10th May 2022 12:39
(Alliance News) - Treatt PLC's strong interim performance was as expected, analysts said Tuesday, while the firm is in line to see a significant rise in capacity headroom as it improves its UK facilities and expands in the US.
Treatt - which manufactures and supplies ingredients for drinks and fragrances - recorded a pretax profit of GBP6.3 million in the six months to March 31, down 39% from GBP10.4 million a year before.
Sara Welford, director of Consumer at investment research firm Edison, said: "Treatt has witnessed another good performance.
"First half revenue grew by an impressive 9%, with growth across five of Treatt's six categories. Gross margins were down 750 basis points on the prior year but up 130 basis points versus the first half of financial 2020, which was mostly unaffected by the pandemic."
Operating expenses rose 9.3% GBP11.7 million from GBP10.7 million, attributed to higher payroll costs - owing to a 15% increase in staff - and recent capacity increases in the US. It also recorded GBP2.6 million in one-off costs related to the relocation of its UK facilities.
Revenue, meanwhile, grew 9.0% to GBP66.3 million from GBP60.8 million. It attributed this to the post-pandemic re-opening of on-trade channels together, as well as "some" material new business wins.
Chief Executive Daemmon Reeve said: "We continue to grow our revenue and have a very strong order book going into the second half of the financial year. The momentum we have in the business underlines the importance of the significant benefits we expect to gain from both investment in our people and the increased capabilities and capacity we will unlock from our new UK facility at Skyliner Way."
Peel Hunt analysts Charles Hall and Andrew Ford also said the performance was "strong".
"There is a particularly strong pipeline in the healthier living, citrus and coffee categories. The latter category is the most recent addition for Treatt and potentially an area of material upside, and the company already has about GBP2 million of orders," the pair noted.
"There were strong performances from synthetic aroma, up 20%, herbs, spices & florals, up 23%, and Citrus, up 15%. Health & Wellness was up 10% and Fruit & Vegetables up 7%. The only category to decline was Tea, down 41%, which had a very strong first half last year due to high sales into the retail channel and new product launches."
They also believe Treatt's new Bury St Edmunds site will "substantially" raise the company's profile with customers, as well as capacity, capabilities and efficiencies.
Peel Hunt noted, once fully operational, the new site should be able to deliver about three times the output of the current site. It is expected to be fully up and running by the middle of 2022.
"This is a massive step forward versus the old facilities, which were inefficient and well past their sell-by date. The company now expects the total capex spend on the new site and relocation to be GBP46 million to GBP47 million, versus the previous estimate of GBP44 million," Peel Hunt added.
The company also noted it is expanding its production capacity for its healthier living business in North America, where there are currently two manufacturing units.
Treatt declared an interim dividend of 2.50 pence per share, reflecting a 25% increase compared to 2.00p a year before.
Looking ahead, the company expects its tea, fruit & vegetables and health & wellness categories to deliver both revenue and margin growth in the second half.
Treatt expects revenue growth for the full-year to exceed 15% and anticipates that pretax profit and exceptional items for the current financial year to be in line with the current market consensus of GBP21.7 million. In financial 2021, Treatt generated revenue of GBP124.3 million and a pretax profit of GBP19.6 million.
Peel Hunt's analysts added: "The strength of the order book means that sales in the second half should show a material acceleration versus the first half, and the company is on track to deliver on full-year profit expectations.
"Margins should be materially higher in the second half due to the strong sales growth and margin mix. In addition, there should be a benefit from higher citrus prices and currency movements. As a result, second half profits should be about 40% ahead of the second half last year."
By Paul McGowan; [email protected]
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