For the year ended 30 September 2004
“Treatt USA achieved record profits with turnover up by 41% to $13.5m”
2004 saw Group earnings before interest, tax, depreciation and amortisation increase by 17% to £3.31 million (2003: £2.83 million) with profit before tax and exceptional items for the year increasing by 10% to £2.31 million (2003: £2.09 million). Group turnover for the year remained steady at £31.81 million (2003: £31.68 million) whilst earnings per share before exceptional items increased by 10% to 16.0 pence (2003: 14.6 pence). Having eliminated all short term debt during the year, the level of the Group’s net debt/equity ratio ended the year at 9% (2003: 26%).
The Board is recommending a final dividend of 6.1 pence (2003: 5.7 pence), increasing the total dividend for the year by 5% to 8.8 pence (2003: 8.4 pence) per share.
The highlight of the year was the strong performance of Treatt USA where record profits were achieved and turnover increased by 41% to $13.5 million. This follows a year of transition (2002/3) during which Treatt USA moved to its new facilities in Lakeland, Florida and represents a significantly greater return on this investment than was originally expected. This growth occurred across the full range of products and a widely spread customer base, with a greater than three-fold increase in TreattaromeTM (‘From The Named Food’) sales being of particular note.. The Board is particularly pleased that the Company’s commitment to organic growth in the United States over the last fourteen years has now led to the successful establishment of a strong presence in North America.
For R. C. Treatt, the Group’s UK operating subsidiary, the year has been challenging. Turnover fell by 5.7% and was significantly affected by falling orange oil prices and the continuing weakness of the US Dollar. In January 2004 R. C. Treatt successfully implemented its Enterprise Resource Planning (ERP) system. The extent to which the new system has led to significant business and information improvements in a relatively short period of time has exceeded the Board’s expectations. The focus on delivering this new system required a substantial amount of internal resource in the UK. This impacted upon the performance of R. C. Treatt during the implementation period, which had a weak first half of the financial year. However, profits in the second half improved, being 38% up on the second half of last year. It has become apparent that one of the key benefits of the new system is that of enabling R. C. Treatt to reduce lead times to customers.
We stated last year that the orange oil market would be the area of greatest uncertainty for the Group, and this proved to be the case. Indeed the price of orange oil (which continues to represent about 20% of Group turnover at 2003/4 prices) fell by more than half during the year, although it is now expected to stabilise as a result of the recent hurricanes in Florida. The consequence of the falling price of orange oil reduced the Group’s profits by over £500,000.
Employee Share Ownership
During the year the Group introduced share saving schemes in both the UK and USA in order to give employees the opportunity to acquire shares in the Group on a tax efficient basis. An Employee Benefit Trust has been established in order to acquire shares from time to time which may be used to satisfy the requirements of the share save schemes. Further information is provided in the Financial Review.
USA Property
The sale of Treatt USA’s former premises at Haines City was successfully completed prior to the year end, resulting in net proceeds of £270,000 ($483,000), an exceptional gain for the Group of £131,000.
Prospects
We expect continued growth in sales and operating margins in the current year which will be mainly due to further significant sales opportunities arising in the United States. At the same time, the growth at Treatt USA will require a further strengthening of its infrastructure across a number of areas including R&D, product innovation, engineering and sales.
Following the success of the ERP system in the UK, it is now our intention to develop further the Group’s processes by fully integrating Treatt USA into one company-wide ERP system by the middle of 2005. Experience gained in the UK will be used in order to achieve a smooth installation.
The recent occurrence of four major hurricanes, which have hit Florida, have left Treatt USA unscathed, both physically and in terms of the impact on various commodity prices. The most significant effect of the hurricanes is that it has lead to shortages and increasing prices of grapefruit products. The impact of higher US Dollar petroleum prices is resulting in increases in some Dollar priced aroma chemicals, and some Dollar priced essential oils have begun to strengthen.
As a leading independent manufacturer of ingredients for the flavour and fragrance industry, with a presence both in Europe and the United States, Treatt Plc remains in a strong position to grow its business on both sides of the Atlantic.
People
Our employees both in England and the United States have continued to demonstrate their commitment and dedication and it is important, on behalf of the Board, to thank all our colleagues for their tremendous efforts over the last year.
Particular mention should be made of the fact that our employees at Treatt USA have endured four hurricanes, the first time this has been experienced in a single state for over a century. Many of them suffered serious damage to their homes and our thoughts were with them during those difficult times.
EDWARD DAWNAY
Chairman
13 December 2004