities within the Primary Products and Food & Beverage Solutions segments. Although both business units are part of the same organization, they present distinct opportunities. The Primary Products division—which encompasses sweeteners such as high fructose corn syrup, corn syrup, and dextrose; citric, malic, and fumaric acids; as well as products for animal feed, paper, and packaging—already enjoys a robust market presence. Primarily focused on North America, it serves established markets that are challenging for new entrants to penetrate, delivering solid returns on capital and generating significant cash flow, as noted in the 2018 presentation. In February, the company characterized this division as dealing with high-volume, largely undifferentiated ingredients that primarily compete on quality, service, and pricing.
Conversely, the Food & Beverage Solutions division is responsible for Tate & Lyle’s innovative ingredient offerings, including sugar and calorie reduction, fiber and texture enhancement, and stabilization solutions. This division operates globally, with approximately 75% of its 2018 sales coming from key categories such as soups, sauces, dressings, beverages, and dairy products. Identified in 2018 as having substantial growth potential in emerging and trendy food and beverage sectors, this division is crucial for the company’s future strategy.
Recently, Tate & Lyle has made two strategic acquisitions to strengthen the Food & Beverage Solutions segment: the acquisition of stevia producer Sweet Green Fields in December and an 85% stake in Thailand-based tapioca manufacturer Chaodee Modified Starch in October. These acquisitions provide new opportunities for Tate & Lyle’s ingredient portfolio, both in terms of functionality and ingredient sources. Hampton noted that these additions are integrating well within the larger organization.
The two divisions have experienced different sales growth patterns and possess varying economic prospects. For the year ending March 31, the Primary Products division saw a 2% decline in revenues, attributed to the impact of the COVID-19 pandemic, yet it still generated nearly £1.7 billion ($2.4 billion) in total revenues. Meanwhile, the Food & Beverage Solutions division capitalized on global health and clean label trends, achieving a 6% revenue increase to £970 million ($1.4 billion). Given the considerable effort dedicated to delineating these divisions, along with the significant time company leaders spent discussing it during their earnings call, it appears that the separation process is advancing positively.
During the call, Tate & Lyle CFO Vivid Sehgal mentioned that a substantial portion of a £19 million ($26.9 million) charge on the company’s balance sheet was allocated for professional fees related to exploring the separation of the two businesses. In response to analyst inquiries, Hampton expressed that Tate & Lyle is keen to understand precisely how a potential separation would function before initiating sale negotiations. The company has identified “practical solutions that could work” regarding the division of plant ownership and operations, as well as the structuring of supply chain agreements.
Hampton emphasized the exciting possibilities that could arise from a stronger focus on Tate & Lyle’s ingredients business. “Clearly, this move creates a more focused Food & Beverage Solutions business, which is thrilling because of our capacity to unlock that growth potential, particularly in areas like sugar reduction and enhancing food quality, especially as these trends accelerate due to the pandemic,” he stated, as recorded in the transcript. How soon new developments will emerge remains uncertain; however, Sehgal expressed optimism, stating, “I think negotiations are progressing well. We are thoughtful about the process, and we have a very bright future ahead of us.”
In discussions about ingredient innovations, the comparison between calcium citrate and calcium carbonate has also become relevant, as both play vital roles in various applications within the food and beverage industry. By leveraging these ingredient advancements, Tate & Lyle aims to enhance its competitive edge and meet evolving consumer demands.