A prospect not to be sniffed at

Smaller Companies

AT THE heart of the battle for the pound in your pocket are sweet smells and delicious tastes. For a huge range of products, from soft drinks to cigarettes, toilet cleaners and toothpaste, it is often the fragrance or the flavour that determines which sells the best. In an arena where nothing can be left to chance (or nature alone), these flavours and fragrances are increasingly bought in from specialists who are emerging as exciting growth stars of the 1980s and 1990s.

The scale of the opportunity is indicated by the progress of the US multinational International Flavours & Fragrances, a business with sales measured in billions, profit margins around 25 per cent and a share price that has climbed from $6 (pounds 3.80) to more than $50 since 1982.

The UK stock market has a mini-sector in this industry in the form of Borthwicks, Treatt, and CPL Aromas. Treatt, which I have written about before, has been doing well, helped by the success of its Florida facility in supplying essential oils for orange-juice producers. But the UK company most like International Flavours & Fragrances and showing strong growth is CPL Aromas, based in Hertfordshire but with a growing worldwide network of sales offices and factories.

In combination with an excellent set of interim figures, the group has been hosting visits to its new Aromachem factory in Darlington, Yorkshire, a state-of-the-art facility for producing high-value aroma-chemicals for its own use and for sale. Production has begun, but a significant trading contribution is not expected before the next financial year, ending 31 March 1997.

There is great excitement about the potential of the new factory, but the company is growing apace from its established operations. Profits last year (to 31 March 1995) leapt from pounds 1.4m to just over pounds 2m and look poised to climb even faster this year after a better-than-expected 51 per cent rise in interim profits to pounds 1.4m. Growth has continued into the second half so far, suggesting that full-year profits could approach pounds 3m to drop the price/earnings ratio to around 19 at Friday's close of 346p.

That is not startlingly cheap, especially when compared with the historic p/e of 12.7 on which the shares were floated, at 150p, last June. But it does not look unreasonable. The company is winning business all over the world, including some chunky new customers such as the tobacco giant BAT, suggesting sales are going to keep powering ahead. Margins are improving. The co-founder, chair- man and principal shareholder, Terry Pickthall, points to the 25 per cent margins achieved by IF&F, and says he believes CPL should be able to increase its margins from around 11 to 15 per cent. Cautiously, he refuses to put a timetable on the improvement but agrees that it could happen over four to five years, implying a steady 1 per cent a year improvement.

All this suggests a potentially glittering outlook for the group and its shareholders. My hunch is that we could be looking at a sales progression over the next three years of pounds 30m, pounds 40m and pounds 50m, with between pounds 5m and pounds l0m of that from the new Aromachem facility. Even on a 10 per cent margin, that implies profits climbing from pounds 3m to pounds 5m by 1997/98, against the pounds 1m profit achieved in 1991/92. On a maintained 20 times p/e, that would take the shares to over pounds 6; and profits could usefully exceed my projections if the expected progress is made in bumping up margins.

Three Pickthalls on the board make the group unashamedly a family business. But there is a breadth of talent in management that goes well beyond the family. They are ambitious, too. As well as operations in Hong Kong, Germany, India, Brazil and the Pan-Andean Pact countries on the Pacific side of South America, acquisitions have added subsidiaries in France and Switzerland and even a joint venture in Syria.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
The Queen and the letter sent to Charlie
Arts and Entertainment
Eurovision Song Contest 2015
EurovisionGoogle marks the 2015 show
Two lesbians hold hands at a gay pride parade.
peopleIrish journalist shares moving story on day of referendum
Arts and Entertainment
<b>Kathryn Williams</b>
When I was supporting Ray La Montagne I was six months pregnant. He had been touring for a year and he was exhausted and full of the cold. I was feeling motherly, so I would leave presents for him and his band: Tunnock's Tea Cakes, cold remedies and proper tea. Ray seemed painfully shy. He hardly spoke, hardly looked at you in the face. I felt like a dick speaking to him, but said "hi" every day. </p>
He was being courted by the same record company who had signed me and subsequently let me go, and I wanted him to know that there were people around who didn't want anything from him. At the Shepherds Bush Empire in London, on the last night of the tour, Ray stopped in his set to thank me for doing the support. He said I was a really good songwriter and people should buy my stuff. I was taken aback and felt emotionally overwhelmed. Later that year, just before I had my boy Louis, I was l asleep in bed with Radio 4 on when Louis moved around in my belly and woke me up. Ray was doing a session on the World Service. </p>
I really believe that Louis recognised the music from the tour, and when I gave birth to him at home I played Ray's record as something that he would recognise to come into the world with. </p>
booksKathryn Williams explores the works and influences of Sylvia Plath
Liz Kendall played a key role in the introduction of the smoking ban
newsLiz Kendall: profile
Life and Style
techPatent specifies 'anthropomorphic device' to control media devices
The PM proposed 'commonsense restrictions' on migrant benefits
voicesAndrew Grice: Prime Minister can talk 'one nation Conservatism' but putting it into action will be tougher
ebookA unique anthology of reporting and analysis of a crucial period of history
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Guru Careers: Software Developer / C# Developer

£40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

Neil Pavier: Management Accountant

£45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

Sheridan Maine: Commercial Accountant

£45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

Laura Norton: Project Accountant

£50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

Day In a Page

Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

Sun, sex and an anthropological study

One academic’s summer of hell in Magaluf
From Shakespeare to Rising Damp... to Vicious

Frances de la Tour's 50-year triumph

'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
'That Whitsun, I was late getting away...'

Ian McMillan on the Whitsun Weddings

This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
Kathryn Williams explores the works and influences of Sylvia Plath in a new light

Songs from the bell jar

Kathryn Williams explores the works and influences of Sylvia Plath
How one man's day in high heels showed him that Cannes must change its 'no flats' policy

One man's day in high heels

...showed him that Cannes must change its 'flats' policy
Is a quiet crusade to reform executive pay bearing fruit?

Is a quiet crusade to reform executive pay bearing fruit?

Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
The King David Hotel gives precious work to Palestinians - unless peace talks are on

King David Hotel: Palestinians not included

The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
More people moving from Australia to New Zealand than in the other direction for first time in 24 years

End of the Aussie brain drain

More people moving from Australia to New Zealand than in the other direction for first time in 24 years
Meditation is touted as a cure for mental instability but can it actually be bad for you?

Can meditation be bad for you?

Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

Australia's first-ever Eurovision entrant

Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine
Letterman's final Late Show: Laughter, but no tears, as David takes his bow after 33 years

Laughter, but no tears, as Letterman takes his bow after 33 years

Veteran talkshow host steps down to plaudits from four presidents
Ivor Novello Awards 2015: Hozier wins with anti-Catholic song 'Take Me To Church' as John Whittingdale leads praise for Black Sabbath

Hozier's 'blasphemous' song takes Novello award

Singer joins Ed Sheeran and Clean Bandit in celebration of the best in British and Irish music
Tequila gold rush: The spirit has gone from a cheap shot to a multi-billion pound product

Join the tequila gold rush

The spirit has gone from a cheap shot to a multi-billion pound product
12 best statement wallpapers

12 best statement wallpapers

Make an impact and transform a room with a conversation-starting pattern
Paul Scholes column: Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?

Paul Scholes column

Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?