Challenging market leaves Typhoo Tea at £20m loss

By James Ridler contact

- Last updated on GMT

Typhoo Tea reported a loss of £20m in the year ending 31 March 2018
Typhoo Tea reported a loss of £20m in the year ending 31 March 2018
Record high material costs and adverse currency movements saw Typhoo Tea’s profits plummet to a £20m loss in the year ending 31 March 2018.

The tea maker recognised the year as one of the most challenging trading periods for the business in recent history. Profit for the company has been steadily declining for the past three years.

In its full-year report, Typhoo’s directors said: “The cost of key raw materials rose to a record high, due to events beyond the control of the business. The average market price of raw material peaked at US$2.97/kg (£2.28/kg) during the period. Due to commercial reasons, the increase in raw material cost was not passed on to customers, impacting gross profit significantly.

‘Volatility in foreign exchange’

“Furthermore, uncertainty over the outcome of Brexit drove significant adverse currency movements. Again, the adverse impact following the decision to leave ​[the EU] has somewhat stabilised and the company has put measures in place to mitigate the risk around volatility in foreign exchange.”

Typhoo also saw selling, distribution and marketing costs increase to £10.2m – from £7.7m in 2017 – after significant investment in rebranding its Heath & Heather range. The business also incurred administrative expenses of £7.4m – up from £5.9m – driven by the opening of a London office and an increase in legal and consultancy fees.

Three key measures

In a bid to combat the profit slump, the tea manufacturer has implemented three key measures. These were a re-assessment of key pricing strategies across the portfolio of its brands, recruitment in certain key areas to enhance capability and effectiveness, and investment in new equipment.

“The impact of these measures will be a benefit to the business over the coming years. However, the board recognises that the challenging environment will continue over the next 6–12 months until the uncertainty around Brexit is resolved and the improvement measures begin to take effect,”​ Typhoo added.

Revenue for the company fell by 1.2% to £70.2m, with the cost of sales growing 20% to £64.8m. Typhoo’s gross profit dropped 69% to £5.3m.

Paul White, chief financial officer, Typhoo

“Due to poor weather conditions in key tea regions and adverse exchange rate movements, the cost of tea reached a record high during 2017/18 reducing our gross margin. Our product mix changed as we grew lower margin areas of the business. There were also one-off non-cash accounting expenses of several million pounds contributing to the loss for the year. The trading conditions remained difficult throughout 2018.

 “Since then, we are seeing traction with the Typhoo brand which relaunched with a new modernised packaging design in December, reflecting our trusted heritage and shoppers’ nostalgic love for the brand. We are also excited with the prospects of our organic Heath & Heather tea brand, which has gained listings in Tesco, Morrison’s, Waitrose and Ocado. Overall, we are confident that steps implemented during the latter part of 2018 and ongoing into 2019, coupled with an improving  raw material market, will see the business return to profitability in 2019.”

Related topics: Drinks

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