Treatt Plc - Half-Year Trading Update
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("Treatt" or "the Group")
Trading update for the half year ended 31 March 2020
Treatt, the manufacturer and supplier of innovative ingredient solutions for the beverage, flavour, fragrance and consumer product industries today publishes a trading update for the half year ended 31 March 2020 (the "Period").
Treatt 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 our 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 at this time.
As such, 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 the Group is currently trading in line with the Board's expectations.
The business has taken, and will continue to take, timely action to protect the health and safety of all its employees across the Group as well as doing all it can to support the communities in which it operates. We received early indications of the likely steps that would follow from our colleagues in Shanghai, where our office remained open, albeit operating for one month on a staff rota, and whom we are pleased to say have now all 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.
As previously reported, we expected the sharp fall in citrus raw material prices in the last financial year to continue to impact upon revenue in the first half of the current financial year. Consequently, whilst in-line with expectations, revenue for the Period is expected to be approximately 5.1% lower as compared with the same period in the prior year (5.6% lower in constant currency).
Whilst citrus remains a significant part of the Group's business, there was good growth in reported revenue from fruit and vegetables (up 9.4%), tea (up 47.5%) and health and wellness (incl. sugar reduction) (up 19.9%). 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 our financial performance as well as our encouraging opportunity pipeline. Our customers continue to look to product innovation to differentiate their products, launch new products and categories and refresh existing products. Treatt continues to benefit from the valuable role our services play in helping meet these demands with the Group's new product development programme progressing well with market entry points currently being explored.
Building work on our new facility in the UK has inevitably slowed as a consequence of the COVID-19 pandemic. We now expect that our UK relocation may not take place until 2021 but at this stage it is not possible to confirm a new definitive timescale. The delay to our UK relocation will not affect our ability to meet customer orders in the short to medium term but such a delay does enable the Group to preserve cash during this period of uncertainty. At the end of the Period the Group had net cash of £6.5m and total bank facilities of £25.0m, of which £24.9m remains undrawn.
As previously reported, the expansion of our US manufacturing facility was completed last year and is now fully operational. Our capacity for products in our 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 Period there was a strengthening in the USD/GBP exchange rate and, as a result, the Board anticipates a net positive FX impact on the results for the Period of approximately £0.6m.
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 for the six months ended 31 March 2020 will be announced on 12 May 2020.