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7 April, 2020 - 13:14 By Tony Quested

Treatt toasts champagne share rise after brief dose of lemon squash

Ingredient solutions business Treatt plc reports robust trading, free of COVID-19 impact, in all its global territories for the half-year to March 31. As a result, its UK share price shot up more than 59p (over 14 per cent) in early morning trading today to 477p.

An expected sharp drop in citrus raw material prices impacted on revenue in the first half of the current financial year. 

Consequently, while in-line with expectations, revenue for the period is expected to be approximately 5.1 per cent lower than the same half of last year. Prices have now stabilised.

Elsewhere, across territories and specialisms, the Suffolk company had an outstanding six months and this has been further buoyed by a recent surge of orders due to COVID-19 driven demand.

The Bury St Edmunds-based business manufactures and supplies innovative ingredient solutions for the beverage, flavour, fragrance and consumer product industries.

It plays a critical role in the food, beverage and cleaning supply chains and order intake in recent weeks has been strong as a number of customers respond to increased demand for beverages consumed at home and cleaning products (such as liquid hand soaps and floor cleaning products) which are of particular importance during the coronavirus outbreak.

The board can confirm that, to date, there has not been any adverse effect on the trading performance of the group due to COVID-19 and it is trading in line with the board’s expectations.

CEO Daemonn Reeve says the business has taken timely action to protect the health and safety of all its employees as well as doing all it can to support the communities in which it operates.

It received early indications of the likely steps that would follow from its colleagues in Shanghai, where the Treatt office remained open, albeit operating for one month on a staff rota; all staff have now returned to work.

In both the UK and US all non-essential staff are working from home and manufacturing continues, working within government guidelines and with appropriate health protection and wellbeing measures in place.

Whilst citrus remains a significant part of the business, there was good growth in reported revenue from fruit and vegetables (up 9.4 per cent), tea (up 47.5 per cent) and health and wellness (incl. sugar reduction) (up 19.9 per cent). 

The vast majority of Treatt’s portfolio is targeted at the growing demand from consumers for more natural and clean-label products which is helping to drive financial performance as well as an encouraging opportunity pipeline. 

Reeve said customers continued to look to innovation to differentiate their offerings, launch new products and categories and refresh existing ones. Building work on its new Suffolk facility has inevitably slowed as a consequence of the COVID-19 pandemic. It now expect that the planned UK relocation may not take place until 2021 but at this stage it is not possible to confirm a definitive timetable. 

Treatt says the delay will not affect its ability to meet customer orders in the short to medium term but does enable the group to preserve cash during this period of uncertainty. 

At the end of the half, Treatt had net cash of £6.5 million and total bank facilities of £25m, of which £24.9m remains undrawn.

As previously reported, the expansion of its US manufacturing facility was completed last year and is now fully operational. Treatt’s capacity for products in its fast-growing fruit and vegetables, health and wellness and tea product categories has now doubled and is coming on stream in time for the new crop season as growth in these categories continues from both new and existing customers.

The group has a hedging strategy in place to try to minimise the impact of exchange rate movements over the course of a financial year though there can be material effects over shorter periods of time.

During the half there was a strengthening in the USD/GBP exchange rate so the board anticipates a net positive FX impact on the results of around £0.6m.

Reeve said: “The focus we have made over recent years on the culture in the business means that we have an incredibly strong and committed team of employees who we know will shine in these exceptional times, whilst protecting the health and safety of each other and the wider communities in which we operate.

“The business is both trading well and is financially robust; we are encouraged by our order book and current demand as we move into our peak seasonal period. 

“Also, and as expected, citrus raw material prices are firming once more, which should result in a stronger performance from our citrus category in the second half of the financial year. 

“Whilst it is difficult to determine the likely impact of COVID-19 on the demand for the group’s products in the coming months, our early experience has shown demand to be robust and at this time, trading remains in line with the board’s expectations.

It is currently expected that Treatt’s half-year results will be announced on May 12.

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