Treatt's international expansion looks sweet

Treatt’s ingredients, flavours and fragrances are used in everything from beverages to household goods and other consumer products, and it operates in more than 90 countries.

In its last financial year, the core categories of citrus, tea and sugar reduction reported sales growth of 9 per cent, 8 per cent and a bumper 63 per cent, respectively. The latter benefited from new contracts with fast-moving consumer goods (FMCG) companies.

Taking on contracts with large, international FMCG groups does present some challenges. The contracts typically are lower margin at first, but process improvements and strengthened procurement typically leads to stronger margins over time. FMCG companies are also slow to pay bills, which was a major contributor to an eye-catching £12.7m working capital outflow last year. That's hardly welcome at a company that has to carry high levels of inventory due to the nature of its business; year-end stock days stood at 171.

Still, following a £20.8m placing at 410p at the end of 2017 and the sale of its Earthoil Plantations business for £11.3m, the balance sheet currently looks robust enough to take the working capital strain without endangering Treatt's significant capital expenditure plans. The company also has in place an $11m loan in the US and a £15m line of credit in the UK.

In the US, the company has invested in 50,000 square feet (sq ft) of manufacturing space and 15,000 sq ft of laboratories and offices in Florida. Around £6m of the £6.6m capital expenditure over the year to September 2018 went on the US expansion. The rest mainly went towards the early stages of a UK site relocation. At the time of the full-year results, a total of £4.2m had been spent on this £35m UK project. Construction of a single facility to replace Treatt’s current six separate sites will begin this year following a six-month design delay. Relocation is expected in mid-2020.