Final Results
Treatt PLC
13 December 2004
TREATT PLC
PRELIMINARY STATEMENT
FOR THE YEAR ENDED 30 SEPTEMBER 2004
GROUP PROFIT AND LOSS ACCOUNT
Treatt PLC, the manufacturer and supplier of flavour and fragrance ingredients,
primarily natural essential oils and natural extracts, announces today its
preliminary results for the year ended 30 September 2004.
Summary
Earnings before interest, tax, depreciation and amortisation (EBITDA) up 17.2%
to £3.31m (2003: £2.83m)
Profit before tax and exceptional items up 10.5% to £2.31 million (2003: £2.09
million)
Profit after taxation rose by 21% to £1.7 million (2003: £1.4 million)
Group turnover increased by 0.4% to £31.8 million (2003: £31.7 million)
Treatt USA $ sales up 41.5%
Dividends increased 5% to 8.8p per share (2003: 8.4p)
Earnings per share before exceptional items 16.0p (2003: 14.6p)
Edward Dawnay, Chairman commented:
'The Group has performed well over the last year, with Treatt USA significantly
outperforming expectations. Despite the weakness of the US$ and falling orange
oil price, EBITDA increased by 17.2%. The prospects for further significant
growth at Treatt USA and improved efficiency resulting from the new Enterprise
Resource Planning system at R. C. Treatt in the UK bode well for the coming
year.'
Enquiries:
Treatt plc Tel: 01284 702 500
Hugo Bovill Managing Director
Richard Hope Finance Director
CHAIRMAN'S STATEMENT
______________________________________________________________________________
'Treatt USA achieved record profits with turnover up by 41% to $13.5m'
2004 saw Group earnings before interest, tax, depreciation and amortisation
increase by 17% to £3.31 million (2003: £2.83 million) with profit before tax
and exceptional items for the year increasing by 10% to £2.31 million (2003:
£2.09 million). Group turnover for the year remained steady at £31.81 million
(2003: £31.68 million) whilst earnings per share before exceptional items
increased by 10% to 16.0 pence (2003: 14.6 pence). Having eliminated all short
term debt during the year, the level of the Group's net debt/equity ratio ended
the year at 9% (2003: 26%).
The Board is recommending a final dividend of 6.1 pence (2003: 5.7 pence),
increasing the total dividend for the year by 5% to 8.8 pence (2003: 8.4 pence)
per share.
The highlight of the year was the strong performance of Treatt USA where record
profits were achieved and turnover increased by 41% to $13.5 million. This
follows a year of transition (2002/3) during which Treatt USA moved to its new
facilities in Lakeland, Florida and represents a significantly greater return on
this investment than was originally expected. This growth occurred across the
full range of products and a widely spread customer base, with a greater than
three-fold increase in Treattarome(TM) ('From The Named Food') sales being of
particular note.. The Board is particularly pleased that the Company's
commitment to organic growth in the United States over the last fourteen years
has now led to the successful establishment of a strong presence in North
America.
For R. C. Treatt, the Group's UK operating subsidiary, the year has been
challenging. Turnover fell by 5.7% and was significantly affected by falling
orange oil prices and the continuing weakness of the US Dollar. In January 2004
R. C. Treatt successfully implemented its Enterprise Resource Planning (ERP)
system. The extent to which the new system has led to significant business and
information improvements in a relatively short period of time has exceeded the
Board's expectations.. The focus on delivering this new system required a
substantial amount of internal resource in the UK. This impacted upon the
performance of R. C. Treatt during the implementation period, which had a weak
first half of the financial year. However, profits in the second half improved,
being 38% up on the second half of last year. It has become apparent that one
of the key benefits of the new system is that of enabling R. C. Treatt to reduce
lead times to customers.
We stated last year that the orange oil market would be the area of greatest
uncertainty for the Group, and this proved to be the case. Indeed the price of
orange oil (which continues to represent about 20% of Group turnover at 2003/4
prices) fell by more than half during the year, although it is now expected to
stabilise as a result of the recent hurricanes in Florida. The consequence of
the falling price of orange oil reduced the Group's profits by over £500,000.
Employee Share Ownership
During the year the Group introduced share saving schemes in both the UK and USA
in order to give employees the opportunity to acquire shares in the Group on a
tax efficient basis. An Employee Benefit Trust has been established in order to
acquire shares from time to time which may be used to satisfy the requirements
of the share save schemes. Further information is provided in the Financial
Review.
USA Property
The sale of Treatt USA's former premises at Haines City was successfully
completed prior to the year end, resulting in net proceeds of £270,000
($483,000), an exceptional gain for the Group of £131,000.
Prospects
We expect continued growth in sales and operating margins in the current year
which will be mainly due to further significant sales opportunities arising in
the United States. At the same time, the growth at Treatt USA will require a
further strengthening of its infrastructure across a number of areas including R
&D, product innovation, engineering and sales.
Following the success of the ERP system in the UK, it is now our intention to
develop further the Group's processes by fully integrating Treatt USA into one
company-wide ERP system by the middle of 2005. Experience gained in the UK will
be used in order to achieve a smooth installation.
The recent occurrence of four major hurricanes, which have hit Florida, have
left Treatt USA unscathed, both physically and in terms of the impact on various
commodity prices. The most significant effect of the hurricanes is that it has
lead to shortages and increasing prices of grapefruit products. The impact of
higher US Dollar petroleum prices is resulting in increases in some Dollar
priced aroma chemicals, and some Dollar priced essential oils have begun to
strengthen.
As a leading independent manufacturer of ingredients for the flavour and
fragrance industry, with a presence both in Europe and the United States, Treatt
Plc remains in a strong position to grow its business on both sides of the
Atlantic.
People
Our employees both in England and the United States have continued to
demonstrate their commitment and dedication and it is important, on behalf of
the Board, to thank all our colleagues for their tremendous efforts over the
last year.
Particular mention should be made of the fact that our employees at Treatt USA
have endured four hurricanes, the first time this has been experienced in a
single state for over a century. Many of them suffered serious damage to their
homes and our thoughts were with them during those difficult times.
Edward Dawnay
Chairman
OPERATING REVIEW 2004
________________________________________________________________________________
'The new ERP system has significantly improved efficiencies'
During 2004 the Group's operations performed satisfactorily, with the
implementation of the Enterprise Resource Planning (ERP) system having a
significant impact in the UK. As a result of the implementation, R. C. Treatt
now has a fully integrated manufacturing system combining sales order
processing, production, shipping, QC and finance.
The Group's investment in ERP totalled £1.2 million, with little additional
expenditure still required in order to implement the full system in America.
There was further investment in specialised equipment in both the UK and USA
totalling £475,000 in order to increase capacity for value added products on
both sides of the Atlantic.
The extent of Treatt's global reach is best demonstrated by the fact that last
year Treatt sold to over 80 countries whilst sourcing supplies from many others.
The ability of Treatt to comply with the different legislative requirements
needed to send shipments all around the world is particularly important for
major customers who may wish to move their operations from one part of the world
to another.
Similarly, Treatt's state of the art QC laboratories place Treatt at the
forefront of the industry's analytical systems and techniques, and, therefore
able to provide the added value service which customers now require.
Trading
The last 12 months saw a significant fall in the price of orange oil, an orange
juice by-product, from almost $3/kg to around $1-$1.50/kg. This reduced Group
profits by more than £500,000. There were no other significant commodity price
movements which had a material effect on the financial results for the year.
R. C. Treatt
Sales value decreased by 6% despite volumes increasing by 14%, and sales to the
top ten customers represented just over one third of turnover, which is similar
to previous years. Considering the level of concentration within the industry,
we believe the customer mix, both in terms of size and location, provides the
company with a well-balanced risk profile. Gross margins for the year remained
stable although this masks a sharp fall in margins on orange products and a
corresponding increase in margins on other manufactured products. The recent
rise in petroleum prices is having an important impact on chemical prices with a
wide range of chemical Dollar prices now on the way back up.
Treatt USA
US Dollar sales were up by 41% during the year with the Treattarome(TM) products
performing exceptionally well assisted by the strong demand for low carbohydrate
products. This result was all the more commendable bearing in mind the impact
of the fall in the price of orange oil which reduced Treatt USA's profit by
approximately $500,000 (£275,000).
Investment for the future
R. C. Treatt
Following the substantial investment in computer systems and processes at R. C.
Treatt, the level of capital expenditure is now expected to return to more
normal levels. The Company will continue to invest in Information Technology
where this provides clear added value benefits either in terms of increased
efficiencies or improved customer service. Further investment in new facilities
will occur where it is necessary to increase capacity or as a result of product
innovation or market opportunities.
Treatt USA
Following the substantial growth of the last year, and the expected growth for
the next twelve months, it is important that Treatt USA continues to invest in
developing facilities at its modern premises in Lakeland, Florida in order to
maximise its potential. The Board will keep under review the need to develop
the additional five acres adjacent to the existing plant.
Research and Development
The Group has continued to invest in skilled personnel to enhance its research
and development and product innovation capabilities both in the UK and USA. In
particular, Treatt USA is currently in the process of developing further its R&D
function in order to maximise the growth opportunities which are expected to
arise. Treatt also believes in continuing to work in partnership with suppliers
in producing countries in order to develop new sources of raw materials on a
financially viable basis.
Markets
During the year, the overall geographical spread of the Group's turnover
remained largely unaltered, with a small reduction in the proportion of sales to
the Rest of Europe which fell by 8%, whilst sales to the Americas rose by 15%
largely due to the growing ability of Treatt USA to tap into the North American
market.
Products
The Group's sales of sweet orange oil based products increased by 5% year on
year as efforts were made to minimise stock holdings as orange oil prices fell
sharply. Despite these efforts it was inevitable that the Group would suffer
significant losses on orange oil products given that the price fell to about a
third of its previous level and is used as part of the Group's manufacturing
processes on a continual basis. Following investment in new plant and equipment
at R. C. Treatt, there was a significant increase in the production and sale of
speciality products, with a 61% growth by volume.
With over 90% of Treatt USA's sales being manufactured from natural ingredients,
there was significant growth across the entire product range, with particularly
strong growth in sales of the Treattarome(TM) range of natural distillates.
Personnel
The Group recognises the importance of maximising employee potential and has
continued to invest in human resources, with a strong emphasis on staff
training, personal development and communication. With the introduction of the
new ERP system this has necessitated the re-training of the vast majority of R.
C. Treatt's staff as part of the implementation process. Standard terms and
conditions of employment operate for all staff, which do not discriminate
against any individual or group of people. Employee involvement in the Group's
performance is encouraged and Group
FINANCIAL REVIEW 2004
______________________________________________________________________________
'Dividend increased by 4.8%'
Performance Analysis
Profit and Loss account
Group turnover increased by 0.4% during the year to £31.81 million (2003: £31.68
million). In constant currency, sales at our USA subsidiary, Treatt USA,
increased in US Dollars by 41.5%, whilst R. C. Treatt's sales fell by 5.7%.
Earnings before interest, tax, depreciation and amortisation for the year grew
by 17.2% to £3.31 million (2003: £2.83 million) and Group profit before tax,
before exceptional items, rose by 10.5% to £2.31 million (2003: £2.09 million).
The total dividend for the year has been increased by 4.8% to 8.8p per share,
resulting in a dividend cover of 1.9 times earnings.
The increase in profitability was led by the performance at Treatt USA, which
would have improved Group results even further had the US Dollar not weakened by
almost 10%. The growth in profit at Treatt USA was broadly based, with sales
increasing across the product range, especially in Treattarome(TM) products
which benefited from the popularity of low carbohydrate foods. R. C. Treatt's
profits fell during the year largely due to a weak December/January period
coinciding with the implementation of the ERP system and the impact of falling
orange
prices.
Gross margins of 26.6% were achieved this year (2003: 27.3%) despite the impact
of falling orange oil prices, which reduced Group profits by more than £500,000.
The further weakening of the US Dollar has also adversely affected Group
margins although hedging strategies are in place as explained below. Overall,
margins in non-orange manufactured products strengthened whilst aroma chemical
margins were maintained.
The Group's operating costs fell by 5.1% to £6.0 million (2003: £6.4 million).
At Treatt USA there was a reduction of £297,000 ($532,000) in operating costs
due to the lack of certain expenses incurred last year following the relocation
in Florida. Total staff numbers across the Group fell slightly as a result of
the increased efficiencies at R. C. Treatt which flowed from the new ERP system.
Included as part of the exceptional items for the Group was a profit of
£131,000 on the sale of Treatt USA's former premises at Haines City, Florida and
a charge of £70,000 for reorganisation costs at R. C. Treatt following
efficiency gains which flowed from the ERP system.
The Group's net interest payable fell by 41% to £123,000 (2003: £208,000)
following a significant reduction in the Group's debt as all short term debt was
eliminated during the year. This leaves the outstanding balance of £2.4 million
in relation to the Industrial Development Loan which was used to finance the
Lakeland facilities for Treatt USA.
Earnings per share before exceptional items increased by 9.6% to 16.0 pence per
share (2003: 14.6 pence). The Earnings per share after exceptional items rose to
16.6 pence per share (2003: 13.6 pence). Both measures have been shown in order
to provide a consistent measure of performance over time and excludes those
shares which were acquired by the Treatt Employee Share Trust since they do not
rank for dividend.
During the year the company reviewed its policy on providing employees with the
opportunity to acquire shares in the Group and implemented a rolling programme
of annual share saving schemes for staff in the UK and USA. This is the first
time this opportunity has been provided to USA employees. As a result, options
were granted over 65,000 shares during the year. Alongside these schemes, an
Employee Benefit Trust (EBT) has been established to acquire shares on a
periodic basis which may be used to satisfy these schemes. The Trust has made
an initial purchase of 148,000 ordinary shares.
Cashflow
The Group has seen a decrease in its net borrowings during the year of £2.9
million to £1.6 million. Cash inflow from operating activities was £5.0 million,
which represents an increase of £2.7 million over last year, largely due to the
predicted reduction in stock balances which totalled £2.6 million. The
reduction in the Group's level of stock holding was primarily a result of orange
oil prices falling by two thirds of their previous value.
Upon completion of the new ERP system Group capital expenditure fell, as
expected, to £0.9 million (2003: £1.4 million).
As reported last year, Treatt USA signed a conditional agreement a year ago for
the lease and subsequent sale of its former site at Haines City. As expected,
the sale took place in September 2004 for £270,000 ($483,000), resulting in an
exceptional gain of £131,000 ($234,000).
Balance Sheet
Over the year Group shareholders' funds have grown to £17,325,000 (2003:
£17,228,000), with net assets per share increasing to £1.68 (2003: £1.67), an
increase of 23% over the last five years. Net current assets represent 61% of
shareholders' funds and the Group's land and buildings are all held at
historical cost. It should be noted, however, that net assets have been reduced
by £278,000 as a result of the purchase of shares by the Treatt Employee Share
Trust due to the accounting requirements of UITF Abstract 38. This impact will
be reversed when these shares are used to satisfy employee share saving schemes.
Group Tax Charge
The Group's current year tax charge of £680,000 represents an effective tax rate
of 29% (2003: 29%). The overall tax charge of £669,000 is higher than the 2003
charge of £545,000 due principally to a far great proportion of the Group's
profit being subject to USA state and federal taxes at a combined marginal rate
of approximately 34%. However, this has been offset by some of the foreign
exchange losses which are included in the Statement of Recognised Gains and
Losses.
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 as explained below.
The nature of Treatt's activities is such that the Group could be affected by
movements in certain exchange rates, principally between Sterling and the US
Dollar. This risk manifests itself in a number of ways.
Firstly, the value of the foreign currency net assets of Treatt USA can
fluctuate with Sterling. Currently these are not hedged, as the risks are not
considered to justify 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. Even if a sale is made in Sterling,
its price may be set by reference to its US Dollar denominated commodity price
and therefore have an impact on the Sterling gross margin. Raw materials are
also mainly purchased in US Dollars and therefore a US Dollar bank account is
operated, through which Dollar denominated sales and purchases flow. 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.
As well as affecting the cash value of sales, US Dollar exchange movements can
also have a significant effect on the replacement cost of stocks, which affects
future profitability and competitiveness.
The Group therefore has a policy of maintaining the majority of cash balances,
including the main Group overdraft facilities, in US Dollars as this is the most
cost effective means of providing a natural hedge against movements in the US
Dollar/Sterling exchange rate. Currency accounts are also run for the other
main currencies to which R.C. Treatt is exposed. This policy will protect the
Group against the worst of any short-term swings in currencies.
International Accounting Standards
All companies listed on the London Stock Exchange are required to implement
International Accounting Standards (IAS) with effect from accounting periods
beginning on or after 1 January 2005. Therefore the financial statements for
the year ended 30 September 2006 will be the first time the Group's results will
be published using IAS. Work is currently on-going to assess the full impact of
IAS on the Group's balance sheet and profit and loss account, but at this stage
the Board believe that the most significant effect will flow from IAS 19:
Employee Benefits which will require the surplus or deficit in the defined
benefit pension scheme operated by R. C. Treatt to be brought on to the balance
sheet using similar calculations as prescribed by FRS17 (see note 21). The
deficit of the scheme as at 30 September 2004 was £2.1 million (net of deferred
tax).
TREATT PLC
PRELIMINARY STATEMENT
FOR THE YEAR ENDED 30 SEPTEMBER 2004
GROUP PROFIT AND LOSS ACCOUNT
2004 2003
Notes £'000 £'000
Turnover - continuing operations 1 31,809 31,683
Cost of sales (23,354) (23,035)
_________ _________
Gross profit 8,455 8,648
Net operating costs
- exceptional items 2 (70) (139)
- other operating costs (6,025) (6,352)
_________ _________
Operating profit 2,360 2,157
Exceptional profit on sale of fixed 2 131 -
assets
_________ _________
Profit on ordinary activities before 2,491 2,157
interest
Net interest payable (123) (208)
_________ _________
Profit on ordinary activities before taxation 2,368 1,949
Tax on profit on ordinary activities 3 (669) (545)
_________ _________
Profit on ordinary activities after 1,699 1,404
taxation
Dividends 4 (893) (865)
_________ _________
Retained profit for the year 806 539
_________ _________
Dividends per ordinary share 4 8.8p 8.4p
Earnings per share
- Basic
- after exceptional items 5 16.6p 13.6p
- before exceptional items 5 16.0p 14.6p
- Diluted 5 16.6p 13.6p
GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
2004 2003
£'000 £'000
Profit for the financial year before dividends 1,699 1,404
Exchange differences on foreign
currency net investments (431) (246)
_________ _________
Total recognised gains and losses 1,268 1,158
_________ _________
The figures for the years ended 30 September 2004 and 2003 are an abridged
version of the group's audited financial statements, these are not statutory
accounts. The figures for the year ended 30 September 2003 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 2004
GROUP BALANCE SHEET
2004 2003
£'000 £'000
Tangible fixed assets 9,536 9,911
Current Assets
Stocks 8,355 10,987
Debtors 6,007 5,439
Cash at bank and in 809 304
hand
_________ _________
15,171 16,730
_________ _________
Creditors: amounts falling due within
one year
Loan (141) (150)
Bank overdraft - (2,061)
Other creditors (4,451) (4,209)
______ ______
(4,592) (6,420)
______ ______
Net current assets 10,579 10,310
_________ _________
Total assets less current 20,115 20,221
liabilities
Creditors: amounts falling due after
more than one year
Loan (2,271) (2,631)
Deferred tax (519) (362)
_________ _________
Net assets 17,325 17,228
_________ _________
Capital and reserves
Share capital 1,029 1,029
Share premium account 2,143 2,143
Own shares in share (278) -
trust
Profit and loss 14,431 14,056
account
_________ _________
Shareholders' funds Equity 17,325 17,228
Interests _________ _________
TREATT PLC
PRELIMINARY STATEMENT
FOR THE YEAR ENDED 30 SEPTEMBER 2004
GROUP CASH FLOW STATEMENT
2004 2003
£'000 £'000
Cash inflow from operating activities 4,952 2,263
Return on investments and servicing of finance (123) (208)
Taxation (312) (355)
Capital expenditure and financial investment (646) (819)
Equity dividends (861) (860)
paid
_________ _________
Cash inflow before financing 3,010 21
Financing - issue of shares - 4
- acquisition of own shares (278) -
by share trust
- decrease in debt (142) (162)
_________ _________
Increase/(decrease) in funds in the 2,590 (137)
year _________ _________
=====================================================================================
RECONCILIATION OF NET CASH FLOW TO DECREASE/(INCREASE) IN DEBT
Increase/(decrease) in funds in the 2,590 (137)
year
Cash inflow/(outflow) from change in 142 (383)
debt
Exchange difference 203 141
_________ _________
Decrease/(increase) in net debt in the 2,935 (379)
year
Net debt at 1 October 2003 (4,538) (4,159)
_________ _________
Net debt at 30 September 2004 (1,603) (4,538)
_________ _________
TREATT PLC
PRELIMINARY STATEMENT
FOR THE YEAR ENDED 30 SEPTEMBER 2004
NOTES TO THE PRELIMINARY STATEMENT
2004 2003
£'000 £'000
1 Turnover by destination :
United Kingdom 6,725 6,918
Rest of Europe 8,674 9,441
The Americas 8,756 7,649
Rest of the World 7,654 7,675
_________ _________
31,809 31,683
_________ _________
2 Exceptional items :
The exceptional items referred to in the Group Profit
and Loss Account are categorised as follows :
2004 2003
£'000 £'000
Reorganisation costs 70 139
_________ _________
Profit on the sale of fixed assets (131) -
_________ _________
2004 2003
£'000 £'000
3 Taxation:
UK current year corporation tax 395 468
Overseas current year tax 109 (13)
Transfer to deferred tax 176 103
UK prior year corporation tax (10) (41)
Overseas prior year tax 18 (37)
Prior year deferred tax (19) 65
_________ _________
669 545
_________ _________
2004 2003
£'000 £'000
4 Dividends :
Interim declared of 2.7p (2003: 2.7p) 278 278
per share
Final proposed of 6.1p (2003: 5.7p) per 615 587
share
_________ _________
Total for the year 893 865
_________ _________
Subject to approval at the Annual General Meeting on 28 February 2005, the
final dividend for the year ended 30 September 2004 will be payable on 11
March 2005 to those shareholders on the Register at the close of business
on 11 February 2005 (ex-dividend date 9 February 2005).
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
10,248,749 (2003 : 10,290,872) and earnings of :
- £1,699,000 (2003 : £1,404,000), being the profit on
ordinary activities after taxation and exceptional
items
- £1,643,000 (2003: £1,501,000) being the profit on ordinary
activities, after taxation, excluding the net impact of
exceptional items of £(£61,000) and tax thereon of (£4,546).
The weighted average number of shares excludes shares held by the Treatt
Employees' Share Trust.
(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 10,259,601
(2003 :10,290,872), and the same earnings as above.
This information is provided by RNS
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