Final Results

Treatt PLC 13 December 2004 TREATT PLC PRELIMINARY STATEMENT FOR THE YEAR ENDED 30 SEPTEMBER 2004 GROUP PROFIT AND LOSS ACCOUNT Treatt PLC, the manufacturer and supplier of flavour and fragrance ingredients, primarily natural essential oils and natural extracts, announces today its preliminary results for the year ended 30 September 2004. Summary Earnings before interest, tax, depreciation and amortisation (EBITDA) up 17.2% to Â£3.31m (2003: Â£2.83m) Profit before tax and exceptional items up 10.5% to Â£2.31 million (2003: Â£2.09 million) Profit after taxation rose by 21% to Â£1.7 million (2003: Â£1.4 million) Group turnover increased by 0.4% to Â£31.8 million (2003: Â£31.7 million) Treatt USA $ sales up 41.5% Dividends increased 5% to 8.8p per share (2003: 8.4p) Earnings per share before exceptional items 16.0p (2003: 14.6p) Edward Dawnay, Chairman commented: 'The Group has performed well over the last year, with Treatt USA significantly outperforming expectations. Despite the weakness of the US$ and falling orange oil price, EBITDA increased by 17.2%. The prospects for further significant growth at Treatt USA and improved efficiency resulting from the new Enterprise Resource Planning system at R. C. Treatt in the UK bode well for the coming year.' Enquiries: Treatt plc Tel: 01284 702 500 Hugo Bovill Managing Director Richard Hope Finance Director CHAIRMAN'S STATEMENT ______________________________________________________________________________ 'Treatt USA achieved record profits with turnover up by 41% to $13.5m' 2004 saw Group earnings before interest, tax, depreciation and amortisation increase by 17% to Â£3.31 million (2003: Â£2.83 million) with profit before tax and exceptional items for the year increasing by 10% to Â£2.31 million (2003: Â£2.09 million). Group turnover for the year remained steady at Â£31.81 million (2003: Â£31.68 million) whilst earnings per share before exceptional items increased by 10% to 16.0 pence (2003: 14.6 pence). Having eliminated all short term debt during the year, the level of the Group's net debt/equity ratio ended the year at 9% (2003: 26%). The Board is recommending a final dividend of 6.1 pence (2003: 5.7 pence), increasing the total dividend for the year by 5% to 8.8 pence (2003: 8.4 pence) per share. The highlight of the year was the strong performance of Treatt USA where record profits were achieved and turnover increased by 41% to $13.5 million. This follows a year of transition (2002/3) during which Treatt USA moved to its new facilities in Lakeland, Florida and represents a significantly greater return on this investment than was originally expected. This growth occurred across the full range of products and a widely spread customer base, with a greater than three-fold increase in Treattarome(TM) ('From The Named Food') sales being of particular note.. The Board is particularly pleased that the Company's commitment to organic growth in the United States over the last fourteen years has now led to the successful establishment of a strong presence in North America. For R. C. Treatt, the Group's UK operating subsidiary, the year has been challenging. Turnover fell by 5.7% and was significantly affected by falling orange oil prices and the continuing weakness of the US Dollar. In January 2004 R. C. Treatt successfully implemented its Enterprise Resource Planning (ERP) system. The extent to which the new system has led to significant business and information improvements in a relatively short period of time has exceeded the Board's expectations.. The focus on delivering this new system required a substantial amount of internal resource in the UK. This impacted upon the performance of R. C. Treatt during the implementation period, which had a weak first half of the financial year. However, profits in the second half improved, being 38% up on the second half of last year. It has become apparent that one of the key benefits of the new system is that of enabling R. C. Treatt to reduce lead times to customers. We stated last year that the orange oil market would be the area of greatest uncertainty for the Group, and this proved to be the case. Indeed the price of orange oil (which continues to represent about 20% of Group turnover at 2003/4 prices) fell by more than half during the year, although it is now expected to stabilise as a result of the recent hurricanes in Florida. The consequence of the falling price of orange oil reduced the Group's profits by over Â£500,000. Employee Share Ownership During the year the Group introduced share saving schemes in both the UK and USA in order to give employees the opportunity to acquire shares in the Group on a tax efficient basis. An Employee Benefit Trust has been established in order to acquire shares from time to time which may be used to satisfy the requirements of the share save schemes. Further information is provided in the Financial Review. USA Property The sale of Treatt USA's former premises at Haines City was successfully completed prior to the year end, resulting in net proceeds of Â£270,000 ($483,000), an exceptional gain for the Group of Â£131,000. Prospects We expect continued growth in sales and operating margins in the current year which will be mainly due to further significant sales opportunities arising in the United States. At the same time, the growth at Treatt USA will require a further strengthening of its infrastructure across a number of areas including R &D, product innovation, engineering and sales. Following the success of the ERP system in the UK, it is now our intention to develop further the Group's processes by fully integrating Treatt USA into one company-wide ERP system by the middle of 2005. Experience gained in the UK will be used in order to achieve a smooth installation. The recent occurrence of four major hurricanes, which have hit Florida, have left Treatt USA unscathed, both physically and in terms of the impact on various commodity prices. The most significant effect of the hurricanes is that it has lead to shortages and increasing prices of grapefruit products. The impact of higher US Dollar petroleum prices is resulting in increases in some Dollar priced aroma chemicals, and some Dollar priced essential oils have begun to strengthen. As a leading independent manufacturer of ingredients for the flavour and fragrance industry, with a presence both in Europe and the United States, Treatt Plc remains in a strong position to grow its business on both sides of the Atlantic. People Our employees both in England and the United States have continued to demonstrate their commitment and dedication and it is important, on behalf of the Board, to thank all our colleagues for their tremendous efforts over the last year. Particular mention should be made of the fact that our employees at Treatt USA have endured four hurricanes, the first time this has been experienced in a single state for over a century. Many of them suffered serious damage to their homes and our thoughts were with them during those difficult times. Edward Dawnay Chairman OPERATING REVIEW 2004 ________________________________________________________________________________ 'The new ERP system has significantly improved efficiencies' During 2004 the Group's operations performed satisfactorily, with the implementation of the Enterprise Resource Planning (ERP) system having a significant impact in the UK. As a result of the implementation, R. C. Treatt now has a fully integrated manufacturing system combining sales order processing, production, shipping, QC and finance. The Group's investment in ERP totalled Â£1.2 million, with little additional expenditure still required in order to implement the full system in America. There was further investment in specialised equipment in both the UK and USA totalling Â£475,000 in order to increase capacity for value added products on both sides of the Atlantic. The extent of Treatt's global reach is best demonstrated by the fact that last year Treatt sold to over 80 countries whilst sourcing supplies from many others. The ability of Treatt to comply with the different legislative requirements needed to send shipments all around the world is particularly important for major customers who may wish to move their operations from one part of the world to another. Similarly, Treatt's state of the art QC laboratories place Treatt at the forefront of the industry's analytical systems and techniques, and, therefore able to provide the added value service which customers now require. Trading The last 12 months saw a significant fall in the price of orange oil, an orange juice by-product, from almost $3/kg to around $1-$1.50/kg. This reduced Group profits by more than Â£500,000. There were no other significant commodity price movements which had a material effect on the financial results for the year. R. C. Treatt Sales value decreased by 6% despite volumes increasing by 14%, and sales to the top ten customers represented just over one third of turnover, which is similar to previous years. Considering the level of concentration within the industry, we believe the customer mix, both in terms of size and location, provides the company with a well-balanced risk profile. Gross margins for the year remained stable although this masks a sharp fall in margins on orange products and a corresponding increase in margins on other manufactured products. The recent rise in petroleum prices is having an important impact on chemical prices with a wide range of chemical Dollar prices now on the way back up. Treatt USA US Dollar sales were up by 41% during the year with the Treattarome(TM) products performing exceptionally well assisted by the strong demand for low carbohydrate products. This result was all the more commendable bearing in mind the impact of the fall in the price of orange oil which reduced Treatt USA's profit by approximately $500,000 (Â£275,000). Investment for the future R. C. Treatt Following the substantial investment in computer systems and processes at R. C. Treatt, the level of capital expenditure is now expected to return to more normal levels. The Company will continue to invest in Information Technology where this provides clear added value benefits either in terms of increased efficiencies or improved customer service. Further investment in new facilities will occur where it is necessary to increase capacity or as a result of product innovation or market opportunities. Treatt USA Following the substantial growth of the last year, and the expected growth for the next twelve months, it is important that Treatt USA continues to invest in developing facilities at its modern premises in Lakeland, Florida in order to maximise its potential. The Board will keep under review the need to develop the additional five acres adjacent to the existing plant. Research and Development The Group has continued to invest in skilled personnel to enhance its research and development and product innovation capabilities both in the UK and USA. In particular, Treatt USA is currently in the process of developing further its R&D function in order to maximise the growth opportunities which are expected to arise. Treatt also believes in continuing to work in partnership with suppliers in producing countries in order to develop new sources of raw materials on a financially viable basis. Markets During the year, the overall geographical spread of the Group's turnover remained largely unaltered, with a small reduction in the proportion of sales to the Rest of Europe which fell by 8%, whilst sales to the Americas rose by 15% largely due to the growing ability of Treatt USA to tap into the North American market. Products The Group's sales of sweet orange oil based products increased by 5% year on year as efforts were made to minimise stock holdings as orange oil prices fell sharply. Despite these efforts it was inevitable that the Group would suffer significant losses on orange oil products given that the price fell to about a third of its previous level and is used as part of the Group's manufacturing processes on a continual basis. Following investment in new plant and equipment at R. C. Treatt, there was a significant increase in the production and sale of speciality products, with a 61% growth by volume. With over 90% of Treatt USA's sales being manufactured from natural ingredients, there was significant growth across the entire product range, with particularly strong growth in sales of the Treattarome(TM) range of natural distillates. Personnel The Group recognises the importance of maximising employee potential and has continued to invest in human resources, with a strong emphasis on staff training, personal development and communication. With the introduction of the new ERP system this has necessitated the re-training of the vast majority of R. C. Treatt's staff as part of the implementation process. Standard terms and conditions of employment operate for all staff, which do not discriminate against any individual or group of people. Employee involvement in the Group's performance is encouraged and Group FINANCIAL REVIEW 2004 ______________________________________________________________________________ 'Dividend increased by 4.8%' Performance Analysis Profit and Loss account Group turnover increased by 0.4% during the year to Â£31.81 million (2003: Â£31.68 million). In constant currency, sales at our USA subsidiary, Treatt USA, increased in US Dollars by 41.5%, whilst R. C. Treatt's sales fell by 5.7%. Earnings before interest, tax, depreciation and amortisation for the year grew by 17.2% to Â£3.31 million (2003: Â£2.83 million) and Group profit before tax, before exceptional items, rose by 10.5% to Â£2.31 million (2003: Â£2.09 million). The total dividend for the year has been increased by 4.8% to 8.8p per share, resulting in a dividend cover of 1.9 times earnings. The increase in profitability was led by the performance at Treatt USA, which would have improved Group results even further had the US Dollar not weakened by almost 10%. The growth in profit at Treatt USA was broadly based, with sales increasing across the product range, especially in Treattarome(TM) products which benefited from the popularity of low carbohydrate foods. R. C. Treatt's profits fell during the year largely due to a weak December/January period coinciding with the implementation of the ERP system and the impact of falling orange prices. Gross margins of 26.6% were achieved this year (2003: 27.3%) despite the impact of falling orange oil prices, which reduced Group profits by more than Â£500,000. The further weakening of the US Dollar has also adversely affected Group margins although hedging strategies are in place as explained below. Overall, margins in non-orange manufactured products strengthened whilst aroma chemical margins were maintained. The Group's operating costs fell by 5.1% to Â£6.0 million (2003: Â£6.4 million). At Treatt USA there was a reduction of Â£297,000 ($532,000) in operating costs due to the lack of certain expenses incurred last year following the relocation in Florida. Total staff numbers across the Group fell slightly as a result of the increased efficiencies at R. C. Treatt which flowed from the new ERP system. Included as part of the exceptional items for the Group was a profit of Â£131,000 on the sale of Treatt USA's former premises at Haines City, Florida and a charge of Â£70,000 for reorganisation costs at R. C. Treatt following efficiency gains which flowed from the ERP system. The Group's net interest payable fell by 41% to Â£123,000 (2003: Â£208,000) following a significant reduction in the Group's debt as all short term debt was eliminated during the year. This leaves the outstanding balance of Â£2.4 million in relation to the Industrial Development Loan which was used to finance the Lakeland facilities for Treatt USA. Earnings per share before exceptional items increased by 9.6% to 16.0 pence per share (2003: 14.6 pence). The Earnings per share after exceptional items rose to 16.6 pence per share (2003: 13.6 pence). Both measures have been shown in order to provide a consistent measure of performance over time and excludes those shares which were acquired by the Treatt Employee Share Trust since they do not rank for dividend. During the year the company reviewed its policy on providing employees with the opportunity to acquire shares in the Group and implemented a rolling programme of annual share saving schemes for staff in the UK and USA. This is the first time this opportunity has been provided to USA employees. As a result, options were granted over 65,000 shares during the year. Alongside these schemes, an Employee Benefit Trust (EBT) has been established to acquire shares on a periodic basis which may be used to satisfy these schemes. The Trust has made an initial purchase of 148,000 ordinary shares. Cashflow The Group has seen a decrease in its net borrowings during the year of Â£2.9 million to Â£1.6 million. Cash inflow from operating activities was Â£5.0 million, which represents an increase of Â£2.7 million over last year, largely due to the predicted reduction in stock balances which totalled Â£2.6 million. The reduction in the Group's level of stock holding was primarily a result of orange oil prices falling by two thirds of their previous value. Upon completion of the new ERP system Group capital expenditure fell, as expected, to Â£0.9 million (2003: Â£1.4 million). As reported last year, Treatt USA signed a conditional agreement a year ago for the lease and subsequent sale of its former site at Haines City. As expected, the sale took place in September 2004 for Â£270,000 ($483,000), resulting in an exceptional gain of Â£131,000 ($234,000). Balance Sheet Over the year Group shareholders' funds have grown to Â£17,325,000 (2003: Â£17,228,000), with net assets per share increasing to Â£1.68 (2003: Â£1.67), an increase of 23% over the last five years. Net current assets represent 61% of shareholders' funds and the Group's land and buildings are all held at historical cost. It should be noted, however, that net assets have been reduced by Â£278,000 as a result of the purchase of shares by the Treatt Employee Share Trust due to the accounting requirements of UITF Abstract 38. This impact will be reversed when these shares are used to satisfy employee share saving schemes. Group Tax Charge The Group's current year tax charge of Â£680,000 represents an effective tax rate of 29% (2003: 29%). The overall tax charge of Â£669,000 is higher than the 2003 charge of Â£545,000 due principally to a far great proportion of the Group's profit being subject to USA state and federal taxes at a combined marginal rate of approximately 34%. However, this has been offset by some of the foreign exchange losses which are included in the Statement of Recognised Gains and Losses. 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 as explained below. 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. This risk manifests itself in a number of ways. Firstly, the value of the foreign currency net assets of Treatt USA can fluctuate with Sterling. Currently these are not hedged, as the risks are not considered to justify 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. Even if a sale is made in Sterling, its price may be set by reference to its US Dollar denominated commodity price and therefore have an impact on the Sterling gross margin. Raw materials are also mainly purchased in US Dollars and therefore a US Dollar bank account is operated, through which Dollar denominated sales and purchases flow. 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. 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 competitiveness. The Group therefore has a policy of maintaining the majority of cash balances, including the main Group overdraft facilities, in US Dollars as this is the most cost effective means of providing a natural hedge against movements in the US Dollar/Sterling exchange rate. Currency accounts are also run for the other main currencies to which R.C. Treatt is exposed. This policy will protect the Group against the worst of any short-term swings in currencies. International Accounting Standards All companies listed on the London Stock Exchange are required to implement International Accounting Standards (IAS) with effect from accounting periods beginning on or after 1 January 2005. Therefore the financial statements for the year ended 30 September 2006 will be the first time the Group's results will be published using IAS. Work is currently on-going to assess the full impact of IAS on the Group's balance sheet and profit and loss account, but at this stage the Board believe that the most significant effect will flow from IAS 19: Employee Benefits which will require the surplus or deficit in the defined benefit pension scheme operated by R. C. Treatt to be brought on to the balance sheet using similar calculations as prescribed by FRS17 (see note 21). The deficit of the scheme as at 30 September 2004 was Â£2.1 million (net of deferred tax). TREATT PLC PRELIMINARY STATEMENT FOR THE YEAR ENDED 30 SEPTEMBER 2004 GROUP PROFIT AND LOSS ACCOUNT 2004 2003 Notes Â£'000 Â£'000 Turnover - continuing operations 1 31,809 31,683 Cost of sales (23,354) (23,035) _________ _________ Gross profit 8,455 8,648 Net operating costs - exceptional items 2 (70) (139) - other operating costs (6,025) (6,352) _________ _________ Operating profit 2,360 2,157 Exceptional profit on sale of fixed 2 131 - assets _________ _________ Profit on ordinary activities before 2,491 2,157 interest Net interest payable (123) (208) _________ _________ Profit on ordinary activities before taxation 2,368 1,949 Tax on profit on ordinary activities 3 (669) (545) _________ _________ Profit on ordinary activities after 1,699 1,404 taxation Dividends 4 (893) (865) _________ _________ Retained profit for the year 806 539 _________ _________ Dividends per ordinary share 4 8.8p 8.4p Earnings per share - Basic - after exceptional items 5 16.6p 13.6p - before exceptional items 5 16.0p 14.6p - Diluted 5 16.6p 13.6p GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES 2004 2003 Â£'000 Â£'000 Profit for the financial year before dividends 1,699 1,404 Exchange differences on foreign currency net investments (431) (246) _________ _________ Total recognised gains and losses 1,268 1,158 _________ _________ The figures for the years ended 30 September 2004 and 2003 are an abridged version of the group's audited financial statements, these are not statutory accounts. The figures for the year ended 30 September 2003 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 2004 GROUP BALANCE SHEET 2004 2003 Â£'000 Â£'000 Tangible fixed assets 9,536 9,911 Current Assets Stocks 8,355 10,987 Debtors 6,007 5,439 Cash at bank and in 809 304 hand _________ _________ 15,171 16,730 _________ _________ Creditors: amounts falling due within one year Loan (141) (150) Bank overdraft - (2,061) Other creditors (4,451) (4,209) ______ ______ (4,592) (6,420) ______ ______ Net current assets 10,579 10,310 _________ _________ Total assets less current 20,115 20,221 liabilities Creditors: amounts falling due after more than one year Loan (2,271) (2,631) Deferred tax (519) (362) _________ _________ Net assets 17,325 17,228 _________ _________ Capital and reserves Share capital 1,029 1,029 Share premium account 2,143 2,143 Own shares in share (278) - trust Profit and loss 14,431 14,056 account _________ _________ Shareholders' funds Equity 17,325 17,228 Interests _________ _________ TREATT PLC PRELIMINARY STATEMENT FOR THE YEAR ENDED 30 SEPTEMBER 2004 GROUP CASH FLOW STATEMENT 2004 2003 Â£'000 Â£'000 Cash inflow from operating activities 4,952 2,263 Return on investments and servicing of finance (123) (208) Taxation (312) (355) Capital expenditure and financial investment (646) (819) Equity dividends (861) (860) paid _________ _________ Cash inflow before financing 3,010 21 Financing - issue of shares - 4 - acquisition of own shares (278) - by share trust - decrease in debt (142) (162) _________ _________ Increase/(decrease) in funds in the 2,590 (137) year _________ _________ ===================================================================================== RECONCILIATION OF NET CASH FLOW TO DECREASE/(INCREASE) IN DEBT Increase/(decrease) in funds in the 2,590 (137) year Cash inflow/(outflow) from change in 142 (383) debt Exchange difference 203 141 _________ _________ Decrease/(increase) in net debt in the 2,935 (379) year Net debt at 1 October 2003 (4,538) (4,159) _________ _________ Net debt at 30 September 2004 (1,603) (4,538) _________ _________ TREATT PLC PRELIMINARY STATEMENT FOR THE YEAR ENDED 30 SEPTEMBER 2004 NOTES TO THE PRELIMINARY STATEMENT 2004 2003 Â£'000 Â£'000 1 Turnover by destination : United Kingdom 6,725 6,918 Rest of Europe 8,674 9,441 The Americas 8,756 7,649 Rest of the World 7,654 7,675 _________ _________ 31,809 31,683 _________ _________ 2 Exceptional items : The exceptional items referred to in the Group Profit and Loss Account are categorised as follows : 2004 2003 Â£'000 Â£'000 Reorganisation costs 70 139 _________ _________ Profit on the sale of fixed assets (131) - _________ _________ 2004 2003 Â£'000 Â£'000 3 Taxation: UK current year corporation tax 395 468 Overseas current year tax 109 (13) Transfer to deferred tax 176 103 UK prior year corporation tax (10) (41) Overseas prior year tax 18 (37) Prior year deferred tax (19) 65 _________ _________ 669 545 _________ _________ 2004 2003 Â£'000 Â£'000 4 Dividends : Interim declared of 2.7p (2003: 2.7p) 278 278 per share Final proposed of 6.1p (2003: 5.7p) per 615 587 share _________ _________ Total for the year 893 865 _________ _________ Subject to approval at the Annual General Meeting on 28 February 2005, the final dividend for the year ended 30 September 2004 will be payable on 11 March 2005 to those shareholders on the Register at the close of business on 11 February 2005 (ex-dividend date 9 February 2005). 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 10,248,749 (2003 : 10,290,872) and earnings of : - Â£1,699,000 (2003 : Â£1,404,000), being the profit on ordinary activities after taxation and exceptional items - Â£1,643,000 (2003: Â£1,501,000) being the profit on ordinary activities, after taxation, excluding the net impact of exceptional items of Â£(Â£61,000) and tax thereon of (Â£4,546). The weighted average number of shares excludes shares held by the Treatt Employees' Share Trust. (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 10,259,601 (2003 :10,290,872), 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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