Final Results
Treatt PLC
02 December 2002
2 December 2002
TREATT PLC
('Treatt' or 'the Group')
PRELIMINARY STATEMENT
For the year ended 30 September 2002
Treatt PLC, the manufacturer and supplier of flavour and fragrance ingredients,
primarily from essential oils, announces today its preliminary results for the
year ended 30 September 2002.
SUMMARY
• Group turnover increased by 11% to £30.7m (2001: £27.6m)
• Pre-tax profit before exceptional items £2.77m (2001: £2.83m)
• Dividend increased by 4% to 8.4p per share
• Earnings per share pre-exceptional items increased to 19.7p (2001:
19.4p)
• Treatt USA sales up 27%
• Invested in a new group wide IT system
• Completed the relocation of Treatt USA into new purpose designed
facility
• One off orange stock profits earned
• Significant new business won
Edward Dawnay, Chairman commented:
'We are optimistic for growth in the US and we have renamed our US operation
Treatt USA. Strong growth has been experienced in the last twelve months. '
For further information please contact:
Treatt plc 01284 702500
Hugo Bovill, Managing Director
GCI Financial 020 7072 4251
Roger Leboff
CHAIRMAN'S STATEMENT
2002 was a year of significant change and modernisation for Treatt. Group
turnover increased by 11 percent during the year to £30.7 million (2001: £27.6
million). Profit before tax and exceptional items is slightly lower at
£2.77million (2001: £2.83 million). Earnings per share before exceptional items
was 19.7 pence (2001: 19.4 pence).
The Board is recommending a final dividend of 5.7 pence (2001: 5.5 pence),
giving a 4 percent increase in the total dividend for the year to 8.4 pence
(2001: 8.1 pence) per share.
Exceptional items this year included £591,000 for the full write-off of R. C.
Treatt's Customer Relationship Management ('CRM') system, which will be
superseded by our Enterprise Resource Planning ('ERP') Group-wide IT system. A
further £148,000 is in respect of reorganisational costs, spread across various
departments, where measures have been taken to ensure staffing levels are more
closely aligned to our business needs.
After a dull first quarter's sales, the following nine months were strong,
assisted by the Group's position in orange oil products, which resulted in some
significant stock profits.
Florida Treatt, now renamed Treatt USA, had a very good year winning new
business across its product range with sales growing by 27 percent. This
supports the Board's decision to invest in new facilities in the USA. In the
UK, sales from the main operating Company, R. C. Treatt, grew largely due to
increased orange oil prices and also due to increased sales to existing
customers across the product range. Distribution of aroma chemicals out of the
UK continue to grow, but at reduced margins due to competitive conditions.
The move to a new site by our American subsidiary, Treatt USA, was completed on
schedule at the end of September. The purpose-designed 65,000 sq foot facility
in Lakeland was also finished within budget (US$6.3 million). As previously
announced, the Group has begun implementation of our new JD Edwards ERP computer
system. This began successfully at Treatt USA in October 2002. We intend to
implement the system throughout the Group over the next two years, the next
phase being the installation in the UK during 2003/4. This ERP system will be
integrated across all the functions of our business and will allow the Group to
satisfy all of the current business requirements and those which are expected to
arise in the future. The Group will continue to invest in information technology
in order to facilitate its future profitable growth.
Prospects
The Group's order books at year-end, both in the UK and the USA, were higher
than last year. The results for 2003 will reflect our increased level of
capital investment, both in the UK and the USA, resulting in higher depreciation
charges. Similarly, the additional borrowing at fixed interest rates will also
increase the amount of interest payable. We are optimistic for growth in the US
but higher depreciation and interest charges will, in the short term, moderate
any improvement in results.
Additionally, orange oil, an orange juice by-product which is an important raw
material for Treatt, is at a high price level. Orange products accounted for 19
percent (2001: 12 percent) of the Group's turnover in 2002, mainly due to higher
prices of orange oil. For R. C. Treatt in the UK, the majority of orange oil is
sourced from Brazil and the balance from Florida, USA. Orange oil is unusually
firm for this time of year, when it normally weakens as Florida's new crop
approaches.
Due to the strengthening position of Treatt USA in beverage ingredients for the
American domestic market the Group's business is becoming more seasonal in that
the first quarter of the financial year will normally be a quieter quarter.
It has already become apparent that the ability to manufacture similar products
both sides of the Atlantic is of considerable interest to some potentially very
large customers who wish to be assured of continuity of supply when sourcing raw
materials. There are very few flavour and fragrance ingredient companies as
well placed in this respect as Treatt PLC.
People
Each year we quite rightly acknowledge the support and dedication of our
employees, and the Board would like to thank them on behalf of the shareholders.
I am pleased to be able to report that as a demonstration of the strength of
our commitment to the development of our personnel Anita Haines was appointed
Human Resources Director of the Group on 1 October 2002. Anita Haines joined
the Group in January 1988 as Company Secretary of R.C. Treatt and became Human
Resources Manager in September 2000.
In September 2002, Mark Bottjer tendered his resignation from his position as
Finance Director of the Group effective from 31 December 2002 We wish him well
in his next appointment. We are currently undertaking a selection process and
we expect to make an appointment in the next few months.
Edward Dawnay
Chairman
OPERATING REVIEW
During 2002, the Group's operations delivered another satisfactory performance
with a very high investment programme both in IT and equipment across the Group
to meet the increasing globalisation of our customers' needs, in particular the
Group's investment (of US$6.3 million) in the USA referred to below. Margins are
under pressure in some areas of the business.
During the last two years, there has been considerable consolidation amongst our
customers in our sector. We expect this consolidation to continue as there are
very few medium-sized companies with turnovers between US$75m - US$150m
remaining in our industry. The tenth largest company is estimated to have sales
of US$200 million, which gives the top ten customers a total sales value of
approximately US$8 billion. This consolidation of our customer base has
generally led to increased opportunities as the major Flavour and Fragrance
companies wish to work closer with global ingredients suppliers. The Group's
customer base has enlarged from 620 customers in 45 countries in 1989 to 1200 in
over 80 countries in 2002.
Trading
Orange oil movement
The last 12 months saw Orange Oil rise in price from US$1.30/kilo to over
US$3.00/kilo. This material is an important raw material for the Group and the
price increase in our orange products increased turnover. One-off 'stock
profits' were earned, and new significant business was won in part due to our
orange oil position and it is expected that some of this will be retained in
future years.
R. C. Treatt
Sales were up by 7 percent with volumes up by 6 percent as significantly
increased orange oil prices led to some one-off sales and some stock profits.
Aroma chemical sales increased by 6 percent but with lower margins. Some major
customers' purchasing patterns were irregular, in part due to their operational
difficulties. Demand from customers for shorter lead times continued to
increase.
Treatt USA (formerly Florida Treatt)
Sales increased by 27 percent during the year, with new business being won, in
particular in our TreattaromeTM range, and we remain optimistic for these for
the future. Our investment in this product line has proved to be worthwhile and
has reduced our exposure in the USA to the volatility of the citrus market.
Singapore Treatt
The branch sales office was closed in December 2001 but we have continued to
increase business satisfactorily directly from England and have strengthened our
sales presence in China.
Investment for the future
R. C. Treatt
Our ERP system has been operational in Florida since 1 October 2002, as
scheduled, and should be fully implemented across the Group over the next two
years. The Enterprise Resource Planning 'ERP' system is a Group-wide IT system
designed to run a manufacturing business. This will supersede our fully
operational CRM system in the UK, which we have decided to write off as a
non-cash item of £591,000 in the current year, which has been taken as an
exceptional charge. We believe the investments made in 2002 and to be made in
2003 are necessary to deliver the long-term growth of the business.
Treatt USA
Treatt USA has moved to its new site on budget and on time, with the move being
made at the end of September 2002. This new site gives considerably increased
production capabilities whilst meeting with customers' strict production
standards. The name of our USA subsidiary has been changed to Treatt USA to
better represent the Group's activities in the North American market. The word
'Florida' in the former name had strong citrus associations rather than
representing the wider palate of flavour and fragrance ingredients that Treatt
offers. The original site at Haines City is now for sale.
Research and Development
The Group remains committed to the development of new products, both for flavour
and fragrance useage, which are launched on a regular basis throughout the year.
We have strengthened not only our R & D facilities, but also our technical
personnel, both in the USA and in the UK. R & D is also undertaken by Treatt in
producing countries to develop new economically viable sources of raw materials.
Investment in research and development in 2002 remained at a similar level to
last year.
Markets
Sales in the UK increased by 6 percent, due in part to increased orange oil
prices. In the rest of Europe sales were up 8 percent with gains being made in
several countries. In the Americas sales were up 16 percent, which was due to
another good performance at Treatt USA especially as this includes Latin America
where, as expected, sales decreased by 8 percent over last year, as a result of
the severe economic downturn in the region. Sales to the rest of the world grew
at 13 percent.
Products
Orange oil, an orange juice by-product, is an important raw material for Treatt
and has remained at a price level higher than expected. Orange products
accounted for 19 percent of the Group's turnover in 2002. For R. C. Treatt in
the UK, the majority of orange oil is sourced from Brazil and the balance from
Florida, USA. The price of orange oil is unusually firm for this time of year,
as it normally weakens as Florida's new crop approaches, and this will increase
the Group's turnover in orange oil products.
Sales from our UK based aroma chemical distribution business grew by 6 percent
at lower margins, and there was continued strong growth in our high impact
flavour and fragrance molecules. Sales of general commodity chemicals continued
to grow, but margins continue to be under pressure.
Sales of the TreattaromeTM range of natural distillates, which are manufactured
by Treatt USA in Florida, doubled. This increase was across the full
TreattaromeTM range and we have been advised by many of our customers that they
have used them in new submissions to their end consumers. Our optimism for the
future of these products is undiminished.
Raw Materials
With the exception of orange oil, as forecast last year, 2002 again saw many of
the Group's raw materials, and therefore products, remain at historically low
price levels. We expect this to continue with orange oil remaining an exception.
FINANCIAL REVIEW
Performance Analysis
Profit and Loss account
Group turnover increased by 11 percent during the year to £30.7million (2001:
£27.6 million). The Group derived significant benefit from the increase in
orange oil prices, with revenues from orange oil products accounting for 19
percent of the Group's turnover in 2002 (2001: 12 percent). Our US subsidiary,
Treatt USA, continued to perform well with turnover increasing 27 percent over
last year. Group profit before tax, before exceptional items of £739,000, was
£2.77million (2001: £2.83million).
Gross margins of 29.5 percent were achieved this year (2001: 30.5 percent) with
a weakening of the US Dollar during the year being the main contributory factor
for the fall. Most of our material purchases are made in US Dollars. If the
Dollar weakens between the time these materials are purchased and then sold on
to customers, Treatt will book the loss in Sterling terms.
The Group's operating costs rose by 9.2 percent to £6.0 million (2001: £5.5
million). This includes increased payroll costs of £235,000, which reflects last
year's pay awards and a full year of cost from new appointments made during
2001, together with additional costs relating to Lakeland, Florida and a £56,000
increase in insurance premiums. An exceptional charge of £739,000 was incurred
during the year. This consists of £591,000 for a permanent diminution in the
value of fixed assets and a £148,000 provision for reorganisation costs. The
permanent diminution in fixed assets of £591,000 is for the full write-off of
our CRM system, which will be replaced by the new ERP computer system.
Net interest payable increased during the year to £167,000 (2001: £38,000). This
was due to interest charged on the funds drawn from the Variable Rate Demand
Bonds and R. C. Treatt's use of banking facilities to fund the purchase of large
quantities of orange oil at competitive prices, despite this, the Group's
current borrowings remain well within its available facilities. The Group's
effective tax rate decreased from 30.9 percent to this year's figure of 27.3
percent.
Earnings per share before exceptional items improved to 19.7 pence per share
(2001: 19.4). The Earnings per share after exceptional items is 14.6 pence per
share.
Cashflow
The Group has seen a reduction in its net cash position during the year. Cash
inflow from operating activities was £968,000, which represents a decrease of
£2.85 million over last year, which is largely attributable to an increase in
stocks of materials.
Group capital expenditure was £3.16 million (2001: £2.38 million) of which £2.14
million relates to the new Lakeland facility in Florida. Future capital
expenditure is not envisaged to be at such high levels and will continue to be
funded out of operating cashflows with the exception of further engineering and
development works on the new Florida facility, to the extent that it can be
financed by the remaining £561,000 of restricted use money raised on the issue
of Variable Rate Demand Bonds in the USA.
Balance Sheet
Over the year Group shareholders funds have risen to £16,931,000 or £1.65 per
share. 59 percent of shareholders funds are in the form of liquid assets
(excluding the cash held for restricted purposes) and the Group's land and
buildings are held at historical cost.
Group Tax Charge
The Group's current year tax charge of £631,000 represents an effective tax rate
of 31% (2001: 30.9%). The overall tax charge of £554,000 is lower than the 2001
charge of £875,000 due, firstly to a tax benefit derived from the exceptional
charge made against profits and, secondly, to timing differences in our US
subsidiary which has posted a deferred tax benefit. The Group rate of tax is
likely to reduce next year as some of the taxable profits in our US subsidiary
will be offset by capital allowances on the new Lakeland facility.
Treasury Policies
The Group operates a conservative set of treasury policies to ensure no
unnecessary risks are taken with the Group's assets.
No investments other than cash and other short-term deposits are currently
permitted. Where appropriate these balances are held in foreign currencies, but
only as part of the Group's overall hedging activity.
Treatt is potentially vulnerable to a number of different foreign exchange
risks, but these can be broken down into two main categories.
Firstly the value of the foreign currency net assets of Treatt USA can fluctuate
with Sterling. These are currently not hedged, as the risks are considered less
than the cost of putting the hedge in place.
Secondly, with R.C. Treatt exporting to over 80 countries, fluctuations in
Sterling's value can affect both the gross margin and operating costs. Sales
are principally made in four currencies in addition to Sterling, with the US
Dollar being by far the most significant. Raw materials are also mainly
purchased in US Dollars and so a US Dollar bank account is operated to allow
Dollar denominated sales and purchases to flow through this account. The R.C.
Treatt cashflows are such that over a period of time US Dollar inflows and
outflows net out, but if there is a mismatch in any one accounting period and
the Sterling to US Dollar exchange rate changes, an exchange difference will
arise. Hence it is Sterling's relative strength against the US Dollar that is of
prime importance. A policy to reduce the US Dollar exposures, where possible,
is in place.
Currency accounts are also run for the other main currencies to which R.C.
Treatt is exposed. Based on estimated future cashflows for each currency a
conservative position is taken with forward contracts in order to protect the
Group's asset base. This policy will protect the Group against the worst of any
short-term swings in currencies, but like any exporter there are inherent risks
if there is a substantial movement in currencies.
TREATT PLC
PRELIMINARY STATEMENT
FOR THE YEAR ENDED 30 SEPTEMBER 2002
GROUP PROFIT AND LOSS ACCOUNT
2002 2001
Notes £'000 £'000
Turnover - continuing operations 1 30,740 27,664
Cost of Sales (21,662) (19,234)
______ ______
Gross profit 9,078 8,430
Net operating costs
- exceptional items 2 (739) -
- other operating costs (6,140) (5,560)
______ ______
Operating profit 2,199 2,870
Net interest payable (167) (38)
______ ______
Profit on ordinary activities before taxation 2,032 2,832
Tax on profit on ordinary activities 3 (554) (875)
______ ______
Profit on ordinary activities after taxation 1,478 1,957
Dividends 4 (864) (818)
______ ______
Retained profit for the year 614 1,139
______ ______
Dividends per ordinary share 4 8.4p 8.1p
Earnings per share
- Basic
- after exceptional items 5 14.6p 19.4p
- before exceptional items 5 19.7p 19.4p
- Diluted 5 14.6p 19.3p
GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
2002 2001
£'000 £'000
Profit for the financial year before dividends 1,478 1,957
Exchange differences on foreign
currency net investments (235) (40)
______ ______
Total recognised gains and losses 1,243 1,917
______ ______
The figures for the years ended 30 September 2002 and 2001 are an abridged
version of the Group's audited financial statements, these are not statutory
accounts. The figures for the year ended 30 September 2001 have been delivered
to the Registrar of Companies. These statements received an unqualified audit
opinion and the auditors' report contained no statement under section 237(2) or
237(3) of the Companies Act 1985.
TREATT PLC
PRELIMINARY STATEMENT
FOR THE YEAR ENDED 30 SEPTEMBER 2002
GROUP BALANCE SHEET
2002 2001
£'000 £'000
Tangible fixed assets 9,523 7,663
Current Assets
Stocks 10,080 8,480
Debtors 6,006 5,525
Cash at bank and in hand - restricted 561 2,201
- unrestricted 156 778
717 2,979
______ ______
16,803 16,984
______ ______
Creditors: amounts falling due within one year
Loan (159) (128)
Bank overdraft (1,776) -
Other creditors (4,325) (4,663)
______ ______
(6,260) (4,791)
______ ______
Net current assets 10,543 12,193
Total assets less current liabilities 20,066 19,856
Creditors: amounts falling due
after more than one year
Loan (2,941) (3,274)
Deferred tax (194) (225)
______ ______
Net assets 16,931 16,357
______ ______
Capital and reserves
Share capital 1,029 1,010
Share premium account 2,139 1,963
Profit and loss account 13,763 13,384
______ ______
Shareholders' funds - equity interests 16,931 16,357
______ ______
TREATT PLC
PRELIMINARY STATEMENT
FOR THE YEAR ENDED 30 SEPTEMBER 2002
GROUP CASH FLOW STATEMENT
2002 2001
£'000 £'000
Cash inflow from operating activities 968 3,821
Return on investments and servicing of finance (167) (38)
Taxation (943) (821)
Capital expenditure and financial investment (1,507) (4,583)
Equity dividends paid (820) (782)
______ ______
Cash outflow before financing (2,469) (2,403)
Financing - issue of shares 195 36
- (decrease)/increase in debt (85) 3,402
______ ______
(Decrease)/increase in unrestricted
funds in the year (2,359) 1,035
______ ______
RECONCILIATION OF NET CASH FLOW TO INCREASE IN DEBT
(Decrease)/increase in unrestricted
funds in the year (2,359) 1,035
Cash inflow from change in debt (1,545) (1,201)
Exchange difference 168 2
______ ______
Increase in net debt in the year (3,736) (164)
______ ______
Net debt at 1 October 2001 (423) (259)
______ ______
Net debt at 30 September 2002 (4,159) (423)
______ ______
TREATT PLC
PRELIMINARY STATEMENT
FOR THE YEAR ENDED 30 SEPTEMBER 2002
NOTES TO THE PRELIMINARY STATEMENT
2002 2001
£'000 £'000
1 Turnover by destination :
United Kingdom 7,597 7,119
Rest of Europe 8,044 7,416
The Americas 8,375 7,179
Rest of the World 6,724 5,950
______ ______
30,740 27,664
______ ______
2 Exceptional items :
The operating exceptional items referred to in the Group Profit
and Loss Account are categorised as follows :
Total
£'000
Reorganisation costs 148
Impairment of fixed assets 591
______
739
______
2002 2001
£'000 £'000
3 Taxation:
UK current year corporation tax 414 600
Overseas current year tax 248 204
Transfer (from)/to deferred tax (31) 70
UK prior year corporation tax (5) 1
Overseas prior year tax (72) -
______ ______
554 875
______ ______
2002 2001
£'000 £'000
4 Dividends :
Interim declared of 2.7p (2001: 2.6p) per share 278 262
Final proposed of 5.7p (2001: 5.5p) per share 586 556
______ ______
Total for the year 864 818
______ ______
Subject to approval at the Annual General Meeting on 24 February 2003, the
final dividend for the year ended 30 September 2002 will be payable on
8 April 2003 to those shareholders on the Register at the close of business
on 7 March 2003 (ex-dividend date 5 March 2003).
5 (a) Basic earnings per share:
Basic earnings per share is based on the weighted average number of ordinary
shares in issue and ranking for dividend during the year of 10,132,905
(2001 : 10,090,249) and earnings of :
- £1,478,000 (2001 : £1,957,000), being the profit on ordinary activities
after taxation and exceptional items
- £1,996,000 (2001 - n/a) being the profit on ordinary activities, after
taxation, excluding the net impact of exceptional items of £739,000 and
tax thereon of £221,000
(b) Diluted earnings per share:
Diluted earnings per share is based on the weighted average number of
ordinary shares in issue and ranking for dividend during the year adjusted
for the effect of all dilutive potential ordinary shares, of 10,135,757
(2001 :10,166,263), and the same earnings as above
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