Tate & Lyle to exit sugar production venture in eastern Europe
Tate & Lyle Plc. announced that Eastern Sugar (ES), its joint venture with Saint Louis Sucre SA (a subsidiary of Suedzucker AG) in which Tate & Lyle owns 50%, has today begun the consultation process with employees, beet growers and other stakeholders with a view to renouncing its quotas in Hungary, Czech Republic and Slovakia and applying to the restructuring fund for compensation.
ES was formed in 1991 and consists of three separate operating companies in Hungary, Czech Republic and Slovakia with a total of approximately 800 employees. It operates five beet-processing plants and holds combined annual quotas of 280,699 tons of sugar. As required under EU legislation, ES will submit restructuring plans to each Government to secure compensation from the EU restructuring fund for the closure of all of these plants and the clearance of the sites. The ES consultation proposals envisage that the plants will cease processing beets by the end of February 2007, when all of the current campaigns will have been completed, although sugar production will continue for several months at one Czech facility. If the consultation proceeds satisfactorily, a formal application for restructuring aid will be lodged towards the end of November 2006, with the final decision on the grant of restructuring aid expected at the end of February 2007.
Stanley Musesengwa, Chief Operating Officer of Tate & Lyle said “This step is a direct consequence of the EU Commission’s reform of the sugar regime which provides a compensatory framework to encourage the early surrender of EU sugar quotas in order to bring EU sugar production, and particularly exports, within the limits imposed by the World Trade Organisation. “This is the right time to enter into this consultation as the business will inevitably face significant further pressure as the progressively negative impacts of reform of the sugar regime take effect on ES over the next three years. ES would also remain exposed to the possibility of further quota cuts being imposed by the EU across the industry in the event that the voluntary surrender of quota is not successful in obtaining a balance of supply and demand in the EU sweetener market. The EU Commission is monitoring the working of the restructuring fund and will deliver a report on progress by the end of 2008.
“ES’s achievements in Czech Republic, Hungary and Slovakia have been made possible by the hard work and ingenuity of our employees and the support of our farmers and suppliers. We are very mindful of the impact on our workforce and beet growers, whom we thank for their commitment and dedication over the last fifteen years. We have achieved an excellent start to our beet campaign this year in all of the ES locations and we are sure that we can rely on the continuing support of our employees and suppliers as we all adapt to the realities of the new EU sugar regime.” Tate & Lyle recorded an operating profit of £10 million from its share of ES in the year ended 31 March 2006, the last full year before the reform of the sugar regime. Tate & Lyle’s share of fixed assets at that date was approximately £19 million.
Subject to the availability of sufficient funds, compensation from the EU restructuring fund is payable at €730 per ton of quota surrendered. This amounts to a gross, pre tax value of £139 million (€205 million) for 100% of ES’s quota. The EU regulations governing surrender require that a proportion of this amount is allocated to beet growers and machinery contractors. This must be a minimum of 10% of the total and a number of precedent transactions have been concluded at or very near that level. The likely final value of compensation payable to ES cannot be determined with any degree of accuracy until the consultation process has been concluded with all stakeholders and the final redundancy, site decommissioning and associated costs are known, likely around the end of November 2006. Under the regulations, 40% of the compensation will be due to be paid in June 2008 and 60% in February 2009.
Tate & Lyle is a world leading manufacturer of renewable food and industrial ingredients. It uses innovative technology to transform corn, wheat and sugar into value-added ingredients for customers in the food, beverage, pharmaceutical, cosmetic, paper, packaging and building industries. The Company is a leader in cereal sweeteners and starches, sugar refining, value added food and industrial ingredients, and citric acid. (tateandlyne.com)
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