Final Results

Treatt PLC 02 December 2002 2 December 2002 TREATT PLC ('Treatt' or 'the Group') PRELIMINARY STATEMENT For the year ended 30 September 2002 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 2002. SUMMARY â€¢ Group turnover increased by 11% to Â£30.7m (2001: Â£27.6m) â€¢ Pre-tax profit before exceptional items Â£2.77m (2001: Â£2.83m) â€¢ Dividend increased by 4% to 8.4p per share â€¢ Earnings per share pre-exceptional items increased to 19.7p (2001: 19.4p) â€¢ Treatt USA sales up 27% â€¢ Invested in a new group wide IT system â€¢ Completed the relocation of Treatt USA into new purpose designed facility â€¢ One off orange stock profits earned â€¢ Significant new business won Edward Dawnay, Chairman commented: 'We are optimistic for growth in the US and we have renamed our US operation Treatt USA. Strong growth has been experienced in the last twelve months. ' For further information please contact: Treatt plc 01284 702500 Hugo Bovill, Managing Director GCI Financial 020 7072 4251 Roger Leboff CHAIRMAN'S STATEMENT 2002 was a year of significant change and modernisation for Treatt. Group turnover increased by 11 percent during the year to Â£30.7 million (2001: Â£27.6 million). Profit before tax and exceptional items is slightly lower at Â£2.77million (2001: Â£2.83 million). Earnings per share before exceptional items was 19.7 pence (2001: 19.4 pence). The Board is recommending a final dividend of 5.7 pence (2001: 5.5 pence), giving a 4 percent increase in the total dividend for the year to 8.4 pence (2001: 8.1 pence) per share. Exceptional items this year included Â£591,000 for the full write-off of R. C. Treatt's Customer Relationship Management ('CRM') system, which will be superseded by our Enterprise Resource Planning ('ERP') Group-wide IT system. A further Â£148,000 is in respect of reorganisational costs, spread across various departments, where measures have been taken to ensure staffing levels are more closely aligned to our business needs. After a dull first quarter's sales, the following nine months were strong, assisted by the Group's position in orange oil products, which resulted in some significant stock profits. Florida Treatt, now renamed Treatt USA, had a very good year winning new business across its product range with sales growing by 27 percent. This supports the Board's decision to invest in new facilities in the USA. In the UK, sales from the main operating Company, R. C. Treatt, grew largely due to increased orange oil prices and also due to increased sales to existing customers across the product range. Distribution of aroma chemicals out of the UK continue to grow, but at reduced margins due to competitive conditions. The move to a new site by our American subsidiary, Treatt USA, was completed on schedule at the end of September. The purpose-designed 65,000 sq foot facility in Lakeland was also finished within budget (US$6.3 million). As previously announced, the Group has begun implementation of our new JD Edwards ERP computer system. This began successfully at Treatt USA in October 2002. We intend to implement the system throughout the Group over the next two years, the next phase being the installation in the UK during 2003/4. This ERP system will be integrated across all the functions of our business and will allow the Group to satisfy all of the current business requirements and those which are expected to arise in the future. The Group will continue to invest in information technology in order to facilitate its future profitable growth. Prospects The Group's order books at year-end, both in the UK and the USA, were higher than last year. The results for 2003 will reflect our increased level of capital investment, both in the UK and the USA, resulting in higher depreciation charges. Similarly, the additional borrowing at fixed interest rates will also increase the amount of interest payable. We are optimistic for growth in the US but higher depreciation and interest charges will, in the short term, moderate any improvement in results. Additionally, orange oil, an orange juice by-product which is an important raw material for Treatt, is at a high price level. Orange products accounted for 19 percent (2001: 12 percent) of the Group's turnover in 2002, mainly due to higher prices of orange oil. For R. C. Treatt in the UK, the majority of orange oil is sourced from Brazil and the balance from Florida, USA. Orange oil is unusually firm for this time of year, when it normally weakens as Florida's new crop approaches. Due to the strengthening position of Treatt USA in beverage ingredients for the American domestic market the Group's business is becoming more seasonal in that the first quarter of the financial year will normally be a quieter quarter. It has already become apparent that the ability to manufacture similar products both sides of the Atlantic is of considerable interest to some potentially very large customers who wish to be assured of continuity of supply when sourcing raw materials. There are very few flavour and fragrance ingredient companies as well placed in this respect as Treatt PLC. People Each year we quite rightly acknowledge the support and dedication of our employees, and the Board would like to thank them on behalf of the shareholders. I am pleased to be able to report that as a demonstration of the strength of our commitment to the development of our personnel Anita Haines was appointed Human Resources Director of the Group on 1 October 2002. Anita Haines joined the Group in January 1988 as Company Secretary of R.C. Treatt and became Human Resources Manager in September 2000. In September 2002, Mark Bottjer tendered his resignation from his position as Finance Director of the Group effective from 31 December 2002 We wish him well in his next appointment. We are currently undertaking a selection process and we expect to make an appointment in the next few months. Edward Dawnay Chairman OPERATING REVIEW During 2002, the Group's operations delivered another satisfactory performance with a very high investment programme both in IT and equipment across the Group to meet the increasing globalisation of our customers' needs, in particular the Group's investment (of US$6.3 million) in the USA referred to below. Margins are under pressure in some areas of the business. During the last two years, there has been considerable consolidation amongst our customers in our sector. We expect this consolidation to continue as there are very few medium-sized companies with turnovers between US$75m - US$150m remaining in our industry. The tenth largest company is estimated to have sales of US$200 million, which gives the top ten customers a total sales value of approximately US$8 billion. This consolidation of our customer base has generally led to increased opportunities as the major Flavour and Fragrance companies wish to work closer with global ingredients suppliers. The Group's customer base has enlarged from 620 customers in 45 countries in 1989 to 1200 in over 80 countries in 2002. Trading Orange oil movement The last 12 months saw Orange Oil rise in price from US$1.30/kilo to over US$3.00/kilo. This material is an important raw material for the Group and the price increase in our orange products increased turnover. One-off 'stock profits' were earned, and new significant business was won in part due to our orange oil position and it is expected that some of this will be retained in future years. R. C. Treatt Sales were up by 7 percent with volumes up by 6 percent as significantly increased orange oil prices led to some one-off sales and some stock profits. Aroma chemical sales increased by 6 percent but with lower margins. Some major customers' purchasing patterns were irregular, in part due to their operational difficulties. Demand from customers for shorter lead times continued to increase. Treatt USA (formerly Florida Treatt) Sales increased by 27 percent during the year, with new business being won, in particular in our TreattaromeTM range, and we remain optimistic for these for the future. Our investment in this product line has proved to be worthwhile and has reduced our exposure in the USA to the volatility of the citrus market. Singapore Treatt The branch sales office was closed in December 2001 but we have continued to increase business satisfactorily directly from England and have strengthened our sales presence in China. Investment for the future R. C. Treatt Our ERP system has been operational in Florida since 1 October 2002, as scheduled, and should be fully implemented across the Group over the next two years. The Enterprise Resource Planning 'ERP' system is a Group-wide IT system designed to run a manufacturing business. This will supersede our fully operational CRM system in the UK, which we have decided to write off as a non-cash item of Â£591,000 in the current year, which has been taken as an exceptional charge. We believe the investments made in 2002 and to be made in 2003 are necessary to deliver the long-term growth of the business. Treatt USA Treatt USA has moved to its new site on budget and on time, with the move being made at the end of September 2002. This new site gives considerably increased production capabilities whilst meeting with customers' strict production standards. The name of our USA subsidiary has been changed to Treatt USA to better represent the Group's activities in the North American market. The word 'Florida' in the former name had strong citrus associations rather than representing the wider palate of flavour and fragrance ingredients that Treatt offers. The original site at Haines City is now for sale. Research and Development The Group remains committed to the development of new products, both for flavour and fragrance useage, which are launched on a regular basis throughout the year. We have strengthened not only our R & D facilities, but also our technical personnel, both in the USA and in the UK. R & D is also undertaken by Treatt in producing countries to develop new economically viable sources of raw materials. Investment in research and development in 2002 remained at a similar level to last year. Markets Sales in the UK increased by 6 percent, due in part to increased orange oil prices. In the rest of Europe sales were up 8 percent with gains being made in several countries. In the Americas sales were up 16 percent, which was due to another good performance at Treatt USA especially as this includes Latin America where, as expected, sales decreased by 8 percent over last year, as a result of the severe economic downturn in the region. Sales to the rest of the world grew at 13 percent. Products Orange oil, an orange juice by-product, is an important raw material for Treatt and has remained at a price level higher than expected. Orange products accounted for 19 percent of the Group's turnover in 2002. For R. C. Treatt in the UK, the majority of orange oil is sourced from Brazil and the balance from Florida, USA. The price of orange oil is unusually firm for this time of year, as it normally weakens as Florida's new crop approaches, and this will increase the Group's turnover in orange oil products. Sales from our UK based aroma chemical distribution business grew by 6 percent at lower margins, and there was continued strong growth in our high impact flavour and fragrance molecules. Sales of general commodity chemicals continued to grow, but margins continue to be under pressure. Sales of the TreattaromeTM range of natural distillates, which are manufactured by Treatt USA in Florida, doubled. This increase was across the full TreattaromeTM range and we have been advised by many of our customers that they have used them in new submissions to their end consumers. Our optimism for the future of these products is undiminished. Raw Materials With the exception of orange oil, as forecast last year, 2002 again saw many of the Group's raw materials, and therefore products, remain at historically low price levels. We expect this to continue with orange oil remaining an exception. FINANCIAL REVIEW Performance Analysis Profit and Loss account Group turnover increased by 11 percent during the year to Â£30.7million (2001: Â£27.6 million). The Group derived significant benefit from the increase in orange oil prices, with revenues from orange oil products accounting for 19 percent of the Group's turnover in 2002 (2001: 12 percent). Our US subsidiary, Treatt USA, continued to perform well with turnover increasing 27 percent over last year. Group profit before tax, before exceptional items of Â£739,000, was Â£2.77million (2001: Â£2.83million). Gross margins of 29.5 percent were achieved this year (2001: 30.5 percent) with a weakening of the US Dollar during the year being the main contributory factor for the fall. Most of our material purchases are made in US Dollars. If the Dollar weakens between the time these materials are purchased and then sold on to customers, Treatt will book the loss in Sterling terms. The Group's operating costs rose by 9.2 percent to Â£6.0 million (2001: Â£5.5 million). This includes increased payroll costs of Â£235,000, which reflects last year's pay awards and a full year of cost from new appointments made during 2001, together with additional costs relating to Lakeland, Florida and a Â£56,000 increase in insurance premiums. An exceptional charge of Â£739,000 was incurred during the year. This consists of Â£591,000 for a permanent diminution in the value of fixed assets and a Â£148,000 provision for reorganisation costs. The permanent diminution in fixed assets of Â£591,000 is for the full write-off of our CRM system, which will be replaced by the new ERP computer system. Net interest payable increased during the year to Â£167,000 (2001: Â£38,000). This was due to interest charged on the funds drawn from the Variable Rate Demand Bonds and R. C. Treatt's use of banking facilities to fund the purchase of large quantities of orange oil at competitive prices, despite this, the Group's current borrowings remain well within its available facilities. The Group's effective tax rate decreased from 30.9 percent to this year's figure of 27.3 percent. Earnings per share before exceptional items improved to 19.7 pence per share (2001: 19.4). The Earnings per share after exceptional items is 14.6 pence per share. Cashflow The Group has seen a reduction in its net cash position during the year. Cash inflow from operating activities was Â£968,000, which represents a decrease of Â£2.85 million over last year, which is largely attributable to an increase in stocks of materials. Group capital expenditure was Â£3.16 million (2001: Â£2.38 million) of which Â£2.14 million relates to the new Lakeland facility in Florida. Future capital expenditure is not envisaged to be at such high levels and will continue to be funded out of operating cashflows with the exception of further engineering and development works on the new Florida facility, to the extent that it can be financed by the remaining Â£561,000 of restricted use money raised on the issue of Variable Rate Demand Bonds in the USA. Balance Sheet Over the year Group shareholders funds have risen to Â£16,931,000 or Â£1.65 per share. 59 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 held at historical cost. Group Tax Charge The Group's current year tax charge of Â£631,000 represents an effective tax rate of 31% (2001: 30.9%). The overall tax charge of Â£554,000 is lower than the 2001 charge of Â£875,000 due, firstly to a tax benefit derived from the exceptional charge made against profits and, secondly, to timing differences in our US subsidiary which has posted a deferred tax benefit. The Group rate of tax is likely to reduce next year as some of the taxable profits in our US subsidiary will be offset by capital allowances on the new Lakeland 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 Group's 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 Treatt USA can fluctuate with Sterling. These are currently not hedged, as the risks are considered less than the cost of putting the hedge in place. Secondly, with R.C. Treatt exporting to over 80 countries, fluctuations in Sterling's value can affect both the gross margin and operating costs. Sales are principally made in four currencies in addition to Sterling, with the US Dollar being by far the most significant. Raw materials are also mainly purchased in US Dollars and so a US Dollar bank account is operated to allow Dollar denominated sales and purchases to flow through this account. The R.C. Treatt cashflows are such that over a period of time US 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 cashflows 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 2002 GROUP PROFIT AND LOSS ACCOUNT 2002 2001 Notes Â£'000 Â£'000 Turnover - continuing operations 1 30,740 27,664 Cost of Sales (21,662) (19,234) ______ ______ Gross profit 9,078 8,430 Net operating costs - exceptional items 2 (739) - - other operating costs (6,140) (5,560) ______ ______ Operating profit 2,199 2,870 Net interest payable (167) (38) ______ ______ Profit on ordinary activities before taxation 2,032 2,832 Tax on profit on ordinary activities 3 (554) (875) ______ ______ Profit on ordinary activities after taxation 1,478 1,957 Dividends 4 (864) (818) ______ ______ Retained profit for the year 614 1,139 ______ ______ Dividends per ordinary share 4 8.4p 8.1p Earnings per share - Basic - after exceptional items 5 14.6p 19.4p - before exceptional items 5 19.7p 19.4p - Diluted 5 14.6p 19.3p GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES 2002 2001 Â£'000 Â£'000 Profit for the financial year before dividends 1,478 1,957 Exchange differences on foreign currency net investments (235) (40) ______ ______ Total recognised gains and losses 1,243 1,917 ______ ______ The figures for the years ended 30 September 2002 and 2001 are an abridged version of the Group's audited financial statements, these are not statutory accounts. The figures for the year ended 30 September 2001 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 2002 GROUP BALANCE SHEET 2002 2001 Â£'000 Â£'000 Tangible fixed assets 9,523 7,663 Current Assets Stocks 10,080 8,480 Debtors 6,006 5,525 Cash at bank and in hand - restricted 561 2,201 - unrestricted 156 778 717 2,979 ______ ______ 16,803 16,984 ______ ______ Creditors: amounts falling due within one year Loan (159) (128) Bank overdraft (1,776) - Other creditors (4,325) (4,663) ______ ______ (6,260) (4,791) ______ ______ Net current assets 10,543 12,193 Total assets less current liabilities 20,066 19,856 Creditors: amounts falling due after more than one year Loan (2,941) (3,274) Deferred tax (194) (225) ______ ______ Net assets 16,931 16,357 ______ ______ Capital and reserves Share capital 1,029 1,010 Share premium account 2,139 1,963 Profit and loss account 13,763 13,384 ______ ______ Shareholders' funds - equity interests 16,931 16,357 ______ ______ TREATT PLC PRELIMINARY STATEMENT FOR THE YEAR ENDED 30 SEPTEMBER 2002 GROUP CASH FLOW STATEMENT 2002 2001 Â£'000 Â£'000 Cash inflow from operating activities 968 3,821 Return on investments and servicing of finance (167) (38) Taxation (943) (821) Capital expenditure and financial investment (1,507) (4,583) Equity dividends paid (820) (782) ______ ______ Cash outflow before financing (2,469) (2,403) Financing - issue of shares 195 36 - (decrease)/increase in debt (85) 3,402 ______ ______ (Decrease)/increase in unrestricted funds in the year (2,359) 1,035 ______ ______ RECONCILIATION OF NET CASH FLOW TO INCREASE IN DEBT (Decrease)/increase in unrestricted funds in the year (2,359) 1,035 Cash inflow from change in debt (1,545) (1,201) Exchange difference 168 2 ______ ______ Increase in net debt in the year (3,736) (164) ______ ______ Net debt at 1 October 2001 (423) (259) ______ ______ Net debt at 30 September 2002 (4,159) (423) ______ ______ TREATT PLC PRELIMINARY STATEMENT FOR THE YEAR ENDED 30 SEPTEMBER 2002 NOTES TO THE PRELIMINARY STATEMENT 2002 2001 Â£'000 Â£'000 1 Turnover by destination : United Kingdom 7,597 7,119 Rest of Europe 8,044 7,416 The Americas 8,375 7,179 Rest of the World 6,724 5,950 ______ ______ 30,740 27,664 ______ ______ 2 Exceptional items : The operating exceptional items referred to in the Group Profit and Loss Account are categorised as follows : Total Â£'000 Reorganisation costs 148 Impairment of fixed assets 591 ______ 739 ______ 2002 2001 Â£'000 Â£'000 3 Taxation: UK current year corporation tax 414 600 Overseas current year tax 248 204 Transfer (from)/to deferred tax (31) 70 UK prior year corporation tax (5) 1 Overseas prior year tax (72) - ______ ______ 554 875 ______ ______ 2002 2001 Â£'000 Â£'000 4 Dividends : Interim declared of 2.7p (2001: 2.6p) per share 278 262 Final proposed of 5.7p (2001: 5.5p) per share 586 556 ______ ______ Total for the year 864 818 ______ ______ Subject to approval at the Annual General Meeting on 24 February 2003, the final dividend for the year ended 30 September 2002 will be payable on 8 April 2003 to those shareholders on the Register at the close of business on 7 March 2003 (ex-dividend date 5 March 2003). 5 (a) Basic earnings per share: Basic earnings per share is based on the weighted average number of ordinary shares in issue and ranking for dividend during the year of 10,132,905 (2001 : 10,090,249) and earnings of : - Â£1,478,000 (2001 : Â£1,957,000), being the profit on ordinary activities after taxation and exceptional items - Â£1,996,000 (2001 - n/a) being the profit on ordinary activities, after taxation, excluding the net impact of exceptional items of Â£739,000 and tax thereon of Â£221,000 (b) Diluted earnings per share: Diluted earnings per share is based on the weighted average number of ordinary shares in issue and ranking for dividend during the year adjusted for the effect of all dilutive potential ordinary shares, of 10,135,757 (2001 :10,166,263), and the same earnings as above This information is provided by RNS The company news service from the London Stock Exchange

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