For the year ended 30 September 2005

“Group profit before tax and exceptionals increased by 50% due to some significant one-off stock gains”

2005 saw Group earnings before interest, tax, depreciation and amortisation increase by 36% to £4.51 million (2004: £3.31 million) with profit before tax and exceptional items for the year increasing by 50% to £3.46 million (2004: £2.31 million).  Group turnover for the year rose by 2.2% to £32.52 million (2004: £31.81 million) whilst earnings per share before exceptional items increased by 48% to 23.7 pence (2004: 16.0 pence).  The level of the Group’s net debt/equity ratio ended the year at just 11% (2004: 9%).

The Board is recommending a final dividend of 6.4 pence (2004: 6.1 pence), increasing the total dividend for the year by 8% to 9.5 pence (2004: 8.8 pence) per share.  The final dividend will be payable on 10 March 2006 to all shareholders on the register at close of business on 10 February 2006.

Whilst the underlying performance of the Group’s two subsidiaries, R C Treatt and Treatt USA, were good, the increase in profits for the year, as previously reported in the Interim Statement published in May 2005, was largely due to significant one-off orange and grapefruit stock gains and the absence of last year’s orange stock losses. The orange and grapefruit oil profits arose as a result of some sharp price increases following last year’s Florida hurricanes combined with the impact of lower than expected production volumes of orange oil in Brazil.  As a result, orange oil prices strengthened during the financial year.

Following several very challenging years, 2004/5 has proved to be a very good year for R C Treatt. Although turnover only increased by 3.7% to £25.1m (2004: £24.2m), profits rose by 77% partly assisted by one-off gains from orange and grapefruit oil, the profit growth was achieved across a wide range of value added products. At the same time the turnover and contribution from our aroma chemical business has also shown some modest growth despite the continuing pressure on prices in the first six months of the year.  In the second half the company benefited from a general trend for increased prices across a broad spectrum of raw materials as a result of the higher cost of petroleum and a reduction in the supply of certain materials caused by farmers in some parts of the world switching to more profitable crops. An important factor in the improved performance of R C Treatt was the impact of this being the first full financial year for the new J D Edwards Enterprise Resource Planning (ERP) system.  The ERP system has had a significant effect on the profitability of R C Treatt by streamlining systems, improving stock management procedures and enhancing the company’s ability to manage many thousands of items.

Treatt USA again performed well with profits up by 41% reaching another all-time high, and turnover increasing by 2% to $13.8 million. The profitability of Treatt USA grew sharply largely as a result of the high, one-off, margins attributable to orange and grapefruit oil which, as expected, were offset by a 43% increase in payroll, overhead and depreciation expenses.  These expenses, which totalled $3.9m (£2.1m), were budgeted as part of Treatt USA’s growth strategy in order to build the infrastructure to support Treatt USA’s current and future growth potential.  In July 2005 Treatt USA implemented the full ERP system on schedule thus completing the total integration of the Group’s manufacturing systems.  Sales of our innovative Treattarome^TM (‘From The Named Food’) products continued to perform well with year on year growth of 18%.  Following the substantial organic growth of the last two years, the Board believe that Treatt USA is now a well established business with a high quality customer base.

USA Property

During the year the opportunity arose to acquire the neighbouring site to Treatt USA’s main Lakeland premises and the Board moved quickly to acquire a further six and a half acre site.  Further details are provided in the Operating Review

 

Prospects

Despite the relatively depressed state of the flavour and fragrance industry we expect Group sales to increase over the coming year although we do expect operating margins to tighten significantly in some areas and we anticipate that Europe will continue to prove the most difficult region, whilst we remain optimistic about the prospects for growth in North America.  We will also continue to look for further opportunities to increase the Group’s activity and profitability in the Far East.

Over the coming year the Group will continue to benefit from the new ERP system through a process of continuous improvement aimed at providing the best possible service to our customers and maximising the company’s operational efficiency.  Treatt USA will continue to expand its range of innovative products and take advantage of local taste trends.

Overall, we expect that essential oil prices will remain steady, with orange oil remaining firm whilst grapefruit oil prices are not expected to fall from current levels in the near future following the impact of the 2005 hurricane season in Florida which was, as expected, one of the worst on record.

As a leading independent manufacturer of natural 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

As ever, our employees in England and the United States have contributed greatly to the success of the Group over the last year and the Board would like to place on record its sincere gratitude to our colleagues for their tremendous dedication and hard work over the last twelve months.

During the year Robin Mears retired as Operations Director having worked for the Group for sixteen years and we would like to place on record our thanks to Robin for the important contribution he made during that time.  In particular, we are grateful to Robin for the work he undertook to ensure a successful implementation of the ERP system.  It is also with sadness that we bid farewell to Geoffrey Bovill, who retired from the Board on 30 September 2005, having served as a Director for 57 years.  Geoffrey has played a significant role over this time and his wise counsel will be greatly missed. 

Edward Dawnay

Chairman

9 December 2005