REG - Treatt PLC - Half-year Report
10/05/2022 07:00
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RNS Number : 8587K Treatt PLC 10 May 2022
TREATT PLC
HALF YEAR RESULTS
SIX MONTHS ENDED 31 MARCH 2022
10 May 2022
On track to deliver full year expectations - reversion to H2 seasonality;
order book up over 25%
Treatt Plc ('Treatt' or the 'Group'), the manufacturer and supplier of a
diverse and sustainable portfolio of natural extracts and ingredients for the
beverage, flavour and fragrance industries, announces its half year results
for the six months ended 31 March 2022.
FINANCIAL HIGHLIGHTS:
Half year ended Half year ended Half year ended
31 March 2022 31 March 2021 31 March 2020
Revenue £66.3m £60.8m £53.6m
Gross profit margin 27.5% 35.0% 26.2%
Operating profit before exceptional items £6.6m £10.6m £6.1m
Profit before tax and exceptional items £6.3m £10.4m £6.1m
Adjusted basic earnings per share 8.21p 12.93p 8.08p
Dividend per share 2.50p 2.00p 1.84p
HIGHLIGHTS & OUTLOOK:
· Record H1 revenue with 9% growth across the portfolio.
· As anticipated, returning to traditional H2 profit weighting:
Ø H1 2021 benefitted from COVID-19 related retail channel growth and
significant product launches.
Ø Normal seasonality returning driven by Spring/Summer beverage consumption
in Northern hemisphere.
Ø Strong anticipated growth in healthier living categories expected to drive
higher margins.
· H1 2022 ended strongly, and momentum has continued into H2; order book
up by more than 25% compared with equivalent prior year period giving
confidence in the outlook.
· Revenue growth for full year now expected to exceed 15%; on track to
deliver full year PBT market consensus of £21.7m(1).
· Ongoing investment in the Group's capacity, people and innovation to
deliver long-term growth.
Commenting on the results, Group CEO, Daemmon Reeve, said:
"We continue to grow our revenue and have a very strong order book going into
the second half of the financial year. The momentum we have in the business
underlines the importance of the significant benefits we expect to gain from
both investment in our people and the increased capabilities and capacity we
will unlock from our new UK facility at Skyliner Way.
"Our established business model and track record of managing the input costs
of our natural products has meant that we continue to deliver outstanding
service for our customers and healthy returns for our shareholders, despite
supply chain and other macro headwinds.
"Branded beverages are seen as affordable luxuries, and so we are well
insulated against rising inflationary pressures and our strong order book
gives us confidence that we are on track to perform in line with expectations
for the full year."
(1) Treatt compiled consensus of four analyst forecasts for FY22 profit before
tax and exceptional items.
Analyst and investor conference call
A conference call for analysts and investors will be held at 9.00 a.m. today,
10 May 2022. For dial-in details, please contact MHP Communications at
treatt@mhpc.com. A recording will be made available after the event.
In accordance with DTR 6.3.5 please find below the unedited full text of the
half year results.
A copy of the half year results will be submitted to the National Storage
Mechanism and will shortly be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism) . It will also be
available on the Treatt website at www.treatt.com/investor-relations
(http://www.treatt.com/investor-relations) .
Enquiries:
Treatt plc +44 (0)1284 702500
Daemmon Reeve Chief Executive Officer
Richard Hope Chief Financial Officer
Joint Brokers
Investec Bank Plc +44 (0)20 7597 5970
Patrick Robb
David Anderson
Peel Hunt LLP +44 (0) 20 7418 8900
George Sellar
Andrew Clark
Lalit Bose
Financial PR
MHP Communications +44 (0) 20 3128 8789 / Treatt@mhpc.com
(mailto:Treatt@mhpc.com)
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 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) .
HALF YEAR RESULTS STATEMENT
Introduction
The Group has delivered encouraging revenue growth, reporting results for the
six months ended 31 March 2022 (the "Period") in line with the Board's
expectations. As anticipated, and previously indicated, these results reflect
a return to our normal H1/H2 profit weighting.
We saw material revenue growth in citrus, the Group's largest category by
revenue, with the second and third largest categories, synthetic aroma and
herbs, spices & florals, also performing particularly well. These three
categories grew by a combined 17% over the comparable prior year period.
This performance reflected both post-pandemic re-opening of on-trade
channels together with some material new business wins.
Gross profit margins were lower in the Period (27.5% vs 35.0% in H1 2021),
reflecting the COVID-19 impact on our H1/H2 weighting last year, as noted
above. Alongside the growth in serving our customers' retail channels, H1 2021
also saw some very significant new product launches which further skewed the
comparable prior year period's performance. As a comparison H1 2020 margins,
which were more reflective of our usual weightings, were 26.2%.
As consumer appetite for natural, 'better for you' products continues, our
healthier living categories (tea, health & wellness and fruit &
vegetables) have driven much of the Group's growth in recent years, and it is
encouraging to see the Group's other core categories reporting good
performances over the Period, demonstrating the diversity and resilience
across the breadth of the business.
Order books are at record levels, and we continue to win new business across a
wide range of products. With distinct strategies for each of our product
categories driving the ongoing investment in both our capacity and technical
capabilities, the Group is well-positioned to deliver future growth and target
new opportunities to meet customers' evolving needs across a number of growing
addressable markets. As well as the strong H2 order book for our healthier
living categories, momentum in citrus, synthetic aromas and herbs, spices
& florals looks set to deliver continued growth in H2.
Strategic focus
The Group's core citrus category remains an important focus for the Group with
key territories such as China offering material opportunities for growth.
Importantly, we continue to see good growth in more sophisticated, higher
value citrus offerings where we are providing bespoke solutions for our
beverage clients, thereby continuing to drive improved margin performance in
this category which we see continuing into H2 and beyond.
The sustained growth in the alcoholic and non-alcoholic 'ready-to-drink'
cocktail market continues to steer our opportunity pipeline as our concerted
drive towards value-add products and nutritional-led innovation puts Treatt in
a strong position to partner with customers as they seek to differentiate
their brands with authentic, premium extracts.
With our focus on premiumisation in the beverage market we remain excited
about the potential for our coffee category over the next few years. Whilst
not material in the Period, we expect this category to be reported separately
at the full year given we now have a number of new contracts which we expect
will gain traction in H2.
We are pleased with the progress our new China subsidiary is making, in
currently difficult circumstances. This continues to be an important strategic
priority for the Group as we build a strong pipeline in the Asia Pacific
region.
Further evolution of the management team
In December 2021 Wolfgang Tosch joined as our new Chief Innovation Officer to
lead our investment and growth from strategic R&D over the next few years.
We are also pleased to announce that Helen Pizzie will join as our new
Global Technology Officer in August 2022 to augment the Group's IT strategy,
ensuring that we are well placed to deliver growth both efficiently and
effectively.
With Richard Hope retiring on 30 June 2022 having served as Chief Financial
Officer for 19 years, we are looking forward to Ryan Govender joining us on 23
May 2022, which will allow for an appropriate transition and handover.
Environmental, Social and Corporate Governance (ESG)
We remain fully committed to creating sustainable value for all stakeholders
and to improving both how we track and report progress in this area. ESG is
synonymous with Treatt's values and we will be reporting on Scope 3 emissions
for the first time at the full year which will enable us to put in place
appropriate metrics and targets. Over 75% of our sales, and over 90% of our
purchases, are of natural products and our largest product category (citrus)
is entirely derived from by-products which might otherwise go to waste. We
are working with experienced ESG consultants to develop our global
sustainability strategy which is already being embedded at the heart of our
decision-making, to positively impact our business.
Category developments
Citrus
The Group's strategy to diversify away from minimally processed citrus towards
more value-added ingredients resulted in a strong performance from our largest
category. Citrus represented 47% of Group revenue in the Period (H1 2021:
44%) with revenue growth of 15%. Orange oil and lime oil raw material prices
reached record highs, whilst lemon oil prices were somewhat subdued. This
category is expected to continue to perform well in H2.
Synthetic aroma
Whilst almost 80% of the Group's revenue in the last financial year came from
natural products, the Group's important synthetic aroma category also
continues to perform well. We are meeting the rapidly growing needs of
consumers in a number of areas including the provision of important molecules
to form flavours for alternative proteins. Revenue from aroma and speciality
high impact ingredients grew by a very encouraging 20% in the Period. This is
our second largest product category, representing 20% of Group revenue (H1
2021: 18%). Growth within this category has benefitted from increased
partnering with key customers and also our long-standing supply partnership
with Endeavour/Robinson Bros, in some cases offering an effective alternative
to in-house production. Our procurement expertise and manufacturing
capability provides cost, supply chain and quality advantage to our customers
which will be further enhanced as we move manufacturing to our new UK
state-of-the-art facility in 2022 and 2023.
Herbs, spices & florals (HSF)
The HSF category consists of a wide range of both traded and manufactured
essential oils including key beverage ingredients. Many of these products
suffered during the period impacted by COVID-19 as different parts of the
world were impacted at differing times. The reopening of many markets, Japan
being an important example, has resulted in this category performing well in
the Period, with revenue growth of 23% and representing 10% of revenue in the
Period (H1 2021: 9%).
Health & wellness
Our health & wellness category has shown double-digit growth for several
years now and continues to perform well as demand for lower calorie beverages,
in particular, continues to grow. This category represents 8% of Group revenue
(H1 2021: 8%), with further growth of 10% compared with H1 2021. Our technical
expertise and proven extraction capability to deliver solutions in the complex
area of sugar reduction science continues to perform well.
Fruit & vegetables
Our fruit & vegetables category is a range of natural 'from the named
food' extracts which lend themselves very well to a wide range of largely
premium beverage applications and the demand from health-conscious consumers
favouring products that promote clean-label ingredients. This category
reported growth of 7% compared with H1 2021 and represented 10% of revenue in
the Period (H1 2021: 10%). Mango, pineapple and kiwi were amongst the products
that performed particularly strongly in the Period. H2 is likely to see
further progress from this category as the Northern Hemisphere beverage season
gains momentum, as evidenced by the strength of our order book for this
category.
Tea
Following an incredibly strong performance in H1 2021, which included some
sizeable new product launches, revenue in this category (which includes coffee
until it becomes material) eased back as expected, being 41% down on the prior
year. However, we anticipate a much stronger performance from this category in
H2 driven by iced and hard tea consumption in North America. Our natural and
authentic tea solutions represented 6% of Group revenue in the Period (H1
2021: 11%).
Coffee
The Group's investment in premium natural coffee extracts has been driven by
strong demand from existing and new customers for high quality extracts which
deliver the authentic flavour and aroma of freshly brewed coffee. Whilst
revenue from this category was not material in the Period, we now have
contracts and orders placed totalling almost £2m.
Geographical markets
Following a strong performance in the last financial year, revenue in Europe
has continued to perform very well with growth of 33% in the Period,
representing 25% of Group revenue (H1 2021: 21%). Of particular note was the
strong performance in established markets such as Germany and Ireland, driven
by our health & wellness, citrus and synthetic aroma categories.
Revenue attributable to UK customers represented 7% of Group revenue in the
Period, consistent with H1 2021 and growing by a solid 7%. Our UK business is
also seeing increasing volumes from a number of strategic partnerships within
our synthetic aroma category and new business wins in the 'make or buy'
outsourcing arena. Citrus has also performed well in the UK during the Period.
Following the establishment of our China subsidiary, which commenced trading
in July 2021, China now represents a significant geographical opportunity,
contributing 5% of Group revenue with growth of 6% in the Period. This has
been achieved against a difficult backdrop, with large parts of China still
being significantly impacted by COVID restrictions. Our confidence in the
longer-term outlook for our business in China remains undiminished.
The US represented 36% of Group revenue in the Period (H1 2021: 45%). In H1
2021, the US market benefitted from strong growth in retail demand due to
COVID-19, with a higher than usual number of significant product launches.
Therefore, with much of the comparative period growth having been realised
in our US market, revenue in this territory fell 13% compared with H1 2021,
but we expect this to rebound materially in H2 as demand for the higher margin
healthier living categories takes effect.
Capital Investment Programme
We are delighted to report that having opened our new UK facility to
office-based and technical staff last year, we remain on course to transition
most of our manufacturing activities to the new facility over the next few
weeks. The final transition to the new site, involving our most complex
manufacturing processes, is on course to be completed by the middle of 2023.
We now expect that the final costs incurred in relation to the UK site
investment and relocation will be approximately £46m-£47m, being 5-6% higher
than previously advised as a result of inflationary cost pressures and some
higher than originally expected commissioning expenses. Three years post
completion, we expect to be generating a 10-15% return on investment ('ROI')
from this site. We believe the UK facility, along with our recently expanded
US facility, will provide Treatt with the platform needed to support its
ambitious growth plans.
Financial review
Revenue for the Period grew by 9.0% to a H1 record of £66.3m (H1 2021:
£60.8m) with the resulting profit before tax (excluding a net exceptional
gain of £2.6m; H1 2021: £0.7m expense) falling by 38.9% to £6.3m (H1 2021:
£10.4m). Over the last two years, first half revenues have grown by 23.7%
with growth derived from each of the Group's product categories, the breadth
and relevance of our innovative range of solutions continuing to result in
material new wins with both new and existing customers.
As a result of the stronger performance coming from the faster growing, higher
margin value-added categories, the overall gross margin was materially higher
in H1 2021 at 35.0%. In contrast, the more traditional representation of lower
margin categories during 2022 H1 reflected in the gross margin of 27.5%,
compared to H1 2020 gross margins of 26.2% (H1 2020 being the latest H1 period
with our traditional weighting).
Operating costs increased by 8.9% to £11.7m (H1 2021: £10.7m) with almost
all of this increase relating to higher payroll costs. The Group has
strategically grown its employee numbers by 15% over the last year to position
the business for exciting growth as our capacity in the UK comes on-stream and
to leverage our recent capacity increases in the USA. Whilst there is likely
to be an impact from wage inflation in future financial years, wage costs for
the current financial year were set in mid-2021 and are in line with our
expectations.
Exceptional items in the Period related to the gain on the disposal of our
'old' UK premises, which resulted in a net gain on disposal of £3.3m. As
with last year, additional one-off costs relating to the relocation to the new
UK facility that do not fall to be capitalised, including project management
and parallel running costs of the new and current sites, have been incurred
totalling £0.7m (H1 2021: £0.7m). These combined resulted in a net
exceptional gain of £2.6m (H1 2021: £0.7m expense).
The Group has a hedging strategy in place which aims to offset the impact on
gross margins caused by movements in foreign exchange rates between the
original purchase of largely dollar-denominated inventory and the ultimate
cash receipt from the sale to customers. The effect of movements in foreign
exchange rates in the Period from this strategy was a net adverse FX impact on
the half year results in the order of £0.6m (H1 2021: £0.4m favourable).
Reported profit for the Period of £7.7m represents a 6.7% increase against
the comparable period last year, with basic adjusted earnings per share
falling by 36.5% to 8.21p (H1 2021: 12.93p).
Cash flow
The first half of our financial year resulted in net cash outflow from
operations of £6.8m (H1 2021: £4.5m inflow). During the Period £6.7m of
capital expenditure was incurred, £2.9m of which related to the new UK
facility.
The working capital outflow for the Period of £15.1m was a combination of an
increase in trade and other receivables of £5.5m and a strategic increase in
inventory of £9.7m. The receivables increase reflected a strong finish to
trading for the half year whilst the increase in inventories was caused by
inventory build, required to meet the strong order book in H2, and higher raw
material prices for some key ingredients, in particular orange oil which is at
an all-time high.
Balance sheet
Predominantly as a consequence of the working capital outflow in H1, the
Group's funding position moved to a net debt balance of £19.8m as at 31 March
2022, which compare with £9.1m at the beginning of the Period. This was made
up of gross cash of £4.9m, bank loans and borrowings of £24.3m and net lease
liabilities of £0.4m. The Group has borrowing facilities of £5.4m which
remained undrawn at the Period end, together with an undrawn accordion
facility of £6.5m.
The UK final salary pension scheme, which has been closed to both new entrants
and future accruals for many years, benefitted from an increase in the
discount rate applied to the liabilities of the scheme. As a result, under the
accounting standard IAS 19, the post-employment benefits liability in the
balance sheet decreased from £6.8m to £3.9m in the Period. The Company has
also reached agreement with the trustees to maintain the current level of
annual contributions at £450k p.a. for the next three years.
Dividend
Consistent with our interim dividend policy in prior years, the interim
dividend is determined as approximately one-third of the previous year's total
dividend. Consequently, the Board has declared an increase to the interim
dividend of 25.0% to 2.50 pence per share (2021 interim dividend: 2.00 pence
per share) reflecting our confidence in the future, which will be payable on
11 August 2022 to all shareholders on the register at close of business on 1
July 2022.
Outlook
With the order book at record levels, being up by more than 25% as compared
with a year ago, there is strong momentum building for H2. In particular, we
are expecting a strong performance from our healthier living categories of
tea, fruit & vegetables and health & wellness to deliver both revenue
and margin growth in H2.
Consequently, the Board is confident that the pipeline of orders and
opportunities will result in revenue growth for the full year now exceeding
15% and that profit before tax and exceptional items for the current financial
year will be in line with the current market consensus(1) of £21.7m.
(1) Treatt compiled consensus of four analyst forecasts for FY22 profit before
tax and exceptional items.
TREATT PLC
HALF YEAR FINANCIAL STATEMENTS
CONDENSED GROUP INCOME STATEMENT
for the six months ended 31 March 2022
Six months to Six months to
31 March 2022 (unaudited) 31 March 2021 (unaudited)
Before exceptional items Exceptional items Total Before exceptional items Exceptional items Total
Notes £'000 £'000 £'000 £'000 £'000 £'000
Revenue 7 66,283 - 66,283 60,827 - 60,827
Cost of sales (48,036) - (48,036) (39,540) - (39,540)
- -
Gross profit 18,247 - 18,247 21,287 - 21,287
Administrative expenses (11,668) - (11,668) (10,719) - (10,719)
Relocation expenses 8 - (709) (709) - (699) (619)
-
Operating profit(1) 6,579 (709) 5,870 10,568 (699) 9,869
Gain on property sale 8 - 3,323 3,323 - - -
Finance income 9 - 9 11 - 11
Finance costs (250) - (250) (199) - (199)
-
Profit before taxation 6,338 2,614 8,952 10,380 (699) 9,681
Taxation 9 (1,384) 109 (1,275) (2,610) 124 (2,486)
Profit for the period 4,954 2,723 7,677 7,770 (575) 7,195
attributable to owners of the
Parent Company
Earnings per share attributable to equity holders of the Parent Company Adjusted(2) Statutory Adjusted(2) Statutory
Basic 11 8.21p 12.72p 12.93p 11.97p
Diluted 11 8.12p 12.59p 12.79p 11.84p
(1) Operating profit is calculated as profit before the gain made the
property sales, net finance costs and taxation.
(2) All adjusted measures exclude exceptional items and the related tax
effect, details of which are given in note 8.
Notes 1 - 12 form part of these condensed half year financial statements.
CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME
for the six months ended 31 March 2022
Six months to Six months to
31 March 31 March
2022 2021
(unaudited) (unaudited)
£'000 £'000
Profit for the period attributable to owners of the Parent Company 7,677 7,195
Items that may be reclassified subsequently to profit or loss:
Currency translation differences on foreign currency net investments 1,325 (2,947)
Current tax on foreign currency translation differences 7 5
Fair value movement on cash flow hedges 149 51
Deferred tax on fair value movement (28) (13)
1,453 (2,904)
Items that will not be reclassified subsequently to profit or loss:
Actuarial gain on defined benefit pension scheme 2,729 2,333
Current tax on pension liability - 29
Deferred tax on actuarial gain or loss (682) (1,029)
2,047 1,333
Other comprehensive income/(expense) for the period 3,500 (1,571)
Total comprehensive income for the period attributable 11,177 5,624
to owners of the Parent Company
Notes 1 - 12 form part of these condensed half year financial statements.
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
for the six months ended 31 March 2021 (unaudited)
Share capital Share Own shares in share trusts Hedging Foreign Retained earnings Total equity
premium account reserve exchange
reserve
£'000 £'000 £'000 £'000 £'000 £'000 £'000
1 October 2020 1,205 23,484 (5) 123 3,554 62,759 91,120
Profit for the period 7,195 7,195
Exchange differences - - - - (2,947) - (2,947)
Fair value movement on cash flow hedges - - - 51 - - 51
Actuarial gain on defined benefit pension scheme - - - - - 2,333 2,333
Taxation relating to items above - - - (13) 5 (1,000) (1,008)
Total comprehensive income - - - 38 (2,942) 8,528 5,624
Transactions with owners:
Dividends - - - - - (2,501) (2,501)
Share-based payments - - - - - 924 924
Movement in own shares in share trusts - - 1 - - - 1
Gain on release of shares in share trusts - - - - - 201 201
Total transactions with owners - - 1 - - (1,376) (1,375)
As at 31 March 2021 1,205 23,484 (4) 161 612 69,911 95,369
for the six months ended 31 March 2022 (unaudited)
Share capital Share Own shares in share trusts Hedging Foreign Retained earnings Total
premium account reserve exchange equity
reserve
£'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 period 7,677 7,677
Exchange differences - - - - 1,325 - 1,325
Fair value movement on cash flow hedges - - - 149 - - 149
Actuarial gain on defined benefit pension scheme - - - - - 2,729 2,729
Taxation relating to items above - - - (28) 7 (682) (703)
Total comprehensive income - - - 121 1,332 9,724 11,177
Transactions with owners:
Dividends - - - - - (3,322) (3,322)
Share-based payments - - - - - 616 616
Issue of new shares 1 (1) - - - -
Movement in own shares in share trusts - - 4 - - - 4
Gain on release of shares in share trusts - - - - - 214 214
Total transactions with owners 1 - 3 - - (2,492) (2,488)
As at 31 March 2022 1,209 23,484 (1) (171) 3,152 87,315 114,988
Notes 1 - 12 form part of these condensed half year financial statements.
CONDENSED GROUP BALANCE SHEET
as at 31 March 2022
As at As at
31 March 30 September
2022 2021
(unaudited) (audited)
£'000 £'000
ASSETS
Non-current assets
Intangible assets 2,826 2,424
Property, plant and equipment 65,156 61,039
Right-of-use assets 390 1,556
Deferred tax assets 104 792
68,476 65,811
Current assets
Inventories 57,767 47,263
Trade and other receivables 32,155 26,371
Current tax assets 734 2,701
Derivative financial instruments 33 11
Cash and bank balances 4,875 7,260
95,564 83,606
Total assets 164,040 149,417
LIABILITIES
Current liabilities
Borrowings (21,915) (12,697)
Provisions (291) (143)
Trade and other payables (17,327) (17,027)
Lease liabilities (75) (96)
Current tax liabilities (114) -
Derivative financial instruments (509) (593)
(40,231) (30,556)
Net current assets 55,333 53,050
Non-current liabilities
Borrowings (2,335) (2,624)
Post-employment benefits (3,921) (6,806)
Lease liabilities (337) (957)
Deferred tax liabilities (2,228) (2,175)
(8,821) (12,562)
Total liabilities (49,052) (43,118)
Net assets 114,988 106,299
( )
( )
(
)
( )
CONDENSED GROUP BALANCE SHEET (continued)
as at 31 March 2022
As at As at
31 March 30 September
2022 2021
(unaudited) (audited)
£'000 £'000
EQUITY
Share capital 1,209 1,208
Share premium account 23,484 23,484
Own shares in share trusts (1) (4)
Hedging reserve (171) (292)
Foreign exchange reserve 3,152 1,820
Retained earnings 87,315 80,083
Total equity attributable to owners of the Parent Company 114,988 106,299
Notes 1 - 12 form part of these condensed half year financial statements.
CONDENSED GROUP STATEMENT OF CASH FLOWS
for the six months ended 31 March 2022
Six months to Six months to
31 March 31 March
2022 2021
(unaudited) (unaudited)
£'000 £'000
Cash flow from operating activities
Profit before taxation including discontinued operations 8,952 9,681
Adjusted for:
Depreciation of property, plant and equipment 1,100 973
Amortisation of intangible assets 81 28
Gain on disposal of property, plant and equipment (3,323) -
Net finance costs excluding pensions cost 172 107
Share-based payments 603 938
Decrease/(increase) in fair value of derivatives 43 (97)
Increase in post-employment benefit obligations 69 79
Operating cash flow before movements in working capital 7,697 11,709
Movements in working capital:
Increase in inventories (9,749) (5,472)
Increase in receivables (5,498) (5,227)
Increase in payables 197 5,329
Cash generated from operations (7,353) 6,339
Employer contributions to defined benefit pension scheme (225) (225)
Taxation received/(paid) 811 (1,631)
Net cash from operating activities (6,767) 4,483
Cash flow from investing activities
Proceeds on disposal of property 5,597 -
Purchase of property, plant and equipment (6,231) (7,504)
Purchase of intangible assets (474) (180)
Interest received 9 11
(1,099) (7,673)
CONDENSED GROUP STATEMENT OF CASH FLOWS (continued)
for the six months ended 31 March 2022
Six months to Six months to
31 March 31 March
2022 2021
(unaudited) (unaudited)
£'000 £'000
Cash flow from financing activities
Increase of bank loans 9,649 2,619
Repayment of bank loans (461) (461)
Interest paid (181) (120)
Repayment of lease liabilities (33) (5)
Dividends paid (3,322) (2,501)
Proceeds on issue of shares 1 -
Net sale of own shares by share trusts 217 201
5,870 (267)
Net increase in cash and cash equivalents (1,996) (3,457)
Effect of foreign exchange rates 18 (194)
Movement in cash and cash equivalents in the period (1,978) (3,651)
Cash and cash equivalents at beginning of period 247 5,250
Cash and cash equivalents at end of period (1,731) 1,599
Cash and cash equivalents comprise:
Cash and bank balances 4,875 8,143
Bank overdrafts (6,606) (6,544)
(1,731) 1,599
Notes 1 - 12 form part of these condensed half year financial statements.
CONDENSED GROUP RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
for the six months ended 31 March 2022
Six months to Six months to
31 March 31 March
2022 2021
(unaudited) (unaudited)
£'000 £'000
Movement in cash and cash equivalents in the period (1,978) (3,651)
Increase of bank loans (9,649) (2,619)
Repayment of bank loans 461 461
Decrease/(increase) of lease liabilities 641 (7)
Cash outflow from changes in net cash in the period (10,525) (5,816)
Effect of foreign exchange rates (148) 255
Movement in net cash in the period (10,673) (5,561)
Net (debt)/cash at beginning of period (9,114) 427
Net debt at end of period (19,787) (5,134)
Notes 1 - 12 form part of these condensed half year financial statements.
Responsibility statement
We confirm that to the best of our knowledge:
(a) the condensed set of financial statements for the six months ended 31
March 2022 has been prepared in accordance with IAS 34
(b) the half year report and condensed financial statements includes a fair
review of the information required by DTR 4.2.7R (indication of important
events during the first six months and description of principal risks and
uncertainties for the remaining six months of the year)
(c) the half year report and condensed financial statements includes a fair
review of the information required by DTR 4.2.8R (disclosure of related party
transactions and changes therein).
By order of the Board
RICHARD HOPE
Chief Financial Officer
9 May 2022
NOTES TO THE UNAUDITED HALF YEAR FINANCIAL STATEMENTS
1. Basis of preparation
The Group has prepared its condensed half year financial statements in
accordance with the Disclosure Guidance and Transparency Rules of the
Financial Conduct Authority and the reporting requirements of IAS 34, 'Interim
Financial Reporting'.
The information relating to the six months ended 31 March 2022 and 31 March
2021 is unaudited and does not constitute statutory accounts. The statutory
accounts for the year ended 30 September 2021 have been reported on by the
Group's auditors and delivered to the Registrar of Companies. The report of
the auditors was unqualified, did not include a reference to any matters to
which the auditors drew attention by way of emphasis without qualifying their
report and did not contain a statement under section 498 of the Companies Act
2006. These condensed half year financial statements for the six months ended
31 March 2022 have neither been audited nor formally reviewed by the Group's
auditors.
2. Accounting policies
These condensed half year financial statements have been prepared on the basis
of the same accounting policies and methods of computation as set out in the
Group's 30 September 2021 annual report.
There were no new standards, or amendments to standards, which are mandatory
and relevant to the Group for the first time for the financial year ending 30
September 2022 which have had a material effect on these condensed half year
financial statements.
3. Accounting estimates
The preparation of the condensed half year financial statements requires
management to make judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts of assets and
liabilities, income and expenses. In preparing these condensed half year
financial statements, 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 consolidated
financial statements as at, and for the year ended, 30 September 2021.
4. Going concern
As at the date of this report, the Directors have a reasonable expectation
that the Group has adequate resources to continue in business for the
foreseeable future. Accordingly, the condensed half year financial
statements have been prepared on the going concern basis.
5. Risks and uncertainties
The Group's operations involve a series of risks and uncertainties across a
range of strategic, commercial, operational and financial areas and a process
is in place to identify and assess their potential impact on the Group's
business, which is regularly updated. The principal risks and uncertainties
for the remainder of the financial year are not expected to change materially
from those included on pages 54 - 59 of the 2021 Annual Report and Financial
Statements.
6. Russian invasion of Ukraine
The Group has considered the impact on its business of Russia's invasion of
Ukraine, which commenced on 24 February 2022, and does not expect there to be
any adverse consequences to its trading performance in the immediate future.
On 4 March 2022 the Group suspended all offers, orders, and shipments to
Russia.
7. Segmental information
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 for continuing operations.
Year on Year
Six months to Six months to Growth
31 March 31 March Year on Year - constant
2022 2021 Growth currency
(unaudited) (unaudited) (unaudited) (unaudited)
Revenue by destination £'000 £'000 % %
United Kingdom 4,882 4,552 7.2% 7.2%
Rest of Europe - Germany 3,910 3,150 24.1% 24.1%
- Ireland 5,244 2,742 91.2% 91.1%
- Other 7,724 6,842 12.9% 12.8%
The Americas - USA 23,781 27,379 (13.1%) (13.4%)
- Other 6,529 5,070 28.8% 28.5%
Rest of the World - China 3,549 3,338 6.3% 6.3%
- Other 10,664 7,754 37.5% 37.5%
66,283 60,827 9.0% 8.8%
8. Exceptional items
The exceptional items referred to in the income statement can be categorised
as follows:
Six months to Six months to
31 March 31 March
2022 2021
(unaudited) (unaudited)
£'000 £'000
Disposal of Northern Way premises
Gain on property sale 3,323 -
Less: tax effect of property sale - -
UK relocation project
Relocation expenses (709) (699)
Less: tax effect of relocation expenses 109 124
2,723 (575)
The exceptional items all relate to non-recurring items.
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 £3,323,000.
The gain on the sale of property is not expected to be taxable as indexation
allowances are available which fully offset the taxable gain.
Following the sale of Northern Way premises, the Group leased back one
building to maintain the continuity of its manufacturing capability during the
transition to its new premises at Skyliner Way. The lease is expected to run
for 12 months, its associated costs are recognised on a straight-line basis
and are not considered to be exceptional in nature.
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.
9. Taxation
The effective tax rate for the six months ended 31 March 2022 has been
estimated at 21.8% (H1 2021: 25.1%) as a consequence of the international
profit mix differing to that from the prior year.
10. Dividends
Equity dividends on ordinary shares
Six months to Six months to
31 March 31 March
2022 2021
(unaudited) (unaudited)
£'000 £'000
Final dividend for the year ended 30 September 2021 of 5.50p per share 3,322 2,501
(2020: 4.16p per share)
11. 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), together with shares held in respect of the Treatt Share Incentive Plan
(SIP) which do not rank for dividend.
Six months to Six months to
31 March 2022 31 March 2021
(unaudited) (unaudited)
Profit after taxation attributable to owners of the Parent Company (£'000) 7,677 7,195
Weighted average number of ordinary shares in issue (No: '000) 60,334 60,108
Basic earnings per share (pence) 12.72p 11.97p
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:
Six months to Six months to
31 March 2022 31 March 2021
(unaudited) (unaudited)
No ('000) No ('000)
Weighted average number of shares 60,442 60,293
Weighted average number of shares held in the EBT and SIP (108) (185)
Weighted average number of shares for calculating basic EPS 60,334 60,108
Executive share option schemes 495 443
All-employee share options 171 218
Weighted average number of shares for calculating diluted EPS 61,000 60,769
Diluted earnings per share (pence) 12.59p 11.84p
11. 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:
Six months to Six months to
31 March 2022 31 March 2021
(unaudited) (unaudited)
£'000 £'000
Profit after taxation attributable to owners of the Parent Company 7,677 7,195
Adjusted for exceptional items (see note 8):
- Gain on property sale (3,323) -
- Relocation costs 709 699
- Taxation thereon (109) (124)
Adjusted earnings from continuing operations 4,954 7,770
Adjusted basic earnings per share (pence) 8.21p 12.93p
Adjusted diluted earnings per share (pence) 8.12p 12.79p
( )
12. Capital commitments
The Group has entered into material contracts in connection with the UK
relocation project totaling £2,762,000, with a further £1,874,000 committed
to capital projects in the US, all of which was unprovided for at the period
end.
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.
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