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Treatt PLC (TET)

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Tuesday 12 May, 2020

Treatt PLC

Half year/Interim Report

RNS Number : 5598M
Treatt PLC
12 May 2020
 

TREATT PLC

HALF YEAR RESULTS

SIX MONTHS ENDED 31 MARCH 2020

 

 

Treatt Plc (the 'Group'), the manufacturer and supplier of innovative ingredient solutions for the beverage, flavour, fragrance and consumer products industries, announces its half year results for the six months ended 31 March 2020.

 

FINANCIAL HIGHLIGHTS1:


Half year ended

31 March 2020

Half year ended

31 March 20192

Change

Revenue

£53.6m

£56.6m

-5.3%

Gross profit margin

26.2%

25.0%

+120bps

Operating profit

£6.1m

£6.3m

-3.9%

Profit before tax and exceptional items

£6.1m

£6.2m

-2.0%

Adjusted basic earnings per share

8.08p

8.35p

-3.2%

Dividend per share

1.84p

1.70p

+8.2%

 

OPERATIONAL HIGHLIGHTS:

· COVID-19 has had no adverse impact on trading performance to date.

· Fruit & vegetables, tea and health & wellness (including sugar reduction) categories have again performed strongly.

· Citrus core product category impacted by prior year fall in raw material prices as expected.

· Ongoing investment in the Group's capacity to deliver long-term growth

Ø US expansion: doubled capacity for high growth categories - on stream for spring crops.

Ø UK site relocation well underway, move delayed until 2021 due to COVID-19 lockdown.

 

Commenting on the results, Group CEO, Daemmon Reeve, said:

"In these exceptional and unexpected times I am pleased to report further encouraging progress for the Group. The anticipated weakness of some citrus raw material markets impacted H1 numbers as expected, but H2 is likely to witness an improvement in this category. Once again, the growth in higher margin tea, health & wellness and fruit & vegetables categories continue to make healthy progress in line with the growth in consumer demand for 'better-for-you' premium beverages.

 

"A particular mention of thanks to our dedicated and talented team at Treatt who have adapted admirably through the very challenging times of the last few months and to whom huge praise is due for the fantastic job they continue do for the business. 

"Looking ahead it is difficult to determine the likely impact of COVID-19 on the demand for the Group's products and there may be a slowdown in some of our customers' new product development activities in the short term, reflecting the dramatic changes in consumption habits. However, the Group has traded well since the half-year end and is encouraged by the level of its order book and the current demand for its products from beverage ingredients through to solutions for hand soaps and cleaning products. Therefore, whilst there remains much to do, the Board is pleased to report that, at this time, trading remains in line with its expectations for the financial year ending 30 September 2020."

1 All measures are based on continuing operations.

2 The comparative period has been restated for the adoption of IFRS 16, 'Leases' - see note 13 for further information.

 

 

 

Enquiries:

Treatt plc  +44 (0)1284 702500

Daemmon Reeve   Chief Executive Officer

Richard Hope  Chief Financial Officer

 

Brokers  

Investec Bank Plc   +44 (0)20 7597 5970

Patrick Robb 

David Anderson

Alex Wright

 

Public relations

DRD Partnership   +44 (0)20 3865 5971

Lawrence Dore   

 

 

HALF YEAR RESULTS STATEMENT

 

Introduction

The Group has delivered a good set of results for the half year ended 31 March 2020 (the "Period"). Treatt plays a crucial role in the food, beverage and cleaning supply chains and order intake towards the end of the Period has been strong as a number of our customers respond to increased demand for beverages consumed at home and cleaning products (such as liquid hand soaps and floor cleaning products) which are of particular importance at this time.

To date, COVID-19 has not had an adverse effect on the overall trading performance of the Group. The business has taken, and will continue to take, timely action to protect the health and safety of all its employees across the Group as well as doing all it can to support the communities in which it operates. Whilst our colleagues in China have now returned to work, in both the UK and US all staff who are able to work from home are doing so, and manufacturing continues, working within government guidelines and with appropriate health protection and wellbeing measures in place.

 

Treatt has not furloughed any staff and has not participated in any of the COVID-19 related government assistance schemes that have been implemented globally.

 

During the Period, the Group continued to drive growth in its fast-growing, innovative ingredient solutions as consumer demand for premium beverage products, in particular, appeared to show little sign of slowing down. The Period saw some notable new business wins, as well as increased demand from existing customers, across a wide product range.

 

We have continued to make good progress in winning market share in our key markets. The pace of change in consumer tastes, and the innovation which is supporting this change, is opening up some encouraging opportunities where Treatt's agile, technical-led selling approach is reaping dividends in our higher margin categories.

 

Whilst it is difficult to determine the likely impact of COVID-19 on the demand for the Group's products in the coming months, our early experience has shown demand to be robust and  trading currently remains on course to deliver the Board's expectations for the current financial year.

 

Strategic focus

As anticipated, the Group's Citrus category continued to be impacted by the very sharp fall in raw material prices experienced last year. However, the strategic diversification over recent years continues to deliver growth in fruit & vegetables, tea and health & wellness categories, which have performed favourably with non-citrus revenue growing by 7.2% overall in the Period.   This progress, along with a continued concerted drive towards added-value products and working closely with our customer partners, helps decouple and further insulate the Group from the impact of commodity price movements in citrus raw material markets and helped to grow gross margin by 120bps in the Period.

 

Citrus

Citrus is the Group's largest category and represented 50% of Group revenue in the Period. As previously reported, the very sharp fall in raw material prices in the previous financial year continued to impact both revenue and profits in this category. Consequently, citrus revenue fell by 15.1% in the Period compared to H1 2019, whilst citrus volumes increased by more than 20% as the Group sought to reduce its inventory of commoditised citrus by-products.  Raw material prices began to gradually firm during the Period and this is expected to have a positive impact in H2.

 

Tea

Our natural and authentic tea solutions, which represented 6% of Group revenue in the Period, continued to materially outperform with strong growth of 47.5% compared with H1 2019. This growth came predominantly from existing customers, whilst new business wins continued to come on stream. With the increased manufacturing capacity for tea extracts now available at our US plant, we are well placed to continue growing this category materially over the next few years, as the market grows and Treatt increases its market share.

 

Health & wellness

Our health & wellness category continues to grow strongly and now represents almost 7% of Group revenue, growing by 19.9% compared with H1 2019. The majority of this category relates to the niche and technically specialist role Treatt operates in the scientifically complex area of sugar reduction, where our products reproduce the flavour and aroma of sugar, without the carbohydrates or calories.  Similar to tea, our growth in health & wellness going forward will be supported by the capital investment we have made in our facilities in the US.

 

Fruit & vegetables

Of our fast-growing product categories, fruit & vegetables represents the broadest portfolio, including for example passion fruit, cucumber, watermelon, mango and jalapeno products to name a few.  This category now also represents 7% of Group revenue having grown by at least 20% in each of the last five financial years. In the Period, fruit & vegetables grew by 9.4% compared with H1 2019, although H2 is typically the seasonally stronger half for this category.

 

Other

Herbs, spices & florals which contains an extensive array of manufactured and traded natural, non-citrus, ingredients performed well in the Period with growth of 9.4% and now represents 11% of Group revenue.

 

Revenue from aroma and speciality high impact flavour chemicals fell by 8.6% in the Period. This category contains a high proportion of lower margin traded materials and was impacted by the timing of some repeat business and the absence of some one-off activity from the previous year.

 

Our customers continue to look to product innovation to differentiate their products, launch new products and categories and refresh existing products. Treatt continues to benefit from the valuable role our services play in helping meet these demands, with the Group's new product development programme progressing well and market entry points currently being explored.  In particular, the Group continues to build out its coffee platform to meet the needs of the technically complex cold brew coffee market, where our trial product offerings are receiving strong interest from customers. We see coffee as being an exciting category with material growth potential in the medium term.

 

Geographical markets

The Group's focus on the strategically important geographical markets of the US and China continues to progress well, even though the latter was affected by the earlier onset of COVID-19. Whilst there was some volatility when comparing various territories with the same period last year, this was largely due to the differing weighting of citrus and traded products in those regions and the timing of deliveries to some large customers. The US continues to represent the Group's largest market, being 41% of Group revenue in the Period and achieved growth of 1.4% against the comparable prior period (0.5% in constant currency2). Revenue in China fell by 5.8% (5.8% in constant currency2) but is expected to return to growth in H2 as the slowdown in freight clearance due to COVID-19 returns to normal. Revenue to both the UK and the rest of Europe, where citrus revenues are the highest in percentage terms, fell by a combined 25.2% (25.4% in constant currency2) in the Period. This was, as explained above, largely impacted by a combination of the fall in citrus prices as well as the timing of contract deliveries to certain major customers.

 

Capital Investment Programme

Last year we completed the first phase of our capital investment programme, with the expansion of US operations to double our capacity in our natural extracts production facility, which supports our key growth categories of tea, health & wellness and fruit & vegetables. In addition, we have also expanded and modernised our scientific infrastructure in the US. Both of these projects were completed on time and on budget to take advantage of this year's spring crop and we are seeing early signs of success in utilising our additional capacity.

 

In the UK, the second phase of our investment is well under way. Significant progress has been made with the UK relocation project which remains on budget. Whilst construction progress has continued during the Period of the UK COVID-19 lockdown, certain aspects of the project have inevitably slowed and, therefore, we expect transition to the new site to now take place in 2021, although at this stage it is not possible to provide a definitive timeline. This delay is not expected to impact our ability to meet customer orders over the short to medium term.

 

 

Financial review

Continuing operations

As previously guided, revenue from continuing operations for the Period fell by 5.3% to £53.6m (2019 H1: £56.6m) resulting in profit before tax (excluding exceptional costs of £0.5m; 2019 H1: £0.2m) decreasing by 2.0% to £6.1m (2019 H1: £6.2m1).  In constant currency terms, revenue decreased by 5.8%2.

 

Gross margin increased by 120 bps to 26.2% during the Period as a result of the relative growth in higher margin product categories. Operating costs during the Period increased by a modest 1.8% to £8.0m (2019 H1: £7.8m1). This resulted in net operating margins improving slightly to 11.3% (2019 H1: 11.2% 1 ).

 

The Group has a hedging strategy in place which aims to ensure that the impact of significant exchange rate movements on the income statement over the course of a full financial year is mitigated as far as possible. The effect of movements in foreign exchange rates in the Period from this strategy was a positive net FX impact on the half year results of approximately £0.6m (2019 H1: £0.4m adverse). This offsets the impact on gross margins caused by movements in foreign exchange rates between the original purchase of largely dollar-denominated inventory and the ultimate receipt of cash from sale to customers as part of a finished product.

 

Consistent with the prior period, the current year exceptional costs of £0.5m relate to one-off costs in respect of the UK site relocation, which do not fall to be capitalised.

 

Adjusted earnings after tax from continuing operations fell by £0.1m as against the comparable period last year, whilst tax rates in the UK and US remained broadly unchanged. Consequently, basic adjusted earnings per share from continuing operations fell by 3.2% to 8.08p (2019 H1: 8.35p1).

 

Whilst the UK final salary pension scheme, which has been closed to both new entrants and future accruals for many years now, experienced a sharp fall in investment returns towards the end of the Period due to the impact of COVID-19 on global stock markets, this was offset by the increase in discount rates applied to the liabilities of the scheme.  As a result, under the accounting standard IAS 19, the post-employment benefits liability in the balance sheet decreased from £7.8m to £7.2m in the Period.

 

The Group was required to adopt IFRS 16, 'Leases' from 1 October 2019, however, this had no material impact on the Group's financial statements. Further details are set out in note 13 to the financial statements below.

 

Cash flow

The first half of our financial year resulted in net cash generated from operations of £4.9m (2019 H1: £6.3m) with normalised free cash inflow3 of £2.0m for the Period. There was a working capital outflow in the Period of £1.1m, although this was largely as a consequence of a strong finish to the half year which left us with £5.0m of trade receivables. With inventory levels reducing by £2.5m in the Period and there was a related working capital inflow of £2.2m. Similarly, there was an inflow relating to trade and other payables of £1.6m. Excluding our major capital investment project in the UK, we anticipate further improvement in cash flow in H2.

 

During the Period £11.9m of capital expenditure was incurred, £8.6m of which related to the UK relocation project.

 

Balance sheet

As at 31 March 2020 the Group had a net cash balance of £6.1m, as compared with £15.6m1 at the beginning of the Period. This was made up of gross cash of £33.0m, bank loans and borrowings of £26.6m and net lease liabilities of £0.4m. The Group has borrowing facilities of £25.0m of which £24.9m was undrawn at the Period end. 

 

Discontinued operations

The disposal of Earthoil Plantations Limited, was completed in 2018 for an enterprise value of £11.3m and since that time the Kenyan operations which remained part of the Group have been held as discontinued activities. It has not proven possible to attract a suitable acquirer for those businesses and since support for the local management, employees and their families has been a priority throughout this process, contracts have been exchanged for a buy-out of the business by local management after the Period end for a nominal sum.  Completion is expected to take place within the next few weeks.  Consequently, there was an exceptional impairment of the Kenyan businesses (which are reported under discontinued activities) of £0.6m in the Period. This impairment is reflected in the profit after tax from continuing and discontinued operations of £3.5m (2019 H1: £3.7m1) and basic earnings per share of 5.78p (2019 H1: 6.30p1). We wish the team in Kenya well as they take over the management of this business.

 

Dividend

Consistent with our interim dividend policy in prior years which is to pay an interim dividend of approximately one-third of the previous year's total dividend, the Board has declared an increase to the interim dividend of 8.2% to 1.84 pence per share (2019 interim dividend: 1.70 pence per share).  This interim dividend will be payable on 13 August 2020 to all shareholders on the register at close of business on 3 July 2020 .

 

Outlook

COVID-19 has the potential to have a profound impact on people and businesses globally. Looking ahead it is difficult to determine its likely impact on the demand for the Group's products and operations, for example there may be a slowdown in some of our customers' new product development activities in the short term, reflecting the dramatic changes in consumption habits with at-home consumption witnessing a steep rise as the on-trade' and out-of-home markets are effectively closed in many markets.

 

However, citrus raw material prices began to gradually firm during the Period and this is expected to have a positive impact in H2 as is the re-opening of the Chinese markets and the momentum in our high-performing tea, health & wellness and fruit & vegetables categories.

 

The Group is trading well and is encouraged by the level of its order book and the current demand for its products from beverage ingredients through to solutions for hand soaps and cleaning products. Therefore, whilst there remains much to do, the Board is pleased to report that at this time trading remains in line with its expectations for the financial year ending 30 September 2020.

 

11 May 2020

 

1  The comparative period has been restated for the adoption of IFRS 16, 'Leases' - see note 13 for further information.

2  Constant currency revenue growth is calculated on the movement from prior period comparative restated at the current period average exchange rate.

3  Normalised free cash flow is calculated as net cash from operations less purchase of property, plant and equipment and intangible assets (excluding expenditure on the UK relocation project).

 

 

TREATT PLC

HALF YEAR FINANCIAL STATEMENTS

CONDENSED GROUP INCOME STATEMENT

for the six months ended 31 March 2020


Six months to

Six months to


31 March

31 March


2020

2019


(unaudited)

(unaudited)




(restated1)


Notes

£'000

£'000





CONTINUING OPERATIONS




Revenue

6

53,604

56,625

Cost of sales


(39,561)

(42,482)





Gross profit


14,043

14,143

Administrative expenses


(7,966)

(7,822)





Operating profit2


6,077

6,321

Finance income


62

57

Finance costs


(196)

(196)

Other gains - hedge ineffectiveness


113

-





Profit before taxation and exceptional items


6,056

6,182

Exceptional items

7

(475)

(245)





Profit before taxation


5,581

5,937

Taxation

8

(1,200)

(1,206)





Profit for the period from continuing operations

4,381

4,731

DISCONTINUED OPERATIONS




Loss for the period from discontinued operations

9

(929)

(1,007)





Profit for the period attributable to owners of the Parent Company

3,452

3,724





Earnings per share




From continuing and discontinued operations:




  Basic

11

5.78p

6.30p

  Diluted

11

5.73p

6.23p

  Adjusted basic3

11

7.72p

8.04p

  Adjusted diluted3

11

7.65p

7.94p





From continuing operations:




  Basic

11

7.33p

8.01p

  Diluted

11

7.27p

7.91p

  Adjusted basic3

11

8.08p

8.35p

  Adjusted diluted3

11

8.02p

8.24p





1  The comparative period is restated for the adoption of IFRS 16; more information is provided in note 13.

2   Operating profit is calculated as profit before net finance costs, exceptional items and taxation.

 

3  All adjusted measures exclude exceptional items, and in the case of earnings per share the related tax effect, details of which are given in note 7 .

 

 

Notes 1-13 form part of these condensed half year financial statements.

 

 

CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME

for the six months ended 31 March 2020


Six months to

Six months to


31 March

31 March


2020

2019


(unaudited)

(unaudited)



(restated1)


£'000

£'000




Profit for the period attributable to owners of the Parent Company

3,452

3,724




Items that may be reclassified subsequently to profit or loss:



Currency translation differences on foreign currency net investments

(209)

(8)

Current tax on foreign currency translation differences

8

(1)

Fair value movement on cash flow hedges

(396)

274

Deferred tax on fair value movement

67

(47)





(530)

218




Items that will not be reclassified subsequently to profit or loss:



Actuarial gain/(loss) on defined benefit pension scheme

515

(2,898)

Deferred tax on actuarial gain or loss

58

493





573

(2,405)










Other comprehensive income/(expense) for the period

43

(2,187)







Total comprehensive income for the period attributable

  to owners of the Parent Company

3,495

1,537





1  The comparative period is restated for the adoption of IFRS 16; more information is provided in note 13.

 

Notes 1-13 form part of these condensed half year financial statements.

 

CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY

for the six months ended 31 March 2019


Share capital

Share

premium account

Own shares in share trusts

Hedging

reserve

Foreign

exchange

reserve

Retained earnings

Total equity


£'000

£'000

£'000

£'000

£'000

£'000

£'000

1 October 2018 (restated1)

1,189

23,484

(34)

50

3,515

53,395

81,599

Profit for the period






3,724

3,724

Exchange differences

-

-

-

-

(8)

-

(8)

Fair value movement on cash flow hedges

-

-

-

274

-

-

274

Actuarial loss on defined benefit pension

  Scheme

-

-

-

-

-

(2,898)

(2,898)

Taxation relating to items above

-

-

-

(47)

(1)

493

445

Total comprehensive income

-

-

-

227

(9)

1,319

1,537

Transactions with owners:


Dividends

-

-

-

-

-

(2,071)

(2,071)

Share-based payments

-

-

-

-

-

361

361

Movement in own shares in share trusts

-

-

22

-

-

-

22

Gain on release of shares in share trusts

-

-

-

-

-

173

173

Total transactions with owners

-

-

22

-

-

(1,537)

(1,515)

As at 31 March 2019 (restated1)

1,189

23,484

(12)

277

3,506

53,177

81,621

 

for the six months ended 31 March 2020


Share capital

Share

premium account

Own shares in share trusts

Hedging

reserve

Foreign

exchange

reserve

Retained earnings

Total equity

 


£'000

£'000

£'000

£'000

£'000

£'000

£'000

 

1 October 2019 (restated1)

1,203

23,484

(15)

127

5,566

56,714

87,079

 

Profit for the period






3,452

 

Exchange differences

-

-

-

-

(209)

-

(209)

 

Fair value movement on cash flow hedges

-

-

-

(396)

-

-

(396)

 

Actuarial gain on defined benefit pension

  scheme

-

-

-

-

-

515

515

 

Taxation relating to items above

-

-

-

67

8

58

133

 

Total comprehensive income

-

-

-

(329)

(201)

4,025

3,495

 

Transactions with owners:


 

Dividends

-

-

-

-

-

(2,275)

(2,275)

 

Share-based payments

-

-

-

-

-

332

332

 

Movement in own shares in share trusts

-

-

7

-

-

-

7

 

Gain on release of shares in share trusts

-

-

-

-

-

144

144

 

Total transactions with owners

-

-

7

-

-

(1,799)

(1,792)

 

As at 31 March 2020

1,203

23,484

(8)

(202)

5,365

58,940

88,782

 


 

1  Brought forward retained earnings has been restated in the current and comparative periods for the adoption of IFRS 16; more information is provided in note 13.

 

Notes 1-13 form part of these condensed half year financial statements.


 

CONDENSED GROUP BALANCE SHEET

as at 31 March 2020



As at

As at



31 March

30 September



2020

2019



(unaudited)

(audited)




(restated1)



£'000

£'000





ASSETS




Non-current assets




Intangible assets


880

845

Property, plant and equipment


40,655

29,848

Deferred tax assets


1,549

1,400







43,084

32,093





Current assets




Inventories


34,346

36,799

Trade and other receivables


28,259

23,020

Current tax assets


34

455

Cash and bank balances


32,972

37,187

Assets classified as held for sale


-

697







95,611

98,158





Total assets


138,695

130,251





LIABILITIES




Current liabilities




Borrowings


(22,566)

(16,882)

Provisions


(444)

(261)

Trade and other payables


(12,463)

(11,331)

Current tax liabilities


(468)

(124)

Derivative financial instruments


(729)

(315)

Liabilities classified as held for sale


-

(14)







(36,670)

(28,927)





Net current assets


58,941

69,231





Non-current liabilities




Borrowings


(4,339)

(4,738)

Post-employment benefits


(7,196)

(7,788)

Deferred tax liabilities


(1,708)

(1,719)







(13,243)

(14,245)





Total liabilities


(49,913)

(43,172)





Net assets


88,782

87,079





 

 

CONDENSED GROUP BALANCE SHEET (continued)

as at 31 March 2020



As at

As at



31 March

30 September



2020

2019



(unaudited)

(audited)




(restated1)



£'000

£'000





EQUITY




Share capital


1,203

1,203

Share premium account


23,484

23,484

Own shares in share trusts


(8)

(15)

Hedging reserve


(202)

127

Foreign exchange reserve


5,365

5,566

Retained earnings


58,940

56,714





Total equity attributable to owners of the Parent Company


88,782

87,079





 

1  The comparative period is restated the adoption of IFRS 16; more information is provided in note 13. The restatements in respect of IFRS 16 are unaudited.

 

Notes 1-13 form part of these condensed half year financial statements.

 

CONDENSED GROUP STATEMENT OF CASH FLOWS

for the six months ended 31 March 2020


Six months to

Six months to


31 March

31 March


2020

2019


(unaudited)

(unaudited)



(restated1)


£'000

£'000




Cash flow from operating activities



Profit before taxation including discontinued operations

4,606

4,923

Adjusted for:



Depreciation of property, plant and equipment

783

761

Amortisation of intangible assets

39

47

Net finance costs1

134

139

Impairment of Kenyan operations

638

825

Share-based payments

332

361

Decrease/(increase) in fair value of derivatives

18

(450)

(Decrease)/increase in post-employment benefit obligations

(77)

49




Operating cash flow before movements in working capital

6,473

6,655




Movements in working capital:



Decrease in inventories

2,244

2,303

Increase in receivables

(4,958)

(1,740)

Increase in payables

1,607

1,170




Cash generated from operations

5,366

8,388

Taxation paid

(486)

(2,106)




Net cash from operating activities

4,880

6,282




Cash flow from investing activities



Disposal of subsidiaries

(138)

-

Purchase of property, plant and equipment

(11,857)

(4,921)

Purchase of intangible assets

(73)

(16)

Interest received

62

57





(12,006)

(4,880)


 

 

CONDENSED GROUP STATEMENT OF CASH FLOWS (continued)

for the six months ended 31 March 2020



Six months to

Six months to


31 March

31 March


2020

2019


(unaudited)

(unaudited)



(restated1)


£'000

£'000




Cash flow from financing activities



(Repayment)/increase of bank loans

(194)

4,274

Interest paid

(196)

(196)

Dividends paid

(2,275)

(2,071)

Net sale of own shares by share trusts

151

196





(2,514)

2,203




Net increase in cash and cash equivalents

(9,640)

3,605

Effect of foreign exchange rates

(93)

(24)




Movement in cash and cash equivalents in the period

(9,733)

3,581

Cash and cash equivalents at beginning of period

21,076

13,060




Cash and cash equivalents at end of period

11,343

16,641







Cash and cash equivalents comprise:



Cash and bank balances

32,972

34,451

Bank borrowings

(21,629)

(17,810)





11,343

16,641





1  The comparative period is restated for the adoption of IFRS 16; more information is provided in note 13.

 

Notes 1-13 form part of these condensed half year financial statements.

 

CONDENSED GROUP RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET CASH

for the six months ended 31 March 2020



Six months to

Six months to


31 March

31 March


2020

2019


(unaudited)

(unaudited)



(restated1)


£'000

£'000




Movement in cash and cash equivalents in the period

(9,733)

3,581

Repayment/(increase) of bank loans

194

(4,274)




Cash outflow from changes in net cash in the period

(9,539)

(693)

Effect of foreign exchange rates

39

24




Movement in net cash in the period

(9,500)

(669)

Net cash at beginning of period

15,567

9,668




Net cash at end of period

6,067

8,999





1  The comparative period is restated for the adoption of IFRS 16; more information is provided in note 13.

 

Notes 1-13 form part of these condensed half year financial statements.

 

 

Responsibility statement

We confirm that to the best of our knowledge:

 

(a) the condensed set of financial statements for the six months ended 31 March 2020 has been prepared in accordance with IAS 34

(b) the half year report and condensed financial statements includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year)

(c) the half year report and condensed financial statements includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).

 

By order of the Board

 

RICHARD HOPE

Chief Financial Officer

11 May 2020

 

NOTES TO THE UNAUDITED HALF YEAR FINANCIAL STATEMENTS

 

1.  Basis of preparation

The Group is required to prepare its condensed half year financial statements in accordance with accounting standards adopted for use in the European Union (International Financial Reporting Standards (IFRS)). The Group has adopted the reporting requirements of IAS 34, 'Interim Financial Reporting'.

 

The consolidated condensed half year financial statements are prepared on the basis of all International Accounting Standards (IAS) and IFRS published by the International Accounting Standards Board (IASB) that are currently in issue. New interpretations may be issued by the International Financial Reporting Interpretations Committee (IFRIC) on existing standards and best practice continues to evolve. It is, therefore, possible that the accounting policies set out below may be updated by the time the Group prepares its full set of financial statements under IFRS for the year ending 30 September 2020.

 

The information relating to the six months ended 31 March 2020 and 31 March 2019 is unaudited and does not constitute statutory accounts. The statutory accounts for the year ended 30 September 2019 have been reported on by the Group's auditors and delivered to the Registrar of Companies. The report of the auditors was unqualified, did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report and did not contain a statement under section 498 of the Companies Act 2006. These condensed half year financial statements for the six months ended 31 March 2020 have neither been audited nor formally reviewed by the Group's auditors.

 

2.  Accounting policies

The Group has adopted IFRS 16, 'Leases' from 1 October 2019. The Group has adopted the full retrospective approach which means the Group has calculated its position as though it had always applied IFRS 16, and as such has restated its comparative information. Further information on the IFRS 16 restatements are set out in detail in note 13 . The adoption of this new accounting standard has not had a material effect on these condensed half year financial statements.

 

With the exception of IFRS 16, these condensed half year financial statements have been prepared on the basis of the same accounting policies and presentation set out in the Group's 30 September 2019 annual report.

 

3.  Accounting estimates

The preparation of the condensed half year financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses.  In preparing these condensed half year financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the audited consolidated financial statements as at, and for the year ended, 30 September 2019.

 

4.  Going concern

In light of the global COVID-19 pandemic, the Group has assessed a variety of scenarios and the impact of these on the business to continue as a going concern and as at the date of this report, the Directors have a reasonable expectation that the Group has adequate resources to continue in business for the foreseeable future. Accordingly, the condensed half year financial statements have been prepared on the going concern basis.

 

5.  Risks and uncertainties

The Group's operations involve a series of risks and uncertainties across a range of strategic, commercial, operational and financial areas and a process is in place to identify and assess their potential impact on the Group's business, which is regularly updated. The principal risks and uncertainties for the remainder of the financial year are not expected to change materially from those included on pages 36-41 of the 2019 Annual Report and Financial Statements, with the exception of the potential impact of COVID-19, further details relating to which are set out above.

 

6.  Segmental information

Business segments

IFRS 8 requires operating segments to be identified on the basis of internal financial information reported to the Chief Operating Decision Maker (CODM).  The Group's CODM has been identified as the Board of Directors who are primarily responsible for the allocation of resources to the segments and for assessing their performance. The disclosure in the Group accounts of segmental information is consistent with the information used by the CODM in order to assess profit performance from the Group's operations. The Group operates one global business segment engaging in the manufacture and supply of innovative ingredient solutions for the beverage, flavour, fragrance and consumer product industries with manufacturing sites in the UK, US and Kenya.  Many of the Group's activities, including sales, manufacturing, technical, IT and finance, are managed globally on a Group basis.

 

Geographical segments

The following table provides an analysis of the Group's revenue by geographical market for continuing operations.





Year on Year


Six months to

Six months to


Growth


31 March

31 March

Year on Year

- constant


2020

2019

Growth

currency


(unaudited)

(unaudited)

(unaudited)

(unaudited)


£'000

£'000

%

%






United Kingdom


3,742

4,221

(11.3%)

(12.1%)

Rest of Europe

- Germany

2,136

3,604

(40.7%)

(40.7%)


- Ireland

2,863

4,096

(30.1%)

(30.2%)


- Other

5,887

7,641

(23.0%)

(23.1%)

The Americas

- USA

21,853

21,548

1.4%

0.5%


- Other

3,914

3,489

12.2%

11.6%

Rest of the World

- China

3,095

3,285

(5.8%)

(5.9%)


- Other

10,114

8,741

15.7%

15.5%







53,604

56,625

(5.3%)

(5.8%)

 

7.  Exceptional items

The exceptional items referred to in the income statement can be categorised as follows:


Six months to

Six months to


31 March

31 March


2020

2019


(unaudited)

(unaudited)


£'000

£'000




Accelerated depreciation expense

-

108

UK relocation expenses

475

137





475

245

Less: tax effect of exceptional items

(26)

(46)


449

199




 

The exceptional items all relate to non-recurring items. Relocation expenses relate to one-off costs incurred in connection with the relocation of the Group's UK operations, which is expected to be completed in 2021.

 

8.  Taxation

The effective tax rate for the six months ended 31 March 2020 has been estimated at 21.5% (2019 H1: 20.3%). The main UK corporation tax rate of 19% has been substantively enacted on 17 March 2020. This increase from 17% has resulted in an increase in deferred tax assets and liabilities.

 

9.  Discontinued operations

On 31 May 2018 the Group completed the disposal of Earthoil Plantations Limited. Following this disposal the Group retained the former Earthoil operations based in Kenya, which are loss-making.  These operations are not considered core to the Group's existing business and future growth strategy and consequently have been classified as a disposal group held for sale.

 

As a result of further losses incurred during the Period, management has assessed the carrying value of the disposal group and recognised an impairment £638,000 (2019: £825,000) in the Income Statement. This impairment is reflected in earnings per share from continuing and discontinued operations as shown in note 11 .

 

Subsequent to the reporting date, the Group disposed of these operations through a sale to management for a nominal sum.

 

The results of the discontinued operations, which have been included in the income statement, were as follows:

 


Six months to

Six months to


31 March

31 March


2020

2019


(unaudited)

(unaudited)


£'000

£'000




Revenue

625

852

Cost of sales

(762)

(913)




Gross loss

(137)

(61)

Administrative expenses

(129)

(128)




Operating loss

(266)

(189)

Net finance costs

-

-




Loss before taxation and exceptionals

(266)

(189)

Exceptional - costs relating to disposal of Kenyan operations

(71)

-

Exceptional - impairment of net assets

(638)

(825)




Loss before taxation

(975)

(1,014)

Taxation

46

7




Loss for the period attributable to owners of the Parent Company

(929)

(1,007)





 

The adoption of IFRS 16 has had no impact on the results of the discontinued operations in the current or comparative period as reported.

 

10.  Dividends

Equity dividends on ordinary shares


Six months to

Six months to


31 March

31 March


2020

2019


(unaudited)

(unaudited)


£'000

£'000




Final dividend for the year ended 30 September 2019 of 3.80p per share

  (2018: 3.50p per share)

2,275

2,071

 

11.  Earnings per share

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. The weighted average number of shares excludes shares held by the Treatt Employee Benefit Trust (EBT), together with shares held by the Treatt SIP Trust (SIP) which do not rank for dividend.

 


Six months to

Six months to


31 March 2020

31 March 2019


(unaudited)

(unaudited)



(restated1)




Profit after taxation attributable to owners of the Parent Company (£'000)

3,452

3,724

Loss from discontinued operations (£'000)

929

1,007




Profit from continuing operations attributable to owners of the Parent

  Company (£'000)

4,381

4,731




Weighted average number of ordinary shares in issue (No: '000)

59,744

59,065




Basic earnings per share - continuing and discontinued (pence)

5.78p

6.30p

Basic earnings per share - continuing (pence)

7.33p

8.01p




 

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. The number of shares used to calculate earnings per share (EPS) have been derived as follows:


Six months to

Six months to


31 March 2020

31 March 2019


(unaudited)

(unaudited)



(restated1)


No ('000)

No ('000)




Weighted average number of shares

60,171

59,471

Weighted average number of shares held in the EBT and SIP

(427)

(406)




Weighted average number of shares for calculating basic EPS

59,744

59,065

Executive share option schemes

479

589

All-employee share options

32

157




Weighted average number of shares for calculating diluted EPS

60,255

59,811




Diluted earnings per share - continuing and discontinued (pence)

5.73p

6.23p

Diluted earnings per share - continuing (pence)

7.27p

7.91p




 

Adjusted earnings per share

Adjusted earnings per share measures are calculated based on profits for the year attributable to owners of the Parent Company before exceptional items as follows:


Six months to

Six months to


31 March 2020

31 March 2019


(unaudited)

(unaudited)



(restated1)


£'000

£'000




Profit after taxation attributable to owners of the Parent Company

3,452

3,724

Adjusted for:



Exceptional items (see note 7)

475

245

Exceptional items relating to disposal of Kenyan operations (see note 9)

71

-

Impairment of Kenyan operations (see note 9)

638

825

Taxation thereon

(26)

(46)




Earnings for calculating adjusted earnings per share:



From continuing and discontinued operations

4,610

4,748

Loss from discontinued operations

220

182




Adjusted earnings from continuing operations

4,830

4,930




Adjusted basic earnings per share (pence)



- Continuing and discontinued operations

7.72p

8.04p

- Continuing operations

8.08p

8.35p




Adjusted diluted earnings per share (pence)



- Continuing and discontinued operations

7.65p

7.94p

- Continuing operations

8.02p

8.24p




 

1  The comparative period earnings are restated for the adoption of IFRS 16; more information is provided in note 13. The impact of the restatement on the comparative period earnings per share measures is as follows:





Earnings

Earnings


per share

per share


(as reported)

(restated)




Basic earnings per share - continuing and discontinued (pence)

6.31p

6.30p




All other earnings per share measures remained as reported.

 

12.  Capital commitments

The Group has entered into material contracts in connection with the UK relocation project totaling £10.2m, and £0.5m committed to capital projects in the US, all of which was unprovided for at the period end.

 

13.  Adoption of new accounting standards

IFRS 16 leases

The objective of IFRS 16 is to report information that (a) faithfully represents lease transactions and (b) provides a basis for users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. To meet that objective, the lessee should recognise assets and liabilities arising from a lease.

IFRS 16 replaces IAS 17 and removes the distinction between operating leases and finance leases, instead introducing a single lessee accounting model requiring a lessee to recognise liabilities ('lease liabilities') and assets ('right-of-use assets') for all leases with a term of more than 12 months, unless the underlying asset is of low value.

Lease liabilities

A lease liability is recognised at the inception of a contract at an amount equal to the present value of payments due under the lease, discounted at an incremental borrowing rate that reflects the nature and duration of the lease in question. The lease liability is subsequently measured using the effective interest rate method with an associated finance cost charged to the income statement.

 

Right-of-use assets

At the inception of the contract, a right-of-use asset is recognised equal to the lease liability, adjusted to reflect any lease incentives or associated direct costs. The right-of-use asset is depreciated over the useful life of the asset, which can be no longer than the lease term, and the depreciation cost is charged to the income statement.

 

Impact of the transition and application of IFRS 16

The Group has opted to apply the full retrospective approach and has restated prior year figures accordingly.

The Group has used the following practical expedients allowable under IFRS 16 when applying the standard to leases previously classified as operating leases under IAS 17:

· The exclusion of low-value leases and leases with a remaining lease term of less than twelve months as at 1 October 2018 from its transition workings.

· The decision to maintain the classification of leases for contracts previously identified as leases prior to the date of initial application.

 

Prior year restatements

Balance sheet

The impact of the adoption of IFRS 16 on comparative figures in the condensed Group balance sheet is summarised below:


30 September


30 September


2019

 Adoption of

2019


(as reported)

IFRS 16

(restated)


£'000

£'000

£'000





ASSETS




Non-current assets




Property, plant and equipment

29,485

363

29,848





LIABILITIES




Current liabilities




Borrowings

(16,860)

(22)

(16,882)

Non-current liabilities




Borrowings

(4,369)

(369)

(4,738)





EQUITY




Retained earnings

56,742

(28)

56,714

 

Income statement

  The impact of the adoption of IFRS 16 on comparative figures in the condensed Group income statement and total comprehensive income is summarised below:


31 March


31 March


2019

 Adoption of

2019


(as reported)

IFRS 16

(restated)


£'000

£'000

£'000





Administrative expenses

(7,832)

10

(7,822)

Finance costs

(185)

(11)

(196)

Profit for the period

3,725

(1)

3,724

Total comprehensive income

1,538

(1)

1,537

 

Statement of changes in equity

The opening positions in the current and prior period of the condensed Group statement of changes in equity are amended for the impact of the adoption of IFRS 16 as summarised below:


1 October

1 October


2018

2019


£'000

£'000




Retained earnings (as reported)

53,421

56,742

IFRS 16 adjustment

(26)

(28)

Retained earnings (revised)

53,395

56,714

 

Statement of cash flows and reconciliation of net cash flow to movement in net cash

The prior year condensed Group statement of cash flows and reconciliation of net cash flow to movement in net cash have also been amended for the impact of the adoption of IFRS 16 as summarised below:


31 March


31 March


2019

 Adoption of

2019


(as reported)

IFRS 16

(restated)


£'000

£'000

£'000





Adjustment for net finance costs

128

11

139





Adjustment for depreciation

760

1

761

Interest paid

(185)

(11)

(196)

Net cash at start of period

9,390

(391)

8,999

 

 

CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS

This announcement contains forward-looking statements that are subject to risk factors associated with, among other things, the economic and business circumstances occurring from time to time in the countries, sectors and markets in which the Group operates.  It is believed that the expectations reflected in these statements are reasonable, but they may be affected by a wide range of variables which could cause actual results to differ materially from those currently anticipated. No assurances can be given that the forward-looking statements in this announcement will be realised. The forward-looking statements reflect the knowledge and information available at the date of preparation of this announcement and the Group undertakes no obligation to update these forward-looking statements. Nothing in this announcement should be construed as a profit forecast.


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END
 
 
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