TIDMTET
RNS Number : 8950U
Treatt PLC
28 November 2023
TREATT PLC
FULL YEAR RESULTS
YEARED 30 SEPTEMBER 2023
Resilient sales performance
Treatt, the manufacturer and supplier of a diverse and
sustainable portfolio of natural extracts and ingredients for the
beverage, flavour and fragrance industries, announces today its
audited results for the financial year ended 30 September 2023.
FINANCIAL HIGHLIGHTS(1) :
Financial Financial Change
year ended year ended
30 September 2023 30 September 2022
================================================ =================== =================== =========
Revenue GBP147.4m GBP140.2m +5.1%
Gross profit GBP44.8m GBP39.1m +14.7%
Gross profit margin 30.4% 27.9% +250 bps
Profit before tax and exceptional items GBP17.3m GBP15.3m +13.7%
Profit before tax GBP13.5m GBP16.2m -16.3%
Adjusted basic earnings per share(2) 22.94p 19.80p +15.9%
Basic earnings per share 18.01p 22.04p -18.3%
Final dividend per share 5.46p 5.35p +2.0%
Total dividend per share 8.01p 7.85p +2.0%
Net debt GBP10.4m GBP22.4m -53.7%
Net debt to adjusted EBITDA(3) ratio 0.45x 1.21x -62.8%
Net debt to EBITDA ratio 0.54x 1.16x -53.2%
Adjusted return on average capital employed(4) 12.2% 11.6% +60bps
Return on average capital employed 9.0% 11.9% -290bps
================================================ =================== =================== =========
(1) All measures based on continuing operations.
(2) Adjusted earnings per share measures exclude exceptional
items and the related tax effect.
(3) EBITDA is calculated as operating profit plus depreciation
and amortisation. The adjusted measure excludes exceptional
items.
(4) Return on average capital employed is calculated by dividing
operating profit before exceptional items (as shown in the Group
income statement) by the average capital employed in the business,
which is calculated as total equity (as shown in the Group balance
sheet) plus net debt or minus net cash (as shown in the Group
reconciliation of net cash flow to movement in net debt), averaged
over the opening, interim and closing amounts. The adjusted measure
excludes exceptional items.
(5) Operating margin is calculated by dividing operating profit
by revenue from continuing operations. The adjusted measure
excludes exceptional items.
(6) TreattZest is a citrus product that offers an authentic,
fresh, zesty profile, this is an existing product of Treatt's with
high growth potential.
FINANCIAL HIGHLIGHTS (1) :
-- Resilient revenue growth of 5% (3% in constant currency) at GBP147.4m (FY22: GBP140.2m)
-- Gross margin improvement driven by minimal impact of FX,
operational efficiencies, as well as pricing adjustments
-- FY23 profit before tax and exceptional items growth of 14%
year on year to GBP17.3m (FY22 GBP15.3m) in line with Board
expectations
-- Year-end net debt of GBP10.4m (FY22 GBP22.4m), reflecting
record cash generation in the year
OPERATIONAL HIGHLIGHTS(1) :
-- Successful pricing actions, particularly in Citrus, to recover raw material inflation
-- Continued strong growth in China and Coffee, key strategic growth drivers
-- With UK site transition now complete, capex has returned to
normalised levels, and the group has a strong platform to drive
growth and efficiencies in the year ahead and beyond
-- Cost discipline embedded in the business, mitigating macro
headwinds, including customer destocking
Commenting on the results, CEO Daemmon Reeve said:
"We have delivered good progress this year, with growth in both
sales and profit, and sustained demand in our end markets, despite
a challenging backdrop. We saw encouraging growth in new markets,
including coffee, China and Treattzest (6) , as we worked to
capitalise on the opportunities here, and a strong performance from
our citrus lines. While destocking trends were evident as customers
reduced inventory in the face of elevated interest rates, we dealt
with this proactively, mitigating impact through good cost
discipline and considered pricing action."
"We achieved a significant milestone in the Group's history, as
we completed our transition to the new Skyliner way facility, with
work ongoing to maximise efficiencies as we continue to grow.
"As we enter the new financial year, while we are seeing some
signs of recovery in a few customers, we are hoping to see further
signs that destocking trends are reversing. In addition, long-term
trends towards health and wellness, sugar reduction and use of
natural extracts, areas in which Treatt excels, continue to support
our core beverage market, and our largest geographical markets are
returning to growth. These factors, together with the commitment
and hard-work of all our colleagues in the past year and into the
new, means that Treatt is well-positioned for further growth in the
year ahead.
"After 32 years working at Treatt, this is my final set of
results before I retire in December. The business has changed
immeasurably for the better in that time. I am lucky to have worked
with talented and energetic colleagues and I leave with Treatt in
good shape and in good hands."
Analyst and investor conference call
A conference call for analysts and investors will be held at
8.15 a.m. today, 28 November 2023. For dial-in details, please
contact MHP at treatt@mhpc.com.
Enquiries:
Treatt plc +44 (0)1284 702500
Daemmon Reeve Chief Executive Officer
Ryan Govender Chief Financial Officer
Joint Broker
Investec Bank plc +44 (0)20 7597 5970
Patrick Robb
David Anderson
Joint Broker
Peel Hunt Plc +44 (0)20 7418 8900
George Sellar
Andrew Clark
Financial PR
MHP +44 (0)20 3128 8339
Tim Rowntree
Eleni Menikou
Catherine Chapman
About the Group
Treatt is a global, independent manufacturer and supplier of a
diverse and sustainable portfolio of natural extracts and
ingredients for the flavour, fragrance and multinational consumer
product industries, particularly in the beverage sector. Renowned
for its technical expertise and knowledge of ingredients, their
origins and market conditions, Treatt is recognised as a leader in
its field.
The Group employs in the region of 400 staff in Europe, North
America and Asia and has manufacturing facilities in the UK and US.
Its international footprint enables the Group to deliver powerful
and integrated solutions for the food, beverage and fragrance
industries across the globe.
For further information about the Group, visit www.treatt.com
.
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.
Chairman's statement
I am delighted to present my first Chair's Statement, having
taken up the role earlier this year. I am grateful to my
predecessor, Tim Jones, for his guidance as I took over the reins
from him.
Daemmon Reeve, who has been with Treatt for almost 33 years, 11
of these as CEO, retires on 31 December 2023. Ryan Govender, our
CFO, will become Interim CEO while we conduct a search for
Daemmon's replacement. On behalf of all stakeholders, I'd like to
thank both Tim and Daemmon for the important contribution they have
made to Treatt over many years. The business is set for exciting
growth, and I look forward to working with its talented people as
the business forges ahead.
Well invested for future growth
As Treatt enters the next chapter in its almost 140-year
history, it feels an appropriate time to reflect on some of its
many strengths: deep expertise in the global sourcing and
manufacturing of ingredients; long-standing trusted customer
relationships; renowned technical expertise to deliver authentic
tastes sustainably; and commitment to delivering excellence in its
products. Capital investments in the UK and US, together with the
dedication and expertise of our people, have positioned Treatt for
significant growth in the years ahead. We are excited by growth
potential in China and have continued to invest in our local team,
product range and operations, establishing a facility focused on
product testing and development tailored to the Chinese market and
the wider region.
Since joining the Board, I have been struck by the talent of my
colleagues and their commitment to the business, to each other and
to our customers, across all our functions and geographies. Their
expertise, passion and teamwork position Treatt strongly to deliver
the Group's strategic priorities, and to capitalise on the many
opportunities ahead in the dynamic beverage sector.
Treatt is proud to be trusted by a broad, international customer
base, with many relationships in place for decades. These include
household brands and some of the biggest flavour houses in the
world, as they navigate and influence evolving consumer trends.
Performance
Treatt has delivered a resilient performance in the year despite
difficult macroeconomic conditions. This is thanks to the drive and
expertise of colleagues, and the business' agility in aligning with
changing demand in the beverage market for healthier and authentic
options.
With interest rates at their highest level for many years,
volumes softened as customers in the beverage sector, and beyond,
destocked as they tightened control of working capital. However,
through considered pricing adjustments to offset materials price
increases, and by focusing on cost control, we have been able to
deliver a profit before tax and exceptional items increase of 13.7%
in the period. Also, through our team's discipline and focus, we
have been able to reduce our net debt position by some GBP12.0m,
driven by record cash generation over the course of the year. On
behalf of the Board, I would like to thank all of our people for
their hard work and dedication in delivering these resilient
results.
Board Matters
As well as extending our gratitude to Tim Jones and Daemmon
Reeve, I would also like to thank Yetunde Hofmann, who stepped down
from the Board in January 2023, for her service. We wish them all
the best for the future.
In January 2023, Bronagh Kennedy joined the Treatt Board as an
Independent Non-executive Director and Chair of the Remuneration
Committee. Bronagh brings a wealth of experience from listed
companies in various sectors, and has made a significant
contribution already through her insights on both people and
governance matters.
We have recently established an ESG Board Advisory Panel,
chaired by Non-executive Director, David Johnston, to support our
ESG Management Team as they develop and execute Treatt's activities
on sustainability matters, an area our people and our customers are
passionate about.
I feel very fortunate to chair a Board that has significant
industry and business experience and which is so committed to
supporting our management team in delivering Treatt's strategy.
Dividend
The Board intends to recommend at the forthcoming AGM a final
dividend of 5.46 pence (2022: 5.35 pence which, if approved by
shareholders, would bring the total dividend for the year to 8.01
pence (2022: 7.85 pence), in line with our progressive dividend
policy and our aim to work towards our historical level of dividend
cover of three times.
Outlook
Our talented and dedicated people are focused on delivering
technically sound solutions tailored to evolving consumer demand.
We will continue to build on our heritage in citrus, herbs, spices
& florals and synthetic aromas, while leveraging our expertise
to drive growth in health & wellness/sugar reduction categories
and accelerate exciting growth opportunities like China. All of
these efforts will be underpinned on sound provenance and
sustainable practices.
Having made significant investments in our infrastructure in
recent years, we now have the opportunity to deliver improved
operational leverage and gain further efficiencies from our modern
facilities, and from our supply chain and procurement as the
business continues to grow, utilising new capacity.
While we remain cognisant of ongoing macroeconomic headwinds, we
are confident in our strategy and in the strength of our teams and
their expertise to deliver this.
Vijay Thakrar
Non-executive Chair
28 November 2023
Chief Executive's review
Following substantial investment in our people in the past two
years, we believe we now have the right team in place to seize
multiple growth opportunities.
Optimised for opportunities
In September 2023, with the completion of our relocation to
Skyliner Way, handing over the keys for the head office Treatt
first moved into in 1971 marked a key milestone for the business.
This was the largest project in Treatt's 137-year history, executed
brilliantly despite challenges in relation to Brexit and the
Covid-19 pandemic. Feedback from colleagues and customers who have
visited the site has been overwhelmingly positive.
Performance during the year has been resilient, thanks to
ongoing strong demand in our end markets. Although revenues in the
second half of the year were impacted by customers destocking as
they sought to reduce inventories in response to interest rate
rises, encouragingly, we are now seeing some early signs of a
reversal of this temporary growth slow-down in a few customers,
whilst volumes are still down from normalised levels.
During the year we have worked to optimise our cost base for
future growth, supported by investment in technology and the good
performance of the new site since operations began there a year
ago. Since joining as CFO in July 2022, Ryan Govender has brought
an invigorating commercial finance mindset and cost discipline,
setting the business up well for sustainable growth.
Performance
I am pleased with the performance in the year which is reflected
in the sales and profit growth along with record cash generation,
despite the difficult macro trends in our industry. Particularly
pleasing was our growth in new product offerings, including coffee
and Treattzest (6) , and from our expanding footprint in China.
Cost discipline has been embedded into the business, and with the
transition of our new UK site now complete, the Group is
well-positioned for continued growth.
Although cost of living pressures are being felt in many of the
74 countries we serve, our core beverage market continues to be
buoyed by long term trends towards health & wellness, sugar
reduction and use of natural extracts, areas in which Treatt is
recognised for our technical excellence. Growing interest in
provenance, authenticity and sustainability also play to our
strengths.
Our citrus lines performed extremely well this year, and we are
continuing to drive the category towards more value-added and
innovative products.
Our business in China continues to deliver, with growth
accelerating since the lifting of pandemic- related restrictions
early in the reporting period. We continue to develop relationships
with domestic Chinese beverage customers, which provide a rich
source of growth opportunities in this vast, innovative market.
Coffee performance in the year was pleasing, with revenues now
reaching GBP5.0m, from GBP1m in the previous year, we have
successfully integrated coffee as a new category in our
portfolio.
We implemented price increases to mitigate inflationary
pressures, although our relatively low energy usage somewhat
shields the business from these to a degree, since many of our
extraction processes are necessarily gentle, and therefore more
energy efficient to preserve the integrity of the flavours and
fragrances.
Sustainability
Treatt's operations are rooted in sustainability, with core
lines of our business deriving from by-products of the citrus
industry. The nature of what we do means it is inherent to our
ethos to be conscious of our impact and what we can do to mitigate
this. To oversee our sustainability efforts and to further embed
these throughout the business we recently established an ESG Board
Advisory Panel, chaired by Non-executive Director David Johnston.
Alongside the panel, the ESG Management Team, including members
from across the business, collectively brings diverse perspectives
to such an important area. We have made good progress with our
pathway to net zero, aligning to science-based target methodology
for our short-term targets.
Although the world is experiencing more frequent and more
extreme weather events, our long-term supply relationships and
longstanding experience of sourcing in times of drought, flood,
hurricane and other risks to harvests mean our customers can rely
on us to supply them consistently. This is one of Treatt's core
strengths. We are not heavily dependent on single origins and often
source from different hemispheres to mitigate any issues.
People and culture
Our culture remains a fundamental element of Treatt's success,
and having the whole of our UK team under one roof, following the
closure of our previous site, is already paying dividends
culturally. Communication is much easier, and relevant departments
are located close to each other to facilitate cross-departmental
collaboration. This is also the case between our international
locations, with best practice shared among our facilities,
strengthening our organisational culture as well as operational
excellence.
During the year we launched our refreshed values with
accompanying initiatives to embed them throughout the business,
including the appointment of cultural ambassadors and materials
setting out what each of the values means to individuals.
Mindful of the impact of inflationary pressures on household
finances in some countries in which we operate, we were pleased to
support colleagues with a cost of living payment during the
year.
Personal
After nearly 33 years in the Group, and the last 11 years as
CEO, my retirement from Treatt was announced effective on 31
December 2023. I have enjoyed a wonderful career at Treatt and it
has been a privilege to serve as CEO during a time when the
business has made great strides. I would like to thank all of my
colleagues both past and present for their trust and support. I
retire from Treatt with the Group in very good shape, the UK site
move well-executed, and the platform set for the business to ascend
even to greater heights in the future.
Outlook
Thanks to the drive and dedication of colleagues, the business
is well-positioned to capitalise on its future opportunities. We
have honed our cost base appropriately for the growth we expect in
the next few years, and there are further operational efficiencies
to be derived as volumes grow, which we expect to come from
multiple categories and regions. Our core areas of expertise align
with macro trends. Citrus remains a strong suit, with one in four
new beverages globally based on those flavours, and we have some
exciting new offerings coming to market across our portfolio. We
are seeing signs of a return to growth in our largest geographical
markets and are continuing to invest in China, where our burgeoning
relationships and new business wins bode well for a healthy order
book. By continuing to nurture what makes Treatt special, I am
confident in the ability of our team to achieve our objectives for
the years ahead.
Daemmon Reeve
Chief Executive Officer
28 November 2023
Financial review
Resilient revenue performance
Overview
I am pleased with the return to growth in 2023. Revenue, Profit
before tax and exceptionals, and adjusted EBITDA (3) are all in
growth which reflects the successful price increase programme and
embedding of cost disciplines to offset macro inflation and
customer destocking.
Having implemented a revised currency management strategy,
providing increased visibility and controls over our currency
exposures, foreign exchange impacts during the year were
successfully managed.
With the transition to the new UK site complete and the closure
of the old UK site at Northern Way, capital expenditure has
returned to normalised levels. The Group completed refinancing of
the UK bank facility for GBP25m with HSBC, and US facility of $25m
with Bank of America for a minimum of three years. These facilities
mean the group is set up for future growth.
We launched our new strategy during the year with a focus on
sales volume and innovation led growth. We have world class people
and well-invested infrastructure globally with available capacity.
Our strong customer base and strategic relevance in the beverage
market gives me belief that we can grow our core, premium and new
markets, resulting in improvement in profit and operating margins
over the medium term.
I would like to thank Daemmon Reeve for his leadership of the
business, during his eleven year tenure as CEO, and wish him the
very best in retirement.
Income statement
Revenue
Revenue for the year increased by 5.1% to GBP147.4m (2022:
GBP140.2m). In constant currency terms, revenue increased by 3%.
The growth was delivered mainly through price increases despite a
challenging macro environment and sector destocking, particularly
in H2. Sales price increases were successfully implemented to
offset raw material price inflation. Value-added beverage volumes
declined moderately while, as a result of strategic shedding of
lower margin commoditised citrus products and sector destocking,
commodity volumes declined more significantly.
Heritage categories, which include citrus (excluding China and
Treattzest), herbs, spices & florals and synthetic aromas grew
by 1% with revenue of GBP97.6m (2022: GBP96.6m). Citrus margins,
mainly driven by price increase, improved across several products
while customer destocking and a decrease in demand for alternative
proteins adversely impacted sales of synthetic aroma and herbs,
spices & florals.
Premium categories, which include tea, health & wellness,
fruit & vegetables, were in line with the prior year with
revenue of GBP33.7m (2022: GBP33.6m). Fruit & vegetables has
shown growth in passionfruit, cucumber and mango while sugar
reduction products are well established in health & wellness
with growth opportunities in new customers and regions. Tea volumes
declined with lower US sales, partially offset by price
increase.
New markets, which include Coffee, China and Treattzest citrus,
grew by 61% with revenue of GBP16.1m (2022: GBP10.0m). Coffee
growth was significant in the year with revenue of GBP5.0m in the
year with a focus on the premium cold brew coffee and
ready-to-drink markets. China continues to make encouraging
progress, in line with management expectations, as citrus gains
momentum in regional FMCG customers, with revenue of GBP9.5m (2022
GBP7.9m).
Geographical analysis of revenues shows that the UK and Europe
declined, whereas USA grew significantly. Europe declined due to
the impact of destocking, particularly in synthetic aromas, more
heavily in H2.
Revenue in the Group's largest market, the USA, grew by 14% to
GBP61.4m (2022: GBP53.7m) representing 42% of the Group total
(2022: 38.3%). Within the US, the Group benefitted from
particularly strong growth in citrus, mainly driven by price
increase.
In the UK, revenues declined by 18% at GBP8.0m, primarily due to
sector destocking. Sales to the rest of Europe, which represented
22.8% of Group revenue (2022: 24.3%), also declined due to sector
destocking, reporting total revenue of GBP33.6m (2022:
GBP34.0m).
The Group continued to focus on growth opportunities in China,
and despite the extended Covid-19 restrictions in large parts of
China in place until January 2023, reported revenue to the country
increased by 21% to GBP9.5m (2022: GBP7.9m). We remain optimistic
about the opportunities in this market with a large proportion of
growth representing new business for Treatt, particularly in local
FMCG beverage customers in China.
Sales to the Rest of the World (excluding China) grew by 2% to
GBP22.3m (2022: GBP21.8m).
Product category % share of revenue - 2023 v 2022:
% of revenue Citrus Tea Health Fruit & Herbs, Synthetic Coffee
& wellness vegetables spices & aroma
florals
------------ ------ --- ----------- ----------- --------- --------- ------
2023 53% 5% 8% 11% 7% 13% 3%
2022 48% 6% 8% 10% 9% 18% 1%
------------ ------ --- ----------- ----------- --------- --------- ------
Geographical % share of revenue- 2023 v 2022:
% of revenue UK Germany Ireland Rest of USA Rest of China Rest of
Europe the Americas the world
------------ ------- ------- ------- --- ------------- ----- ----------
2023 6% 4% 10% 9% 42% 9% 7% 13%
2022 7% 6% 8% 10% 38% 9% 6% 16%
------------ ------- ------- ------- --- ------------- ----- ----------
Profit
Gross profit increased by 14.7% with gross profit margins
increasing from 27.9% to 30.4%. The gross margin increase was
driven by operational efficiencies, successful price increases to
mitigate the impact of raw material inflation, as previously
communicated the strategic exit of some lower margin citrus
business in the year, and the benefit of effective management of
FX, resulting in negligible FX losses in the year (2022: GBP2.3m
loss).
Administrative expenses (excluding exceptional items) grew by
13.7% in the year to GBP26.5m (2022: GBP23.3m), primarily driven by
inflationary pressures, and an increase in depreciation
year-on-year. Headcount across the Group decreased by 14% from 425
heads in September 2022 to 365 heads in September 2023, following
the closure of the previous UK manufacturing site, and targeted
restructuring. During the year depreciation increased by GBP2.0m
due to the full year impact of Skyliner Way depreciation. The
outlook for administration expenses will be to maintain cost
disciplines embedded, and foresee increases only due to
depreciation, inflation and focussed investment in sales and
innovation to drive growth.
Adjusted net operating margin(5) increased in the year to 12.4%
(2022: 11.3%), benefitting from the increase in gross profit. Net
operating margin decreased in the year to 9.9% (2022: 11.9%),
mainly due to the one-off exceptional gain in the prior year
relating to the sale of the previous UK site. Operating profit
excluding exceptional items increased 16% to GBP18.3m (2022:
GBP15.8m) whilst statutory operating profit decreased 13% to
GBP14.5m (2022: GBP16.7m), due again to the sale of the previous UK
site. Our medium-term target for adjusted net operating margin is
15%.
Adjusted return on average capital employed (ROACE)(4) increased
to 12.2% (2022: 11.6%) as a consequence of the increase in
operating profits during the year. Statutory return on average
capital employed decreased to 9.0% (2022: 11.9%) over the year. As
well as growth in adjusted basic earnings per share, ROACE has been
included as a performance metric for LTIPs. Our medium-term target
range for ROACE is 15-20%.
Exceptional items included UK restructuring costs of GBP2.7m
(2022: GBP0.6m) and relocation expenses of GBP1.1m (2022: GBP1.5m
income).
Adjusted earnings before interest, tax, depreciation and
amortisation (adjusted EBITDA) for the year increased significantly
by 24.6% to GBP23.0m (2022: GBP18.5m) whereas statutory EBITDA
reports a 1.0% decrease to GBP19.2m (2022: GBP19.4m). Profit before
tax and exceptional items from continuing operations grew by 13.7%
to GBP17.3m (2022: GBP15.3m). Reported profit after tax for the
year of GBP10.9m represents a decrease of 17.8% on the prior year,
driven by an increase in exceptional charges during the year (as
set out above).
Foreign exchange gains and losses
Whilst the Group's functional currency is the British Pound
(Sterling), the majority of the Group's business is transacted in
other currencies which creates a foreign exchange exposure,
particularly in the US Dollar and, to a lesser extent, the
Euro.
During the year Sterling strengthened against the US Dollar,
ending the year 9.3% stronger at GBP1=$1.22 (2022: GBP1=$1.12); the
average Sterling/ US Dollar exchange rate for the year was 4.3%
stronger as compared with the prior year.
The overall impact of foreign exchange gains and losses in 2023
was a total loss of GBP0.1m (2022: GBP2.3m loss. This is the result
of the new FX controls and processes put in place in the year.
There was a foreign exchange loss of GBP6.2m (2022: GBP11.5m
gain) in the 'Statement of Comprehensive Income' in relation to the
Group's investment in Treatt USA.
Finance costs
The Group's net finance costs increased to GBP1.0m (2022:
GBP0.5m) due to materially higher interest rates despite strong
cash generation of GBP12.0m in the year. As well as interest costs
there were a number of fixed costs for maintaining facilities for
future use which were funded from operating cash flows. Interest
cover for the year before exceptional items decreased to 18.8 times
(2022: 30.5 times), this is well above the covenant of 1.5x.
Group tax charge
After providing for deferred tax, the Group tax charge decreased
by GBP0.3m to GBP2.6m (2022: GBP2.9m); an effective tax rate (after
exceptional items) of 19.5% (2022: 17.7%). The increase in
effective tax rate is driven largely by the prior year tax
treatment on the disposal of Northern Way premises, on which a gain
of GBP3.3m was considered not taxable.
Earnings per share
Basic earnings per share (as set out in note 10) decreased by
18.3% to 18.01p (2022: 22.04p). Adjusted basic earnings per
share(4) for the year increased by 15.9% to 22.94p (2022: 19.80p).
The calculation of earnings per share excludes those shares which
are held by the Treatt Employee Benefit Trust (EBT) ,which are not
beneficially owned by employees since they do not rank for dividend
and is based upon profit after tax.
Dividends
The proposed final dividend of 5.46p per share (2022: 5.35p)
increases the total dividend per share for the year to 8.01p, a 2%
increase on the prior year (2022: 7.85p), representing dividend
cover of 2.2 times earnings for the year and a rolling three-year
cover after exceptional items of 2.8 times. The Board considers
this to be appropriate cover at this stage of the Group's
development and against our aim to work towards our historical
level of dividend cover of three times earnings.
Balance sheet
Shareholders' funds grew in the year by GBP3.3m to GBP137.2m
(2022: GBP133.9m), with net assets per share increasing by 2.1% to
GBP2.25 (2022: GBP2.20). Over the last five years net assets per
share have grown by 63.5%. The Board has chosen not to avail itself
of the option under IFRS to revalue land and buildings annually
and, therefore, all the Group's land and buildings are held at
historical cost, net of depreciation, on the balance sheet.
Inventory held at the year-end was GBP62.4m (2022: GBP68.4m), a
decrease of GBP6.0m. This decrease was driven by a significant
reduction in inventory volume, offset with higher raw material
costs. One factor in the success of the business is our management
of risks, such as geographic, political and climatic, to ensure
continuity of supply for our customers. Consequently, the overall
level of inventory held by the Group is highly significant in cash
terms.
Net debt
At the year-end date the Group's net debt position was GBP10.4m
(2022: GBP22.4m) including leases of GBP0.5m (2022: GBP0.4m), with
available unused facilities of GBP35.6m (2022: GBP8.4m), this is
the result of a focus on cash generation.
In order to support the Group's growth plans for the foreseeable
future, the Group has secured new financing arrangements in the UK
and US totalling GBP45.5m (2022: GBP30.8m) following a refinance of
all the Group's main banking arrangements across the UK and US
during the year. None of the banking facilities (2022: GBP13.4m)
expire in one year or less.
During the year, the Group replaced its various UK banking
arrangements (totalling c.GBP19.3m), with a single asset-based
lending facility with HSBC of GBP25.0m for a three-year term, with
an optional accordion (pre-approved facility) of GBP10.0m and
option to extend the term of facility for two further years. This
facility lends against the value and quality of inventory and
receivables within the UK business, and strengthens the ability of
the Group to borrow in the UK.
The US revolving credit facility with Bank of America was
expanded on similar terms, providing a facility of up to $25.0m
(2022: $10.0m), with an optional accordion of $10.0m, for a period
of three years. Revolving credit facility funds were then used to
repay the secured term loan balance (2022: GBP3.2m) in full.
The Group continues to enjoy positive relationships with its
banks and expects all facilities to be renewed or refinanced when
they fall due.
Cash flow
Net cash inflow for the year was GBP4.6m (2022: GBP4.1m outflow)
including a net outflow of GBP7.1m paying down the existing bank
loans and borrowings.
Excluding the refinancing, the Group delivered record cash
generation of GBP12.0m largely due to strong cash generation from
operations, driven by efforts across the business to exercise
greater financial prudence but also through lower capital
expenditure and efforts to improve working capital.
During the year the Group invested GBP5.7m (2022: GBP12.8m) on
capital projects, of which GBP1.3m (2022: GBP5.0m) was incurred on
the UK relocation project. The level of capital investment was
lower than in previous years as the Group's capital investment
program nears completion. Total investments in the Group's US
operations were GBP1.9m and was largely focussed on finishing
existing value-added projects.
There was an overall improvement in working capital, generating
an inflow of GBP3.5m (2022: outflow GBP18.5m), GBP2.5m of which was
generated from a reduction of inventory, and as a result of a focus
on working capital efficiency.
Capital investment programme
UK relocation
The Group acquired a ten-acre greenfield site on the new Suffolk
Park in Bury St Edmunds in mid 2017 to relocate our UK business
from its previous site in Bury St Edmunds, to a brand-new
purpose-built facility. to deliver operational efficiencies and
advanced capabilities, the aim of the new facility was to bring
together all our UK-based employee into a single premises.
Construction of the new facility was completed during 2021.
During 2022 the first phase of installation and commissioning of
plant and machinery was completed, inventory was physically
transferred to be managed by the new warehouse management system
and first phase production began from the new facility as equipment
was successfully brought online. The new site has state of-the-art
laboratories which support and promote product innovation whilst
also providing a truly exceptional customer collaboration
environment.
Following the sale of Northern Way premises in February 2022,
the Group agreed a leaseback of our main manufacturing building, to
maintain the continuity of its manufacturing capability during the
transition. In September 2023, we successfully exited the Northern
Way premises with all UK-based employees now located at Skyliner
Way.
During 2023 we commenced phase two activity which relates to the
purchase and installation of value-added manufacturing equipment,
with the majority now complete. The remaining project is now viewed
as a capital management process instead of a relocation project, we
anticipate to be completed during 2024, in line with original
expectations.
The respective total costs of each phase of the relocation are
broken down as follows:
Phase Phase
GBP'000 one two Total
----------------------- ------- ----- -------
Capital expenditure 41,277 3,509 44,786
Previous site disposal (5,592) - (5,592)
Exceptional items 4,820 2,299 7,119
Total costs 40,505 5,808 46,313
========================== ======= ===== =======
The total capital project costs, including proceeds from the
sale of the previous site, are expected to be approximately
GBP39.2m with exceptional costs totalling GBP7.1m expected to be
incurred. As the project moves into the final phase, we expect a
further net cash outflow of GBP3.1m over the next year. The cash
outflows for the project are expected to result in the rolling
Group net debt to adjusted EBITDA ratio remaining below 1.0x during
FY2024.
It should be noted that in accordance with IAS 23 'Borrowing
costs', the interest charges incurred on funds utilised on the
relocation project prior to its completion can be capitalised. In
the year ended 30 September 2023 GBP307,000 (2022: GBP187,000) was
capitalised, and further capitalisation of borrowing costs is
expected to be minimal for the year ending 30 September 2024.
Treatt Employee Benefit Trust and Treatt SIP Trust
The Group has an HMRC-approved Share Incentive Plan (SIP) for
its UK employees, and as far as practicable, also offers a similar
scheme to its US employees. All UK employees with a year's service
were awarded GBP700 (2022: GBP700) of 'Free Shares' during the year
as part of the Group's employee incentive and engagement programme
as the Board is firmly of the view that increased employee share
ownership is an important tool for driving positive employee
engagement in the business.
A similar scheme exists for US employees who were awarded $1,000
(2022: $1,000) of Restricted Stock Units during the year. These
shares are forfeited by employees who leave within three years from
the date of grant.
Under the SIP, UK employees are offered the opportunity each
year to purchase up to GBP1,800 (or 10.0% of salary, whichever is
lower) of Treatt shares out of gross income, which the Group
continues to match on a one and a half for one basis. In the year,
a total of 30,000 (2022: 24,000) matching shares were granted.
The SIP currently holds 380,000 shares (2022: 438,000) and is
administered by Link Asset Services Trustees. All shares are
allocated to participants under the SIP. It is anticipated that
going forward the obligations under the SIP will continue to be
satisfied through the issue of new shares.
In addition, the Group continued its annual programme of
offering share option saving schemes to employees in the UK and US.
Under US tax legislation, employees at Treatt USA are able to
exercise options annually, whilst the UK schemes provide for
three-year saving plans.
Under the Long-Term Incentive Plan, which was approved by
shareholders at the 2019 Annual General Meeting, Executive
Directors and certain key employees were granted 267,000 (2022:
72,000) nil cost share options during the year which will vest
after three years on a sliding scale, subject to performance
conditions. In total, options were granted over 355,000 (2022:
205,000) shares during the year, whilst 299,000 (2022: 278,000)
were exercised from options awarded in prior years which have now
vested. During the year 200,000 (2022: 400,000) shares were issued
to the Employee Benefit Trust (EBT) at par (2 pence per share). The
EBT currently holds 162,000 shares (2022: 270,000) in order to
satisfy future option schemes. It is anticipated that going
forward, all-employee savings-related share schemes will continue
to be satisfied by shares held within the EBT, to which further
shares will be issued as necessary.
Final salary pension scheme
The R C Treatt final salary pension scheme (the 'scheme') has
not been subject to any further accruals since 31 December 2012 and
instead members of the scheme were offered membership of the UK
defined contribution pension plan with effect from 1 January 2013.
This means that the defined benefit scheme has been de-risked as
far as it is practicable and reasonable to do so.
The last three-year actuarial review of the scheme was carried
out as at 1 January 2021, the result of which was that the scheme
had an actuarial deficit of GBP4.9m (1 January 2018: surplus
GBP0.5m) and a funding level of 82.0%. Consequently, the Company
has agreed with the trustees to make contributions of GBP0.5m
(2022: GBP0.5m) per annum until the next actuarial review date of 1
January 2024.
Under IAS 19, 'Employee Benefits' a valuation of the scheme is
conducted at the year-end date based on updating the valuation
calculations from the most recent actuarial valuation. In
accordance with this valuation, and having sought legal advice as
to the appropriateness of recognising a scheme surplus, there is a
pension surplus recognised on the balance sheet, net of tax, of
GBP2.8m (2022: GBP1.3m asset). The increase in the pension asset is
driven by investment returns of GBP0.8m, and also an actuarial gain
on changes to financial assumptions of GBP0.9m, due to continuing
increases in government bond yields which further increased the
discount rate used to calculate liabilities.
Foreign exchange risk management
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, but other currencies such as
the Euro can also have a material effect. This risk manifests
itself in a number of ways.
Firstly, the value of the foreign currency net assets of Treatt
USA (the Group's main overseas subsidiary) can fluctuate with
Sterling.
Secondly, with R C Treatt (the Group's main UK subsidiary)
exporting throughout the world, fluctuations in the value of
Sterling can affect both the gross margin and operating costs. In
addition to Sterling, sales are principally made in US Dollar and
Euro, with the US Dollar being the most significant, typically
accounting for around half of the UK business's sales.
Even if a sale is made in Sterling, its price may be set by
reference to its US Dollar denominated raw material price which
therefore can have an impact on the Sterling gross margin. Raw
materials are also mainly purchased in US Dollars and bank accounts
are operated through which US Dollar denominated sales and
purchases flow. Hence it is the relative strength or weakness of
Sterling 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 competitive
advantage.
The Group's FX risk management policy is to minimise its foreign
exchange risk at our UK business through managing its US Dollar
cash and borrowings and the use of forward currency contracts and
options. Foreign exchange contracts are used to provide a hedge on
the Group's margin exposure where purchases and sale are made in
the same currency. The value of these contracts is determined
through forward-looking forecasts of expected sales and net margins
in foreign currencies.
An FX committee was formed in August 2022 in order to monitor
foreign exchange risks within the business, work on refinements to
the existing FX risk policy and provide a forum to challenge and
approve strategic actions such as hedging. The committee meets
monthly and there is an ongoing focus to manage foreign currency
debt balances, ensure the ongoing effectiveness of hedges and
remove avoidable foreign exchange risk from the business.
The Group now, as part of its FX risk management, actively
minimises its foreign currency debt and cash balances where there
is no immediate expected offset. In regard to foreign exchange
contracts used for hedging, the Group regularly reforecasts its
exposure and amends its positions according to any surpluses or
shortfalls.
Ryan Govender
Chief Financial Officer
28 November 2023
GROUP INCOME STATEMENT
for the year ended 30 September 2023
2023 2022
Before Before
exceptional Exceptional exceptional Exceptional
items items Total items items Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ ----- ------------ ------------- --------- ------------
Revenue 6 147,397 - 147,397 140,185 - 140,185
Cost of sales (102,573) - (102,573) (101,101) - (101,101)
------------------------ ----- ------------ ------------- --------- ------------ ------------- ---------
Gross profit 44,824 - 44,824 39,084 - 39,084
Administrative expenses 7 (26,503) (2,655) (29,158) (23,311) (601) (23,912)
Gain on disposal of
land and buildings 7 - - - - 3,324 3,324
Relocation expenses 7 - (1,145) (1,145) - (1,800) (1,800)
------------------------ ----- ------------ ------------- --------- ------------ ------------- ---------
Operating profit(1) 18,321 (3,800) 14,521 15,773 923 16,696
Finance income 112 - 112 8 - 8
Finance costs (1,089) - (1,089) (525) - (525)
------------------------ ----- ------------ ------------- --------- ------------ ------------- ---------
Profit before taxation 17,344 (3,800) 13,544 15,256 923 16,179
Taxation 8 (3,405) 803 (2,602) (3,295) 431 (2,864)
------------------------ ----- ------------ ------------- --------- ------------ ------------- ---------
Profit for the year
attributable to owners
of the Parent Company 13,939 (2,997) 10,942 11,961 1,354 13,315
------------------------ ----- ------------ ------------- --------- ------------ ------------- ---------
Earnings per share Adjusted(2) Statutory Adjusted(2) Statutory
Basic 10 22.94p 18.01p 19.80p 22.04p
Diluted 10 22.81p 17.91p 19.60p 21.82p
======================== ===== ============ ============= ========= ============ ============= =========
1 Operating profit is calculated as profit before net finance
costs and taxation.
2 All adjusted earnings per share measures exclude exceptional
items and the related tax effect, details of which are given in
note 7.
All financial information presented relates to continuing
operations.
The group reconciliation of net cash flow to movement in net
debt, together with notes 1 to 12 form part of these financial
statements.
GROUP STATEMENT OF COMPREHENSIVE INCOME
for the year ended 30 September 2023
2023 2022
Notes GBP'000 GBP'000
---------------------------------------------------- ----- -------- --------
Profit for the year attributable to owners
of the Parent Company 10,942 13,315
Items that will or may be reclassified subsequently
to profit or loss:
Currency translation differences on foreign
currency net investments (6,188) 11,461
Current tax on foreign currency translation
differences 8 (33) 102
Deferred tax on foreign currency translation
differences 8 301 -
Fair value movement on cash flow hedges 269 (23)
Deferred tax on fair value movement 8 - 4
---------------------------------------------------- ----- -------- --------
(5,651) 11,544
---------------------------------------------------- ----- -------- --------
Items that will not be reclassified subsequently
to profit or loss:
Actuarial gain on defined benefit pension
scheme 1,381 8,273
Deferred tax on actuarial gain 8 (345) (2,068)
---------------------------------------------------- ----- -------- --------
1,036 6,205
---------------------------------------------------- ----- -------- --------
Other comprehensive (expense)/income for
the year (4,615) 17,749
---------------------------------------------------- ----- -------- --------
15,816 15,816
Total comprehensive income for the year
attributable to owners
of the Parent Company 6,327 31,064
---------------------------------------------------- ----- -------- --------
All financial information presented relates to continuing
operations.
The group reconciliation of net cash flow to movement in net
debt, together with notes 1 to 12 form part of these financial
statements.
GROUP STATEMENT OF CHANGES IN EQUITY
for the year ended 30 September 2023
Share Own shares Foreign
Share premium in share Hedging exchange Retained Total
capital account trusts reserve reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- -------- -------- ---------- -------- --------- --------- --------
1 October 2021 1,208 23,484 (4) (292) 1,820 80,083 106,299
------------------------------- -------- -------- ---------- -------- --------- --------- --------
Profit for the year - - - - - 13,315 13,315
Other comprehensive income:
Exchange differences - - - - 11,461 - 11,461
Fair value movement on cash
flow hedges - - - (23) - - (23)
Actuarial gain on defined
benefit pension scheme - - - - - 8,273 8,273
Taxation relating to items
above - - - 4 102 (2,068) (1,962)
------------------------------- -------- -------- ---------- -------- --------- --------- --------
Total comprehensive income - - - (19) 11,563 19,520 31,064
------------------------------- -------- -------- ---------- -------- --------- --------- --------
Transactions with owners:
Dividends - - - - - (4,834) (4,834)
Share-based payments - - - - - 1,115 1,115
Movement in own shares in
share trusts - - 8 - - - 8
Gain on release of shares
in share trusts - - - - - 622 622
Issue of share capital 9 - (9) - - - -
Taxation relating to items
recognised directly in equity - - - - - (424) (424)
------------------------------- -------- -------- ---------- -------- --------- --------- --------
Total transactions with
owners 9 - (1) - - (3,521) (3,513)
------------------------------- -------- -------- ---------- -------- --------- --------- --------
30 September 2022 1,217 23,484 (5) (311) 13,383 96,082 133,850
-------- -------- ---------- -------- --------- --------- --------
Profit for the year - - - - - 10,942 10,942
Other comprehensive income:
Exchange differences - - - - (6,188) - (6,188)
Fair value movement on cash
flow hedges - - - 269 - - 269
Actuarial gain on defined
benefit pension scheme - - - - - 1,381 1,381
Taxation relating to items
above - - - - 268 (345) (77)
------------------------------- -------- -------- ---------- -------- --------- --------- --------
Total comprehensive income - - - 269 (5,920) 11,978 6,327
------------------------------- -------- -------- ---------- -------- --------- --------- --------
Transactions with owners:
Dividends - - - - - (4,802) (4,802)
Share-based payments - - - - - 1,189 1,189
Movement in own shares in
share trusts - - 9 - - - 9
Gain on release of shares
in share trusts - - - - - 620 620
Issue of share capital 6 - (6) - - - -
Taxation relating to items
recognised directly in equity - - - - - 53 53
------------------------------- -------- -------- ---------- -------- --------- --------- --------
Total transactions with
owners 6 - 3 - - (2,940) (2,931)
------------------------------- -------- -------- ---------- -------- --------- --------- --------
30 September 2023 1,223 23,484 (2) (42) 7,463 105,120 137,246
------------------------------- -------- -------- ---------- -------- --------- --------- --------
The group reconciliation of net cash flow to movement in net
debt, together with notes 1 to 12 form part of these financial
statements.
GROUP BALANCE SHEET
as at 30 September 2023
Registered Number: 01568937
2023 2022
GBP'000 GBP'000
--------------------------------- -------- --------
ASSETS
Non-current assets
Intangible assets 2,752 3,206
Property, plant and equipment 71,526 74,281
Right-of-use assets 538 375
Post-employment benefits 3,723 1,782
78,539 79,644
--------------------------------- -------- --------
Current assets
Inventories 62,396 68,351
Trade and other receivables 32,969 37,113
Current tax assets 300 719
Derivative financial instruments 8 -
Cash and bank balances 809 2,354
96,482 108,537
--------------------------------- -------- --------
Total assets 175,021 188,181
---------------------------------- -------- --------
LIABILITIES
Current liabilities
Bank overdrafts - (6,174)
Borrowings (10,642) (15,861)
Provisions (102) (397)
Trade and other payables (20,700) (22,903)
Lease liabilities (176) (105)
Derivative financial instruments (176) (666)
Current tax liabilities (755) (223)
(32,551) (46,329)
--------------------------------- -------- --------
Net current assets 63,931 62,208
---------------------------------- -------- --------
Non-current liabilities
Borrowings - (2,342)
Lease liabilities (373) (291)
Deferred tax liabilities (4,851) (5,369)
---------------------------------- -------- --------
(5,224) (8,002)
--------------------------------- -------- --------
Total liabilities (37,775) (54,331)
---------------------------------- -------- --------
Net assets 137,246 133,850
---------------------------------- -------- --------
GROUP BALANCE SHEET (continued)
as at 30 September 2023
2023 2022
Notes GBP'000 GBP'000
--------------------------------------- ----- --------- ---------
EQUITY
Share capital 11 1,223 1,217
Share premium account 23,484 23,484
Own shares in share trusts (2) (5)
Hedging reserve (42) (311)
Foreign exchange reserve 7,463 13,383
Retained earnings 105,120 96,082
--------------------------------------- ----- --------- ---------
Total equity attributable to owners of
the Parent Company 137,246 133,850
--------------------------------------- ----- --------- ---------
The group reconciliation of net cash flow to movement in net
debt, together with notes 1 to 12 form part of these financial
statements.
GROUP STATEMENT OF CASH FLOWS
for the year ended 30 September 2023
2023 2022
Notes GBP'000 GBP'000
------------------------------------------------- ------ -------- --------
Cash flow from operating activities
Profit before taxation 13,544 16,179
Adjusted for:
Depreciation of property, plant and equipment
and right-of-use assets 4,277 2,476
Amortisation of intangible assets 399 215
Impairment charge on intangible assets 228 -
Loss/(gain) on disposal of property, plant
and equipment 241 (3,324)
Net finance costs excluding post-employment
benefit expense 1,087 382
Share-based payments 1,222 1,039
(Increase)/decrease in fair value of derivatives (230) 61
Employer contributions to defined benefit
pension scheme (450) (450)
Post-employment benefit (income)/expense (110) 135
--------------------------------------------------------- -------- --------
Operating cash flow before movements in working
capital 20,208 16,713
--------------------------------------------------------- -------- --------
Movements in working capital:
Decrease/(increase) in inventories 2,507 (14,396)
Decrease/(increase) in receivables 3,004 (8,502)
(Decrease)/increase in payables (2,054) 4,355
--------------------------------------------------------- -------- --------
Cash generated from/(used in) operations 23,665 (1,830)
Taxation (paid)/received (2,174) 443
--------------------------------------------------------- -------- --------
Net cash generated from/(used in) operating
activities 21,491 (1,387)
--------------------------------------------------------- -------- --------
Cash flow from investing activities
Proceeds on disposal of property, plant and
equipment 1,557 5,597
Purchase of property, plant and equipment (5,507) (11,849)
Purchase of intangible assets (207) (925)
Interest received 2 8
--------------------------------------------------------- -------- --------
Net cash used in investing activities (4,155) (7,169)
--------------------------------------------------------- -------- --------
GROUP STATEMENT OF CASH FLOWS (continued)
2023 2022
Notes GBP'000 GBP'000
------------------------------------------------- ----- -------- --------
Cash flow from financing activities
Repayment of borrowings and loans (17,737) (360)
Proceeds from bank borrowings 10,642 9,412
Repayment of lease liabilities (161) (80)
Interest paid (1,080) (390)
Dividends paid 9 (4,802) (4,834)
Proceeds on issue of shares 11 6 9
Net sale of own shares by share trusts 623 621
------------------------------------------------- ----- -------- --------
Net cash (used in)/generated from financing
activities (12,509) 4,378
------------------------------------------------- ----- -------- --------
Net increase/(decrease) in cash and cash
equivalents 4,827 (4,178)
Effect of foreign exchange rates (198) 111
------------------------------------------------- ----- -------- --------
Movement in cash and cash equivalents in
the year 4,629 (4,067)
Cash and cash equivalents/(overdrafts) at
beginning of year (3,820) 247
------------------------------------------------- ----- -------- --------
Cash and cash equivalents/(overdrafts) at
end of year 809 (3,820)
------------------------------------------------- ----- -------- --------
Cash and cash equivalents/(overdrafts) comprise:
Cash and bank balances 809 2,354
Bank overdrafts - (6,174)
------------------------------------------------- ----- -------- --------
809 (3,820)
------------------------------------------------- ----- -------- --------
The group reconciliation of net cash flow to movement in net
debt, together with notes 1 to 12 form part of these financial
statements.
GROUP RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET
DEBT
for the year ended 30 September 2023
2023 2022
GBP'000 GBP'000
-------------------------------------------------- -------- --------
Movement in cash and cash equivalents in the year 4,629 (4,067)
Repayment of borrowings and loans 17,737 360
Proceeds from bank borrowings (10,642) (9,412)
(Increase)/reduction in lease liabilities (153) 657
--------------------------------------------------- -------- --------
Cash inflow/(outflow) from changes in net debt in
the year 11,571 (12,462)
Effect of foreign exchange rates 466 (843)
--------------------------------------------------- -------- --------
Movement in net debt in the year 12,037 (13,305)
Net debt at beginning of year (22,419) (9,114)
Net debt at end of year (10,382) (22,419)
--------------------------------------------------- -------- --------
Analysis of movement in net debt during the year:
At
1 October Non-cash Foreign exchange At 30 September
2022 Cash flow movements movements 2023
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- ---------- --------- ----------- ---------------- ---------------
Cash and bank balances 2,354 (1,347) - (198) 809
Bank overdrafts (6,174) 6,174 - - -
--------------------------- ---------- --------- ----------- ---------------- ---------------
Cash and cash equivalents (3,820) 4,827 - (198) 809
--------------------------- ---------- --------- ----------- ---------------- ---------------
Bank borrowings and term
loans (18,203) 7,095 - 466 (10,642)
Lease liabilities (396) 161 (317) 3 (549)
--------------------------- ---------- --------- ----------- ---------------- ---------------
Net debt (22,419) 12,083 (317) 271 (10,382)
--------------------------- ---------- --------- ----------- ---------------- ---------------
At
1 October Foreign exchange At 30 September
2021 Cash flow movements 2022
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- ---------- --------- ---------------- ---------------
Cash and bank balances 7,260 (5,017) 111 2,354
Bank overdrafts (7,013) 839 - (6,174)
--------------------------------- ---------- --------- ---------------- ---------------
Cash and cash equivalents 247 (4,178) 111 (3,820)
--------------------------------- ---------- --------- ---------------- ---------------
Bank borrowings and term loans (8,308) (9,052) (843) (18,203)
Lease liabilities (1,053) 666 (9) (396)
--------------------------------- ---------- --------- ---------------- ---------------
Net cash/(debt) (9,114) (12,564) (741) (22,419)
--------------------------------- ---------- --------- ---------------- ---------------
This statement of reconciliation of net cash flow to movement in
net debt above does not form part of the primary statements. Notes
1 to 12 form part of these financial statements.
NOTES TO THE FULL YEAR RESULTS
1. BASIS OF PREPARATION
In accordance with Section 435 of the Companies Act 2006, the
Group confirms that the financial information for the years ended
30 September 2023 and 2022 are derived from the Group's audited
financial statements and that these are not statutory accounts and,
as such, do not contain all information required to be disclosed in
the financial statements prepared in accordance with UK-adopted
international accounting standards.. The statutory accounts for the
year ended 30 September 2022 have been delivered to the Registrar
of Companies. The statutory accounts for the year ended 30
September 2023 have been audited and approved but have not yet been
filed.
The Group's audited financial statements for the year ended 30
September 2023 received an unqualified audit opinion and the
auditor's report contained no statement under section 498(2) or
498(3) of the Companies Act 2006.
The financial information contained within this full year
results statement was approved and authorised for issue by the
Board on 28 November 2023.
2. ACCOUNTING POLICIES
These financial statements have been prepared in accordance with
the accounting policies set out in the audited Group financial
statements as at, and for the year ended 30 September 2022.
There were no new standards and amendments to standards which
are mandatory and relevant to the Group for the first time for the
financial year ended 30 September 2023 which had a material effect
on this full year results announcement.
3. ACCOUNTING ESTIMATES
The preparation of this statement requires management to make
judgements, estimates and assumptions that affect the application
of accounting policies and the reported amounts of assets,
liabilities, income and expenses. In preparing this preliminary
statement, 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 Group financial statements as at, and for the year ended 30
September 2022.
4. GOING CONCERN
The Directors have concluded that it is reasonable to adopt the
going concern basis in preparing these financial statements based
on the expectation that the Group has adequate resources to
continue as a going concern for a period of twelve months from the
date these financial statements are approved.
The process adopted to assess the viability of the Group
involved the modelling of a series of theoretical 'stress test'
scenarios linked to the Group's principal most significantly severe
business interruption like that which was experienced during the
pandemic, or that could arise through the impact of climate change
or through global conflict.
The Group successfully refinanced all of its banking facilities
during the year, agreeing a new GBP25.0m asset-based lending
facility with HSBC in the UK and extending the existing revolving
credit facility with Bank of America in the US to $25.0m. Both
facilities are for a minimum term of three years and contain
pre-agreed accordion elements of GBP10.0m and $10.0m respectively,
these accordions are disregarded for the purposes of the going
concern and viability assessment. At the year-end date, the Group
had net debt of GBP10.4m and headroom on facilities of
GBP35.6m.
In assessing the Group's prospects and resilience, the Directors
have done so with reference to its current financial position and
prospects, its credit facilities, its recent and historical
financial performance, and forecasts.
The Directors have modelled scenarios representing varying
degrees of severity and have considered the impact of changes in
working capital, foreign exchange rates, revenues and margins both
separately and simultaneously. These assumptions are those that
would arise from the aforementioned uncertainties and that would
adversely impact cash generation and profitability. Using these
assumptions, Group headroom and covenant compliance have been
assessed throughout the going concern (twelve-month) and viability
(three-year) periods.
The modelling indicated that the Group would retain sufficient
headroom on total facilities and comply with its banking covenants
throughout the tested periods. In the most adverse scenario, where
all risks are stressed simultaneously by 10% or more, the Group's
subsidiary, R C Treatt & Co Ltd, would breach its banking
facility limit in October 2025, but in that event the Group would
act swiftly to activate the mitigations described below, or
recapitalise the company using cash elsewhere in the business.
A further 'reverse stress test' scenario was modelled to find a
sustained reduction in revenue that would give rise to a breach of
the Group's covenant conditions and the Group's headroom on
facilities within the viability period. This scenario was then
stress-tested further by overlaying the adverse impact of a decline
in profit margins.
Under the reverse-engineered scenario, it was determined that a
continuous decline in sales of greater than 36.0% per annum, or
29.0% per annum alongside a 400bps decline in margin for two
consecutive years, with no mitigating measures put in place, would
result in a breach of the financial covenants in Treatt USA, Inc
and a breach of R C Treatt's facility limit by around October 2025,
followed by a breach of overall Group facility limits in October
2026. The possibility of these severe scenarios materialising is
considered remote. In addition, it is implausible that the Group
would not act swiftly and decisively to activate mitigations such
as operating cost savings, reduction in capital expenditure, and
delaying or cancelling future dividend payments to avoid a breach
of its banking limits or covenants.
Having considered the range of stress-test scenarios and the
Group's proven ability to adapt to and manage adversity, the
Directors have not identified any material uncertainties which
would affect the Group's ability to continue as a going concern for
a period of at least twelve months from the date this report is
approved. Accordingly, they continue to adopt the going concern
basis of accounting in preparing these financial statements.
5. RISKS AND UNCERTAINTIES
The operation of a public company involves a series of risks and
uncertainties across a range of strategic, commercial, operational
and financial areas. The principal risks and uncertainties that
could have a material impact on the Group's performance over the
next twelve months (for example, causing actual results to differ
materially from expected results or from those experienced
previously) are the same in all material respects as those detailed
on pages 62 to 67 of the audited 2022 Annual Report and Financial
Statements.
6. SEGMENTAL INFORMATION
Group
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 and the US. Many of the Group's
activities, including sales, manufacturing, supply chain,
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:
2023 2022
Total GBP'000
Revenue by destination GBP'000 Total
--------------------------- -------- --------
United Kingdom 8,039 9,777
Rest of Europe - Germany 5,937 7,907
- Ireland 14,653 11,527
- Other 13,006 14,596
The Americas - USA 61,407 53,731
- Other 12,549 12,919
Rest of the
World - China 9,525 7,901
- Other 22,281 21,827
-------------------------- -------- --------
147,397 140,185
-------------------------- -------- --------
All Group revenue is in respect of the sale of goods, other than
property rental income of nil (2022: GBP1,000). No country included
within 'Other' contributes more than 5.0% of the Group's total
revenue. The Group revenue from the largest customer was
GBP15,472,000 (2022: GBP15,226,000).
Non-current assets by geographical location, excluding
post-employment benefit surplus, were as follows:
2023 2022
Continuing operations GBP'000 GBP'000
---------------------- -------- --------
United Kingdom 44,800 44,914
United States 29,908 32,910
China 108 38
74,816 77,862
---------------------- -------- --------
7. EXCEPTIONAL ITEMS
The exceptional items referred to in the income statement can be
categorised as follows:
2023 2022
GBP'000 GBP'000
---------------------------------------- -------- --------
UK relocation project
Relocation expenses (1,145) (1,800)
Less: tax effect of relocation expenses 205 317
======================================== ======== ========
Restructuring costs
Restructuring costs (2,655) (601)
Less: tax effect of restructuring costs 598 114
======================================== ======== ========
Disposal of Northern Way premises
Gain on disposal of land and buildings - 3,324
Less: tax effect of disposal - -
======================================== ======== ========
(2,997) 1,354
======================================== ======== ========
The exceptional items all relate to non-recurring costs which
are considered material and discrete in nature; therefore the Group
considers them exceptional in order to provide a more meaningful
view of the Group's underlying business performance.
Relocation expenses relate to one-off costs incurred in
connection with the relocation of the Group's UK operations that do
not fall to be capitalised. These costs arose in relation to the
decommissioning of equipment and site preparation ahead of the UK
business formally exiting the Northern Way premises in August 2023,
together with costs associated with the final stages of
manufacturing fit-out at Skyliner Way premises. Included within
this line is a loss on the disposal of property, plant and
equipment of GBP104,000 that did not transition to Skyliner
Way.
Restructuring costs principally comprise redundancy and
consulting costs relating to the closure of distillation operations
at the Northern Way premises and the creation of an enhanced global
leadership structure, which was communicated to the business in
August 2023. These costs consist of contractual employment and
termination payments for those employees impacted. Amounts which
are contractually due under employees' existing terms and
conditions are considered to be fully allowable for tax
purposes.
During the financial year, payments totalling GBP887,000 had
been made in respect of the restructuring costs, with the cash flow
impact of the remaining costs expected to be settled in the
following financial year.
On 28 February 2022, the Group successfully disposed of its
former UK premises at Northern Way, Bury St Edmunds. The proceeds
of the sale, net of selling costs were GBP5,597,000 and the
associated gain on disposal was GBP3,324,000 .
8. TAXATION
Analysis of tax charge in income statement:
2023 2022
GBP'000 GBP'000
Total Total
---------------------------------------- -------- --------
Current tax:
UK corporation tax on profits for the
year (32) 153
Adjustments to UK tax in respect of
previous periods (41) (231)
Overseas corporation tax on profits
for the year 3,577 2,069
Adjustments to overseas tax in respect
of previous periods (365) (52)
------------------------------------------ -------- --------
Total current tax 3,139 1,939
------------------------------------------ -------- --------
Deferred tax:
Origination and reversal of temporary
differences (141) 726
Effect of change of tax rate on opening
deferred tax (29) (45)
Adjustments in respect of previous
periods (367) 244
------------------------------------------ -------- --------
Total deferred tax (537) 925
========================================== ======== ========
Tax on profit on ordinary activities 2,602 2,864
========================================== ======== ========
Analysis of tax charge in other comprehensive income:
2023 2022
GBP'000 GBP'000
--------------------------------------------------- -------- --------
Current tax:
Foreign currency translation differences 33 (102)
Total current tax 33 (102)
--------------------------------------------------- -------- --------
Deferred tax:
Cash flow hedges - (4)
Foreign currency translation differences (301) -
Defined benefit pension scheme 345 2,068
--------------------------------------------------- -------- --------
Total deferred tax 44 2,064
=================================================== ======== ========
Total tax charge recognised in other comprehensive
income 77 1,962
=================================================== ======== ========
8. TAXATION (continued)
Analysis of tax (credit)/charge in equity:
2023 2022
GBP'000 GBP'000
----------------------------------------------- -------- --------
Current tax:
Share-based payments (28) (20)
----------------------------------------------- -------- --------
Deferred tax:
Share-based payments (25) 444
=============================================== ======== ========
Total tax (credit)/charge recognised in equity (53) 424
=============================================== ======== ========
Factors affecting tax charge for the year:
The tax assessed for the year is different from that calculated
at the standard rate of corporation tax in the UK of 22.0% (2022:
19.0%). The differences are explained below:
2023 2022
GBP'000 GBP'000
Total Total
------------------------------------------------- -------- --------
Profit before tax multiplied by standard rate
of UK corporation tax at 22.0% (2022: 19.0%) 2,980 3,074
Effects of:
Expenses not deductible in determining taxable
profit 335 268
Income not taxable in determining taxable profit - (694)
Research and development tax credits (20) (243)
Difference in tax rates on overseas earnings 49 678
Adjustments to tax charge in respect of prior
years (732) (39)
Effect of change of tax rate on opening deferred
tax (47) (38)
Deferred tax not recognised 37 (142)
Total tax charge for the year 2,602 2,864
=================================================== ======== ========
From 1 April 2023, the main rate of corporation tax increased
from 19% to 25%. The blended rate applicable to the Group's UK
operations is 22.0%. The Group's effective UK corporation tax rate
for the year was 13.2% (2022: 17.7%). The effective tax rate of
US-based earnings is 19.4% (2022: 21.5%). The adjustments in
respect of prior years relate to the finalisation of previous
year's tax computations.
9. DIVIDS
Equity dividends on ordinary shares:
Dividend per share for years
ended 30 September
----------------- --------------------------------
2023 2023 2021 2023 2022
Pence Pence Pence GBP'000 GBP'000
----------------- ---------- --------- --------- -------- --------
Interim dividend 2.55p(3) 2.50p(2) 2.00p(1) 1,552 1,512
Final dividend 5.46p(4) 5.35p(3) 5.50p(2) 3,250 3,322
================== ========== ========= ========= ======== ========
8.01p 7.85p 7.50p 4,802 4,834
================= ========== ========= ========= ======== ========
1 Accounted for in the year ended 30 September 2021.
2 Accounted for in the year ended 30 September 2022.
3 Accounted for in the year ended 30 September 2023.
4 The proposed final dividend for the year ended 30 September
2023 of 5.46p pence will be voted on at the Annual General Meeting
on 25 January 2024 and will therefore be accounted for in the
financial statements for the year ending 30 September 2024.
10. 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) as these do not rank for
dividend.
2023 2022
---------------------------------------------------- ------ ------
Profit after taxation attributable to owners of
the Parent Company (GBP'000) 10,942 13,315
Weighted average number of ordinary shares in issue
(No: '000) 60,762 60,400
===================================================== ====== ======
Basic earnings per share (pence) 18.01p 22.04p
----------------------------------------------------- ------ ------
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:
2023 2022
No ('000) No ('000)
------------------------------------------------------- ---------- ----------
Weighted average number of shares 60,916 60,578
Weighted average number of shares held in the EBT (154) (178)
======================================================== ========== ==========
Weighted average number of shares used for calculating
basic EPS 60,762 60,400
Executive share option schemes 301 487
All-employee share options 45 148
======================================================== ========== ==========
Weighted average number of shares used for calculating
diluted EPS 61,108 61,035
======================================================== ========== ==========
Diluted earnings per share (pence) 17.91p 21.82p
======================================================== ========== ==========
10. EARNINGS PER SHARE (continued)
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:
2023 2022
GBP'000 GBP'000
---------------------------------------------------- -------- --------
Profit after taxation attributable to owners of the
Parent Company 10,942 13,315
Adjusted for:
Exceptional items - relocation expenses (see note
7) 1,145 1,800
Exceptional items - restructuring costs (see note
7) 2,655 601
Exceptional items - gain on disposal of land and
buildings (see note 7) - (3,324)
Taxation thereon (803) (431)
Adjusted earnings 13,939 11,961
===================================================== ======== ========
Adjusted basic earnings per share (pence) 22.94p 19.80p
===================================================== ======== ========
Adjusted diluted earnings per share (pence) 22.81p 19.60p
----------------------------------------------------- -------- --------
11. SHARE CAPITAL
Called up, allotted and fully 2023 2023 2022 2022
paid GBP'000 Number GBP'000 Number
------------------------------ -------- ---------- -------- ----------
At start of year 1,217 60,864,564 1,208 60,411,933
Issued in year 6 265,025 9 452,631
=============================== ======== ========== ======== ==========
At end of year 1,223 61,129,589 1,217 60,864,564
=============================== ======== ========== ======== ==========
The Parent Company has one class of ordinary shares with a
nominal value of 2p each, which carry no right to fixed income.
During the year the Parent Company issued 200,000 (2022:
400,000) ordinary shares to the Employee Benefit Trust, and 65,025
(2022: 52,631) ordinary shares to the SIP Trust, at nominal value
of 2p per share, for the purpose of meeting obligations under
employee share option schemes.
The number of shares held in the EBT at 30 September 2023 is
162,000 (2022: 270,000) and the number of shares held in the SIP is
380,000 (2022: 437,000).
12. ALTERNATIVE PERFORMANCE MEASURES
The Group reports certain alternative performance measures
(APMs) that are not required under IFRS. The Group believes that
these APMs, when viewed in conjunction with its IFRS financial
information, provide valuable and more meaningful information
regarding the underlying financial and operating performance of the
Group to its stakeholders.
APMs referenced throughout the Annual Report which are not
possible to easily derive from the financial statements, are shown
in the reconciliations below alongside their statutory equivalent
measures.
Return on average capital employed
Adjusted return on average capital employed (ROACE) is
considered to be a key performance indicator (KPI) and is an APM
which enables stakeholders to see the profitability of the business
as a function of how much capital has been invested in the
business.
The derivation of this percentage, along with the statutory
equivalent measure, is shown below:
ROACE - APM measure
2023 2022
Group GBP'000 GBP'000
----------------------------- -------- --------
Total equity 137,246 133,850
Net debt 10,382 22,419
------------------------------ -------- --------
Capital employed 147,628 156,269
Interim total equity(1) 129,685 114,988
Interim net debt(1) 17,704 19,787
------------------------------ -------- --------
Interim capital employed(1) 147,389 134,775
Average capital employed(2) 150,429 135,486
============================== ======== ========
Adjusted operating profit(3) 18,321 15,773
============================== ======== ========
ROACE % 12.2% 11.6%
------------------------------ -------- --------
ROACE - statutory measure
2023 2022
Group GBP'000 GBP'000
---------------------------- -------- --------
Average capital employed(2) 150,429 135,486
Profit before taxation 13,544 16,179
ROACE % 9.0% 11.9%
----------------------------- -------- --------
12. ALTERNATIVE PERFORMANCE MEASURES (continued)
Net debt to adjusted EBITDA
The net debt to adjusted EBITDA ratio is useful to ensure that
the level of borrowings in the business can be supported by the
cashflow in the business, and as it is measured by reference to
adjusted EBITDA, is considered to be an APM.
The derivation of this ratio, along with its statutory
equivalent measure is shown below:
APM Measure
2023 2022
Group GBP'000 GBP'000
-------------------------------------------------- -------- --------
Profit before taxation 13,544 16,179
Exceptional items 3,800 (923)
--------------------------------------------------- -------- --------
Profit before taxation and exceptional items 17,344 15,256
Interest receivable (112) (8)
Interest payable 1,089 525
Depreciation of property, plant and equipment and
right-of-use assets 4,277 2,476
Amortisation of intangible assets 399 215
--------------------------------------------------- -------- --------
Adjusted EBITDA 22,997 18,464
Net debt 10,382 22,419
--------------------------------------------------- -------- --------
Net debt to adjusted EBITDA 0.45 1.21
--------------------------------------------------- -------- --------
Statutory measure
2023 2022
Group GBP'000 GBP'000
-------------------------------------------------- -------- --------
Profit before taxation 13,544 16,179
Interest receivable (112) (8)
Interest payable 1,089 525
Depreciation of property, plant and equipment and
right-of-use assets 4,277 2,476
Amortisation of intangible assets 399 215
--------------------------------------------------- -------- --------
EBITDA 19,197 19,387
Net debt 10,382 22,419
--------------------------------------------------- -------- --------
Net debt to EBITDA 0.54 1.16
--------------------------------------------------- -------- --------
1 Interim total equity and interim net debt for a given year are
taken from the unaudited half year condensed financial statements
made out to 31 March, which can be found on www.treatt.com.
2 Average capital employed for a given year is calculated as the
average of the opening, interim and closing capital employed.
3 Adjusted operating profit for ROACE purposes is operating
profit before exceptional items as defined in the Group income
statement.
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