Sale of starch business sweetens Tate & Lyle

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The Independent Online

Shares in sugar maker Tate & Lyle soared to an all-time high yesterday after it hoisted the For Sales sign over its European starch and sweetener business.

T&L stock raced to the top of the FTSE 100 leaderboard, rising nearly 4 per cent, or 29p to 801p, as investors welcomed the move. City analysts believe the division could fetch up to £300m.

The company said its decision follows the European Union's adoption of a new regulatory regime for the sugar industry. It took effect on 1 July and aims to cut the price of sugar by 36 per cent over the next four years.

Iain Ferguson, the chief executive of T&L said: "The decision to explore a full or partial disposal of Food & Industrial Ingredients Europe is in response to the consequences of a far-reaching reform to the EU sugar regime. Today's announcement reflects our strategic commitment to focus on growing our value added ingredients business".

Only one of the group's plants in the UK - a facility in Greenwich - will be affected by yesterday's news. It processes wheat to make starches and sweeteners, drinkable alcohol and animal feed. The plant employs just under 200 people.

In T&L's last financial year, the European starch and sweeteners unit generated revenues of £719m, accounting for around 19 per cent of total group sales, and earnings before interest, tax and amortisation of £46m.

UBS, the stock broker, believes a full disposal of the division could generate about £300m for T&L.

Goldman Sachs applauded the group's decision. The US broker said: "We believe the market will respond positively to this announcement. Although a full or partial disposal could dilute earnings, it should improve the quality of the group's earnings".

T&L, under Mr Ferguson, has focused on increasing the profit contribution of higher margin valued added areas of the group.

It wants to grow this side of the business in Europe making acquisitions likely in the near future.

T&L is due to report first-half results on 1 November. The City expects it to unveil a rise in pre-tax profits to about £171m, from £136m last time.