TIDMTET
RNS Number : 1021Y
Treatt PLC
07 May 2019
TREATT PLC
HALF YEAR RESULTS
SIX MONTHSED 31 MARCH 2019
Fruit and vegetables, tea and sugar reduction driving top-line
growth
Treatt Plc (the 'Group'), the manufacturer and supplier of
innovative ingredient solutions for the flavour, fragrance,
beverage and consumer products industries, announces its half year
results for the six months ended 31 March 2019.
FINANCIAL HIGHLIGHTS:
Half year Half year Change
ended ended
31 March 2019 31 March 2018
Revenue(1) GBP56.6m GBP53.6m +5.7%
Gross profit margin(1) 25.0% 23.6% +140bps
Adjusted operating profit(1,2) GBP6.3m GBP6.1m +3.8%
Adjusted profit before
tax(1,2) GBP6.2m GBP5.8m +7.3%
Adjusted basic earnings
per share(1,2) 8.35p 8.58p -2.7%
Dividend per share 1.70p 1.60p +6.3%
OPERATIONAL HIGHLIGHTS:
-- Fruit and vegetables, tea and sugar reduction categories have performed strongly.
-- Citrus core product category continues to lead the
contribution to revenue despite cyclical fall in raw material
prices.
-- Speciality chemicals outperformed management expectations at the half year.
-- Strong free cash inflow of GBP5.5m excluding major capital investment projects.
-- Ongoing investment in the Group's capacity to deliver long-term growth
Ø US expansion: completed March 2019, expected to be fully
operational by June 2019.
Ø UK site relocation: 12-month construction period anticipated
to commence Summer 2019.
Commenting on the results, Group CEO, Daemmon Reeve, said:
"Once again it is pleasing to report encouraging strategic
progress. All categories have performed well despite cyclical
weakness in some citrus raw material markets with particularly
encouraging growth in our higher margin tea, sugar reduction and
fruit and vegetable categories supporting the strong trend towards
better for you and clean label, more natural beverages.
The past six months have seen much work across the business
strengthening our teams, building and planning infrastructure to
drive future growth, establishing Treatt in new growth markets and
expanding our offer in established markets. These actions were
achieved whilst improving profitability and margins and give the
Board confidence that the business is well placed to deliver on its
strategic objectives over the coming years.
With order books comfortably up on a year ago, we expect the
encouraging performance in H1 to continue into H2. Whilst there is
still much to do to complete the year the Board remains confident
that the Group will meet its expectations for the financial year
ending 30 September 2019."
Notes:
(1) All figures are shown excluding discontinued operations -
see note 9 to the financial statements below.
(2) All adjusted measures exclude exceptional costs of GBP0.2m
(2018: GBP0.2m) - see note 7 to the financial statements below.
Enquiries:
Treatt plc +44 (0)1284 702500
Daemmon Reeve Chief Executive Officer
Richard Hope Chief Financial Officer
Brokers
Investec Bank Plc
Patrick Robb +44 (0)20 7597 5970
David Anderson
Alex Wright
Public relations
DRD Partnership
Lawrence Dore +44 (0)20 3865 5971
HALF YEAR RESULTS STATEMENT
Introduction
The Group has delivered a solid set of results for the half year
ended 31 March 2019 (the "Period") and remains on course to deliver
in line with management's expectations for the full financial
year.
The past six months have seen much work across the business
strengthening our teams, building and planning infrastructure to
drive future growth, establishing Treatt in new growth markets and
expanding our offer in established markets. These actions were
achieved whilst improving profitability and margins and give the
Board confidence that the business is well placed to deliver on its
strategic objectives over the coming years.
We have continued to make good progress in winning market share
in our largest market, being innovative beverage ingredients
solutions. 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 these higher margin
categories.
Strategic focus
Although citrus remains the largest product category, our
continued strategic focus on key product categories and the
increasing consumer demand for natural and clean-label products
have resulted in encouraging profitable growth and opportunity
across our wider portfolio. During the Period the Group's fruit and
vegetable, tea and sugar reduction categories performed above
expectations as set out below.
Tea
Our authentic and natural tea solutions continue to perform well
with some notable wins in the Period. This has resulted in our tea
category revenue growing by 20.3% compared to H1 2018. In the next
few years we expect demand for iced tea, particularly in North
America, to continue to grow and, therefore, we believe that our
timely investment in expanded capacity will enable us to support
further growth in this category.
Sugar Reduction
As demand for lower calorie beverages continues to take hold,
particularly in countries such as the UK where a sugar tax has been
implemented, our natural calorie-free sugar solutions continue to
gain traction delivering revenue growth of 37.7% compared to H1
2018. Treatt plays a niche and technically specialist role in the
scientifically complex sphere of sugar reduction, where our
products reproduce the flavour and aroma of sugar, without the
carbohydrates or calories. Similar to tea, our growth in sugar
reduction going forward will be supported by the new capital
investment in the US.
Citrus
Whilst cyclical price weakness in some raw materials in the
citrus category had an impact on revenue, a favourable product mix
led to increased profits in this key category. Consequently,
profits from citrus increased by 6.1% even though revenue fell by
2.1% in the Period. We expect this market trend to continue into
the second half of the current financial year impacting citrus
revenue accordingly.
Other
The fastest-growing area of our business in the Period was our
natural fruit and vegetable category which grew an impressive
64.3%. Within this category, cucumber and watermelon were
particularly strong with a number of new business wins, and the
full year effect of wins in the preceding financial year driving
growth. This category particularly illustrates Treatt's ability to
capitalise on the level of product innovation and the variety and
choice now appearing in supermarket beverage aisles.
Sales of speciality high impact flavour chemicals outperformed
our expectations in the Period with revenue increasing by 17.7%
compared to H1 2018. Competitor consolidation and a transition to
outsourcing by some customers has boosted growth opportunities in
this category for the Group.
Herb, spice and florals, which covers a wide range of natural
non-citrus ingredients, continued to perform steadily in the
Period, with revenue up 5.3% compared to H1 2018.
Geographical markets
The Group's strategic focus on the key geographical markets of
the US, China and India continues to progress well. Revenue in the
US market, which is being driven by the premium beverage market,
represented 38.1% of Group revenue in the Period and achieved
growth of 8.4% against the comparable prior period (3.2% in
constant currency(1) ). Revenue in China grew by 8.6% (7.8% in
constant currency(1) ) as our strategy in China continues to gain
traction and sizeable opportunities with new customers begin to
open up. In India we are at a much earlier stage of development as
our strategy in this market continues to evolve. Whilst revenue in
the Period fell slightly due to a reduction in some existing low
margin business, we remain confident that our revenue in India will
grow materially over the next few years.
Capital Investment Programme
A key element of the Group's five-year strategy to 2022 is to
invest in our operational capacity and innovative capability in
order to deliver future long-term growth. We are pleased,
therefore, to confirm that the $14m expansion of our US facility
was completed in March 2019 as planned and is expected to become
fully operational in June this year. This expansion brings on line
significant additional capacity for non-citrus categories,
including our fast-growing tea and sugar reduction categories, and
expands as well as modernises our scientific infrastructure. This
project has been managed without disruption to the high standards
of quality and service our global client base demands and its
success is testament to the hard work and commitment of our US
colleagues.
In the UK, the site relocation project is progressing with
planning consent now granted and construction of our new GBP35m
facility is expected to commence this Summer, with occupancy to
begin in Summer 2020. We are confident that bringing all UK
employees together in one building will enhance and drive further
teamwork, innovation, product development and process efficiencies,
whilst providing a step-change in capacity.
Financial review
Continuing operations
Revenue from continuing operations for the Period grew by 5.7%
to GBP56.6m (2018 H1: GBP53.6m) resulting in adjusted profit before
tax (excluding exceptional cost of GBP0.2m; 2018 H1: GBP0.2m)
growing by 7.3% to GBP6.2m (2018 H1: GBP5.8m). In constant currency
terms, revenue grew by 3.4%(1) .
Gross margin increased by 140 bps to 25.0% during the Period as
a result of the growth in higher margin product categories,
together with the fact that citrus margins increased as profits in
this category grew whilst revenue fell. Operating costs during the
Period increased to GBP7.8m (2018 H1: GBP6.6m) due to the full year
effect of investment in headcount in 2018, particularly in senior
sales and technical roles, and some further headcount increases in
2019 as we continue to expand our operations and capacity in both
the UK and US. This resulted in net operating margins remaining
consistent at 11.1% (2018 H1: 11.3%).
The effect on profit before tax of movements in foreign exchange
rates in the Period was not material with a small adverse net FX
impact on the half year results of approximately GBP0.4m (2018 H1:
GBP0.2m adverse).
Consistent with the prior period, the current year exceptional
costs of GBP0.2m relate to accelerated depreciation charges on the
current UK site and one-off costs in respect of the site
relocation, which do not fall to be capitalised.
In spite of a GBP0.2m increase in adjusted earnings after tax
from continuing operations against the comparable prior period, as
a result of the 10% share placing in December 2017 to part-fund the
Group's capital investment programme and a higher corporate tax
rate due to changes in US taxation, basic adjusted earnings per
share fell by 2.7% to 8.35p (2018: 8.58p).
Following the three-year actuarial review of the UK final salary
pension scheme (the 'Scheme') as at 1 October 2018, which was
updated at 30 September 2018, the Scheme continues to be in
actuarial surplus and the Group is, therefore, not required to make
any contributions to the Scheme. Under the accounting standard IAS
19, which is calculated on a different basis, the post-employment
benefits liability in the balance sheet increased from GBP3.5m to
GBP6.4m in the Period as a result of movements in discount rates
used to calculate the future obligations of the Scheme.
The Group is required to adopt IFRS 15 (Revenue from Contracts
with Customers) and IFRS 9 (Financial Instruments) from 1 October
2018. The adoption of IFRS 15 and application of IFRS 9 had no
impact on the Group's financial statements. Further details are set
out in note 13 to the financial statements below.
Cash flow
As at 31 March 2019 the Group had a positive cash balance of
GBP9.4m compared to GBP10.1m at the beginning of the Period. During
the Period GBP4.9m of capital expenditure was incurred, GBP4.2m of
which related to the US site expansion and UK relocation
projects.
The first half of our financial year has seen an improvement in
cash conversion with free cash inflow(2) of GBP1.3m for the Period
comparing favourably with the GBP1.8m outflow in H1 2018. Working
capital in the Period improved by GBP1.7m, with inventory levels
reducing by GBP2.1m in the Period. The level of trade and other
receivables increased by GBP1.8m as H1 finished strongly, whilst
trade and other payables increased slightly by GBP0.6m. Excluding
the two major capital investment projects, free cash inflow(2) was
an encouraging GBP5.5m for the Period and we anticipate further
improvement in H2.
Of the $7.5m approved US construction financing facility, $5.6m
had been drawn down at the Period end to fund the now completed
expansion of the site. This facility is expected to be converted to
a seven-year term loan during H2.
Discontinued operations
Following the disposal of Earthoil Plantations Limited in the
previous financial year the Group retained the former Earthoil
operations based in Kenya. 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.
Management has assessed the carrying value of the disposal group
and recognised a non-cash impairment charge of GBP0.8m. This
impairment is reflected in the profit after tax from continuing and
discontinued operations of GBP3.7m (2018 H1: GBP5.1m) and basic
earnings per share of 6.31p (2018 H1: 9.27p).
Dividend
Consistent with our interim dividend policy in prior years, the
Board has declared an increase to the interim dividend of 6.3% to
1.70 pence per share (2018 interim dividend: 1.60 pence per share)
which represents approximately one-third of the previous year's
total dividend. This interim dividend will be payable on 15 August
2019 to all shareholders on the register at close of business on 5
July 2019.
Board Changes
As previously announced, Anita Haines retired from the Board on
25 January 2019. Having served on the Board since 2002, and as a
Non-executive Director since 2014, Anita has made an invaluable
contribution to the business as Treatt has grown substantially
since she began her service with the Group in 1988. The Board would
like to place on record its thanks to Anita and to wish her a
happy, healthy and well-deserved retirement.
On 20 March 2019 Yetunde Hofmann joined the Board as a
Non-executive Director. Yetunde has worked extensively across many
Asian countries, the US and Europe with strategic, commercial and
operational transformation skills developed through her experience
at Allied Domecq, Unilever, Imperial Brands and Northern Foods.
Also joining the Board as a Non-executive Director is Lynne
Weedall who joined us on 6 April 2019. Lynne is a director with
significant strategy, change management, remuneration and
acquisition experience from posts including Whitbread Plc, Dixons
Carphone Plc, Selfridges Group and Greene King Plc.
Prospects
Order books are comfortably up on a year ago and we expect the
encouraging performance in H1 to continue into H2. Though it is
anticipated that revenue growth in the second half will reflect
lower citrus raw material input prices, the strength of the Group's
underlying business, with notable growth in key strategic
categories and active projects from existing and targeted potential
customers, gives us encouragement for the second half of the
year.
Whilst there is still much to do to complete the year the Board
remains confident that the Group will meet its expectations for the
financial year ending 30 September 2019.
6 May 2019
1 Constant currency revenue growth is calculated on the movement
from prior period comparative restated at the current period
average exchange rate.
2 Free cash flow is calculated as net cash from operations less
purchase of property, plant, equipment and intangible assets.
TREATT PLC
HALF YEAR FINANCIAL STATEMENTS
CONDENSED GROUP INCOME STATEMENT
for the six months ended 31 March 2019
Six months Six months
to to
31 March 31 March
2019 2018
(unaudited) (unaudited)
Notes GBP'000 GBP'000
CONTINUING OPERATIONS
Revenue 6 56,625 53,574
Cost of sales (42,482) (40,938)
------------------------------------------------ ------ ------------ ------------
Gross profit 14,143 12,636
Administrative expenses (7,832) (6,557)
Operating profit(1) 6,311 6,079
Net finance costs (128) (314)
Profit before taxation and exceptional items 6,183 5,765
Exceptional items 7 (245) (212)
Profit before taxation 5,938 5,553
Taxation 8 (1,206) (962)
Profit for the period from continuing operations 4,732 4,591
DISCONTINUED OPERATIONS
(Loss)/profit for the period from discontinued
operations 9 (1,007) 557
Profit for the period attributable to owners of
the Parent Company 3,725 5,148
Earnings per share
From continuing and discontinued operations:
Basic 11 6.31p 9.27p
Diluted 11 6.24p 9.01p
Adjusted basic(2) 11 8.04p 9.58p
Adjusted diluted(2) 11 7.94p 9.32p
------------------------------------------------ ------ ------------ ------------
From continuing operations:
Basic 11 8.01p 8.27p
Diluted 11 7.91p 8.04p
Adjusted basic(2) 11 8.35p 8.58p
Adjusted diluted(2) 11 8.24p 8.34p
------------------------------------------------ ------ ------------ ------------
1 Operating profit is calculated as profit before net finance costs,
exceptional items and taxation.
2 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.
The notes form part of these condensed half year financial statements
CONDENSED GROUP STATEMENT OF COMPREHENSIVE INCOME
for the six months ended 31 March 2019
Six months Six months
to to
31 March 31 March
2019 2018
(unaudited) (unaudited)
GBP'000 GBP'000
------------
Profit for the period attributable to owners of
the Parent Company 3,725 5,148
Items that may be reclassified subsequently to
profit or loss:
Currency translation differences on foreign currency
net investments (8) (1,183)
Current tax on foreign currency translation differences (1) 37
Fair value movement on cash flow hedges 274 51
Deferred tax on fair value movement (47) (47)
--------------------------------------------------------- ------------ ------------
218 (1,142)
--------------------------------------------------------- ------------ ------------
Items that will not be reclassified subsequently
to profit or loss:
Actuarial loss on defined benefit pension scheme (2,898) (950)
Deferred tax on actuarial gain or loss 493 162
--------------------------------------------------------- ------------ ------------
(2,405) (788)
--------------------------------------------------------- ------------ ------------
Other comprehensive expense for the period (2,187) (1,930)
--------------------------------------------------------- ------------ ------------
Total comprehensive income for the period attributable
to owners of the Parent Company 1,538 3,218
--------------------------------------------------------- ------------ ------------
The notes form part of these condensed half year financial statements
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
for the six months ended 31 March 2018
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 2017 1,058 2,757 (175) (80) 2,627 40,291 46,478
---------------------------- --------- --------- ----------- --------- ---------- ---------- --------
Net profit for the period - - - - - 5,148 5,148
Exchange differences - - - - (1,183) - (1,183)
Fair value movement on
cash flow hedges - - - 51 - - 51
Actuarial loss on defined
benefit pension
scheme - - - - - (950) (950)
Transfer between reserves - - - 227 - (227) -
Taxation relating to items
above - - - (47) 37 162 152
---------------------------- --------- --------- ----------- --------- ---------- ---------- --------
Total comprehensive income - - - 231 (1,146) 4,133 3,218
---------------------------- --------- --------- ----------- --------- ---------- ---------- --------
Transactions with owners:
Dividends - - - - - (1,939) (1,939)
Share-based payments - - - - - 529 529
Movement in own shares
in share trusts - - 32 - - - 32
Gain on release of shares
in share trusts - - - - - 196 196
Issue of share capital 115 20,757 (10) - - - 20,832
Taxation relating to items
recognised
directly in equity - - - - - 40 40
---------------------------- --------- --------- ----------- --------- ---------- ---------- --------
Total transactions with
owners 115 20,727 22 - - (1,174) 19,690
---------------------------- --------- --------- ----------- --------- ---------- ---------- --------
As at 31 March 2018 1,173 23,484 (153) 151 1,481 43,250 69,386
---------------------------- --------- --------- ----------- --------- ---------- ---------- --------
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
---------------------------- --------- --------- ----------- --------- ---------- ---------- --------
As at 1 October 2018 1,189 23,484 (34) 50 3,515 53,421 81,625
---------------------------- --------- --------- ----------- --------- ---------- ---------- --------
Net profit for the period 3,725 3,725
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) 1,320 1,538
---------------------------- --------- --------- ----------- --------- ---------- ---------- --------
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 1,189 23,484 (12) 277 3,506 53,204 81,648
---------------------------- --------- --------- ----------- --------- ---------- ---------- --------
The notes form part of these condensed half year financial statements
CONDENSED GROUP BALANCE SHEET
as at 31 March 2019
As at As at
31 March 30 September
2019 2018
(unaudited) (audited)
GBP'000 GBP'000
------------
ASSETS
Non-current assets
Intangible assets 720 752
Property, plant and equipment 23,583 20,038
Deferred tax assets 1,511 1,073
25,814 21,863
Current assets
Inventories 37,573 39,642
Trade and other receivables 30,662 28,829
Current tax assets 840 29
Derivative financial instruments 324 -
Cash and bank balances 34,451 32,304
Assets classified as held for sale 436 1,598
104,286 102,402
Total assets 130,100 124,265
LIABILITIES
Current liabilities
Borrowings (20,795) (19,244)
Provisions - (58)
Trade and other payables (15,906) (15,298)
Current tax liabilities (671) (760)
Derivative financial instruments - (401)
Liabilities classified as held for sale (10) (20)
(37,382) (35,781)
Net current assets 66,904 66,621
Non-current liabilities
Borrowings (4,266) (3,001)
Post-employment benefits (6,404) (3,457)
Deferred tax liabilities (400) (401)
(11,070) (6,859)
Total liabilities (48,452) (42,640)
Net assets 81,648 81,625
------------------------------------------ ------------ -------------
CONDENSED GROUP BALANCE SHEET (continued)
as at 31 March 2019
As at As at
31 March 30 September
2019 2018
(unaudited) (audited)
GBP'000 GBP'000
------------
EQUITY
Share capital 1,189 1,189
Share premium account 23,484 23,484
Own shares in share trusts (12) (34)
Hedging reserve 277 50
Foreign exchange reserve 3,506 3,515
Retained earnings 53,204 53,421
----------------------------------------------- ------------ -------------
Total equity attributable to owners of the
Parent Company 81,648 81,625
----------------------------------------------- ------------ -------------
The notes form part of these condensed half year financial statements
CONDENSED GROUP STATEMENT OF CASH FLOWS
for the six months ended 31 March 2019
Six months Six months
to to
31 March 31 March
2019 2018
(unaudited) (unaudited)
GBP'000 GBP'000
------------
Cash flow from operating activities
Profit before taxation including discontinued operations 4,924 6,218
Adjusted for:
Depreciation of property, plant and equipment 760 758
Amortisation of intangible assets 47 68
Loss on disposal of intangible assets - 31
Net finance costs 128 344
Impairment of Kenyan operations 825 -
Share-based payments 361 547
(Increase)/decrease in fair value of derivatives (450) 137
Increase in post-employment benefit obligations 49 57
---------------------------------------------------------- ------------ ------------
Operating cash flow before movements in working
capital 6,644 8,160
---------------------------------------------------------- ------------ ------------
Movements in working capital:
Decrease/(increase) in inventories 2,303 (1,520)
Increase in trade and other receivables (1,740) (7,374)
Increase in trade and other payables, and provisions 1,170 2,157
Cash generated from operations 8,377 1,423
Taxation paid (2,106) (892)
Net cash from operating activities 6,271 531
Cash flow from investing activities
Purchase of property, plant and equipment (4,921) (2,256)
Purchase of intangible assets (16) (114)
Interest received 57 8
(4,880) (2,362)
---------------------------------------------------------- ------------ ------------
CONDENSED GROUP STATEMENT OF CASH FLOWS (continued)
for the six months ended 31 March 2019
Six months Six months
to to
31 March 31 March
2019 2018
(unaudited) (unaudited)
GBP'000 GBP'000
------------
Cash flow from financing activities
Increase/(repayment) of bank loans 4,274 (9,729)
Settlement of financial derivatives - (227)
Interest paid (185) (352)
Dividends paid (2,071) (1,939)
Proceeds on issue of shares - 20,833
Net sale of own shares by share trusts 196 229
----------------------------------------------------- ------------ ------------
2,214 8,815
----------------------------------------------------- ------------ ------------
Net increase in cash and cash equivalents 3,605 6,984
Effect of foreign exchange rates (24) (28)
Movement in cash and cash equivalents in the period 3,581 6,956
Cash and cash equivalents at beginning of period 13,060 280
Cash and cash equivalents at end of period 16,641 7,236
Cash and cash equivalents comprise:
Cash and bank balances 34,451 20,442
Bank borrowings (17,810) (13,206)
16,641 7,236
----------------------------------------------------- ------------ ------------
The notes 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 2019
Six months Six months
to to
31 March 31 March
2019 2018
(unaudited) (unaudited)
GBP'000 GBP'000
------------
Movement in cash and cash equivalents in the period 3,581 6,956
(Increase)/repayment of bank loans (4,274) 9,729
Cash (outflow)/inflow from changes in net cash
in the period (693) 16,685
Effect of foreign exchange rates 24 34
Movement in net cash in the period (669) 16,719
Net cash/(debt) at beginning of period 10,059 (10,225)
Net cash at end of period 9,390 6,494
------------
The notes 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 2019 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
6 May 2019
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 2019.
The information relating to the six months ended 31 March 2019
and 31 March 2018 is unaudited and does not constitute statutory
accounts. The statutory accounts for the year ended 30 September
2018 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 2019 have neither been
audited nor formally reviewed by the Group's auditors.
2. Accounting policies
The Group has adopted the amendments to IFRS 9 'Financial
Instruments' and IFRS 15 'Revenue from Contracts with Customers'
with effect from 1 October 2018 as detailed in note 13. These
standards are mandatory for financial periods beginning on or after
1 January 2018 and, therefore, relevant to the Group for the first
time for the financial year ending 30 September 2019. The adoption
of these amended accounting standards has not had a material effect
on these condensed half year financial statements.
With the exception of amendments to IFRS 9 and IFRS 15, 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 2018 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
2018.
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 operation of a public company involves a series of risks and
uncertainties across a range of strategic, commercial, operational
and financial areas. The principal risks and uncertainties that
could have a material impact on the Group's performance over the
remaining six months of this financial year (for example, causing
actual results to differ materially from expected results or from
those experienced previously) are the same as those detailed on
pages 26-31 of the 2018 Annual Report and Financial Statements.
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 flavour, fragrance,
beverage and consumer product industries with manufacturing sites
in the UK and 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.
Six months Six months
to to Year on Year Year on Year
31 March 31 March Growth Growth
- constant
2019 2018 currency
(unaudited) (unaudited) (unaudited) (unaudited)
GBP'000 GBP'000 % %
------------
United Kingdom 4,221 5,371 (21.4%) (21.5%)
-------------------------------- ------------ ------------ ------------- -------------
Rest of Europe - Germany 3,604 3,459 4.2% 3.8%
- Ireland 4,096 3,252 26.0% 24.2%
- Other 7,641 5,623 35.9% 35.1%
------------------------------- ------------ ------------ ------------- -------------
The Americas - USA 21,548 19,884 8.4% 3.2%
- Other 3,489 3,647 (4.3%) (6.2%)
------------------------------- ------------ ------------ ------------- -------------
Rest of the World - China 3,285 3,026 8.6% 7.8%
- Other 8,741 9,312 (6.1%) (6.5%)
------------------------------- ------------ ------------ ------------- -------------
56,625 53,574 5.7% 3.4%
-------------------------------- ------------ ------------ ------------- -------------
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
2019 2018
(unaudited) (unaudited)
GBP'000 GBP'000
------------
Accelerated depreciation expense 108 108
UK relocation expenses 137 103
245 212
Less: tax effect of exceptional items (46) (40)
------------
199 172
--------------------------------------- ------------ ------------
The exceptional items all relate to non-recurring items. The
accelerated depreciation is in relation to the reduction in the
estimated useful lives of UK assets which will not transition to
the new UK site. 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 Summer 2020.
8. Taxation
The effective tax rate for the six months ended 31 March 2019
has been estimated at 20.3% (2018 H1: 17.3%). The prior year
included a one-off deferred tax credit of GBP339,000 as a result of
the reduction in the main rate of US corporation tax. Excluding
this credit, the effective group rate for the six months ended 31
March 2018 was 23.4%. The reduced rate of US corporation tax has
been applicable for the full period for the first time resulting in
a reduction in the effective tax rate on a like-for-like basis.
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 have since become
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 the losses incurred during the Period, management
has assessed the carrying value of the disposal group and
recognised an impairment of GBP825,000 in the Income Statement.
This impairment is reflected in the Earnings per Share from
continuing and discontinued operations in note 11.
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
2019 2018
(unaudited) (unaudited)
GBP'000 GBP'000
Revenue 852 4,049
Cost of sales (1,041) (3,121)
--------------------------------------------------- ------------ ------------
Gross (loss)/profit (189) 928
Administrative expenses - (233)
Operating (loss)/profit (189) 695
Net finance costs - (30)
(Loss)/profit before taxation and exceptionals (189) 665
Exceptional - Impairment of disposal group (825) -
(Loss)/profit before taxation (1,014) 665
Taxation 7 (108)
(Loss)/profit for the period attributable to
owners of the Parent
Company (1,007) 557
10. Dividends
Equity dividends on ordinary shares:
Six months Six months
to to
31 March 31 March
2019 2018
(unaudited) (unaudited)
GBP'000 GBP'000
------------------------------------------------ ------------ ------------
Final dividend for the year ended 30 September
2018 of 3.50p per share
(2017: 3.35p per share) 2,071 1,939
------------------------------------------------ ------------ ------------
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
2019 2018
(unaudited) (unaudited)
Profit after taxation attributable to owners
of the Parent Company (GBP'000) 3,725 5,148
Loss/(profit) from discontinued operations
(GBP'000) 1,007 (557)
Profit from continuing operations attributable
to owners of the Parent
Company (GBP'000) 4,732 4,591
======================================================== ============ ============
Weighted average number of ordinary shares
in issue (No: '000) 59,065 55,545
-------------------------------------------------------- ------------ ------------
Basic earnings per share - continuing and discontinued
(pence) 6.31p 9.27p
======================================================== ============ ============
Basic earnings per share - continuing (pence) 8.01p 8.27p
-------------------------------------------------------- ------------ ------------
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
2019 2018
(unaudited) (unaudited)
No ('000) No ('000)
------------
Weighted average number of shares 59,471 56,168
Weighted average number of shares held in the
EBT and SIP (406) (623)
Weighted average number of shares for calculating
basic EPS 59,065 55,545
Executive share option schemes 589 1,261
All-employee share options 157 306
------------
Weighted average number of shares for calculating
diluted EPS 59,811 57,112
------------
Diluted earnings per share - continuing and
discontinued (pence) 6.23p 9.01p
--------------------------------------------------- ------------ ------------
Diluted earnings per share - continuing (pence) 7.91p 8.04p
--------------------------------------------------- ------------ ------------
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
2019 2018
(unaudited) (unaudited)
GBP'000 GBP'000
------------
Profit after taxation attributable to owners
of the Parent Company 3,725 5,148
Adjusted for:
Exceptional items (see note 7) 245 212
Impairment of Kenyan operations (see note 9) 825 -
Taxation thereon (46) (40)
Earnings for calculating adjusted earnings
per share:
From continuing and discontinued operations 4,749 5,320
Loss/(profit) from discontinued operations 182 (557)
Adjusted earnings from continuing operations 4,931 4,763
------------
Adjusted basic earnings per share (pence)
- Continuing and discontinued operations 8.04p 9.58p
- Continuing operations 8.35p 8.58p
------------
Adjusted diluted earnings per share (pence)
- Continuing and discontinued operations 7.94p 9.32p
- Continuing operations 8.24p 8.34p
------------
12. Capital commitments
During the Period the Group entered into material contracts in
connection with the US expansion and UK relocation projects
totaling GBP4.9m, all of which was unprovided for at the Period
end.
13. Adoption of new accounting standards
IFRS 15 Revenue from Contracts with Customers
IFRS 15 establishes a single comprehensive model for revenue
recognition based on the transfer of control rather than the risks
and rewards of ownership. The Group is required to adopt IFRS 15
with a date of initial application of 1 October 2018.
Impact of the transition and application of IFRS 15
Management have considered the nature of contracts and
performance obligations with customers at the date of initial
application and determined that the Group only has a single revenue
stream for the purposes of the application of IFRS 15, which is the
sale of goods at a point in time. The Group considers the
satisfaction of a performance obligation and transfer of control to
be at the point goods are despatched.
The Group's accounting policy is shown below and has been
updated to clarify that revenue is recognised on the transfer of
control as required under IFRS 15, rather than risks and rewards as
stated in the old policy. The adoption of IFRS 15 has no impact on
the Group's financial statements.
Revenue recognition accounting policy
Revenue represents amounts receivable net of trade discounts,
VAT and other sales-related taxes. Revenue is recognised in these
financial statements when goods are physically despatched from the
Group and/or Parent Company's premises or other storage depots,
irrespective of the terms of trade, as the Directors believe that
this is the point at which control transfers to the customer in
accordance with IFRS 15 "Revenue from Contracts with
Customers".
IFRS 9 Financial Instruments
IFRS 9 introduces new requirements for (1) the classification
and measurement of financial assets and financial liabilities, (2)
impairment of financial assets and (3) general hedge accounting.
The Group is required to adopt IFRS 9 with a date of initial
application of 1 October 2018.
Impact of the transition and application of IFRS 9
(1) Classification and measurement
With respect to the classification and measurement of financial
assets, the number of categories of financial assets under IFRS 9
has been reduced compared to IAS 39. All recognised financial
assets that are within the scope of IFRS 9 are required to be
subsequently measured at amortised cost or fair value on the basis
of the entity's business model for managing the financial assets
and the contractual cashflow characteristics of the financial
assets. IFRS 9 requires the portion of the change in fair value of
a financial liability, that relates to the entity's own credit
risk, to be presented in other comprehensive income.
The Group will classify its financial assets at initial
recognition as those to be measured at amortised cost and those to
be measured subsequently at fair value and will reclassify debt
instruments only when its business model for managing those assets
changes. Changes to the Group's accounting policy are in
terminology only; at the half year all financial assets were
measured at amortised cost. None of the changes to the
classification and measurement of financial assets or liabilities
have had any impact on the Group's financial statements.
(2) Impairment of financial assets
In relation to the impairment of financial assets, IFRS 9
requires an expected credit loss model as opposed to an incurred
credit loss model under IAS 39. IFRS 9 provides a simplified
approach for measuring the loss allowance for trade receivables
that result from transactions in the scope of IFRS 15 which do not
contain a significant financing component.
Under IAS 39, the Group's policy was to recognise impairment
only when there was objective evidence to do so. Under IFRS 9 the
Group will assess on a forward-looking basis and will apply the
simplified approach permitted by IFRS 9 to trade receivables. This
change in accounting policy effectively leads to impairment being
recognised at initial recognition. Given the low level of historic
debts experienced by the Group, the application of IFRS 9 has not
had a material impact on the Group's financial statements.
(3) General hedge accounting
Greater flexibility has been introduced to the types of
transactions eligible for hedge accounting, specifically broadening
the types of instruments that qualify for hedging and aligning the
effectiveness of a hedge more closely to an entity's risk
management activities and strategy. Retrospective assessment of the
hedge effectiveness is no longer required.
The Group has updated its hedge accounting policy and its hedge
documentation to ensure that new hedging relationships are
documented in line with its risk management strategy. The Group
continues to assess the effectiveness of its hedging relationships
prospectively. The Group's qualifying hedging relationships in
place at 1 October 2018 also qualified for hedge accounting in
accordance with IFRS 9 and were regarded as continuing hedging
relationships. The application of the new hedge accounting
requirements has no impact on the Group's financial statements.
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 BRGDULXGBGCX
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