Preliminary Results
Treatt PLC
08 December 2003
TREATT PLC
PRELIMINARY STATEMENT
FOR THE YEAR ENDED 30 SEPTEMBER 2003
GROUP PROFIT AND LOSS ACCOUNT
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 2003.
Summary
Group turnover increased by 3.1% to £31.7 million (2002: £30.7 million)
Earnings before interest, tax, depreciation and amortisation (EBITDA) up 5.6% to
£2.83m (2002: £2.68m)
Profit before exceptional items £2.09 million (2002: £2.77 million)
Profit after taxation fell marginally to £1.40 million (2002: £1.48 million)
Dividends remain unchanged at 8.4p per share
Earnings per share before exceptional items of 14.6p (2002: 19.7p)
£1m invested in new Group wide IT system almost complete
Treatt USA $ sales up 9%
Increased operating costs for Treatt USA following relocation to a new purpose
designed facility
Edward Dawnay, Chairman commented:
'The Group's investment in a new manufacturing IT system and state of the art
premises for Treatt USA will enable Treatt Plc to increase profitability and
make efficiency savings over the next twelve months.'
Enquiries:
Treatt plc
Hugo Bovill Tel: 01284 702 500
Richard Hope
CHAIRMAN'S STATEMENT
'Earnings before interest, tax, depreciation and amortisation increased to £2.8
million (2002: £2.7m)'
We can report that earnings before interest, tax, depreciation and amortisation
increased to £2.83 million (2002: £2.68 million) but owing to increased
borrowing and depreciation charges, profit before tax and exceptional items for
the year was £2.09 million (2002: £2.77 million). Group turnover for the year
showed steady growth, increasing by 3.1% to £31.68 million (2002: £30.74
million). Earnings per share before exceptional items fell to 14.6 pence (2002:
19.7 pence) whilst the level of the Group's net debt/equity ratio ended the year
at 26%. This was a reduction on the half year position of 32% and in line with
last year's level of 25%.
The Board is recommending a final dividend of 5.7 pence (2002: 5.7 pence),
leaving the total dividend for the year unchanged at 8.4 pence per share.
As forecast last year, 2003 was a year of continuing change and modernisation
for Treatt in an increasingly challenging market place. Therefore, the results
reflect our increased level of capital investment, both in the UK and the USA,
leading to higher depreciation charges. Similarly, the additional cost of
borrowing at fixed interest rates to finance Treatt USA's move to a new site in
Lakeland, Florida, has had a significant effect.
During the year R. C. Treatt, our UK operating company, incurred exceptional
reorganisation costs totalling £139,000 spread across various departments, where
measures have been taken to ensure staffing levels are more closely aligned to
our business needs in the current competitive economic environment. The
benefits of these cost savings will be experienced in the current financial
year.
Orange oil based products continued as the most significant component of sales,
representing approximately 20% of Group sales although gross profits in 2003
were lower in the absence of last year's significant stock profits. Sales of
distributed aroma chemicals out of the UK were maintained at last year's levels
despite strong competitive pressures.
Treatt USA began the year at its new purpose-built 65,000 square foot facility
in Lakeland and in spite of the increased operational pressures caused by the
move, Treatt USA's sales and gross contribution were maintained, thus creating
an excellent platform from which to develop its future potential. Sales of
TreattaromeTM ('From The Named Food') products continued to perform well
throughout the year. The Group's investment in Treatt USA over the last two
years has been an essential part of the Group's strategy for developing a strong
market presence in the United States, with the previous premises being
unsuitable for future expansion. Consequently, the future growth potential of
the Group has been significantly enhanced.
Having successfully carried out a partial implementation of the JD Edwards
Enterprise Resource Planning (ERP) system at Treatt USA last year, the full UK
implementation is due to go live in 2003/4, with 95% of the investment now
complete. This is an important and challenging development for the Group as all
systems throughout R. C. Treatt will become fully integrated, including sales
order processing, purchasing, manufacturing, quality control, shipping and
finance. This will result in efficiency savings over time as well as enabling
the business to expand without a substantial increase in general overhead costs.
Indeed, the existing systems have been restrictive as they no longer satisfy
the requirements of the Group.
Pension and Healthcare Costs
Following the closure of the R. C. Treatt final salary pension scheme to new
entrants in 2001, a further review of the scheme was carried out in 2003
following the latest triennial valuation. As a consequence, further action was
taken to reduce the scheme's funding deficit which, as explained in the
Financial Review, was reduced by £1.2 million. Steps have also been taken to
restrict the increase in Treatt USA's healthcare costs.
Post Balance Sheet Events
Since the year end we have negotiated the potential disposal of the former site
in Florida through a lease-purchase arrangement. Treatt USA will receive lease
rentals for eleven months, with the tenant obliged to purchase the property at a
pre-agreed price in September 2004, subject to environmental clearance and
satisfactory bank valuation. Should the tenant not proceed with the purchase,
the deposit will be forfeited. See the Financial Review for further
information.
Prospects
R. C. Treatt's order book at the year end was at a similar level to last year
and at Treatt USA order books are now significantly higher than last year.
Whilst we are optimistic for sales growth, the results for 2004 will continue to
reflect increased depreciation and borrowing costs following the higher level of
capital investment over the last two years both in the UK and the USA. The
Board believe this investment was essential in order to increase the Group's
profitability in the United States and operate more efficiently worldwide.
The orange oil market remains the area of greatest uncertainty for the coming
year as it continues to trade at a higher price than normal. However, we do
expect orange oil prices to return to more historically normal levels in the
latter half of 2004. The Group's stock holdings of orange oil will be managed
pro-actively in order to minimise the potential impact of falling prices.
Sales so far at Treatt USA in the first quarter have increased year on year,
particularly because TreattaromeTM sales are performing well as production
begins by a customer for a national product launch expected in the New Year.
We firmly believe that, with the continued consolidation within the industry,
together with increasing trends towards globalisation, there are few independent
flavour and fragrance ingredient companies as well placed as Treatt PLC to
service existing and potential new customers from both sides of the Atlantic.
People
On behalf of our Shareholders, the Board would like to place on record its
thanks to all our employees in England and the United States for their support
and dedication throughout the year. Implementing the Group's capital and IT
investment programmes in today's challenging economic climate requires a loyal
and committed work force and we are proud of the fact that we have a healthy
balance between new employees with fresh ideas and long serving, experienced
colleagues.
We are also pleased to welcome Richard Hope as Finance Director, who joined the
Group in May 2003. Having qualified as a Chartered Accountant in 1990 with
PriceWaterhouseCoopers, Richard has been Head of Finance at Hampshire Cosmetics
Limited for the last seven years.
Edward Dawnay
Chairman
OPERATING REVIEW 2003
'Treatt USA's dollar sales increased by 9%'
The Group's Operations performed satisfactorily during the year in spite of the
strong pressure on margins and the level of internal resource focussed on the
transfer of Treatt USA to the new facility in Lakeland, Florida and preparing
for the UK implementation of our Enterprise Resource Planning (ERP) system.
The Group's investment in ERP is now 95% complete with a total of £450k being
incurred during the year, bringing the total investment so far to £986k. There
was further significant investment at Treatt USA in plant and machinery
totalling £400k ($660k).
Again, there was a continuation of the trend for the industry to consolidate
during the year, thus leaving few independent businesses able to service the
flavour and fragrance industries on a global basis. Indeed, Treatt directly
supplied a total of 83 countries throughout the world. This demonstrates that,
through Treatt's expertise, experience and systems, we continue to manage
successfully the highly complex shipping and legal requirements inherent in
shipping food ingredients and hazardous goods around the globe, whilst
maintaining high levels of customer service. This is particularly beneficial
when major customers transfer some or all of their operations from one part of
the world to another.
Trading
Last year the Group's gross profit was enhanced by significant stock profits.
The last 12 months has not produced any stock profits as orange oil prices have
stabilised. There were no other significant commodity price movements which had
a material effect on the financial results for the year.
R. C. Treatt
Sales increased 3.9% with volumes up by just over 1%, 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 this provides the company with a well-balanced risk profile. Gross
margins for the year fell by 1%, principally due to a slight change in the
product mix for the year. Sales across the full range during the year,
especially in the UK, were also hit by a number of factory closures which
curtailed the purchasing patterns of some customers. Aroma chemical sales for
the year remained stable despite increased competition from the Far East.
Treatt USA
US Dollar sales were up by 9% during the year although, as a consequence of
movements in average exchange rates, when translated into sterling sales showed
no growth. However, as both new and existing customers have visited the new
facilities in Lakeland, the order book has shown encouraging signs. The
TreattaromeTM products continued to perform well as the range of potential uses
becomes more widely known and understood.
Investment for the future
R. C. Treatt
Capital expenditure for the year was principally focused on the new ERP system
as we believe this will provide the systems infrastructure from which we can
maximize the company's performance over the coming years. Over time, the new
system will deliver significant efficiency savings, including the ability to
process greater levels of orders and expand production without the need to
increase administrative overheads. We have also continued to invest in new
equipment on both sides of the Atlantic in order to provide as versatile a
product range as possible, especially in naturally derived food and fragrance
ingredients.
Treatt USA
Operationally, Treatt USA's new site is a major improvement over its former
property, and we have received very positive feedback from staff, customers and
suppliers when visiting. The new site has enabled Treatt USA to enhance
significantly its operational performance and provides a working environment
from which it will be a great deal easier to retain and recruit the best staff.
At the new site, there is an additional five acres of undeveloped land which
will help to ensure that there is room for further expansion in the future.
With the investment in the new facility, the Group is now able to expand
significantly in the North American market.
Research and Development
During the year, we have strengthened our commitment to Research and Development
in both the UK and USA by hiring additional, experienced technical staff. We
have continued to invest in new equipment for our laboratories so that we remain
at the forefront of new technology in the flavour and fragrance ingredients
sector. Treatt has also continued to support R&D in producing countries in
order to develop new sources of raw materials on a financially viable basis.
Markets
During the year there was a significant geographical redistribution of sales.
Following the major transfer of business from certain customers in The Americas
(excluding USA) to Western Europe, sales to The Americas fell by 9% and the Rest
of Europe saw a 17% increase. UK sales also fell as a result of plant closures
referred to earlier.
Products
The Group's sales of sweet orange oil based products increased by 15% year on
year, as this year saw a full year of sales based on orange oil trading at
around the $3 per kilo level. The Group also saw a significant increase in
sales of other citrus oil products to a broad range of customers.
Although sales of the TreattaromeTM range of natural distillates, which are
manufactured by Treatt USA in Florida, were not maintained at last year's level,
they remained strong and are expected to perform well over the next twelve
months. Indeed, during the first few weeks of the new financial year we have
been delivering a TreattaromeTM to a customer for a significant national product
launch expected in the New Year.
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
and communication. Appropriate training and development needs are identified as
part of a two way Personal Development Review undertaken by Department Managers
in conjunction with the Human Resources Department. 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 results are regularly communicated to staff.
FINANCIAL REVIEW 2003
'Net assets per share increased to £1.67'
Performance Analysis
Profit and Loss account
Group turnover increased by 3.1% during the year to £31.68 million (2002: £30.74
million). In constant currency the growth at our USA subsidiary, Treatt USA,
increased in US Dollars by 9%, whilst R. C. Treatt's sales growth of 3.9% was
satisfactory. Earnings before interest, tax, depreciation and amortisation for
the year grew by almost 6% to £2.83 million (2002: £2.68 million) and Group
profit before tax, before exceptional items, was £2.09 million (2002: £2.77
million).
The fall in profitability was caused by increased overheads in two main areas.
Firstly, the investment in the Enterprise Resource Planning system (ERP) has
resulted in additional consultancy and other one-off costs totalling £131,000
which we have prudently charged to the profit and loss account rather than
capitalised as part of the ERP project. Secondly, the Treatt USA relocation
necessitated £116,000 ($185,000) of start up costs associated with the move
which will not reoccur and these were also written off. There was also a general
increase in the overhead base as the new facility was staffed and fully
equipped, in addition to the expected increase in depreciation costs for the new
facility.
Gross margins of 27.3% were achieved this year (2002: 29.5%) with the continuing
weakness of the US Dollar during the year again being an important contributory
factor for the fall. This was because a number of long term contracts were
satisfied during the year, where the weaker Dollar had reduced the Sterling
value of these contracts by approximately 10%.
The Group's operating costs rose by 3.5% to £6.4 million (2002: £6.1 million).
At Treatt USA there was an increase of £469,000 ($750,000) in costs as the
impact of higher operating expenses at the new premises took effect, including
the one-off costs referred to above. Total staff numbers across the Group
remained level. An exceptional charge of £139,000 was incurred at R. C. Treatt
during the year in relation to reorganisation costs.
The Group's net interest payable increased during the year to £208,000 (2002:
£167,000). This was due to a full year's interest being charged on the funds
drawn from the Variable Rate Demand Bonds which are used to finance the Lakeland
facility, together with increased average borrowings at R. C. Treatt.
Earnings per share before exceptional items fell to 14.6 pence per share (2002:
19.7 pence). The Earnings per share after exceptional items is 13.6 pence per
share (2002: 14.6 pence). Both measures have been shown in order to provide a
consistent measure of performance over time.
Cashflow
The Group has seen an increase in its net borrowings during the year of £379,000
to £4.5 million. Cash inflow from operating activities was £2,263,000, which
represents an increase of £1.3 million over last year, despite a material
increase of almost £1 million in stock balances. However, the market conditions
for orange oil are likely to see a reduction in the level of stock investment
for this raw material over the coming year.
Group capital expenditure was £1.4 million (2002: £3.2 million) which, as
expected, fell significantly as the investment in the relocation of Treatt USA
took place last year. This year's capital expenditure included £450k in
relation to ERP, increasing the total ERP investment to just under £1 million.
It is expected that in the absence of ERP and Lakeland costs, capital
expenditure will return to lower levels in 2004.
In September 2003, Treatt USA signed an agreement to rent out the former site
for eleven months, with the tenant placing a non-refundable deposit to
potentially purchase the property in September 2004 for £293,000 ($483,000) net
of transaction costs. If the sale goes through as expected this will have a
materially beneficial effect on the Group's cashflow at the end of the next
financial year.
Balance Sheet
Over the year Group shareholders' funds have risen to £17,228,000, with net
assets per share increasing to £1.67 (2002: £1.65), an increase of 35% over the
last five years. Sixty percent of shareholders' funds are in the form of
current assets and the Group's land and buildings are all freehold held at
historical cost.
Group Tax Charge
The Group's current year tax charge of £558,000 represents an effective tax rate
of 29% (2002: 31%). The overall tax charge of £545,000 is marginally lower than
the 2002 charge of £554,000 due principally to R. C. Treatt receiving a tax
refund for prior year R&D tax credits.
Pension and Healthcare Costs
During the year the decision was taken to reduce the future liabilities of the
final salary pension scheme, by restricting increases in pensionable salaries to
no more than inflation. This change has had the effect of reducing the FRS17
pension fund deficit by £1.6 million, with the overall deficit falling by £1.2
million to £3 million. Similarly, Treatt USA's contribution to healthcare costs
for family members will, in the future, be restricted.
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 as follows:
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. Further, any exchange gains or
losses on Treatt USA's balance sheet do not affect real cashflows.
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. 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 as a result of US Dollar exchange
movements, this can also have a significant affect 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. Based on estimated future
cashflows for each currency a conservative position is taken with forward
contracts, if required, 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.
TREATT PLC
PRELIMINARY STATEMENT
FOR THE YEAR ENDED 30 SEPTEMBER 2003
GROUP PROFIT AND LOSS ACCOUNT
2003 2002
Notes £'000 £'000
Turnover - continuing operations 1 31,683 30,740
Cost of Sales (23,035) (21,662)
______ ______
Gross profit 8,648 9,078
Net operating
costs
- exceptional items 2 (139) (739)
- other operating costs (6,352) (6,140)
______ ______
Operating 2,157 2,199
profit
Net interest payable (208) (167)
______ ______
Profit on ordinary activities before 1,949 2,032
taxation
Tax on profit on ordinary activities 3 (545) (554)
______ ______
Profit on ordinary activities after 1,404 1,478
taxation
Dividends 4 (865) (864)
______ ______
Retained profit for the year 539 614
______ ______
Dividends per ordinary share 4 8.4p 8.4p
Earnings per
share
- Basic
- after exceptional items 5 13.6p 14.6p
- before exceptional items 5 14.6p 19.7p
- Diluted 5 13.6p 14.6p
================================================================================
TREATT PLC
PRELIMINARY STATEMENT
FOR THE YEAR ENDED 30 SEPTEMBER 2003
GROUP PROFIT AND LOSS ACCOUNT
GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
2003 2002
£'000 £'000
Profit for the financial year before 1,404 1,478
dividends
Exchange differences on foreign
currency net investments (246) (235)
______ ______
Total recognised gains and losses 1,158 1,243
______ ______
The figures for the years ended 30 September 2003 and 2002 are an abridged
version of the group's audited financial statements, these are not statutory
accounts. The figures for the year ended 30 September 2002 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 2003
GROUP BALANCE SHEET
2003 2002
£'000 £'000
Tangible fixed 9,911 9,523
assets
Current Assets
Stocks 10,987 10,080
Debtors 5,439 6,006
----------- --------
Cash at bank and - restricted - 561
in hand
- unrestricted 304 156
----------- --------
304 717
______ ______
16,730 16,803
______ ______
Creditors: amounts falling due within one
year
Loan (150) (159)
Bank overdraft (2,061) (1,776)
Other (4,209) (4,325)
creditors
______ ______
(6,420) (6,260)
______ ______
Net current assets 10,310 10,543
Total assets less current liabilities 20,221 20,066
Creditors: amounts falling due
after more than one
year
Loan (2,631) (2,941)
Deferred tax (362) (194)
______ ______
Net assets 17,228 16,931
______ ______
Capital and
reserves
Share capital 1,029 1,029
Share premium 2,143 2,139
account
Profit and loss 14,056 13,763
account
______ ______
Shareholders' funds - equity interests 17,228 16,931
______ ______
TREATT PLC
PRELIMINARY STATEMENT
FOR THE YEAR ENDED 30 SEPTEMBER 2003
GROUP CASH FLOW STATEMENT
2003 2002
£'000 £'000
Cash inflow from operating 2,263 968
activities
Return on investments and servicing of (208) (167)
finance
Taxation (355) (943)
Capital expenditure and financial (819) (1,507)
investment
Equity dividends paid (860) (820)
______ ______
Cash inflow/(outflow) before financing 21 (2,469)
Financing - issue of shares 4 195
- increase in debt (162) (85)
______ ______
Decrease in unrestricted
funds in the year (137) (2,359)
______ ______
================================================================================
RECONCILIATION OF NET CASH FLOW TO INCREASE IN DEBT
Decrease in unrestricted
funds in the year (137) (2,359)
Cash outflow from change in debt (383) (1,545)
Exchange difference 141 168
______ ______
Increase in net debt in the year (379) (3,736)
______ ______
Net debt at 1 October 2002 (4,159) (423)
______ ______
Net debt at 30 September 2003 (4,538) (4,159)
______ ______
TREATT PLC
PRELIMINARY STATEMENT
FOR THE YEAR ENDED 30 SEPTEMBER 2003
NOTES TO THE PRELIMINARY STATEMENT
2003 2002
£'000 £'000
1 Turnover by destination :
United Kingdom 6,918 7,597
Rest of Europe 9,441 8,044
The Americas 7,649 8,375
Rest of the World 7,675 6,724
______ ______
31,683 30,740
______ ______
2 Exceptional items :
The operating exceptional items referred to in the
Group Profit and Loss Account are
categorised as follows :
2003 2002
£'000
Reorganisation costs 139 148
Impairment of fixed - 591
assets
______ ______
139 739
______ ______
2003 2002
£'000 £'000
3 Taxation:
UK current year 468 414
corporation tax charge
Overseas current year (13) 248
tax charge
Transfer to/(from) 103 (31)
deferred tax
UK prior year (41) (5)
corporation tax
Overseas prior year (37) (72)
tax
Prior year deferred 65 -
tax
______ ______
545 554
______ ______
TREATT PLC
PRELIMINARY STATEMENT
FOR THE YEAR ENDED 30 SEPTEMBER 2003
NOTES TO THE PRELIMINARY STATEMENT
2003 2002
£'000 £'000
4 Dividends :
Interim declared of 2.7p (2002: 278 278
2.6p) per share
Final proposed of 5.7p (2002: 587 586
5.5p) per share
______ ______
Total for the year 865 864
______ ______
Subject to approval at the Annual General Meeting on 23 February 2004, the
final dividend for the year ended 30 September 2003 will be payable on
8 April 2004 to those shareholders on the Register at the close of business
on 12 March 2004 (ex-dividend date 10 March 2004).
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
10,290,872 (2002 : 10,132,905) and earnings of :
- £1,404,000 (2002 : £1,478,000), being the profit on ordinary
activities after taxation and exceptional items
- £1,501,300 (2002 - £1,996,000) being the profit on ordinary
activities, after taxation, excluding the net impact of exceptional
items of £139,000 and tax thereon of £41,700
(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 10,290,872
(2002 :10,135,757), and the same earnings as above
This information is provided by RNS
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