Final Results

Treatt PLC 3 December 2001 3 December 2001 TREATT PLC ('Treatt' or 'the Group') PRELIMINARY STATEMENT For the year ended 30 September 2001 Treatt PLC, the manufacturer and supplier of flavour and fragrance ingredients, primarily from essential oils, announces today its preliminary results for the year ended 30 September 2001. SUMMARY - Group turnover increased by 15% to £27,600,000 (2000: £24,100,000) - Profit before tax up 4% to £2.83 million - Dividends up 4% to 8.1p per share - Earnings per share increased by 0.5% to 19.4p (2000: 19.3p) - Florida Treatt sales up 18% - Aroma chemical sales up 19% - New facility acquired in Florida USA Edward Dawnay, Chairman commented: 'We have had a very satisfactory year. US sales have strengthened, demonstrating the importance of the US market to our future strategy, Continental Europe has resumed its growth path and UK sales have continued to grow strongly. With continued investment in our operations the prospects for 2002 are encouraging.' For further information please contact: Treatt PLC 01284 702500 Hugo Bovill, Managing Director Mark Bottjer, Finance Director GCI Financial 0207 398 0800 Philip Robinson/Katherine Harris CHAIRMAN'S STATEMENT 2001 was another year of satisfactory progress for Treatt. Group turnover increased by 15% during the year to £27.5 million. Profit before tax increased by 4 percent to £2.83 million (2000: £2.72 million). Earnings per share for the year at 19.4 pence have increased 0.5 percent on 2000. The Board is recommending a final dividend of 5.5 pence (2000: 5.3 pence), giving a 4 percent increase in the total dividend for the year to 8.1 pence (2000: 7.8 pence) per share. Florida Treatt continued to perform well as sales in the USA increased by 18 percent during the year which helped generate a significant contribution towards Group profitability. This result underlines the continuing importance of the North American market to our future strategy for growth. Last year we referred to the Millennium effect on the buying patterns of some of our major customers. We are pleased to report that these activity levels are now running satisfactorily. Sales of distributed aroma chemicals in the U.K. continued to grow strongly, though a more modest level of growth is anticipated in the future. We continue to invest heavily in our operations and as such we are pleased that earlier this year we purchased a larger freehold facility in Lakeland, Florida together with an adjacent 5 acres of land. This site is close to our existing premises. Renovation and engineering works will shortly begin as we expect to relocate to the new facility during the coming year. To fund this project we raised US$5 million from Variable Rate Demand Bonds, which bear a low rate of interest and are redeemable over 20 years. US$2.5 million of the debt was covered with an Interest Rate Swap and fixed at 3.54 percent for the next 5 years. Our Customer Relationship Management System was fully implemented in the second half of the year and is beginning to show benefits. As referred to in previous statements we will continue to invest heavily in information technology in order to facilitate future profitable growth. Prospects Current year trading is below the level experienced this time last year. However our order books are higher than last year. The prospects for 2002 are encouraging. However, we are still cautious about the full year result as there remains the possibility of further economic slowdown in the USA. Furthermore, our increased level of capital investment will result in much higher depreciation charges this year. Similarly, the additional borrowing will also increase the amount of interest payable. Orange oil, an orange juice by-product is an important raw material for Treatt with orange products accounting for 12 percent of the Group's turnover in 2001. For R.C. Treatt, in the UK, the majority of orange oil is sourced from Brazil and the balance from Florida, USA. However, this season's Brazilian crop has been reduced as a result of drought which has led to a significant rise in orange oil prices. In the USA, Florida Treatt purchases some Brazilian oil, but in the most part uses Florida produced material which has been booked in advance and should be delivered as normal, subject to adverse weather conditions in Florida affecting the crop. All of this year's contracted sales have been secured with supplies at fixed prices. However, any new business will be at higher prices based upon commitments we have made with our regular suppliers, both at fixed and open prices. Whilst the overall impact on this year's results is hard to predict it appears likely that if sustained throughout the year, the recent increase in orange oil prices will increase Group turnover in orange oil products, which could lead to a one-off benefit to profitability in 2002. People On 12 October 2001, Ron Fenn resigned his position as a Non-executive Director of the Group in order to take up an executive post with a US based corporation. On behalf of the Board I would like to thank Ron for his significant contribution and to wish him well in his new appointment. Following Ron's resignation we expect to appoint a new Non-executive Director to the Board in due course. We are pleased to announce that during the year five employees including the Managing Director achieved 25 years of service with Treatt, a remarkable feat that reflects admirably upon their loyalty and dedication to our business. Finally I would like to thank all of our employees, in England, Florida and Singapore for their continued commitment and skill. We face a particularly demanding year ahead as we continue to invest in our IT systems and in our new Florida facility, but we are fortunate to face these challenges with the benefit of an experienced and dedicated team of people. Edward Dawnay Chairman 3 December 2001 OPERATING REVIEW During 2001 the Group's operations delivered another satisfactory performance with recent investments in manufacturing and distribution enabling a 15 percent growth in Group sales. Further improvements to our customer service systems were delivered towards the end of the year, the benefits of which will be delivered in the months ahead. Trading R.C. Treatt 2001 was a year of further growth. Sales were up by 14 percent with much of this growth being attributed to a 19 percent increase in aroma chemical sales. The volume of aroma chemical orders rose by 9 percent and without the recent investments in our distribution facilities we would have been unable to facilitate such an increase in business. Last year we referred to the Millennium effect on the buying patterns of some of our major customers. These activity levels recovered fully during 2001 and reached the upper level of our expectations. Some new initiatives to improve customer lead times were undertaken towards the end of the financial year, which should produce some commercial benefits over the coming months. Florida Treatt Sales increased by 18 percent during the year, with some particularly good business being won with major flavour and fragrance companies. Repeat export orders of our Treattarome (TM) range were lower than expected, however, we are confident that these products will continue to generate new business opportunities. Singapore Treatt Business activity was satisfactory for the year, with the branch office generating a steady increase in orders. However the outlook for the future is less certain as political and economic uncertainty in the region has led to a general lack of business confidence. Investment for the future R.C. Treatt In line with expectations, our Customer Relationship Management system was fully commissioned towards the end of the financial year and the full benefits of this system to be delivered in the months ahead. As mentioned in last years review, we still believe that further significant investment in our IT systems will be necessary for two important reasons. First, our existing business systems have been in place for a number of years and are now ready for replacement. Secondly, the Group must be able to take full commercial advantage of new technologies. We are currently evaluating a number of replacement business systems and we anticipate the selection of an Enterprise Resource Planning system, for implementation across the Group in the years ahead. Florida Treatt As indicated in our May interim statement, we successfully concluded the purchase of a new 64,000 sq ft facility in Lakeland, Florida together with an additional five acre plot of land, for US$2.1 million. The site is close to our existing premises at Haines City. The next phase of the project is to embark on renovation and engineering works, at an estimated cost of US$3.1 million. It is unlikely that the new site will become fully operational until the second half of 2002. This investment will significantly increase our operating capability and will act as an important step in furthering our development of the North American market. We will be looking for a buyer for the Haines City site, though it should be noted that its open market value is not significant. Research and Development The Group remains committed to the development of new products. In 2001 the Group launched some new fragrance ingredients as well as several new natural flavour specialties. Investment in research and development in 2001 remained at a similar level to last year. Markets Sales in the United Kingdom increased by 9 percent, due largely to the growth in our aroma chemical distribution business. In the rest of Europe sales were up 24 percent with notable gains being made in several countries. In the Americas sales were up 19 percent, which in part was due to a good performance at Florida Treatt, however Latin America also performed well, recording an increase in sales of 26 percent. Sales to the rest of the world grew at a more modest 5 percent as the background of political and economic uncertainty continues to impact business in the pacific rim countries. Products Cold pressed orange oil, an orange juice by-product, is still the Group's main raw material by weight. In 2001 orange oil continued to make up well over half of the Group's raw materials by weight, but only 12 percent of sales value. This season's Brazilian crop has been reduced as a result of drought which has led to a significant rise in orange oil prices. In the USA, Florida Treatt purchases some Brazilian oil, but in the most part uses Florida produced material which has been booked in advance and should be delivered as normal, subject to adverse weather conditions in Florida affecting the crop. Sales from our UK based aroma chemical distribution business continued to grow by 19 percent. Within this figure there was particularly strong growth from our high impact flavour chemicals. Sales of the Treattarome(TM) range of natural distillates, manufactured in Florida, remained steady. We now have a much broader customer base than in previous years, which removes reliance upon some of our larger customers. The outlook for our Sugar Treattarome looks encouraging, as many flavour companies have used it in finished flavour submissions to their end customers. As a result of these creative efforts we expect new business with this product. Raw Materials 2001 again saw nearly all the raw materials that the Group buys in volume remain at historically low price levels. As noted above, in recent months orange prices from Brazil have moved up significantly. FINANCIAL REVIEW Performance Analysis Profit and Loss account Group turnover increased by 15 percent during the year to £27.6million (2000: £24.1million). All of the Group's markets have shared in this growth, including mainland Europe which last year we reported as suffering an adverse buying pattern as a result of the Millennium effect. Florida Treatt continued to perform well with turnover increasing 18 percent over last year. Group Profit before tax increased 4 percent to £2.83million (2000: £2.72million). Gross margins of 30.5 percent were achieved this year (2000: 32.9 percent) with incremental growth in some of our lower margined citrus products and in our aroma chemical distribution business being the main causal factors. This effect outweighed the small benefit gained from most of our purchases being made in U.S. Dollars. If the Dollar strengthens between the time these materials are purchased and then sold on to customers, Treatt will benefit in Sterling terms. The Group's Operating Costs rose by 7.2 percent to £5.5 million. This includes increased payroll costs of £227,000, which reflects last year's pay awards and a full year of cost from new appointments made during 2000, together with a £65,000 increase in distribution costs which is attributable to the increase in sales. In our March 2001 Interim Statement, the Chairman mentioned the need for a review of the useful economic lives being attached to further capital investments. This review was undertaken and some of the useful economic lives duly altered. This will result in a more realistic level of depreciation being charged against future profits though the impact upon this year's results was immaterial. Net interest payable was similar to last year. However, with US$5 million being raised from Variable Rate Demand Bonds earlier this year, we expect a significant increase in interest payments in the year ahead. Since the bonds bear a relatively low rate of interest they are viewed by the Board as an attractive form of finance and as such are unlikely to be redeemed within the foreseeable future. During the year, net interest of US$12,400 was paid on the bonds. The Group's effective tax rate increased from 28.7 percent to this year's figure of 30.1 percent, as the Group fully utilised all available U.S. tax losses during the course of the year. Expectations for the future effective rate are discussed below. Earnings per share have risen to 19.4 pence per share, an increase of 0.5 percent on 2000. This leaves dividends for the year of 8.1 pence per share covered 2.4 times (2000: 2.5 times) Cash Flow The Group has seen an improvement in its net cash position during the year. Cash inflow from operating activities was £3.82 million which is an increase of £2.45 million over last year. Most of this gain can be attributed to improvements in working capital and in particular to a reduction in stocks. Group capital expenditure was £2.38 million (2000: £1.18 million) of which £1.54 million relates to the new facility purchased in Florida, USA. All future capital expenditure will continue to be funded out of operating cash flows with the exception of the engineering and development works on the new Florida facility which will largely be financed by the monies raised on the issue of Variable Rate Demand Bonds in the USA. During the year, Florida Treatt raised US$5 million from the issue of tax exempt Variable Rate Demand Bonds. This money was raised under a Florida State initiative on the condition that it can only be applied to the purchase and development of the new Lakeland facility, over a three year period. At the end of the financial year the remaining cash balance was US$3,234,000, which is held on an interest bearing account. The bonds are redeemable over 20 years. Presently, we have covered US$2.5 million of the debt with an Interest Rate Swap at 3.54 percent fixed for 5 years. The remainder of the debt is on variable rates of interest, which historically have been below LIBOR. In respect of both fixed and floating rate debt there are letter of credit fees and other charges amounting to a further 1.2% per annum. Balance Sheet Over the year Group shareholders funds have risen to £16,357,000 or £1.62 per share. 61 percent of shareholders funds are in the form of liquid assets (excluding the cash held for restricted purposes) and the Group's land and buildings are all freehold held at historical cost. Group Tax Charge The Group's tax charge for the year represents an effective rate of 30.1 percent (2000: 28.7 percent). The rate has risen to this level as all U.S. tax losses were fully utilised during the course of the year. The Group rate is likely to remain at a similar level for 2002, as the effect of having fully utilised all of the tax losses in our US subsidiary will be offset by tax allowances on the new Florida facility. Treasury Policies The Group operates a conservative set of treasury policies to ensure no unnecessary risks are taken with the Group's assets. No investments other than cash and other short term deposits are currently permitted. Where appropriate these balances are held in foreign currencies, but only as part of the Groups' overall hedging activity. Treatt is potentially vulnerable to a number of different foreign exchange risks, but these can be broken down into two main categories. Firstly the value of the foreign currency net assets of Florida Treatt and Singapore Treatt can fluctuate with Sterling. These are currently not hedged, as the risks are considered less than the cost of putting the hedge in place. Secondly, with R.C. Treatt exporting to over 80 countries, fluctuations in Sterling's value can affect both the gross margin and operating costs. Sales are principally made in four currencies in addition to Sterling, with the United States Dollar being by far the most significant. Raw materials are also mainly purchased in US Dollars and so a US Dollar bank account is operated to allow Dollar denominated sales and purchases to flow through this account. The R.C. Treatt cash flows are such that over a period of time United States Dollar inflows and outflows net out, but if there is a mismatch in any one accounting period and the Sterling to US Dollar exchange rate changes, an exchange difference will arise. Hence it is Sterling's relative strength against the US Dollar that is of prime importance. A policy to reduce the US Dollar exposures, where possible, is in place. Currency accounts are also run for the other main currencies to which R.C. Treatt is exposed. Based on estimated future cash flows for each currency a conservative position is taken with forward contracts in order to protect the Group's asset base. This policy will protect the Group against the worst of any short-term swings in currencies, but like any exporter there are inherent risks if there is a substantial movement in currencies. TREATT PLC PRELIMINARY STATEMENT FOR THE YEAR ENDED 30 SEPTEMBER 2001 GROUP PROFIT AND LOSS ACCOUNT 2001 2000 Notes £'000 £'000 Turnover - continuing operations 1 27,664 24,137 Cost of Sales (19,234) (16,188) ______ ______ Gross profit 8,430 7,949 Net operating costs (5,560) (5,184) ______ ______ Operating profit 2,870 2,765 Net interest payable (38) (42) ______ ______ Profit on ordinary activities before taxation 2,832 2,723 Tax on profit on ordinary activities 2 (875) (782) ______ ______ Profit on ordinary activities after taxation 1,957 1,941 Dividends 3 (818) (786) ______ ______ Retained profit for the year 1,139 1,155 ______ ______ Dividends per ordinary share 3 8.1p 7.8p Earnings per share - basic 4 19.4p 19.3p - fully diluted 4 19.3p 19.1p GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES 2001 2000 £'000 £'000 Profit for the financial year before dividends 1,957 1,941 Exchange differences on foreign currency net investments (40) 309 ______ ______ Total recognised gains and losses 1,917 2,250 ______ ______ The figures for the years ended 30 September 2001 and 2000 are an abridged version of the group's audited financial statements. The figures for the year ended 30 September 2000 have been delivered to the Registrar of Companies. These statements received an unqualified audit opinion and the auditors' report contained no statement under section 237(2) or 237(3) of the Companies Act 1985. TREATT PLC PRELIMINARY STATEMENT FOR THE YEAR ENDED 30 SEPTEMBER 2001 GROUP BALANCE SHEET 2001 2000 £'000 £'000 Tangible fixed assets 7,663 5,831 Current Assets Stocks 8,480 9,275 Debtors 5,525 4,384 Cash at bank and in - restricted 2,201 - hand - unrestricted 778 169 2,979 169 ______ ______ 16,984 13,828 ______ ______ Creditors: amounts falling due in one year Loan (128) (428) Other creditors (4,663) (3,862) ______ ______ (4,791) (4,290) ______ ______ Net current assets 12,193 9,538 Total assets less current liabilities 19,856 15,369 Creditors: amounts falling due after more than one year Loan (3,274) - Deferred tax (225) (147) ______ ______ Net assets 16,357 15,222 ______ ______ Share capital 1,010 1,008 Share premium account 1,963 1,929 Profit and loss account 13,384 12,285 ______ ______ Shareholders' funds - equity interest 16,357 15,222 ______ ______ TREATT PLC PRELIMINARY STATEMENT FOR THE YEAR ENDED 30 SEPTEMBER 2001 GROUP CASH FLOW STATEMENT 2001 2000 £'000 £'000 Operating profit 2,870 2,765 Depreciation charge 555 551 Decrease/(increase) in stock 795 (1,064) Net decrease in remaining working capital and other items (399) (888) ______ ______ Cash inflow from operating activities 3,821 1,364 Return on investments and servicing of finance (38) (42) Taxation (821) (736) Capital expenditure and financial investment (4,583) (1,129) Equity dividends paid (782) (715) ______ ______ Cash outflow before financing (2,403) (1,258) Financing - issue of shares 36 - - increase/(decrease) in debt 3,402 (710) ______ ______ Increase/(decrease) in unrestricted funds in the year 1,035 (1,968) ______ ______ RECONCILIATION OF NET CASH FLOW TO INCREASE IN DEBT Increase/(decrease) in unrestricted funds in the year 1,035 (1,968) Cash (inflow)/outflow from change in debt (1,201) 710 Exchange difference 2 20 ______ ______ Increase in net debt in the year (164) (1,238) ______ ______ Net (debt)/funds at 1 October 2000 (259) 979 ______ ______ Net debt at 30 September 2001 (423) (259) ______ ______ TREATT PLC PRELIMINARY STATEMENT FOR THE YEAR ENDED 30 SEPTEMBER 2001 NOTES TO THE PRELIMINARY STATEMENT 2001 2000 £'000 £'000 1 Turnover by destination : United Kingdom 7,119 6,506 Rest of Europe 7,279 6,214 The Americas 7,121 6,032 Rest of the World 6,145 5,385 ______ ______ 27,664 24,137 ______ ______ 2 Taxation: UK current year corporation tax charge 600 667 Overseas tax charge 204 - Transfer to deferred tax 70 118 UK prior year corporation tax 1 (3) ______ ______ 875 782 ______ ______ 3 Dividends : Interim declared of 2.6p (2000: 2.5p) per 262 252 share Final proposed of 5.5p (2000: 5.3p) per 556 534 share ______ ______ Total for the year 818 786 ______ ______ Subject to approval at the Annual General Meeting on 18 February 2002, the final dividend for the year ended 30 September 2001 will be payable on 9 April 2002 to those shareholders on the Register at the close of business on 8 March 2002 ( ex-dividend date 6 March 2002). 4 (a) Basic Earnings Per Share: Basic earnings per share for the year ended 30 September 2001 is based on the weighted average number of ordinary shares in issue in the year of 10,090,249 (2000: 10,077,749) and earnings of £1,957,000 (2000: £1,941,000), being the profit on ordinary activities after taxation. (b) Fully Diluted Earnings per Share: Fully diluted earnings per share for the year ended 30 September 2001 is based on the weighted average number of ordinary shares in issue in the year, adjusted for the effect of all dilutive potential ordinary shares of 10,166,263 (2000: 10,140,429) and the same earnings as above. TREATT PLC PRELIMINARY STATEMENT For the year ended 30 September 2001 BACKGROUND NOTE Price:201p No. of Shares Market Cap: £20.3m (29 November 2001) in issue: 10,103,000 The business Treatt is a supplier of ingredients to the flavour and fragrance industry. These ingredients are included by Treatt's customers as part of a flavour or fragrance which may then be manufactured from a concentrated mixture of hundreds of different ingredients. The ingredients Treatt supply are mainly based on essential oils which are distilled or blended. There is an infinite number of potential variations of each of these as a result of different origins and production techniques. Aromatic chemicals, and a range of Treattarome(TM) natural distillates manufactured from the named food, are also supplied. Typical products including a Treatt ingredient could range from air fresheners, cosmetics, shampoos and soaps to soft drinks, confectionery and basic pharmaceutical products. Treatt is a world leader in the supply of essential oils for these uses. Customers range from small companies to large multinationals, including flavour and fragrance creators as well as consumer products manufacturers. There are hundreds of different essential oils extracted from many different botanical materials. Some examples of common oils are peppermint, lime, lavender, orange and eucalyptus. Essential oils have been used as flavour and fragrance ingredients for centuries and their use for this purpose far outweighs other uses such as aromatherapy. The vast majority of turnover from the Group's U.K. subsidiary R.C. Treatt consists of export sales. The Florida Treatt subsidiary sells primarily into the U.S. market. Strengths - Industry-leading new product development and service is maintained through the company's on-going investment in R&D. - Treatt is able to source rare and exotic essential oils from around the world and export flavour and fragrance ingredients to over 80 countries. - The finest quality raw materials are obtained and the highest standards of production are maintained through direct working relationships with growers and producers. - Customers demands, large and small, can be met at extremely short notice through Treatt's extensive stockholding of flavour and fragrance raw materials. - Consistent product quality, regardless of variations resulting from source, climate or production technique, is ensured through Treatt's expertise in blending and distilling essential oils. Key financial highlights (year end = 30 September) 2001 2000 1999 1998 1997 Pre tax profit (£m) 2.83 2.72 2.57 2.17 1.56 Turnover (£m) 27.6 24.1 22.4 22.1 22.6 EPS (p) 19.4 19.3 18.5 15.6 10.5

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