TIDMTET
RNS Number : 5598M
Treatt PLC
12 May 2020
TREATT PLC
HALF YEAR RESULTS
SIX MONTHSED 31 MARCH 2020
Treatt Plc (the 'Group'), the manufacturer and supplier of
innovative ingredient solutions for the beverage, flavour,
fragrance and consumer products industries, announces its half year
results for the six months ended 31 March 2020.
FINANCIAL HIGHLIGHTS(1) :
Half year Half year Change
ended ended
31 March 2020 31 March
2019(2)
Revenue GBP53.6m GBP56.6m -5.3%
Gross profit margin 26.2% 25.0% +120bps
Operating profit GBP6.1m GBP6.3m -3.9%
Profit before tax and exceptional
items GBP6.1m GBP6.2m -2.0%
Adjusted basic earnings per
share 8.08p 8.35p -3.2%
Dividend per share 1.84p 1.70p +8.2%
OPERATIONAL HIGHLIGHTS:
-- COVID-19 has had no adverse impact on trading performance to date.
-- Fruit & vegetables, tea and health & wellness
(including sugar reduction) categories have again performed
strongly.
-- Citrus core product category impacted by prior year fall in raw material prices as expected.
-- Ongoing investment in the Group's capacity to deliver long-term growth
Ø US expansion: doubled capacity for high growth categories - on
stream for spring crops.
Ø UK site relocation well underway, move delayed until 2021 due
to COVID-19 lockdown.
Commenting on the results, Group CEO, Daemmon Reeve, said:
"In these exceptional and unexpected times I am pleased to
report further encouraging progress for the Group. The anticipated
weakness of some citrus raw material markets impacted H1 numbers as
expected, but H2 is likely to witness an improvement in this
category. Once again, the growth in higher margin tea, health &
wellness and fruit & vegetables categories continue to make
healthy progress in line with the growth in consumer demand for
'better-for-you' premium beverages.
"A particular mention of thanks to our dedicated and talented
team at Treatt who have adapted admirably through the very
challenging times of the last few months and to whom huge praise is
due for the fantastic job they continue do for the business.
"Looking ahead it is difficult to determine the likely impact of
COVID-19 on the demand for the Group's products and there may be a
slowdown in some of our customers' new product development
activities in the short term, reflecting the dramatic changes in
consumption habits. However, the Group has traded well since the
half-year end and is encouraged by the level of its order book and
the current demand for its products from beverage ingredients
through to solutions for hand soaps and cleaning products.
Therefore, whilst there remains much to do, the Board is pleased to
report that, at this time, trading remains in line with its
expectations for the financial year ending 30 September 2020."
(1) All measures are based on continuing operations.
(2) The comparative period has been restated for the adoption of
IFRS 16, 'Leases' - see note 13 for further information.
Enquiries:
Treatt plc +44 (0)1284 702500
Daemmon Reeve Chief Executive Officer
Richard Hope Chief Financial Officer
Brokers
Investec Bank Plc +44 (0)20 7597 5970
Patrick Robb
David Anderson
Alex Wright
Public relations
DRD Partnership +44 (0)20 3865 5971
Lawrence Dore
HALF YEAR RESULTS STATEMENT
Introduction
The Group has delivered a good set of results for the half year
ended 31 March 2020 (the "Period"). Treatt plays a crucial role in
the food, beverage and cleaning supply chains and order intake
towards the end of the Period has been strong as a number of our
customers respond to increased demand for beverages consumed at
home and cleaning products (such as liquid hand soaps and floor
cleaning products) which are of particular importance at this
time.
To date, COVID-19 has not had an adverse effect on the overall
trading performance of the Group. The business has taken, and will
continue to take, timely action to protect the health and safety of
all its employees across the Group as well as doing all it can to
support the communities in which it operates. Whilst our colleagues
in China have now returned to work, in both the UK and US all staff
who are able to work from home are doing so, and manufacturing
continues, working within government guidelines and with
appropriate health protection and wellbeing measures in place.
Treatt has not furloughed any staff and has not participated in
any of the COVID-19 related government assistance schemes that have
been implemented globally.
During the Period, the Group continued to drive growth in its
fast-growing, innovative ingredient solutions as consumer demand
for premium beverage products, in particular, appeared to show
little sign of slowing down. The Period saw some notable new
business wins, as well as increased demand from existing customers,
across a wide product range.
We have continued to make good progress in winning market share
in our key markets. The pace of change in consumer tastes, and the
innovation which is supporting this change, is opening up some
encouraging opportunities where Treatt's agile, technical-led
selling approach is reaping dividends in our higher margin
categories.
Whilst it is difficult to determine the likely impact of
COVID-19 on the demand for the Group's products in the coming
months, our early experience has shown demand to be robust and
trading currently remains on course to deliver the Board's
expectations for the current financial year.
Strategic focus
As anticipated, the Group's Citrus category continued to be
impacted by the very sharp fall in raw material prices experienced
last year. However, the strategic diversification over recent years
continues to deliver growth in fruit & vegetables, tea and
health & wellness categories, which have performed favourably
with non-citrus revenue growing by 7.2% overall in the Period. This
progress, along with a continued concerted drive towards
added-value products and working closely with our customer
partners, helps decouple and further insulate the Group from the
impact of commodity price movements in citrus raw material markets
and helped to grow gross margin by 120bps in the Period.
Citrus
Citrus is the Group's largest category and represented 50% of
Group revenue in the Period. As previously reported, the very sharp
fall in raw material prices in the previous financial year
continued to impact both revenue and profits in this category.
Consequently, citrus revenue fell by 15.1% in the Period compared
to H1 2019, whilst citrus volumes increased by more than 20% as the
Group sought to reduce its inventory of commoditised citrus
by-products. Raw material prices began to gradually firm during the
Period and this is expected to have a positive impact in H2.
Tea
Our natural and authentic tea solutions, which represented 6% of
Group revenue in the Period, continued to materially outperform
with strong growth of 47.5% compared with H1 2019. This growth came
predominantly from existing customers, whilst new business wins
continued to come on stream. With the increased manufacturing
capacity for tea extracts now available at our US plant, we are
well placed to continue growing this category materially over the
next few years, as the market grows and Treatt increases its market
share.
Health & wellness
Our health & wellness category continues to grow strongly
and now represents almost 7% of Group revenue, growing by 19.9%
compared with H1 2019. The majority of this category relates to the
niche and technically specialist role Treatt operates in the
scientifically complex area of sugar reduction, where our products
reproduce the flavour and aroma of sugar, without the carbohydrates
or calories. Similar to tea, our growth in health & wellness
going forward will be supported by the capital investment we have
made in our facilities in the US.
Fruit & vegetables
Of our fast-growing product categories, fruit & vegetables
represents the broadest portfolio, including for example passion
fruit, cucumber, watermelon, mango and jalapeno products to name a
few. This category now also represents 7% of Group revenue having
grown by at least 20% in each of the last five financial years. In
the Period, fruit & vegetables grew by 9.4% compared with H1
2019, although H2 is typically the seasonally stronger half for
this category.
Other
Herbs, spices & florals which contains an extensive array of
manufactured and traded natural, non-citrus, ingredients performed
well in the Period with growth of 9.4% and now represents 11% of
Group revenue.
Revenue from aroma and speciality high impact flavour chemicals
fell by 8.6% in the Period. This category contains a high
proportion of lower margin traded materials and was impacted by the
timing of some repeat business and the absence of some one-off
activity from the previous year.
Our customers continue to look to product innovation to
differentiate their products, launch new products and categories
and refresh existing products. Treatt continues to benefit from the
valuable role our services play in helping meet these demands, with
the Group's new product development programme progressing well and
market entry points currently being explored. In particular, the
Group continues to build out its coffee platform to meet the needs
of the technically complex cold brew coffee market, where our trial
product offerings are receiving strong interest from customers. We
see coffee as being an exciting category with material growth
potential in the medium term.
Geographical markets
The Group's focus on the strategically important geographical
markets of the US and China continues to progress well, even though
the latter was affected by the earlier onset of COVID-19. Whilst
there was some volatility when comparing various territories with
the same period last year, this was largely due to the differing
weighting of citrus and traded products in those regions and the
timing of deliveries to some large customers. The US continues to
represent the Group's largest market, being 41% of Group revenue in
the Period and achieved growth of 1.4% against the comparable prior
period (0.5% in constant currency(2) ). Revenue in China fell by
5.8% (5.8% in constant currency(2) ) but is expected to return to
growth in H2 as the slowdown in freight clearance due to COVID-19
returns to normal. Revenue to both the UK and the rest of Europe,
where citrus revenues are the highest in percentage terms, fell by
a combined 25.2% (25.4% in constant currency(2) ) in the Period.
This was, as explained above, largely impacted by a combination of
the fall in citrus prices as well as the timing of contract
deliveries to certain major customers.
Capital Investment Programme
Last year we completed the first phase of our capital investment
programme, with the expansion of US operations to double our
capacity in our natural extracts production facility, which
supports our key growth categories of tea, health & wellness
and fruit & vegetables. In addition, we have also expanded and
modernised our scientific infrastructure in the US. Both of these
projects were completed on time and on budget to take advantage of
this year's spring crop and we are seeing early signs of success in
utilising our additional capacity.
In the UK, the second phase of our investment is well under way.
Significant progress has been made with the UK relocation project
which remains on budget. Whilst construction progress has continued
during the Period of the UK COVID-19 lockdown, certain aspects of
the project have inevitably slowed and, therefore, we expect
transition to the new site to now take place in 2021, although at
this stage it is not possible to provide a definitive timeline.
This delay is not expected to impact our ability to meet customer
orders over the short to medium term.
Financial review
Continuing operations
As previously guided, revenue from continuing operations for the
Period fell by 5.3% to GBP53.6m (2019 H1: GBP56.6m) resulting in
profit before tax (excluding exceptional costs of GBP0.5m; 2019 H1:
GBP0.2m) decreasing by 2.0% to GBP6.1m (2019 H1: GBP6.2m(1) ). In
constant currency terms, revenue decreased by 5.8%(2) .
Gross margin increased by 120 bps to 26.2% during the Period as
a result of the relative growth in higher margin product
categories. Operating costs during the Period increased by a modest
1.8% to GBP8.0m (2019 H1: GBP7.8m(1) ). This resulted in net
operating margins improving slightly to 11.3% (2019 H1: 11.2% (1)
).
The Group has a hedging strategy in place which aims to ensure
that the impact of significant exchange rate movements on the
income statement over the course of a full financial year is
mitigated as far as possible. The effect of movements in foreign
exchange rates in the Period from this strategy was a positive net
FX impact on the half year results of approximately GBP0.6m (2019
H1: GBP0.4m adverse). This offsets the impact on gross margins
caused by movements in foreign exchange rates between the original
purchase of largely dollar-denominated inventory and the ultimate
receipt of cash from sale to customers as part of a finished
product.
Consistent with the prior period, the current year exceptional
costs of GBP0.5m relate to one-off costs in respect of the UK site
relocation, which do not fall to be capitalised.
Adjusted earnings after tax from continuing operations fell by
GBP0.1m as against the comparable period last year, whilst tax
rates in the UK and US remained broadly unchanged. Consequently,
basic adjusted earnings per share from continuing operations fell
by 3.2% to 8.08p (2019 H1: 8.35p(1) ).
Whilst the UK final salary pension scheme, which has been closed
to both new entrants and future accruals for many years now,
experienced a sharp fall in investment returns towards the end of
the Period due to the impact of COVID-19 on global stock markets,
this was offset by the increase in discount rates 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 GBP7.8m to GBP7.2m in the Period.
The Group was required to adopt IFRS 16, 'Leases' from 1 October
2019, however, this had no material impact on the Group's financial
statements. Further details are set out in note 13 to the financial
statements below.
Cash flow
The first half of our financial year resulted in net cash
generated from operations of GBP4.9m (2019 H1: GBP6.3m) with
normalised free cash inflow(3) of GBP2.0m for the Period. There was
a working capital outflow in the Period of GBP1.1m, although this
was largely as a consequence of a strong finish to the half year
which left us with GBP5.0m of trade receivables. With inventory
levels reducing by GBP2.5m in the Period and there was a related
working capital inflow of GBP2.2m. Similarly, there was an inflow
relating to trade and other payables of GBP1.6m. Excluding our
major capital investment project in the UK, we anticipate further
improvement in cash flow in H2.
During the Period GBP11.9m of capital expenditure was incurred,
GBP8.6m of which related to the UK relocation project.
Balance sheet
As at 31 March 2020 the Group had a net cash balance of GBP6.1m,
as compared with GBP15.6m(1) at the beginning of the Period. This
was made up of gross cash of GBP33.0m, bank loans and borrowings of
GBP26.6m and net lease liabilities of GBP0.4m. The Group has
borrowing facilities of GBP25.0m of which GBP24.9m was undrawn at
the Period end.
Discontinued operations
The disposal of Earthoil Plantations Limited, was completed in
2018 for an enterprise value of GBP11.3m and since that time the
Kenyan operations which remained part of the Group have been held
as discontinued activities. It has not proven possible to attract a
suitable acquirer for those businesses and since support for the
local management, employees and their families has been a priority
throughout this process, contracts have been exchanged for a
buy-out of the business by local management after the Period end
for a nominal sum. Completion is expected to take place within the
next few weeks. Consequently, there was an exceptional impairment
of the Kenyan businesses (which are reported under discontinued
activities) of GBP0.6m in the Period. This impairment is reflected
in the profit after tax from continuing and discontinued operations
of GBP3.5m (2019 H1: GBP3.7m(1) ) and basic earnings per share of
5.78p (2019 H1: 6.30p(1) ). We wish the team in Kenya well as they
take over the management of this business.
Dividend
Consistent with our interim dividend policy in prior years which
is to pay an interim dividend of approximately one-third of the
previous year's total dividend, the Board has declared an increase
to the interim dividend of 8.2% to 1.84 pence per share (2019
interim dividend: 1.70 pence per share). This interim dividend will
be payable on 13 August 2020 to all shareholders on the register at
close of business on 3 July 2020 .
Outlook
COVID-19 has the potential to have a profound impact on people
and businesses globally. Looking ahead it is difficult to determine
its likely impact on the demand for the Group's products and
operations, for example there may be a slowdown in some of our
customers' new product development activities in the short term,
reflecting the dramatic changes in consumption habits with at-home
consumption witnessing a steep rise as the on-trade' and
out-of-home markets are effectively closed in many markets.
However, citrus raw material prices began to gradually firm
during the Period and this is expected to have a positive impact in
H2 as is the re-opening of the Chinese markets and the momentum in
our high-performing tea, health & wellness and fruit &
vegetables categories.
The Group is trading well and is encouraged by the level of its
order book and the current demand for its products from beverage
ingredients through to solutions for hand soaps and cleaning
products. Therefore, whilst there remains much to do, the Board is
pleased to report that at this time trading remains in line with
its expectations for the financial year ending 30 September
2020.
11 May 2020
1 The comparative period has been restated for the adoption of
IFRS 16, 'Leases' - see note 13 for further information.
2 Constant currency revenue growth is calculated on the movement
from prior period comparative restated at the current period
average exchange rate.
3 Normalised free cash flow is calculated as net cash from
operations less purchase of property, plant and equipment and
intangible assets (excluding expenditure on the UK relocation
project).
TREATT PLC
HALF YEAR FINANCIAL STATEMENTS
CONDENSED GROUP INCOME STATEMENT
for the six months ended 31 March 2020
Six months Six months
to to
31 March 31 March
2020 2019
(unaudited) (unaudited)
(restated(1)
)
Notes GBP'000 GBP'000
CONTINUING OPERATIONS
Revenue 6 53,604 56,625
Cost of sales (39,561) (42,482)
--------------------------------------------------- ------ ------------ -------------
Gross profit 14,043 14,143
Administrative expenses (7,966) (7,822)
Operating profit(2) 6,077 6,321
Finance income 62 57
Finance costs (196) (196)
Other gains - hedge ineffectiveness 113 -
Profit before taxation and exceptional items 6,056 6,182
Exceptional items 7 (475) (245)
Profit before taxation 5,581 5,937
Taxation 8 (1,200) (1,206)
Profit for the period from continuing operations 4,381 4,731
DISCONTINUED OPERATIONS
Loss for the period from discontinued operations 9 (929) (1,007)
Profit for the period attributable to owners of
the Parent Company 3,452 3,724
Earnings per share
From continuing and discontinued operations:
Basic 11 5.78p 6.30p
Diluted 11 5.73p 6.23p
Adjusted basic(3) 11 7.72p 8.04p
Adjusted diluted(3) 11 7.65p 7.94p
--------------------------------------------------- ------ ------------ -------------
From continuing operations:
Basic 11 7.33p 8.01p
Diluted 11 7.27p 7.91p
Adjusted basic(3) 11 8.08p 8.35p
Adjusted diluted(3) 11 8.02p 8.24p
--------------------------------------------------- ------ ------------ -------------
(1) The comparative period is restated for the adoption of IFRS 16;
more information is provided in note 13.
(2) Operating profit is calculated as profit before net finance costs,
exceptional items and taxation.
(3) All adjusted measures exclude exceptional items, and in the case
of earnings per share the related tax effect, details of which are given
in note 7 .
Notes 1-13 form part of these condensed half year financial statements.
CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME
for the six months ended 31 March 2020
Six months Six months
to to
31 March 31 March
2020 2019
(unaudited) (unaudited)
(restated(1)
)
GBP'000 GBP'000
------------
Profit for the period attributable to owners of
the Parent Company 3,452 3,724
Items that may be reclassified subsequently to
profit or loss:
Currency translation differences on foreign currency
net investments (209) (8)
Current tax on foreign currency translation differences 8 (1)
Fair value movement on cash flow hedges (396) 274
Deferred tax on fair value movement 67 (47)
----------------------------------------------------------- ------------ -------------
(530) 218
----------------------------------------------------------- ------------ -------------
Items that will not be reclassified subsequently
to profit or loss:
Actuarial gain/(loss) on defined benefit pension
scheme 515 (2,898)
Deferred tax on actuarial gain or loss 58 493
----------------------------------------------------------- ------------ -------------
573 (2,405)
----------------------------------------------------------- ------------ -------------
Other comprehensive income/(expense) for the period 43 (2,187)
----------------------------------------------------------- ------------ -------------
Total comprehensive income for the period attributable
to owners of the Parent Company 3,495 1,537
----------------------------------------------------------- ------------ -------------
(1) The comparative period is restated for the adoption of IFRS 16;
more information is provided in note 13.
Notes 1-13 form part of these condensed half year financial statements.
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
for the six months ended 31 March 2019
Share Own shares Foreign
Share premium in share Hedging exchange Retained Total
capital account trusts reserve reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------- --------- --------- ----------- --------- ---------- ---------- --------
1 October 2018 (restated(1)
) 1,189 23,484 (34) 50 3,515 53,395 81,599
Profit for the period 3,724 3,724
Exchange differences - - - - (8) - (8)
Fair value movement on
cash flow hedges - - - 274 - - 274
Actuarial loss on defined
benefit pension
Scheme - - - - - (2,898) (2,898)
Taxation relating to items
above - - - (47) (1) 493 445
---------------------------------- --------- --------- ----------- --------- ---------- ---------- --------
Total comprehensive income - - - 227 (9) 1,319 1,537
---------------------------------- --------- --------- ----------- --------- ---------- ---------- --------
Transactions with owners:
Dividends - - - - - (2,071) (2,071)
Share-based payments - - - - - 361 361
Movement in own shares
in share trusts - - 22 - - - 22
Gain on release of shares
in share trusts - - - - - 173 173
================================== ========= ========= =========== ========= ========== ========== ========
Total transactions with
owners - - 22 - - (1,537) (1,515)
---------------------------------- --------- --------- ----------- --------- ---------- ---------- --------
As at 31 March 2019 (restated(1)
) 1,189 23,484 (12) 277 3,506 53,177 81,621
---------------------------------- --------- --------- ----------- --------- ---------- ---------- --------
for the six months ended 31 March 2020
Share Own shares Foreign
Share premium in share Hedging exchange Retained Total
capital account trusts reserve reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- --------- --------- ----------- --------- ---------- ---------- --------
1 October 2019 (restated(1)
) 1,203 23,484 (15) 127 5,566 56,714 87,079
Profit for the period 3,452 3,452
Exchange differences - - - - (209) - (209)
Fair value movement on
cash flow hedges - - - (396) - - (396)
Actuarial gain on defined
benefit pension
scheme - - - - - 515 515
Taxation relating to items
above - - - 67 8 58 133
----------------------------- --------- --------- ----------- --------- ---------- ---------- --------
Total comprehensive income - - - (329) (201) 4,025 3,495
----------------------------- --------- --------- ----------- --------- ---------- ---------- --------
Transactions with owners:
Dividends - - - - - (2,275) (2,275)
Share-based payments - - - - - 332 332
Movement in own shares
in share trusts - - 7 - - - 7
Gain on release of shares
in share trusts - - - - - 144 144
============================= ========= ========= =========== ========= ========== ========== ========
Total transactions with
owners - - 7 - - (1,799) (1,792)
----------------------------- --------- --------- ----------- --------- ---------- ---------- --------
As at 31 March 2020 1,203 23,484 (8) (202) 5,365 58,940 88,782
----------------------------- --------- --------- ----------- --------- ---------- ---------- --------
(1) Brought forward retained earnings has been restated in the current
and comparative periods for the adoption of IFRS 16; more information is
provided in note 13.
Notes 1-13 form part of these condensed half year financial statements.
CONDENSED GROUP BALANCE SHEET
as at 31 March 2020
As at As at
31 March 30 September
2020 2019
(unaudited) (audited)
(restated(1)
)
GBP'000 GBP'000
------------
ASSETS
Non-current assets
Intangible assets 880 845
Property, plant and equipment 40,655 29,848
Deferred tax assets 1,549 1,400
43,084 32,093
Current assets
Inventories 34,346 36,799
Trade and other receivables 28,259 23,020
Current tax assets 34 455
Cash and bank balances 32,972 37,187
Assets classified as held for sale - 697
95,611 98,158
Total assets 138,695 130,251
LIABILITIES
Current liabilities
Borrowings (22,566) (16,882)
Provisions (444) (261)
Trade and other payables (12,463) (11,331)
Current tax liabilities (468) (124)
Derivative financial instruments (729) (315)
Liabilities classified as held for sale - (14)
(36,670) (28,927)
Net current assets 58,941 69,231
Non-current liabilities
Borrowings (4,339) (4,738)
Post-employment benefits (7,196) (7,788)
Deferred tax liabilities (1,708) (1,719)
(13,243) (14,245)
Total liabilities (49,913) (43,172)
Net assets 88,782 87,079
------------------------------------------ ------------ -------------
CONDENSED GROUP BALANCE SHEET (continued)
as at 31 March 2020
As at As at
31 March 30 September
2020 2019
(unaudited) (audited)
(restated(1)
)
GBP'000 GBP'000
------------
EQUITY
Share capital 1,203 1,203
Share premium account 23,484 23,484
Own shares in share trusts (8) (15)
Hedging reserve (202) 127
Foreign exchange reserve 5,365 5,566
Retained earnings 58,940 56,714
--------------------------------------------- ------------ -------------
Total equity attributable to owners of the
Parent Company 88,782 87,079
--------------------------------------------- ------------ -------------
(1) The comparative period is restated the adoption of IFRS 16;
more information is provided in note 13. The restatements in
respect of IFRS 16 are unaudited.
Notes 1-13 form part of these condensed half year financial
statements.
CONDENSED GROUP STATEMENT OF CASH FLOWS
for the six months ended 31 March 2020
Six months Six months
to to
31 March 31 March
2020 2019
(unaudited) (unaudited)
(restated(1)
)
GBP'000 GBP'000
------------
Cash flow from operating activities
Profit before taxation including discontinued operations 4,606 4,923
Adjusted for:
Depreciation of property, plant and equipment 783 761
Amortisation of intangible assets 39 47
Net finance costs(1) 134 139
Impairment of Kenyan operations 638 825
Share-based payments 332 361
Decrease/(increase) in fair value of derivatives 18 (450)
(Decrease)/increase in post-employment benefit obligations (77) 49
------------------------------------------------------------ ------------ -------------
Operating cash flow before movements in working
capital 6,473 6,655
------------------------------------------------------------ ------------ -------------
Movements in working capital:
Decrease in inventories 2,244 2,303
Increase in receivables (4,958) (1,740)
Increase in payables 1,607 1,170
Cash generated from operations 5,366 8,388
Taxation paid (486) (2,106)
Net cash from operating activities 4,880 6,282
Cash flow from investing activities
Disposal of subsidiaries (138) -
Purchase of property, plant and equipment (11,857) (4,921)
Purchase of intangible assets (73) (16)
Interest received 62 57
(12,006) (4,880)
------------------------------------------------------------ ------------ -------------
CONDENSED GROUP STATEMENT OF CASH FLOWS (continued)
for the six months ended 31 March 2020
Six months Six months
to to
31 March 31 March
2020 2019
(unaudited) (unaudited)
(restated(1)
)
GBP'000 GBP'000
------------
Cash flow from financing activities
(Repayment)/increase of bank loans (194) 4,274
Interest paid (196) (196)
Dividends paid (2,275) (2,071)
Net sale of own shares by share trusts 151 196
(2,514) 2,203
----------------------------------------------------- ------------ -------------
Net increase in cash and cash equivalents (9,640) 3,605
Effect of foreign exchange rates (93) (24)
Movement in cash and cash equivalents in the period (9,733) 3,581
Cash and cash equivalents at beginning of period 21,076 13,060
Cash and cash equivalents at end of period 11,343 16,641
Cash and cash equivalents comprise:
Cash and bank balances 32,972 34,451
Bank borrowings (21,629) (17,810)
11,343 16,641
----------------------------------------------------- ------------ -------------
(1) The comparative period is restated for the adoption of IFRS 16; more
information is provided in note 13.
Notes 1-13 form part of these condensed half year financial statements.
CONDENSED GROUP RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET CASH
for the six months ended 31 March 2020
Six months Six months
to to
31 March 31 March
2020 2019
(unaudited) (unaudited)
(restated(1)
)
GBP'000 GBP'000
------------
Movement in cash and cash equivalents in the period (9,733) 3,581
Repayment/(increase) of bank loans 194 (4,274)
Cash outflow from changes in net cash in the period (9,539) (693)
Effect of foreign exchange rates 39 24
Movement in net cash in the period (9,500) (669)
Net cash at beginning of period 15,567 9,668
Net cash at end of period 6,067 8,999
------------
(1) The comparative period is restated for the adoption of IFRS 16;
more information is provided in note 13.
Notes 1-13 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 2020 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
11 May 2020
NOTES TO THE UNAUDITED HALF YEAR FINANCIAL STATEMENTS
1. Basis of preparation
The Group is required to prepare its condensed half year
financial statements in accordance with accounting standards
adopted for use in the European Union (International Financial
Reporting Standards (IFRS)). The Group has adopted the reporting
requirements of IAS 34, 'Interim Financial Reporting'.
The consolidated condensed half year financial statements are
prepared on the basis of all International Accounting Standards
(IAS) and IFRS published by the International Accounting Standards
Board (IASB) that are currently in issue. New interpretations may
be issued by the International Financial Reporting Interpretations
Committee (IFRIC) on existing standards and best practice continues
to evolve. It is, therefore, possible that the accounting policies
set out below may be updated by the time the Group prepares its
full set of financial statements under IFRS for the year ending 30
September 2020.
The information relating to the six months ended 31 March 2020
and 31 March 2019 is unaudited and does not constitute statutory
accounts. The statutory accounts for the year ended 30 September
2019 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 2020 have neither been
audited nor formally reviewed by the Group's auditors.
2. Accounting policies
The Group has adopted IFRS 16, 'Leases' from 1 October 2019. The
Group has adopted the full retrospective approach which means the
Group has calculated its position as though it had always applied
IFRS 16, and as such has restated its comparative information.
Further information on the IFRS 16 restatements are set out in
detail in note 13 . The adoption of this new accounting standard
has not had a material effect on these condensed half year
financial statements.
With the exception of IFRS 16, these condensed half year
financial statements have been prepared on the basis of the same
accounting policies and presentation set out in the Group's 30
September 2019 annual report.
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
2019.
4. Going concern
In light of the global COVID-19 pandemic, the Group has assessed
a variety of scenarios and the impact of these on the business to
continue as a going concern and 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 36-41 of the 2019 Annual
Report and Financial Statements, with the exception of the
potential impact of COVID-19, further details relating to which are
set out above.
6. 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, US and Kenya. 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 Six months
to to Growth
31 March 31 March Year on Year - constant
2020 2019 Growth currency
(unaudited) (unaudited) (unaudited) (unaudited)
GBP'000 GBP'000 % %
------------
United Kingdom 3,742 4,221 (11.3%) (12.1%)
-------------------------------- ------------ ------------ ------------- -------------
Rest of Europe - Germany 2,136 3,604 (40.7%) (40.7%)
- Ireland 2,863 4,096 (30.1%) (30.2%)
- Other 5,887 7,641 (23.0%) (23.1%)
------------------------------- ------------ ------------ ------------- -------------
The Americas - USA 21,853 21,548 1.4% 0.5%
- Other 3,914 3,489 12.2% 11.6%
------------------------------- ------------ ------------ ------------- -------------
Rest of the World - China 3,095 3,285 (5.8%) (5.9%)
- Other 10,114 8,741 15.7% 15.5%
------------------------------- ------------ ------------ ------------- -------------
53,604 56,625 (5.3%) (5.8%)
-------------------------------- ------------ ------------ ------------- -------------
7. Exceptional items
The exceptional items referred to in the income statement can be
categorised as follows:
Six months Six months
to to
31 March 31 March
2020 2019
(unaudited) (unaudited)
GBP'000 GBP'000
------------
Accelerated depreciation expense - 108
UK relocation expenses 475 137
475 245
Less: tax effect of exceptional items (26) (46)
------------
449 199
--------------------------------------- ------------ ------------
The exceptional items all relate to non-recurring items.
Relocation expenses relate to one-off costs incurred in connection
with the relocation of the Group's UK operations, which is expected
to be completed in 2021.
8. Taxation
The effective tax rate for the six months ended 31 March 2020
has been estimated at 21.5% (2019 H1: 20.3%). The main UK
corporation tax rate of 19% has been substantively enacted on 17
March 2020. This increase from 17% has resulted in an increase in
deferred tax assets and liabilities.
9. Discontinued operations
On 31 May 2018 the Group completed the disposal of Earthoil
Plantations Limited. Following this disposal the Group retained the
former Earthoil operations based in Kenya, which are loss-making.
These operations are not considered core to the Group's existing
business and future growth strategy and consequently have been
classified as a disposal group held for sale.
As a result of further losses incurred during the Period,
management has assessed the carrying value of the disposal group
and recognised an impairment GBP638,000 (2019: GBP825,000) in the
Income Statement. This impairment is reflected in earnings per
share from continuing and discontinued operations as shown in note
11 .
Subsequent to the reporting date, the Group disposed of these
operations through a sale to management for a nominal sum.
The results of the discontinued operations, which have been
included in the income statement, were as follows:
Six months Six months
to to
31 March 31 March
2020 2019
(unaudited) (unaudited)
GBP'000 GBP'000
Revenue 625 852
Cost of sales (762) (913)
-------------------------------------------------- ------------ ------------
Gross loss (137) (61)
Administrative expenses (129) (128)
Operating loss (266) (189)
Net finance costs - -
Loss before taxation and exceptionals (266) (189)
Exceptional - costs relating to disposal of
Kenyan operations (71) -
Exceptional - impairment of net assets (638) (825)
Loss before taxation (975) (1,014)
Taxation 46 7
Loss for the period attributable to owners
of the Parent Company (929) (1,007)
The adoption of IFRS 16 has had no impact on the results of the
discontinued operations in the current or comparative period as
reported.
10. Dividends
Equity dividends on ordinary shares
Six months Six months
to to
31 March 31 March
2020 2019
(unaudited) (unaudited)
GBP'000 GBP'000
------------------------------------------------ ------------ ------------
Final dividend for the year ended 30 September
2019 of 3.80p per share
(2018: 3.50p per share) 2,275 2,071
------------------------------------------------ ------------ ------------
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
by the Treatt SIP Trust (SIP) which do not rank for dividend.
Six months Six months
to to
31 March 31 March
2020 2019
(unaudited) (unaudited)
(restated(1)
)
Profit after taxation attributable to owners
of the Parent Company (GBP'000) 3,452 3,724
Loss from discontinued operations (GBP'000) 929 1,007
Profit from continuing operations attributable
to owners of the Parent
Company (GBP'000) 4,381 4,731
======================================================== ============ =============
Weighted average number of ordinary shares
in issue (No: '000) 59,744 59,065
-------------------------------------------------------- ------------ -------------
Basic earnings per share - continuing and discontinued
(pence) 5.78p 6.30p
======================================================== ============ =============
Basic earnings per share - continuing (pence) 7.33p 8.01p
-------------------------------------------------------- ------------ -------------
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 Six months
to to
31 March 31 March
2020 2019
(unaudited) (unaudited)
(restated(1)
)
No ('000) No ('000)
------------
Weighted average number of shares 60,171 59,471
Weighted average number of shares held in the
EBT and SIP (427) (406)
Weighted average number of shares for calculating
basic EPS 59,744 59,065
Executive share option schemes 479 589
All-employee share options 32 157
------------
Weighted average number of shares for calculating
diluted EPS 60,255 59,811
------------
Diluted earnings per share - continuing and
discontinued (pence) 5.73p 6.23p
--------------------------------------------------- ------------ -------------
Diluted earnings per share - continuing (pence) 7.27p 7.91p
--------------------------------------------------- ------------ -------------
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 Six months
to to
31 March 31 March
2020 2019
(unaudited) (unaudited)
(restated(1)
)
GBP'000 GBP'000
------------
Profit after taxation attributable to owners
of the Parent Company 3,452 3,724
Adjusted for:
Exceptional items (see note 7) 475 245
Exceptional items relating to disposal of Kenyan
operations (see note 9) 71 -
Impairment of Kenyan operations (see note 9) 638 825
Taxation thereon (26) (46)
Earnings for calculating adjusted earnings
per share:
From continuing and discontinued operations 4,610 4,748
Loss from discontinued operations 220 182
Adjusted earnings from continuing operations 4,830 4,930
------------
Adjusted basic earnings per share (pence)
- Continuing and discontinued operations 7.72p 8.04p
- Continuing operations 8.08p 8.35p
------------
Adjusted diluted earnings per share (pence)
- Continuing and discontinued operations 7.65p 7.94p
- Continuing operations 8.02p 8.24p
------------
(1) The comparative period earnings are restated for the
adoption of IFRS 16; more information is provided in note 13. The
impact of the restatement on the comparative period earnings per
share measures is as follows:
Earnings Earnings
per share per share
(as reported) (restated)
Basic earnings per share - continuing and discontinued
(pence) 6.31p 6.30p
-------------------------------------------------------- ============== -----------
All other earnings per share measures remained as reported.
12. Capital commitments
The Group has entered into material contracts in connection with
the UK relocation project totaling GBP10.2m, and GBP0.5m committed
to capital projects in the US, all of which was unprovided for at
the period end.
13. Adoption of new accounting standards
IFRS 16 leases
The objective of IFRS 16 is to report information that (a)
faithfully represents lease transactions and (b) provides a basis
for users of financial statements to assess the amount, timing and
uncertainty of cash flows arising from leases. To meet that
objective, the lessee should recognise assets and liabilities
arising from a lease.
IFRS 16 replaces IAS 17 and removes the distinction between
operating leases and finance leases, instead introducing a single
lessee accounting model requiring a lessee to recognise liabilities
('lease liabilities') and assets ('right-of-use assets') for all
leases with a term of more than 12 months, unless the underlying
asset is of low value.
Lease liabilities
A lease liability is recognised at the inception of a contract
at an amount equal to the present value of payments due under the
lease, discounted at an incremental borrowing rate that reflects
the nature and duration of the lease in question. The lease
liability is subsequently measured using the effective interest
rate method with an associated finance cost charged to the income
statement.
Right-of-use assets
At the inception of the contract, a right-of-use asset is
recognised equal to the lease liability, adjusted to reflect any
lease incentives or associated direct costs. The right-of-use asset
is depreciated over the useful life of the asset, which can be no
longer than the lease term, and the depreciation cost is charged to
the income statement.
Impact of the transition and application of IFRS 16
The Group has opted to apply the full retrospective approach and
has restated prior year figures accordingly.
The Group has used the following practical expedients allowable
under IFRS 16 when applying the standard to leases previously
classified as operating leases under IAS 17:
-- The exclusion of low-value leases and leases with a remaining
lease term of less than twelve months as at 1 October 2018 from its
transition workings.
-- The decision to maintain the classification of leases for
contracts previously identified as leases prior to the date of
initial application.
Prior year restatements
Balance sheet
The impact of the adoption of IFRS 16 on comparative figures in
the condensed Group balance sheet is summarised below:
30 September 30 September
Adoption
2019 of 2019
(as reported) IFRS 16 (restated)
GBP'000 GBP'000 GBP'000
--------------
ASSETS
Non-current assets
Property, plant and equipment 29,485 363 29,848
------------------------------- -------------- ---------- -------------
LIABILITIES
Current liabilities
Borrowings (16,860) (22) (16,882)
Non-current liabilities
Borrowings (4,369) (369) (4,738)
------------------------------- -------------- ---------- -------------
EQUITY
Retained earnings 56,742 (28) 56,714
------------------------------- -------------- ---------- -------------
Income statement
The impact of the adoption of IFRS 16 on comparative figures in
the condensed Group income statement and total comprehensive income
is summarised below:
31 March 31 March
Adoption
2019 of 2019
(as reported) IFRS 16 (restated)
GBP'000 GBP'000 GBP'000
--------------
Administrative expenses (7,832) 10 (7,822)
---------------------------- -------------- ========== -----------
Finance costs (185) (11) (196)
---------------------------- -------------- ---------- -----------
Profit for the period 3,725 (1) 3,724
---------------------------- -------------- ---------- -----------
Total comprehensive income 1,538 (1) 1,537
---------------------------- -------------- ---------- -----------
Statement of changes in equity
The opening positions in the current and prior period of the
condensed Group statement of changes in equity are amended for the
impact of the adoption of IFRS 16 as summarised below:
1 October 1 October
2018 2019
GBP'000 GBP'000
----------
Retained earnings (as reported) 53,421 56,742
IFRS 16 adjustment (26) (28)
--------------------------------- ---------- ----------
Retained earnings (revised) 53,395 56,714
--------------------------------- ---------- ----------
Statement of cash flows and reconciliation of net cash flow to
movement in net cash
The prior year condensed Group statement of cash flows and
reconciliation of net cash flow to movement in net cash have also
been amended for the impact of the adoption of IFRS 16 as
summarised below:
31 March 31 March
Adoption
2019 of 2019
(as reported) IFRS 16 (restated)
GBP'000 GBP'000 GBP'000
--------------
Adjustment for net finance
costs 128 11 139
----------------------------- -------------- ========== -----------
Adjustment for depreciation 760 1 761
----------------------------- -------------- ---------- -----------
Interest paid (185) (11) (196)
----------------------------- -------------- ---------- -----------
Net cash at start of period 9,390 (391) 8,999
----------------------------- -------------- ---------- -----------
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.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR FLFVAELILLII
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