US gains boost profit for Treatt

- Last updated on GMT

Related tags: Flavor, Orange

A breakthrough into the US market boosts the bottom line for UK
natural flavours firm Treatt that saw sales for the year across the
Atlantic rising by over 40 per cent to €10 million, parallel to a
sales dip elsewhere, writes Lindsey Partos.

The firm's decision to focus on a 300 product range in the US, compared to a 3000 'one-stop' portfolio for the rest of world, may well be paying off. Profit after tax rose by 21 per cent on the previous year to €2.45 million.

The US results will help offset two key factors currently pinching margins for the flavour company - Hurricane Ivan and rising freight costs.

As a small company sourcing raw materials from over 60 countries Treatt is exposed to increases in freight movement.

Hugo Bovill, managing director at Treatt said today that in the last six months freight costs have escalated by some 50 per cent in Brazil - figures that have to be absorbed in the margins or passed onto the market.

Although a recent tightening in price for orange oil, that represents 20 per cent of the group's business, will ease the situation.

The last 12 months saw a significant fall in the price of orange oil, an orange juice by-product, from almost $3 a kilo to around $1.20. This price drop sliced away more than £500,000 in profits for Treatt.

But hurricanes that struck the US in September, particularly Hurricane Ivan, in the orange producing counties destroyed a slice of the crops, pushing up today's orange oil price to about $1.50 a kilo.

Although not the hardest raw material for essential oils hit. "Before the hurricanes grapefruit prices were gently rising at about $20 a kilo, but now they have shot up to $80,"​ Bovill tells Adding that supplies of grapefruit in the US are at their lowest levels since the 1930s.

Gains made in the US helped offset the margin-pinching. The managing director attributes the strong gains to the rising popularity of the fashionable low carb diet - new product formulations - and new wins. "We have engaged our customer's confidence, rooted in approval of our new premises built recently over there,"​ he continued.

Growing consumer demand for natural food products has increased the use of naturally derived flavouring compounds, including fruit oils and flavours, and they are benefiting from wider use in new product formulations and as replacements for synthetic ingredients in existing formulations.

Market analysts Frost & Sullivan predict the €819.9m European and US fruit and vegetables extracts and powders market is on course to grow at the steady annual rate of 4.5 per cent, reaching €1.07 billion by 2009.

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