Year ended 30 September 2005

“The ERP system has been central to a significant enhancement in operational performance at R C Treatt” 

2005 was a year of operational improvement throughout the Treatt Group. In particular the UK subsidiary, R C Treatt, has obtained significant benefits from the Enterprise Resource Planning (ERP) system.  

The Group’s investment in ERP of £1.2 million is being depreciated over seven years and has now started to provide significant added value to the business.  Initially, there were some considerable efficiency savings in IT, finance and shipping and this has been followed by operational enhancements through greater order visibility from order intake to customer shipment.  This has enabled R C Treatt to shorten lead times to customers still further and for senior management to be able to control and improve the business through a wide range of real time key performance indicators.   

Following on from the successful R C Treatt implementation, Treatt USA went live with the full ERP system on 1 July 2005 in order to increase the globalisation of Treatt’s service to its customers.  The new system has settled in well and provides Treatt USA with an excellent infrastructure which will make it easier to process the expected increase in volumes over the coming years. 

As reported in the Chairman’s Statement, during the year an opportunity arose to acquire the neighbouring site to Treatt USA’s current premises.  Consequently, the company acquired an additional 6.5 acre property most of which has an existing concrete base, together with 9,000 sq. ft. of warehousing and 2,500 sq ft of office space.  The total consideration was $570,000 (£308,000) and now increases the Group’s total manufacturing facility in the US to 76,000 sq ft. This capital expenditure was funded from Treatt USA’s own working capital. 

Treatt continues to buy from and sell to almost one hundred countries around the world and, thereby, provide a truly global service to many of its multinational customers.  Treatt has developed, through the ERP system, an infrastructure with the ability to comply with the many complex legislative requirements necessary for exporting and importing goods throughout the world, enabling it to provide information to customers efficiently as required. 

Increasingly, legislative and regulatory pressures have placed Treatt’s Quality Control laboratories at the forefront of the industry’s analytical systems and techniques, and they are therefore able to provide the added value service which customers now require.  However, we are concerned at the increasing legislative burdens being placed upon our industry and will continue to play our part in scrutinising forthcoming regulations and persuading governmental bodies to modify their proposals where appropriate.  Treatt continues to play an active role in trade organisations throughout the industry, with the Group’s Managing Director currently holding the position of President of the International Federation of Essential Oils and Aroma Trades (IFEAT). 

Trading

After the decreases in early 2004 we have seen the price of orange oil, an orange juice by-product, increase again over the last twelve months, from less than $1/kg to around $2.25-$2.50/kg.  This increase, together with the absence of last year’s losses, has had a significant impact on the financial results for the year.  In addition, the four hurricanes which swept through Florida between August and October 2004 caused a great deal of damage to Florida’s grapefruit crop, reducing grapefruit volumes to the lowest since 1936.  Consequently, grapefruit oil prices rose sharply, which has been reflected in our selling prices.

R C Treatt

Sales increased by 4% whilst volumes rose by 2% with sales to the top ten customers again representing just over one third of turnover.  Overall, the customer base remains widely spread both in terms of size and location, thereby providing a well balanced risk profile.  Gross margins for the year increased sharply due to the one-off stock gains referred to earlier.  This was further supported by generally rising essential oil and raw material prices following the significant rise in petroleum prices.

Treatt USA

2005 was a year of consolidation with US Dollar sales increasing by 2% during the year, having increased by 41% the year before.  Treattarome^TM products continued to provide a strong engine for growth.  Again margins were substantially higher due to the impact of orange oil and grapefruit oil.

Investment for the future

R C Treatt

As expected, the level of capital expenditure has now returned to historically more normal levels with the focus of investment being on enhancements to our laboratory capabilities, implementing a bar coding system and maximising the efficient use of space at our Bury St. Edmunds site.  The bar coding system will be fully integrated with the ERP system and will further enhance the company’s operational efficiencies and customer service.  Implementation on a phased basis is scheduled to commence in 2006.  The Company keeps under constant review the facilities and logistical set up at its plant in England and will make appropriate investments as and when required.  The Company will also continue to invest where required in order to increase capacity, improve efficiency or take advantage of market opportunities.  Constant changes to legislation both in the UK and EU are also likely to result in further capital expenditure requirements.

Treatt USA

In addition to the acquisition of the new site adjacent to our existing site, Treatt USA will continue to develop and maximise the efficiency of its existing premises.  The new premises will require further investment as it is developed to meet the needs of the business.  Although this latest expansion reduces the likelihood of imminent development of the company’s existing five acre green field adjacent to the existing plant, the Board will keep this under regular review.

Research and Development

Both Treatt USA and R C Treatt continue to develop and enhance their research and development activities, through the employment of skilled personnel and investment in technology.  In particular, over the last year Treatt USA has expanded its R&D function in order to maximise the growth opportunities in North America.  The Group also carries out a significant amount of global research into new and changing raw materials from around the world and continues to develop close partnerships with companies in producing countries in order to develop new sources of raw materials on a financially sustainable basis. 

Markets

Despite an increase in turnover in Europe, this market area has generally proved to be the most difficult in which to achieve growth.  This is largely due to the level of industry consolidation which has taken place over the last decade.  Similarly, turnover in the UK fell by 6%, although this still remains the largest individual territory.  The company also benefited from strong sales in the Far East.

Products

Turnover of orange oil based products fell by 13% largely due to comparison with the previous year when significant de-stocking was taking place.  As a result, orange oil now represents approximately 17% of Group turnover.

Treatt USA’s growth continues to be spread across a wide product range with significant growth in both value added citrus products and the Treattarome^TM range of natural distillates.

Personnel

In order to assist us in meeting fluctuations in demand and ensure greater flexibility, we have agreed changes in our contracts of employment with operations personnel in the UK.  As a result of the recent growth and development at Treatt USA the Human Resources function has been formalised and the company has undertaken a programme of management and supervisor training and role evaluations in order to create career paths within the organisation.  Standard terms and conditions of employment operate for all staff, which do not discriminate against any individual or group of people.