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RNS Number : 8950U Treatt PLC 28 November 2023
TREATT PLC
FULL YEAR RESULTS
YEAR ENDED 30 SEPTEMBER 2023
Resilient sales performance
Treatt, the manufacturer and supplier of a diverse and sustainable portfolio
of natural extracts and ingredients for the beverage, flavour and fragrance
industries, announces today its audited results for the financial year ended
30 September 2023.
FINANCIAL HIGHLIGHTS(1):
Financial Financial Change
year ended
year ended
30 September 2023
30 September 2022
Revenue £147.4m £140.2m +5.1%
Gross profit £44.8m £39.1m +14.7%
Gross profit margin 30.4% 27.9% +250 bps
Profit before tax and exceptional items £17.3m £15.3m +13.7%
Profit before tax £13.5m £16.2m -16.3%
Adjusted basic earnings per share(2) 22.94p 19.80p +15.9%
Basic earnings per share 18.01p 22.04p -18.3%
Final dividend per share 5.46p 5.35p +2.0%
Total dividend per share 8.01p 7.85p +2.0%
Net debt £10.4m £22.4m -53.7%
Net debt to adjusted EBITDA(3) ratio 0.45x 1.21x -62.8%
Net debt to EBITDA ratio 0.54x 1.16x -53.2%
Adjusted return on average capital employed(4) 12.2% 11.6% +60bps
Return on average capital employed 9.0% 11.9% -290bps
(1) All measures based on continuing operations.
(2) Adjusted earnings per share measures exclude exceptional items and the
related tax effect.
(3) EBITDA is calculated as operating profit plus depreciation and
amortisation. The adjusted measure excludes exceptional items.
(4) 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
debt), averaged over the opening, interim and closing amounts. The adjusted
measure excludes exceptional items.
(5) Operating margin is calculated by dividing operating profit by revenue
from continuing operations. The adjusted measure excludes exceptional items.
(6) TreattZest is a citrus product that offers an authentic, fresh, zesty
profile, this is an existing product of Treatt's with high growth potential.
FINANCIAL HIGHLIGHTS(1):
· Resilient revenue growth of 5% (3% in constant currency) at
£147.4m (FY22: £140.2m)
· Gross margin improvement driven by minimal impact of FX,
operational efficiencies, as well as pricing adjustments
· FY23 profit before tax and exceptional items growth of 14% year
on year to £17.3m (FY22 £15.3m) in line with Board expectations
· Year-end net debt of £10.4m (FY22 £22.4m), reflecting record
cash generation in the year
OPERATIONAL HIGHLIGHTS(1):
· Successful pricing actions, particularly in Citrus, to recover
raw material inflation
· Continued strong growth in China and Coffee, key strategic growth
drivers
· With UK site transition now complete, capex has returned to
normalised levels, and the group has a strong platform to drive growth and
efficiencies in the year ahead and beyond
· Cost discipline embedded in the business, mitigating macro
headwinds, including customer destocking
Commenting on the results, CEO Daemmon Reeve said:
"We have delivered good progress this year, with growth in both sales and
profit, and sustained demand in our end markets, despite a challenging
backdrop. We saw encouraging growth in new markets, including coffee, China
and Treattzest (6), as we worked to capitalise on the opportunities here, and
a strong performance from our citrus lines. While destocking trends were
evident as customers reduced inventory in the face of elevated interest rates,
we dealt with this proactively, mitigating impact through good cost discipline
and considered pricing action."
"We achieved a significant milestone in the Group's history, as we completed
our transition to the new Skyliner way facility, with work ongoing to maximise
efficiencies as we continue to grow.
"As we enter the new financial year, while we are seeing some signs of
recovery in a few customers, we are hoping to see further signs that
destocking trends are reversing. In addition, long-term trends towards health
and wellness, sugar reduction and use of natural extracts, areas in which
Treatt excels, continue to support our core beverage market, and our largest
geographical markets are returning to growth. These factors, together with the
commitment and hard-work of all our colleagues in the past year and into the
new, means that Treatt is well-positioned for further growth in the year
ahead.
"After 32 years working at Treatt, this is my final set of results before I
retire in December. The business has changed immeasurably for the better in
that time. I am lucky to have worked with talented and energetic colleagues
and I leave with Treatt in good shape and in good hands."
Analyst and investor conference call
A conference call for analysts and investors will be held at 8.15 a.m. today,
28 November 2023. For dial-in details, please contact MHP at treatt@mhpc.com.
Enquiries:
Treatt
plc
+44 (0)1284 702500
Daemmon
Reeve
Chief Executive Officer
Ryan Govender
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
+44 (0)20 3128 8339
Tim Rowntree
Eleni Menikou
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 in the region of 400 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
I am delighted to present my first Chair's Statement, having taken up the role
earlier this year. I am grateful to my predecessor, Tim Jones, for his
guidance as I took over the reins from him.
Daemmon Reeve, who has been with Treatt for almost 33 years, 11 of these as
CEO, retires on 31 December 2023. Ryan Govender, our CFO, will become
Interim CEO while we conduct a search for Daemmon's replacement. On behalf of
all stakeholders, I'd like to thank both Tim and Daemmon for the important
contribution they have made to Treatt over many years. The business is set for
exciting growth, and I look forward to working with its talented people as the
business forges ahead.
Well invested for future growth
As Treatt enters the next chapter in its almost 140-year history, it feels an
appropriate time to reflect on some of its many strengths: deep expertise in
the global sourcing and manufacturing of ingredients; long-standing trusted
customer relationships; renowned technical expertise to deliver authentic
tastes sustainably; and commitment to delivering excellence in its products.
Capital investments in the UK and US, together with the dedication and
expertise of our people, have positioned Treatt for significant growth in the
years ahead. We are excited by growth potential in China and have continued to
invest in our local team, product range and operations, establishing a
facility focused on product testing and development tailored to the Chinese
market and the wider region.
Since joining the Board, I have been struck by the talent of my colleagues and
their commitment to the business, to each other and to our customers, across
all our functions and geographies. Their expertise, passion and teamwork
position Treatt strongly to deliver the Group's strategic priorities, and to
capitalise on the many opportunities ahead in the dynamic beverage sector.
Treatt is proud to be trusted by a broad, international customer base, with
many relationships in place for decades. These include household brands and
some of the biggest flavour houses in the world, as they navigate and
influence evolving consumer trends.
Performance
Treatt has delivered a resilient performance in the year despite difficult
macroeconomic conditions. This is thanks to the drive and expertise of
colleagues, and the business' agility in aligning with changing demand in the
beverage market for healthier and authentic options.
With interest rates at their highest level for many years, volumes softened as
customers in the beverage sector, and beyond, destocked as they tightened
control of working capital. However, through considered pricing adjustments to
offset materials price increases, and by focusing on cost control, we have
been able to deliver a profit before tax and exceptional items increase of
13.7% in the period. Also, through our team's discipline and focus, we have
been able to reduce our net debt position by some £12.0m, driven by record
cash generation over the course of the year. On behalf of the Board, I would
like to thank all of our people for their hard work and dedication in
delivering these resilient results.
Board Matters
As well as extending our gratitude to Tim Jones and Daemmon Reeve, I would
also like to thank Yetunde Hofmann, who stepped down from the Board in January
2023, for her service. We wish them all the best for the future.
In January 2023, Bronagh Kennedy joined the Treatt Board as an Independent
Non-executive Director and Chair of the Remuneration Committee. Bronagh brings
a wealth of experience from listed companies in various sectors, and has made
a significant contribution already through her insights on both people and
governance matters.
We have recently established an ESG Board Advisory Panel, chaired by
Non-executive Director, David Johnston, to support our ESG Management Team as
they develop and execute Treatt's activities on sustainability matters, an
area our people and our customers are passionate about.
I feel very fortunate to chair a Board that has significant industry and
business experience and which is so committed to supporting our management
team in delivering Treatt's strategy.
Dividend
The Board intends to recommend at the forthcoming AGM a final dividend of 5.46
pence (2022: 5.35 pence which, if approved by shareholders, would bring the
total dividend for the year to 8.01 pence (2022: 7.85 pence), in line with our
progressive dividend policy and our aim to work towards our historical level
of dividend cover of three times.
Outlook
Our talented and dedicated people are focused on delivering technically sound
solutions tailored to evolving consumer demand. We will continue to build on
our heritage in citrus, herbs, spices & florals and synthetic aromas,
while leveraging our expertise to drive growth in health & wellness/sugar
reduction categories and accelerate exciting growth opportunities like China.
All of these efforts will be underpinned on sound provenance and sustainable
practices.
Having made significant investments in our infrastructure in recent years, we
now have the opportunity to deliver improved operational leverage and gain
further efficiencies from our modern facilities, and from our supply chain and
procurement as the business continues to grow, utilising new capacity.
While we remain cognisant of ongoing macroeconomic headwinds, we are confident
in our strategy and in the strength of our teams and their expertise to
deliver this.
Vijay Thakrar
Non-executive Chair
28 November 2023
Chief Executive's review
Following substantial investment in our people in the past two years, we
believe we now have the right team in place to seize multiple growth
opportunities.
Optimised for opportunities
In September 2023, with the completion of our relocation to Skyliner Way,
handing over the keys for the head office Treatt first moved into in 1971
marked a key milestone for the business. This was the largest project in
Treatt's 137-year history, executed brilliantly despite challenges in relation
to Brexit and the Covid-19 pandemic. Feedback from colleagues and customers
who have visited the site has been overwhelmingly positive.
Performance during the year has been resilient, thanks to ongoing strong
demand in our end markets. Although revenues in the second half of the year
were impacted by customers destocking as they sought to reduce inventories in
response to interest rate rises, encouragingly, we are now seeing some early
signs of a reversal of this temporary growth slow-down in a few customers,
whilst volumes are still down from normalised levels.
During the year we have worked to optimise our cost base for future growth,
supported by investment in technology and the good performance of the new site
since operations began there a year ago. Since joining as CFO in July 2022,
Ryan Govender has brought an invigorating commercial finance mindset and cost
discipline, setting the business up well for sustainable growth.
Performance
I am pleased with the performance in the year which is reflected in the sales
and profit growth along with record cash generation, despite the difficult
macro trends in our industry. Particularly pleasing was our growth in new
product offerings, including coffee and Treattzest(6), and from our expanding
footprint in China. Cost discipline has been embedded into the business, and
with the transition of our new UK site now complete, the Group is
well-positioned for continued growth.
Although cost of living pressures are being felt in many of the 74 countries
we serve, our core beverage market continues to be buoyed by long term trends
towards health & wellness, sugar reduction and use of natural extracts,
areas in which Treatt is recognised for our technical excellence. Growing
interest in provenance, authenticity and sustainability also play to our
strengths.
Our citrus lines performed extremely well this year, and we are continuing to
drive the category towards more value-added and innovative products.
Our business in China continues to deliver, with growth accelerating since the
lifting of pandemic- related restrictions early in the reporting period. We
continue to develop relationships with domestic Chinese beverage customers,
which provide a rich source of growth opportunities in this vast, innovative
market.
Coffee performance in the year was pleasing, with revenues now reaching
£5.0m, from £1m in the previous year, we have successfully integrated coffee
as a new category in our portfolio.
We implemented price increases to mitigate inflationary pressures, although
our relatively low energy usage somewhat shields the business from these to a
degree, since many of our extraction processes are necessarily gentle, and
therefore more energy efficient to preserve the integrity of the flavours and
fragrances.
Sustainability
Treatt's operations are rooted in sustainability, with core lines of our
business deriving from by-products of the citrus industry. The nature of what
we do means it is inherent to our ethos to be conscious of our impact and what
we can do to mitigate this. To oversee our sustainability efforts and to
further embed these throughout the business we recently established an ESG
Board Advisory Panel, chaired by Non-executive Director David Johnston.
Alongside the panel, the ESG Management Team, including members from across
the business, collectively brings diverse perspectives to such an important
area. We have made good progress with our pathway to net zero, aligning to
science-based target methodology for our short-term targets.
Although the world is experiencing more frequent and more extreme weather
events, our long-term supply relationships and longstanding experience of
sourcing in times of drought, flood, hurricane and other risks to harvests
mean our customers can rely on us to supply them consistently. This is one of
Treatt's core strengths. We are not heavily dependent on single origins and
often source from different hemispheres to mitigate any issues.
People and culture
Our culture remains a fundamental element of Treatt's success, and having the
whole of our UK team under one roof, following the closure of our previous
site, is already paying dividends culturally. Communication is much easier,
and relevant departments are located close to each other to facilitate
cross-departmental collaboration. This is also the case between our
international locations, with best practice shared among our facilities,
strengthening our organisational culture as well as operational excellence.
During the year we launched our refreshed values with accompanying initiatives
to embed them throughout the business, including the appointment of cultural
ambassadors and materials setting out what each of the values means to
individuals.
Mindful of the impact of inflationary pressures on household finances in some
countries in which we operate, we were pleased to support colleagues with a
cost of living payment during the year.
Personal
After nearly 33 years in the Group, and the last 11 years as CEO, my
retirement from Treatt was announced effective on 31 December 2023. I have
enjoyed a wonderful career at Treatt and it has been a privilege to serve as
CEO during a time when the business has made great strides. I would like to
thank all of my colleagues both past and present for their trust and support.
I retire from Treatt with the Group in very good shape, the UK site move
well-executed, and the platform set for the business to ascend even to greater
heights in the future.
Outlook
Thanks to the drive and dedication of colleagues, the business is
well-positioned to capitalise on its future opportunities. We have honed our
cost base appropriately for the growth we expect in the next few years, and
there are further operational efficiencies to be derived as volumes grow,
which we expect to come from multiple categories and regions. Our core areas
of expertise align with macro trends. Citrus remains a strong suit, with one
in four new beverages globally based on those flavours, and we have some
exciting new offerings coming to market across our portfolio. We are seeing
signs of a return to growth in our largest geographical markets and are
continuing to invest in China, where our burgeoning relationships and new
business wins bode well for a healthy order book. By continuing to nurture
what makes Treatt special, I am confident in the ability of our team to
achieve our objectives for the years ahead.
Daemmon Reeve
Chief Executive Officer
28 November 2023
Financial review
Resilient revenue performance
Overview
I am pleased with the return to growth in 2023. Revenue, Profit before tax and
exceptionals, and adjusted EBITDA(3) are all in growth which reflects the
successful price increase programme and embedding of cost disciplines to
offset macro inflation and customer destocking.
Having implemented a revised currency management strategy, providing increased
visibility and controls over our currency exposures, foreign exchange impacts
during the year were successfully managed.
With the transition to the new UK site complete and the closure of the old UK
site at Northern Way, capital expenditure has returned to normalised levels.
The Group completed refinancing of the UK bank facility for £25m with HSBC,
and US facility of $25m with Bank of America for a minimum of three years.
These facilities mean the group is set up for future growth.
We launched our new strategy during the year with a focus on sales volume and
innovation led growth. We have world class people and well-invested
infrastructure globally with available capacity. Our strong customer base and
strategic relevance in the beverage market gives me belief that we can grow
our core, premium and new markets, resulting in improvement in profit and
operating margins over the medium term.
I would like to thank Daemmon Reeve for his leadership of the business, during
his eleven year tenure as CEO, and wish him the very best in retirement.
Income statement
Revenue
Revenue for the year increased by 5.1% to £147.4m (2022: £140.2m). In
constant currency terms, revenue increased by 3%. The growth was delivered
mainly through price increases despite a challenging macro environment and
sector destocking, particularly in H2. Sales price increases were successfully
implemented to offset raw material price inflation. Value-added beverage
volumes declined moderately while, as a result of strategic shedding of lower
margin commoditised citrus products and sector destocking, commodity volumes
declined more significantly.
Heritage categories, which include citrus (excluding China and Treattzest),
herbs, spices & florals and synthetic aromas grew by 1% with revenue of
£97.6m (2022: £96.6m). Citrus margins, mainly driven by price increase,
improved across several products while customer destocking and a decrease in
demand for alternative proteins adversely impacted sales of synthetic aroma
and herbs, spices & florals.
Premium categories, which include tea, health & wellness, fruit &
vegetables, were in line with the prior year with revenue of £33.7m (2022:
£33.6m). Fruit & vegetables has shown growth in passionfruit, cucumber
and mango while sugar reduction products are well established in health &
wellness with growth opportunities in new customers and regions. Tea volumes
declined with lower US sales, partially offset by price increase.
New markets, which include Coffee, China and Treattzest citrus, grew by 61%
with revenue of £16.1m (2022: £10.0m). Coffee growth was significant in the
year with revenue of £5.0m in the year with a focus on the premium cold brew
coffee and ready-to-drink markets. China continues to make encouraging
progress, in line with management expectations, as citrus gains momentum in
regional FMCG customers, with revenue of £9.5m (2022 £7.9m).
Geographical analysis of revenues shows that the UK and Europe declined,
whereas USA grew significantly. Europe declined due to the impact of
destocking, particularly in synthetic aromas, more heavily in H2.
Revenue in the Group's largest market, the USA, grew by 14% to £61.4m (2022:
£53.7m) representing 42% of the Group total (2022: 38.3%). Within the US, the
Group benefitted from particularly strong growth in citrus, mainly driven by
price increase.
In the UK, revenues declined by 18% at £8.0m, primarily due to sector
destocking. Sales to the rest of Europe, which represented 22.8% of Group
revenue (2022: 24.3%), also declined due to sector destocking, reporting total
revenue of £33.6m (2022: £34.0m).
The Group continued to focus on growth opportunities in China, and despite the
extended Covid-19 restrictions in large parts of China in place until January
2023, reported revenue to the country increased by 21% to £9.5m (2022:
£7.9m). We remain optimistic about the opportunities in this market with a
large proportion of growth representing new business for Treatt, particularly
in local FMCG beverage customers in China.
Sales to the Rest of the World (excluding China) grew by 2% to £22.3m (2022:
£21.8m).
Product category % share of revenue - 2023 v 2022:
% of revenue Citrus Tea Health & wellness Fruit & vegetables Herbs, spices & florals Synthetic aroma Coffee
2023 53% 5% 8% 11% 7% 13% 3%
2022 48% 6% 8% 10% 9% 18% 1%
Geographical % share of revenue- 2023 v 2022:
% of revenue UK Germany Ireland Rest of Europe USA Rest of the Americas China Rest of the world
2023 6% 4% 10% 9% 42% 9% 7% 13%
2022 7% 6% 8% 10% 38% 9% 6% 16%
Profit
Gross profit increased by 14.7% with gross profit margins increasing from
27.9% to 30.4%. The gross margin increase was driven by operational
efficiencies, successful price increases to mitigate the impact of raw
material inflation, as previously communicated the strategic exit of some
lower margin citrus business in the year, and the benefit of effective
management of FX, resulting in negligible FX losses in the year (2022: £2.3m
loss).
Administrative expenses (excluding exceptional items) grew by 13.7% in the
year to £26.5m (2022: £23.3m), primarily driven by inflationary pressures,
and an increase in depreciation year-on-year. Headcount across the Group
decreased by 14% from 425 heads in September 2022 to 365 heads in September
2023, following the closure of the previous UK manufacturing site, and
targeted restructuring. During the year depreciation increased by £2.0m due
to the full year impact of Skyliner Way depreciation. The outlook for
administration expenses will be to maintain cost disciplines embedded, and
foresee increases only due to depreciation, inflation and focussed investment
in sales and innovation to drive growth.
Adjusted net operating margin(5) increased in the year to 12.4% (2022: 11.3%),
benefitting from the increase in gross profit. Net operating margin decreased
in the year to 9.9% (2022: 11.9%), mainly due to the one-off exceptional gain
in the prior year relating to the sale of the previous UK site. Operating
profit excluding exceptional items increased 16% to £18.3m (2022: £15.8m)
whilst statutory operating profit decreased 13% to £14.5m (2022: £16.7m),
due again to the sale of the previous UK site. Our medium-term target for
adjusted net operating margin is 15%.
Adjusted return on average capital employed (ROACE)(4) increased to 12.2%
(2022: 11.6%) as a consequence of the increase in operating profits during the
year. Statutory return on average capital employed decreased to 9.0% (2022:
11.9%) over the year. As well as growth in adjusted basic earnings per share,
ROACE has been included as a performance metric for LTIPs. Our medium-term
target range for ROACE is 15-20%.
Exceptional items included UK restructuring costs of £2.7m (2022: £0.6m) and
relocation expenses of £1.1m (2022: £1.5m income).
Adjusted earnings before interest, tax, depreciation and amortisation
(adjusted EBITDA) for the year increased significantly by 24.6% to £23.0m
(2022: £18.5m) whereas statutory EBITDA reports a 1.0% decrease to £19.2m
(2022: £19.4m). Profit before tax and exceptional items from continuing
operations grew by 13.7% to £17.3m (2022: £15.3m). Reported profit after tax
for the year of £10.9m represents a decrease of 17.8% on the prior year,
driven by an increase in exceptional charges during the year (as set out
above).
Foreign exchange gains and losses
Whilst the Group's functional currency is the British Pound (Sterling), the
majority of the Group's business is transacted in other currencies which
creates a foreign exchange exposure, particularly in the US Dollar and, to a
lesser extent, the Euro.
During the year Sterling strengthened against the US Dollar, ending the year
9.3% stronger at £1=$1.22 (2022: £1=$1.12); the average Sterling/ US Dollar
exchange rate for the year was 4.3% stronger as compared with the prior year.
The overall impact of foreign exchange gains and losses in 2023 was a total
loss of £0.1m (2022: £2.3m loss. This is the result of the new FX controls
and processes put in place in the year.
There was a foreign exchange loss of £6.2m (2022: £11.5m gain) 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 £1.0m (2022: £0.5m) due to
materially higher interest rates despite strong cash generation of £12.0m in
the year. 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. Interest cover for the year before exceptional items decreased to 18.8
times (2022: 30.5 times), this is well above the covenant of 1.5x.
Group tax charge
After providing for deferred tax, the Group tax charge decreased by £0.3m to
£2.6m (2022: £2.9m); an effective tax rate (after exceptional items) of
19.5% (2022: 17.7%). The increase in effective tax rate is driven largely by
the prior year tax treatment on the disposal of Northern Way premises, on
which a gain of £3.3m was considered not taxable.
Earnings per share
Basic earnings per share (as set out in note 10) decreased by 18.3% to 18.01p
(2022: 22.04p). Adjusted basic earnings per share(4) for the year increased by
15.9% to 22.94p (2022: 19.80p). The calculation of earnings per share excludes
those shares which are held by the Treatt Employee Benefit Trust (EBT) ,which
are not beneficially owned by employees since they do not rank for dividend
and is based upon profit after tax.
Dividends
The proposed final dividend of 5.46p per share (2022: 5.35p) increases the
total dividend per share for the year to 8.01p, a 2% increase on the prior
year (2022: 7.85p), representing dividend cover of 2.2 times earnings for the
year and a rolling three-year cover after exceptional items of 2.8 times. The
Board considers this to be appropriate cover at this stage of the Group's
development and against our aim to work towards our historical level of
dividend cover of three times earnings.
Balance sheet
Shareholders' funds grew in the year by £3.3m to £137.2m (2022: £133.9m),
with net assets per share increasing by 2.1% to £2.25 (2022: £2.20). Over
the last five years net assets per share have grown by 63.5%. 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.
Inventory held at the year-end was £62.4m (2022: £68.4m), a decrease of
£6.0m. This decrease was driven by a significant reduction in inventory
volume, offset with higher raw material costs. One factor in the success of
the business is our management of risks, such as geographic, political and
climatic, to ensure continuity of supply for our customers. Consequently, the
overall level of inventory held by the Group is highly significant in cash
terms.
Net debt
At the year-end date the Group's net debt position was £10.4m (2022: £22.4m)
including leases of £0.5m (2022: £0.4m), with available unused facilities of
£35.6m (2022: £8.4m), this is the result of a focus on cash generation.
In order to support the Group's growth plans for the foreseeable future, the
Group has secured new financing arrangements in the UK and US totalling
£45.5m (2022: £30.8m) following a refinance of all the Group's main banking
arrangements across the UK and US during the year. None of the banking
facilities (2022: £13.4m) expire in one year or less.
During the year, the Group replaced its various UK banking arrangements
(totalling c.£19.3m), with a single asset-based lending facility with HSBC of
£25.0m for a three-year term, with an optional accordion (pre-approved
facility) of £10.0m and option to extend the term of facility for two further
years. This facility lends against the value and quality of inventory and
receivables within the UK business, and strengthens the ability of the Group
to borrow in the UK.
The US revolving credit facility with Bank of America was expanded on similar
terms, providing a facility of up to $25.0m (2022: $10.0m), with an optional
accordion of $10.0m, for a period of three years. Revolving credit facility
funds were then used to repay the secured term loan balance (2022: £3.2m) in
full.
The Group continues to enjoy positive relationships with its banks and expects
all facilities to be renewed or refinanced when they fall due.
Cash flow
Net cash inflow for the year was £4.6m (2022: £4.1m outflow) including a net
outflow of £7.1m paying down the existing bank loans and borrowings.
Excluding the refinancing, the Group delivered record cash generation of
£12.0m largely due to strong cash generation from operations, driven by
efforts across the business to exercise greater financial prudence but also
through lower capital expenditure and efforts to improve working capital.
During the year the Group invested £5.7m (2022: £12.8m) on capital projects,
of which £1.3m (2022: £5.0m) was incurred on the UK relocation project. The
level of capital investment was lower than in previous years as the Group's
capital investment program nears completion. Total investments in the Group's
US operations were £1.9m and was largely focussed on finishing existing
value-added projects.
There was an overall improvement in working capital, generating an inflow of
£3.5m (2022: outflow £18.5m), £2.5m of which was generated from a reduction
of inventory, and as a result of a focus on working capital efficiency.
Capital investment programme
UK relocation
The Group acquired a ten-acre greenfield site on the new Suffolk Park in Bury
St Edmunds in mid 2017 to relocate our UK business from its previous site in
Bury St Edmunds, to a brand-new purpose-built facility. to deliver operational
efficiencies and advanced capabilities, the aim of the new facility was to
bring together all our UK-based employee into a single premises.
Construction of the new facility was completed during 2021. During 2022 the
first phase of installation and commissioning of plant and machinery was
completed, inventory was physically transferred to be managed by the new
warehouse management system and first phase production began from the new
facility as equipment was successfully brought online. The new site has state
of-the-art laboratories which support and promote product innovation whilst
also providing a truly exceptional customer collaboration environment.
Following the sale of Northern Way premises in February 2022, the Group agreed
a leaseback of our main manufacturing building, to maintain the continuity of
its manufacturing capability during the transition. In September 2023, we
successfully exited the Northern Way premises with all UK-based employees now
located at Skyliner Way.
During 2023 we commenced phase two activity which relates to the purchase and
installation of value-added manufacturing equipment, with the majority now
complete. The remaining project is now viewed as a capital management process
instead of a relocation project, we anticipate to be completed during 2024, in
line with original expectations.
The respective total costs of each phase of the relocation are broken down as
follows:
£'000 Phase Phase Total
one two
Capital expenditure 41,277 3,509 44,786
Previous site disposal (5,592) - (5,592)
Exceptional items 4,820 2,299 7,119
Total costs 40,505 5,808 46,313
The total capital project costs, including proceeds from the sale of the
previous site, are expected to be approximately £39.2m with exceptional costs
totalling £7.1m expected to be incurred. As the project moves into the final
phase, we expect a further net cash outflow of £3.1m over the next year. The
cash outflows for the project are expected to result in the rolling Group net
debt to adjusted EBITDA ratio remaining below 1.0x during FY2024.
It should be noted that in accordance with IAS 23 'Borrowing costs', the
interest charges incurred on funds utilised on the relocation project prior to
its completion can be capitalised. In the year ended 30 September 2023
£307,000 (2022: £187,000) was capitalised, and further capitalisation of
borrowing costs is expected to be minimal for the year ending 30 September
2024.
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
employees. All UK employees with a year's service were awarded £700 (2022:
£700) 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 employees who were awarded $1,000 (2022:
$1,000) 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 10.0% of salary, whichever is lower) of Treatt shares out of
gross income, which the Group continues to match on a one and a half for one
basis. In the year, a total of 30,000 (2022: 24,000) matching shares were
granted.
The SIP currently holds 380,000 shares (2022: 438,000) 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 employees in the UK and US. Under US tax legislation,
employees 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 267,000 (2022: 72,000) 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 355,000 (2022: 205,000) shares
during the year, whilst 299,000 (2022: 278,000) were exercised from options
awarded in prior years which have now vested. During the year 200,000 (2022:
400,000) shares were issued to the Employee Benefit Trust (EBT) at par (2
pence per share). The EBT currently holds 162,000 shares (2022: 270,000) 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 2021, the result of which was that the scheme had an actuarial deficit
of £4.9m (1 January 2018: surplus £0.5m) and a funding level of 82.0%.
Consequently, the Company has agreed with the trustees to make contributions
of £0.5m (2022: £0.5m) per annum until the next actuarial review date of 1
January 2024.
Under IAS 19, 'Employee Benefits' a valuation of the scheme is conducted at
the year-end date based on updating the valuation calculations from the most
recent actuarial valuation. In accordance with this valuation, and having
sought legal advice as to the appropriateness of recognising a scheme surplus,
there is a pension surplus recognised on the balance sheet, net of tax, of
£2.8m (2022: £1.3m asset). The increase in the pension asset is driven by
investment returns of £0.8m, and also an actuarial gain on changes to
financial assumptions of £0.9m, due to continuing increases in government
bond yields which further increased the discount rate used to calculate
liabilities.
Foreign exchange risk management
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. In addition to Sterling, sales are
principally made in US Dollar and Euro, with the US Dollar being the most
significant, typically accounting for around half of the UK business's sales.
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 or weakness 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.
The Group's FX risk management policy is to minimise its foreign exchange risk
at our UK business through managing its US Dollar cash and borrowings and the
use of forward currency contracts and options. Foreign exchange contracts are
used to provide a hedge on the Group's margin exposure where purchases and
sale are made in the same currency. The value of these contracts is determined
through forward-looking forecasts of expected sales and net margins in foreign
currencies.
An FX committee was formed in August 2022 in order to monitor foreign exchange
risks within the business, work on refinements to the existing FX risk policy
and provide a forum to challenge and approve strategic actions such as
hedging. The committee meets monthly and there is an ongoing focus to manage
foreign currency debt balances, ensure the ongoing effectiveness of hedges and
remove avoidable foreign exchange risk from the business.
The Group now, as part of its FX risk management, actively minimises its
foreign currency debt and cash balances where there is no immediate expected
offset. In regard to foreign exchange contracts used for hedging, the Group
regularly reforecasts its exposure and amends its positions according to any
surpluses or shortfalls.
Ryan Govender
Chief Financial Officer
28 November 2023
GROUP INCOME STATEMENT
for the year ended 30 September 2023
2023 2022
Notes Before exceptional items Before exceptional items
£'000 Exceptional items £'000 Exceptional items
£'000 Total £'000 Total
£'000 £'000
Revenue 6 147,397 - 147,397 140,185 - 140,185
Cost of sales (102,573) - (102,573) (101,101) - (101,101)
Gross profit 44,824 - 44,824 39,084 - 39,084
Administrative expenses 7 (26,503) (2,655) (29,158) (23,311) (601) (23,912)
Gain on disposal of land and buildings 7 - - - - 3,324 3,324
Relocation expenses 7 - (1,145) (1,145) - (1,800) (1,800)
Operating profit(1) 18,321 (3,800) 14,521 15,773 923 16,696
Finance income 112 - 112 8 - 8
Finance costs (1,089) - (1,089) (525) - (525)
Profit before taxation 17,344 (3,800) 13,544 15,256 923 16,179
Taxation 8 (3,405) 803 (2,602) (3,295) 431 (2,864)
Profit for the year attributable to owners of the Parent Company 13,939 (2,997) 10,942 11,961 1,354 13,315
Earnings per share Adjusted(2) Statutory Adjusted(2) Statutory
Basic 10 22.94p 18.01p 19.80p 22.04p
Diluted 10 22.81p 17.91p 19.60p 21.82p
1 Operating profit is calculated as profit before 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.
All financial information presented relates to continuing operations.
The group reconciliation of net cash flow to movement in net debt, together
with notes 1 to 12 form part of these financial statements.
GROUP STATEMENT OF COMPREHENSIVE INCOME
for the year ended 30 September 2023
Notes 2023 2022
£'000 £'000
Profit for the year attributable to owners of the Parent Company 10,942 13,315
Items that will or may be reclassified subsequently to profit or loss:
Currency translation differences on foreign currency net investments (6,188) 11,461
Current tax on foreign currency translation differences 8 (33) 102
Deferred tax on foreign currency translation differences 8 301 -
Fair value movement on cash flow hedges 269 (23)
Deferred tax on fair value movement 8 - 4
(5,651) 11,544
Items that will not be reclassified subsequently to profit or loss:
Actuarial gain on defined benefit pension scheme 1,381 8,273
Deferred tax on actuarial gain 8 (345) (2,068)
1,036 6,205
Other comprehensive (expense)/income for the year (4,615) 17,749
15,816 15,816
Total comprehensive income for the year attributable to owners 6,327 31,064
of the Parent Company
All financial information presented relates to continuing operations.
The group reconciliation of net cash flow to movement in net debt, together
with notes 1 to 12 form part of these financial statements.
GROUP STATEMENT OF CHANGES IN EQUITY
for the year ended 30 September 2023
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 2021 1,208 23,484 (4) (292) 1,820 80,083 106,299
Profit for the year - - - - - 13,315 13,315
Other comprehensive income:
Exchange differences - - - - 11,461 - 11,461
Fair value movement on cash flow hedges - - - (23) - - (23)
Actuarial gain on defined benefit pension scheme - - - - - 8,273 8,273
Taxation relating to items above - - - 4 102 (2,068) (1,962)
Total comprehensive income - - - (19) 11,563 19,520 31,064
Transactions with owners:
Dividends - - - - - (4,834) (4,834)
Share-based payments - - - - - 1,115 1,115
Movement in own shares in share trusts - - 8 - - - 8
Gain on release of shares in share trusts - - - - - 622 622
Issue of share capital 9 - (9) - - - -
Taxation relating to items recognised directly in equity - - - - - (424) (424)
Total transactions with owners 9 - (1) - - (3,521) (3,513)
30 September 2022 1,217 23,484 (5) (311) 13,383 96,082 133,850
Profit for the year - - - - - 10,942 10,942
Other comprehensive income:
Exchange differences - - - - (6,188) - (6,188)
Fair value movement on cash flow hedges - - - 269 - - 269
Actuarial gain on defined benefit pension scheme - - - - - 1,381 1,381
Taxation relating to items above - - - - 268 (345) (77)
Total comprehensive income - - - 269 (5,920) 11,978 6,327
Transactions with owners:
Dividends - - - - - (4,802) (4,802)
Share-based payments - - - - - 1,189 1,189
Movement in own shares in share trusts - - 9 - - - 9
Gain on release of shares in share trusts - - - - - 620 620
Issue of share capital 6 - (6) - - - -
Taxation relating to items recognised directly in equity - - - - - 53 53
Total transactions with owners 6 - 3 - - (2,940) (2,931)
30 September 2023 1,223 23,484 (2) (42) 7,463 105,120 137,246
The group reconciliation of net cash flow to movement in net debt, together
with notes 1 to 12 form part of these financial statements.
GROUP BALANCE SHEET
as at 30 September 2023
Registered Number: 01568937
2023 2022
£'000 £'000
ASSETS
Non-current assets
Intangible assets 2,752 3,206
Property, plant and equipment 71,526 74,281
Right-of-use assets 538 375
Post-employment benefits 3,723 1,782
78,539 79,644
Current assets
Inventories 62,396 68,351
Trade and other receivables 32,969 37,113
Current tax assets 300 719
Derivative financial instruments 8 -
Cash and bank balances 809 2,354
96,482 108,537
Total assets 175,021 188,181
LIABILITIES
Current liabilities
Bank overdrafts - (6,174)
Borrowings (10,642) (15,861)
Provisions (102) (397)
Trade and other payables (20,700) (22,903)
Lease liabilities (176) (105)
Derivative financial instruments (176) (666)
Current tax liabilities (755) (223)
(32,551) (46,329)
Net current assets 63,931 62,208
Non-current liabilities
Borrowings - (2,342)
Lease liabilities (373) (291)
Deferred tax liabilities (4,851) (5,369)
(5,224) (8,002)
Total liabilities (37,775) (54,331)
Net assets 137,246 133,850
GROUP BALANCE SHEET (continued)
as at 30 September 2023
Notes 2023 2022
£'000 £'000
EQUITY
Share capital 11 1,223 1,217
Share premium account 23,484 23,484
Own shares in share trusts (2) (5)
Hedging reserve (42) (311)
Foreign exchange reserve 7,463 13,383
Retained earnings 105,120 96,082
Total equity attributable to owners of the Parent Company
137,246 133,850
The group reconciliation of net cash flow to movement in net debt, together
with notes 1 to 12 form part of these financial statements.
GROUP STATEMENT OF CASH FLOWS
for the year ended 30 September 2023
Notes 2023 2022
£'000 £'000
Cash flow from operating activities
Profit before taxation 13,544 16,179
Adjusted for:
Depreciation of property, plant and equipment and right-of-use assets 4,277 2,476
Amortisation of intangible assets 399 215
Impairment charge on intangible assets 228 -
Loss/(gain) on disposal of property, plant and equipment 241 (3,324)
Net finance costs excluding post-employment benefit expense 1,087 382
Share-based payments 1,222 1,039
(Increase)/decrease in fair value of derivatives (230) 61
Employer contributions to defined benefit pension scheme (450) (450)
Post-employment benefit (income)/expense (110) 135
Operating cash flow before movements in working capital 20,208 16,713
Movements in working capital:
Decrease/(increase) in inventories 2,507 (14,396)
Decrease/(increase) in receivables 3,004 (8,502)
(Decrease)/increase in payables (2,054) 4,355
Cash generated from/(used in) operations 23,665 (1,830)
Taxation (paid)/received (2,174) 443
Net cash generated from/(used in) operating activities 21,491 (1,387)
Cash flow from investing activities
Proceeds on disposal of property, plant and equipment 1,557 5,597
Purchase of property, plant and equipment (5,507) (11,849)
Purchase of intangible assets (207) (925)
Interest received 2 8
Net cash used in investing activities (4,155) (7,169)
GROUP STATEMENT OF CASH FLOWS (continued)
Notes 2023 2022
£'000 £'000
Cash flow from financing activities
Repayment of borrowings and loans (17,737) (360)
Proceeds from bank borrowings 10,642 9,412
Repayment of lease liabilities (161) (80)
Interest paid (1,080) (390)
Dividends paid 9 (4,802) (4,834)
Proceeds on issue of shares 11 6 9
Net sale of own shares by share trusts 623 621
Net cash (used in)/generated from financing activities (12,509) 4,378
Net increase/(decrease) in cash and cash equivalents 4,827 (4,178)
Effect of foreign exchange rates (198) 111
Movement in cash and cash equivalents in the year 4,629 (4,067)
Cash and cash equivalents/(overdrafts) at beginning of year (3,820) 247
Cash and cash equivalents/(overdrafts) at end of year 809 (3,820)
Cash and cash equivalents/(overdrafts) comprise:
Cash and bank balances 809 2,354
Bank overdrafts - (6,174)
809 (3,820)
The group reconciliation of net cash flow to movement in net debt, together
with notes 1 to 12 form part of these financial statements.
GROUP RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
for the year ended 30 September 2023
2023 2022
£'000 £'000
Movement in cash and cash equivalents in the year 4,629 (4,067)
Repayment of borrowings and loans 17,737 360
Proceeds from bank borrowings (10,642) (9,412)
(Increase)/reduction in lease liabilities (153) 657
Cash inflow/(outflow) from changes in net debt in the year 11,571 (12,462)
Effect of foreign exchange rates 466 (843)
Movement in net debt in the year 12,037 (13,305)
Net debt at beginning of year (22,419) (9,114)
Net debt at end of year (10,382) (22,419)
Analysis of movement in net debt during the year:
At Cash flow Foreign exchange movements £'000 At 30 September
1 October £'000 Non-cash movements 2023
2022 £'000 £'000
£'000
Cash and bank balances 2,354 (1,347) - (198) 809
Bank overdrafts (6,174) 6,174 - - -
Cash and cash equivalents (3,820) 4,827 - (198) 809
Bank borrowings and term loans (18,203) 7,095 - 466 (10,642)
Lease liabilities (396) 161 (317) 3 (549)
Net debt (22,419) 12,083 (317) 271 (10,382)
At Cash flow Foreign exchange movements At 30 September
1 October
£'000
£'000
2022
2021
£'000
£'000
Cash and bank balances 7,260 (5,017) 111 2,354
Bank overdrafts (7,013) 839 - (6,174)
Cash and cash equivalents 247 (4,178) 111 (3,820)
Bank borrowings and term loans (8,308) (9,052) (843) (18,203)
Lease liabilities (1,053) 666 (9) (396)
Net cash/(debt) (9,114) (12,564) (741) (22,419)
This statement of reconciliation of net cash flow to movement in net 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 2023 and 2022
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
UK-adopted international accounting standards.. The statutory accounts for the
year ended 30 September 2022 have been delivered to the Registrar of
Companies. The statutory accounts for the year ended 30 September 2023 have
been audited and approved but have not yet been filed.
The Group's audited financial statements for the year ended 30 September 2023
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 28 November 2023.
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 2022.
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 2023 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 2022.
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 has adequate resources to continue as a going concern for a period
of twelve months from the date these financial statements are approved.
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 most significantly severe business interruption like that
which was experienced during the pandemic, or that could arise through the
impact of climate change or through global conflict.
The Group successfully refinanced all of its banking facilities during the
year, agreeing a new £25.0m asset-based lending facility with HSBC in the UK
and extending the existing revolving credit facility with Bank of America in
the US to $25.0m. Both facilities are for a minimum term of three years and
contain pre-agreed accordion elements of £10.0m and $10.0m respectively,
these accordions are disregarded for the purposes of the going concern and
viability assessment. At the year-end date, the Group had net debt of £10.4m
and headroom on facilities of £35.6m.
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 Directors have modelled scenarios representing varying degrees of severity
and have considered the impact of changes in working capital, foreign exchange
rates, revenues and margins both separately and simultaneously. These
assumptions are those that would arise from the aforementioned uncertainties
and that would adversely impact cash generation and profitability. Using these
assumptions, Group headroom and covenant compliance have been assessed
throughout the going concern (twelve-month) and viability (three-year)
periods.
The modelling indicated that the Group would retain sufficient headroom on
total facilities and comply with its banking covenants throughout the tested
periods. In the most adverse scenario, where all risks are stressed
simultaneously by 10% or more, the Group's subsidiary, R C Treatt & Co
Ltd, would breach its banking facility limit in October 2025, but in that
event the Group would act swiftly to activate the mitigations described below,
or recapitalise the company using cash elsewhere in the business.
A further 'reverse stress test' scenario was modelled to find a sustained
reduction in revenue that would give rise to a breach of the Group's covenant
conditions and the Group's headroom on facilities within the viability period.
This scenario was then stress-tested further by overlaying the adverse impact
of a decline in profit margins.
Under the reverse-engineered scenario, it was determined that a continuous
decline in sales of greater than 36.0% per annum, or 29.0% per annum alongside
a 400bps decline in margin for two consecutive years, with no mitigating
measures put in place, would result in a breach of the financial covenants in
Treatt USA, Inc and a breach of R C Treatt's facility limit by around October
2025, followed by a breach of overall Group facility limits in October 2026.
The possibility of these severe scenarios materialising is considered 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 limits or covenants.
Having considered the range of stress-test scenarios 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 at least twelve months from the date this
report is approved. Accordingly, they continue to adopt the going concern
basis of accounting in preparing these financial statements.
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 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
62 to 67 of the audited 2022 Annual Report and Financial Statements.
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, supply chain,
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 2023 2022
Total £'000
£'000 Total
United Kingdom 8,039 9,777
Rest of Europe - Germany 5,937 7,907
- Ireland 14,653 11,527
- Other 13,006 14,596
The Americas - USA 61,407 53,731
- Other 12,549 12,919
Rest of the World - China 9,525 7,901
- Other 22,281 21,827
147,397 140,185
All Group revenue is in respect of the sale of goods, other than property
rental income of nil (2022: £1,000). No country included within 'Other'
contributes more than 5.0% of the Group's total revenue. The Group revenue
from the largest customer was £15,472,000 (2022: £15,226,000).
Non-current assets by geographical location, excluding post-employment benefit
surplus, were as follows:
Continuing operations 2023 2022
£'000 £'000
United Kingdom 44,800 44,914
United States 29,908 32,910
China 108 38
74,816 77,862
7. EXCEPTIONAL ITEMS
The exceptional items referred to in the income statement can be categorised
as follows:
2023 2022
£'000 £'000
UK relocation project
Relocation expenses (1,145) (1,800)
Less: tax effect of relocation expenses 205 317
Restructuring costs
Restructuring costs (2,655) (601)
Less: tax effect of restructuring costs 598 114
Disposal of Northern Way premises
Gain on disposal of land and buildings - 3,324
Less: tax effect of disposal - -
(2,997) 1,354
The exceptional items all relate to non-recurring costs which are considered
material and discrete in nature; therefore the Group considers them
exceptional in order to provide a more meaningful view of the Group's
underlying business performance.
Relocation expenses relate to one-off costs incurred in connection with the
relocation of the Group's UK operations that do not fall to be capitalised.
These costs arose in relation to the decommissioning of equipment and site
preparation ahead of the UK business formally exiting the Northern Way
premises in August 2023, together with costs associated with the final stages
of manufacturing fit-out at Skyliner Way premises. Included within this line
is a loss on the disposal of property, plant and equipment of £104,000 that
did not transition to Skyliner Way.
Restructuring costs principally comprise redundancy and consulting costs
relating to the closure of distillation operations at the Northern Way
premises and the creation of an enhanced global leadership structure, which
was communicated to the business in August 2023. These costs consist of
contractual employment and termination payments for those employees impacted.
Amounts which are contractually due under employees' existing terms and
conditions are considered to be fully allowable for tax purposes.
During the financial year, payments totalling £887,000 had been made in
respect of the restructuring costs, with the cash flow impact of the remaining
costs expected to be settled in the following financial year.
On 28 February 2022, the Group successfully disposed of its former UK premises
at Northern Way, Bury St Edmunds. The proceeds of the sale, net of selling
costs were £5,597,000 and the associated gain on disposal was £3,324,000.
8. TAXATION
Analysis of tax charge in income statement:
2023 2022
£'000 £'000
Total Total
Current tax:
UK corporation tax on profits for the year (32) 153
Adjustments to UK tax in respect of previous periods (41) (231)
Overseas corporation tax on profits for the year 3,577 2,069
Adjustments to overseas tax in respect of previous periods (365) (52)
Total current tax 3,139 1,939
Deferred tax:
Origination and reversal of temporary differences (141) 726
Effect of change of tax rate on opening deferred tax (29) (45)
Adjustments in respect of previous periods (367) 244
Total deferred tax (537) 925
Tax on profit on ordinary activities 2,602 2,864
Analysis of tax charge in other comprehensive income:
2023 2022
£'000 £'000
Current tax:
Foreign currency translation differences 33 (102)
Total current tax 33 (102)
Deferred tax:
Cash flow hedges - (4)
Foreign currency translation differences (301) -
Defined benefit pension scheme 345 2,068
Total deferred tax 44 2,064
Total tax charge recognised in other comprehensive income 77 1,962
8. TAXATION (continued)
Analysis of tax (credit)/charge in equity:
2023 2022
£'000 £'000
Current tax:
Share-based payments (28) (20)
Deferred tax:
Share-based payments (25) 444
Total tax (credit)/charge recognised in equity (53) 424
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 22.0% (2022: 19.0%). The
differences are explained below:
2023 2022
£'000 £'000
Total Total
Profit before tax multiplied by standard rate of UK corporation tax at 22.0% 2,980 3,074
(2022: 19.0%)
Effects of:
Expenses not deductible in determining taxable profit 335 268
Income not taxable in determining taxable profit - (694)
Research and development tax credits (20) (243)
Difference in tax rates on overseas earnings 49 678
Adjustments to tax charge in respect of prior years (732) (39)
Effect of change of tax rate on opening deferred tax (47) (38)
Deferred tax not recognised 37 (142)
Total tax charge for the year 2,602 2,864
From 1 April 2023, the main rate of corporation tax increased from 19% to 25%.
The blended rate applicable to the Group's UK operations is 22.0%. The Group's
effective UK corporation tax rate for the year was 13.2% (2022: 17.7%). The
effective tax rate of US-based earnings is 19.4% (2022: 21.5%). 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
2023 2023 2021 2023 2022
Pence Pence Pence £'000 £'000
Interim dividend 2.55p(3) 2.50p(2) 2.00p(1) 1,552 1,512
Final dividend 5.46p(4) 5.35p(3) 5.50p(2) 3,250 3,322
8.01p 7.85p 7.50p 4,802 4,834
1 Accounted for in the year ended 30 September 2021.
2 Accounted for in the year ended 30 September 2022.
3 Accounted for in the year ended 30 September 2023.
4 The proposed final dividend for the year ended 30 September 2023 of 5.46p
pence will be voted on at the Annual General Meeting on 25 January 2024 and
will therefore be accounted for in the financial statements for the year
ending 30 September 2024.
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
(EBT) as these do not rank for dividend.
2023 2022
Profit after taxation attributable to owners of the Parent Company (£'000) 10,942 13,315
Weighted average number of ordinary shares in issue (No: '000) 60,762 60,400
Basic earnings per share (pence) 18.01p 22.04p
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:
2023 2022
No ('000) No ('000)
Weighted average number of shares 60,916 60,578
Weighted average number of shares held in the EBT (154) (178)
Weighted average number of shares used for calculating basic EPS 60,762 60,400
Executive share option schemes 301 487
All-employee share options 45 148
Weighted average number of shares used for calculating diluted EPS 61,108 61,035
Diluted earnings per share (pence) 17.91p 21.82p
10. EARNINGS PER SHARE (continued)
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:
2023 2022
£'000 £'000
Profit after taxation attributable to owners of the Parent Company 10,942 13,315
Adjusted for:
Exceptional items - relocation expenses (see note 7) 1,145 1,800
Exceptional items - restructuring costs (see note 7) 2,655 601
Exceptional items - gain on disposal of land and buildings (see note 7) - (3,324)
Taxation thereon (803) (431)
Adjusted earnings 13,939 11,961
Adjusted basic earnings per share (pence) 22.94p 19.80p
Adjusted diluted earnings per share (pence) 22.81p 19.60p
11. SHARE CAPITAL
Called up, allotted and fully paid 2023 2023 2022 2022
£'000 Number £'000 Number
At start of year 1,217 60,864,564 1,208 60,411,933
Issued in year 6 265,025 9 452,631
At end of year 1,223 61,129,589 1,217 60,864,564
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 200,000 (2022: 400,000) ordinary
shares to the Employee Benefit Trust, and 65,025 (2022: 52,631) ordinary
shares to the SIP Trust, at nominal value of 2p per share, for the purpose of
meeting obligations under employee share option schemes.
The number of shares held in the EBT at 30 September 2023 is 162,000 (2022:
270,000) and the number of shares held in the SIP is 380,000 (2022: 437,000).
12. ALTERNATIVE PERFORMANCE MEASURES
The Group reports certain alternative performance measures (APMs) that are not
required under IFRS. The Group believes that these APMs, when viewed in
conjunction with its IFRS financial information, provide valuable and more
meaningful information regarding the underlying financial and operating
performance of the Group to its stakeholders.
APMs referenced throughout the Annual Report which are not possible to easily
derive from the financial statements, are shown in the reconciliations below
alongside their statutory equivalent measures.
Return on average capital employed
Adjusted return on average capital employed (ROACE) is considered to be a key
performance indicator (KPI) and is an APM which enables stakeholders to see
the profitability of the business as a function of how much capital has been
invested in the business.
The derivation of this percentage, along with the statutory equivalent
measure, is shown below:
ROACE - APM measure
Group 2023 2022
£'000 £'000
Total equity 137,246 133,850
Net debt 10,382 22,419
Capital employed 147,628 156,269
Interim total equity¹ 129,685 114,988
Interim net debt¹ 17,704 19,787
Interim capital employed¹ 147,389 134,775
Average capital employed² 150,429 135,486
Adjusted operating profit³ 18,321 15,773
ROACE % 12.2% 11.6%
ROACE - statutory measure
Group 2023 2022
£'000 £'000
Average capital employed² 150,429 135,486
Profit before taxation 13,544 16,179
ROACE % 9.0% 11.9%
12. ALTERNATIVE PERFORMANCE MEASURES (continued)
Net debt to adjusted EBITDA
The net debt to adjusted EBITDA ratio is useful to ensure that the level of
borrowings in the business can be supported by the cashflow in the business,
and as it is measured by reference to adjusted EBITDA, is considered to be an
APM.
The derivation of this ratio, along with its statutory equivalent measure is
shown below:
APM Measure
Group 2023 2022
£'000 £'000
Profit before taxation 13,544 16,179
Exceptional items 3,800 (923)
Profit before taxation and exceptional items 17,344 15,256
Interest receivable (112) (8)
Interest payable 1,089 525
Depreciation of property, plant and equipment and right-of-use assets 4,277 2,476
Amortisation of intangible assets 399 215
Adjusted EBITDA 22,997 18,464
Net debt 10,382 22,419
Net debt to adjusted EBITDA 0.45 1.21
Statutory measure
Group 2023 2022
£'000 £'000
Profit before taxation 13,544 16,179
Interest receivable (112) (8)
Interest payable 1,089 525
Depreciation of property, plant and equipment and right-of-use assets 4,277 2,476
Amortisation of intangible assets 399 215
EBITDA 19,197 19,387
Net debt 10,382 22,419
Net debt to EBITDA 0.54 1.16
1 Interim total equity and interim net debt for a given year are taken from
the unaudited half year condensed financial statements made out to 31 March,
which can be found on www.treatt.com (http://www.treatt.com) .
2 Average capital employed for a given year is calculated as the average of
the opening, interim and closing capital employed.
3 Adjusted operating profit for ROACE purposes is operating profit before
exceptional items as defined in the Group income statement.
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