Management used the day to shed greater light on the “in-transition” state of the business. Historically, Tate & Lyle has derived the majority of its revenue from the processing of corn into bulk ingredients (BI), including sweeteners and cattle feed. However, management are transitioning the business such that it has an ever greater focus on its specialised food ingredients (SFI) division, which develops sweeteners, texturants and health ingredients that help its customers to produce distinctive products.
The BI division has lower barriers to entry, lower margins and is not growing as fast as SFI. It is also more commoditised and therefore a lower quality contributor to Tate & Lyle’s earnings. Recently Tate & Lyle sold its European based sweetener joint venture Eaststarch. Since this sale, 90% of its bulk ingredients will be based in North America, where it has stronger market positions. However, beyond optimising the less attractive BI business, management also needs to push growth in the SFI business.
Globally, SFI market volume is growing at 4-5% annually. Tate & Lyle aim to beat this benchmark through innovative new product development. As the SFI division grows, overall margins expand and the quality of income improves. Thus far, the company has transitioned from SFI contributing 32% of earnings in the 2009/10 financial year to 47% last financial year. Looking forward, the company targets 70% by 2020 – an ambitious target that would surely be well-received by investors if achieved.
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