Good morning, everyone, and welcome to our full year results presentation. We feel proud of meeting our commitments in 2023. Today, we will discuss financial year 2023, also a look ahead to financial year 2024, and also the medium-term strategy of Treatt. We were very pleased to deliver 5% revenue growth in the year, which was driven by considered pricing action, which allowed us to deliver sales growth despite volume decline. Profit before tax and exceptional items grew by 14%, and this was driven by a combination of sales growth and also importantly, cost disciplines. And we're certainly fighting on both fronts, both sales growth and the cost savings, that enabled us to deliver our expectations. We were particularly pleased with new market growth of 60% year-on-year, with China and coffee growing very much in line with our expectations.
We feel excited about their future growth. We feel this is a resilient set of results with high inflation in the macro environment, which has led to destocking in the sector, which was particularly felt in H2, and most notably in synthetic aromas with flavor houses. Cash generation was a record in the period, and net debt is down significantly to GBP 10.4 million at year-end. We did what we said we would do, and we returned to growth. As you'll be aware, I'm retiring on the thirty-first of December, and I will therefore share delivery of today's presentation with Ryan, who will be taking over as Interim CEO on the first of January. Over to you, Ryan.
Thank you, Daemmon, and good morning, everyone. In 2022, we identified key learnings and process gaps in the business. We worked at pace at the time to drive these improvements and the business discipline, and I believe that in 2022, we reestablished our growth platform. However, in 2023, I really think that we returned to growth. Both Daemmon and I are very proud to be able to deliver a profit number that's marginally ahead of our commitments of GBP 17.3 million. Moving over to the financial review. In 2023, the business has moved at pace, and we're pleased with our set of results. We delivered revenue of GBP 147.4 million, growing at 3% in constant currency. Revenue growth was driven by our price increase programs, which was partially offset by 4% decline in value-added beverage volumes.
We are pleased with our ability to have successfully executed our price increase program, which proves the value proposition that we have as Treatt. The business has focused hard in the last financial year to drive a lower cost base, and I think we've done that successfully. Most of the savings can be seen in the gross margin improvement. We've had the benefit of improved FX controls, operational efficiencies, headcount reductions, and all of this has resulted in a GBP 3 million cost saving within gross margins. These cost disciplines helped us deliver the profit before tax and exceptionals of GBP 17.3 million. I think it's very encouraging to see that EBITDA, on an adjusted basis, grew by more than 20%. Exceptional items in 2022 included the benefit of GBP 3.3 million of proceeds from the sale of our old U.K. site.
However, in 2023, we had exceptional costs that related to the dual running and closure of the old U.K. site, as well as restructuring. We do not expect any material exceptional items in 2024. The board has declared a final dividend of GBP 0.0546 per share, which is 2% higher than the same period in the prior year, and this reflects our financial discipline in the business. Sales performance. As you can see on the slide, this is the first time that we report our new pillars. We have simplified the way we talk about the range. We've now split this into three areas: heritage, premium, and new markets. Beverage is now more than 85% the total revenue.
Heritage, which is broadly in line with the prior year, has seen commodity markets and commodity prices remained high in 2023, and the citrus category benefit from value-added products as well as price increases. However, within the category, synthetic aromas declined by more than 25%, mainly due to flavor house destocking. Premium, which includes health and wellness, tea, fruit, and veg, has been a real focus for us in the business over the last 10 years, and we focus hard on consumer demands around natural, authentic, and better-for-you ingredients in their beverages. Premium performance in 2023 was flat. We had strong pricing action, offsetting any volume decline. Within our new markets, we've grouped China, coffee, and TreattZest. New markets has grown by 60% in a year, and this is mainly due to the growth in coffee.
China sales in the year were 20% ahead, having won business in three out of the four largest national beverage brands in China. Coffee sales have increased from GBP 1 million to GBP 5 million, ahead of our expectations in 2023, and I think what these higher volumes allowed us to do was to learn our way through coffee. However, we've done that with a very small customer base. Overall, we are really pleased with the sales resilience in the year and achieving a record revenue of GBP 147 million. Gross margin has improved in the year and is marginally ahead of our expectations. When I look back at the gross margin over these 10 years, I think you can see clearly in the chart that it reflects the previous strategy in action.
We focused hard on diversifying into the premium markets and driving value-added sales, and we've grown gross margin over this period of time by 770 basis points. In 2023, gross margin improved and was mainly achieved, as I said earlier, through cost savings, operation efficiencies, and having minimal FX this year compared to last. We successfully implemented our price increase program, and we passed on most of the raw material inflation to customers. Further, we see the benefit of consciously shedding lower margin commodity products in the year. Moving on to admin expenses. As we can see from the chart, between 2019 and 2022, admin expenses increased at an annual growth rate of 14%. In 2023, admin expenses has increased in line with the expectations as a result of high inflation and the depreciation from the new U.K. site.
Outside of these known factors, the underlying admin cost base is stable. During the year, we've increased the spend in innovation, and we spent something like GBP 2.3 million in innovation. Cost disciplines within gross margin and admin expenses have allowed us to deliver profit in line with our market expectations. 2024, we have already started to invest in both the sales and innovation teams, and we think that this is critically important because we wanna drive product development and ensure that we get future volume growth. Net debt. I am particularly encouraged with the net debt position at year-end and the record generation in the year. Net debt was at its peak at GBP 30 million in July 2022, and over a short space of time, we've managed to generate something like GBP 20 million of cash.
This is particularly impressive during the high commodity inflation cycle. In 2023, we had good working capital discipline, much because of a concerted effort by our supply chain team, driving inventory volume down by more than 10%. Capital spend in the year returned to more historical levels, and this was following the large capital investment cycle that we had in the U.K. and the U.S. over the last five to six years. We believe our sites are now well invested. To secure our medium-term funding needs, during 2023, we refinanced the U.K. and the U.S. borrowing facilities, with both having a minimum term of three years. This brings us to the close of the financial review of 2023, and we'll talk about our group strategy going forward.
We've launched a new strategy in the business this year, and it represents an intentional evolution of how we do strategy at Treatt. We are very excited by the potential ahead of us. There's a couple of factors here. We've got significant beverage market size and growth potential that's driving our ambition. We work with some of the largest flavor houses and international beverage brands in the world. We have a confident and agile culture in the business, and our people are highly motivated to succeed. We've made strategic investments over the last five years in both people and infrastructure, giving us the platform to win. I'll now hand over to Daemmon to talk you through the journey.
Great. Thank you, Ryan. So we are now gonna spend a little time exploring the evolution of Treatt. So we moved from London in the early 1970s, in fact, it was 1971, which was a particularly good year, to an industrial estate in Suffolk. That industrial estate, which was six buildings, basically served us very well across the next 50 years. The growth we delivered during this time was significant and is a real testament to the skill, determination, and commitment of our people. Impressively, we served the biggest brands in the world from that site, and it served as an incredible incubator for what was coming for the future, readying the business for the next chapter. Relocating to Skyliner Way will long be considered as one of the most significant investments in our infrastructure in our history.
We now have a site that gives us the platform from which to grow, one that enables us to host our customers with pride and a strengthening market orientation that sets up our long-term success. Turning to the U.S., as our presence in citrus grew, so too did our global ambitions. Our U.S. facility is strategically located in what was the heart of the Citrus Belt, which is much smaller than it once was, but it's still strategically important for many different fruits and vegetables for the business. In recent years, there's been a significant expansion, which has increased capacity and created a modern campus feel. In addition, we also purchased an additional six acres adjacent to the facility for future growth. The business has grown really rapidly, which has really added a sense of dynamism and winning mentality to our culture.
These investments together have resulted in capacity to grow for the future. Now on to China. As you'll hear shortly, China is an exciting part of our growth story. We started with a small representative office and now have a great facility with cutting-edge laboratories, very much aligned with our global brand. In 2021, we evolved from a rep office to a wholly owned foreign enterprise, or WOFE. We're excited about the future for China and indeed, the development opportunity with very large national beverage companies in that market. So to summarize, we now have a global infrastructure with available capacity that gives us a platform from which to grow. Our facilities across the world are places to which we warmly welcome customers, and customers enjoy visiting and collaborating with our teams.
We can collaborate with our customers in real time together, working on the benches together, creating differentiating beverages that consumers will love.
Maintaining a strategic relevance to the markets that we serve is central to our competitive advantage at Treatt. Our insights team in the business ensure that we are aligned with the consumer's taste preferences. Here, we have called our three drivers for innovation across the beverage market, which strongly illustrate our alignment. Natural, authentic ingredients matter to consumers.... They are looking for recognizable ingredients on a clean label, which is a benefit that our natural extracts bring. Premium beverages are still a permissible indulgence, a luxury that consumers will hold on to, like a cold brew in the morning, a functional smoothie, or a flavored gin and tonic. Consumers want these drinking experiences, and it's becoming increasingly clear that health of the planet is very much wrapped up in our consumers' thinking. Traceable supply chains, circular waste streams are key concerns for our customers, and we actively support this.
For instance, our honey extract is a great example of our commitment to sustainability, where some of our processed honey goes back to our suppliers for repurposing and can be used as food for bees. These insights drive our strategic thinking. When we think of strategy in Treatt, we want to provide a strategic clarity in a simple way with our strategy on a page. This is very much a commercially driven plan, backed by great innovation and aligned with the market opportunities that we have just explored. We are choosing to play in three strategic areas. Heritage, which is our mature flavor ingredients pillar, makes up about 2/3 of the business today, and we expect to grow heritage at mid-single digits annually.
Premium, which is now a quarter of the business, has grown at double digits each year in the past decade, and we expect this to continue to grow. New markets, which is only 10% of the business today, and where we are small players in these spaces. However, we anticipate growing at double digits over the course of the plan. Our how to win is focused on the Seven Cs, which you can see on the slide here. Most important is our high-performing culture and our people. This year, we've relaunched our values, embedding our authentic culture, and we've invested in our business leadership team. Commercially, we will focus on consumer, citrus, coffee, and China, which we'll explore in a bit of detail shortly. Internally, we focus on filling our capacity and maintaining a stable cost base.
We call it winning with our Seven Cs because it represents our collective ambition to drive growth. We are now going to explore some tangible examples of strategy in action.
As mentioned earlier, this is a strategy that is commercially driven and strongly backed by consumer-aligned innovation. Our exciting program delivers transformational innovation opportunities as well as value creation through incremental R&D. We'll be speaking about TreattZest and coffee shortly, as these are great examples of how we're setting ourselves up for success. Our Brix Booster range is an exciting example to call out. These are 100% natural sugar flavors, and are used in alcoholic and non-alcoholic beverages to deliver an impactful, authentic, sugar-like character. In addition to transformational innovation, our teams are committed to identifying both short and midterm opportunities to create value. For example, in the last few months, we've produced some price-stable, high-quality solutions in volatile markets such as orange.
We've come out with a range of very cost-competitive citrus products that offer consumers the quality and the taste profile they need, but in a cost-competitive format. We're investing in a new pilot plant to support some of our faster-growing, higher-margin categories. This is an important piece of technology that will enable some of our platforms to really push on and do many more trials than we've been able to do in the past. Some good thinking going on at Treatt around innovation and investment to back it. Coffee. There is a strong ready-to-drink volume growth potential in our key territories. Our strategy for coffee takes the dynamics of each market into account as we think global but act local.
The U.S. is one largely homogenous market, where cold brew is very much established with brands and consumers, while in the U.K. and Europe, it's much more fragmented, where volumes are smaller and the product mix differs. We have invested in our coffee platform in several ways, one of which has been our people, building a squad of experts in this space. Rebecca and our coffee team have a wealth of experience and have been instrumental to our learnings in this category, working closely with our commercial leaders to shape our ambition in this space. This focus has resulted in a product range that delivers craft precision, consistent quality, and importantly, a nuanced flavor. We are therefore confident that we can scale and grow in coffee, having taken important operational learnings in FY 2023 that we expected to, which sets us up very well for future growth.
Moving on to China. Treatt started its operation in China in 2006, and Steve Fan has led this business since 2015. We are highly respected in the country by our customers for our rich citrus heritage. The market opportunity here in China is significant, with a growing middle class actively seeking premium beverages. For example, this photo was taken in a local supermarket in Shanghai, which looks very similar to the diversity of product range you see in the U.K. and in the U.S. beverage aisles. We have had great success in building good relationships and footprint with the flavor houses in the region, and we've made investments in our sales teams and our labs over the last year to accelerate growth. We're very impressed with our progress of winning new business in three out of the four national beverage brands.
We will realize this potential by evolving local partnerships in clear citrus solutions and increasing our brand awareness in China. In the medium term, we will also look to grow our premium categories, for example, health and wellness. I'm excited because I'm in Shanghai next week to visit Steve and the team, and I look forward to seeing the opportunities that we have in China. TreattZest. So citrus is an important category for Treatt. It's been a defining part of our identity over the last 100 years. TreattZest itself is a product very similar to our premium extracts. It delivers for us an authentic, true-to-fruit experience, creating a more water-soluble product. And it's a great example how we can innovate within a category like citrus. As we relaunch this range, we have a sales team very motivated to get this into the customer's hands.
Simon, who you can see on the slide, has been part of the Treatt sales team for the last 20 years, and was recently in Japan showcasing these fantastic products to our customers. I think Simon would say that he was quite excited following that trip and with the market potential in Japan. Like coffee, we have also developed innovative ways to scale production as customer demand increases, which gives us the confidence that we'll be able to grow within this space of value-added citrus. So to summarize the strategic piece, we have a very clear, commercially led strategy, which is strongly backed by innovation. We are confident in our strategic plan, and we are empowering our people to own it and execute it with pride. Now, let's talk about what that looks like in 2024. Let me introduce the 2024 guidance.
We are in no doubt that we have a challenging macroeconomic environment that we face into over the next year. The challenge of destocking is ongoing. We expect destocking will inevitably pass. However, the timing and the shape of this is uncertain. The markets we are in are still structurally growth markets, and beverage has proven resilient even over the last year, and we are confident in our product offering and the agility that we have. What Treatt is very good at is responding to customers quickly, and we have that ability to be agile enough to respond to changing customer needs. We have the ambition to grow our sales volumes in the year by 5%-7%. However, we foresee that our sales growth will be H2 weighted.
Gross margin, we expect to revert back to the normalized range of 28%-30%, mainly because we look to drive volume with tactical pricing. CapEx spend in the year is expected to be between GBP 6 million-GBP 7 million, and I've said this before, in the medium term, we don't expect to invest into large CapEx projects. Rather, our focus will be on fast returning capitals. Net operating margin is anticipated to remain within the 12%-13% range, with any volume growth being offset by higher depreciation as we get the full effect of the new site in the U.K. Our medium-term targets for net operating margins is 15% and return on average capital employed of between 15%-20%. Before I hand back to Daemmon, I'd finally like to thank Daemmon.
Daemmon has given his lifetime to Treatt, and would like to thank him for his transformational leadership. He will always be a welcome friend to Treatt. I am proud to be taking over as Interim CEO from January, and I want to express my gratitude to our Chair, Vijay, and the board for their support during this transition. Our focus as a business leadership team during this transitionary period will be to continue to work at pace to drive the success of Treatt.
Okay, so to conclude then, FY 2023, we did what we said we'd do, and we've returned to growth. Our assets are fully invested, and we have available capacity and a motivated sales team seeking to fill that capacity. For FY 2024, we are targeting volume growth and will accelerate consumer-aligned innovation to drive both sales and profitability of the business. And in the medium term, we've shared just a few examples today to give you an insight into how the team is driving up growth for the future. The business is in safe hands, supported by a very strong business leadership team, and it has been a pleasure to steward this business for the last 11 years, ready for the next phase of its growth.
I'd like to thank you all for your support over the years, your trust, your education, and I leave Treatt in very good hands, in a great position, and I look forward to the growth, but from a different position in the next few years. Thanks very much, everybody. Great. Thanks for listening. I think we're gonna take questions from the room first.
Just a couple for me, please. Firstly, talk about potential to grow volumes. Can you sort of clarify what capacity utilization currently is, and were there any sort of particular bottlenecks by category?
Sure.
First-
I'll defer to the man on my left for that. Yeah, I think, Daemmon, we've got something like 30%-35% of capacity available in the US site, with no major bottlenecks. So, you know, if some of the bottlenecks exist, it's fairly small capitals to debottleneck. In the U.K., you know, we've just done the relocation project where, you know, we feel that we've got sufficient capacity in the U.K. to grow over the next three to four years, and something like 40%-50% of available capacity in the U.K.. I suspect what we will—if we do any major investments in the U.K. within the GBP 6-7 million amount that I've put forward, I suspect it will be about value added.
It will be about releasing some small bottlenecks, but I don't expect any major investments there.
Then just a second one. In terms of obviously the new Suffolk U.K. site, it's relatively new. Can you sort of give us a sense of how much sort of efficiencies from that go into your medium-term expectations for 50% rating?
Yeah, it's hard to be scientific in terms of the actual percentage that will go in, but if I think of where we are now, we're sort of about 2.5% away from where we need to be. I think a big drive of that will be filling the capacities that we have available on both sites, growing our coffee and growing our China areas in the new markets is critically important to driving gross margin improvement. The thing we did well this year, Daemmon, is we grew gross margin, not just by having better mix on sales, but by looking at our cost base hard. And we'll continue to do that where we think it's strategically relevant to do.
I suspect there'll be a combination of gross margin improvement incrementally over the next few years, as well as maintaining a stable admin cost base.
We'll go to Matthew Abraham at Berenberg.
So just two queries from me. Thank you for taking them, and thank you for your time this morning. So first one is just on volume growth. Just wondering if that volume growth is primarily to come from new customers or increased customer penetration from within the existing customer base, and if it is new customers, could you just provide a bit of color as to what types of customers you expect to win new business from? Second query is in reference to the unwinding working capital that we observed in FY 2023. How much of that reflects the destocking that is spoken about so much versus internal measures, and where do you see net working capital going in FY 2024, given there is the prospect of this destocking effect subsiding? Thank you.
Thanks, Matthew. I think there was... I think I've got three questions on that. So I think your first one was volume growth. You know, do we expect to see that from new business versus, you know, a greater share of wallet in current customers? I think both is the answer, Matthew. You know, I'll give you an example. In China, we're looking at very good opportunities, very large opportunities as well in China, but those were all with new customers. Or if they are with current customers, those customers today are very, very small. But, you know, so I think for us, it's definitely a share between new versus current customers.
Gaining greater wallet share for us is one of the key things that we do well at Treatt. We win within a particular category. That could be citrus, as an example. You know, we use that heritage in citrus to win within a particular small piece of business in that customer, and then we try to, you know, offer them products across our portfolio, and we've seen that successfully. As we build the reputation with the customer, that's worked successfully for us. I think your second question was unwinding working capital. There is a little bit of that that's got to do with destocking, but I would say the greater amount of that is the internal disciplines and the internal measures that we've had.
Being more stringent around, you know, purchasing of raw materials, more stringent around our sales and operations planning, has allowed us to see some of those efficiencies. Our supply chain team is incredibly strong within the business, and I think this is a big driver for them. Needless to say, you know, I, as a CFO, look at our cost of borrowing, and I look at our inventory levels, and much like our customers, you know, we have also got a drive in the business to reduce our interest costs and our net debt, and therefore, you know, I would say destocking plays a smaller element, but still plays an element in the unwinding of working capital. And then your third one around net debt.
You know, I suspect net debt will be in the low single figures. Still be in a net debt position, but in the low single figures. You know, our drive is to get towards a net cash position, Matthew, but I don't, you know, I don't see us getting there in 2024. I suspect we'll get there in 2025.
We've got a question from Cathal Kenny at Davy.
A couple of questions. Firstly, on your reference that customers are looking for cost-effective solutions, can you just elaborate on that? Is that a more broad-based approach from a regional perspective, and are they ranking cost effectiveness over innovation just in the current climate? That's my first question. Secondly, it's related to the shape of the year, H1 versus H2. Just a little comment on visibility between your indirect and your direct channel.
Thanks, Cathal. Morning. First of all, I'll take the cost-effective solution point. I think it's a little more tactical than strategic, I would say. There's a couple of citrus raw materials that have reached record high prices for the raw material in the financial year, and that's led to some very expensive products. A number of these products have been used historically, not because they're in fact natural, but because they're historically they've been actually quite cheap. And so there's sort of label opportunity for customers to sort of look at some sort of value engineering there. And we've been driving very hard at that opportunity.
So I wouldn't say it's broad brushed, it's rather more tactical due to a couple of raw materials, namely orange oil and lime oil in the period. But, you know, we've got a long history of providing these excellent, cost-effective solutions. But it's a good example of our agility, and we're able to innovate and sort of step in to support the customer. It's something we've always done at Treatt. It's not had sort of a lot of visibility, certainly in the investment community. It's just what we do as a business.
Okay. And I think on the second question, Cathal, we've got, I think it was about the half one, half two weighting, which I've given some insight on. You know, I suspect it'll be half two weighted in terms of growth, but in terms of the weighting between, F&F versus, you know, direct to brands, you know, most of the destocking that we've seen in the business has come from F&F, so I suspect that the recovery of that will be weighted towards F&F in the second half of the year. However, you know, we continue to drive partnerships and growth direct to brand.
That's the end of remote questions.
Superb. Thank you all very much for coming along today. I think that's thank you and goodbye from me. Appreciate it. Thank you.
Thank you.