Treatt PLC

LSE:TET

Earnings Call Analysis

Earnings Call Transcript 2023-Q2

[Daemmon Reeve, executive]

Good morning, everyone, and thank you for attending today. You're joined today, obviously, by myself, Daemmon Reeve and Ryan Govender.

We've had a very strong first half to our year, for which I'd like to thank all of our colleagues across the Treatt Group for what has been an exceptional amount of work that they've delivered fantastically on [Indiscernible]. We've seen record first half sales with growth of 14.6%. Profit is up 15% with very strong cash generation. Importantly, we are benefiting from a resilient beverage market where our strategic relevance continues to deliver. And we've seen some particularly strong performance in added-value citrus, coffee and China.

Over to you, Ryan.

[Ryan Govender, executive]

Thank you, Daemmon, and good morning, everyone. I think we've learned a lot from the challenges over the last year. We've been able to identify process gaps quickly in the business and then work at pace to drive those improvements across the business but increase our business discipline at the same time. And we did a lot of that in the first half of the year. We have increased the rigor in our sales pricing processes.

Our sales team has done a fantastic job implementing one of the largest price increases that we've done in the near history. I mean, January passed on most of those price increases to recover raw material inflation. We executed a clear strategy on price increase by category without losing any contracts to offset the macro inflation that we've seen in the U.K. and the U.S. and to offset some of the U.K. depreciation, we've reduced our headcount in the business by 7%.

We now have something like 395 people in the business when compared to 6 months ago, we had 425. Having implemented a revised hedging and currency management strategy early in the fiscal year, working with Alpha FX in the city to provide better visibility and control of our currency exposure. I can now say that foreign exchange impacts in half 1 was successfully managed and were broadly immaterial in the first half of the year.

Our supply chain team is focused with rigor on reducing inventory in half 1. And this is despite high orange oil prices and despite holding strategic volumes for our large beverage customers. I believe, therefore, that these improvements will help us mitigate risks over the medium and long term and strengthen our foundations.

Half 1 financial review. This fiscal year for us, we are focused on returning to growth. For the half year ended 31 March 2023, revenue grew 14.6% to GBP 76 million, which is 8.5% ahead in constant currency, with strong sales performance in 5 of our 7 categories. Gross margin improved 70 basis points to 28.2%, and this reflects an execution of the price increases to recover material inflation and a positive mix effect in citrus.

Admin expenses were just over 10% higher constant currency reflecting increased depreciation in the U.K. and general cost completion. Adjusted PBT grew 15% in the period to GBP 7.3 million. An exceptional cost included the one-off cost for the relocation of the U.K. site and some restructuring. Positively, EBITDA has improved by almost 30% in the period compared to last year as we expected.

The Board has declared an interim dividend of 2.55p per share, which is 2% higher than the same period last year. I think this reflects for us a balance of the importance of dividend payments to shareholders. But also reflects effective financial discipline and the benefit of transitioning to a longer-term dividend cover of 3x.

We have made a strong start to FY '23 through sales with record H1 sales of GBP 76 million, 15% ahead of the prior year. Despite the uncertain macro environment that we live in today, our beverage volumes have shown good resilience.

And consumer appetite for natural, authentic and better-for-you products remain relevant.

We continue to win business with both new and existing customers through direct sales to FMCG brands but also to flavor houses, which is a big strength of our diversified business model.

In citrus, we have seen some encouraging progress. And the category remains poor for us today as it will in the next 5 years. We provide more complex, higher value and bespoke at resolutions. Citrus margins have improved across several key value-added products to the large beverage customers. We successfully executed our procurement and pricing strategies despite the record orange oil prices. And we have looked to actively share volumes in our low-margin commoditized citrus categories.

The growth in China, which Daemmon will talk about later, was following the country's reopening and is mainly reflected in the citrus category. I'd like to call out synthetic aromas, which relates primarily to food ingredients.

This has declined in volume for us in the first half of the year, mainly due to customer destocking. And these are used in products of alternative proteins. However, the volume decline for us in half 1 was largely offset by sales price increases. Positively, coffee sales grew to GBP 2 million in the period, focusing on the U.S. premium cold brew coffee and ready-to-drink market. And we continue to see material growth in this segment as per our expectations. The order book for us and the sales pipeline is healthy, and we remain confident on the delivery of the full year sales targets, cash generation.

I am mostly pleased with the improvement in net debt in half 1. Net debt reduced to GBP 17.7 million, an improvement of GBP 4.7 million in the half. Our focus on cash remains undeterred, with our best performance in a decade despite the normal working capital build in half 1. Operating cash flows were strong, and these were partially offset by CapEx, dividend payments and tax.

As mentioned before, we believe that we are at the end of our investment cycle, and we expect capital to normalize over the next few years. To secure our medium-term funding needs, our treasury team with the help of debt advisers have refinanced our U.S. dollar facilities with the Bank of America.

That was for USD 25 million, and we are in the process of completing the refinance of the U.K. borrowing facilities with HSBC having obtained credit approval. I expect that this will be completed in the spring. Both facilities have a minimum term of 3 years.

Moving into FY '23 guidance. I am pleased with the strong performance year-to-date, and I have good confidence in Treatt's proposition. We acknowledge that this is a transition year. I've said that 6 months ago. However, we are focused on returning to growth, supported by positive beverage market dynamics.

There are 4 big factors for us. U.S. FMCG, value-added citrus, China and coffee are expected to perform well for the remainder of the year. Our momentum and performance in Q2 was particularly encouraging, and we entered the second half of the year with a healthy order book and sales pipeline, and I remain confident of the full year delivery. Our expectation is that trading and profit before tax and exceptionals will be in line with market guidance for the full year. I also anticipate a further reduction in net debt to between 12 million and 14 million.

Since joining Treatt a year ago, I'm able to reflect and admire the excellent quality and the industry knowledge of our people in Treatt, the outstanding Treatt culture of which Daemmon has built and led over the last 10 years.

And importantly, our strong relationships and long-serving relationships with our customers.

As CFO of Treatt, I now feel I have a better understanding of the business and our markets. I remain confident in the short- and medium-term growth plans and our strategic relevance to customers.

We now have renewed focus. We've got renewed discipline on sales pricing, cost control and cash management, which is promising for us in the future.

Back to you, Daemmon.

[Daemmon Reeve, executive]

Thank you very much, Ryan. The beverage industry is showing the resilience that we anticipated with strong loyalty to brands despite the wider consumer backdrop, showing some challenges. If I compare beverage to let's say, a typical household floor cleaner. You can spend GBP 4 a bottle on a household for leaner at a super sort of premium level. You can spend GBP 2 on the branded product. You can spend GBP 1 on supermarket-owned brand or you can buy bleach at 50p or maybe clean your floor less often.

All these choices are available to a consumer whereas beverage, the big contrast with beverage is loyalty to the brand.

And loyalty to the big brands in beverage is certainly something that we anticipated, but something we're also seeing evidenced in our first half numbers, and we expect that to continue.

Beverage typically shows strong resilience and great customer loyalty is usually evident in difficult economic times.

Beverages are generally seen as affordable luxuries, and we expect that to continue. As Ryan mentioned, our strategic relevance is incredibly sharp in terms of the market we serve and becoming sharper all the time, and I think the outlook is very promising in that regard.

If I turn to China now, we said at our full year results in November that an unlocked China would be positive for Treatt. And we have seen that assertion evidenced in the first half. Around 20% of all new nonalcoholic drinks are based on citrus flavors on a global scale. But in China, that number is closer to 35%.

And therefore, our rich heritage in citrus and our strategic relevance to that market is delivering strongly.

We have made significant advances with national beverage brands, which augurs well for the future. We have also invested in some key laboratory equipment in Shanghai, which will sharpen our offering into this exciting market even further. Turning to coffee. We said that this will be the year that we would grow our coffee platform and make a number of important operational refinements to the extraction process once we have consistent volumes running through this new platform for the business. And so this has proven to be the case.

We are growing both with existing and onboarding new customers as we build our competence and efficiency in this important category.

The market we serve is the ready-to-drink cold brew coffee market, which is expected to grow materially across the next 5 years. There's much to do, but the team are performing strongly, and we expect the growth to continue.

Turning to the outlook for the year. We do expect beverage resilience to continue despite a challenging macroeconomic backdrop. Both China and coffee, we expect to continue to demonstrate the undoubted potential that they bring to our business and our strategic relevance to the market we serve remains very strong. And I believe it is clear that the financial discipline and commercial acumen that Ryan has brought to Treatt is going to provide a solid bedrock for the opportunities that lie ahead for us.

Thank you. I think we're going to take questions now.

[Charles Hall, analyst]

Charles all from Peel Hunt. Can we talk about -- a bit more about China? You talked about local partnerships about investment in labs.

What does that bring you that you haven't currently got? And can you talk just a little bit about the relationships with the leading local brands as to how significant those could be?

[Daemmon Reeve, executive]

Yes, I think what we've done primarily in China, Charles, in the last 12 months really is to get behind the sort of the wall of the flavor houses and get to some of the national beverage brands directly.

Some of those beverage brands have got the skills and competence to use some of our ingredients directly into a beverage, but others need some solubilization of some of the ingredients that we offer.

And that's why we use a third-party manufacturer there, just to solubilize some of our added-value ingredients before we then, in turn, sell them to the national beverage companies in China.

It's very pleasing that we're now selling to 3 of the biggest 4 national beverage companies in China. And some of these companies are of a very significant scale. If I look at all the opportunities, for example, that we've got in our R&D pipeline, the projects that the teams are working on, China outperforms in terms of both number and value in that space, which is why I think we've seen the sort of very strong growth in the first half and what gives us confidence that will continue. I mean younger consuming middle classes in China are driving a lot of the beverage innovation.

And I think with the citrus bias, this market is shaping very nicely in a direction that's going to be very beneficial for the business.

[Charles Hall, analyst]

And do you expect the product range in China to be very citrus biased? Or can you sell other products in the range?

[Daemmon Reeve, executive]

We can and indeed are selling other products in the range. But I think the citrus bias will continue. I think our rich heritage in citrus is really resonating with some of those national beverage companies.

I think we can continue to make some progress. But we do anticipate some progress as well in things like lower sugar formulation beverage where we've obviously got some important technology in that space.

And I think fruit and vegetable extracts as well will progressively play a bigger part in that role. So it's definitely not going to be a pure citrus play, but citrus has performed very well. But our intention is to use citrus almost like a Trojan horse and then add in other opportunities as we develop the relationships with customers.

[Charles Hall, analyst]

And on other areas, the 2 segments that were lower in the first half, it sounds as though they had specific reasons for them to be lower. Where are we now on things like customer destocking and product development and getting -- you've had some problems with some products? And are you starting to see an improvement in H2? Or is that still looking forward?

[Daemmon Reeve, executive]

I think that's still generally looking forward. We do anticipate demand coming back, particularly for some of the synthetic ingredients. I think there was 1 or 2 specific destocking events that happened or happened in the industry. We're hearing signs that they're beginning now to come to an end and the normal sort of demand will continue.

So we don't think there's anything structurally wrong there. It's a temporary timing thing. But we're quite confident that we'll be picking up the pace as the half moves on.

[Ryan Govender, executive]

I think Charles, just on Herb spices and florals, in particular, we had some supply quality issues, which have already been fixed. And In April, we can see the bounce back on that activity.

[Charles Hall, analyst]

And Ryan, the net debt improvement was particularly marked in the first half, given the seasonality of business. How are you thinking about the full year numbers? What should we be looking for?

[Ryan Govender, executive]

Yes, I think we should continue to look for a net debt improvement in the second half of the year. Traditionally, that's where we drive our sales book, and we have a good performance on net debt. Somewhere between 12 million and 14 million is our expectation.

I'd like to be at the lower end of that, but I think it's important that we target cash management. We continue to do the good things that we're doing now and then converting as much profit to cash as possible. The only call out I would say, Charles, is that it's important to partner with our large beverage, especially large branded beverage customers, and we'll continue to do that strategic stockholding for them despite wanting to generate cash.

[Unknown Analyst]

Marco Short. Today the health and wellness is sort of flat. You would have thought that would be something that would be important to consumers. Do you see that growing?

[Daemmon Reeve, executive]

Yes. I think it's got a very good track record of growth, actually, Marco. I think it's just a timing effect in the first half. I mean the first half of our year is not half of our year -- in terms of revenues. So I don't anticipate anything there that's troubling us in terms of opportunity.

I don't anticipate that will be ahead of the full year.

[Unknown Analyst]

[Indiscernible] . In terms of synthetic aroma you mentioned quite a lot the synthetic and the meat alternatives of late. Can you remind us how much roughly that accounts for synthetic aroma and how much the other stuff is?

And secondly, back to inventory management and net debt, you've obviously talked about holding strategic inventory for your largest customers. But can you give us a sense of where you see the trajectory going there over the next few years? Is there scope for material reduction in inventory?

[Ryan Govender, executive]

If I say the first point is on synthetic, it's very difficult for us to estimate with any great clarity, the percentage of our ingredients that go into alternative proteins. But I would say the best stab at a number that we can have there is probably around 25% to 35%. It's quite a broad brush. That category has been growing quite successfully for us. for quite a sustained period of time now. And we expect growth to continue in that space.

There's sort of copy paste type ingredients that can be used in products such as snack foods, for example, the flavorings for potato chips and so on. So I think food generally has been under a little bit more pressure and there's been a bit more destocking specifically from 1 or 2 of our customers but the track record is set, and we see nothing strategically concerning ourselves in that category. We expect that to come back.

[Daemmon Reeve, executive]

Yes. And then [indiscernible] on the inventory question and net debt. I think our ambition on net debt, if I could talk about that first, is we are targeting moving into a net cash position over the medium term.

Whether that happens in '24 or '25, we're not certain yet, but that's certainly our ambition is to get there.

But that will be down to cash generation and converting profits into cash, keeping a strong grip on our working capital management. And to your question specifically on inventory management, inventory levels today are the same level as it was 3 years ago. The actual volume of inventory that we have in the business, we produce to those kind of levels, so pre-pandemic levels, if you want.

The value of inventory going up over the last 3 years is really based on the commodity price. So as commodities start to come off in the medium term, I'll suspect that inventory values will start to drop as well.

[Matthew Webb, analyst]

Matthew Webb from Investec. Just a question on input costs and pricing. Obviously, you've had to put through some very significant price increases this year to pass the input cost pressure on. Just wondered what the picture looked like for next year, where those price increases will be able to be much more moderate? And if so, where do you expect resumption of volume growth as a result of that?

[Daemmon Reeve, executive]

I think for us, this year is all about price. We have left some price on the table at the back end of last year, which we called out to the market.

We went early on price this year, and we probably went more aggressively than we initially thought because we wanted to recover that.

So most of the growth that you'll see in the current year is going to be price related. 24 for us, it flips. 24 becomes what we've done over the last 10 years, which is volume growth. I think volume for us is the #1 internal KPI.

And by volume, I mean, not just a generic measure of volume, but volume in particular categories. So next year will become a drive on sales volume.

And we'll do some price increase, but it won't be the biggest part of the growth.

[Unknown Analyst]

Mike Benedict from Berenberg. Just one from me, please. I appreciate the color you gave around gross margin for FY '23. I wondered if you could give a bit of color on the sort of exit rate you're expecting from this year? But any numbers you're able to give around the step-up we should expect next year?

[Daemmon Reeve, executive]

Yes. I think we always viewed '23 as a transition year. We had a big step-up in our cost base through interest, depreciation, costs and general inflation. I suspect we'll get some inflation going into next year from an exit rate basis, but we should have rebased the other costs like depreciation and interest.

Our ambition is to maintain a good grip on cost control. And therefore, allow more of the top line growth to hit the bottom line. I think 24% for us was always a year of acceleration. As we get towards the back end of this year and delivering this year, we'll have a clearer view on what 24 could deliver on the upside.

[Unknown Analyst]

Obviously, new product launches are a really important part of your growth trajectory. Have you seen any change in velocity in NPD from the end market customers?

[Ryan Govender, executive]

Happily is picking back up. I mean it definitely dipped away towards the end of the last calendar year, things were quieter, there was a bit more turbulence there. But we've seen an increase again. And again, China weighs into that, too. Unlocked China is very good for new product development, new products come into market, but it's not just China.

We're starting to see quite strong evidence of a return to sort of more normalized levels of sort of new product development and so on.

And our teams are certainly quite busy within the business. And I think there's -- it's not just about the way the beverage world is sort of feeling and behaving, but I think it's somewhat about our opportunity in the addressable market that we serve.

I mean if we think about what -- I know from the recent sort of weekend coronation events, it was quite interesting to see our street party and what people were bringing to that street party. And it tended not to be so much now bottles of wine or unflavored beer, but more sort of boxes of canned cocktails, which I was particularly interested in seeing.

For obvious reasons, these are good examples of how our addressable market is going and God save the King.

[Unknown Analyst]

Good to see that you're always at working. And so the -- could you talk specifically about the cocktail market. Obviously, that's had its ups and downs in the last couple of years.

And so it's maybe a more volatile market may be more exposed to tougher consumer environment, but your experience in that and particularly referencing the new product development.

[Ryan Govender, executive]

I mean our experience in the canned cocktail market is actually quite strong. And certainly, a couple of years ago, there was, of course, a lot of noise in the industry about hard sells specifically, which were largely a sort of lockdown driven phenomenon. That did spectacularly well. And we certainly did very well with that.

And then the market, I think, has moved to sort of more normalized levels, but there are still a number of brands of canned cocktails even within the hard sells space that are doing particularly well, and we're seeing some good growth with a number of those brands. I think the general shift away from unflavored to flavored is a good thing for Treatt. I think the other part of this aspect is calorie control in alcohol.

I mean, a lot of canned cocktails are marketed to have a certain alcohol content. Our products performed very well in that space because our products are calorie-free. Therefore, it's often difficult to get juice into the blend because juice contains sugar, sugar is calories whereas our calorie-free natural and authentic extracts can often play quite a strong part in that space. So again, we're seeing a number of opportunities there, across Happily, a wide spectrum of geographies and customers. It's a rich place of opportunity for us.

[Operator]

We've got 4 questions from Anand Date from HSBC. We'll take each individually. The first is peers have talked about a soft U.S. on destocking and then consumer demand. You've clearly done much better than that.

Is this something you recognize in the environment, which your growth has been even stronger without this? Is it that your smaller and/or in different categories?

[Ryan Govender, executive]

My answer to that question would be it's highly likely to be our focus and our specificity around beverage that's driving a lot of the demand that we're seeing.

We're very beverage focused as a business. And I think that the beverage is showing, I would say, of all the food categories, probably the most resilient that we are seeing. Again, back to the big brands being very strong in this space. And I think that's driving a lot of our success in that market, which has provided obviously some good resilience in our numbers in the first half.

[Operator]

Ryan, could you go through working capital and headcount, please? Is there more you can do on inventory levels and receivables or payables. And is there a net working capital target as a percentage of sales? And on headcount, would you say the reduction is now done? Or is there further to go?

[Ryan Govender, executive]

Working capital for us is a key focus in cash management. We target debtor days, we target creditor days, and we've got very strong teams in the business that focus on ensuring the efficiency in those areas. Our supply chain team focused heavily on inventory management.

And we will reduce inventory to the extent that we're not shorting customers and to the extent that we can still maintain strategic holding levels.

There's always more that we can do. I think we're getting sharper with it. I think we're getting better with it internally in terms of KPI management. And I suspect that we'll see improvements on this over the next 12 to 18 months.

In terms of headcount, headcount is really an interesting piece. I think for us, we will, despite the savings that we had over the last 6 months, most of which have not come through in the P&L yet. I suspect we'll continue to invest in particular areas, and we're already doing that. We'll continue to invest in our frontline sales teams, both in the U.S., China and the U.K., and we'll continue to invest in R&D. What we will do though is be clever around it and where there's opportunities to save hedge, we will take that naturally, and we'll reinvest it in places that we want to.

[Operator]

And in citrus, could you talk about the mix of sales or products split by gross margin. How actively do you manage the transition to higher value-add sales or products? And does it make sense to actually wind down cash-generative low-margin sales, say, to make capacity available for other sales? Or do these just reduce as a mix of citrus?

[Ryan Govender, executive]

Certainly, in half 1, we have actively manage down our lower margin commoditized citrus business. To give you a very broad indication, volumes in that particular category are down something like 30% to 40% in the half. And that's a strategic call that we made as a business to move up the value chain in citrus.

Citrus is a big category, but it's got lots of different products within that. Orange being the largest. But really, when you look across citrus, each of those categories has got a very different story. So we may want to push more volume in lemon or lime or grape fruit because that's where some of the canned cocktails may be doing well. And reduce some of the commoditized volumes in orange. It's not an easy answer and there's lots of complexity around it, but the ambition will be to continue to shed some of that lower margin commoditized business.

[Operator]

And the final question from Anand. Arguably, we need to think about gross margin and EBIT margin quite separately. Gross margin driven by category mix, et cetera, on EBIT margin. Can you talk about what you'd expect to see over the next few years nonvolume-related gains, for example, headcount reduction, increased efficiency in new sites versus operational gearing as sales increase. Say for example, utilization at the new site, et cetera.

[Ryan Govender, executive]

Yes. I think our medium-term target for EBIT margin is somewhere between 15% and 20%. We were there a few years ago, and we've got ambitions to be there in the medium term. I think 2023 will be a particularly interesting year and that we've got the raw material price increases, diluting the effect of EBIT margins, but that should start to normalize again in '24.

Per your point around operational efficiencies, headcount savings, all of that is needed, continuous improvement savings to offset inflation over the next few years and all of that is needed to drive operational efficiencies. We still have something like 50% of capacity in the U.K. site available and somewhere between 30% and 40% in the U.S. So as we grow over the medium term, utilizing that spare capacity for us will drive benefits both on the top line, but also within EBIT margins.

[Operator]

We'll go to Damian McNeela from Numis.

[Damian McNeela, analyst]

If we could just talk about China a little bit and whether you -- I know you've sort of opened a second lab there now. Just wondering whether there was any further incremental costs you might need to support the growth within China over the next couple of years or whether you're set for now?

And then within coffee, are you able to sort of give us an indication of what the underlying category is growing at the minute, please? And then in terms of which countries in Europe where you sort of see the nearest-term opportunities for your coffee products, please?

[Ryan Govender, executive]

I think China for us has got a very low cost base as it is at the moment. We've spent a few hundred thousand really self-funded by the Chinese business to open a new lab, and it's a technical facility, allowing us to test and sample products to accelerate sales. I think we'll continue to invest in China. We've only got 8 people on the ground in China, and we'll continue to add heads in China, predominantly probably on the technical and the sales side.

For us, it's our partnerships on the ground that's important, those local partnerships that can process and give us more value-added citrus, the places that we'll go to next. Daemmon and I are traveling out to China in the summer to meet customers and some of those local partners. I think it will be quite an exciting time for China over the next few years.

[Daemmon Reeve, executive]

Turning to coffee. The underlying market is growing at a solid double-digit percentage in terms of ready-to-drink cold brew coffee. But I think there's a little more nuance to that, the answer in truth, because there's a lot of brands of cold brew coffee in the market that are highly likely to be based on instant coffee powder which is not the ambition of our customers and the brand owners.

Instant coffee powder has got one particular advantage and that it's very stable and one particular disadvantage that it doesn't taste good. Our product enables the brand owners to take their ready-to-drink cold brew coffee to a more premium level. And that's an important part to play. Coffee is a huge technical challenge. It's not an easy product but we have a very good solution in that place. And therefore, we do expect the growth to progress nicely in the next few years.

In terms of other markets outside the U.S., we're actually seeing some very good growth and opportunity in the U.K. market in terms of being the sort of dominant sort of European opportunity.

But we wanted to hold back a little bit in terms of our marketing of coffee until we've sort of worked through a lot of these optimization process that we're going through, Damian, in the U.S. And we always said that this year would be the year that we really got sort of some experience and built some knowledge in terms of our operating platform. We're doing that. There's more to come. But we expect to grow this category incrementally over the next few years. But certainly, we see a lot of opportunity there.

[Operator]

We'll go to Cathal Kenny at Davy.

[Cathal Kenny, analyst]

Just on H2, Ryan, could you provide us some commentary on just the cadence of pricing as you see it? And secondly, just coming back to the volume question. Is it fair to say you're modeling flattish volumes now on a full year basis? And my final question, going back to just general visibility around the opportunity set. Would you say that you've got to a point where visibility now is starting to improve as we get into the key summer season?

[Ryan Govender, executive]

If I look at cadence on price increases, we've put through most of our price increases in January. So Q2 saw the benefit of some of that. I think we'll continue to see that benefit in Q3 and Q4. So I'm expecting that to come through. The majority of the increase in sales is going to be price related, as I said earlier.

To your question on volumes. I think volumes for us is a really hard measure. Generally, to answer your question, yes, is the answer. We suspect volumes overall will be flat year-on-year. We look at value-added beverage as one of our key measures, and that's where it could be interesting year-on-year from the end of this fiscal year.

But to give you an example, volumes in some categories could be very small, but the price per KG or the price per tonne in that category could far outweigh some of the lower-margin categories. And so it's really important that we look at the volumes that are giving us the best margin impact in the business. And overall margin for us is a key indicator even within this value-added beverage.

And then your final question around visibility. I think we've got good visibility in Q3, which is going to be an important quarter for us. I think it's -- especially when I look at the U.S. business, which has got more short-term visibility rather than long term, I think it's probably too soon to look at Q4 visibility. What I can say, though, is that our pipeline is very strong. Our order book is very strong. I mean I'm cautiously optimistic for the rest of this year.

[Daemmon Reeve, executive]

Thanks very much for coming along everybody. I appreciate your interest in Treatt. Thanks a lot.