Tate & Lyle says adios to Mexican sugar

The firm's plan to sell its 49 per cent stake in Occidente to E D & F Man Holdings for US$93m (£46m, €66.5m) represents Tate & Lyle's exit from the sugar industry in the Americas. It sold its Domino business in the United States to Refined Sugars of New York in 2001, and earlier this year it sold its Canadian business, Redpath, to American Sugar Refining. The news of the Mexican sugar interest sale comes just a week after the company warned that profits from continuing operations in its sugars division were "sharply lower"​ than in the prior comparative period, principally due to a forecast small loss in sugar trading for the first half compared to a profit of £15m (€21m) in the prior year. Occidente operates three sugar cane mills in Mexico and primarily serves the domestic market. A spokesperson told FoodNavigator.com that the decision to sell has not been spurred by any particular issues with sugar in Mexico, but that it makes strategic sense since Tate & Lyle has no other sugar presence in the region. Tate & Lyle's repositioning towards ingredients that can add value to food products, was spurred in particular by reform of the European sugar sector, in which Tate & Lyle was a major player but, with the introduction of sugar quotas from last year, it could no longer see a strong future. When commodity prices fluctuate, whether caused by regulatory, environmental or other factors, the corresponding cost of raw materials can have a serious impact on an ingredient firm's bottom line. It is the on-going effects of this which Tate & Lyle is seeking to curtail. Successful conclusion of the Occidente deal is subject not only to clearance by the Mexican Federal Economic Competition Law, but also the option of majority shareholder, the Saenz family, to acquire an additional one per cent stake. If such an option were exercised, E D & F Man will acquire 48 per cent of Occidente. Following the sale, Tate & Lyle will have sugar operations only in the UK, Portugal and Vietnam. The spokesperson said that the firm is presently investing in its remaining European sugar businesses. It has no plans to rid itself of its Vietnamese interest (a joint venture), either, since this is "a growing market with a future".​ Chief executive Iain Ferguson made a connection between the proposed sale of Occidente and last week's closure of the sale of five wheat starch production facilities in Europe to Syral. "Both these transaction represent important steps in our strategy of reshaping our business to reduce the impact of our exposure to volatile raw material and commodity markets as we build a stronger value-added business,"​ he said. The conclusion of the starch sale is particularly reassuring for Tate & Lyle given the record prices that wheat has been commanding on the world markets in recent months, exposing margins to potential harm. Tate & Lyle has said it will use revenue from the Occidente sale to reduce group debt. Net liabilities stood at £286m (€413.5m) at the end of the last financial year, ended March 31. However this debt is not a cause to fret; the spokesperson said it is simply good cash flow management. Given that Tate & Lyle this year has invested in an 80 per cent stake in German specialty ingredients firm GV Hahn, he said it "has no issues making investments in strategic areas".​ In May this year, the group reported sales from continuing operations of £3.81bn (€5.6bn) for the 12 months ended March 31, up from £3.46bn (€5.09) the previous year. Operating profit was £333m (€490m). Tate & Lyle's share of the net operating asserts of Occidente was £42m (€60.7m), and its share of operating profit was £6m (€8.7m).