Preliminary Results

RNS Number : 3666X

Treatt PLC

06 December 2010

 



TREATT PLC

PRELIMINARY STATEMENT

FOR THE YEAR ENDED 30 SEPTEMBER 2010

Treatt Plc, the manufacturer and supplier of conventional, organic and fair trade ingredients for the flavour, fragrance and cosmetic industries, announces today its preliminary results for the year ended 30 September 2010.

Summary

Group revenue increased by 12% to £63.3 million (2009: £56.3 million)

Group operating profit after FX up by 26% to £4.9 million (2009: £3.9 million)

Profit before tax* 29% higher at £4.5 million (2009: £3.5 million)

Dividends increased 8% to 13.0p per share (2009: 12.0p)

Earnings per share* up 24% to  30.3p (2009: 24.5p)

* Before Earthoil goodwill impairment of £2.4m

Enquiries:

Treatt plc                  Tel: [phone]

Hugo Bovill              Managing Director

Richard Hope            Finance Director  (Mobile on 6 December 2010: 07881 508437)

 

CHAIRMAN'S STATEMENT

______________________________________________________________________________

"A strong year with operating profit increasing by 26% to £4.9m"

Results

The Group has enjoyed a good year in 2010 with strong growth in both sales and profits, with operating profit up by 26% to £4.9m.  Group revenue continued to grow for the twelfth year in succession with an increase for the year of 12.4% to £63.3m (2009: £56.3m).  Over the last three years Group revenue has risen by 66%.  Group adjusted* earnings before interest, tax, depreciation and amortisation increased by 20% to £6.0m (2009: £5.0m) with adjusted* profit before tax for the year being up by 29% to a new all-time high of £4.5m (2009: £3.5m).  Basic adjusted* earnings per share has increased by 24% to 30.3 pence (2009: 24.5 pence) per share.

The Board is proposing a final dividend of 8.9 pence (2009: 8.3 pence), increasing the total dividend for the year by 8.3% to 13.0 pence (2009: 12.0 pence) per share.  The final dividend will be payable on 4 March 2011 to all shareholders on the register at close of business on 28 January 2011.

Towards the end of the 2009 financial year there was a weakening of demand and this trend continued into the first quarter of the 2010 financial year.  However, in January 2010 demand began to recover and sales of the Group's products rose sharply across the broad range of new and existing customers, reaching record levels in terms of both volumes and value in the third quarter.  The final quarter of the year was significantly stronger than the corresponding period last year.  The value of sales of orange oil products, which represent 17% of Group revenue (2009: 17%), increased by 12% during the year although volumes were unchanged. Contribution from orange oil co-products increased even more sharply as prices rose steadily throughout the period.  By the end of the financial year orange oil prices had begun to reach all-time highs although this did not impact on the results for the year ended 30 September 2010.  Over the course of the year, the US Dollar to Pound Sterling exchange rate had a broadly neutral effect on the business as it ended the year little different to where it had opened twelve months earlier, although there were some periods of significant fluctuation in between.

Following strong positive cash inflow of almost £7m in 2009, the Group's inventory holdings increased in 2010 as expected, both in terms of volumes, as inventory levels were replenished, and values, as prices rose, resulting in an overall cash outflow (movement in net debt) for the year of £2m.  As confirmed in the Half Year Results Announcement, the Group's bank facilities were renewed without difficulty, with £6 million of US Dollar denominated debt being converted from a one year to a three year committed facility.

Group operating profit after foreign exchange translation differences increased by 26% to £4.9m (2009: £3.9m).  The Group's main UK operating business, R.C. Treatt, had another strong performance and the year also saw a significantly improved performance by Treatt USA.  The Group's organic and fair trade business, Earthoil, continued to make progress although this was hampered by its loss-making South African subsidiary, which was disposed of during the year. 

The Board has reviewed the £4.3m carrying value of goodwill relating to the Group's organic and fair trade cosmetic ingredient business, Earthoil (as required by International Financial Reporting Standards).  The Group acquired 50% of Earthoil in 2007 and obtained full ownership in 2008. The Board is confident of the potential of Earthoil, however it is now apparent that the development of Earthoil has taken longer than originally anticipated. Accordingly, a goodwill impairment charge of £2.4m has been made in the year, reducing profit before tax from £4.5m to £2.1m.  The impairment charge is a non-cash item. 

R.C. Treatt has performed consistently strongly over the last few years and 2010 was no exception with total revenues increasing by 12% to £43.6m (2009: £38.9m).  Although the financial year began slowly, in part due to the timing of major customer deliveries, as prices began to firm the levels of activity both in terms of value and the number of transactions increased rapidly and reached record levels in the third quarter.  With its widely spread global customer base, the Company continued to enjoy strong sales growth particularly in the Far East (where sales increased by 25%) and in aroma chemicals (where sales grew by 16%).   

Treatt USA had a very good year seeing a significant recovery in demand from existing customers as well as winning an encouraging level of new business.  Year on year US Dollar sales grew by 16%, with an improved product mix also providing a boost to margins. Having reduced inventory levels by £3m in 2009, levels in 2010 grew by less than £1m, notwithstanding the 16% increase in sales. The growth in specialty sales continued with another year of double digit growth, increasing in US Dollars by 15% (2009: 14%) across a wide range of products.

Earthoil results showed some progress in 2010, with sales growth of 9%.  Underlying Earthoil's performance, there have been definite signs of improvement in regular order intake and deliveries, coupled with strong growth in sales to its major customers.  However, Earthoil's South African subsidiary continued to underperform and was therefore the subject of a management buy-out during the year.  The Company continues to win new business, enabling the Group to make inroads into the cosmetics sector, which remains a long term strategic goal. 

Prospects

To fully set out the prospects for the current year is not easy.  The most significant raw material purchased by the Group is orange oil, which is then processed by the Group with the resultant products being sold at prices which reflect raw material costs. Over the last 30 years the price of orange oil has fallen to as low as US$0.40/kg (in 1983) and peaked at US$5/kg (in 1995).

In recent times, with higher petroleum prices underpinning the price, orange oil has been relatively stable at around $2/kg.  In 2009, there was an oversupply of orange oil and the price fell for a short period to under $1/kg.  During 2010, as a result of unprecedented climatic conditions, including a drought in Brazil and a freeze in Florida, coupled with high demand for orange oil co-products, orange oil prices have reached historic highs of well over $6/kg.  This volatility can lead to significant stock profits but also to high levels of risk in terms of managing the Group's supply pipeline when prices fall back.

The new financial year has started very well with both sales and margins significantly up on the same period last year for all three group businesses, R.C. Treatt, Treatt USA and Earthoil.  Indeed Treatt USA achieved a record level of profit in October.  The next twelve months could be somewhat tumultuous for the Group as raw material and product prices reach their peak with a significant risk that prices, in particular orange oil, could then fall sharply resulting in potentially large stock losses.  The Group has many years experience of dealing with such situations and steps are in place to mitigate these losses where possible. 

The Group also expects to continue to see significant sales growth in the Far East and many other parts of the world where it sees opportunities to increase market share.  Following strong sales growth in 2010, as businesses were re-stocking following a period of heavy de-stocking in 2009, demand for other products is expected to subside and we have seen some signs of a decline in orders.

Summary

In summary, the Group has performed well over its entire product range over the last three years through difficult times, as the world continues to eat, drink and buy cosmetics, regardless of economic conditions.  Flavour, fragrance and cosmetics companies look to Treatt to provide quality products in an efficient manner.  As a truly independent and global business, Treatt remains well placed to take advantage of competitive opportunities, and through its commitment to continuous improvement, Treatt has become a supplier of choice. 

People

Importantly, the Board would again like to place on record its thanks to all Group employees for their tremendous dedication and effort which has resulted in another good year of excellent progress. This could not have been achieved without a stable and committed workforce.

As reported last year, Ned Dawnay and David Appleby retired from the Board during the year and we were very pleased to welcome Ian Neil to the Board with extensive flavour and fragrance experience, having worked within the industry for over 25 years.  

JAMES GRACE

Chairman

3 December 2010

* Excluding goodwill impairment

 

TREATT PLC

PRELIMINARY STATEMENT

FOR THE YEAR ENDED 30 SEPTEMBER 2010

GROUP INCOME STATEMENT

	Notes		2010	2009
			£'000	£'000
Revenue	3		63,298	56,313
Cost of sales			(47,759)	(42,502)
Gross profit			15,539	13,811
Administrative expenses			(10,427)	(9,465)
Operating profit before foreign exchange loss			5,112	4,346
Foreign exchange loss			(208)	(453)
Operating profit after foreign exchange loss			4,904	3,893
Loss on disposal of subsidiary			(88)	-
Finance revenue			77	186
Finance costs			(390)	(578)
Profit before taxation and goodwill impairment			4,503	3,501
Goodwill impairment			(2,432)	-
Profit before taxation			2,071	3,501
Taxation	4		(1,417)	(1,013)
Profit for the period			654	2,488
Attributable to:
Owners of the Parent Company			653	2,485
Non-controlling interests			1	3
			654	2,488
Earnings per share
Basic before goodwill impairment	6		30.3p	24.5p
Basic after goodwill impairment	6		6.4p	24.5p
Diluted	6		6.4p	24.4p

All amounts relate to continuing operations

TREATT PLC

PRELIMINARY STATEMENT

FOR THE YEAR ENDED 30 SEPTEMBER 2010

GROUP STATEMENT OF COMPREHENSIVE INCOME

		2010	2009
		£'000	£'000
Profit for the period		654	2,488
Other comprehensive income/(expense):
Currency translation differences on foreign currency net investment		139	1,194
Current taxation on foreign currency translation differences		(28)	(175)
Actuarial gain/(loss) on defined benefit pension scheme		172	(1,821)
Deferred taxation on actuarial gain or loss		(41)	510
Other comprehensive income/(expense) for the period		242	(292)
Total comprehensive income for the period		896	2,196
Attributable to:
Owners of the Parent Company		895	2,193
Non-controlling interests		1	3
		896	2,196

TREATT PLC

PRELIMINARY STATEMENT

FOR THE YEAR ENDED 30 SEPTEMBER 2010

GROUP STATEMENT OF CHANGES IN EQUITY

		Share capital	Share premium	Own shares in share trust	Employee share option reserve	Foreign exchange reserve	Retained earnings	Total	Non-controlling interest	Total equity
		£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000	£'000
1 October 2008		1,048	2,757	(761)	31	(453)	18,975	21,597	(4)	21,593
Net profit for the period		-	-	-	-	-	2,485	2,485	3	2,488
Other comprehensive income:
Exchange differences net of tax		-	-	-	-	1,194	(175)	1,019	-	1,019
Actuarial loss on defined benefit    pension scheme net of tax		-	-	-	-	-	(1,311)	(1,311)	-	(1,311)
Total comprehensive income		-	-	-	-	1,194	999	2,193	3	2,196
Transactions with owners:
Dividends		-	-	-	-	-	(1,138)	(1,138)	-	(1,138)
Share-based payments		-	-	-	20	-	-	20	-	20
Movement in own shares in    share trust		-	-	69	-	-	-	69	-	69
Loss on release of shares in    share trust		-	-	-	-	-	(4)	(4)	-	(4)
Exercise of options previously    charged		-	-	-	(28)	-	28	-	-	-
1 October 2009		1,048	2,757	(692)	23	741	18,860	22,737	(1)	22,736
Net profit for the period		-	-	-	-	-	653	653	1	654
Other comprehensive income:
Exchange differences net of tax		-	-	-	-	139	(28)	111	-	111
Actuarial gain on defined benefit    pension scheme net of tax		-	-	-	-	-	131	131	-	131
Total comprehensive income		-	-	-	-	139	756	895	1	896
Transactions with owners:
Dividends		-	-	-	-	-	(1,222)	(1,222)	-	(1,222)
Share-based payments		-	-	-	21	-	-	21	-	21
Movement in own shares in    share trust		-	-	90	-	-	-	90	-	90
Loss on release of shares in    share trust		-	-	-	-	-	(3)	(3)	-	(3)
Exercise of options previously    charged		-	-	-	(24)	-	24	-	-	-
30 September 2010		1,048	2,757	(602)	20	880	18,415	22,518	-	22,518

TREATT PLC

PRELIMINARY STATEMENT

FOR THE YEAR ENDED 30 SEPTEMBER 2010

GROUP BALANCE SHEET

			2010	2009
			£'000	£'000
ASSETS
Non-current assets
Goodwill			1,051	4,272
Other Intangible assets			250	290
Property, plant and equipment			10,250	9,847
Deferred tax assets			418	616
Trade and other receivables			586	586
			12,555	15,611
Current assets
Inventories			20,174	16,045
Trade and other receivables			12,502	9,901
Corporation tax receivable			51	63
Cash and cash equivalents			1,584	2,678
			34,311	28,687
Total assets			46,866	44,298
LIABILITIES
Current liabilities
Borrowings			(5,217)	(9,799)
Provisions			(415)	-
Trade and other payables			(8,213)	(5,606)
Corporation tax payable			(447)	(549)
			(14,292)	(15,954)
Net current assets			20,019	12,733
Non-current liabilities
Deferred tax liabilities			(437)	(371)
Borrowings			(7,348)	(1,773)
Trade and other payables			-	(789)
Post-employment benefits			(1,596)	(2,000)
Redeemable loan notes payable			(675)	(675)
			(10,056)	(5,608)
Total liabilities			(24,348)	(21,562)
Net assets			22,518	22,736
EQUITY
Share capital			1,048	1,048
Share premium account			2,757	2,757
Own shares in share trust			(602)	(692)
Employee share option reserve			20	23
Foreign exchange reserve			880	741
Retained earnings			18,415	18,860
Equity attributable to owners of the Parent Company			22,518	22,737
Non-controlling interests			-	(1)
Total Equity			22,518	22,736

TREATT PLC

PRELIMINARY STATEMENT

FOR THE YEAR ENDED 30 SEPTEMBER 2010

GROUP STATEMENT OF CASH FLOWS

				2010	2009
				£'000	£'000
Cash flow from operating activities
Profit before taxation				2,071	3,501
Adjusted for:
	Foreign exchange loss			109	1,130
	Depreciation of property, plant and equipment			1,042	952
	Amortisation of intangible assets			174	167
	Loss on disposal of property, plant and equipment			3	11
	Loss on disposal of intangible assets			-	5
	Loss on disposal of subsidiaries			88	-
	Impairment of goodwill			2,432	-
	Net interest payable			387	541
	Share-based payments			21	20
	Decrease in post-employment benefit  obligation			(232)	(358)
Operating cash flow before movements in working capital				6,095	5,969
Changes in working capital:
	(Increase)/decrease in inventories			(4,169)	4,078
	(Increase)/decrease in trade and other receivables			(2,614)	1,923
	Increase/(decrease) in trade and other payables, and    provisions			3,049	(1,295)
Cash generated from operations				2,361	10,675
	Taxation paid			(1,312)	(755)
Net cash from operating activities				1,049	9,920
Cash flow from investing activities
	Disposal of investments in subsidiaries			(38)	-
	Purchase of property, plant and equipment			(1,437)	(879)
	Purchase of intangible assets			(134)	(126)
	Interest received			3	37
				(1,606)	(968)
Cash flow from financing activities
	Repayment of bank loans			(163)	(574)
	Amounts converted to non-current borrowings			5,711	-
	Interest paid			(390)	(578)
	Dividends paid			(1,222)	(1,138)
	Net sales of own shares by share trust			87	65
				4,023	(2,225)
Net increase  in cash and cash equivalents				3,466	6,727
Cash and cash equivalents at beginning of period				(6,962)	(13,522)
Effect of foreign exchange rates				25	(167)
Cash and cash equivalents at end of period				(3,471)	(6,962)
Cash and cash equivalents comprise:
Cash and cash equivalents				1,584	2,678
Bank borrowings				(5,055)	(9,640)
				(3,471)	(6,962)

TREATT PLC

PRELIMINARY STATEMENT

FOR THE YEAR ENDED 30 SEPTEMBER 2010

GROUP RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT

		2010	2009
		£'000	£'000
Increase in cash and cash equivalents		3,491	6,560
Repayment of borrowings		163	574
Amounts converted from current borrowings		(5,711)	-
Cash (outflow)/inflow from change in net debt in the period		(2,057)	7,134
Effect of foreign exchange rates		(30)	(240)
Movement in net debt in the period		(2,087)	6,894
Net debt at start of the period		(8,894)	(15,788)
Net debt at end of the period		(10,981)	(8,894)

TREATT PLC

PRELIMINARY STATEMENT

FOR THE YEAR ENDED 30 SEPTEMBER 2010

NOTES TO THE PRELIMINARY STATEMENT

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 2010 and 2009 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 International Financial Reporting Standards ("IFRS").  The statutory accounts for the year ended 30 September 2009 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 30 September 2010 have been audited and approved, but have not yet been filed.

The Group's audited financial statements 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 preliminary statement was approved and authorised for issue by the Board on 3 December 2010.

2.         Accounting policies

These financial statements have been prepared in accordance with the accounting policies set out in the full financial statements for the period ending 30 September 2009, other than the following new standards and amendments to standardswhich are mandatory and relevant to the Group for the first time for financial years beginning on or after 1 January 2009:

·                IAS 1 (revised), "Presentation of financial statements".  The most significant change within IAS 1 (revised) is the requirement to produce a statement of comprehensive income setting out all items of income and expense relating to non owner changes in equity. There is a choice betweenpresenting comprehensive income in one statement or in two statements comprising an income statement and aseparate statement of comprehensive income.  The Group has elected to present comprehensive income in two statements.  In addition, IAS 1 (revised) requires the statement of changes in equity to be presented as aprimary statement.

·                IFRS 2 "Share based payments" hasbeen adopted buthasnot had a material impact on the financial statements of the Group.

.

3.         Geographical segmental information

 

The following table provides an analysis of the Group's revenue by geographical market, irrespective of the origin of the goods or services:

	2010	2009
	£'000	£'000
Revenue by destination
United Kingdom	8,950	8,256
Rest of Europe	18,551	16,448
The Americas	19,238	17,875
Rest of the World	16,559	13,734
	63,298	56,313

TREATT PLC

PRELIMINARY STATEMENT

FOR THE YEAR ENDED 30 SEPTEMBER 2010

NOTES TO THE PRELIMINARY STATEMENT

4.         Taxation

	2010	2009
	£'000	£'000
Analysis of tax charge for the year
Current tax:
UK Corporation tax on UK profits for period	950	870
Adjustments to UK tax in respect of previous periods	(8)	(6)
Overseas tax for the period	253	-
Adjustments to overseas tax in respect of previous periods	4	8
Total current tax	1,199	872
Deferred tax:
Origination and reversal of timing differences	179	142
Effect of reduced rate on opening asset or liability	8	-
Adjustments in respect of previous periods	31	(1)
Total deferred tax	218	141
Tax on profit on ordinary activities	1,417	1,013
Current tax of £28,000 (2009: £175,000) was debited to equity in respect of foreign currency translation differences and deferred tax of £41,000 (2009: £510,000) was debited (2009 - credited) to equity in respect of post-employment benefit obligations.

5.         Dividends

	2010	2009
	£'000	£'000
Equity dividends on ordinary shares:
Interim dividend for year ended 30 September 2009 - 3.7p per share	376	-
Final dividend for year ended 30 September 2009 - 8.3p per share	846	-
Interim dividend for year ended 30 September 2008 - 3.6p per share	-	365
Final dividend for year ended 30 September 2008 - 7.6p per share	-	773
	1,222	1,138

The declared interim dividend for the year ended 30 September 2010 of 4.1 pence was approved by the Board on 21 May 2010 and was paid on 15 October 2010.  Accordingly it has not been included as a deduction from equity at 30 September 2010.  The proposed final dividend for the year ended 30 September 2010 of 8.9 pence will be voted on at the Annual General Meeting on 25 February 2011.  Both dividends will therefore be accounted for in the results for the year ended 30 September 2011.

TREATT PLC

PRELIMINARY STATEMENT

FOR THE YEAR ENDED 30 SEPTEMBER 2010

NOTES TO THE PRELIMINARY STATEMENT

6.         Earnings per Ordinary Share

(1)  Basic earnings per share

 Basic earnings per share is based on the weighted average number of ordinary shares in issue and ranking for dividend during the year of 10,199,504 (2009: 10,167,177).

Basic earnings per share has been shown both before and after goodwill impairment of £2.4m.  The earnings used to calculate basic earnings per share before and after goodwill are earnings of £3,086,000 and £654,000 respectively (2009: £2,488,000).

The weighted average number of shares excludes shares held by the "Treatt Employee Benefit Trust".

(2)   Diluted earnings per share

Diluted earnings per share is based on the weighted average number of ordinary shares in issue and ranking for dividend during the year, adjusted for the effect of all dilutive potential ordinary shares, of 10,237,603 (2009: 10,177,825), and earnings (after goodwill impairment) of £654,000.

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

	2010	2009
	No ('000)	No ('000)
Weighted average number of shares	10,481	10,481
Weighted average number of shares held in employee benefit trust	(281)	(314)
Weighted average number of shares used for calculating basic EPS	10,200	10,167
Executive share option schemes	4	4
Savings-related share options	34	7
Weighted average number of shares used for calculating diluted EPS	10,238	10,178

 

END

 

 

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