For the six months ended 31 March 2005
"Group profits increased sharply to £1.3m due to one-off stock gains"
The Group had a highly profitable result for the six months to 31st March 2005, despite Group turnover falling by 2% to £14,713,000 (2004: £15,073,000). As a result of substantial one-off stock gains from citrus oils, EBITDA (Earnings before Interest, Tax, Depreciation and Amortisation) rose by 34% to £1,823,000 (2004: £1,363,000) and profit before tax increased to £1,303,000 (2004: £792,000). Earnings per share have consequently increased to 8.9 pence per share (2004: 5.1 pence per share).
The Board has decided to restore the split between the final and interim dividends to an approximate 2:1 ratio. Consequently the Board has declared an increase in the interim dividend of 14.8% to 3.1 pence per share (2004: 2.7 pence per share) which will be payable on 3rd October 2005 to all shareholders on the register at close of business on 2nd September 2005. This should not be seen as an indication of a substantial increase in the total dividend for the year.
In comparison to last year, the results for the period were significantly influenced by one-off orange oil and grapefruit oil stock gains and the absence of last year’s orange stock losses. The orange oil and grapefruit oil gains arose as a result of price increases following last year’s exceptionally poor Florida weather patterns. After the sharp falls in orange oil prices experienced last year, the market price of this product firmed in October following the Florida hurricanes. This, coupled with lower than expected production volumes in Brazil, leads us to expect that prices will remain firm during 2005.
Treatt USA again performed well, despite turnover falling by 7% in US Dollar terms, generating a 21% increase in profit before tax. This continues the strong performance of Treatt USA over the last two years following the move to the Lakeland premises. As expected, in order to build the infrastructure to support Treatt USA’s current and future growth potential, payroll, overhead and depreciation costs rose significantly by 32% to $1.6m (£0.8m). The first half saw sales of the specialty TreattaromeTM “From the Named Food” range of products remain steady, whilst there were strong sales and margins across a broad range of manufactured citrus products. Treatt USA was also well placed to take advantage of some significant raw material price increases during the first six months of the year.
R.C. Treatt, the Group’s UK operating subsidiary, experienced a 1% rise in sales, but had higher margins compared to the same period last year, which had been very weak. Whilst the weak US Dollar continues to put pressure on prices and margins, the price of orange oil firmed during the period which contributed to the increase in profits. The combined effect of stronger orange margins and one-off gains contributed more than £250,000 of additional profits to R.C. Treatt during the period. Once these one-off profits are removed, the R.C. Treatt results remain steady in a very competitive climate. Following the £1.2m investment in a new Enterprise Resource Planning system, progress continues to be made to both improve lead times and provide improved service as a ‘one-stop shop’ for flavour and fragrance ingredients. During the period there was a net cash outflow of £931,000 due to increased investment in stock and the purchase of 200,000 shares in Treatt plc by the Treatt Employee Benefit Trust. As a result, net debt (including the Treatt USA Industrial Development Loan) increased to £2.5 million and gearing was 15% (2004: 18%), with short term gearing remaining low at just 2%.
Prospects
Treatt USA is expected to perform well in the second half of the year, and profitability at R.C.Treatt will benefit from orange oil prices remaining firm. The Board, therefore, believe that Group profits in the second half will remain strong and now expect that, due in part to the one-off stock gains, full year profit before tax will be in excess of £3 million.
EDWARD DAWNAY
Chairman
20th May 2005