UK arm weighs heavily on Treatt

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The British operations of flavours group Treatt weighed heavily on
results in the first half of the year, despite a double digit
increase in volume sales. The strength of sterling against the
dollar and weak orange oil prices were the main reasons for the
poor performance.

The company's domestic unit, RC Treatt, ended the half with a 9 per cent drop in revenues, in turn contributing to a 1 per cent drop in overall turnover for the company to £15.1 million. Group operating profit was also down as a result of the declining sales, dropping 17 per cent to £900,000.

Orange oil plays a major role in the company's fortunes, with the company warning last year that prices were expected to fall throughout 2004 and that trading was likely to be affected as a result.

In fact, Treatt's recent performances have been closely linked to the fluctuations in price of this product, which accounts for around 22 per cent of the group's activity. In 2002, for example, higher prices helped boost the group's profits, but a gradual stabilisation of pricing throughout 2003 reduced this benefit substantially.

At the turn of the year, prices were still higher than normal, and have gradually dropped throughout the first six months, taking an inevitable toll on Treatt's sales and profits - despite a 15 per cent increase in volumes.

Furthermore, the arrival of the new Brazilian orange crop next month is likely to push down prices even further in the second half of the year, the company said.

As if fluctuating prices were not difficult enough to manage, the introduction of a new IT system at the core UK unit also impacted results in the first half. The new system is likely to generate cost and efficiency savings in the future, but Treatt admitted that it had meant "a great deal of extra work for our employees"​ and that it had had "an impact on our customer service levels"​.

But if the UK business took a step backwards, there was considerably more to be cheerful about on the other side of the Atlantic, with Treatt USA posting a 54 per cent increase in turnover during the half, mostly due to the low-carb fad currently sweeping the nation.

The company's Treattarome 'From the Named Food' range of products proved to be particularly popular with low-carb food manufacturers, and these were the principal drivers of growth in the US business during the half.

The solid US performance was ahead of expectations - indeed, Treatt continued to invest heavily in improving production of speciality products in the US during the half and had not expected to see such a strong improvement so soon - and the company said it expected to see yet more gains in the second half.

But it also said that volatile orange oil prices would continue to play a part in the second half, and that the continued weakness of the dollar against sterling would mean that the ongoing US improvements would have a lower-than-hoped-for impact on full-year figures.

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