Orange oil leads Treatt recovery but input uncertainty remains

By Ben Bouckley

- Last updated on GMT

Related tags Perfume

Treatt says increased demand for its raw ingredients – especially orange oil – have underpinned record sales during 2010, but that input price variability remains a risk.

The conventional, fairtrade and organic ingredient supplier to the flavour and fragrance industries said in its full-year interim management statement that sales began to recover in January 2010 after a “weakening of demand” ​ began at the end of the 2009 financial year.

Group operating profits were up 26 per cent to £4.9m on September 30 2010, while group revenue grew for the twelfth successive year – up 12.4 per cent to £63.3m, compared with £56.3m in 2009.

According to the statement: “In January 2010 demand began to recover and sales of group products rose sharply across the broad range of new and existing customers, reaching record levels in terms of volumes and value in the third quarter.”

Divisional performance

Treatt said it benefited from the fact that 2010 was a major restocking year amongst customers, and while it expects continued “significant sales growth in the Far East and many other parts of the world”​, it anticipates that demand for some products "is expected to subside, and we have already seen some signs of a decline in orders".

17 per cent of the group's total 2010 value sales stemmed from orange oil products – up 12 per cent in sector terms throughout the year – which have wide-ranging end applications within foods and beverages, cosmetics and fragrances.

“Contribution from orange oil co-products increased even more sharply as prices rose steadily throughout the period,” ​said the firm, adding that prices reached all-time highs by the end of this financial year.

The firm reported “strong performance” ​for its main UK business R.C Treatt (revenues up 12 per cent to £43.6m) while its organic and fairtrade division Earthoil “continued to make progress, although this was hampered by a loss-making South African subsidiary, which was disposed during the year”.

Despite admitting that Earthoil had underperformed since it was fully acquired in 2008, Treatt reported 9 per cent sales growth for the division and pointred to improvements in "regular order intake and deliveries, coupled with strong sales growth to major customers"​, adding that it continued to make progress towards its "long-term strategic goal" ​of making inroads within the cosmetics sector.

Meanwhile, Treatt USA enjoyed a “significant recovery in demand from existing customers”​ and also won new business to grow US dollar sales 16 per cent, with an improved product mix boosting margins.

Future prospects

Despite this year’s strong recovery, Treatt said prospects for the coming financial year were hard to foresee, given the expected demand slump outlined above and the fact that its most significant raw material purchase is orange oil, which it processes and sells at prices reflecting input costs.

Treatt said that in recent times orange oil has been stable at around $2 per kg – with oversupply in 2009 leading to historic lows of under $1 per kg – but noted that in 2010 a Brazilian drought and a freezing conditions in Arizona hit orange harvest and led to “historic highs” ​of $6 per kg.

But such input variability was a double-edged sword, said the firm: “This volatility can lead to significant stock profits but also to high risk levels when managing the group’s supply chain when prices fall back.

“The next 12 months could be somewhat raw material and product prices reach peaks with a significant risk that prices, in particular orange oil, could then fall sharply, resulting in potentially large stock losses.”

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