Treatt plc (5TT.F) Earnings Call Transcript

Good morning all. I'm pleased to welcome you all to Treatt's results Q&A this morning. My name is Manprit Randhawa, Interim Group Managing Director and CFO, and I'm delighted to be joined by Kelly Gordon, our Group FD. We welcome your questions.

[Operator Instructions] And we'll now take our first question from Damian McNeela of Deutsche Bank.

A few for me, please. Just firstly, would it be possible to get an indication of what the volume decline was in the FY '25 numbers, please, across the business? And then I just wanted to get a bit more of an understanding in terms of the sort of the U.S. consumer environment because if we look at the sort of performance of the beverage category in the U.S., it looks like it's held up reasonably well. So I was just wondering whether there's a customer SKU or exposure that is impacting on your performance in the U.S. or whether you could provide some more sort of granularity on where you see the pressure points for U.S. consumer? And then the final one is on your pipeline for '26. I appreciate that you're not responsible for all prior management's commentary, but we have previously been told about the strength of the pipeline at Treatt and the conviction in delivering it and it hasn't materialized. Can you sort of provide us with some context and conviction around your ability to deliver the pipeline, please?

Yes. Thanks, Damian. I'll cover the first 2, and then I'll hand to Manprit to cover the last one. So in terms of volume decline, it is -- our volume decline in the year was mid-single digit percentage-wise, but we don't tend to -- it's quite hard to give an indication because there's such a broad range within citrus. So some of the volume -- it's indicative, but it's not the most accurate stat that we can give you, but mid-single digit in terms of volume decline last year, but the makeup of that in terms of mix could be very varied. And in terms of the U.S. consumer, we are seeing a continued trend with the macroeconomics there. So there isn't any specific customer losses or any particular customer trends other than we are seeing that there is a lot of uncertainty. And I think it's in line with what the industry is seeing. We saw it in last year, and it's continued into Q1 as well in terms of that slower consumer confidence, but more of a macro effect as opposed to any specific customers.

And just on the pipeline. With the FY '26 pipeline that we've got. I think as it relates to the U.S. point that Kelly just made, as confidence does return to the U.S. We expect the pipeline conversion to accelerate. Internally, also, we're making some changes to make sure that we are a bit more aggressive in terms of pipeline execution with a bit more energy and the culture of the business.

Yes. Okay. So just to be clear, are you anticipating an improvement in the U.S. consumer environment in '26 in order to execute on the pipeline?

We've been quite cautious, Damian, in terms of our premium is where we're really seeing it in terms of the U.S. lower consumer. We've been quite cautious with our forecast. So we are in FY '26, forecasting to be a bit of incremental growth in premium, but certainly nothing huge there. In terms of the wider pipeline, there still remains to be a healthy pipeline across all categories, which we'll continue to focus on conversion.

And as we outlined in our results yesterday -- sorry, this morning, we do have a new leadership team in place with new energy. So we hope to capitalize on the pipeline conversion throughout the year.

And our next question comes from Matthew Webb of Investec.

Just firstly on -- I wonder whether you could talk a bit about fiscal Q1 trading. I appreciate it's a relatively small quarter for you. But anything you could say? I know you've sort of touched on that, I guess, with regard to the U.S. already, but if you could just talk about that more broadly and particularly how it compares to last year, where sort of looking back at what happened last year, it looked like the year sort of was maybe getting off to an encouraging start, but obviously then had the warning relatively soon after. So just sort of against that backdrop, if you could just talk about how Q1 has been, that would be really helpful. That's my first question.

Yes. Of course, Matthew, thank you for the question. So Q1 so far is in line with our expectations. Now it is our quietest quarter, and it always is, as you say, from last year, but we are happy with how Q1 is trading so far, particularly good to see citrus volumes up year-on-year. So that's really encouraging to see as the citrus backdrop changes that our volumes are picking up. So that's particularly pleasing.

Excellent. And then obviously, we can all see that citrus prices are coming down. And I just wonder when -- I appreciate it takes a bit of time for that to work through the system. But when that starts to really help you, would you expect that to flow through from a better gross margin into a better operating margin? Or do you think there's still more you could invest with a high return in terms of additional OpEx. And I know that's looking forward a little way. But obviously, I also appreciate that things could always change depending on permanent CEO, CFO appointment. But as you're looking at it now, how would you expect that to flow through?

Yes. Thank you, Matthew. Good question. So in terms of citrus. So we are seeing the prices as the rest of the industry is the prices come up, particularly in the orange pricing. The good sign is that we're already seeing some volume pickup as a result of that. But it's -- as you kind of alluded to, it does take some time. We are focused on winning volume, which means and growing cash contribution. So in terms of that margin rate, we've guided that margin will be stable in FY '26 as we focus on winning volume and keeping the margin stable. So don't expect huge margin growth in FY '26. We are trying to keep that margin stable and particularly as we navigate the change in citrus environment. And FY '27 and beyond, we would expect to see some further margin growth there.

Got it. Excellent. And then sorry, final question from me. Obviously, great to see you signing the agreement with IMCD in Asia. I just wonder whether you could just talk a bit about why them, where they're particularly strong. I think you mentioned that they have particular strength in sort of several Asian markets, whether you could perhaps just sort of highlight where you think they're particularly strong. And maybe also whether I see they're international or global player, whether you think there's scope potentially for that relationship to grow into other regions where maybe they have a presence and you don't?

Yes. Thanks, Matthew. So IMCD are a global player in the ingredient space. We went through a rigorous process of identifying our partner in APAC last year. And we're pleased to announce in December that we signed the agreement with IMCD. So the initial rollout in APAC is within 6 countries originally. So it's the likes of Indonesia, Malaysia, Philippines and India. Huge scope for growth in those areas, and we're pleased to say that the initial rollout has been well received, and we are starting to see pickup with the relationship. And on to your second point, IMCD are a global player, and we are starting to have tentative talks about expansion into other areas such as South America.

And our next question comes from Setu Sharda of Barclays.