REG - Treatt PLC - Full Year Results
30/11/2021 07:00
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RNS Number : 9570T Treatt PLC 30 November 2021
TREATT PLC
FULL YEAR RESULTS
YEAR ENDED 30 SEPTEMBER 2021
Record performance on all key metrics
Treatt plc, the manufacturer and supplier of innovative ingredient solutions
for the flavour, fragrance, beverage and consumer product industries,
announces today its results for the year ended 30 September 2021.
FINANCIAL HIGHLIGHTS(1):
Financial Financial Change
year ended
year ended
30 September 2021
30 September 2020
Revenue £124.3m £109.0m +14.0%
Gross profit £42.2m £31.9m +32.5%
Gross profit margin 34.0% 29.2% +480 bps
Profit before tax and exceptional items £20.9m £14.8m +41.3%
Profit before tax £19.6m £13.7m +42.8%
Adjusted basic earnings per share 27.05p 19.72p +37.2%
Basic earnings per share 25.19p 18.12p +39.0%
Final dividend per share 5.50p 4.16p +32.2%
Total dividend per share 7.50p 6.00p +25.0%
Adjusted return on average capital employed(2) 20.9% 18.6% +230 bps
OPERATIONAL HIGHLIGHTS(1):
· Increased revenue driven by growth across multiple addressable
markets.
· Gross profit margin grew by 480bps, led by growth in healthier
living categories.
· Profit before tax and exceptional items up 41.3% to £20.9m -
substantially exceeding Board's initial expectations.
· Diversification of portfolio continues: almost 80% of Group
revenue from higher margin natural and clean-label products.
· Successfully navigated COVID-19 challenges, and no material
impact from global supply chain issues.
· Ongoing capital investment for future growth:
v Phase one installation and commissioning of plant and machinery is due to be
complete mid-2022.
v Phase two transfer of manufacturing equipment from old facility due to be
completed by mid-2023.
· Embedding sustainability strategy across Group.
· Confident in the outlook - continued strong growth in revenue
expected, with reversion to normal H1 / H2 split.
Commenting on the results, CEO Daemmon Reeve said:
"We are very proud to be reporting record full year results for Treatt against
all of our key metrics. It has been a remarkable performance in a year when we
have been dealing with the continued impact of the COVID-19 pandemic and
volatility in market conditions. We have managed to deliver really strong
profit growth across multiple categories, particularly through aligning with
consumer beverage trends and the wide demand for healthier, natural products.
This has all happened while continuing to invest in the future growth
potential of the business.
This strong performance is testament to the efforts of everyone at Treatt, who
I would like to thank.
We are making the right investments at the right time on our growth journey. I
have no doubt that the combined effect of increasing our investment in
R&D, realising the multitude of benefits from the new UK headquarters and
strengthening our team will elevate Treatt to a new level with further
sustained benefits to all of our stakeholders."
Analyst and investor conference call
A conference call for analysts and investors will be held at 10.00 a.m. today,
30 November 2021. For dial-in details, please contact MHP Communications at
treatt@mhpc.com.
( )
( )
(1) All measures based on continuing operations.
(2) Adjusted return on average capital employed is calculated by dividing
operating profit before exceptional items (as shown in the Group income
statement) by the average capital employed in the business, which is
calculated as total equity (as shown in the Group balance sheet) plus net debt
or minus net cash (as shown in the Group reconciliation of net cash flow to
movement in net cash), averaged over the opening, interim and closing
amounts.
Enquiries:
Treatt plc +44 (0)1284 702500
Daemmon Reeve Chief Executive Officer
Richard Hope Chief Financial Officer
Joint Broker
Investec Bank plc +44 (0)20 7597 5970
Patrick Robb
David Anderson
Joint Broker
Peel Hunt Plc +44 (0)20 7418 8900
George Sellar
Andrew Clark
Financial PR
MHP Communications +44 (0)20 3128 8339
Tim Rowntree
Simon Hockridge
Catherine Chapman
About the Group
Treatt is a global, independent manufacturer and supplier of a diverse and
sustainable portfolio of natural extracts and ingredients for the flavour,
fragrance and multinational consumer product industries, particularly in the
beverage sector. Renowned for its technical expertise and knowledge of
ingredients, their origins and market conditions, Treatt is recognised as a
leader in its field.
The Group employs over 300 staff in Europe, North America and Asia and has
manufacturing facilities in the UK and US. Its international footprint enables
the Group to deliver powerful and integrated solutions for the food, beverage
and fragrance industries across the globe.
For further information about the Group, visit www.treatt.com
(http://www.treatt.com) .
CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS
This announcement contains forward-looking statements that are subject to risk
factors associated with, among other things, the economic and business
circumstances occurring from time to time in the countries, sectors and
markets in which the Group operates. It is believed that the expectations
reflected in these statements are reasonable, but they may be affected by a
wide range of variables which could cause actual results to differ materially
from those currently anticipated. No assurances can be given that the
forward-looking statements in this announcement will be realised. The
forward-looking statements reflect the knowledge and information available at
the date of preparation of this announcement and the Group undertakes no
obligation to update these forward-looking statements. Nothing in this
announcement should be construed as a profit forecast.
Chairman's statement
In this highly unusual and challenging year, it's my pleasure to report that
Treatt has continued to thrive
We have delivered another year of exceptional results, continuing to grow the
business strongly. This is particularly impressive given that many of our
markets remained severely impacted by the COVID-19 pandemic, with the results
demonstrating the resilience and adaptability of the Treatt business. We have
delivered a strong performance across all of our key financial metrics,
including profit before tax and exceptional items increasing by 41.3% to
£20.9m.
To achieve this without taking any government support nor putting any staff on
furlough, whilst continuing to prioritise the health, safety and wellness of
our employees is, in a word, remarkable.
The Board and I are incredibly proud of the dedication and commitment shown by
all our staff during the year. Whether working from home or in our
manufacturing facilities, our teams have met a variety of challenges and lived
up to our Company values time and time again. My heartfelt thanks go to each
and every one of them.
Performance
Our performance this year has substantially exceeded our original
expectations, not just in overcoming the challenges of COVID-19, but also in
outperforming against our original, pre-pandemic projections. With a number of
our customers' key markets and on-trade channels severely disrupted or closed,
a notable achievement over the year has been our success in serving our
customers' retail channels. Revenue growth across almost all categories has
been strong, with our healthier living categories thriving in particular.
As we continue to solidify our position as a key supplier to a number of the
largest beverage operators, a key win for Treatt has been the swift evolution
of the ready-to-drink canned cocktail market, where we have a strong position
with multiple leading brands. The rapid innovation of new flavours in that
space is testament both to our impressive ability to respond to new consumer
trends, and to our strong supply chain relationships.
Capital investments for growth
Building on investment in our US facilities over recent years, further
long-term investment plans are coming to fruition through the transition to
our new UK Headquarters. We are delighted with the new facility, which will
give us substantial extra capacity to grow with much greater efficiency and an
emphasis on sustainability. The feedback from customers who have visited the
new site has been extremely positive. We are also laying strong foundations in
China to position us well for growth across Asia.
ESG and our culture
Sustainability has always been at the core of the Treatt business. With new
infrastructure investments in place, one of our key areas of focus is to
formalise our ESG (environmental, social and governance) agenda to ensure it
is both robust and is setting relevant and ambitious targets. We have been
working with external sustainability consultants to improve how we measure our
impacts across a range of environmental and social areas. This has led to a
new sustainability strategy, which includes a number of refreshed priorities
for the business.
We have also been taking a closer look at our purpose as a business, led by
our employees, which is becoming ever more relevant in a world increasingly
seeking high quality, and sustainable, natural extracts and ingredients as the
growing focus on health and well-being continues.
I am proud of our supportive culture and the many initiatives carried out
across the Group supporting good mental health. Colleagues came together to
support one another throughout, and hopefully soon, out of the other side of
the pandemic.
Board changes during the period
We have built a diverse and skilled Board. Vijay Thakrar will take over as the
new Chair of our Audit Committee when Jeff Iliffe steps down from the Board on
25 February 2022. I would like to express my thanks to Jeff for his dedication
to Treatt since 2013, for his wisdom, support, and the superb contribution he
has made. Richard Illek steps down from the Board on 31 December 2021. Again,
I would like to express thanks to Richard for his contribution since 2016,
having shared with us his reservoir of knowledge and experience.
Richard Hope, our longstanding Chief Financial Officer, is set to retire from
the business on 30 June 2022. Richard's role in our transformation and growth
cannot be overstated and we wish him all the best for his well-deserved
retirement when it comes. Our search for each of their replacements is
underway.
Dividend
The Directors are pleased to propose a final dividend of 5.50p per share
(2020: 4.16p), which represents an increase in the total dividend for the year
of 25.0% to 7.50p (2020: 6.00p). If approved by shareholders at the Annual
General Meeting, the final dividend will be payable on 17 March 2022 to all
shareholders on the register at the close of business on 4 February 2022.
Outlook
The Group continues to go from strength to strength. We have a solid business
model, a clear strategy and exciting opportunities as markets reopen, new
trends emerge, and we enter new territories. As we begin saying goodbye to
Northern Way, the home that has served us well for nearly half a century in
the UK, we are excited about the continued transition into our new UK
Headquarters in Skyliner Way, which has been designed to be both
environmentally efficient and to support the wellbeing of our employees. I'm
confident that we have all the right elements in place to build on our
remarkable track record of growth. The resilience we have shown in achieving
such positive results demonstrates that we are well positioned to deliver on
our ambitions.
Tim Jones
Chairman
29 November 2021
Chief Executive's review
Delivering a remarkable performance
We have delivered a remarkable performance in a year when we have been
managing both the continued impact of the COVID-19 pandemic and volatility in
market conditions. We have outperformed expectations to deliver strong growth
across multiple categories, all the while making progress with a number of
strategic investments.
Looking back on the year, I want to pay tribute to my colleagues across the
Group for their perseverance and endeavour during difficult times. The safety
measures we have had in place haven't always made the working environment
easy, but I'm proud that we have delivered on our primary goal of keeping our
colleagues safe and well. Our strong performance is testament to the efforts
of everyone at Treatt, our agility and our supportive culture.
Building on the momentum of last year, the results reflect the resilience of
the Group and also our ability to respond to changing market conditions and
adapt accordingly. The strategic focus we have placed on higher value
solutions, and on driving a strong performance serving our customers' retail
channels, has been truly exceptional. Through this we have delivered revenue
of £124.3m (2020: £109.0m) and a profit before tax and exceptional items for
the year of £20.9m (2020: £14.8m), representing increases of 14.0% and 41.3%
compared with last year.
This outstanding performance has been achieved in spite of COVID-19. Due to
the sporadic closing and reopening of the hospitality industry around the
world, we've experienced a year of fluctuating consumer demand. Even in open
economies, beverage consumption is yet to return to pre-pandemic levels,
although retail channels have seen notable success. That makes our growth all
the more gratifying and gives us reason to be optimistic about the future.
Long-term macro trends in the marketplace are closely aligned with Treatt's
strengths, and are focused around premiumisation, authenticity and natural
ingredients. The strategic positioning of our portfolio means we are well
positioned to benefit through our various natural, healthier living product
categories.
Aligned with growing consumer trends
We are more in tune than ever with evolving consumer tastes. The key beverage
trend which has supported our growth during the year has been the
ready-to-drink canned cocktail market, including hard seltzers. We have also
experienced success across a wide range of existing and new market beverages,
showcasing our diverse portfolio of solutions. Hard seltzers have proven to be
a high growth opportunity for the beverage market and a sweet spot for us as a
Group. High-quality natural extracts are the key ingredient in delivering
low-calorie, premium alcoholic beverages, and our technical expertise in this
space has led many of the world's leading brands to partner with Treatt.
More widely, consumer demand for a variety of healthier, premium beverages
continues apace, with revenue growth of 64.1% across our healthier living
categories (tea, health & wellness and fruit & vegetables) driven not
just by hard seltzers, but beverages such as energy drinks and flavoured
waters too. The strength of these numbers demonstrates that there is still
plenty of momentum in these trends even after several years of growth.
We have also had multiple wins across our other categories, both from existing
and new customers. Citrus remains a key category, and one that we are evolving
as we move towards a more sophisticated, premium customer offering with higher
margins. It now represents 43.6% of our revenues (2020: 50.3%) as we continue
to reduce our dependency on lower margin traded and minimally-processed
citrus, to higher value, higher margin solutions. We also continue to make
good progress with our coffee platform, with some significant client wins
during the year and we have a promising pipeline of opportunities for the year
ahead.
Away from beverage, we have recently signed a significant new five-year
contract with Robinson Brothers within our synthetic aroma business, which
continues to see strong levels of growth through our flavour house partner
channels and feeds into important, growing markets such as flavours for
alternative proteins and snack foods.
Continuing to invest for future growth
To build the business and support our future growth, we have made a number of
strategic investments in both physical infrastructure and people this year.
We are making good progress with the transition to our new, state-of-the-art
UK Headquarters, despite occasional COVID-19 interruptions. From September
2021, we saw office-based colleagues move to the new site, with some
laboratory functions following and manufacturing equipment currently being
commissioned. We have exchanged contracts on the sale of the Northern Way site
which has served us well for 50 years, for a net consideration of £5.6m,
having outgrown it visually and strategically. Early customer feedback from
visits to our new facility at Skyliner Way has been positively effusive and it
is a joy to see some of the brilliant team we have across the Treatt business
in the UK working from an environment which they truly deserve. To have grown
the business to what it is today from our rather humble Northern Way site is a
huge achievement and as I look forward to having a UK environment which
reflects the business we have become, I am eagerly looking forward to our
future.
We're excited about the opportunities presented by the completion of the new
facility. It signifies the next chapter in the Treatt story and provides the
ideal platform for us to deliver on our growth ambitions, enabling us to
increase capacity, margins and productivity, as well as continuing to enhance
our customers' experiences as we embed ourselves as a leading natural extracts
business. The superb state-of-the-art technical centre in our Skyliner Way
facility will enable more co-creation opportunities with our customers which
are so powerful in building long-term relationships.
Alongside our recent US and UK infrastructure investments, we continue to
focus on China. We established a wholly-owned foreign enterprise in China
during the year, and are optimistic about our potential in the region as we
continue to unlock further meaningful opportunities. We are confident that the
proportion of our revenue generated in China will increase going forwards. In
order to fully leverage the potential of our world class facilities we are
continuing to invest in our people, including making a number of key senior
appointments during the year. We've appointed a Chief People Officer to set
out a global, multi-year plan to ensure we have the people infrastructure
needed to realise our growth plans over the next five years. Our new Chief
Innovation Officer will similarly be taking our global R&D efforts to the
next level, sharpening our offering and relevance for all customers.
Furthermore, our new Global Sustainability Manager will be delivering our
first sustainability strategy, which will be integrated with the great work
already underway in the business and aligned with new product development.
Richard Hope is set to retire on 30 June 2022. Richard has worked for the
business for almost 20 years as CFO where his input has been central to
Treatt's track record of growth. His experience and guidance have been
invaluable to me during our journey of successful strategic change and
cultural transformation. His retirement is well-deserved; he will leave a
legacy to be proud of at Treatt and I wish him and his family all the very
best for the future.
Evolving our approach to sustainability
Sustainability remains fundamental to our approach and a key part of our DNA.
At the end of last year we engaged a specialist independent consultancy to
review our position and undertake a thorough materiality assessment. These
findings provided the foundation for our new sustainability strategy, which
includes nine evolved priorities for the business.
To highlight progress to date, additional indirect Scope 3 emissions will be
collected and recorded from FY2022 onwards; this will aid in shaping our GHG
emissions reduction strategy moving forward. We are using the Taskforce for
Climate-related Financial Disclosures methodology (TCFD) to assess climate
change risk and the mapping of our supply chain risks has evolved into a
sustainable supply chain strategy, focusing on key areas to bring positive
change. We expect to have more meaningful metrics to report on next year.
I'd like to highlight the key role our HR and Group Leadership Team have
played in helping our staff through the challenges of the year. We take the
mental wellbeing of our people very seriously, and I'm proud that our
supportive culture has come to the fore this year.
Looking forward
We have had a great year, notwithstanding challenges including the ongoing
pandemic, global freight availability and impacts to our global logistics.
Forecasting within the beverage market remains increasingly difficult as
consumer habits and product lifecycles evolve more rapidly than ever. That
said, we are perfectly aligned with the market's long-term macro trends,
driven by healthier living, and are hugely encouraged by the opportunities we
are currently working on with both new and existing customers. The outlook for
the coming year is positive; we expect strong growth in revenue with the
business reverting to a more normal H2 profit weighting as on trade channels
return to pre-pandemic levels.
As we continue our journey to evolve our sustainability policies, we are fully
focused on continuing to execute our strategy while operating safely, reliably
and ethically. We will keep listening to our staff about their needs as we
move into a more permanent hybrid working model. We're a diverse team and we
take pride in celebrating each other's differences, ultimately recognising
that a diverse and inclusive workforce is key for our success.
We are making the right investments at the right time on our growth journey. I
have no doubt that in due time the combined effect of increasing our
investment in R&D, realising the multitude of benefits from the new UK
Headquarters and strengthening our global team will elevate Treatt to a new
level and contribute to further sustained benefits for all of our
stakeholders.
Daemmon Reeve
Chief Executive Officer
29 November 2021
Financial review
Strong growth in profits with adjusted(1) EPS up 37%
Overview
The Group delivered a very strong set of financial results for the year ended
30 September 2021. 64.1% revenue growth in the higher margin healthier living
categories coupled with improved margins in the citrus category drove a 41.3%
increase in profit before tax and exceptional items(1) to a record £20.9m.
The year also saw continued significant investment of £14.4m in capital
projects, including £9.5m on the new UK Headquarters. Despite these high
levels of investment, we ended the year with net debt of only £9.1m (2020:
net cash of £0.4m).
Income statement(1)
Revenue and profit
Revenue for the year from continuing operations increased by 14.0% to £124.3m
(2020: £109.0m). In constant currency terms, revenue increased by 17.7% as
the Pound Sterling was stronger against the US Dollar in 2021 as compared to
2020. Across non-citrus categories, revenue grew by 29.4% driven by the
impressive growth of 64.1% in our healthier living categories of tea, health
& wellness and fruit & vegetables.
Tea led the way with growth of 113.1% as a result of some significant new
business wins across a range of alcoholic and non-alcoholic beverages, in
particular new wins in the ready-to-drink canned cocktail market. The tea
category was impacted in the prior year by the effective closure, due to
COVID-19, of some significant on-trade channels and therefore a proportion of
the growth in this year related to the return of business which had been
temporarily paused due to the pandemic. Health & wellness (which includes
sugar reduction) had another very strong year with revenue growth of 28.7%.
This was driven by increased demand from brand owners to reduce the sugar
content in their beverages and from flavour companies using our products as
part of their formulations. This reflects the important IP, know-how and
technical expertise which Treatt possesses in this field. The fruit &
vegetables category had one of its strongest years to date, with our passion
fruit, watermelon, cucumber and mango natural extracts the leading
contributors to growth of 59.6%. Citrus remained the Group's largest product
category representing 43.6% (2020: 50.3%) of Group sales, with revenue falling
by 1.2% due to the timing of deliveries and contract mix with some large
customers.
Whilst approximately 80% of the Group's revenue now comes from our natural and
clean-label product ranges, our synthetic aroma sales into the flavour and
fragrance market grew by 8.9% compared with the prior year as demand for
sustainable synthetic products continues to increase. The Group's traditional
range of herbs, spices & florals, many of which are traded, only grew by
0.5% in large part as a consequence of reduced on-trade consumption due to the
pandemic.
Geographical analysis of revenues shows that the UK, mainland Europe and The
Americas performed strongly with no discernible impact from Brexit or the
well-documented global supply chain issues. However, both of these created
significant logistical challenges which our very experienced supply chain
teams across the Group did a remarkable job in overcoming in order to maintain
excellent levels of service.
Product category % share of sales - 2021 v 2020:
% of revenue Citrus Tea Health & wellness Fruit & vegetables Herbs, spices & florals Synthetic aroma
2021 44% 11% 8% 10% 9% 18%
2020 50% 6% 7% 7% 11% 19%
Geographical % share of sales - 2021 v 2020:
% of revenue UK Germany Ireland Rest of Europe USA Rest of the Americas China Rest of the world
2021 8% 5% 6% 11% 43% 8% 6% 13%
2020 7% 4% 6% 11% 40% 8% 6% 18%
The Group continued to focus on opportunities in China and the US. Reported
revenue to China increased by 7.6% to £7.4m (2020: £6.9m); excluding the
impact of FX translation, revenue to China in USD, the principal invoicing
currency, grew by 15.5%. Revenue in the Group's largest market, the US, grew
by 22.1% to £53.4m (2020: £43.7m) representing 42.9% of the Group total
(2020: 40.1%). Within the US, the Group benefitted from particularly strong
growth in the ready-to-drink canned cocktail market with a number of material
new product launches as well as growth with existing brands, both direct and
indirect via flavour houses. Sales to mainland Europe, which represented 21.9%
of Group revenue (2020: 21.2%), performed well following a relatively weaker
pandemic-impacted year in 2020. This resulted in a 17.9% increase in revenue
to £27.2m (2020: £23.1m) driven by a strong performance from, most notably,
citrus and fruit & vegetables. In the UK, revenues performed well in both
synthetic aroma and citrus, with revenue ending the year up by a very pleasing
27.8% at £9.5m. The Rest of the World (excluding China) fell by 11.4% to
£17.2m (2020: £19.4m) as the effects of COVID-19 continued in many parts of
the world.
Gross profit grew by 32.5% with gross profit margins increasing from 29.2% to
34.0%. The increase in margins resulted from the combined effect of growth in
higher margin healthier living categories, coupled with improved citrus
margins as the increased sophistication within our citrus category begins to
show through. The focus on higher margin, added-value solutions supports our
strategy of diversifying the product portfolio away from traded and minimally
processed citrus products, thereby building additional resilience into the
business.
The Group's R&D investment in water soluble citrus for use in some of the
fastest growing areas of beverage innovation is enabling the citrus category
to move further up the value chain. As the impact of COVID-19 has begun to
ease, the level of customer innovation and new product development has
increased, enabling science-led collaboration with new and existing clients,
in turn bringing further margin progression.
Administrative expenses grew by 24.4% in the year to £20.9m (2020: £16.8m).
The £4.1m net increase primarily relates to increased costs at our US
subsidiary, Treatt USA. Overhead costs in the US rose by £1.1m which,
together with increased depreciation of £0.8m, reflected the full year effect
of the recently expanded US facility. Average headcount numbers across the
Group have increased by 15%, with the Group's recruitment and induction
processes having navigated the restrictions imposed in response to COVID-19.
However, recruitment generally has proven a challenge in the US where there
remains a significant backlog of open vacancies which will lead to a material
increase in headcount numbers and payroll costs over the next 12 months.
As we near the end of the capital investment programme originally announced in
2017, our focus is very much on developing our people infrastructure to
support further growth.
Adjusted net operating margin(2) increased in the year to 17.2% (2020: 13.8%).
This compares with 10.8% five years ago and delivers on our medium-term
objective of achieving our target net operating margin of 15%-20% which is
more aligned to some of our larger industry peers. Consequently, operating
profit(1) increased by 41.4% to £21.3m (2020: £15.1m).
Adjusted return on average capital employed (ROACE)(3) increased to 20.9%
(2020: 18.6%) as a consequence of the substantial increase in profits during
the year. As well as growth in adjusted basic earnings per share, ROACE will,
going forward, be included as a performance metric for LTIPs. Our target is to
deliver ROACE of 20-25%.
As phase one of the relocation to the Group's new UK Headquarters in Bury St.
Edmunds got underway, one-off non-capital costs relating to the relocation
were incurred during the year totalling £1.3m (2020: £1.1m) and are included
in exceptional items (see note 7). These included legal fees, project
consultants, and manufacturing plant and machinery design and installation
specialists.
Adjusted earnings before interest, tax, depreciation and amortisation
(EBITDA)(4) for the year increased by 36.3% to £23.1m (2020: £17.0m). Profit
before tax and exceptional items from continuing operations rose by 41.3% to
£20.9m (2020: £14.8m). Reported profit after tax for the year of £15.1m
represents an increase of 55.1% on the prior year.
Foreign exchange gains and losses
Whilst the Group's functional currency is the British Pound (Sterling), the
amount of business which is transacted in other currencies creates foreign
exchange exposure, particularly the US Dollar and, to a lesser extent, the
Euro. During the year Sterling strengthened against the US Dollar ending the
year 4% stronger at £1=$1.35 (2020: £1=$1.29); the average Sterling/US
Dollar exchange rate for the year was 7% stronger as compared with the prior
year. The Group hedges its foreign exchange risk at our UK business by holding
and managing US Dollar borrowings and taking out forward currency contracts
and options. This can result in timing differences in the short-term, giving
rise to re-translation gains or losses in the income statement. The impact in
2021 was a net break-even position on foreign exchange contracts and
re-translation gains and losses in aggregate (2020: £0.3m gain).
There was a foreign exchange loss of £1.8m (2020: £2.1m loss) in the
'Statement of Comprehensive Income' in relation to the Group's investment in
Treatt USA.
Finance costs
The Group's net finance costs increased to £0.4m (2020: £0.3m) as (after
total capital expenditure and related exceptional costs of £15.7m) the Group
moved from a £0.4m net cash positive position at the start of the year, to
close with a net debt position of £9.1m. As well as interest costs there were
a number of fixed costs for maintaining facilities for future use which were
funded from operating cash flows. Following the increase in profits, interest
cover for the year before exceptional items increased to a very healthy 50.0
times (2020: 44.9 times).
Group tax charge
After providing for deferred tax, the Group tax charge increased by £1.6m to
£4.5m (2020: £2.9m); an effective tax rate (after exceptional items) of
22.8% (2020: 21.1%). This included adjustments reducing this year's tax charge
by £0.6m (2020: £0.4m reduction) relating to revisions to the previous
year's tax estimates. Following the UK government's announcement that
corporation tax will increase to 25% from April 2023, the deferred tax rate
applicable in the UK has increased from 19% to 25% resulting in an additional
tax charge of £0.2m. In the US the rate of corporation tax remains at 21%.
Discontinued activities
Following the disposal of our Kenyan operations to local management in the
prior year, there were no discontinued operations in the year.
Earnings per share
Basic earnings per share from continuing operations (as set out in note 10)
increased by 39.0% to 25.19p (2020: 18.12p). Adjusted basic earnings per share
excluding exceptional items and discontinued operations for the year increased
by 37.2% to 27.05p (2020: 19.72p). The calculation of adjusted earnings per
share excludes those shares which are held by the Treatt Employee Benefit
Trust (EBT) and Treatt SIP Trust (SIP), which are not beneficially owned by
employees since they do not rank for dividend, and is based upon adjusted
profit after tax.
Dividends
The proposed final dividend of 5.50p per share (2020: 4.16p) increases the
total dividend per share for the year to 7.50p, a 25.0% increase on the prior
year (2020: 6.00p), representing dividend cover of 3.6 times pre-exceptional
earnings for the year and a rolling three-year cover after exceptional items
of 3.2 times. The Board considers this to be appropriate at this stage of the
Group's development.
Balance sheet
Shareholders' funds grew in the year by £15.2m to £106.3m (2020: £91.1m),
with net assets per share increasing by 16.4% to £1.76 (2020: £1.51). Over
the last five years net assets per share have grown by 148%. The Board has
chosen not to avail itself of the option under IFRS to revalue land and
buildings annually and, therefore, all the Group's land and buildings are held
at historical cost, net of depreciation, on the balance sheet.
Cash flow
During the year the Group invested £14.4m (2020: £24.8m) on capital
projects, of which £9.5m was incurred on the UK relocation project (more
details of which are set out below). The balance of the capital expenditure
included the purchase of a further six-acre adjacent piece of land in the US
which was acquired in anticipation of future expansion. Plant and machinery
investment in the US of £2.3m included on-going investment in our coffee
platform as well as new technologies for our citrus category. Excluding the
impact of the expenditure on the UK relocation, free cash flow(5) was £5.0m
for the year.
There was an overall working capital outflow in the year of £10.0m (2020:
outflow £0.2m), principally as a result of an outflow of £11.9m in relation
to a management decision to build inventory levels as discussed herein. There
was a net increase in receivables of £2.7m compensated by an increase of
£4.5m in payables.
Inventory held at the year-end was £47.3m (2020: £36.1m), an increase of
£11.2m. This increase was driven by three main factors; first and foremost
the overall growth in the business and the strength of the order book;
secondly by the higher average cost of orange oil (being consistently the
largest volume material held in inventory), and thirdly proactive purchasing
by our global procurement team to protect our customers from the effect of
global supply chain issues. Treatt services many annual, and in some cases
longer-term, contracts with customers as well as meeting the immediate spot
needs of its diverse customer base. The success of the business has been built
upon managing geographic, political and climatic risk of supply for our
customers by judicious purchasing and inventory management to ensure
continuity of supply and availability. Consequently, the overall level of
inventory held by the Group is highly significant in cash terms.
Net debt
During the year, and as expected due to the investment in infrastructure to
support future growth, the Group moved from net positive cash to close in a
net debt position of £9.1m. In order to support the Group's growth plans for
the foreseeable future, the Group retains a mix of secured and unsecured
borrowing facilities totalling £25.8m, of which £2.2m expires in one year or
less. During the year, the Group secured an additional £7.0m three-year
revolving credit facility (which can be extended ultimately to five years)
with HSBC Bank together with a £6.5m accordion (a pre-approved facility).
This change to the structure of the Group's UK banking facilities has been
undertaken to both match some of the Group's borrowings to the assets which
they have been used to finance, as well as to reduce the cost of facilities.
All the Group's borrowing facilities are held with HSBC and Bank of America
with the majority held on three to five-year terms with expiry dates staggered
to fall in different years. The Group continues to enjoy positive
relationships with its banks and expects all facilities to be renewed when
they fall due.
Capital investment programme
In 2017 the Group announced a capital investment programme to expand the US
facility (a $15.0m capacity-driven project) and the relocation of our UK
facility. This programme of investment is now approximately 80% complete as
follows:
US site expansion
In 2019 we completed the expansion of our facility in Lakeland, Florida, at a
total cost of $15.3m, doubling the total footprint to 130,500 square feet. By
moving from one to two large manufacturing units we have doubled our capacity
for our healthier living categories and are now able to increase further by
adding manufacturing units in a modular way at a significantly reduced cost,
with the third such unit likely to come on stream over the next 48 months, and
a fourth could follow thereafter.
UK relocation
In a significant milestone for the Group, during the year we began to relocate
our UK business from its current site in Bury St. Edmunds, to a brand-new
purpose-built facility nearby. The Group acquired a ten-acre greenfield site
on the new Suffolk Park in Bury St. Edmunds in mid-2017. The principal
contractors began work on site in September 2019 and, whilst COVID-19 impacted
the original timescales for completing the project, construction of the new
facility was completed during the financial year.
In September 2021 we were delighted to open the offices to our colleagues, and
all office-based staff now work in the innovative surroundings of the new
facility. Some science and technical colleagues have also transitioned to the
new site where new state-of-the-art laboratories provide a truly exceptional
customer collaboration environment. The project involves transformation from
manual to digital manufacturing incorporating significant investment in new
and upgraded plant and machinery, including the implementation of a number of
new technologies for the UK business such as automated warehousing,
clean-in-place and computer-controlled stills.
The first phase of installation and commissioning of plant and machinery is
currently underway, and we expect this to be completed by mid-2022.
Thereafter, we will commence phase two which involves the gradual transfer and
upgrade of highly complex manufacturing equipment from our old site.
We expect phase two to be completed by mid-2023. Consequently, we will
continue to manufacture some products at the old site over the next 18 months
whilst most of manufacturing and technical will operate from the new site in
2022.
Following the delays caused by COVID-19, increases in raw material costs such
as steel, and learnings from the phase one implementation, the total capital
project costs are expected to be approximately £36.9m as compared to the
£33.2m budget originally set out in 2019. In addition, exceptional costs
totalling £6.9m are expected to be incurred as set out in the table below. We
have now exchanged contracts on the sale of all our buildings on our old site
for a net consideration of £5.6m.
Completion has been set for February 2022 with an agreed leaseback for a
further 18 months of our main manufacturing building at the old site as the
final stages of the transition are due to complete by mid-2023. Therefore, we
expect a further net cash outflow over the next two years of £4.2m in
relation to the UK relocation project.
The latest estimated costs of the UK relocation are set out below:
Note Revised budget Spend to date (£'000)
£'000
To Year to Total spend
30/9/20
30/9/21
to date
Capital expenditure:
Land 3,823 3,823 - 3,823
Buildings 18,030 15,891 1,676 17,567
Plant & machinery 20,666 6,294 7,785 14,079
Capital expenditure 42,519 26,008 9,461 35,469
Existing site disposal (5,590) - - -
Net capital expenditure 36,929 26,008 9,461 35,469
Exceptional items:
Procurement, installation & commissioning 1 2,209 1,370 317 1,687
Accelerated depreciation (non-cash) 2 434 434 - 434
Relocation costs 3 4,285 1,116 985 2,101
6,928 2,920 1,302 4,222
Note 1: These costs relate to project expenditure which does not fall to be
capitalised and will be expensed as exceptional items with the remaining costs
expected to be incurred in the years ending 30 September 2022 and 2023.
Note 2: Accelerated depreciation related to the reduction in the estimated
useful lives of assets which will not transition to the new site and was
accounted for in the years ended 30 September 2018 and 2019.
Note 3: Other exceptional items include initial design costs, parallel running
costs, additional staffing resources and costs associated with the physical
transfer of the business to the new site. The remaining costs are expected to
be incurred in the years ending 30 September 2022 and 2023.
It should be noted that in accordance with IAS 23 'Borrowing costs', and in
addition to the above, the interest charges incurred on funds utilised on the
relocation project prior to its completion fall to be capitalised. In the year
ended 30 September 2021 £23,000 was capitalised and a further £14,000 is
expected to be capitalised in the year ending 30 September 2022.
As previously explained, phase one of the project is expected to complete in
early 2022 and phase two in early 2023 with the respective total costs
breaking down as follows:
£'000 Phase Phase Total
one two
Capital expenditure 38,999 3,520 42,519
Existing site disposal (5,590) - (5,590)
Exceptional items 5,090 1,838 6,928
Total costs 38,499 5,358 43,857
Consequently, the cash outflows for the project are expected to result in
rolling Group net debt to EBITDA(1) peaking at less than 0.5x EBITDA(1).
Although phase one is nearing completion the most complex part of phase one,
being the installation and commissioning of almost £20m of plant and
machinery, remains underway. In addition, phase two involves the complex
transfer and upgrading of manufacturing facilities from our old site. Whilst
there is a risk of cost overruns, we have programmed a gradual transfer from
our old site to our new facility and included approximately £1.3m of
contingency (approximately 18% of the remaining spend) in order to mitigate
that risk as far as practicable.
Treatt Employee Benefit Trust and Treatt SIP Trust
The Group has an HMRC-approved Share Incentive Plan (SIP) for its UK
employees, and as far as practicable, also offers a similar scheme to its US
staff. All UK staff with a year's service were awarded £650 (2020: £625) of
'Free Shares' during the year as part of the Group's employee incentive and
engagement programme as the Board is firmly of the view that increased
employee share ownership is an important tool for driving positive employee
engagement in the business. A similar scheme exists for US staff who were
awarded $950 (2020: $925) of Restricted Stock Units during the year. These
shares are forfeited by employees who leave within three years from the date
of grant.
Under the SIP, UK employees are offered the opportunity each year to purchase
up to £1,800 (or 10% of salary, whichever is lower) of Treatt shares out of
gross income, which the Company continues to match on a one and a half for one
basis. In the year, a total of 30,000 (2020: 48,000) matching shares were
granted.
The SIP currently holds 477,000 shares (2020: 444,000) and is administered by
Link Asset Services Trustees. All shares are allocated to participants under
the SIP. It is anticipated that going forward the obligations under the SIP
will continue to be satisfied through the issue of new shares.
In addition, the Group continued its annual programme of offering share option
saving schemes to staff in the UK and US. Under US tax legislation, staff at
Treatt USA are able to exercise options annually, whilst the UK schemes
provide for three-year saving plans.
Under the Long Term Incentive Plan, which was approved by shareholders at the
2019 Annual General Meeting, Executive Directors and certain key employees
were granted 127,000 (2020: 245,000) nil cost share options during the year
which will vest after three years on a sliding scale, subject to performance
conditions. In total, options were granted over 197,000 (2020: 389,000) shares
during the year, whilst 117,000 (2020: 348,000) were exercised from options
awarded in prior years which have now vested. During the year, 100,000 (2020:
100,000) shares were issued to the Employee Benefit Trust (EBT) at par (2
pence per share). The EBT currently holds 166,000 shares (2020: 219,000) in
order to satisfy future option schemes. It is anticipated that going forward,
all-employee savings-related share schemes will continue to be satisfied by
shares held within the EBT, to which further shares will be issued as
necessary.
Final salary pension scheme
The R C Treatt final salary pension scheme (the 'scheme') has not been subject
to any further accruals since 31 December 2012 and instead members of the
scheme were offered membership of the UK defined contribution pension plan
with effect from 1 January 2013. This means that the defined benefit scheme
has been de-risked as far as it is practicable and reasonable to do so.
The last three-year actuarial review of the scheme was carried out as at 1
January 2018, the result of which was that the scheme had an actuarial surplus
of £473,000 (1 January 2015: £314,000). This represented a funding level of
102%. Consequently, the Group was able to agree with the trustees that with
effect from 1 October 2018 it would continue not to make any further
contributions to the scheme.
It was further agreed that if the annual actuarial funding updates, before the
next full actuarial review, revealed that the funding level had fallen to 95%
or less of the scheme liabilities, then the Company would voluntarily resume
contributions.
The next full triennial valuation is being carried out as at 1 January 2021
the results of which are expected to be agreed between the Company and
trustees in early 2022. Consequently, the Company has agreed with the trustees
to make contributions of £0.5m (2020: £0.5m) per annum until the full
actuarial review is concluded.
The IAS 19, 'Employee Benefits' pension liability on the balance sheet, net of
deferred tax, decreased in the year from £8.1m to £5.1m. The decrease in the
deficit was largely the result of investment returns outperforming the assumed
discount rate by £2.6m.
Financial risk management
The Group operates conservative treasury policies to avoid or minimise
unnecessary risks that may otherwise be incurred.
No investments other than cash and other short-term deposits are permitted.
Where appropriate a proportion of these balances are held in foreign
currencies, but only as part of the Group's overall hedging activity as
explained herein.
The nature of Treatt's activities is such that the Group could be affected by
movements in certain exchange rates, principally between Sterling and the US
Dollar, but other currencies such as the Euro can also have a material effect.
This risk manifests itself in a number of ways.
Firstly, the value of the foreign currency net assets of Treatt USA (the
Group's main overseas subsidiary) can fluctuate with Sterling.
Secondly, with R C Treatt (the Group's main UK subsidiary) exporting
throughout the world, fluctuations in the value of Sterling can affect both
the gross margin and operating costs. Sales are principally made in two
currencies in addition to Sterling, with the US Dollar being the most
significant.
Even if a sale is made in Sterling, its price may be set by reference to its
US Dollar denominated raw material price which therefore can have an impact on
the Sterling gross margin. Raw materials are also mainly purchased in US
Dollars and bank accounts are operated through which US Dollar denominated
sales and purchases flow. Hence it is the relative strength of Sterling
against the US Dollar that is of prime importance. As well as affecting the
cash value of sales, US Dollar exchange movements can also have a significant
effect on the replacement cost of stocks, which affects future profitability
and competitive advantage. When in a net debt position, the Group has a policy
of maintaining the majority of its trading cash balances and overdrafts
(excluding facilities specifically available for financing the UK capital
investment programme), in US Dollars and, to a lesser extent in Euros, as this
is the most cost-effective means of providing a natural hedge against
movements in exchange rates.
Where it is more cost effective to do so, the Group will also enter into
forward currency contracts and options. Consequently, during the year forward
currency contracts have been entered into which hedge part of R C Treatt's
foreign exchange risk. These contracts (and options if applicable) have been
designated as formal hedge arrangements, with movements in mark-to-market
valuations initially taken to equity and re-cycled to the income statement to
match with the appropriately hedged currency receipts. Under the technical
provisions of IFRS, if any options or forward contracts are deemed to be
ineffective hedges then the related foreign exchange gain or loss is included
within 'other gains and losses' in the income statement. The foreign exchange
gains or losses charged to 'other gains and losses' in the year were £nil
(2020: £0.05m). Currency accounts are also run for the other main currencies
to which R C Treatt is exposed. This policy helps manage against short-term
fluctuations in currencies.
Summary
The financial performance of the Group over the last year has been very strong
and follows an unbroken run of eight years of growth in profit before tax and
exceptional items.
Whilst COVID-19 continued to impact our on-trade channels and the
consequential demand for some of our products, the underlying strength and
resilience of our business has been encouraging. The growth in our healthier
living categories of tea, health & wellness and fruit & vegetables
continues apace, and with these being our higher margin categories, the Group
is well positioned for further margin progression over the coming years.
As we near the end of our capital investment programme, capacity across the
Group (especially specialist people resource) is being put in place to support
further material organic growth over the next few years, with the capability
now to add further capacity in a more modular and cost-efficient way. The full
impact of these investments will begin to show through from 2023 when it is
expected to result in multiple operational and manufacturing efficiencies
across the Group, but particularly in the UK where the business has performed
very well despite the constraints of its outdated physical environment.
Finally, as I write my 19th and last Financial Review as Chief Financial
Officer of Treatt, may I say how proud I am of the business Treatt has become.
I am particularly proud of the culture which exists across the business, and I
believe it is this which has formed the bedrock of the success we have all
achieved together, particularly over the last decade.
In the nearly twenty years that I have been at Treatt, the business has grown
from having around 170 employees, to now employing more than 400, and our
market capitalisation has grown from approximately £20m to £700m. This
growth has been delivered by colleagues both past and present and it has been
the privilege of my life to have been CFO during this time.
As we often say, however, this is just the beginning as the next chapter
awaits, and as we open our brilliant new facility in the UK, go from strength
to strength in the US and embark on our new journey in China, I am very
excited about the years which lie ahead.
Richard Hope
Chief Financial Officer
29 November 2021
1 Unless indicated otherwise all measures are based on continuing
operations.
2 Adjusted net operating margin is calculated as operating profit
before exceptional items divided by revenue from continuing operations, both
of which are shown in the Group income statement.
3 Adjusted ROACE is calculated by dividing operating profit before
exceptional items (as shown in the Group income statement) by the average
capital employed in the business, which we calculate as total equity (as shown
in the Group balance sheet) plus net debt or minus net cash (as shown in the
Group reconciliation of net cash flow to movement in net cash/(debt)),
averaged over the opening, interim and closing amounts.
4 Adjusted EBITDA is calculated as profit before interest, tax,
depreciation and amortisation from continuing operations. This is calculated
as operating profit (as shown in the Group income statement) plus depreciation
and amortisation from continuing operations.
5 Free cash flow is calculated as net cash from operating activities
minus the purchase of property, plant, equipment and intangible assets,
adjusted to exclude the UK relocation costs (both capital and exceptional
items).
GROUP INCOME STATEMENT
for the year ended 30 September 2021
2021 2020
Notes Before exceptional items Before exceptional items
£'000 Exceptional items £'000 Exceptional items
£'000 Total £'000 Total
£'000 £'000
CONTINUING OPERATIONS
Revenue 6 124,326 - 124,326 109,016 - 109,016
Cost of sales (82,103) - (82,103) (77,140) - (77,140)
Gross profit 42,223 - 42,223 31,876 - 31,876
Administrative expenses (20,877) - (20,877) (16,784) - (16,784)
Exceptional items 7 - (1,302) (1,302) - (1,060) (1,060)
Operating profit(1) 21,346 (1,302) 20,044 15,092 (1,060) 14,032
Other gains - hedge ineffectiveness - - - 45 - 45
Finance income 12 - 12 67 - 67
Finance costs (439) - (439) (403) - (403)
Profit before taxation 20,919 (1,302) 19,617 14,801 (1,060) 13,741
Taxation 8 (4,655) 186 (4,469) (3,000) 104 (2,896)
Profit for the year from continuing operations 16,264 (1,116) 15,148 11,801 (956) 10,845
DISCONTINUED OPERATIONS
Loss for the year from discontinued operations - - - (1,080) - (1,080)
Profit for the year attributable to owners of the Parent Company 16,264 (1,116) 15,148 10,721 (956) 9,765
Earnings per share
From continuing and discontinued operations: Adjusted(2) Statutory Adjusted(2) Statutory
Basic(2,3) 10 27.05p 25.19p 19.42p 16.32p
Diluted(2,3) 10 26.74p 24.91p 19.24p 16.16p
From continuing operations:
Basic(2) 10 27.05p 25.19p 19.72p 18.12p
Diluted(2) 10 26.74p 24.91p 19.53p 17.95p
1 Operating profit is calculated as profit before other gains, net
finance costs and taxation.
2 All adjusted earnings per share measures exclude exceptional
items and the related tax effect, details of which are given in note 7.
3 Excludes the impairment of discontinued operations in the prior
year.
Notes 1 to 12 form part of these financial statements.
GROUP STATEMENT OF COMPREHENSIVE INCOME
for the year ended 30 September 2021
Notes 2021 2020
£'000 £'000
Profit for the year attributable to owners of the Parent Company 15,148 9,765
Items that may be reclassified subsequently to profit or loss:
Currency translation differences on foreign currency net investments (1,752) (2,094)
Current tax on foreign currency translation differences 8 18 82
Fair value movement on cash flow hedges (508) (6)
Deferred tax on fair value movement 8 93 2
(2,149) (2,016)
Items that will not be reclassified subsequently to profit or loss:
Actuarial gain/(loss) on defined benefit pension scheme 2,952 (2,418)
Current tax on defined benefit pension scheme liability 8 - (29)
Deferred tax on actuarial (gain)/loss 8 (135) 586
2,817 (1,861)
Other comprehensive income/(expense) for the year 668 (3,877)
15,816
Total comprehensive income for the year attributable to owners 15,816 5,888
of the Parent Company
Notes 1 to 12 form part of these financial statements.
GROUP STATEMENTS OF CHANGES IN EQUITY
for the year ended 30 September 2021
Share Share premium account Own shares in share trusts Hedging reserve Foreign exchange reserve Retained earnings Total
capital
equity
£'000 £'000 £'000 £'000 £'000
£'000 £'000
1 October 2019 1,203 23,484 (15) 127 5,566 56,705 87,070
Profit for the year - - - - - 9,765 9,765
Other comprehensive income:
Exchange differences - - - - (2,094) - (2,094)
Fair value movement on cash flow hedges - - - (6) - - (6)
Actuarial loss on defined benefit pension scheme - - - - - (2,418) (2,418)
Taxation relating to items above - - - 2 82 557 641
Total comprehensive (expense) / income - - - (4) (2,012) 7,904 5,888
Transactions with owners:
Dividends - - - - - (3,378) (3,378)
Share-based payments - - - - - 875 875
Movement in own shares in share trusts - - 12 - - - 12
Gain on release of shares in share trusts - - - - - 537 537
Issue of share capital 2 - (2) - - - -
Taxation relating to items recognised directly in equity - - - - - 116 116
Total transactions with owners 2 - 10 - - (1,850) (1,838)
30 September 2020 1,205 23,484 (5) 123 3,554 62,759 91,120
Profit for the year - - - - - 15,148 15,148
Other comprehensive income:
Exchange differences - - - - (1,752) - (1,752)
Fair value movement on cash flow hedges - - - (508) - - (508)
Actuarial gain on defined benefit pension scheme - - - - - 2,952 2,952
Taxation relating to items above - - - 93 18 (135) (24)
Total comprehensive (expense) / income - - - (415) (1,734) 17,965 15,816
Transactions with owners:
Dividends - - - - - (3,704) (3,704)
Share-based payments - - - - - 1,732 1,732
Movement in own shares in share trusts - - 4 - - - 4
Gain on release of shares in share trusts - - - - - 629 629
Issue of share capital 3 - (3) - - - -
Taxation relating to items recognised directly in equity - - - - - 702 702
Total transactions with owners 3 - 1 - - (641) (637)
30 September 2021 1,208 23,484 (4) (292) 1,820 80,083 106,299
Notes 1 to 12 form part of these financial statements.
GROUP BALANCE SHEET
as at 30 September 2021
Registered Number: 01568937
2021 2020
£'000 £'000
ASSETS
Non-current assets
Intangible assets 2,424 1,358
Property, plant and equipment 61,039 50,159
Right-of-use assets 1,556 1,173
Deferred tax assets 792 1,358
65,811 54,048
Current assets
Inventories 47,263 36,050
Trade and other receivables 26,371 24,167
Current tax assets 2,701 1,057
Derivative financial instruments 11 459
Cash and bank balances 7,260 7,739
83,606 69,472
Total assets 149,417 123,520
LIABILITIES
Current liabilities
Borrowings (12,697) (3,203)
Provisions (143) (146)
Trade and other payables (17,027) (12,441)
Lease liabilities (96) (31)
Derivative financial instruments (593) (168)
(30,556) (15,989)
Net current assets 53,050 53,483
Non-current liabilities
Borrowings (2,624) (3,450)
Lease liabilities (957) (628)
Post-employment benefits (6,806) (10,051)
Deferred tax liabilities (2,175) (2,282)
(12,562) (16,411)
Total liabilities (43,118) (32,400)
Net assets 106,299 91,120
GROUP BALANCE SHEET (continued)
Notes 2021 2020
£'000 £'000
EQUITY
Share capital 11 1,208 1,205
Share premium account 23,484 23,484
Own shares in share trusts (4) (5)
Hedging reserve (292) 123
Foreign exchange reserve 1,820 3,554
Retained earnings 80,083 62,759
Total equity attributable to owners of the Parent Company 91,120
106,299
Notes 1 to 12 form part of these financial statements.
GROUP STATEMENT OF CASH FLOWS
for the year ended 30 September 2021
Notes 2021 2020
£'000 £'000
Cash flow from operating activities
Profit before taxation including discontinued activities 19,617 12,584
Adjusted for:
Depreciation of property, plant and equipment 1,705 1,809
Amortisation of intangible assets 93 75
Impairment of discontinued operations - 638
Loss on disposal of subsidiary - 185
Net finance costs excluding pensions 270 191
Share-based payments 1,733 886
Increase/(decrease) in fair value of derivatives 365 (611)
Increase in post-employment benefit obligations 157 145
Operating cash flow before movements in working capital 23,940 15,902
Movements in working capital:
Increase in inventories (11,851) (458)
Increase in receivables (2,680) (1,278)
Increase in payables 4,483 1,511
Cash generated from operations 13,892 15,677
Employer contributions to defined benefit scheme (450) (300)
Taxation paid (4,874) (2,191)
Net cash from operating activities 8,568 13,186
Cash flow from investing activities
Disposal of subsidiaries - (136)
Purchase of property, plant and equipment (13,195) (23,909)
Purchase of intangible assets (1,178) (905)
Interest received 12 67
Net cash flow used in investing activities (14,361) (24,883)
GROUP STATEMENT OF CASH FLOWS (continued)
Notes 2021 2020
£'000 £'000
Cash flow from financing activities
Repayment of bank loans (674) (724)
Increase of bank loans 5,000
Repayment of lease liabilities (10) -
Interest paid (282) (258)
Dividends paid 9 (3,704) (3,378)
Proceeds on issue of shares 11 3 2
Net sale of own shares by share trusts 630 547
Net cash flow from/(used in) financing activities 963 (3,811)
Net decrease in cash and cash equivalents (4,830) (15,508)
Effect of foreign exchange rates (173) (318)
Movement in cash and cash equivalents in the year (5,003) (15,826)
Cash and cash equivalents at beginning of year 5,250 21,076
Cash and cash equivalents at end of year 247 5,250
Cash and cash equivalents comprise:
Cash and bank balances 7,260 7,739
Bank borrowings (7,013) (2,489)
247 5,250
Notes 1 to 12 form part of these financial statements.
GROUP RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET CASH/(DEBT)
for the year ended 30 September 2021
2021 2020
£'000 £'000
Movement in cash and cash equivalents in the year (5,003) (15,826)
Repayment of bank loans 674 724
Increase of bank loans (5,000) -
Increase of lease liabilities (394) -
Cash outflow from changes in net (debt)/cash in the year (9,723) (15,102)
Effect of foreign exchange rates 182 230
Movement in net debt in the year (9,541) (14,872)
Net cash at beginning of year 427 15,958
Lease liability recognised as debt - (659)
Net (debt)/cash at end of year (9,114) 427
Analysis of movement in net cash/(debt) during the year:
At Cash flow Foreign exchange movements £'000 At 30 September
1 October £'000 2021
2020 £'000
£'000
Cash and bank balances 7,739 (306) (173) 7,260
Bank borrowings (2,489) (4,524) - (7,013)
Cash and cash equivalents 5,250 (4,830) (173) 247
Bank loans (4,164) (4,326) 182 (8,308)
Lease liabilities (659) (396) 2 (1,053)
Net cash/(debt) at end of year 427 (9,552) 11 (9,114)
At Cash flow Foreign exchange movements At 30 September
1 October
£'000
£'000
2020
2019
£'000
£'000
Cash and bank balances 37,187 (29,130) (318) 7,739
Bank borrowings (16,111) 13,622 - (2,489)
Cash and cash equivalents 21,076 (15,508) (318) 5,250
Bank loans (5,118) 724 230 (4,164)
Lease liabilities (660) (1) 2 (659)
Net cash at end of year 15,298 (14,785) (86) 427
This statement of reconciliation of net cash flow to movement in net
cash/(debt) above does not form part of the primary statements. Notes 1 to 12
form part of these financial statements.
NOTES TO THE FULL YEAR RESULTS
1. BASIS OF PREPARATION
In accordance with Section 435 of the Companies Act 2006, the Group confirms
that the financial information for the years ended 30 September 2021 and 2020
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 adopted pursuant to Regulation
(EC) No 1606/2002 as it applies in the European Union. The statutory accounts
for the year ended 30 September 2020 have been delivered to the Registrar of
Companies. The statutory accounts for the year ended 30 September 2021 have
been audited and approved but have not yet been filed.
The Group's audited financial statements for the year ended 30 September 2021
received an unqualified audit opinion and the auditor's report contained no
statement under section 498(2) or 498(3) of the Companies Act 2006.
The financial information contained within this full year results statement
was approved and authorised for issue by the Board on 30 November 2021.
2. ACCOUNTING POLICIES
These financial statements have been prepared in accordance with the
accounting policies set out in the audited Group financial statements as at,
and for the year ended 30 September 2020.
There were no new standards and amendments to standards which are mandatory
and relevant to the Group for the first time for the financial year ended 30
September 2021 which had a material effect on this full year results
announcement.
3. ACCOUNTING ESTIMATES
The preparation of this statement requires management to make judgements,
estimates and assumptions that affect the application of accounting policies
and the reported amounts of assets, liabilities, income and expenses. In
preparing this preliminary statement, the significant judgements made by
management in applying the Group's accounting policies and the key sources of
estimation uncertainty were the same as those applied to the audited Group
financial statements as at, and for the year ended 30 September 2020 except
for the items disclosed below which were no longer considered to be critical
sources of estimation uncertainty on the basis that the estimations did not
present a significant risk of causing a material adjustment to assets and
liabilities:
· Useful economic life and residual values - The Group does not use
residual value estimates on fixed assets and its useful economic life
estimates of newly capitalised and existing assets are applied consistently.
The actual useful lives of assets are not expected to materially differ from
expected.
· Provisions for onerous contracts - The Group has determined that the
value of this provision in recent years has decreased significantly and hence
the range of possible outcomes resulting from the estimations of management
are now not considered material.
· Taxation - Although some tax treatments in the Group are judgmental,
in particular the allowability of certain expenses classed as exceptional and
related to the construction of the new UK headquarters, it is not now believed
that any of these judgments could give rise to a material adjustment.
· Deferred tax assets - The Group has determined that the
recoverability and timings of the realisation of deferred tax assets no longer
give rise to estimates that could be considered material.
4. GOING CONCERN
The Directors have concluded that it is reasonable to adopt the going concern
basis in preparing these financial statements based on the expectation that
the Group have adequate resources to continue as a going concern for a period
of twelve months from the date of these financial statements.
The process adopted to assess the viability of the Group involved the
modelling of a series of theoretical 'stress test' scenarios linked to the
Group's principal risks, keeping in mind the ongoing domestic and global
uncertainties caused by the COVID-19 pandemic. In assessing the Group's
prospects and resilience, the Directors have done so with reference to its
current financial position and prospects, its credit facilities, its recent
and historical financial performance, and forecasts.
The global pandemic still creates uncertainties in both domestic and
international markets, including the well documented potential supply side
shortages in materials and labour, and so estimating the speed of economic
recovery makes forecasting and scenario planning challenging. Considering
this, the Directors have modelled scenarios representing varying degrees of
severity. All scenarios assume that the chief factor to consider is lost sales
volume potentially arising from the aforementioned uncertainties, which would
adversely impact cash generation and profitability, and that this loss of
sales volume will be felt over the first twenty-four months of the viability
period, before the Group returns to growth at a rate commensurate with
un-stressed forecasts. Using these assumptions, headroom and covenant
compliance have been assessed throughout the going concern (twelve-month) and
viability (five-year) periods. These scenarios have then been stress-tested
further by overlaying the adverse impact of a decline in profit margins.
An initial set of scenarios were tested that were based around the Board's
approved five-year budget, but with adjustments made for adverse movements in
exchange rates, margins and working capital and under these assumptions there
were no covenant breaches or breaches of headroom on existing facilities.
A plausible worst-case scenario was modelled whereby we factored in a decline
in expected sales volumes in FY2022, such that revenue in FY2022 and FY2023
was equal to that of FY2021, before the Group returned to growth at budgeted
levels from FY2024 onwards. Under this plausible scenario, no headroom or
covenant breaches were experienced over the viability period and the Group was
assumed to continue its capital investment programme, dividend growth policy
and its investment in people within the business. Under this stress-test, the
Directors consider that the business would remain a going concern and viable
under these circumstances over the period.
Under another test, a particularly severe scenario was determined in which
banking covenant requirements would be breached during the next twenty-four
months, the so-called 'reverse stress testing scenario'. In this test, it was
determined that a decline in sales of greater than 38.0% per annum, or 31.0%
per annum alongside a 5% decline in margins compared to our internal
projections, over the first 24 months of the viability period, with no
mitigating measures put in place, would result in a breach of financial
covenants.
Based on the Group's experience over the eighteen months since the pandemic
impacted its main markets, the possibility of these severe scenarios
materialising is considered extremely remote. In addition, it is implausible
that the Group would not act swiftly and decisively to activate mitigations
such as operating cost savings, reduction in capital expenditure, and delaying
or cancelling future dividend payments to avoid a breach of its banking
covenants.
Having considered the current cash and liquidity position of the Group, the
range of scenarios discussed above and the Group's proven ability to adapt to
and manage adversity, the Directors have not identified any material
uncertainties which would affect the Group's ability to continue as a going
concern for a period of twelve months from the date of this announcement.
Accordingly, this statement has been prepared on the going concern basis.
5. RISKS AND UNCERTAINTIES
The operation of a public company involves a series of risks and uncertainties
across a range of strategic, commercial, operational and financial areas. The
principal risks and uncertainties, notwithstanding climate change, that could
have a material impact on the Group's performance over the next twelve months
(for example, causing actual results to differ materially from expected
results or from those experienced previously) are the same in all material
respects as those detailed on pages 57 to 63 of the audited 2020 Annual Report
and Financial Statements.
COVID-19, which was introduced as a new principal risk last year, has
fortunately not had a profound impact on the performance of our business but
we are continuing to monitor potential disruption as the world continues to
deal with the virus, and we have recognised the potential risk of other
pandemics in the future.
During the year, climate change was identified as a principal risk factor
given the increasing global attention as the world seeks to reduce longer-term
greenhouse gas emissions. Having a significant portfolio of natural products,
climate change is likely to impact agriculture and the sourcing of natural raw
materials in the longer-term, although there are broader risks associated with
climate change than just raw material sourcing. The sourcing of natural
products has been removed from the principal risks as it is incorporated in
climate change.
6. SEGMENTAL INFORMATION
Group
Business segments
IFRS 8 requires operating segments to be identified on the basis of internal
financial information reported to the Chief Operating Decision Maker ('CODM').
The Group's CODM has been identified as the Board of Directors who are
primarily responsible for the allocation of resources to the segments and for
assessing their performance. The disclosure in the Group accounts of segmental
information is consistent with the information used by the CODM in order to
assess profit performance from the Group's operations.
The Group operates one global business segment engaging in the manufacture and
supply of innovative ingredient solutions for the beverage, flavour, fragrance
and consumer product industries with manufacturing sites in the UK and the US.
Many of the Group's activities, including sales, manufacturing, technical, IT
and finance, are managed globally on a Group basis.
Geographical segments
The following table provides an analysis of the Group's revenue by
geographical market:
Revenue by destination 2021 2020 2020 2020
Total £'000 £'000 £'000
£'000 Continuing Discontinued Total
United Kingdom 9,502 7,434 649 8,083
Rest of Europe - Germany 5,970 4,383 - 4,383
- Ireland 7,313 6,782 - 6,782
- Other 13,931 11,914 - 11,914
The Americas - USA 53,356 43,701 - 43,701
- Other 9,595 8,457 - 8,457
Rest of the World - China 7,440 6,915 - 6,915
- Other 17,219 19,430 89 19,519
124,326 109,016 738 109,754
All Group revenue is in respect of the sale of goods, other than property
rental income of £18,000 (2020: £18,000). No country included within 'Other'
contributes more than 5% of the Group's total revenue. The largest customer
represented 8.4% of Group revenue (2020: 10.1%).
Non-current assets by geographical location, excluding deferred tax assets,
were as follows:
Continuing operations 2021 2020
£'000 £'000
United Kingdom 41,622 30,357
United States 23,397 22,333
65,019 52,690
7. EXCEPTIONAL ITEMS
The exceptional items referred to in the income statement can be categorised
as follows:
2021 2020
£'000 £'000
UK relocation expenses 1,302 1,060
Less: tax effect of exceptional items (186) (104)
1,116 956
The exceptional items all relate to non-recurring items and are now presented
in the Group Income statement as a separate column in order to aid the
understanding of users of the financial statements. Relocation expenses relate
to one-off costs incurred in connection with the relocation of the Group's
entire UK operations to Skyliner Way, which officially opened on 1 September
2021, and which in management's view do not fall to be capitalised.
Although a manufacturing presence continues to remain there, from 1 September
2021, any expenses associated with the running of the Northern Way office
spaces or expenses related to unutilised manufacturing space at Skyliner Way
were also classified as exceptional costs.
8. TAXATION
Analysis of tax charge in income statement:
2021 2020 2020 2020
£'000 £'000 £'000 £'000
Total Continuing Discontinued Total
Current tax:
UK corporation tax on profits for the year 157 249 - 249
Adjustments to UK tax in respect of previous periods (131) (251) - (251)
Overseas corporation tax on profits for the year 3,882 1,957 - 1,957
Adjustments to overseas tax in respect of previous periods (534) (368) - (368)
Total current tax 3,374 1,587 - 1,587
Deferred tax:
Origination and reversal of temporary differences 945 1,120 (47) 1,073
Effect of increasing/(decreasing) tax rate on opening deferred tax 183 (43) - (43)
Adjustments in respect of previous periods (33) 232 (30) 202
Total deferred tax 1,095 1,309 (77) 1,232
Tax on profit on ordinary activities 4,469 2,896 (77) 2,819
Analysis of tax charge/(credit) in other comprehensive income:
2021 2020
£'000 £'000
Current tax:
Foreign currency translation differences (18) (82)
Actuarial loss on defined benefit pension scheme - 29
Total current tax (18) (53)
Deferred tax:
Cash flow hedges (93) (2)
Defined benefit pension scheme 135 (586)
Total deferred tax 42 (588)
Total tax charge/(credit) recognised in other comprehensive income 24 (641)
Analysis of tax credit in equity:
2021 2020
£'000 £'000
Current tax:
Share-based payments (116) (88)
Deferred tax:
Share-based payments (586) (28)
Total tax credit recognised in equity (702) (116)
Factors affecting tax charge for the year:
The tax assessed for the year is different from that calculated at the
standard rate of corporation tax in the UK of 19.0% (2020: 19.0%). The
differences are explained below:
2021 2020 2020 2020
£'000 £'000 £'000 £'000
Total Continuing Discontinued Total
Profit before tax multiplied by standard rate 3,727 2,611 (220) 2,391
of UK corporation tax at 19% (2020: 19%)
Effects of:
Expenses not deductible in determining taxable profit and other items 660 421 47 468
Research and development tax credits (52) (39) - (39)
Difference in tax rates on overseas earnings 479 332 4 336
Adjustments to tax charge in respect of prior years (699) (386) (30) (416)
Effect of increased rate on opening deferred tax 354 (43) - (43)
Impairment of discontinued operations not tax allowable - - 122 122
Total tax charge for the year 4,469 2,896 (77) 2,819
The Group's effective UK corporation tax rate for the year was 22.8% (2020:
22.5%). The effective tax rate of US-based earnings is 21.9% (2020: 21.7%).
The adjustments in respect of prior years relate to the finalisation of
previous year's tax computations.
9. DIVIDENDS
Equity dividends on ordinary shares:
Dividend per share for years
ended 30 September
2021 2020 2019 2021 2020
Pence Pence Pence £'000 £'000
Interim dividend 2.00p(3) 1.84p(2) 1.70p(1) 1,203 1,103
Final dividend 5.50p(4) 4.16p(3) 3.80p(2) 2,501 2,275
7.50p 6.00p 5.50p 3,704 3,378
1 Accounted for in the year ended 30 September 2019.
2 Accounted for in the year ended 30 September 2020.
3 Accounted for in the year ended 30 September 2021.
4 The proposed final dividend for the year ended 30 September 2021
of 5.50p pence will be voted on at the Annual General Meeting on 28 January
2022 and will therefore be accounted for in the financial statements for the
year ending 30 September 2022.
10. EARNINGS PER SHARE
Basic earnings per share
Basic earnings per share is based on the weighted average number of ordinary
shares in issue and ranking for
dividend during the year. The weighted average number of shares excludes
shares held by the Treatt Employee Benefit Trust, together with shares held by
the SIP Trust, which do not rank for dividend.
2021 2020
Profit after taxation attributable to owners of the Parent Company (£'000) 15,148 9,765
Loss from discontinued operations (£'000) - 1,080
Profit from continuing operations attributable to owners of the Parent Company 15,148 10,845
(£'000)
Weighted average number of ordinary shares in issue (No: '000) 60,125 59,841
Basic earnings per share - continuing and discontinued (pence) 25.19p 16.32p
Basic earnings per share - continuing (pence) 25.19p 18.12p
Diluted earnings per share
Diluted earnings per share is based on the weighted average number of ordinary
shares in issue and ranking for dividend during the year, adjusted for the
effect of all dilutive potential ordinary shares.
The number of shares used to calculate earnings per share ('EPS') have been
derived as follows:
2021 2020
No ('000) No ('000)
Weighted average number of shares 60,310 60,188
Weighted average number of shares held in the EBT and SIP (185) (347)
Weighted average number of shares used for calculating basic EPS 60,125 59,841
Executive share option schemes 486 499
All-employee share options 210 72
Weighted average number of shares used for calculating diluted EPS 60,821 60,412
Diluted earnings per share - continuing and discontinued (pence) 24.91p 16.16p
Diluted earnings per share - continuing (pence) 24.91p 17.95p
Adjusted earnings per share
Adjusted earnings per share measures are calculated based on profits for the
year attributable to owners of the Parent Company before exceptional items as
follows:
2021 2020
£'000 £'000
Profit after taxation attributable to owners of the Parent Company 15,148 9,765
Adjusted for:
Exceptional items (see note 7) 1,302 1,060
Taxation thereon (186) (104)
Impairment of discontinued operations - 638
Loss on disposal of subsidiary including disposal costs - 263
Earnings for calculating adjusted earnings per share:
From continuing and discontinued operations 16,264 11,622
Less: Loss from discontinued operations - 179
Adjusted earnings from continuing operations 16,264 11,801
Adjusted basic earnings per share (pence)
- Continuing and discontinued operations 27.05p 19.42p
- Continuing operations 27.05p 19.72p
Adjusted diluted earnings per share (pence)
- Continuing and discontinued operations 26.74p 19.24p
- Continuing operations 26.74p 19.53p
11. SHARE CAPITAL
Called up, allotted and fully paid 2021 2021 2020 2020
£'000 Number £'000 Number
At start of year 1,205 60,270,670 1,203 60,170,670
Issued in year 3 141,263 2 100,000
At end of year 1,208 60,411,933 1,205 60,270,670
The Parent Company has one class of ordinary shares with a nominal value of 2p
each, which carry no right to fixed income.
During the year the Parent Company issued 100,000 (2020: 100,000) ordinary
shares to the Employee Benefit Trust and 41,263 (2020: nil) shares to the SIP
Trust for the purpose of meeting obligations under employee share schemes.
12. ALTERNATIVE PERFORMANCE MEASURES
The Group has defined certain measures that it uses to understand and manage
performance. These non-GAAP measures are not defined under IFRS and are not
intended to be a substitute for any IFRS measures of performance. They have
been included to provide stakeholders with additional helpful information on
the performance of the business.
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