TREATT PLC
Annual Report and
Financial Statements 2013
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A world of
difference
in the world of ingredient solutions,
we’re at the core of product innovation
Treatt plc
Northern Way,
Bury St Edmunds,
Suffolk, IP32 6NL UK
01284 702500
Tel:
Fax: 01284 703809
Email: enquiries@treatt.com
www.treatt.com
www.earthoil.com
TREATT IS A WORLD-LEADING
INNOVATIVE INGREDIENT SOLUTIONS
PROVIDER FOR THE FLAVOUR, FRAGRANCE
AND CONSUMER GOODS INDUSTRIES
Treatt places great emphasis on investing resources into developing first-hand
knowledge and relationships with growers and suppliers to ensure a sustainable,
fair and rewarding future for all its stakeholders; investors, customers, growers
and staff – across the globe.
The Group has manufacturing sites on three continents with sales offices in the
UK, USA, France and China. Our manufacturing sites are certified to the Global
Food Safety Initiative (GFSI) approved standard, which serves as a testament of
our commitment to quality and safety, and allows Treatt to supply across the globe.
By developing innovative solutions for multi-national customers and providing
unparalleled customer service, Treatt continues to create outstanding value for
both its customers and its shareholders.
About the
group
OVERVIEW
GOVERNANCE
FINANCIAL STATEMENTS
01 Group Strategy
02 What We Do
04 Highlights
05 Group Five Year Trading Record
06 Chairman’s Statement
07 Chief Executive Officer’s Report
09 Financial Review
11 Directors’ Report
16 Strategic Report
18 Corporate Governance Statement
23 Directors’ Remuneration Report
36 Independent Auditor’s Report to
the Members of Treatt plc
38 Group Income Statement
39 Group Statement of Comprehensive Income
40 Group and Parent Company Statements
of Changes in Equity
42 Group and Parent Company Balance Sheets
43 Group and Parent Company Statement
of Cash Flows
44 Group Reconciliation of Net Cash Flow
to Movement in Net Debt
45 Notes to the Financial Statements
74 Notice of Annual General Meeting
86 Financial Calendar
87 Parent Company Information and Advisers
Group
Strategy
Treatt’s strategy consists of delivering profitable and sustainable
growth by means of a focused sales approach and market-driven new
product development. This strategy is underpinned by continued
innovation, added-value manufacturing and by driving efficiency
improvements across the Group.
Treatt takes pride in its positive culture,
which creates the environment for employee
engagement, key to the successful delivery
of its strategy. Through proactive share save
schemes in the UK and the US, employees
are able to build shareholdings in the business,
which is encouraged by the Board.
Soft
Drinks
Coffee
Tea
Alcoholic
Beverages
Personal
Care
Flavour
&
Fragrance
125+
300+
9m+
years experience
employees
kg shipped pa
INNOVATION
Product development and a vibrant product
portfolio are market and customer driven.
INVESTMENT
Treatt will invest to maintain its competitive
advantage and equip the business with the
technology, capacity and skill set required to
meet our strategic objectives.
GROWTH
Treatt’s strategic targets will be achieved
through a global focused sales approach,
control of overheads, and unlocking operational
efficiency.
ADDING VALUE
Treatt provides ingredient solutions that address
customer and market needs, such as authentic
and unique flavour profiles, cost-effective and
stable fragrance specialties and ingredients that
naturally impart sweetness without calories.
TREATT PRODUCTS
• Citrus oils
• Spice and herb oils
• Treattarome® natural distillates from the
named food
• Functional ingredients
• Natural isolates
• Organic and ethical trade ingredients
• Natural cosmetic ingredients
• Fragrance ingredients
TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013 01
Treatt
What we do
ESSENTIAL OILS
CITRUS
TREATTAROME®
Treatt’s essential oils are derived from
a variety of origins and are distilled and
blended in various qualities for food, flavour,
fragrance and cosmetic applications.
Treatt has always been known for the
quality of its citrus products and now
produces various ranges including
CitrustT™, Citreatt®, and the new unique
TreattZest™ concentrated citrus oils.
Treattaromes are a range of 100% natural
‘From the Named Food’ water soluble,
clear essences, suitable for numerous
applications from beverages to ice creams
and savoury sauces.
A WORLD OF DIFFERENCE
Innovative ingredient solutions
Our in-depth knowledge of flavour
and fragrance ingredients allows us
to provide direct access to unique
ingredient solutions
which customers
would not usually
find elsewhere.
This allows our customers to create
signature products using Treatt’s
specialties, which can set their product
apart from the competition.
02 TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013
BEHIND THE SCENES
Scan here to watch ‘behind the scenes’
videos of how Treattaromes are produced,
or visit
www.treatt.com/products/treattarome
Pineapple
Honey
Banana
Cucumber
Kiwi
Tea
Coffee
Watermelon
FAIR TRADE
PRINCIPLES
Earthoil in Kenya
Earthoil, the
cosmetics ingredients
division of Treatt,
is committed to
Fair Trade principles
through its Fair for
Life certification.
Here in Kenya, farmers are being taught
about composting, good agricultural
practices, organic and Fair Trade
requirements.
WELLNESS
AROMA INGREDIENTS
Treatt’s Wellness range of products are
non-caloric, 100% natural essences that
impart desirable flavour and mouthfeel,
while smoothing out the sweetness profile
and undesirable lingering characteristics
associated with Stevia and other
sweeteners.
Treatt offers an extensive selection of aroma
ingredients which deliver an authentic
aromatic profile to a variety of flavours and
fragrances.
ORGANIC ESSENTIAL OILS
VEGETABLE OILS
Treatt’s diverse product range includes
organically-certified and Fair Trade
ingredients for the flavour, fragrance
and cosmetics industries.
Treatt, through its cosmetic ingredients
division, Earthoil, also specialises in
conventional, organic and fair trade cold
pressed vegetable seed oils. A variety of
vegetable, fruit and tree seeds are pressed
to produce quality oils in our Kenyan facility.
TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013 03
Treatt
Highlights
Treatt is continually launching new products to provide solutions to
customer and market needs. More and more consumers are seeking
low calorie, better-for-you beverages to improve their overall health and
wellness.
Eager to tap into this buoyant market, drinks manufacturers across the
globe are looking for innovative solutions to enable them to produce
healthier beverages, while addressing the challenges associated with
natural sweeteners such as Stevia. As a solution, Treatt has created
TreattSweet™, a natural flavour ingredient that makes sweet flavours
taste better.
World coffee consumption continues to grow, thanks in part
to new markets such as China, but also due to new varieties of
coffee drinks such as iced coffee becoming more mainstream.
To help manufacturers create good-tasting coffee beverages, Treatt
has developed some exciting natural ingredients which impart the
authentic coffee flavour that consumers are looking for.
With alcoholic beverages an increasing focus for Treatt, an innovative
natural distillate, Cascade Hop Treattarome®, was developed to
enable brewers to adjust the aroma of hop whilst avoiding the cost
and bitterness associated with additional hopping.
The Directors visiting Treatt’s plant in Lakeland, Florida
REVENUE
£74.1m
Treatt will continue to use its expertise to develop other innovative
solutions, based on market and consumer demand.
2013
2012
£74.1m
£74.0m
ADJUSTED PROFIT BEFORE TAX
£6.2m
2013
2012
ADJUSTED EARNINGS PER SHARE
43.2p
2013
2012
DIVIDENDS PER SHARE*
18.5p
2013
2012
NET ASSETS PER SHARE
£2.62
2013
2012
£6.2m
£5.1m
43.2p
34.4p
18.5p
15.5p
£2.62
£2.48
* The dividend per share shown relates to the interim dividend declared and final
dividend proposed, both of which are paid after the year end and, under IFRS,
accounted for in the subsequent financial year.
FINANCIAL HIGHLIGHTS
OPERATING PROFIT
Operating profit increased by 23.3%
+23.3%
RETURN ON CAPITAL EMPLOYED
ROCE grew from 14.4% to 19.4%
19.4%
NET CASH FLOW
Net cash inflow of £4.7m
£4.7m
04 TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013
Group Five Year Trading Record
INCOME STATEMENT
Revenue
EBITDA (pre-exceptionals)
Operating profit
Adjusted profit before taxation
Growth in adjusted profit before taxation
Exceptional items
Profit before taxation
Taxation
Non-controlling interest
2009
£’000
2010
£’000
2011
£’000
2012
£’000
56,313
63,298
74,518
74,009
5,012
3,893
3,501
14.3%
6,032
4,904
4,503
28.6%
8,032
6,864
6,372
41.5%
6,891
5,628
5,060
(20.6%)
2013
£’000
74,097
8,278
6,938
6,227
23.1%
—
(2,432)
—
(598)
(1,093)
3,501
2,071
6,372
4,462
5,134
(1,013)
(3)
(1,417)
(1)
(2,017)
(7)
(1,390)
—
(1,655)
—
3,479
1,075
684
11,718
(723)
586
38,340
(12,484)
(23)
(8,889)
(1,589)
(577)
(675)
9,250
(649)
(714)
(1,585)
(1,578)
(9)
91
(151)
4,655
Profit for the year attributable to owners of the Parent Company
2,485
653
4,348
3,072
BALANCE SHEET
Goodwill
Other intangible assets
Property, plant and equipment
Deferred tax asset/(liability)
Non-current trade and other receivables
Current assets
Current liabilities
Non-current trade and other payables
Non-current bank loans
Post-employment benefits
Non-current derivative financial instruments
Redeemable loan notes (net)
4,272
290
9,847
245
586
28,687
(15,954)
(789)
(1,773)
(2,000)
—
(675)
1,051
250
10,250
(19)
586
34,311
(14,292)
—
(7,348)
(1,596)
—
(675)
1,192
742
10,120
(261)
586
35,847
(12,592)
(135)
(7,606)
(803)
(864)
(675)
1,080
718
11,543
(594)
586
38,053
(17,345)
(23)
(5,469)
(838)
(1,033)
(675)
Total equity
22,736
22,518
25,551
26,003
27,443
CASH FLOW
Cash generated from operations
Taxation paid
Net interest paid
Dividends paid
Additions to non-current assets net of proceeds
Acquisition/disposal of interests in joint ventures or subsidiaries
Net (purchase)/sale of own shares by share trust
Other
10,675
(755)
(541)
(1,138)
(1,005)
—
65
(407)
2,361
(1,312)
(387)
(1,222)
(1,571)
(38)
87
(5)
8,312
(1,998)
(527)
(1,330)
(1,540)
(14)
100
(16)
1,482
(1,279)
(618)
(1,490)
(2,787)
—
(306)
43
Movement in net debt
Total net debt
RATIOS
Net operating margin1
Return on capital employed2
Average net debt to EBITDA3
Adjusted basic earnings per share
Growth in adjusted basic earnings per share
Dividend per share4
Dividend cover (adjusted to exclude exceptionals)4
Net assets per share
6,894
(2,087)
2,987
(4,955)
(8,894)
(10,981)
(7,994)
(12,949)
(8,294)
6.9%
12.3%
2.46
24.5p
25.9%
12.0p
2.03
217.0p
7.7%
14.6%
1.65
30.3p
23.6%
13.0p
2.32
214.9p
9.2%
20.5%
1.18
42.5p
40.5%
14.5p
2.92
243.8p
7.6%
14.4%
1.52
34.4p
(19.1%)
15.5p
2.22
248.0p
9.4%
19.4%
1.28
43.2p
25.6%
18.5p
2.33
262.0p
Notes on calculations:
1 Operating profit divided by revenue
2 Operating profit divided by total equity plus net debt
3 Average of net debt at start and end of financial year divided by EBITDA
4 The dividend per share shown relates to the interim dividend declared and final dividend proposed, both of which are paid after the year end and, under IFRS, accounted for in the
subsequent financial year.
TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013 05
Chairman’s
Statement
RESULTS
The performance of the Group, in a year of significant change, has
been very encouraging and it is pleasing to report that results for
the last year were better than had been originally forecast. Pre-
exceptional profits for the financial year increased by 23% to £6.2m
(2012: £5.1m) and adjusted* basic earnings per share grew by 26%
to 43.2p (2012: 34.4p). Revenue, which can fluctuate due to changes
in product mix and movements in raw material prices, was steady
at £74.1m (2012: £74.0m). Adjusted* earnings before interest, tax,
depreciation and amortisation increased by 20% to £8.3m (2012:
£6.9m). Operating profit margins rose in the year from 7.6% to 9.4%
leading to operating profits rising by 23% to £6.9m (2012: £5.6m).
Cash flows of the Group can vary from one year to the next because
of movements in raw material prices and the strategic purchasing
decisions made by our very experienced procurement team. 2013
saw a very encouraging net cash inflow of £4.7m, reducing net debt
by more than a third to £8.3m (2012: £12.9m), resulting in a modest
average net debt to EBITDA ratio of 1.3 times (2012: 1.5 times).
The exceptional items totalling £1.1m reported in these results relate
to corporate finance and other related one-off costs (£0.5m) and
the legal and professional costs in relation to the on-going earnout
dispute in relation to the acquisition of the Earthoil Group (£0.6m).
Further details concerning the contingent liability in respect of this
dispute are given in note 27.
DIVIDENDS
The Board is proposing a net final dividend of 13.0p (2012: 10.4p),
increasing the total dividend for the year by 19% to 18.5p (2012: 15.5p)
per share. If approved by shareholders at the forthcoming AGM, the
final dividend will be payable on 4 April 2014 to all shareholders on
the register at close of business on 28 February 2014. Shareholders
who wish to participate in the dividend re-investment plan for this and
future dividends should elect to do so by 10 March 2014.
BOARD CHANGES
Following ten years as a Non-executive Director, we bade farewell
to Peter Thorburn this year. Peter’s contribution to the Board over
a decade of major change for the Group has been immense and
as a UK national resident in Florida, he has been particularly closely
associated with the success of Treatt USA over the last few years.
I would very much like to place on record our thanks to Peter for
everything he has done for Treatt and to wish him and his family well
for the future.
I was delighted to welcome Jeff Iliffe to the Board as a Non-executive
Director during the year. Jeff is the Chief Financial Officer of Abcam
plc and brings with him a wealth of financial and City experience
which will, I have no doubt, be of great benefit to the Board.
CORPORATE GOVERNANCE
In addition to Jeff Iliffe’s appointment as Audit Committee Chairman, it
has been a very busy year for other aspects of corporate governance
as well.
New rules apply to companies reporting on financial years ending
on or after 30 September 2013 – which means that Treatt is one of
the companies now needing, at very short notice, to deal with new
procedures on remuneration policy, gender diversity, greenhouse
gas reporting, and the strategic report. In consequence, this year’s
annual report contains a significant amount of new and additional
information.
The Remuneration Committee consulted major shareholders on its
remuneration policy and, together with a new Long Term Incentive
Plan, will be putting these proposals before shareholders at the
forthcoming AGM in February 2014.
Adjusted earnings
per share increased
by 26% and dividends
per share by 19%
Tim Jones
Chairman
A full and comprehensive risk review has also been undertaken,
reviewed and approved by the Board.
SHAREHOLDER RELATIONS
Following the decision of the Bovill family to dispose of their
shareholding earlier this year, I would like to formally recognise and
thank Hugo Bovill and his family for their dedication and stewardship
of Treatt over the years. Treatt has a proud heritage which will be built
upon as the business continues to grow.
I am also, therefore, delighted to welcome some new names to
Treatt’s share register and I look forward to updating all shareholders
regularly on the on-going progress being made by the Group.
REVIEW OF THE YEAR
I mentioned in my report last year that the Board was carrying out a
thorough review of the business. CEO Daemmon Reeve developed
a new strategic plan which met with the Board’s approval and which
was rolled out to all colleagues through a series of workshops in
January 2013. Daemmon discusses the new strategy in detail in his
report.
Turning now to the performance of the business over the last twelve
months, we were anticipating a year of steady growth and it is clear
that the new strategy gained traction very quickly. Although Q1 was,
as ever, a seasonally quiet period for the Group, from the turn of the
year business has been pleasing with both the Treatt and Earthoil
branded businesses performing well. Sales revenues remained
unchanged but a combination of improved margins and stringent
overhead control has delivered the 23% growth in adjusted pre-tax
profits being reported.
Treatt’s strong technical and procurement experience with raw
material ingredients is enabling the business to both transition up the
value chain and margins to grow, notwithstanding top line sales value
being impacted by lower average costs of key raw materials. At the
same time, overall costs have been reduced; with the centralising of
the Group finance function delivering a particularly noteworthy saving.
The steady improvement in Earthoil’s results is also very pleasing to
report, with profits almost doubling compared with the year before.
Its innovative range of cosmetic ingredient solutions, and increasing
interest in fair trade activities, puts Earthoil in a good position to deliver
material profits in years to come.
PEOPLE
It is always extremely important, but particularly this year with all the
changes which have taken place over the last eighteen months,
that I publicly express the sincere thanks of the Board to all Treatt
and Earthoil colleagues for their hard work and contribution to the
success of Treatt.
PROSPECTS
The Group has made a solid start to the new financial year. With
further progress on strategy implementation, continuing focus on key
markets including the alcoholic and non-alcoholic beverage sectors,
and on-going development of exciting, new and innovative products,
the Board is confident that the Group will again show good progress
in the coming year.
TIM JONES
Chairman
6 December 2013
* Excluding exceptional items
06 TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013
Chief Executive Officer’s
Report
Our new strategy is
the central core to
our success
OVERVIEW
Treatt has had a good year with profit before exceptionals up by 23%,
adjusted earnings per share 26% higher and net debt 36% lower
than a year ago, and I would like to begin by thanking my colleagues
throughout the Group for their endeavours and engagement which
has enabled us to report such a pleasing set of figures. Our new
strategy, which has been clearly communicated throughout the Treatt
organisation, has been the central core to our success; colleagues
are very clear about what Treatt is and the values we stand for. With
greater focus, clarity and cost control as central pillars to our strategy
it has enabled Treatt to begin the necessary path of preparing our
business for the next stage of our growth as an innovative ingredient
solution provider. The year has been exciting as well as challenging
and I have been delighted to see so many colleagues flourishing
and contributing to the business in a wide variety of ways. Creating
the environment for colleagues to succeed is very motivating for me
personally and our work on this continues.
STRATEGY
As our strategy further beds in to Treatt and we look to the future, we
are building a sound platform to progress from.
Through greater focus and meaningful engagement with customers
who can bring Treatt long term sustainable value we will create
opportunities of consequence with products that excite customers
and make them want to engage with us.
‘ONE TREATT’ STRATEGY FOR GROWTH
Our strategy is clear - to grow Group profitability and margins in the
flavour, fragrance and consumer goods markets through:
Focused
sales
approach
Market-driven
new product
development
Concentrated
product
range
Increasing
group
margins
Cost
control
Excellent
quality and
service
Well motivated
and
experienced
workforce
In addition to growth, a company-wide culture of cost control is an
important aspect of our strategy and has encompassed everything
from energy savings to process improvements, from reduction in
global freight costs to savings on departmental consumables.
Daemmon Reeve
Chief Executive Officer
SALES PROSPECTS
A key aspect of growing sales is retention of existing customers.
With acute focus on the overall value to the Group, our sales team is
incentivised to both retain as well as grow our business. By focussing
on those accounts where meaningful opportunities are evident we
increase our prospects, and aligning our technical resources with
those opportunities maximises our chances of success - and as part
of this we are currently working on a number of exciting opportunities
with major beverage companies.
RAW MATERIAL RISK MANAGEMENT
The volatility of raw material prices, and their availability, continues
to present challenges for the Group but the proven experience,
expertise and innovation of our global procurement team has enabled
Treatt to mitigate the extremes of these impacts. Empowerment of
our team to move nimbly and authoritatively in markets also provides
Treatt with an important competitive advantage.
Our most significant raw material, orange oil, has seen prices
reaching highs of more than double the previous forty year peak and
a far greater level of volatility in the last three years than had been
the case previously. The potential, therefore, exists for revenues on -
most notably - some lower margin aspects of our citrus ingredients
business, to have an effect on the top line performance of the Group,
as longstanding Treatt followers will be aware. Consequently, in the
short term the leadership team have a greater focus on contribution
margin, as opposed to solely focusing purely on sales, as a better
indicator of the success of our strategy.
THE TREATT BRAND
To ensure clarity for our customers we are marketing our business
as Treatt. The Treatt brand is trusted by our global customer base
as being synonymous with exceptional quality and outstanding
service. Whilst the legal entities of R C Treatt and Treatt USA remain,
the focus and the branding of the business will continue to be built
around one Treatt. This is reflected in our new website and can
also be seen at the trade exhibitions we attend around the globe.
A single branding message ensures clarity for our customers and
supports our strategy of operating as one holistic Treatt business. It
also enables us to globalise key departments in order to maximise
synergies and strengthen our customer offering. Due to its unique
offering as a supplier of specialist cosmetic ingredient solutions, the
Earthoil brand will continue to flourish as a separate, distinct, and
highly valued, brand in its own right.
ALIGNING OUR ORGANISATION
Our procurement, sales, IT and finance departments are now truly
global and the resultant benefits in the form of cost savings and the
synergistic effect of teams working with clarity of direction and greater
alignment are tangible. The fully integrated global sales structure
enables greater focus on multi-national flavour, fragrance and FMCG
customers. Our marketing will increasingly be focused, which has
proven to be very effective this year with increasing press coverage
in our targeted markets. Further improvements in the organisational
focus and structure of the Group will be taking place in 2014.
TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013 07
Chief Executive Officer’s Report
continued
We have made good progress in developing positive cultural change
and enhancing team spirit within the business, and this work, central
to our strategy, will continue.
the long term. This review currently remains a work in progress and
no decisions have yet been made.
INNOVATION
It is vital that our colleagues feel empowered, fulfilled and motivated in
their roles within the Group and we are taking further steps to create
an environment where cutting edge innovation is both fostered and
thrives. A significant aspect of this is that teams are working closer than
ever across the Group and, with this much improved communication,
new product development and innovation is being market-driven
to create more innovative products with greater market potential.
Members of our technical team are increasingly visiting customers
with our sales staff to provide essential technical support. Engaging
with counterparts in key accounts to get first-hand feedback from
customers on our new innovations enables rapid fine tuning to meet
customer needs.
To illustrate using just one example of our innovation efforts, we
have developed a range of products targeted towards wellness
applications. The arrival of Stevia and other natural non-nutritive
sweeteners in the marketplace stimulated us to take another
look at how our Treattaromes might be used in combination with
natural sweeteners. Our team found that a certain mixture of our
Treattarome® essences provided sweet flavour notes and taste
experience, and importantly masked the lingering Stevia taste with
mellow softness. As we looked further into the different products in
which Stevia is used, we perceived a need for products that were
more closely tailored to the needs of the application, carbonated soft
drinks needing a different profile to still applications for example and
other specialised versions were developed to broaden the scope of
our product offerings.
ENHANCING CUSTOMER VALUE
We have engaged with our customers at all levels to determine
how Treatt’s products can enhance customer value. If we delight
customers they return and, importantly, turn to us when they have
new requirements. Building trust to build business has been a key
element of our success; our strategy enables our teams to build and
firm relationships for the long term.
Treatt USA and R C Treatt/Earthoil have built on last year’s success
and continue to enjoy British Retail Consortium ‘A’ grade status, with
fewer and fewer areas for improvement identified.
R C TREATT
Much work has taken place in the UK to modernise business
practices to derive efficiency and improve productivity. This work
continues into the current fiscal year. Management and their teams
taking ownership of business improvement processes has been
particularly effective and the level of cross-departmental collaboration
is high. Focus on key areas of the business such as added-value
specialty manufactured chemicals has delivered pleasing results at
accounts which provide sustainable value for the business. Lower
performing products have been de-listed from our offering to enable
greater focus on those products which bring more sustainable value
to our business and this work continues. Engagement with the
strategy has been and continues to be very high.
A review of Treatt’s UK site has been under consideration by the
Directors for some time. The Board and operations management
are working closely to ensure that we make the right investment
decisions at the right time for the future of our business in order to
ensure we have a fit for purpose UK manufacturing facility to improve
efficiency across the business and drive value for our shareholders for
TREATT USA
Treatt USA had a year of consolidation with an anticipated tougher
year in key orange oil markets. Over-stocking of ingredients at some
accounts and underperforming beverages at others led to lower than
anticipated sales of specialty non-orange product ranges, negatively
affecting profitability. However, optimism levels remain healthy in
the business, with relationships with key accounts being in good
shape. Good progress is also being made with some potential key
accounts which are receiving much attention in the business. The
sales opportunity pipeline looks promising and this should translate
into meaningful opportunities for the business in the next year or two.
EARTHOIL
I am pleased to report that Earthoil, the Group’s niche cosmetic
ingredients business, had a record year and its third successive year of
profitability. Again, the strategy guided the meaningful progress made
with a greater focus on those customers who can bring sustainable
business receiving increased focus and technical support. Important
wins at new material accounts also enabled the business to perform
well. In February we appointed our new Director of African Operations,
Leopold Kerama, who is driving further efficiency improvements in our
Kenyan manufacturing facilities as we develop our business.
SUSTAINABILITY
I was privileged to visit our Earthoil facility in Kenya in August to witness
first hand not only the excellent work being done by our teams but also
the responsibility it shows towards the local community by assisting
the farmers to organise themselves into a society (the Kenya Organic
Oil Farmers Association) so that they are properly represented and
able to carry out communal projects. Through Fair for Life certification,
we pay a Fair Trade premium for the products we purchase into a
community fund to be used for projects as decided by the farmers
and workers themselves. So far, this has funded scholarships for
seven children from poor families to attend secondary school and
there are plans afoot to build a social hall where farmers and workers
can carry out educational and social activities.
OUTLOOK
Whilst the macro-economic situation is still fragile in many corners of
the globe, we remain optimistic that the re-alignment and refreshment
of our business through our strategy, coupled with healthy levels of
consumer goods innovation, most notably in the beverage sector,
will enable Treatt to continue on its path of progress with excitement
and renewed determination. Challenges remain and we will not be
complacent in this regard, but we look forward with confidence as
a business. Importantly, we have an excellent team; empowered,
motivated and equipped to deliver the results.
DAEMMON REEVE
Chief Executive Officer
KEY POINTS
New strategy with greater focus, clarity and cost control,
aimed at accelerating underlying revenue growth
Retention of meaningful existing business and maximising
prospects for growth
Creating an environment for effective innovation
Enhanced customer value for improved profitability
08 TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013
Financial
Review
INCOME STATEMENT
The Group’s revenue can fluctuate due to changes in product mix
and movements in raw material prices. Consequently whilst revenue
for the year remained unchanged at £74.1m (2012: £74.0m), gross
margins (being a greater driver of bottom line growth) rose from
22.6% to 23.7%. This, together with tight control of costs, resulted in
a healthy 23% increase in pre-exceptional operating profit of £1.3m
to £6.9m (2012: £5.6m).
Exceptional costs in the year of £1.1m were incurred in connection
with shareholder-related matters and professional fees relating to
the Earthoil earnout dispute. Excluding these costs, earnings before
interest, tax, depreciation and amortisation for the year increased by
20% to £8.3m (2012: £6.9m). Profit before tax after exceptional items
of £1.1m rose by 15% to £5.1m (2012: £4.5m). Further information
on the exceptional items is given in note 8.
The proposed total dividend for the year has been increased by 19.4%
to 18.5p per share, resulting in a dividend cover of 2.4 times pre-
exceptional earnings for the year and a rolling three year cover after
exceptionals of 2.2 times. The Board’s policy is to maintain dividend
growth on a consistent basis at between 2 and 2.5 times three year
rolling cover with this year’s dividend representing an increase of 65%
over the last five years. Basic earnings per share (adjusted to exclude
exceptionals – see note 11) for the year increased by 26% to 43.2p
(2012: 34.4p). The calculation of earnings per share excludes those
shares which are held by the Treatt Employee Benefit Trust (EBT)
since they do not rank for dividend, and is based upon profit after tax.
Whilst the Group’s functional currency is the British Pound (‘Sterling’)
as explained below, the amount of business which is transacted in
other currencies creates foreign exchange risk, particularly with the
US Dollar and to a more limited extent with the Euro. During the year
the US Dollar fluctuated considerably but ended the year almost
where it started with a closing balance sheet rate of $1.62 (2012:
$1.61). As explained further in this report under ‘Treasury Policies’,
the Group hedges its foreign exchange risk at R C Treatt by holding
and managing US Dollar borrowings and taking out forward currency
contracts. This can result in timing differences in the short term, giving
rise to re-translation gains or losses in the income statement. This has
resulted in a very small gain of £0.1m in 2013 compared to a gain of
£0.3m in 2012. There was a currency loss of £0.2m (2012: loss of
£0.3m) in ‘The Statement of Comprehensive Income’ in relation to
the Group’s investment in overseas subsidiaries, principally in respect
of Treatt USA.
The Group’s net finance costs for the year increased by 15% to
£0.7m (2012: £0.6m) as a result of higher levels of debt in H1, before
cash flows then improved sharply in H2. As a consequence of the
improvement in profitability, interest cover for the year improved to
10.6 times (2012: 9.9 times).
As part of the Group’s risk management, in 2011 R C Treatt fixed
$9m of US Dollar borrowings at 5.68% for ten years by way of an
interest rate swap. This swap has been designated as a ‘hedge’ in
accordance with IFRS and consequently any movements in the mark-
to-market of the swap are taken directly to equity. At the balance
sheet date, the fair value liability, net of deferred tax, of the swap was
£0.5m (2012: £0.8m).
Operating margins
increased from 7.6%
to 9.4% whilst costs
were kept under
tight control
Richard Hope
Finance Director
GROUP TAX CHARGE
The current tax charge of £1.5m (2012: £0.9m) represents an effective
tax rate (based on profit before tax and exceptional items) of 26.5%
(2012: 20.8%), the previous year having benefitted from significant
accelerated capital allowances in the US. The overall tax charge has
increased by £0.3m to £1.7m (2012: £1.4m), resulting in an overall
effective tax rate which was almost unchanged at 32% (2012: 31%).
There were no significant adjustments required to the previous year’s
tax estimates. With the current and deferred rates of tax continuing
to fall in the UK until they reach an expected 20%, the Group’s overall
effective tax rates are expected to fall for the next two years.
BALANCE SHEET
Group shareholders’ funds grew by £1.4m (2012: £0.4m) in the year
to £27.4m (2012: £26.0m), with net assets per share increasing by
5.6% to £2.62 (2012: £2.48). Over the last five years, net assets per
share have grown by 27%. Net current assets now represent 94%
(2012: 80%) of shareholders’ funds. The Board has chosen not to
avail itself of the option under IFRS to revalue land and buildings
annually and, therefore, all the Group’s land and buildings are held at
historical cost, net of depreciation, in the balance sheet. It should be
noted that net assets have been reduced by £0.6m (2012: £0.7m) as
a result of shares held by the EBT, due to the accounting requirements
for employee trusts. This impact will be reversed when these shares
are used to satisfy employee share option schemes.
CASH FLOW
In 2013 Group net debt fell by £4.7m to £8.3m (2012: £12.9m) with
a corresponding reduction in the level of gearing from 50% to 30%.
The Group has a mix of secured and unsecured borrowing facilities
totalling £19.9m, of which only £2.8m expire in one year or less. The
Group’s borrowing facilities are held with HSBC, Bank of America and
Lloyds Banking Group with the majority of facilities now held on three
to five year terms with expiry dates staggered to fall in different years.
The Group continues to enjoy positive relationships with its banks
and expects all facilities to be renewed without difficulty when they fall
due. The reduction in cash tied up in working capital for the year was
£2.4m largely due to an increase in trade creditors. Inventory levels
for the Group increased by 3% to £23.7m (2012: £22.9m). This level
of inventory, which is highly significant in cash terms, arises because
as an ingredients specialist, Treatt takes many annual, and in some
cases longer-term, contracts with customers as well as servicing the
immediate spot needs of its diverse customer base. The success of
the business has been built upon managing geographic, political and
climatic risk of supply for our customers by judicious purchasing and
inventory management to ensure continuity of supply and availability.
Therefore it is part of the Group’s business model to hold significant
levels of inventory, although only less than 5% is on average more
than a year old.
TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013 09
Financial Review
continued
The level of capital expenditure in the year was at the lower end of
expectations with a total spend of £1.4m compared to £2.7m in
2012. This was fairly evenly spread between the UK and US, being
focused primarily on added-value investment in manufacturing
processes to create improved capabilities and efficiencies, together
with on-going investment in technical facilities to enhance the Group’s
R&D capabilities, together with continuous development of the IT
platforms and infrastructure.
TREATT EMPLOYEE BENEFIT TRUST
During the year the Group continued its annual programme of offering
share option saving schemes to staff in the UK and USA. Under
US tax legislation, staff at Treatt USA are able to exercise options
annually, whilst the UK schemes provide for three-year savings plans.
In addition, 22,000 (2012: Nil) full market value options were granted
to Directors and senior management. As part of these programmes,
including the full market value options, options were granted over a
total of 52,000 (2012: 52,000) shares during the year, whilst 40,000
(2012: 47,000) were exercised. The Employee Benefit Trust (EBT)
currently holds 217,000 shares (2012: 256,000) acquired in the
market in order to satisfy future option schemes without causing
shareholder dilution. Furthermore, by holding shares in the EBT for
some time before they are required to satisfy the exercise of options,
it is expected that the current programme of employee share option
schemes will be self-financing as the proceeds from share options
which vest are expected to exceed the original cost of the shares
acquired.
FINAL SALARY PENSION SCHEME
The three-year actuarial review of the R C Treatt final salary pension
scheme was carried out in January 2012, the result of which was
that the company agreed to maintain contributions at their current
levels in order to eliminate the actuarial deficit by 2019. Despite this,
the IAS 19, “Employee Benefits” pension liability, net of deferred tax,
increased in the year from £0.6m to £1.3m. The principal cause
of this increase was the assumption of a higher rate of inflation in
the future, both in respect of CPI and RPI, which increased gross
liabilities by £1.9m.
Following consultation with members, it was agreed that the scheme
would not be subject to any further accruals after 31 December 2012
and instead members of the final salary pension scheme were offered
membership of the Company’s defined contribution pension plan
with effect from 1 January 2013. As a consequence, a curtailment
gain of £0.2m was recognised in last year’s financial statements. This
means that the defined benefit scheme has now been de-risked as
far as it is practicable and reasonable to do so.
FINANCIAL RISK MANAGEMENT
The Group operates conservative treasury policies to ensure that no
unnecessary risks are taken with the Group’s assets.
No investments other than cash and other short-term deposits are
currently permitted. Where appropriate these balances are held in
foreign currencies, but only as part of the Group’s overall hedging
activity as explained below.
The nature of Treatt’s activities is such that the Group could be affected
by movements in certain exchange rates, principally between Sterling
and the US Dollar, but other currencies such as the Euro can have a
material effect as well. This risk manifests itself in a number of ways.
Firstly, the value of the foreign currency net assets of Treatt USA and
the overseas Earthoil companies can fluctuate with Sterling. Currently
these are not hedged as the risks are considered insufficient to justify
the cost of putting the hedge in place.
Secondly, with R C Treatt exporting throughout the world, fluctuations
in Sterling’s value can affect both the gross margin and operating
costs. Sales are principally made in three currencies in addition to
Sterling, with the US Dollar being the most significant. Even if a sale
is made in Sterling, its price may be set by reference to its US Dollar
denominated raw material price and therefore has an impact on the
Sterling gross margin. Raw materials are also mainly purchased in US
Dollars and therefore US Dollar bank accounts are operated, through
which US Dollar denominated sales and purchases flow. Hence it
is Sterling’s relative strength against the US Dollar that is of prime
importance.
As well as affecting the cash value of sales, US Dollar exchange
movements can also have a significant effect on the replacement
cost of stocks, which affects future profitability and competitiveness.
The Group therefore has a policy of maintaining the majority of cash
balances, including the main Group overdraft facilities, in US Dollars
and, to a lesser extent in Euros, as this is the most cost effective
means of providing a natural hedge against movements in exchange
rates. Where it is more cost effective to do so, the Group will enter
into forward currency contracts as well. Consequently, during the
year forward currency contracts have been entered into which hedge
part of R C Treatt’s foreign exchange risk. These contracts have
been designated as formal ‘hedge’ arrangements, with movements
in mark-to-market valuations initially taken to equity and re-cycled
to the income statement to match with the appropriately hedged
currency receipts. Currency accounts are also run for the other main
currencies to which R C Treatt is exposed. This policy will protect the
Group against the worst of any short-term swings in currencies.
RICHARD HOPE
Finance Director
The steady improvement
in Earthoil’s results is also
very pleasing to report
10 TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013
Directors’ Report
FINANCIAL STATEMENTS
The Directors present their report and the audited financial statements
for the Group for the year ended 30 September 2013.
RESULTS AND DIVIDENDS
The results of the Group for the year are set out on page 38.
Profit before tax for the year excluding exceptional items was
£6,227,000 (2012: £5,060,000).
The Directors recommend a final dividend of 13.0p (2012: 10.4p) per
ordinary share.
This, when taken with the interim dividend of 5.5p (2012: 5.1p)
per share paid on 18 October 2013, gives a total dividend of 18.5p
(2012: 15.5p) per share for the year ended 30 September 2013.
CORPORATE GOVERNANCE
The Corporate Governance Statement on pages 18 to 22 forms part
of this Directors’ Report.
DIRECTORS
The Directors of the Parent Company are shown on page 87.
APPOINTMENT AND REPLACEMENT OF DIRECTORS
Rules about the appointment and replacement of Directors are set out
in the Parent Company’s Articles of Association. Further details are
provided in the Corporate Governance Statement on page 19.
Details of the Executive Directors’ contracts and notice periods
are given in the Directors’ Remuneration Report on page 29. The
Executive Directors’ contracts are terminable by the Group giving the
required notice period of one year for the CEO and Finance Director,
and two years for the HR Director who retires at the conclusion of the
AGM in February 2014.
In accordance with the Parent Company’s Articles of Association and
as reported in the Corporate Governance Statement on page 19, in
recognition of Provision B.7.1 of the UK Corporate Governance Code
David Johnston retires by rotation and Jeff Iliffe retires, having been
appointed during the year. Anita Haines is retiring from the Board as
Human Resources Director but is standing for re-election as a Non-
executive Director. All three Directors, being eligible, offer themselves
for re-election. The Nomination Committee confirms that the
individuals’ performances continue to be effective and to demonstrate
commitment to the role, including commitment of time for Board and
Committee meetings and any other duties.
DIRECTORS’ INTERESTS IN SHARES
The interests of Directors in shares of the Parent Company are shown
in the Directors’ Remuneration Report on page 33.
SUBSTANTIAL SHAREHOLDERS
In accordance with Rule 5 of the Disclosure and Transparency Rules
of the Financial Services Authority, the Parent Company has been
notified of the following holdings of 3% or more of the voting rights
at 5 December 2013 (the latest practicable reporting date prior to
publication of this document).
Schroder Investment Management
Discretionary Unit Fund Managers
Henderson Volantis Capital
Miton Capital Partners
James Sharp Stockbrokers
Barclayshare Stockbrokers
Number
%
1,703,269
1,580,000
841,859
522,500
345,711
322,048
16.59
15.39
8.20
5.09
3.37
3.14
CONFLICTS OF INTEREST
No Director had an interest in any contract of significance during the
year. The Group has procedures in place for managing conflicts of
interests. If a Director becomes aware that they, or a connected party,
have an interest in an existing or proposed transaction with the Group,
they should notify the Company Secretary as soon as possible and
before the next meeting. Directors have a continuing obligation to
update any changes to conflicts and the Board formally reviews them
annually.
DIRECTORS’ AND OFFICERS’ LIABILITY INSURANCE
The Group maintains Directors’ and Officers’ liability insurance which
is reviewed annually. The insurance covers the directors and officers
of the Parent Company and its subsidiaries against the costs of
defending themselves in civil proceedings taken against them in their
capacity as a director or officer of a Group company and in respect
of damages or civil fines or penalties resulting from the unsuccessful
defence of any proceedings.
RESEARCH AND DEVELOPMENT
Product innovation and research and development are a critical part of
the Group’s strategy and business model as outlined in the strategic
report on pages 16 to 17. The main research and development activity
undertaken by the Group is in the area of new product development.
The Group utilises its strong technical capabilities to develop innovative
products that provide solutions for customers, particularly in the food
and beverage area. In this way it seeks to make itself indispensable to
a key group of major global multi-national companies. In the opinion
of the Directors, continuity of investment in this area is essential for the
maintenance of the Group’s market position and for future growth.
FINANCIAL INSTRUMENTS
Information on the Group’s financial risk management objectives and
policies and on the exposure of the Group to relevant risks in respect
of financial instruments is set out in note 28 of the financial statements.
GOING CONCERN
The Group’s business activities, together with the factors likely to
affect its future development, performance and position are set out
in the Chairman’s Statement, CEO’s Report and Financial Review on
pages 6 to 10.
In determining whether the Group and Parent Company’s financial
statements can be prepared on a going concern basis, the Directors
considered the Group’s business activities, together with the factors
likely to affect its future development, performance and position. The
review also included the financial position of the Group, its cash flows,
and borrowing facilities. The key factors considered by the Directors
were:
•
•
•
•
the implications of the challenging economic environment
and future uncertainties on the Group revenues and profits by
undertaking forecasts and projections on a regular basis;
the impact of the competitive environment within which the
Group’s businesses operate;
the potential actions that could be taken in the event that revenues
are worse than expected, to ensure that operating profit and cash
flows are protected; and
the Group’s access to overdraft facilities and committed bank
facilities to meet day-to-day working capital requirements. During
the period all the Group’s banking facilities which were due for
renewal have been renewed on either existing or improved terms.
The Group also has in place a ten year fixed interest rate swap for
$9m in order to protect (hedge) the Group against possible future
increases in interest rates.
TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013 11
Directors’ Report
continued
As at the date of this report, the Directors have a reasonable expectation
that the Group and Parent Company have adequate resources to
continue in business for the foreseeable future. Accordingly, the
financial statements have been prepared on the going concern basis.
HEALTH AND SAFETY
The Group’s on-going investment in health and safety continued during
the financial year and forms an integral part of the Group’s strategy,
remaining at the forefront of all of our operations. Particular emphasis
is placed upon continuous improvement by way of a comprehensive
Safety Management System designed to monitor and measure
top line policies and procedures and a range of key indicators are
maintained and reported at every Board meeting.
A top to bottom culture of safety awareness and responsibility is
actively promoted and a training programme of accredited safety
management and awareness courses is in place across the workforce
to help underpin the efforts of the health and safety professionals
already employed within the Group.
Employee health and well-being is monitored and dedicated and
bespoke support is provided where necessary.
ENVIRONMENT
The Group is committed to good environmental practice. It places
importance on the impact of its operations on the environment and
on ensuring that it operates and adopts responsible practices. Group
performance and risk reviews are undertaken and monitored on a
regular basis and reported to the Board.
EnvironmEntal PErformancE and StratEgy
The Group has for a long time managed energy, fuel and waste
disposal costs with the aim of lessening the Group’s environmental
impact whilst reducing cost and improving efficiencies. In accordance
with The Companies Act 2006 (Strategic Report and Directors’
Report) Regulations 2013, the Group is now required to report its
greenhouse gas emissions. The release of greenhouse gases, notably
carbon dioxide generated by burning fossil fuels, is understood to
have an impact on global temperatures, weather patterns and weather
severity, which can directly and indirectly affect the Group’s business.
As a supplier of natural ingredients, adverse weather events can have
an effect on crop yields resulting in higher commodity prices and
limited supply. Examples of this have been seen in 2013 with a large
freeze in Northern Argentina causing reduced yields of lemon oil and
in 2004/5 when the Florida hurricanes caused significant reductions in
crops of orange and grapefruit.
EnvironmEntal imProvEmEntS in 2013
The Group continuously evaluates ways of reducing its impact on
the environment and during the year has implemented a number of
improvements at each of its subsidiaries:
R C Treatt
• new refrigerant systems installed, which provide lower carbon
•
emissions;
the introduction of variable speed drives on main thermal oil
heaters, improving energy consumption;
the introduction of adaptive controls on main process chillers;
•
• cessation of the use of Hexane, reducing carbon emissions;
•
re-use of aqueous/methanol waste by the waste contractor
through input in an anaerobic bio-digester.
Treatt USA
• energy efficient LED lights with motion sensors installed in large
cold and freezer boxes;
• use of well water in place of treated city water for water pump
•
•
seals;
recycling the well water rather than sending it to the city water
sewage treatment;
installation of dust collection filters for tea leaf processing to
protect workers and the environment.
Earthoil
•
installation of a grease trap to remove grease from water
discharged into the sewage system;
• use of large capacity tanks to export oil to some customers rather
than smaller drums.
grEEnhouSE gaS EmiSSionS
The Group has adopted a greenhouse gas reporting policy and a
management system based on the ISO 14064-1:2006 methodology,
which has been used to calculate the Group’s Scope 1 and 2
emissions in 2013 for activities within the operational control of the
Group. It is not currently intended to report Scope 3 emissions.
In measuring the Group’s greenhouse gas emissions, the sales offices
in the UK, France and China, in which a maximum of two staff are
employed, have been excluded on the grounds of materiality on the
basis that emissions from utility consumption, which is included in the
rent, are estimated to be less than a materiality threshold of 5% of
overall Group emissions. Additionally, since the Earthoil India operation
closed in January 2013 and the subsidiary primarily consisted of an
office, its emissions are also considered to be immaterial. Whilst
the majority of the data has been accurately recorded from invoice
information, since the timing of the implementation of the legislation
has only recently been announced, some opening data for the year
has not been recorded and estimates have been made on a pro-rated
basis, an example being vehicle mileage.
As this is the first occasion on which the Group has reported its
greenhouse gas emissions, there is no comparable data in respect
of prior years.
Scope 1 – Direct CO2 emissions (tonnes CO2e)
Scope 2 – Indirect CO2 emissions (tonnes CO2e)
Total tonnes CO2e emissions
gCO2e emissions per Kg of product shipped
2013
1,428
2,617
4,045
408
Data included in this table has been independently verified by Carbon
Credentials Energy Services Ltd and is covered by an assurance
report. GHG emissions have been calculated using the appropriate
2013 DEFRA conversion factors.
WaStE
Approximately 90% of Treatt USA’s refuse goes into one container
which is picked up by a recycle company and separated into different
recycle types. The remaining 10% composed of restroom and canteen
refuse is collected by the local authority as required by law.
12 TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013
At R C Treatt certain employees throughout the business are
appointed as waste champions with additional responsibility for the
reduction and efficient use of waste streams in their areas. All waste
streams in the UK continue to work towards a zero land fill waste
strategy. In addition, R C Treatt’s waste oil with a calorific value is sent
for use as biomass, thereby further reducing the Company’s carbon
footprint and eliminating disposal costs.
Earthoil Kenya utilises macadamia nut husks as a biomass fuel
source, burning an average of 22,000kgs per month to produce heat
for its distillation plant. As well as providing efficiencies in fuel costs
and reducing waste from the facility, the use of this biomass has a net
zero climate impact.
WatEr
The Group has decided to record water consumption data whilst
recording its greenhouse gas emissions in order to gain a greater
understanding of its environmental impact. The largest consumer of
water in the Group is Treatt USA, which uses large quantities in its
manufacturing processes and the cleaning of its specialist equipment.
Due to its high consumption, Treatt USA recently replaced its closed
loop cooling water circuit with direct cooling from deep well water
on all still condensers. This well water is then recycled back into the
aquifer via a second deep well. The system provides significant local
environmental benefits as well as reduced energy usage.
The Group’s own crop growing area in Kenya uses rain water harvested
in its own dam, a borehole and water pumped from a nearby river, for
which it pays a small annual fee. It does not purchase any water from
a water treatment company.
In recording water consumption for the Group, the sales offices in the
UK, France and China and the Earthoil India operation, have been
excluded on the basis that water usage is included in the rent. Whilst
the majority of the data has been accurately recorded from invoice
information, some opening data for the year has not been recorded
and estimates on consumption have been made on a pro-rata basis.
As this is the first occasion on which the Group has reported its water
consumption, there is no comparable data in respect of prior years.
Total water used (m³)
Water efficiency (litres per Kg of product shipped)
2013
39,708
4.00
Data included in this table has been independently verified by Carbon
Credentials Energy Services Ltd and is covered by an assurance
report.
EMPLOYMENT POLICIES
The Group is committed to a policy of recruitment and promotion on
the basis of aptitude and ability without discrimination. Applications for
employment by disabled persons are given full and fair consideration
for suitable vacancies, having regard to their particular aptitudes and
abilities. Where a person becomes disabled while in the Group’s
employment a suitable position will be sought for that person within
the Group where practical.
EMPLOYEE INVOLVEMENT
Meetings are held with employees to discuss the operations and
progress of the business and employees are encouraged to become
involved in the success of the Group through share option schemes
(see note 24). In particular, Executive Directors make half yearly results
presentations to all employees and encourage questions and dialogue
on any matters pertaining to the performance or activities within the
Group. In addition, the Information Exchange Committee (IEC) at
R C Treatt exists in order to encourage a further exchange of ideas
and information between the Company and its employees. The IEC
is chaired by the Human Resources Director and the members of the
Committee are all employees below management level who represent
all departments and areas of the business in the UK. Board members
make a point of visiting all Group affiliates and regularly carry out site
visits and tours, and thereby engage in meaningful discussions with
employees at all levels within the organisation. All-employee bonus
schemes, based on the performance of the business, remain in place.
STRUCTURE OF SHARE CAPITAL
As at 30 September 2013, the Parent Company’s share capital
comprises ordinary shares with a nominal value of 10 pence each.
All of the Parent Company’s issued ordinary shares are fully paid
up and rank equally in all respects. The rights attached to them, in
addition to those conferred on their holders by law, are set out in
the Articles, a copy of which can be obtained on request from the
Company Secretary.
Details of the issued ordinary share capital of the Parent Company
and movements during the year are set out in note 23 of the financial
statements. During both the current and prior period, the Parent
Company did not issue any new shares.
RESTRICTIONS ON TRANSFER OF SECURITIES
There are no restrictions on the transfer of ordinary shares or on
the exercise of voting rights attached to them, except (i) where the
Parent Company has exercised its right to suspend their voting rights
or to prohibit their transfer following the omission of their holder or
any person interested in them to provide the Parent Company
with information requested by it in accordance with Part 22 of the
Companies Act 2006 or (ii) where their holder is precluded from
exercising voting rights by the Financial Services Authority’s Listing
Rules or the City Code on Takeovers and Mergers.
RIGHTS AND OBLIGATIONS OF ORDINARY SHARES
On a show of hands at a general meeting every holder of ordinary
shares present in person or by proxy and entitled to vote shall have
one vote and on a poll, every member present in person or by proxy
and entitled to vote shall have one vote for every ordinary share held.
Subject to the relevant statutory provisions and the Articles, holders of
ordinary shares are entitled to a dividend where declared or paid out
of profits available for such purposes.
ARTICLES OF ASSOCIATION
The powers of the Directors are conferred on them by UK legislation
and the Articles of Association. Changes to the Articles must be
approved by shareholders passing a special resolution at a general
meeting.
POWERS OF THE DIRECTORS AND PURCHASE OF OWN
SHARES
At the forthcoming Annual General Meeting in 2014, the Parent
Company will be seeking shareholder authority for the Directors’
to purchase up to 10% of the Parent Company’s ordinary shares,
although at present the Directors have no plans to buy back any
TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013 13
Directors’ Report
continued
shares. It is, however, considered prudent to have the authority in
place in order that the Parent Company is able to act at short notice if
circumstances warrant. A resolution will also be proposed at the 2014
Annual General Meeting, to give the Directors the power to issue new
shares up to an amount of 33% of the existing issued share capital, in
line with the latest institutional guidelines issued by the Association of
British Insurers (ABI), of which 5% of the existing issued share capital
can be issued by disapplying pre-emption rights. These authorities, if
granted by shareholders at the Annual General Meeting, will expire at
the conclusion of the Annual General Meeting in 2015. It is the Parent
Company’s intention to seek renewal of these authorities annually.
TREATT EMPLOYEE BENEFIT TRUST (THE ‘EBT’)
The EBT holds ordinary shares in the Parent Company (acquired in
the market) in order to meet obligations under the Group’s employee
share option schemes. No shares (2012: 100,000 shares) were
purchased by the EBT during the year ended 30 September 2013.
The trustees have waived their voting rights and their right to receive
dividends (other than 0.001 pence per share) in respect of the ordinary
shares held by the trust.
ANNUAL GENERAL MEETING AND RESTRICTIONS ON
VOTING DEADLINES
The Annual General Meeting of the Parent Company will be held at
Treatt plc, Northern Way, Bury St Edmunds, Suffolk, IP32 6NL on
24 February 2014. The Notice of Meeting and explanatory notes
are given on pages 74 to 85. The notice of any general meeting will
specify the deadline for exercising voting rights and appointing a proxy
or proxies to vote in relation to resolutions to be proposed at a general
meeting. The number of proxy votes for, against or withheld in respect
of each resolution are announced and published on the Treatt website
after the meeting.
AUDITORS
Baker Tilly UK Audit LLP has indicated its willingness to continue
in office. On the recommendation of the Audit Committee, resolutions
are to be proposed at the Annual General Meeting for the re-
appointment of Baker Tilly UK Audit LLP as auditors of the Parent
Company and its subsidiaries, and to authorise the Board to fix their
remuneration. The remuneration of the auditors for the year ended 30
September 2013 is fully disclosed in note 5 to the financial statements.
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for preparing the Directors’ Report, the
Strategic Report, the Directors’ Remuneration Report, the Corporate
Governance Statement and the financial statements in accordance
with applicable law and regulations.
Company law requires the Directors to prepare Group and Parent
Company financial statements for each financial year. The Directors
are required under the listing rules of the Financial Services Authority
to prepare Group financial statements in accordance with International
Financial Reporting Standards (“IFRS”) as adopted by the European
Union (“EU”) and have elected under company law to prepare the
Parent Company financial statements in accordance with IFRS as
adopted by the EU.
The financial statements are required by law, and IFRS adopted by
the EU, to present fairly the financial position of the Group and the
Parent Company and the financial performance of the Group. The
Companies Act 2006 provides in relation to such financial statements
that references in the relevant part of that Act to financial statements
giving a true and fair view are references to their achieving a fair
presentation.
14 TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013
Under company law the Directors must not approve the financial
statements unless they are satisfied that they give a true and fair view
of the state of affairs of the Group and the Parent Company and of the
profit of the Group for that period.
In preparing each of the Group and Parent Company financial
statements, the Directors are required to:
a. select suitable accounting policies and then apply them
consistently;
b. make judgements and estimates that are reasonable and prudent;
c. state whether they have been prepared in accordance with IFRSs
adopted by the EU;
d. prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Group and the
Parent Company will continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Group’s and
the Parent Company’s transactions and disclose with reasonable
accuracy at any time the financial position of the Group and the Parent
Company and enable them to ensure that the financial statements
and the Directors’ Remuneration Report comply with the Companies
Act 2006 and, as regards the Group financial statements, Article 4
of the IAS Regulation. They are also responsible for safeguarding the
assets of the Group and the Parent Company and hence for taking
reasonable steps for the prevention and detection of fraud and other
irregularities.
DIRECTORS’ STATEMENT PURSUANT TO THE DISCLOSURE
AND TRANSPARENCY RULES
Each of the Directors, whose names and functions are listed in the
Directors’ Report, confirms that, to the best of their knowledge:
a.
the financial statements, prepared in accordance with IFRS as
adopted by the EU give a true and fair view of the assets, liabilities,
financial position and profit of the Group and Parent Company
and the undertakings included in the consolidation taken as a
whole; and
b. the Strategic Report contained in the annual report includes a fair
review of the development and performance of the business and
the position of the Group and the undertakings included in the
consolidation taken as a whole together with a description of the
principal risks and uncertainties that they face.
INFORMATION
STATEMENT AS TO DISCLOSURE OF
TO AUDITORS
The Directors who were in office on the date of approval of these
financial statements have confirmed, as far as they are aware,
that there is no relevant audit information of which the auditors are
unaware. Each of the Directors have confirmed that they have taken
all the steps that they ought to have taken as Directors in order to
make themselves aware of any relevant audit information and to
establish that it has been communicated to the auditors.
This report was approved by the Board on 6 December 2013.
ANITA STEER
Secretary
EXECUTIVE DIRECTORS
1 Nomination Committee
2 Remuneration Committee
3 Audit Committee
dAEmmon REEvE
Chief Executive Officer
1
AniTA hAinEs
Human Resources Director
RiChARd hoPE
Finance Director
experience
Daemmon Reeve has extensive
and
industry
knowledge, having been employed
at R C Treatt & Co Limited, the
Group’s UK operating subsidiary,
from 1991 to 2010. During this time
he gained widespread experience
in technical, operational, sales and
purchasing disciplines. Daemmon
was appointed CEO of Treatt USA
in July 2010 and Group CEO in
August 2012.
Anita Haines joined R C Treatt &
Co Limited in January 1988 as
Company Secretary and was
appointed Human Resources (HR)
Manager in September 2000. She
was appointed HR Director of the
Group in October 2002. Anita will
be retiring as Human Resources
Director with effect from 24 February
2014 and will be seeking re-election
as a Non-executive Director.
Richard Hope was appointed
Finance Director in May 2003. He
qualified as a Chartered Accountant
in 1990 at PricewaterhouseCoopers
and was appointed a Fellow of the
Institute of Chartered Accountants in
England and Wales in 2010. Richard
has held senior finance positions
in
value-added manufacturing
businesses for almost twenty years
having previously worked as Head
of Finance at Hampshire Cosmetics
Limited from 1996 until 2003.
NON-EXECUTIVE DIRECTORS
Tim JonEs
1
Chair
2
3
JEff iLiffE
1
2
3
Chair
dAvid JohnsTon
1
2
3
iAn nEiL
1
2
Chair
3
*
Jones
is Non-Executive
Tim
Chairman of Treatt, having joined
the Board in February 2012, and
is CEO and Secretary of Allia. He
is also Non-Executive Director
and Trustee of SkillsBridge, a
community support organisation.
Tim’s 35-year career spans financial
services, SME start-ups and social
entrepreneurship. He has worked
across the US, Middle East and
Europe, with posts including Head
of Marketing at Royal Insurance
and European Managing Director at
Direct Marketing Corporation. He is
a Fellow of the Royal Society for the
Arts, an Associate of the Chartered
Insurance Institute, an Associate
Fellow at Saïd Business School and
Entrepreneur-in-Residence at the
Centre for Entrepreneurial Learning.
Iliffe
joined
the Board
in
Jeff
February 2013 and is Chief Financial
Officer and Director of Cambridge-
based Abcam Plc, an AIM listed
global leader in the supply of high
quality protein research tools. He
has extensive experience of the
City, industry and internet-based
business. Jeff was a corporate
financier at Panmure Gordon & Co.
between 1989 and 1996, during
which time he advised Treatt, and
has held a number of financial
positions at companies including
Enviros Group Limited and Plethora
listed
Solutions plc, an AIM
company. Prior to joining Abcam in
2007, he was Chief Financial Officer
at the eCommerce company St
Minver Ltd.
Dr. David Johnston was appointed
to the Board in May 2011. David
has a PhD in Biochemistry and has
worked for Firmenich, one of the
leading global flavour and fragrance
companies for over 13 years in a
variety of roles, most recently as
Vice President of Innovation and
Design. David was also a member
of the flavour executive team at
Firmenich and held the position
of Vice President of the European
Flavour Association. David
is
currently part owner of Natural
Taste Consulting.
Ian Neil was appointed to the
Board
in December 2009. He
was with International Flavors and
Fragrances for 25 years in a variety
of international management roles,
including Vice President Europe,
Africa and Middle East (“EAME”)
Flavors. Ian is currently the UK
Director of Perfotec BV, a Laser
Micro Perforation provider for the
fresh produce packaging industry.
* Senior Independent Director
TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013 15
Strategic Report
OVERVIEW
The Group is required to produce a strategic report complying with
the requirements of The Companies Act 2006 (Strategic Report and
Directors’ Report) Regulations 2013 (‘the Regulations’).
We are clear about what we do and this is outlined on page 2.
In serving the flavour, fragrance and consumer goods industries, we
place a particular emphasis on the beverage market where many of
our innovative ingredient solutions are used.
An overview of the Group’s strategy and business model is set out
on page 1, and together with the Chairman’s Statement, CEO’s
Report and Financial Review, on pages 6 to 10 form part of this Group
Strategic Report. This incorporates a review of the Group’s activities,
its business performance and developments during the year as well as
an indication of likely future developments.
The Board approved a new Group strategy in December 2012 and this
was presented to all employees in the UK and US by the CEO during
January 2013. Underpinning the strategy outlined on page 1, is a clear
focus on delivering long-term and consistent growth in profitability by
focusing on those customers and products which can bring Treatt long
term sustainable value.
Our business model is designed to bridge the gap between the
raw material and providing the quality ingredient solutions which
our customers want. In doing so, we are increasingly leveraging our
position as a key supplier to major global multi-national corporations.
Key to the success of our business model is our experience and
knowledge of the ingredients we handle, and our focus on product
innovation.
In order to deliver long-term sustainable profit growth, there are four
key pillars to our strategy which support a focused sales approach:
• QUALITY – we have an excellent reputation for delivering quality
products but we are not complacent. We invest continuously in
our quality control and assurance processes to ensure that our
customers receive quality products, right first time.
• COST CONTROL – we continually bear down on costs and
improve the efficiency of our business in order to deliver the best
possible returns for shareholders. Where we can, we manage our
costs globally in order to maximise our efficiency.
• POSITIVE CULTURE – we strongly believe that a happy, well-
motivated workforce is a more successful one. As part of strategy
implementation, we have moved to ‘One Treatt’ and operate the
business on a progressively global platform. A business is only as
good as its people – we attract and promote the most talented
people to drive our business forward and foster a culture of
responsibility, accountability and openness.
• HEALTH & SAFETY – this is the number one priority in the
business. Without a safe business the Group cannot exist. We
continuously train and re-train our staff to ensure that we operate
best health and safety practices throughout the organisation.
KEY PERFORMANCE INDICATORS (KPIs)1
KPIs have been set at Group level, having been devised to allow the Board and shareholders to monitor the Group as a whole, as well as the
operating businesses within the Group. The Group has financial KPIs which it monitors on a regular basis at Board level and, where relevant, at
operational executive management meetings as follows:
Growth in adjusted profit before tax
Growth in adjusted basic earnings per share
Net operating margin
Return on capital employed2
Average net debt to EBITDA
2013
23.1%
25.6%
9.4%
19.4%
1.28
2012
2011
2010
2009
(20.6%)
(19.1%)
7.6%
14.4%
1.52
41.5%
40.5%
9.2%
20.5%
1.18
28.6%
23.6%
7.7%
14.6%
1.65
14.3%
25.9%
6.9%
12.3%
2.46
1 All KPIs are calculated excluding exceptional items
2 Return is defined as operating profit. Capital employed is defined as net assets plus net debt. Further explanation of the calculations is given on page 5.
In addition, the Board monitors a number of non-financial key performance indicators relating to health and safety and employee well-being
as follows:
Number of reportable accidents across the Group
Average number of sick days per employee
2013
3
3.45
2012
4
4.03
16 TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013
Position
Male Female
Total
Group Director
Senior Manager
Other Employees
Total Employees
6
27
186
219
1
11
78
90
7
38
264
309
SOCIAL, COMMUNITY AND HUMAN RIGHTS ISSUES
The Group endeavours to impact positively on the communities in
which it operates. Earthoil in particular is committed to purchasing oils
directly from source at a fair and sustainable price and works closely
with growers in under-developed countries through Fair for Life –
Social and Fair Trade certification.
Long term and trusted support and co-operation has also been
a driver for positive change which has led to Earthoil’s Kenyan
Organic Oil Farmers Association (KOOFA) increasing from its initial 90
members to now well over 500 producers. In addition, Community
funds provide further benefits to the farmers and their families, such
as scholarships, and a project is currently underway to build a social
hall for community activities.
Ethical concerns and human rights issues have always played an
important role in Treatt’s company philosophy and the Group’s
ethical and social accountability statement details the standards of
behaviour which Treatt regards as acceptable. Provision of a safe,
clean working environment, free from discrimination, coercion and the
use of child or forced labour is a basic right of all employees, which
Treatt expects of its business partners as a minimum standard. The
Group is often audited by its customers to assess compliance with
minimum acceptable standards, including ethical and human rights
considerations.
This strategic report was approved by the Board on 6 December
2013.
ANITA STEER
Secretary
RISKS AND UNCERTAINTIES
The Group has provided in the Chairman’s Statement, CEO Report,
Financial Review and the notes to the financial statements details of
various risks and uncertainties it faces, which include:
•
foreign exchange risk, particularly with regard to the US Dollar, as
many of the Group’s raw materials are considered to be dollar-
denominated commodities;
• credit risk in ensuring payments from customers are received in
•
full and on a timely basis;
legislative and regulatory risk as new requirements are being
imposed on business and the industries with which the Group
are involved, for example the European REACH (Registration,
Evaluation, Authorisation and restriction of CHemicals) legislation;
• movements in commodity and essential oil prices often caused
by unpredictable weather patterns or other sudden changes in
supply or demand, for example the impact of the 2004 Florida
hurricanes on grapefruit oil prices, the 2008 movement in lemon
oil prices, and the sharp rise and fall in orange oil prices between
2010 and 2012.
The Group has taken appropriate steps to manage and control these
risks, which include:
•
the implementation of a foreign exchange risk management policy
as explained in the Financial Review;
• agreeing appropriate payment terms with customers including,
where necessary, payment in advance or by securing payment
through bank letters of credit;
taking a pro-active and leading role in ensuring the Group’s
systems and procedures are adapted to ensure compliance with
new or changing legislative or regulatory requirements;
•
• ensuring that Group purchases of raw materials are based upon a
well-researched understanding of the risks involved and ensuring
that appropriate inventory balances are held in order to meet
future demand, whilst not holding excessive levels which may
expose the Group to unnecessary levels of risk.
Group risk is regularly reviewed at Board level to ensure that risk
management is being implemented and monitored effectively.
The Group regularly reviews its commercial insurance programme and
maintains an appropriate and adequate portfolio of insurance policies
in line with the nature, size and complexity of the business.
The Group also continues to have in place a ‘Business Continuity’
team whose on-going responsibility is to assess the issues which
the Group would face should it experience a major and unforeseen
disaster and to put in place a clear action plan as to how the Group
would continue to operate successfully in such an event.
DIVERSITY
Appointments within the Group are made on merit according to the
balance of skills and experience offered by prospective candidates.
Whilst acknowledging the benefits of diversity, individual appointments
are made irrespective of personal characteristics such as race,
disability, gender, sexual orientation, religion or age.
As a manufacturing Group, few women apply for positions
within the production areas. However, women are well represented
in other areas of the business and account for 29% of both the
Group workforce and Group senior management positions, as at
30 September 2013.
TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013 17
Corporate Governance Statement
At Treatt there is a commitment to high standards of corporate
governance throughout the Group and this is reflected in our governance
principles, policies and practices. We believe that effective governance,
not only in the boardroom but right across the business, ultimately
produces a better business and supports long-term performance.
TIM JONES
Chairman
COMPLIANCE WITH THE UK CORPORATE GOVERNANCE
CODE
The Board confirms that throughout the year ended 30 September
2013 the Group has complied with the provisions set out in the UK
Corporate Governance Code1, except for clause D1.5 in that one
Executive Director (who has announced their intention to retire as
an Executive Director) has a service contract which provides for
two years notice. This non-compliance will no longer apply from
February 2014. In addition, and as explained in the Directors’
Remuneration Report, the Board does not fully comply with D2.2,
in that the remuneration of Group senior managers is determined by
the Executive Directors as the Remuneration Committee believe that
they are best placed to make this decision. However, remuneration
proposals in respect of senior managers are reviewed by the
Remuneration Committee. The bonuses of all senior managers in the
Group are approved by the Remuneration Committee.
to conduct board meetings, meetings of shareholders and to ensure
that all Directors are properly briefed in order to take a full and
constructive part in Board discussions. The Chairman has regular
contact with the Non-executive Directors without the presence of the
Executive Directors. Concerns relating to the executive management
of the Group or the performance of the other Non-executive Directors
may be raised with the Senior Independent Director, who is Ian Neil.
The Board meets at least five times each year and more frequently
where business needs require, with attendance in person or by
video conference required at each meeting. In addition regular
contact is maintained by email and telephone with written updates
provided in respect of on-going issues, enabling regular input from
all Board members. On a bi-annual basis a Board meeting is held
at the Group’s US subsidiary, Treatt USA, to enable closer interaction
of the Non-executive Directors with the senior management and staff.
The Board is accountable to the Parent Company’s shareholders for
good governance and the statement set out below describes how
the principles identified in the UK Corporate Governance Code are
applied by the Group.
The Directors consider the annual report and financial statements,
taken as a whole to be fair, balanced and understandable and
provides the information necessary for shareholders to assess the
Group’s performance, business model and strategy.
The terms of reference of all the Committees can be found on the
Treatt website at www.treatt.com.
LEADERSHIP
Details of the Directors who served during the year, the positions they
hold, and the Committees of which they are members are shown
on page 15. The Board consists of four Non-executive Directors,
of which Tim Jones is chairman, and three Executive Directors, of
which Daemmon Reeve is Chief Executive Officer. Anita Haines will
retire as an Executive Director at the conclusion of the Annual General
Meeting and is standing for re-election as a Non-executive Director.
There is a clear division of responsibility between the Chief Executive
Officer, who is required to develop and lead business strategies and
processes to enable the Group’s business to meet the requirements of
its shareholders, and the Chairman who is responsible for leadership
of the Board and ensuring that appropriate conditions are created
to enable the Board to be effective in providing entrepreneurial
leadership to the company. The key functions of the Chairman are
1 A copy of the UK Corporate Governance Code can be obtained from www.frc.org.uk
18 TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013
Day to day management of the Group is delegated to the Executive
Directors. However the Board has a schedule of matters reserved
to it for decision and the requirement for Board approval on these
matters is communicated widely throughout the senior management
of the Group. These matters, which are reviewed periodically,
include material capital commitments, commencing or settling major
litigation, business acquisitions and disposals, appointments to
subsidiary company boards and dividend policy.
To enable the Board to function effectively and Directors to
discharge their responsibilities, full and timely access is given to
all relevant information. In the case of board meetings, this consists of
a comprehensive set of papers, including regular business progress
reports and discussion documents regarding specific matters.
Board meetings are of sufficient duration to enable debate and
discussion ensuring adequate analysis of issues during the decision
making process. Further opportunity for more informal and extended
discussion is provided at Board lunches which take place after every
Board meeting and also provide the Board with an opportunity to
meet members of staff, who are invited to attend.
There is an agreed procedure for Directors to take independent
professional advice if necessary and at the Group’s expense. This is
in addition to the access which every Director has to the Company
Secretary. The Secretary is charged by the Board with ensuring that
Board procedures are followed and that there are good information
flows within the Board and its Committees and between senior
management and Non-executive Directors.
EFFECTIVENESS
The Directors believe that the Board, having been refreshed in
2011, 2012 and 2013, has an appropriate balance of skills and
experience with financial, technical, industry specific and general
business disciplines being represented. The structure of the Board
ensures that no one Director is dominant in the decision-making
process and that open debate and discussion is encouraged.
There is a suitable balance between the number of Executive
and Non-executive Directors.
The importance of a diverse board, including gender diversity
which has been the subject of recent debate in respect of board
composition, is recognised and supported by the Directors of
Treatt plc. The Board is conscious of the benefits of diversity in the
boardroom and within management positions within the Group. Our
policy is to recruit the best possible candidate for each individual role
having regard to qualifications, experience and personality, without
prejudice to a candidate’s characteristics.
The Board considers that all the Non-executive Directors are
independent of management and free of any relationship which could
materially interfere with the exercise of their independent judgement.
In accordance with the UK Corporate Governance Code, in the event
of her re-election as a Non-executive Director in February 2014,
Anita Haines will not be regarded as independent as defined by the
code, having just retired as an Executive Director. None of the Non-
executive Directors have a significant interest in the shares of Treatt
plc and all receive a fixed fee for their services. However, in exceptional
circumstances, where significant additional time commitment is
required, a Non-executive Director may, if approved by the Board
or Remuneration Committee as required, be paid an additional fee.
The Board is satisfied that the Chairman’s other commitments do not
detract from the extent or the quality of the time which he is able to
devote to the Group.
NOMINATION COMMITTEE
Members of the Nomination Committee throughout the year are
shown on page 87. The Nomination Committee’s principal remit is
to consider the appointment or retirement of Directors, to review
proposed nominations, and make recommendations thereon to the
Board.
Appointments to the Board of both Executive and Non-executive
Directors are considered by the Nomination Committee, which
consults with Executive Directors and ensures that a wide range of
candidates are considered. The Committee considers the skills mix of
the serving Directors to identify potential gaps or areas where increased
strength is required. In accordance with Treatt’s Board Diversity Policy
and having recognised the benefit of having an appropriate level of
diversity on the Board to support the achievement of its strategic
objectives, the Committee also considers the benefits of all aspects
of diversity, including but not limited to, race, disability, gender, sexual
orientation, religion, belief, age and culture. The recommendations
of the Nomination Committee are ultimately made to the full Board
which considers them before any appointment is made.
During the year Jeff Iliffe was appointed as a Non-executive Director.
It had been recognised that following the change of Chairman in
2012, financial skills and city experience were under-represented on
the Board amongst the Non-executive Directors and a Non-executive
Director with those skills was sought to bridge the gap. Although
the role was not openly advertised, a number of applications were
received and considered. Jeff Iliffe, who had previously worked with
Treatt when he was at Panmure Gordon & Co. between 1989 and
1996, attended a series of interviews with the Nomination Committee
and subsequently the Executive Directors. Following satisfactory
completion of this process, the appointment was approved by the
full Board.
Upon appointment, Directors are provided with access to an
appropriate external training course and to advice from the Group’s
solicitors in respect of their role and duties as a public company
director. Where they have significant relevant experience for the role,
training may be felt to be unnecessary. In addition, all new Directors
receive an induction to acquaint them with the Group. This takes the
form of site tours, meetings with other Board members and senior
management and the provision of an induction pack, which contains
general information about the Group, its structure and key personnel,
together with copies of relevant policies and procedures, financial
information and briefings on Directors’ responsibilities and corporate
governance.
The Nomination Committee is also responsible for the annual
evaluation of the Board, its committees and its Directors. During the
year an evaluation of the Board, its committees and each individual
Director is carried out internally, with the assistance of the Company
Secretary, as the Board believes it has the appropriate resources
and experience to undertake the reviews. The Board and committee
reviews are conducted under the supervision of the appropriate
Chairman. The Board evaluation process involved completion, by
each Board member, of a comprehensive anonymous questionnaire
designed to evaluate each of the essential components of an effective
board. The results, which were benchmarked against the previous
year’s evaluation, demonstrated that performance is effective overall.
These results were reported to the Committee and action points
agreed to further improve performance.
The performance of individual Directors is evaluated by the Chairman,
in conjunction with the Chief Executive Officer in the case of other
Executive Directors. The Chairman is evaluated by the Chief
Executive Officer and Senior Independent Director. The process
includes individual performance meetings, at which past performance
is discussed and evaluated and future objectives established. In the
event that training and development needs are identified during
the evaluation process, suitable resources or training are provided.
During the course of the year, the Board has undertaken training on
corporate governance provided by an external trainer, specialising in
board support.
Any Director appointed during the year is required, under the
provisions of the Articles of Association, to retire and seek election by
shareholders at the next Annual General Meeting. The Articles also
require that one third of the Directors retire by rotation each year and
seek re-election at the Annual General Meeting provided always that
all directors must be subject to re-election at intervals of no more than
three years. Any Non-executive Director having been in post for nine
years or more, is subject to annual re-election. The Directors required
to retire are those in office longest since their previous re-election.
TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013 19
Corporate Governance Statement
continued
AUDIT COMMITTEE
ROLE AND RESPONSIBILITIES
The main responsibilities of the Audit Committee (“the Committee”) are:
• to monitor the integrity of the annual report of the Group and to
review and report to the Board on significant financial reporting
issues and judgements which it contains, having regard to matters
communicated to it by the auditor;
• to review the content of the annual report and advise the Board
on whether, taken as a whole, it presents a balanced assessment
of the Group’s position and provides the information necessary for
shareholders to assess the Group’s performance, business model
and strategy;
• to oversee the relationship with the auditor, including making
recommendations to the Board on their appointment, remuneration
and terms of engagement. The Committee also monitors their
independence and objectivity, and sets the policy for non-audit
work;
• to make recommendations to the Board on the requirement for an
internal audit function; and
• to ensure that procedures are in place whereby staff of the Group
may, in confidence, raise concerns about possible improprieties
in matters of financial reporting or other matters. The Committee
has arrangements in place for the proportionate and independent
investigation of such matters and for appropriate follow-up action.
ACTIVITIES SINCE THE LAST REPORT
• the composition of the Committee was reviewed and on appointment
to the Board in February 2013 Jeff Iliffe was invited to join as
Chairman. Jeff is deemed by the Board to have significant, recent
and relevant financial experience. He is a Chartered Accountant
with over 20 years experience in the financing and management of
companies, both in the City and in industry;
• a review of the Committee’s terms of reference was undertaken
and revisions made to reflect the current responsibilities of the
Committee;
• a review of the requirement for an internal audit function was
undertaken. Given the structure of the Group, and the level of
control exercised by the management team, the establishment of a
formal internal audit function was not considered to be necessary
at present. As the Group develops, the need for such a function will
be kept under review;
• the Committee met with the auditor to agree the scope of audit
work to be undertaken and agree the audit fee;
• a review of the auditor’s performance was undertaken, to ensure
that they remain objective and independent, and to assess the
effectiveness of the audit;
• the Group’s annual report for 2013 was reviewed to ensure that
taken as a whole, it was fair, balanced and understandable. This
included consideration of a report from the auditor on their audit
and review of the financial statements; and
• the policy for the engagement of the external auditor for non-audit
related services was reviewed together with an assessment of its
implementation during the year.
FINANCIAL REPORTING
Amongst the matters considered by the Committee were the key
accounting issues, matters and judgement in relation to the Group’s
2013 annual report and financial statements relating to:
• the presentation of the financial statements and in particular the
treatment of exceptional items in respect of legal and professional
fees relating to the Earthoil contract dispute, and advisory fees and
20 TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013
other costs incurred to support the Group in discussions with the
Bovill family shareholders and related matters;
• the treatment of the contingent consideration included within the
investment of the Earthoil Group;
• the level of provisions made against the carrying value of inventories;
and
• the estimation of taxable profits in the jurisdictions in which the
Group operates to support the current tax liability.
After due challenge and debate the Committee was content that
the assumptions made and judgements applied in these areas,
which where possible are supported by external advice or other
corroborative evidence, are reasonable and therefore agreed with
management recommendations.
The Committee also reviewed compliance with the additional
disclosure requirements recently introduced for companies reporting
on financial years ending on or after 30 September 2013, which
the Group is reporting on for the first time. This included changes
to the reporting on Directors’ remuneration and the introduction of
the remuneration policy, the new strategic report and reports on
greenhouse gas emissions and gender diversity.
MEMBERSHIP AND MEETINGS
Members of the Audit Committee throughout the year are shown on
page 87. The Committee has met twice since the approval of the 2012
financial statements. The auditor attended these meetings other than
when their appointment or performance was being reviewed. The
Chief Executive Officer, Finance Director and other senior finance staff
attend as and when appropriate. The Committee has discussions
at least once a year with the auditor without management being
present. Furthermore the Committee Chairman meets informally
with, and has access to, the Finance Director to discuss matters
considered relevant to the Committee’s duties.
EXTERNAL AUDITOR
The Committee has oversight of the relationship with the external
auditor and is responsible for monitoring the auditor’s independence,
regulatory
objectivity and compliance with professional and
requirements. The incumbent auditors, Baker Tilly UK Audit LLP, were
invited to submit a full audit tender in 2009 and were reappointed, on
an annual rolling contract but with a long-term agreement on fees,
on the basis of their proposal. During the year the Committee has
monitored Baker Tilly’s effectiveness and performance and were
satisfied that Baker Tilly were providing the audit services agreed.
The Committee has therefore recommended to the Board that Baker
Tilly be reappointed in 2014.
The level of non-audit fees and their effect on the auditor’s
independence or objectivity is also considered on a regular basis.
The split between audit and non-audit fees for the year under review
appears in note 5. Non-audit fees are generally paid mainly in respect
of tax compliance services and advice on share schemes. The Group
has a policy to ensure that the provision of such services does not
impair their independence or objectivity and when considering the use
of the auditor to undertake non-audit assignments, management give
consideration at all times to the provisions of the FRC Guidance on
Audit Committees with regard to the preservation of independence.
REMUNERATION COMMITTEE
The Remuneration Committee’s primary responsibility is to determine
the remuneration of the Executive Directors of the Group ensuring
that there is a sufficient balance between the levels of ordinary
remuneration and performance-related elements designed
to
promote the Group’s long term success.
Full details of the Directors’ remuneration and a statement of the
Group’s remuneration policy are set out in the Directors’ Remuneration
Report appearing on pages 23 to 35. Members of the Remuneration
Committee throughout the year are shown on page 87. The Chief
Executive Officer attends meetings of the Remuneration Committee
to discuss the performance of the other Executive Directors and
make proposals as necessary, but is not present when his own
position is being discussed.
Each Executive Director abstains from any discussion or voting at
full Board meetings on Remuneration Committee recommendations
where the recommendations have a direct bearing on their own
remuneration package. The details of each Executive Director’s
individual package are fixed by the Committee in line with the policy
adopted by the full Board.
ACCOUNTABILITY
The Board is responsible for reviewing and approving the annual report and financial statements, the half year results and other financial
statements made to ensure they present a balanced assessment of the Group’s position. Drafts of all financial releases are provided to the
Board in a timely manner and Directors’ feedback is discussed and incorporated where appropriate, prior to publication.
ATTENDANCE AT MEETINGS
The members of the Board during the year and its Committees, together with their attendance, are shown below:
Board
Audit
Committee
Nomination
Committee
Remuneration
Committee
Number of meetings held in year
Daemmon Reeve
Chief Executive Officer
Anita Haines
Human Resources Director
Richard Hope
Finance Director
6
6
6
6
Tim Jones
Non-executive Director and Chairman
6
Chairman
2
N/A
N/A
N/A
2
Jeff Iliffe
Non-executive Director from 25 February 2013
David Johnston
Non-executive Director
Ian Neil
Senior Independent Non-executive Director
Peter Thorburn
Non-executive Director until 25 February 2013
5
6
6
1
1
Chairman
2
2
Chairman (1)
1
3
3
N/A
N/A
3
Chairman
2
3
3
1
5
N/A
N/A
N/A
5
4
5
5
Chairman
1
As permitted by the Parent Company’s Articles of Association, Directors may participate in the minuted decisions via telephone or video
communication where it is impractical for them to attend in person.
TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013 21
Corporate Governance Statement
continued
FINANCIAL AND INTERNAL CONTROL
The Board confirms that a process for the on-going identification,
evaluation and management of significant risks faced by the Group
has been in place throughout the year and to the date of approval
of this report, which complies with the guidance ‘Internal Control:
Guidance to Directors’ (“the Turnbull guidance”). The process is
subject to regular review by the Board and there were no significant
internal control issues identified during the year.
INFORMATION TECHNOLOGY
The Group operates on a common centrally managed computer
platform. This provides common reporting and control systems and
the ability to manage and interrogate businesses remotely. However,
there are associated risks with having the entire group IT systems on
a common platform, such as IT security, access rights and business
continuity. These risks are mitigated by an on-going focus on IT
security through a process of continuous investment in IT facilities.
The Directors are responsible for the Group’s system of internal
control, the effectiveness of which is reviewed by them annually. This
covers all controls including those in relation to financial reporting
processes (including the preparation of consolidated accounts). In
addition to monitoring reports received via the Executive Directors
they consider the risks faced by the Group, whether the control
systems are appropriate and consult with internal and external
experts on environmental, insurance, legal and health and safety
compliance. However, such a system can only provide reasonable
but not absolute assurance against material misstatement or loss.
The key procedures that the Directors have established to provide
effective internal controls are as follows:
FINANCIAL REPORTING
A detailed formal budgeting process for all Group businesses
culminates in an annual Group budget which is approved by the
Board. Results for the Group and its main constituent businesses
are reported monthly against the budget to the Board and revised
forecasts for the year are prepared through the year. The Group
uses a standardised consolidation system for the preparation of
the Group’s monthly management accounts, half year and annual
consolidated financial statements, which is subject to review by
senior management throughout the consolidation process.
The Board monitors the integrity of all financial announcements
released by the Group, ensuring that, among other things, appropriate
accounting standards and policies are applied consistently, that
all material information is presented and that the disclosures are
accurate.
FINANCIAL AND ACCOUNTING PRINCIPLES
Financial controls and accounting policies are set by the Board so as
to meet appropriate levels of effective financial control. Compliance
with these policies and controls is reviewed where necessary by
external auditors.
CAPITAL INVESTMENT
The Group has clearly defined guidelines for capital expenditure.
These include annual budgets, appraisal and review procedures,
and levels of authority. Post-investment appraisals are performed for
major investments.
RISK ASSESSMENT AND INFORMATION
Operational management in conjunction with the Executive Directors,
who report regularly to the Board, are responsible for identification
and evaluation of significant risks applicable to their area of business
and the design and operation of suitable internal controls. Details of
the principal risks associated with the Group’s activities are given in
the Strategic Report on page 17.
RELATIONS WITH SHAREHOLDERS
The Group places a great deal of importance on communication with
its shareholders. The Parent Company mails to all shareholders its full
annual report and financial statements. This information, together with
the quarterly interim management statements, half yearly statements
and other financial announcements, is also available on the Group’s
website and, upon request, to other parties who have an interest in
the Group’s performance.
There is regular dialogue with individual institutional and other major
shareholders as well as presentations after the half and full year
results. The views of major shareholders are communicated and
discussed at Board meetings and Non-executive Directors may
request meetings with major shareholders should they wish to do so
and vice versa. All shareholders have the opportunity to put questions
at the Parent Company’s Annual General Meeting.
This report was approved by the Board on 6 December 2013.
ANITA STEER
Secretary
22 TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013
Directors’ Remuneration Report
ANNUAL STATEMENT
INTRODUCTION
As Chairman of the Remuneration Committee, I am pleased to
present our report on Directors’ remuneration.
This report has been prepared in accordance with the new legislation
relating to the reporting of Directors’ remuneration and complies with
the Companies Act 2006 (‘the Act’) and Schedule 8 of the Large
and Medium-sized Companies and Groups (Accounts and Reports)
Regulations 2008 (the ‘Regulations’), as amended. The report also
meets the relevant requirements of the Listing Rules of the Financial
Conduct Authority and describes how the Board has applied the
Principles of the UK Corporate Governance Code relating to Directors’
remuneration. In accordance with the Act, the Remuneration Report is
now divided into two sections, a Remuneration Policy Report, which
describes our approach to remuneration, and an Implementation
Report, which details the remuneration paid to the Directors during
the financial year under review. The Remuneration Policy Report and
the Implementation Report will be put to binding and advisory votes
respectively at the AGM of the Parent Company on 24 February
2014.
2013 PERFORMANCE
As detailed elsewhere in this report, the Group performed well in
2013, meeting upwardly revised expectations for adjusted pre-
tax profit and earnings per share. The Group’s new strategic plan,
although only approved in late 2012, showed some early signs of
success, contributing towards the year’s result. The base salaries of
Anita Haines and Daemmon Reeve were increased with effect from 1
October 2013 by 1% and 2.7% respectively, in line with the increases
received by staff generally. The base salary of Richard Hope was
increased by 8% following the identification of a misalignment with
benchmarking data relative to other Fledgling Index companies.
REMUNERATION POLICY
The aim of our remuneration policy is to attract and retain
appropriately skilled and experienced Directors with the ability to
deliver the Group’s strategic objectives and obtain good returns
for shareholders in accordance with the Group’s values. This may
be achieved through an appropriate combination of salary, benefits
and performance-related longer term incentives, which align the
interests of Directors with shareholders. Following consultation with
the Group’s major shareholders, a share retention policy has been
adopted by the Board which imposes a shareholding requirement of
200% of salary on the Chief Executive Officer and 150% of salary on
the Finance Director.
The Committee believes that this policy is aligned with our business
strategy outlined elsewhere in this report. The Committee is also
satisfied that within the remuneration policy, and particularly in respect
of the setting of performance targets, there is a sufficient balance
between encouraging entrepreneurial behaviour without encouraging
excessive risk-taking.
In a departure from provision D2.2 of the UK Corporate Governance
Code, the remuneration of Group senior management is determined
by the Executive Directors since the Board believes that the
Executive Directors are best placed to make this decision. However,
remuneration proposals in respect of senior managers are reviewed
and monitored by the Committee to ensure consistency and
proportionality. The bonuses of all senior managers in the Group are
approved by the Committee.
DECISIONS MADE DURING THE YEAR
In line with its terms of reference, the following key matters were
considered by the Committee during the year:
•
• approval of the 2012 Directors’ Remuneration Report;
• agreement of the bonuses payable for the 2012 financial year;
• grant of share options to directors under the Treatt 2005
Approved and Unapproved Share Option Schemes and the
setting of performance conditions;
review of the remuneration policy and the remuneration
arrangements for the Executive Directors and Chairman;
review of salary levels for the Executive Directors and agreement
of salary increases for the 2014 financial year;
to propose a Long Term Incentive Plan to shareholders at the
2014 AGM which will operate in place of the existing Treatt 2005
Approved and Unapproved Share Option Schemes; and
to propose an all-employee Share Incentive Plan to shareholders
at the 2014 AGM.
•
•
•
During the year all elements of the packages of the Executive
Directors were reviewed and no significant changes have been made,
although greater emphasis will be placed on share-based incentives
going forward with new plans, as detailed above, being proposed to
shareholders.
I hope that shareholders will support the resolutions on Directors
remuneration and the new share schemes and I will be available at
the AGM to answer any questions you may have.
IAN NEIL
Chairman
Remuneration Committee
Members of the Committee are shown on page 87 and for full
biographies of the Committee members see page 15. The terms of
reference of the Committee can be found on the Treatt website at
www.treatt.com.
POLICY SECTION
REMUNERATION POLICY REPORT
The Committee’s policy is to ensure that remuneration structures are
simple, transparent and proportional to the size and complexity of the
business whilst ensuring that Executive Directors are fairly rewarded
for the role they undertake. The main principles of the remuneration
policy are:
• salaries should be competitive but not excessive when compared
•
•
to similar companies;
remuneration packages should align the interests of Directors
with shareholders by using stretching performance metrics that
provide a strong link to the creation of shareholder value;
there should be appropriate balance between fixed and
performance-related pay to ensure delivery of results over the
short, medium and longer term;
• performance metrics should not encourage a culture of excessive
risk taking;
• Directors should invest in and retain shares in Treatt.
The Committee reviews its policy annually to determine whether it
remains effective and aligned to the Group strategy. As a result of
this review greater emphasis will be placed on longer-term share-
based incentives to more closely align the interests of Directors with
shareholders and provide stretching longer term targets to encourage
strong performance.
The current intention is that the framework of this remuneration policy
will apply for future years.
TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013 23
Directors’ Remuneration Report
continued
EXECUTIVE DIRECTORS’ REMUNERATION
The following table sets out a summary of each element of the Executive Directors’ remuneration, how it operates, the maximum opportunity
available, applicable performance metrics and changes to remuneration for the 2014 financial year:
Performance
Metrics
Individual and
company
performance are
considered
Element —
Purpose and link
to strategy
Base salary
Help recruit and retain
high calibre Executive
Directors
To provide a competitive
salary relative to the size
of the Group
Reflects individual
experience and the role
Maximum
Opportunity
Excluding a review
required by a
change in role or
responsibility, to align
with benchmarking,
or in exceptional
circumstances, the
annual increase
should not exceed
the average
salary increase of
employees within
the Group
Operation
Reviewed annually by the
Committee with changes taking
effect from 1 October unless a
change in responsibility requires an
interim review
Influenced by personal
performance and by the increase in
salaries of other Group employees
Normally benchmarked at
intervals of 3 years against similar
companies and targeted broadly at
the median level
Discretion may be exercised for the
purpose of retention
Changes for 2014
financial year
No changes have been
made to the salary review
process.
Base salary increase for
Richard Hope addresses
the misalignment with
benchmarking. Other
base salary increases are
consistent with increases
of Group employees
The car and fuel
allowances of Daemmon
Reeve and Richard
Hope have been rolled
into salary to provide a
simpler remuneration
structure
Not applicable
None
Except as otherwise
stated these are on
the same terms as
the benefits received
by other employees
in the country in
which the Director is
resident
Benefits
Help recruit and retain
high calibre Executive
Directors
Entitlement to the following benefits
on the same terms as employees
in the country in which Director is
resident:
Private Healthcare - except that
Daemmon Reeve also receives
Family Cover in the UK; Life
Assurance; Permanent Health
Insurance – except that Daemmon
Reeve receives enhanced long
term disability cover; All-employee
Share Schemes
Any new benefits introduced to
staff generally shall be provided to
Directors on equal or comparable
terms
Discretion may be exercised to
provide appropriate benefits that
might become payable as a result
of a new business requirement,
such as a need for a Director to
relocate
24 TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013
Maximum
Opportunity
100% of salary
100% of salary based
on market value of
shares at date of
grant
Element —
Purpose and link
to strategy
Annual Bonus
(Note 1)
Provides an element
of at risk pay, which
incentivises the
achievement of good
annual financial results
Aligns Directors’ interests
with shareholders
Share Options
(Note 2)
Incentivises Directors
to achieve returns for
shareholders over a
longer time frame
Aligns Directors’ interests
with shareholders
Operation
The rules of the Executive
Directors Bonus Scheme and the
performance targets are reviewed
every three years
A bonus pool is calculated by
reference to the achievement
of performance targets for the
financial year and each Director
is entitled to a set percentage of
the pool, subject to the maximum
opportunity
Bonuses are subject to
determination by the Committee
after year end and are paid in cash
in December
Discretion may be exercised
in respect of the treatment of
exceptional items which may
have the effect of increasing or
decreasing the bonus pool
The Group has one Approved and
one Unapproved Share Option
Scheme which were approved by
shareholders in February 2005.
Grants of options are considered
annually after year end. The
quantum of awards are reviewed
to ensure that they are in line with
market rates
Awards must be made at market
price with vesting dependent on
the achievement of performance
conditions over a period
determined by the Committee,
which shall be a minimum of
3 years
Discretion may be exercised in
respect of the performance criteria
by replacing the current measure
with a similarly appropriate
measure or combination of
measures
The Committee may also exercise
the specific discretions contained
within the rules of the scheme, as
approved by shareholders
Performance
Metrics
Changes for 2014
financial year
For 2014 bonuses the
Committee’s discretion
has been extended to
include the ability to
reduce bonus where
circumstances have
created a sufficiently
significant impact on
the reputation of the
Group to justify, in the
view of the Committee,
the operation of this
discretion
The bonus pool is being
re-calibrated, and will
range from 1.5% to 9%
of profits in excess of a
minimum level
Daemmon Reeve will be
eligible to receive 60%
of the pool, and Richard
Hope 40%
None
The bonus pool
is based on an
amount by which
adjusted pre-tax
profit exceeds a
minimum level
The bonus pool
ranges from
3% of pre-tax
profit above the
threshold level rising
incrementally to a
maximum of 16%
for performance
exceeding the
threshold by a
specified margin
Performance is
measured over
three years. The
vesting of the
options shall be
subject to growth
in adjusted basic
EPS exceeding
a minimum level
during the period
from date of grant
to date of vesting
20% vests at
threshold rising
incrementally
to 100% for
performance
exceeding the
threshold by a
specified margin
Options lapse if
performance criteria
are not met at the
end of the three
year performance
period
TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013 25
Directors’ Remuneration Report
continued
Element —
Purpose and link
to strategy
Long Term Incentive
Plan (Note 2)
Incentivises Directors
to achieve returns for
shareholders over a
longer time frame
Aligns Directors interests
with shareholders
Maximum
Opportunity
Performance
Metrics
Changes for 2014
financial year
If approved, 2014 will be
the first year in which this
scheme will operate
100% of salary based
on market value of
shares at date of
grant
The vesting of the
awards shall be
subject to growth
in adjusted basic
EPS exceeding
a minimum level
during the period
from date of grant
to date of vesting
20% vests at
threshold rising
incrementally
to 100% for
performance
exceeding the
threshold by a
specified margin
Awards lapse if
performance criteria
are not met at the
end of the three
year performance
period
Operation
The Board has proposed an
LTIP which will be put before
shareholders at the AGM in
February 2014
The Committee will consider
awards of shares under the
LTIP annually and will review the
quantum of awards to ensure that
they are in line with market rates
Awards will be made at nil cost
with vesting dependent on the
achievement of performance
conditions over a period
determined by the Committee,
which shall be a minimum of
3 years
Discretion may be exercised in
respect of the performance criteria
by replacing the current measure
with a similarly appropriate
measure or combination of
measures
The Committee may also exercise
the specific discretions contained
within the rules of the scheme, as
approved by shareholders
Share Retention Policy Holding requirements:
Not applicable
Not applicable
This policy is effective
from 6 December 2013
CEO – 200% of basic salary
FD – 150% of basic salary
Directors are required to retain
shares acquired under share-
based incentive awards until the
holding requirements are met,
save that they are permitted to
sell sufficient shares to pay any
exercise price and all applicable
taxes due in respect of that award
Entitlement to receive employer
contributions into a defined
contribution pension scheme on
the same terms as employees in
the country in which the Director is
resident
Daemmon Reeve also receives a
contribution into a Supplemental
Executive Retirement Plan (SERP)
Pension
Help recruit and retain
high calibre Executive
Directors and to provide
a competitive package
relative to the size of the
Group
26 TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013
Not applicable
None
UK employees -
9% base salary
contribution or 15%
where previously
a member of the
defined benefit
pension scheme (no
personal contribution
required in either
case)
US employees – up
to 6% base salary
contribution, which
matches personal
contribution
SERP - 4% base
salary contribution
(no personal
contribution required)
Element —
Purpose and link
to strategy
Recruitment of
Executive Directors
Enable recruitment of
high calibre Executive
Directors able to
contribute to the success
of the Group
Clawback
To ensure Executive
Directors do not
benefit from errors or
misconduct
Operation
Salary will be set to reflect skills
and experience of incoming
Director and market rate for the
role to be undertaken
Existing benefits and incentives
of the Group to be used with
participation on the same basis as
existing Directors
Payment of relocation expenses
where relevant
In the event of an internal
promotion any commitments made
prior to promotion may continue
to be honoured when they would
otherwise be inconsistent with this
policy
Discretion may be exercised in
exceptional circumstances and
existing entitlements with current
employer, such as bonus and
share schemes, may be bought
out on a like for like basis and
subject to performance conditions
Provisions are to be included
in performance-related
remuneration to enable
clawback of remuneration
which has been overpaid due
to material misstatement of the
Group’s accounts, errors made
in calculation or a Director’s
misconduct
Maximum
Opportunity
Performance
Metrics
Changes for 2014
financial year
Based on existing
Treatt performance
conditions
Not applicable
Recruitment awards
are subject to the
maximum value of
any outstanding
awards forgone by
the recruit
Not applicable
Not applicable
These provisions will be
included in respect of
2014 and onwards
Notes
1 The performance targets were set by the Remuneration Committee and are reviewed annually to ensure that they continue to incentivise
strong financial performance. The Committee continues to believe that this performance measure offers a balance between the needs
of shareholders, in providing good profitability and providing a measure of performance over which the Executive Directors have direct
influence. The Committee considers that the level of performance required is appropriately stretching.
The bonuses of staff and senior management are restricted to between 12% and 75% of base salary depending on seniority, role and
market conditions.
2 Performance targets are set by the Committee at the date of grant of the options to ensure that they are appropriately stretching. The
Committee considers adjusted basic EPS to be a complete and appropriate measure of performance, capturing revenue growth and
operating margin. EPS targets are aligned with the Board’s strategy.
If the LTIP is approved by shareholders in February 2014 it will replace the Approved and Unapproved Share Option Schemes and no further
grants will be made under these schemes after February 2014. Renewal of the Approved and Unapproved Share Option Schemes will not
be sought once they expire in February 2015. The LTIP permits the grant of nil cost options which, subject to remaining an employee and
the satisfaction of performance criteria, provide the participants with the benefit of the full market value of the shares.
Awards under the Approved and Unapproved Schemes and the proposed LTIP may be made to Senior Executives who have significant
influence over the Group’s ability to meet its strategic targets with such awards being subject to the achievement of performance conditions
set by the Committee at the date of grant.
TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013 27
Directors’ Remuneration Report
continued
NON-EXECUTIVE DIRECTORS’ REMUNERATION
Element —
Purpose and link
to strategy
Fees
To recruit high calibre
Non-executive Directors
To reward additional
responsibility by virtue of position
as Chairman of the Board or
Chairman of a Committee
Operation
Subject to an aggregate limit within the
Articles of Association, for which the
Board has proposed an increase which
will be put before shareholders at the
AGM in February 2014
Reviewed annually with changes taking
effect from 1 October
The Chairman’s fees are reviewed
by the Committee and the other Non-
executives’ fees are reviewed by the
Board (excluding the Non-executives)
Influenced by the increase in salaries of
other Group employees and by personal
performance
Benchmarked against similar companies
and targeted broadly at the median level
Additional fees may be paid in respect
of increased responsibility or time
commitment required by the role or in
respect of invoiced consultancy fees,
where relevant
Maximum
Opportunity
Excluding a review
required by a change
in role or responsibility
or to align with
benchmarking the
annual increase should
not exceed the average
increase of employees
within the Group
Changes for 2013/2014
Fee increase for Tim Jones
takes account of an increase in
the time commitment required
for the role and addresses the
misalignment with benchmarking
Fee increases for the other
Non-executive directors are
consistent with increases of
group employees, except that
a small additional fee has been
awarded in respect of the
position of Chairman of the Audit
and Remuneration Committees
Where exceptional circumstances arise, the Committee shall have discretion to approve payments not specifically referred to above where the
Committee, acting in good faith and taking into account the needs of the wider business, considers it reasonable and appropriate to do so.
ILLUSTRATION OF REMUNERATION POLICY
The graphs below provide estimates of the potential future reward for each of the Executive Directors based on their current roles, the
remuneration policy outlined on pages 23 to 30 and base salaries as at 1 October 2013. Although Daemmon Reeve is paid in US Dollars, the
figures below are in Pounds Sterling at an exchange rate of £1=$1.56, being the average rate over the preceding twelve months.
As the illustrations are forward-looking, Anita Haines is not included as an Executive Director as she will be stepping down from her position at
the AGM on 24 February 2014 and will be standing for re-election as a Non-executive Director.
REMUNERATION POLICY ILLUSTRATION
(£’000)
500
400
300
200
100
0
Minimum
On target
Maximum
Minimum
On target
Maximum
Chief Executive Officer -
Daemmon Reeve
Finance Director -
Richard Hope
Salary
Benefits
Pension
Bonus
Share Options
Only those share options which potentially vest in 2014 have been included and have been calculated as the difference in market value at
30 September 2013, being £6.025 and the option price. Following the consolidation of car and fuel allowances into salaries, Richard Hope’s
benefits total less than £1,000 per annum and are not shown.
28 TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013
COMPARISON OF REMUNERATION POLICY
This policy sets out the remuneration structure applicable to Directors of the Group. Salary levels and incentive arrangements applicable to
other Group employees are determined by reference to local employment conditions for comparative roles.
Budgeted salary increases for Group employees are taken into consideration when determining increases for the Executive Directors.
Employees are provided with a competitive benefits package including healthcare, life assurance and pension. Recent replacement of the
defined benefit scheme in the UK has applied equally to all employees, including Directors. Consistent with Directors, employees are eligible to
participate in an annual bonus scheme with conditions linked to the performance of their operating subsidiary and the Group overall. Employee
share ownership is encouraged across the Group and participation, particularly in the UK, is strong. If approved, the introduction of a Share
Incentive Plan in the UK is designed to further encourage employee share ownership. Eligible employees, including Executive Directors, are
able to participate in the all-employee share schemes on equal terms. Executive Directors and key employees with the greatest potential to
influence achievement of the Group’s strategic objectives are provided with share options or Long Term Incentives (if approved by shareholders)
designed to encourage strong Group performance.
The Group does not consult with employees in respect of the Executive Directors remuneration policy. However, the Committee receives
regular updates on salary and bonus levels across the Group and is aware of how the remuneration of Directors compares to employees.
In addition, when setting remuneration levels for the Executive Directors the Committee takes account of the levels of remuneration received
by executive directors of similar companies that are selected on the grounds of:
• size in terms of turnover, profits and number of people employed;
• a ranking within the FTSE Fledgling Index or FTSE Small Cap Index;
•
•
• market segment.
the diversity and complexity of the business;
the geographical spread of its business; and
Whilst remuneration consultants have not been engaged, regular benchmarking is undertaken against companies within the FTSE Fledgling
and Small Cap Indexes using salary reports and surveys of established remuneration consultants.
DIRECTORS’ CONTRACTS
ExEcutivE dirEctorS
The Committee reviews the contractual terms of new and existing Executive Directors to ensure that they reflect best practice and are designed
to attract and retain suitable candidates. The Committee considers that a rolling contract terminable on twelve months’ notice by either party is
appropriate. The notice period of Anita Haines, which she is currently serving and expires at the 2014 AGM, is historic and is no longer regarded
as appropriate by the Committee.
Summary of Director’s service contracts as at 30 September 2013:
Daemmon Reeve
Richard Hope
Anita Haines
Date of contract
Notice period
30 October 2012
12 May 2003*
24 December 2002
12 months
12 months
2 years
* Richard Hope signed a new contract on 1 October 2013 which is consistent with the new remuneration policy.
Summary of the key elements of Directors’ service contracts:
Provision
Notice period
Termination payment
Salary
Benefits
Summary
12 months by either party
Exception — Anita Haines
Daemmon Reeve — Payment in lieu of notice clause providing for base salary and benefits payable
during notice period
Richard Hope — No provision for payment in lieu of notice
Reviewed annually with effect from 1 October each year
Private healthcare, life assurance, permanent health insurance or other disability cover, pension
Participation in discretionary incentive arrangements determined by the Committee
TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013 29
Directors’ Remuneration Report
continued
The Directors’ contracts are available for inspection at the Company’s registered office during normal business hours.
Future contracts are to provide for remuneration obligations comparable to those set out above taking into consideration role and responsibility,
except in exceptional circumstances where additional incentive is required in order to secure the services of an outstanding candidate.
non-ExEcutivE dirEctorS
All Non-executive Directors are subject to the same terms and conditions of appointment which provide for the payment of fees for their
services in connection with Board and Board Committee meetings. In their Non-executive capacities they do not qualify for participation in any
of the Group’s bonus, share option or other incentive schemes, and they are not eligible for pension scheme membership.
The terms and conditions of appointment of Non-executive Directors are available for inspection at the Company’s registered office during
normal business hours.
PAYMENTS FOR LOSS OF OFFICE
In accordance with the UK Corporate Governance Code notice periods shall not exceed a maximum of twelve months.
In normal circumstances it is expected that termination payments for Executive Directors should not exceed current salary and benefits for the
notice period. When determining termination payments in the event of early termination, the Committee will take into account a variety of factors
including length of service, personal and company performance, the Director’s obligation to mitigate his loss, statutory compensation to which
a Director may be entitled and legal fees and other payments which may be payable under a Settlement Agreement.
A Director who has been given notice by the Company for any reason other than on the grounds of injury, disability, redundancy or change
of control shall only be eligible to a payment under the bonus scheme at the discretion of the Committee, which will take into account the
circumstances leading to the notice.
Directors have no entitlement to performance-related share-based incentives, the unvested portion of which will generally lapse following
termination of employment. However, in certain circumstances, such as injury, disability or redundancy, share options, which shall be pro-rated
by reference to the amount of the performance period completed and subject to performance conditions, may be exercised within six months
of termination. Where termination is for any other reason, share options may only be exercised at the discretion of, and to the extent permitted
by the Committee, acting fairly and reasonably.
PAYMENTS TO A FORMER DIRECTOR
The compensation for loss of office agreed with Hugo Bovill, the former Group Managing Director, comprised on-going elements which the
Company is contractually obligated to continue to pay. The value of these on-going elements was accrued in the figure for compensation for
loss of office disclosed in the 2012 annual report and financial statements.
The Company agreed to a fixed sum to provide future private medical insurance for Mr Bovill and his children. The annual premiums paid by
the Company in respect of this cover will be deducted from the fixed sum until the residual amount is insufficient to cover the annual premium,
whereupon the Company’s obligations will cease.
Additionally, due to the length of Mr Bovill’s tenure, the Company agreed to a small fixed sum to provide outplacement advice, which is payable
upon invoice.
EXTERNAL APPOINTMENTS
Whilst neither of the Executive Directors currently serve as Non-executive Directors on the boards of other companies, it is recognised that
such appointments would provide an opportunity to gain broader experience outside of Treatt which would benefit the Group. In the event that
the Directors are offered such positions and providing that they are not likely to lead to a conflict of interest or significant constraints on time,
Executive Directors may, with the prior approval of the Board, accept Non-executive appointments and retain the fees received.
SHAREHOLDER VIEWS
The Remuneration Committee has engaged pro-actively with the Group’s major shareholders in respect of the details of this policy and
welcomed feedback received from them. The Committee will also consult with major shareholders prior to any material changes to the
remuneration policy.
This Remuneration Policy, if approved at the 2014 Annual General Meeting, shall be effective immediately.
30 TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013
IMPLEMENTATION REPORT
The following section of this report provides details of the implementation of the policy for the year ended 30 September 2013.
DIRECTORS’ REMUNERATION (AUDITED)
The tables below report a single figure for total remuneration for each individual Executive and Non-executive Director respectively.
Executive Directors:
Salary
Taxable Benefits (Note 1)
Annual Bonus (Note 2)
Share Options vesting in the financial year
Pension
Daemmon Reeve
Richard Hope
Anita Haines
2013
2012*
2013
2012
2013
2012
201
14
171
4
16
405
66
4
54
3
—
127
142
21
118
5
14
300
138
21
78
3
12
252
121
20
118
5
26
290
119
20
78
3
30
250
* Remuneration shown for Daemmon Reeve in the prior year relates only to the period of five months following his appointment to the Board in May 2012.
Non-executive Directors:
Tim Jones
Jeff Iliffe (From 25 February 2013)
David Johnston
Ian Neil
Peter Thorburn (Until 25 February 2013)
Fees
2013
2012
42
20
29
29
15
18*
—
29
29
31
135
107
* Remuneration shown for Tim Jones in the prior year relates only to the period of seven months following his appointment to the Board in February 2012.
Note 1: Taxable benefits provided to Executive Directors include a car allowance, fuel and private medical insurance. As explained in the
remuneration policy report, with effect from 1 October 2013, car allowances and re-imbursement of fuel expenses will be incorporated into
basic salaries for all Directors other than those retiring during the year.
Note 2: Details relating to the annual bonus are as follows:
The annual bonus for Executive Directors is calculated based upon the amount by which profit before tax and exceptional items (at the
discretion of the Remuneration Committee) exceeds a minimum level of 10% of adjusted net assets, with the actual result for the year being
a return on adjusted net assets of 24.5%. Net assets are adjusted to exclude any movement in the pension liability which is considered to be
outside the control of the Executive Directors. The annual bonus is capped at a maximum of 100% of annual basic salary. The annual bonus,
as a percentage of the maximum achievable, was as follows:
Daemmon Reeve
Richard Hope
Anita Haines
2013
85%
83%
97%
2012
50%
56%
66%
The proportion of fixed and variable pay, exclusive of pension, benefits and share options, is shown below for the Executive Directors:
Daemmon Reeve
Richard Hope
Anita Haines
Basic Salary
Annual Bonus
2013
54%
55%
51%
2012
55%
64%
60%
2013
46%
45%
49%
2012
45%
36%
40%
TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013 31
Directors’ Remuneration Report
continued
PERFORMANCE GRAPH
This performance graph shows Treatt
Plc’s performance, measured by
total shareholder return, compared
with the performance of the FTSE All
Share Index, also measured by total
shareholder return, which has been
selected by the Board as being the
most appropriate measure against
which to benchmark its performance.
• Treatt Plc
• FTSE All Share
8
0
/
9
/
0
3
m
o
r
f
n
r
u
t
e
r
l
r
e
d
o
h
e
r
a
h
S
%
250.00
200.00
150.00
100.00
50.00
0.00
Total shareholder return 2008-2013
Sep 08
Sep 09
Sep 10
Sep 11
Sep 12
Sep 13
CEO REMUNERATION
The following table provides historical data on remuneration in respect of the Director(s) performing the role of Chief Executive Office for each
of the years covered by the performance graph:
Total remuneration (£’000)
Annual bonus as % of maximum1
Share options vesting as % of maximum4
2013
405
85%
100%
20122
2011
2010
274
11%3
100%
447
104%
100%
281
47%
100%
2009
307
30%
100%
1 Prior to 2012 there was no cap on the payment of annual bonuses to Executive Directors, therefore the percentage of annual salary is shown by way of comparative.
2 The CEO Remuneration for 2012 is the combined remuneration paid to the current and previous CEO for the periods when they held that post.
3 The 2012 annual bonus only related to two months of the financial year.
4 All share options vested in full as they were all-employee share options which were not subject to performance conditions.
The percentage change in remuneration of the Director undertaking the role of CEO, compared to employees as a whole was as follows:
CEO
Employees3
Salaries
Bonus
6.0%1
4.5%
32%2
74%
1 The percentage increase in CEO salary compares the 2013 salary of the current CEO to the combined 2012 salaries of the current and previous CEO for the periods when they held
that post.
2 The percentage increase in bonus, compares the 2013 bonus of the current CEO with the annualised equivalent bonus earned by the current CEO in 2012 in his capacity as CEO.
3 The employees used for comparison are those UK and US employees who, for the salary comparison, were employed for the whole of the 2013 financial year, and for bonuses, for the
whole of both the 2012 and 2013 financial years.
RELATIVE IMPORTANCE OF SPEND ON PAY
Wages and salaries are the most significant overhead cost in the Group. The following table sets out, in a manner prescribed by the
regulations, the relative importance of employee remuneration, as compared to distributions to shareholders and other significant
uses of profit, the most significant of which, taxation, has therefore been selected:
Total remuneration1
Dividends2
Current tax3
1 Total remuneration includes wages, salaries and pension costs as disclosed in note 6.
2 Dividends paid in the financial year as disclosed in note 10.
3 Current tax payable in respect of the financial year as disclosed in note 9.
2013
2012
Movement
10,837
1,585
1,496
9,852
1,490
901
+10%
+6%
+66%
32 TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013
DIRECTORS’ INTERESTS (AUDITED)
The Directors who held office at 30 September 2013 had the following interests in the shares of the Parent Company:
Executive Directors
Daemmon Reeve
Richard Hope
Anita Haines
Non-executive Directors
Tim Jones
Shares Held
Outright or Vested
Unvested Share
Options with
Performance Conditions
Unvested
All-Employee
Share Options
2013
2012
2013
2012
2013
2012
14,944
27,769
10,136
8,897
10,971
8,839
15,639
2,564
—
12,499
10,751
—
—
—
—
—
635
2,650
—
—
1,088
3,359
1,297
—
There have been no changes between 1 October 2013 and 5 December 2013, the latest date practicable to obtain the information prior to
publication of this document, other than an additional 236 shares received by Richard Hope under a dividend reinvestment plan.
The table below shows the value of Executive Directors’ interests in shares as at 30 September 2013 as a percentage of their base salary:
Daemmon Reeve
Richard Hope
Anita Haines
Value of Shares Held
Outright or Vested
Base Salary1
Value of
Interest as % of
Base Salary
2013
£’000
90
167
61
2012
£’000
31
38
30
2013
£’000
201
142
121
20122
£’000
158
138
119
2013
%
45%
118%
50%
2012
%
19%
27%
26%
1 Base salary is the average basic gross pay for the corresponding year.
2 The comparative salary for Daemmon Reeve is for the whole of the 2012 financial year and not from the date of his appointment to the Board.
SHARE OPTION SCHEMES (AUDITED)
The following share options were granted to Executive Directors during the financial year:
Scheme
Basis
Date of
Grant
Share Price
at Date
of Grant
Face
Min
Value Performance Performance
End Date
Award
£’000
Daemmon Reeve
ESPP 2013 (1)
ISO 2013 (2)
All-staff
Individual
15 Jul 13
14 Dec 12
Richard Hope
SAYE 2013 (3)
ASO 2013 (4)
All-staff
Individual
15 Jul 13
14 Dec 12
£6.00
£3.95
£6.00
£3.95
4
62
4
10
N/A
20%
N/A
20%
N/A
30/9/17
N/A
30/9/15
1 ESPP (Employee Stock Purchase Plan) share options are offered to US employees (subject to tax exempt limits) at a discount of 15% of the share price at date of grant and are
exercisable after one year.
2 ISO (Incentive Stock Options) are granted at the share price at date of grant, subject to performance conditions.
3 SAYE (Save As You Earn) share options are offered to UK employees (subject to tax exempt limits) at a discount of 20% of the average share price for the three days preceding the date
of grant and are exercisable after three years.
4 ASO (Approved Share Options) are granted at the average share price for the three days preceding the date of grant, subject to performance conditions.
The performance conditions for ISO and ASO options are as follows:
Average annual growth in adjusted basic earnings per share during the period from date of grant to date of vesting. The option shall vest on
the following sliding scale: 20% where average annual growth equals or exceeds 6%; 40% where average annual growth equals or exceeds
7%; 60% where average annual growth equals or exceeds 8%; 80% where average annual growth equals or exceeds 9%; and 100% where
average annual growth equals or exceeds 10%.
TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013 33
Directors’ Remuneration Report
continued
The share options of the Directors in office during the year are as set out below:
Exercise
Dates
Exercise
Price
Daemmon Reeve
Jul 2013
Jul 2014
Dec 2017 – Dec 2022
284p
501p
395p
At
1 Oct
2012
1,088
—
—
Granted
During
the Year
—
635
15,639
Exercised
During
the Year
Expired
During
the Year
(1,088)
—
—
1,088
16,274
(1,088)
Richard Hope
Sep 2013 – Feb 2014
Sep 2014 – Feb 2015
Sep 2015 – Feb 2016
Sep 2016 – Feb 2017
Dec 2015 – Dec 2022
222p
340p
267p
489p
390p
1,297
849
1,213
—
—
—
—
—
588
2,564
(1,297)
—
—
—
—
3,359
3,152
(1,297)
Anita Haines
Sep 2013 – Feb 2014
222p
1,297
—
(1,297)
At
30 Sep
2013
—
635
15,639
16,274
—
849
1,213
588
2,564
5,214
—
—
—
—
—
—
—
—
—
—
—
—
The aggregate amount of gains made by the Directors on the exercise of share options in the year was £14,000 (2012: £13,000).
There have been no further changes in the interests of the Directors to subscribe for or acquire shares between 1 October 2013 and
5 December 2013, the latest date practicable to obtain the information prior to publication of this document.
The market price of the shares at 30 September 2013 was £6.025 and the range during the financial year was £3.425 to £6.325. All market
price figures are derived from the Daily Official List of the London Stock Exchange.
PENSIONS (AUDITED)
Certain Executive Directors are deferred members of the R C Treatt & Co Limited Pension & Assurance Scheme following its closure to future
accruals on 31 December 2012. The plan was a non-contributory, H.M. Revenue & Customs approved, defined benefit occupational pension
scheme. Its main features are:
• a normal pension age of 65 but early retirement may be permitted from age 55;
• a pension at normal pension age of two thirds of final pensionable salary, subject to completion of 20 years’ service;
•
• spouse’s pension on death.
life assurance cover of four times basic annual salary;
Pensionable salary is the member’s basic salary, excluding all bonuses. From 1 October 2004, pensionable salary was restricted to the lower
of actual salary and salary as at 1 January 2004 as adjusted for the cumulative increase in inflation until retirement.
The pension entitlement of these Directors is as follows:
Normal
Retirement Date
Increase in Accrued
Pension During Year
(Excluding Inflation)
2012
2013
£
£
Transfer Value
in Respect of Increase
(Excluding Inflation)
2012
2013
£
£
Daemmon Reeve
Anita Haines
24 Sep 2036
6 Nov 2017
65
593
—
1,499
385
8,309
5,457
21,637
Accrued Total
Pension at
2013
£
20,178
43,816
2012
£
19,680
42,293
The transfer values have been calculated on the basis of actuarial advice in accordance with Regulation 7B(2) of the Occupational Pension
Schemes (Transfer Values) Regulations 1996. Further details of the scheme are included in note 25.
34 TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013
In addition, contributions to defined money purchase pension plans were made as follows:
Daemmon Reeve*
Richard Hope
Anita Haines*
2013
£’000
15
14
14
2012
£’000
—
12
—
* Following the closure of the defined benefit scheme, with effect from 1 January 2013 Daemmon Reeve and Anita Haines were in receipt of contributions towards money purchase pension plans
as shown.
STATEMENT OF VOTING
At the Annual General Meeting held on 25 February 2013, the votes cast in respect of the resolution to approve the Directors’ Remuneration
Report, were as follows:
For: 75.3% Against: 24.7% Votes withheld: 1,510,874
AUDIT NOTES
In accordance with Section 421 of the Companies Act 2006 and the Regulations, where indicated, certain information contained within the
Implementation Section of this report has been audited. The remaining sections are not subject to audit.
This report was approved by the Board and signed on its behalf on 6 December 2013.
ANITA STEER
Secretary
TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013 35
Independent Auditor’s Report to the Members of Treatt plc
We have audited the Group and Parent Company financial statements
(“the financial statements”) on pages 38 to 73. The financial reporting
framework that has been applied in their preparation is applicable law
and International Financial Reporting Standards (IFRSs) as adopted
by the European Union and, as regards the Parent Company financial
statements, as applied in accordance with the provisions of the
Companies Act 2006.
This report is made solely to the Parent Company’s members, as a
body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state
to the Parent Company’s members those matters we are required
to state to them in an auditor’s report and for no other purpose. To
the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Parent Company and the
Parent Company’s members as a body, for our audit work, for this
report, or for the opinions we have formed.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITOR
As more fully explained in the Directors’ Responsibilities Statement
set out on page 14, the Directors are responsible for the preparation
of the financial statements and for being satisfied that they give a
true and fair view. Our responsibility is to audit and express an
opinion on the financial statements in accordance with applicable
law and International Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing Practices Board’s
(APB’s) Ethical Standards for Auditors.
SCOPE OF THE AUDIT OF THE FINANCIAL STATEMENTS
A description of the scope of an audit of financial statements is provided
on the Financial Reporting Council’s website at http://www.frc.org.uk/
Our-Work/Codes-Standards/Audit-and-assurance/Standards-and-
guidance/Standards-and-guidance-for-auditors/Scope-of-audit/UK-
Private-Sector-Entity-(issued-1-December-2010).aspx
OPINION ON FINANCIAL STATEMENTS
In our opinion:
•
•
•
•
the financial statements give a true and fair view of the state of the
Group’s and the Parent Company’s affairs as at 30 September
2013 and of the Group’s profit for the year then ended;
the Group financial statements have been properly prepared in
accordance with IFRSs as adopted by the European Union;
the Parent Company financial statements have been properly
prepared in accordance with IFRSs as adopted by the European
Union and as applied in accordance with the provisions of the
Companies Act 2006; and
the financial statements have been prepared in accordance with
the requirements of the Companies Act 2006 and, as regards the
Group financial statements, Article 4 of the IAS Regulation.
OPINION ON OTHER MATTERS PRESCRIBED BY THE
COMPANIES ACT 2006
In our opinion:
•
•
•
the part of the Directors’ Remuneration Report to be audited has
been properly prepared in accordance with the Companies Act
2006;
the information given in the Strategic Report and the Directors’
Report for the financial year for which the financial statements are
prepared is consistent with the financial statements; and
the information given in the Corporate Governance Statement set
out on pages 18 to 22 in compliance with rules 7.2.5 and 7.2.6
in the Disclosure Rules and Transparency Rules sourcebook
issued by the Financial Conduct Authority (information about
internal control and risk management systems in relation to
financial reporting processes and about share capital structures)
is consistent with the financial statements.
MATTERS ON WHICH WE ARE REqUIRED TO REPORT BY
EXCEPTION
We have nothing to report in respect of the following:
• Under the ISAs (UK and Ireland) we are required to report to you if,
in our opinion, information in the annual report is:
• materially inconsistent with the information in the audited
financial statements; or
• apparently materially incorrect based on, or materially
inconsistent with, our knowledge of the Group acquired in
the course of performing our audit; or
• otherwise misleading.
In particular, we are required to consider whether we have identified
any inconsistencies between our knowledge acquired during the audit
and the Directors’ statement that they consider the annual report is
fair, balanced and understandable and whether the annual report
appropriately discloses those matters that we communicated to the
audit committee which we consider should have been disclosed.
• Under the Companies Act 2006 we are required to report to you if,
in our opinion:
• adequate accounting records have not been kept by the
parent company, or returns adequate for our audit have not
been received from branches not visited by us; or
the Parent Company financial statements and the part of
the Directors’ Remuneration Report to be audited are not in
agreement with the accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by
•
law are not made; or
• we have not received all the information and explanations
we require for our audit; or
• a Corporate Governance Statement has not been prepared
by the Parent Company.
36 TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013
• Under the Listing Rules we are required to review:
•
•
the Directors’ statement, set out on pages 11 and 12, in
relation to going concern;
the part of the Corporate Governance Statement on page
18 relating to the Parent Company’s compliance with the
nine provisions of the UK Corporate Governance Code
specified for our review; and
• certain elements of the report to shareholders by the Board
on Directors’ remuneration.
OUR ASSESSMENT OF RISKS OF MATERIAL MISSTATEMENT
We identified the following risks as being those which had the most
significant impact on our audit strategy and set out below how each
of these were addressed by the scope of our audit:
•
the valuation of inventories and, in particular, the determination of
provisions against obsolete, slow moving and defective lines and
against items where expected net realisable value is lower than
cost.
We reconfirmed our understanding of the basis for determining
inventory provisions and the controls over this process, and
considered whether these continued to be appropriate and
consistently applied. We tested a sample of inventory provisions,
considered their appropriateness and reviewed post year end
transactions to consider whether there were further inventory
lines which ought to have been provided for. We also reviewed
the outcome of prior year provisions.
•
the accounting for and disclosure of the claim made by the
vendors of the Earthoil subsidiaries, acquired in 2008, in respect
of the deferred consideration relating to their earn-out.
independent professional advice
We reviewed the progress of the claim and considered
in connection with
the
management’s assessment of the Group’s liability in respect of
the earn-out and the disclosures relating to the contingent liability
relating to this claim. We reviewed the accounting treatment and
disclosures regarding the costs incurred in defending the claim
and reviewed post year end transactions for omitted liabilities in
this regard. We undertook specific post balance sheet enquiries
to confirm that events to the date of signing the audit report were
appropriately reflected and disclosed.
OUR APPLICATION OF MATERIALITY
When establishing our overall audit strategy, we set certain thresholds
which help us to determine the nature, timing and extent of our audit
procedures and to evaluate the effects of misstatements, both
individually and on the financial statements as a whole. During
planning we determined a magnitude of uncorrected misstatements
that we judge would be material for the financial statements as a
whole (FSM). During planning FSM was calculated as £400,000,
which was not changed during the course of our audit.
We agreed with the Audit Committee that we would report to them
all unadjusted differences in excess of £10,000, as well as differences
below those thresholds that, in our view, warranted reporting on
qualitative grounds.
AN OVERVIEW OF THE SCOPE OF OUR AUDIT
Our group audit approach focused on the Parent Company and
the three key trading subsidiaries, two in the UK and one in the US.
The UK entities are subject to local statutory audit completed to
the Group reporting timetable. The US entity is not subject to local
statutory audit and has been subject to full scope audit to Group
materiality. The US entity audit was undertaken by the same team as
the UK statutory audits.
These audits covered 98% of Group revenue, 98% of Group profit
before tax, and 99% of Group total assets.
CHARLES FRAY (Senior Statutory Auditor)
For and on behalf of BAKER TILLY UK AUDIT LLP, Statutory Auditor
Chartered Accountants
Abbotsgate House
Hollow Road
Bury St Edmunds
Suffolk IP32 7FA
6 December 2013
TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013 37
Group Income Statement
for the year ended 30 September 2013
Revenue
Cost of sales
Gross profit
Administrative expenses
Operating profit
Loss on disposal of subsidiaries
Finance revenue
Finance costs
Profit before taxation and exceptional items
Exceptional items
Profit before taxation
Taxation
Profit for the period attributable to owners of the Parent Company
Earnings per share
Basic
Diluted
Adjusted basic
Adjusted diluted
All amounts relate to continuing operations
Notes 1 - 29 form part of these financial statements
Notes
2013
£’000
2012
£’000
4
74,097
74,009
(56,510)
(57,319)
17,587
16,690
(10,649)
(11,062)
6,938
5,628
(60)
85
(736)
—
108
(676)
6,227
5,060
(1,093)
(598)
5,134
4,462
(1,655)
(1,390)
3,479
3,072
34.0p
33.9p
43.2p
43.0p
30.0p
29.9p
34.4p
34.3p
5
15
7
7
8
9
11
11
11
11
38 TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013
Group Statement of Comprehensive Income
for the year ended 30 September 2013
Profit for the period attributable to owners of the Parent Company
Other comprehensive income/(expense):
Items that may be reclassified subsequently to profit or loss:
Currency translation differences on foreign currency net investment
Current tax on foreign currency translation differences
Deferred tax on foreign currency translation differences
Fair value movement on cash flow hedge
Deferred tax on fair value movement
Items that will not be reclassified subsequently to profit or loss:
Actuarial loss on defined benefit pension scheme
Current tax credit on actuarial loss
Deferred tax credit on actuarial loss
Notes
2013
£’000
3,479
2012
£’000
3,072
9
9
28
16
25
9
16
(180)
30
—
546
(135)
261
(1,058)
72
158
(828)
(339)
9
(12)
(169)
30
(481)
(478)
—
110
(368)
Other comprehensive expense for the period
(567)
(849)
Total comprehensive income for the period attributable to owners of the Parent Company
2,912
2,223
Notes 1 - 29 form part of these financial statements
TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013 39
Group and Parent Company Statements of Changes in Equity
for the year ended 30 September 2013
Group
Share
capital
£’000
Share
premium
£’000
Own
shares in
share
trust
£’000
Hedging
reserve
£’000
Foreign
exchange
reserve
£’000
Retained
earnings
£’000
Total
equity
£’000
1 October 2011
1,048
2,757
(485)
(864)
974
22,121
25,551
Profit for the period
Other comprehensive
income/(expense):
Exchange differences net of tax
Fair value movement on cash
flow hedge net of tax
Actuarial gain on defined benefit
pension scheme net of tax
Total comprehensive income
Transactions with owners:
Dividends
Share-based payments
Movement in own shares in
share trust
Loss on release of shares in
share trust
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(251)
—
—
—
—
—
1 October 2012
1,048
2,757
(736)
(1,033)
Profit for the period
Other comprehensive
income/(expense):
Exchange differences net of tax
Fair value movement on cash
flow hedge net of tax
Actuarial loss on defined
benefit pension scheme net of tax
Total comprehensive income
Transactions with owners:
Dividends
Share-based payments
Movement in own shares in
share trust
Loss on release of shares in
share trust
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
114
—
—
—
546
—
546
—
—
—
—
—
—
3,072
3,072
—
(339)
(169)
—
—
—
(3)
30
(368)
(342)
(139)
(368)
(169)
(339)
2,731
2,223
—
—
—
—
635
—
(180)
—
—
(1,490)
25
—
(55)
(1,490)
25
(251)
(55)
23,332
26,003
3,479
3,479
30
(135)
(828)
(150)
411
(828)
(180)
2,546
2,912
—
—
—
—
(1,585)
22
(1,585)
22
—
(23)
114
(23)
30 September 2013
1,048
2,757
(622)
(487)
455
24,292
27,443
Notes 1 - 29 form part of these financial statements
40 TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013
Group and Parent Company Statements of Changes in Equity
for the year ended 30 September 2013
Parent Company
1 October 2011
Profit for the period
Total comprehensive income
Transactions with owners:
Dividends
Movement in own shares in share trust
Loss on release of shares in share trust
1 October 2012
Profit for the period
Total comprehensive income
Transactions with owners:
Dividends
Movement in own shares in share trust
Capital contribution to subsidiary undertakings
Loss on release of shares in share trust
Share
capital
£’000
Share
premium
£’000
Own
shares in
share
trust
£’000
Retained
earnings
£’000
1,048
2,757
(485)
1,330
—
—
—
—
—
—
—
—
—
—
1,048
2,757
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(251)
—
(736)
—
—
—
114
—
—
2,058
2,058
(1,490)
—
(55)
1,843
1,571
1,571
(1,585)
—
22
(23)
Total
equity
£’000
4,650
2,058
2,058
(1,490)
(251)
(55)
4,912
1,571
1,571
(1,585)
114
22
(23)
30 September 2013
1,048
2,757
(622)
1,828
5,011
Notes 1 - 29 form part of these financial statements
TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013 41
Group and Parent Company Balance Sheets
as at 30 September 2013
Registered Number: 1568937
Notes
Group
2013
£’000
2012
£’000
Parent Company
2012
2013
£’000
£’000
ASSETS
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Investment in subsidiaries
Deferred tax assets
Trade and other receivables
Redeemable loan notes receivable
Current assets
Inventories
Trade and other receivables
Current tax assets
Derivative financial instruments
Cash and cash equivalents
Total assets
LIABILITIES
Current liabilities
Borrowings
Provisions
Trade and other payables
Current tax liabilities
Net current assets/(liabilities)
Non-current liabilities
Deferred tax liabilities
Borrowings
Trade and other payables
Post-employment benefits
Derivative financial instruments
Redeemable loan notes payable
Total liabilities
Net assets
EQUITY
Share capital
Share premium account
Own shares in share trust
Hedging reserve
Foreign exchange reserve
Retained earnings
12
13
14
15
16
18
28
17
18
28
19
20
21
22
16
20
22
25
28
28
23
1,075
684
11,718
—
278
586
—
1,080
718
11,543
—
286
586
—
14,341
14,213
23,669
13,207
128
219
1,117
22,915
13,959
252
—
927
38,340
38,053
—
—
—
5,238
—
586
1,350
7,174
—
454
—
—
—
454
—
—
—
5,216
—
586
1,350
7,152
—
58
—
—
—
58
52,681
52,266
7,629
7,210
(522)
(49)
(11,292)
(621)
(8,407)
—
(8,938)
—
(1,915)
—
(4)
—
(12,484)
(17,345)
(1,919)
25,856
20,708
(1,465)
(1,001)
(8,889)
(23)
(1,589)
(577)
(675)
(880)
(5,469)
(23)
(838)
(1,033)
(675)
(12,754)
(8,918)
—
—
(23)
—
—
(675)
(698)
(1,566)
—
(34)
—
(1,600)
(1,542)
—
—
(23)
—
—
(675)
(698)
(25,238)
(26,263)
(2,617)
(2,298)
27,443
26,003
5,011
4,912
1,048
2,757
(622)
(487)
455
24,292
1,048
2,757
(736)
(1,033)
635
23,332
1,048
2,757
(622)
—
—
1,828
5,011
1,048
2,757
(736)
—
—
1,843
4,912
Total equity attributable to owners of the Parent Company
27,443
26,003
Notes 1 - 29 form part of these financial statements
The financial statements were approved by the Board of Directors and authorised for issue on 6 December 2013 and were signed on its behalf by:
Tim Jones
Chairman
Richard Hope
Finance Director
42 TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013
Group and Parent Company Statement of Cash Flows
for the year ended 30 September 2013
Cash flow from operating activities
Profit before taxation
Adjusted for:
Foreign exchange loss
Depreciation of property, plant and equipment
Amortisation of intangible assets
Loss on disposal of property, plant and equipment
Loss on disposal of subsidiaries
Net finance costs
Share-based payments
Increase in fair value of derivatives
Decrease in post-employment benefit obligation
Group
2013
£’000
2012
£’000
Parent Company
2012
2013
£’000
£’000
Notes
5,134
4,462
1,560
2,033
14
13
15
7
24
28
—
1,219
181
3
60
714
22
(129)
(307)
(258)
1,104
159
—
—
618
25
—
(443)
—
—
—
—
—
44
—
—
—
—
—
—
—
—
66
—
—
—
Operating cash flow before movements in working capital
6,897
5,667
1,604
2,099
Movements in working capital:
Increase in inventories
Decrease/(increase) in trade and other receivables
Increase/(decrease) in trade and other payables, and provisions
Cash generated from operations
Taxation (paid)/received
Net cash from operating activities
Cash flow from investing activities
Disposal of subsidiaries
Proceeds on disposal of property, plant and equipment
Purchase of property, plant and equipment
Purchase of intangible assets
Interest received
Cash flow from financing activities
(Decrease)/increase in bank loans
Amounts converted to non-current borrowings
Interest paid
Dividends paid
Net sale/(purchase) of own shares by share trust
(789)
876
2,266
9,250
(649)
8,601
(9)
2
(1,433)
(147)
22
(2,578)
(2,104)
497
1,482
(1,279)
203
—
—
(2,651)
(136)
58
(1,565)
(2,729)
—
(397)
(29)
1,178
11
1,189
—
—
—
—
20
20
(2,223)
—
(736)
(1,585)
91
692
3,158
(676)
(1,490)
(306)
—
—
(64)
(1,585)
91
—
173
(156)
2,116
24
2,140
—
—
—
—
37
37
—
—
(103)
(1,490)
(306)
(4,453)
1,378
(1,558)
(1,899)
15
14
13
7
7
10
Net increase/(decrease) in cash and cash equivalents
2,583
(1,148)
(349)
278
Cash and cash equivalents at beginning of period
(1,341)
(178)
(1,566)
(1,844)
Effect of foreign exchange rates
(147)
(15)
—
—
Cash and cash equivalents at end of period
1,095
(1,341)
(1,915)
(1,566)
Cash and cash equivalents comprise:
Cash and cash equivalents
Bank borrowings
Notes 1 - 29 form part of these financial statements
19
20
1,117
(22)
927
(2,268)
—
(1,915)
—
(1,566)
1,095
(1,341)
(1,915)
(1,566)
TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013 43
Group Reconciliation of Net Cash Flow to Movement in Net Debt
for the year ended 30 September 2013
Increase/(decrease) in cash and cash equivalents
Decrease/(increase) in bank loans
Amounts converted from current borrowings
Cash inflow/(outflow) from change in net debt in the period
Effect of foreign exchange rates
Movement in net debt in the period
Net debt at start of the period
Net debt at end of the period
Notes 1 - 29 form part of these financial statements
2013
£’000
2,436
2,223
—
4,659
2012
£’000
(1,163)
(692)
(3,158)
(5,013)
(4)
58
4,655
(12,949)
(4,955)
(7,994)
(8,294)
(12,949)
44 TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013
Notes to the Financial Statements
for the year ended 30 September 2013
1. GENERAL INFORMATION
Treatt plc (‘the Parent Company’) is a public limited company incorporated in the United Kingdom and domiciled in England and Wales.
The Parent Company’s shares are traded on the London Stock Exchange. The address of the registered office is included within the Parent
Company Information section on page 87.
2. ADOPTION OF NEW AND REVISED ACCOUNTING STANDARDS
New and amended accounting standards
The following new standards and amendments to standards, none of which have a material impact on these financial statements, are mandatory
and relevant to the Group for the first time for the financial year ending 30 September 2013:
•
IAS 1 Presentation of financial statements – amendments to revise presentation of other comprehensive income – published June 2011
Accounting standards in issue but not yet effective
At the date of authorisation of these financial statements the following standards and interpretations, which have not been applied in these
financial statements and which are considered potentially relevant, were in issue but not yet effective:
* Annual improvements 2009-2011 – published May 2012
* IAS 19 Employee benefits – amendments from post-employment benefits project – published June 2011
* IAS 27 Separate financial statements – published May 2011
* IAS 28
* IAS 32 Financial instruments: Presentation – Offsetting of assets and liabilities – published December 2011
* IFRS 7 Financial instruments: Disclosures – Offsetting of assets and liabilities – published December 2011
IFRS 9 Financial instruments: Classification and measurement of assets and liabilities – published November 2009, reissued October
Investments in associates and joint ventures – published May 2011
2010. Reissued for deferral of effective date December 2011
* IFRS 10 Consolidated financial statements – published May 2011 and amended June 2012 and October 2012
* IFRS 11 Joint arrangements – published May 2011 and amended June 2012
* IFRS 12 Disclosure of interests in other entities – published May 2011 and amended June 2012 and October 2012
* IFRS 13 Fair value measurement – published May 2011
* EU endorsed
The Directors anticipate that the adoption of these standards and interpretations in future periods will have no material impact on the financial
statements of the Group or the Parent Company when the relevant standards and interpretations come into effect.
3. SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies which have been used in the preparation of these financial statements are set out below.
Accounting convention
The Group is required to prepare its annual consolidated financial statements in accordance with International Financial Reporting Standards
(IFRS) as adopted for use by the European Union. The Parent Company has also prepared its own financial statements in accordance with
IFRS as adopted by the European Union. The financial statements have also been prepared under the historical cost convention (unless a fair
value basis is required by IFRS) and are in accordance with the Companies Act 2006 applicable for companies reporting under IFRS.
Of the profit for the financial year, £1.6m (2012: £2.1m) has been dealt with in the accounts of the Parent Company. The Parent Company has
taken advantage of the exemption under Section 408 of the Companies Act 2006 and has not presented its own income statement in these
financial statements.
Basis of consolidation
The Group accounts consolidate the accounts of Treatt plc and all of its subsidiaries (entities controlled by the Parent Company) made up to
30 September each year. Control is achieved where the Parent Company has the power to govern the financial and operating policies of an
investee entity so as to obtain benefits from its activities. All intra-group transactions, balances and unrealised gains on transactions between
Group companies are eliminated on consolidation. Unrealised losses are also eliminated unless the transaction provides evidence of an
impairment of the asset transferred.
Going concern
The Directors have, at the time of approving the financial statements, a reasonable expectation that the Parent Company and the Group have
adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of
accounting in preparing the financial statements. Further detail is contained in the Directors’ Report on page 11.
Presentation of financial statements
The primary statements within the financial information contained in this document have been presented in accordance with IAS 1, “Presentation
of Financial Statements”.
TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013 45
Notes to the Financial Statements
for the year ended 30 September 2013 continued
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
Investments in subsidiaries
Investments in subsidiaries in the Parent Company balance sheet are stated at cost, less any provision for impairment.
Business combinations
The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate fair
values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for
control of the acquiree. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS
3 are recognised at their fair value at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for sale
in accordance with IFRS 5, “Non-current assets held for sale and discontinued operations”, which are recognised and measured at fair value
less costs to sell.
The accounting policy for goodwill is shown later in this note under intangible assets.
The interest of non-controlling shareholders in the acquiree is initially measured at the non-controlling interest’s proportion of the net fair value
of the assets, liabilities and contingent liabilities recognised.
Revenue recognition
Revenue represents amounts receivable net of trade discounts, VAT and other sales related taxes. Revenue is recognised in these financial
statements when goods are physically despatched from the Group and/or Parent Company’s premises or other storage depots, irrespective
of the terms of trade.
Effect of changes in foreign exchange rates
Transactions in currencies other than Pounds Sterling are recorded at the rate of exchange at the date of transaction. Assets and liabilities in
foreign currencies are translated into Pounds Sterling in the balance sheet at the year-end rate. The exchange rate of the US Dollar, the principal
foreign currency, was $1.62 (2012: $1.61) at the year end.
Income and expense items of the Group’s overseas subsidiaries are translated into Pounds Sterling at the average rate for the year. Their
balance sheets are translated at the rate ruling at the balance sheet date.
Exchange differences which arise from the translation of the opening net assets and results of foreign subsidiaries and from translating the
income statement at an average rate are taken to reserves. Under IAS 21, “The Effects of Changes in Foreign Exchange Rates”, these
cumulative translation differences which are recognised in the Statement of Comprehensive Income are separately accounted for within
reserves and are transferred from equity to the income statement in the event of the disposal of a foreign operation. All other exchange
differences are taken to the income statement.
Research and development expenditure
Expenditure on research activities is recognised as an expense and charged to the income statement in the period in which it is incurred.
Expenditure arising from any specific development is recognised as an asset only if all of the following conditions are met:
• An asset is created that can be identified;
•
• The development cost of the asset can be measured reliably.
It is probable that the asset created will generate future economic benefits; and
Development expenditure meeting these conditions is amortised on a straight line basis over its useful life. Where these conditions for capitalising
development expenditure have not been met, the related expenditure is recognised as an expense in the period in which it is incurred.
Leases
Rentals receivable under operating leases are recognised in the income statement as and when they fall due.
Rentals payable under operating leases, where substantially all of the benefit and risks of ownership remain with the lessor, are charged against
profits on a straight-line basis over the term of the lease.
46 TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
Taxation
The tax expense represents the sum of the tax currently payable and deferred tax attributable to current profits.
Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement
because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never
taxable or deductible. The Group’s liability for current tax is calculated by using tax rates that have been enacted or substantially enacted by
the balance sheet date. Where the Group and/or Parent Company have a net current tax asset in one legal jurisdiction and a liability in another,
and consequently have no legal right of set off, then these assets and liabilities will be shown separately on the balance sheet as required by
IAS 12, “Income Taxes”.
Current tax is charged or credited in the income statement, except when it relates to items credited or charged directly to equity, in which case
the current tax is also dealt with in equity.
Deferred tax
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the financial
statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability
method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it
is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are
not recognised if the temporary difference arises from the initial recognition of goodwill or from the initial recognition (other than in a business
combination) of other assets and liabilities in a transaction which affects neither the tax profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in
joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference
will not reverse in the foreseeable future. As the Group is in fact in a position to control the timing of the reversal of the temporary differences
arising from its investments in subsidiaries it is not required to recognise a deferred tax liability. In view of the variety of ways in which these
temporary differences may reverse, and the complexity of the tax laws, it is not possible to accurately compute the temporary differences
arising from such investments.
Deferred tax is recognised in respect of the retained earnings of overseas subsidiaries and associates only to the extent that, at the balance
sheet date, dividends have been accrued as receivable or a binding agreement to distribute past earnings in future has been entered into by
the subsidiary or associate.
Deferred tax is measured at the average tax rates that are expected to apply in the periods in which timing differences are expected to reverse,
based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date.
Where the Group and/or Parent Company have a net deferred tax asset in one legal jurisdiction and a liability in another, and consequently have
no legal right of set off, then these assets and liabilities will be shown separately on the balance sheet as required by IAS 12, “Income Taxes”.
Deferred tax is charged or credited in the income statement, except when it relates to items credited or charged directly to equity, in which
case deferred tax is also dealt with in equity.
Post balance sheet events and dividends
IAS 10, “Events after the Balance Sheet Date” requires that final dividends proposed after the balance sheet date should not be recognised
as a liability at that balance sheet date, as the liability does not represent a present obligation as defined by IAS 37, “Provisions, Contingent
Liabilities and Contingent Assets”. Consequently, final dividends are only recognised as a liability once formally approved at the Annual General
Meeting and interim dividends are not recognised until paid.
Cash flow
The Statement of Cash Flows explains the movement in cash and cash equivalents and short term borrowings.
Property, plant and equipment
Property, plant and equipment is stated at cost less depreciation.
Depreciation is provided on all property, plant and equipment, except freehold and long leasehold land, using the straight-line basis to write off
the cost of the asset, less estimated residual value, as follows:
• Plant and machinery:
• Buildings:
4-10 years
50 years
TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013 47
Notes to the Financial Statements
for the year ended 30 September 2013 continued
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
Intangible assets
Other intangible assets
Amortisation (which is included within administrative expenses) is provided on all intangible assets, other than goodwill, using the straight-line
basis to write off the cost of the asset, less estimated residual value, as follows:
• Software licenses:
• Lease premium:
4 years
85 years
Goodwill
Goodwill arising on consolidation represents the excess of the cost of the business combination over the Group’s interest in the net fair value
of the identifiable assets, liabilities and contingent liabilities at the date of acquisition. Goodwill is initially recognised as an asset at cost and is
subsequently measured at cost less any accumulated impairment losses. Goodwill which is recognised as an asset is reviewed for impairment
at least annually in relation to the cash generating unit it represents. Any impairment is recognised immediately in the income statement and
is not subsequently reversed. On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or
loss on disposal.
Impairment of property, plant and equipment and intangible assets
Provision will be made should any impairment in the value of properties or other non-current assets occur.
The need for any non-current asset impairment write down is assessed by comparison of the carrying value of the asset against the higher of
net realisable value and value in use.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is based on raw material costs plus attributable overheads.
Net realisable value is based on estimated selling price less further costs expected to be incurred through to disposal. Provision is made for
obsolete, slow-moving and defective items.
Onerous contracts
Provisions for onerous contracts are recognised when the expected benefits from a contract are lower than the unavoidable costs of meeting
the contract’s obligations.
Financial instruments
Financial assets and financial liabilities are recognised on the Group and/or Parent Company’s balance sheet when the Group and/or Parent
Company have become a party to the contractual provisions of the instrument.
Financial assets
Financial assets held by the Group are either classified as held for trading or are accounted for as trade receivables, loans, other receivables and
cash and cash equivalents at amortised cost. The classification depends on the nature and purpose of the financial assets and is determined
at the time of initial recognition.
Trade and other receivables
Trade and other receivables are initially recognised at fair value. They are subsequently measured at their amortised cost using the effective
interest method less any provision for impairment. A provision for impairment is made where there is objective evidence, (including customers
with financial difficulties or in default on payments), that amounts will not be recovered in accordance with original terms of the agreement. A
provision for impairment is established when the carrying value of the receivable exceeds the present value of the future cash flow discounted
using the original effective interest rate. The carrying value of the receivable is reduced through the use of an allowance account and any
impairment loss is recognised in the income statement.
Loans receivable
All loans receivable are initially recognised at fair value. After initial recognition, interest-bearing loans are measured at amortised cost less any
impairment loss recognised to reflect irrecoverable amounts. An impairment loss is recognised in profit or loss when there is objective evidence
that the asset is impaired, and is measured as the difference between the loan’s carrying amount and the present value of estimated future
cash flows discounted at the effective interest rate computed at initial recognition. Impairment losses are reversed in subsequent periods when
an increase in the loan’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to
the restriction that the carrying amount of the loan at the date the impairment is reversed shall not exceed what the amortised cost would have
been had the impairment not been recognised.
Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short term highly liquid investments with original
maturities of three months or less. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management
are included as a component of cash and cash equivalents for the purposes of the consolidated cash flow statement. Bank overdrafts are
shown within borrowings in current liabilities on the balance sheet.
48 TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
Financial liabilities and equity instruments
Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity
instrument is any contract that evidences a residual interest in the assets of the Group or Parent Company after deducting all of its liabilities.
Interest-bearing loans and borrowings
All loans and borrowings are initially recognised at the fair value of the consideration received, net of issue costs. After initial recognition, interest-
bearing loans and borrowings are measured at amortised cost using the effective interest method. All borrowing costs are recognised in the
income statement in the period in which they are incurred.
Trade payables
Trade payables are not interest-bearing and are stated at their nominal value.
Equity instruments
Equity instruments issued by the Parent Company are recorded at the proceeds received, net of direct issue costs.
Derivative financial instruments and hedge accounting
The Group’s activities expose it to both the financial risks of changes in foreign currency exchange rates and interest rates. From time to time
the Group uses foreign exchange forward contracts and interest rate swap contracts to hedge some of these exposures. The Group does
not use derivative financial instruments for speculative purposes. The use of financial derivatives is governed by the Group’s policies approved
by the board. Further information on currency and interest rate management is provided in note 28, “Financial Instruments”. Changes in the
fair value of derivative financial instruments that are designated and effective as cash flow hedging instruments are recognised directly in
equity. The ineffective portion is recognised immediately in the income statement. If the cash flow hedge of a firm commitment or forecasted
transaction results in the recognition of an asset or a liability, then, at the time the asset or liability is recognised, the associated gains or losses
on the derivative that had been previously recognised in equity are included in the initial measurement of the asset or liability. For transactions
that do not result in the recognition of an asset or a liability, amounts deferred in equity are recognised in the income statement in the same
period in which the hedged item affects net profit or loss. Changes in the fair value of derivative financial instruments that do not qualify for
hedge accounting are recognised in the income statement as they arise. At the inception of the hedge relationship, the entity documents the
relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking
various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging
instrument that is used in a hedging relationship is highly effective in offsetting changes in fair values or cash flows of the hedged item.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated, or exercised, or no longer qualifies for hedge
accounting. At that time, any cumulative gain or loss on the hedging instrument recognised in equity is retained in equity until the forecasted
transaction occurs. If a hedging transaction is no longer expected to occur, the net cumulative gain or loss that was recognised in equity is
recognised immediately in profit or loss for the period.
Pension costs
One of the Group’s UK subsidiaries, R C Treatt & Co Limited, operates a defined benefit scheme through an independently administered
pension scheme.
For defined benefit retirement plans, the cost of providing benefits is determined using the projected unit credit method, with actuarial valuations
being carried out every three years and updated at each balance sheet date. The post-employment benefits obligation recognised in the
balance sheet represents the present value of the defined benefit pension obligations adjusted for unrecognised past service cost, and as
reduced by the fair value of scheme assets. Any asset resulting from this calculation is limited to past service costs, plus the present value of
available refunds and reductions in future contributions to the scheme.
In accordance with IAS 19, “Employee Benefits”, the asset or liability in the defined benefit pension scheme is recognised as an asset or
liability of the Group under non-current assets or liabilities under the heading “Post-employment benefits”. The deferred tax in respect of “Post-
employment benefits” is netted against other deferred tax assets and liabilities relating to the same jurisdiction (see Taxation accounting policy)
and included in the deferred taxation asset or liability shown under non-current assets or liabilities.
The service cost and expected return on assets, net of interest on scheme liabilities, are reflected in the income statement for the period, in
place of the actual cash contribution made. All experience gains or losses on the assets and liabilities of the scheme, together with the effect
of changes in assumptions are reflected as a gain or loss in the Statement of Comprehensive Income.
The Group also operates a number of defined contribution pension schemes. The contributions for these schemes are charged to the income
statement in the year in which they become payable.
Share options and the employee benefit trust
Shares held by the “Treatt Employee Benefit Trust” for the purpose of fulfilling obligations in respect of various employee share plans are
deducted from equity in the Group and Parent Company balance sheets. The treatment in the Parent Company balance sheet reflects the
substance of the entity’s control of the trust.
TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013 49
Notes to the Financial Statements
for the year ended 30 September 2013 continued
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
Share-based payments
IFRS 2, “Share-based Payments”, requires that an expense for equity instruments granted be recognised in the financial statements based on
their fair value at the date of grant. The Group has adopted the Black-Scholes model for the purposes of computing fair value of options under
IFRS. The fair value excludes the effect of non market-based vesting conditions. This expense, which is in relation to share option schemes
for staff in the UK and USA, is recognised on a straight-line basis over the vesting period of the scheme, based on the Group’s estimate of the
number of equity instruments that will eventually vest.
At each balance sheet date, the Group revises its estimate of the number of equity instruments expected to vest as a result of the effect of
non market-based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in profit or loss such that the
cumulative expense reflects the revised estimate, with a corresponding adjustment to the employee share option reserve.
Savings-related share options granted to employees are treated as cancelled when employees cease to contribute to the scheme. Cancelled
options are accounted for as an acceleration of vesting. The unrecognised grant date fair value is recognised in profit or loss in the year that
the options are cancelled.
Where the Parent Company grants options over its shares to employees in subsidiaries, it recognises this as a capital contribution equivalent to
the share-based payment charge recognised in the Group Income Statement. In the financial statements of the Parent Company, this capital
contribution is recognised as an increase in the cost of investment in subsidiaries, with the corresponding credit being recognised directly in
equity.
Details of share-based payments are disclosed in note 24.
Critical accounting estimates, assumptions and judgements
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances. The Group makes estimates and assumptions concerning the future.
The resulting accounting estimates and assumptions will, by definition, seldom equal the related actual results. The Group has evaluated the
estimates and assumptions that have been made in relation to the carrying amounts of assets and liabilities in these financial statements.
The key accounting judgements and sources of estimation uncertainty with a significant risk of causing a material adjustment to assets and
liabilities in the next 12 months include the following:
Critical accounting estimates and assumptions
Pensions – movements in equity markets, interest rates and life expectancy could materially affect the level of surpluses and deficits in the
defined benefit pension scheme. The key assumptions used to value pension assets and liabilities are set out in note 25 ‘Pension schemes’;
Useful economic life and residual value estimates – the Group reviews the useful economic lives and residual values attributed to assets on
an on-going basis to ensure they are appropriate. Changes in economic lives or residual values could impact the carrying value and charges
to the income statement in future periods;
Provisions – using information available at the balance sheet date, the Directors make judgements based on experience on the level of provision
required. Further information received after the balance sheet date may impact the level of provision required;
Share-based payments – in accordance with IFRS 2 “Share-based payments”, share options and other share awards are measured at fair
value at the date of grant. The fair value determined is then expensed in the income statement on a straight line basis over the vesting period,
with a corresponding increase in equity. The fair value of the options is measured using the Black-Scholes option pricing model. The valuation
of these share-based payments requires several judgements to be made in respect of the number of options that are expected to be exercised.
Details of the assumptions made in respect of each of the share-based payment schemes are disclosed in note 24 ‘Share-based payments’.
Changes in these assumptions could lead to changes in the income statement expense in future periods;
Goodwill – determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill
has been allocated. The value in use calculation requires the Group to estimate the future cash flows expected to arise from the cash-
generating unit and a suitable discount rate in order to calculate present value. Goodwill can also include an estimate of deferred consideration
payable using assumptions which are consistent with those used to determine the carrying value of goodwill. Future changes in performance
or disposals could also impact the value of goodwill. Details of the assumptions made in respect of goodwill and deferred consideration are
disclosed in note 12. These estimates could change materially in future years in line with actual and expected future performance;
Taxation – the Group operates in a number of tax jurisdictions and estimation is required of taxable profit in order to determine the Group’s
current tax liability. There are transactions and calculations for which the ultimate tax determination can be uncertain. The Group periodically
evaluates situations in which applicable tax regulation is subject to interpretation and establishes provisions where appropriate based on
amounts expected to be paid to the tax authorities.
Critical accounting judgements
Deferred tax assets - deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profit will be
available against which the losses can be utilised. Management judgement is required to determine the amount of deferred tax assets that can
be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies;
50 TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013
3. SIGNIFICANT ACCOUNTING POLICIES (continued)
Description of the nature and purpose of each reserve within equity
Share premium account - the share premium account represents amounts received in excess of the nominal value of shares on issue of new
shares.
Own shares in share trust - own shares in share trust relate to shares held in the Treatt Employee Benefit Trust (the ‘EBT’). The shares held in
the EBT are all held to meet options to be exercised by employees. The number of shares held by the EBT, together with the net acquisition
costs, are shown in the Statement of Changes in Equity. Dividends on these shares have been waived except for 0.001p per share. The market
value of the shares held by the EBT at 30 September 2013 was £1,304,000 (2012: £884,000).
Hedging reserve - the hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging
instruments related to hedged transactions that have not yet occurred.
Foreign exchange reserve - the foreign exchange reserve records exchange differences arising from the translation of the financial statements
of overseas subsidiaries.
Retained earnings - retained earnings comprises the Group’s annual profits and losses, actuarial gains and losses on the defined benefit
pension scheme and dividend payments, combined with the employee share option reserve which represents the equity component of share
based payment arrangements.
4. SEGMENTAL INFORMATION
Group
Business segments
IFRS 8 requires operating segments to be identified on the basis of internal financial information reported to the Chief Operating Decision
Maker (CODM). The Group’s CODM has been identified as the Board of Directors who are primarily responsible for the allocation of resources
to the segments and for assessing their performance. The disclosure in the Group accounts of segmental information is consistent with the
information used by the CODM in order to assess profit performance from the Group’s operations.
During the year, following the implementation of a new strategy by the Board, the Group now operates as one global business segment.
The Group is engaged in the manufacture and supply of ingredient solutions for the flavour, fragrance and consumer goods markets with
manufacturing sites in the UK, US and Kenya. Many of the Group’s activities, including sales, manufacturing, technical, IT and finance, are now
being managed globally on a Group basis.
Geographical segments
The following table provides an analysis of the Group’s revenue by geographical market, irrespective of the origin of the goods or services:
Revenue by destination
United Kingdom
Rest of Europe
The Americas
Rest of the World
2013
£’000
10,016
19,837
26,661
17,583
2012
£’000
9,764
17,830
28,792
17,623
74,097
74,009
All Group revenue is in respect of the sale of goods, other than property rental income of £16,000 (2012: £16,000). No customer represented
more than 10% of Group revenue.
Non-current assets by geographical location, excluding deferred tax assets, were as follows:
United Kingdom
United States
Rest of the World
2013
£’000
7,622
6,139
302
2012
£’000
7,749
5,869
309
14,063
13,927
TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013 51
Notes to the Financial Statements
for the year ended 30 September 2013 continued
5. OPERATING PROFIT is stated after charging/(crediting)
Group
Depreciation of property, plant & equipment
Amortisation of intangible assets (included in administrative expenses)
Loss on disposal of property, plant & equipment
Research and development costs
Operating leases
– plant & machinery
– land & buildings
Net exchange gain on trading activities
Rent receivable
Cost of inventories recognised as expense
Shipping costs
IT & telephony costs
Insurance costs
Energy & utility costs
The analysis of auditor’s remuneration is as follows:
Fees payable to the Parent Company’s auditors and their associates for the audit of:
– the Parent Company and Group accounts
– the Group’s subsidiaries pursuant to legislation
Total audit fees
Fees payable to the Parent Company’s auditors and their associates for other services
to the Group:
– tax compliance services
– tax advisory services
– corporate finance services (included in exceptional items)
– (over)/under accrual from prior years and disbursements
Total non-audit fees
6. EMPLOYEES
Group
Number of employees
During the year the average number of staff employed by the Group, including Directors, was as follows:
Technical and production
Administration and sales
Employment costs
The followings costs were incurred in respect of the above:
Wages and salaries
Social security costs
Pension costs (see note 25)
Share-based payments (see note 24)
2013
£’000
1,219
181
3
657
17
75
(56)
(16)
46,548
1,569
565
457
543
28
57
85
11
—
34
(4)
41
2012
£’000
1,104
159
—
512
32
49
(258)
(16)
48,337
1,677
540
444
501
27
55
82
12
1
—
5
18
2013
Number
2012
Number
182
122
304
2013
£’000
10,127
992
710
22
151
134
285
2012
£’000
9,223
877
629
25
11,851
10,754
Directors
The information on Directors’ emoluments and share options set out on pages 31 to 35 form part of these financial statements.
52 TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013
7. NET FINANCE COSTS
Group
Finance revenue
Finance costs
– bank interest received
– pension finance income (see note 25)
– bank overdraft interest paid
– other bank finance costs
– loan interest paid
– loan note interest paid
8. EXCEPTIONAL ITEMS
The exceptional item referred to in the income statement can be categorised as follows:
Group
Compensation for loss of office
Legal and professional fees
Corporate finance advisory and other costs
2013
£’000
22
63
85
(555)
(56)
(115)
(10)
(736)
2013
£’000
—
634
459
1,093
2012
£’000
58
50
108
(517)
(46)
(103)
(10)
(676)
2012
£’000
598
—
—
598
The exceptional items in the year all relate to non-recurring items. The legal and professional fees relate to the Earthoil earnout contract dispute.
The corporate finance advisory and other costs relate to advice taken to support the Group in discussions with the Bovill family shareholders
and related matters.
9. TAXATION
Group
Analysis of tax charge in income statement:
Current tax:
UK corporation tax on profits for the period
Adjustments to UK tax in respect of previous periods
Overseas corporation tax on profits for the period
Adjustments to overseas tax in respect of previous periods
Total current tax
Deferred tax:
Origination and reversal of temporary differences
Effect of reduced tax rate on opening assets and liabilities
Adjustments in respect of previous periods
Total deferred tax (see note 16)
Tax on profit on ordinary activities
Analysis of tax credit/(charge) in other comprehensive income:
Current tax:
Foreign currency translation differences
Actuarial loss on defined benefit pension scheme
Deferred tax:
Foreign currency translation differences
Cash flow hedges
Actuarial loss on defined benefit pension scheme
Total tax credit recognised in other comprehensive income
2013
£’000
2012
£’000
953
7
581
(45)
1,496
163
(3)
(1)
159
206
(12)
700
7
901
533
—
(44)
489
1,655
1,390
30
72
—
(135)
158
125
9
—
(12)
30
110
137
TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013 53
Notes to the Financial Statements
for the year ended 30 September 2013 continued
9. TAXATION (continued)
Factors affecting tax charge for the year:
The tax assessed for the year is different from that calculated at the standard rate of corporation tax in the UK of 23.5% (2012: 25%).
The differences are explained below:
Profit before tax multiplied by standard rate of UK corporation tax at 23.5% (2012: 25%)
Effects of:
Expenses not deductible in determining taxable profit and other items
Difference in tax rates on overseas earnings
Adjustments to tax charge in respect of prior years
2013
£’000
1,206
300
188
(39)
2012
£’000
1,116
92
231
(49)
Total tax charge for the year
1,655
1,390
The main rate of UK corporation tax was reduced from 24% to 23% with effect from 1 April 2013. The Group’s effective UK corporation tax
rate for the year was therefore 23.5% (2012: 25%) The adjustments in respect of prior years relate to the finalisation of previous year’s tax
computations.
In March 2013, the UK Government published the Finance Bill 2013 that included proposals to reduce further the main rate of UK corporation
tax to 21% with effect from 1 April 2014 and to 20% with effect from 1 April 2015. The Finance Bill 2013 was substantively enacted in 2 July
2013. The reduction to 21% has been reflected in these financial statements and the further reduction to 20% will affect the Group’s tax
expense for the 2014 financial year onwards.
10. DIVIDENDS
Parent Company and Group
Equity dividends on ordinary shares:
Interim dividend
Final dividend
Dividend per share for years
ended 30 September
20121
Pence
20132
Pence
20111
Pence
5.5p
13.0p
18.5p
5.1p
10.4p
15.5p
4.8p
9.7p
14.5p
2013
£’000
521
1,064
1,585
2012
£’000
493
997
1,490
1 Accounted for in the subsequent year in accordance with IFRS.
2 The declared interim dividend for the year ended 30 September 2013 of 5.5 pence was approved by the Board on 9 May 2013 and was paid on 18 October 2013. Accordingly it has
not been included as a deduction from equity at 30 September 2013. The proposed final dividend for the year ended 30 September 2013 of 13.0 pence will be voted on at the Annual
General Meeting on 24 February 2014. Both dividends will therefore be accounted for in the financial statements for the year ended 30 September 2014.
11. EARNINGS PER SHARE
Basic earnings per share
Basic earnings per share is based on the weighted average number of ordinary shares in issue and ranking for dividend during the year. The
weighted average number of shares excludes shares held by the EBT.
Earnings (£’000)
Weighted average number of ordinary shares in issue (No: ‘000)
Basic earnings per share (pence)
2013
2012
3,479
10,228
3,072
10,227
34.0p
30.0p
54 TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013
11. EARNINGS PER SHARE (continued)
Diluted earnings per share
Diluted earnings per share is based on the weighted average number of ordinary shares in issue and ranking for dividend during the year,
adjusted for the effect of all dilutive potential ordinary shares.
The number of shares used to calculate earnings per share (EPS) have been derived as follows:
Weighted average number of shares
Weighted average number of shares held in the EBT
Weighted average number of shares used for calculating basic EPS
Executive share option schemes
Savings-related share options
Weighted average number of shares used for calculating diluted EPS
Diluted earnings per share (pence)
2013
No (’000)
2012
No (’000)
10,481
(253)
10,481
(254)
10,228
10,227
2
45
—
36
10,275
10,263
33.9p
29.9p
Adjusted earnings per share
Adjusted earnings per share measures are calculated based on profits for the year attributable to owners of the Parent Company before
exceptional items as follows:
Earnings for calculating basic and diluted earnings per share
Adjusted for:
Exceptional items (see note 8)
Taxation thereon
Earnings for calculating adjusted earnings per share
Adjusted basic earnings per share (pence)
Adjusted diluted earnings per share (pence)
12. GOODWILL
Group
Cost
1 October 2011
Decrease in estimated deferred consideration
1 October 2012
Disposal of cash generating unit
30 September 2013
Accumulated impairment losses
1 October 2011
1 October 2012
30 September 2013
Carrying amount
30 September 2013
30 September 2012
2013
£’000
3,479
1,093
(155)
4,417
43.2p
43.0p
2012
£’000
3,072
598
(150)
3,520
34.4p
34.3p
Goodwill
£’000
3,624
(112)
3,512
(5)
3,507
2,432
2,432
2,432
1,075
1,080
TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013 55
Notes to the Financial Statements
for the year ended 30 September 2013 continued
12. GOODWILL (continued)
In March 2007 the Parent Company acquired 50% of Earthoil Plantations Limited and Earthoil Kenya EPZ Pty Limited (collectively known as
‘Earthoil’) and in the financial year ending 30 September 2008 the remaining 50% of Earthoil was acquired. The consideration for the second
50% is entirely based upon an earnout formula in relation to the profits of Earthoil in the calendar years 2010 and 2011. Deferred consideration
of £23,000 (2012: £23,000) has been included in goodwill in relation to the earnout notice which has been issued but not yet settled as it is the
subject of an on-going dispute (see note 27).
The goodwill arising on the acquisition of Earthoil is attributable to the anticipated profitability of Earthoil’s products in new and rapidly growing
existing markets and the anticipated future operating synergies from the combination.
The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. The recoverable
amount of goodwill arising on the acquisition of Earthoil is determined from value in use calculations. The key assumptions for the value in
use calculations are those regarding the discount rates, revenue, overhead growth rates and perpetuity growth rate. Management estimates
discount rates using pre-tax rates that reflect market assessments of the time value of money and the risks specific to Earthoil. As at the year
ended 30 September 2013, the impairment review has concluded that the value in use of Earthoil now significantly exceeds its carrying value.
In performing this impairment review, the Group has prepared cash flow forecasts derived from the most recent financial budgets approved by
the Board, and then estimates revenue growth for the following four years at 6.25% (2012: 6.25%) per annum, with overheads assumed to
increase at 5% (2012: 5%) per annum. Thereafter, a growth rate for pre-tax profit of 2% (2012: 2%) per annum is assumed into perpetuity. A
rate of 12.5% (2012: 12.5%) has been used to discount the forecast cash flows. The key assumptions are based on past experience adjusted
for expected changes in future conditions.
Based upon this impairment review the recoverable amount of Earthoil exceeds its carrying amount by £10.2m (2012: £6.0m). The recoverable
amount is most sensitive to changes in the discount rate and sales growth. A 1% change in the discount rate would affect the recoverable
amount by £1m and a 1% change in sales growth would also change the recoverable amount by £1m.
13. OTHER INTANGIBLE ASSETS
Group
Cost
1 October 2011
Exchange adjustment
Additions
1 October 2012
Additions
Disposals
30 September 2013
Amortisation
1 October 2011
Charge for period
1 October 2012
Charge for period
Disposals
30 September 2013
Net book value
30 September 2013
30 September 2012
Lease
premium
£’000
Software
licences
£’000
Total
£’000
972
(1)
136
1,107
147
(73)
629
(1)
136
764
147
(73)
838
1,181
225
155
380
177
(73)
484
354
384
230
159
389
181
(73)
497
684
718
343
—
—
343
—
—
343
5
4
9
4
—
13
330
334
Intangible assets with a net book value of £4,000 (2012: £2,000) have been pledged as security in relation to the Industrial Development Loan
detailed in note 20.
56 TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013
14. PROPERTY, PLANT AND EQUIPMENT
Group
Cost
1 October 2011
Exchange adjustment
Additions
Disposals
1 October 2012
Exchange adjustment
Additions
Disposals
Disposal of subsidiary
30 September 2013
Depreciation
1 October 2011
Exchange adjustment
Charge for period
Disposals
1 October 2012
Exchange adjustment
Charge for period
Disposals
Disposal of subsidiary
30 September 2013
Net book value
30 September 2013
30 September 2012
Analysis of land & buildings
Net book value
Freehold
Long Leasehold
Land &
Plant &
Buildings Machinery
£’000
£’000
6,379
(120)
—
—
6,259
(10)
12
—
—
8,989
(118)
2,651
(10)
11,512
(50)
1,421
(443)
(7)
Total
£’000
15,368
(238)
2,651
(10)
17,771
(60)
1,433
(443)
(7)
6,261
12,433
18,694
710
(23)
139
—
826
(4)
136
—
—
958
4,538
(91)
965
(10)
5,402
(26)
1,083
(439)
(2)
5,248
(114)
1,104
(10)
6,228
(30)
1,219
(439)
(2)
6,018
6,976
5,303
5,433
6,415
11,718
6,110
11,543
2013
£’000
4,548
755
5,303
2012
£’000
4,662
771
5,433
Included in plant and machinery are assets in the course of construction totalling £516,000 (2012: £354,000).
Property, plant and equipment with a net book value of £5.8m (2012: £5.5m) has been pledged as security in relation to the Industrial
Development Loan and Equipment Financing Loan detailed in note 20.
Capital commitments
Contracted but not provided for
2013
£’000
134
2012
£’000
304
TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013 57
Notes to the Financial Statements
for the year ended 30 September 2013 continued
15. INVESTMENTS IN SUBSIDIARIES
Parent Company
Cost
1 October 2011
Decrease in estimated deferred consideration
1 October 2012
Capital contribution to subsidiaries
30 September 2013
Parent Company
Subsidiary:
R C Treatt & Co Limited – at cost
50,000 ordinary shares of £1 each, fully paid
Treatt USA Inc – at cost
2,975,000 common stock of US$1 each, fully paid
Earthoil Plantations Limited
4,051,000 ordinary shares of 50p each, fully paid
Earthoil Kenya Pty Limited
2,500 ‘A’ ordinary shares of KES20 each, fully paid
2,500 ‘B’ ordinary shares of KES20 each, fully paid
Total
£’000
5,328
(112)
5,216
22
5,238
2013
£’000
2012
£’000
2,318
2,299
1,845
1,842
923
923
152
5,238
152
5,216
Subsidiary
Country
Holding
Principal activity
R C Treatt & Co Limited
Treatt USA Inc
Earthoil Plantations Limited
Earthoil Kenya EPZ Pty Limited
Earthoil Extracts Limited
England
USA
England
Kenya
Kenya
100%
100%
100%
100%
100%
Supply of flavour and fragrance ingredients
Supply of flavour and fragrance ingredients
Supply of natural cosmetic ingredients
Supply of organic & fair trade vegetable oils
Supply of organic & fair trade essential oils
Group
The loss on disposal of subsidiaries relates to Earthoil India Private Limited that ceased to trade as at 31 December 2012 and resulted in a loss
of £60,000. Due to the immaterial amounts involved no further disclosures have been made.
58 TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013
16. DEFERRED TAXATION
Group
UK deferred tax asset
Overseas deferred tax liability
Net deferred tax liability
2013
£’000
278
(1,001)
(723)
2012
£’000
286
(880)
(594)
A reconciliation of the net deferred liability is shown below:
UK Deferred Tax
Overseas Deferred Tax
Total
Post-
employment
benefits
£’000
Fixed
assets
£’000
Cash flow
hedge
£’000
Other
temporary
differences
£’000
193
—
(111)
110
192
—
(17)
158
333
(260)
—
65
—
(195)
—
29
—
(166)
207
—
1
30
238
—
(27)
(135)
76
131
—
(68)
(12)
51
—
(16)
—
35
Fixed
assets
£’000
(631)
32
(401)
—
(1,000)
7
(111)
—
Other
temporary
differences
£’000
99
(4)
25
—
120
—
(17)
—
£’000
(261)
28
(489)
128
(594)
7
(159)
23
(1,104)
103
(723)
Group
1 October 2011
Exchange differences
(Charge)/credit to income
statement
(Charge)/credit to equity
1 October 2012
Exchange differences
(Charge)/credit to income
statement
Credit/(charge) to other
comprehensive income
30 September 2013
At the balance sheet date, Earthoil Plantations Limited had unused tax losses of £Nil (2012: £224,000) available for offset against its future
profits and R C Treatt & Co Limited had a deferred tax asset in relation to its pension liability. R C Treatt & Co Limited has a specific plan in place
to reverse the deficit and so this deferred tax asset has also been recognised.
The deferred tax rate applied to UK companies within the Group is 21% (2012: 23%) as legislation has been substantively enacted which
reduces the main rate of UK corporation tax from 23% for the 2013/14 tax year to 21% in 2014/15. A further reduction to 20% for the 2015/16
tax year has also been substantively enacted and will be reflected in the 2014 financial statements.
17. INVENTORIES
Group
Raw materials
Work in progress and intermediate products
Finished goods
2013
£’000
11,736
8,135
3,798
2012
£’000
11,887
5,631
5,397
23,669
22,915
Inventory with a carrying value of £8.1m (2012: £8.2m) has been pledged as security in relation to the Industrial Development Loan detailed
in note 20.
TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013 59
Notes to the Financial Statements
for the year ended 30 September 2013 continued
18. TRADE AND OTHER RECEIVABLES
Current
Trade receivables
Amounts owed by subsidiaries
Other receivables
Prepayments
Non-current
Other receivables
Group
2013
£’000
11,448
—
931
828
2012
£’000
12,368
—
851
740
13,207
13,959
Parent Company
2012
2013
£’000
£’000
—
454
—
—
454
—
45
13
—
58
Group
2013
£’000
586
2012
£’000
586
Parent Company
2012
2013
£’000
£’000
586
586
The Group’s credit risk is primarily attributable to its trade receivables. Before accepting any new customer, the Group uses a range of
information, including credit reports, industry data and other publicly or privately available information in order to assess the potential customer’s
credit quality and defines credit limits by customer, and where appropriate will only accept orders on the basis of cash in advance, or if secured
through a bank letter of credit. Processes are in place to manage trade receivables and overdue debt and to ensure that appropriate action is
taken to resolve issues on a timely basis. Credit control operating procedures are in place to review all new customers. Existing customers are
reviewed as management become aware of any specific changes in circumstances. The average credit period taken for trade receivables is 59
days (2012: 57 days). An impairment review has been undertaken at the balance sheet date to assess whether the carrying amount of financial
assets is deemed recoverable. The primary credit risk relates to customers which have amounts due outside of their credit period. A provision
for impairment is made when there is objective evidence of impairment which is usually indicated by a delay in the expected cash flows or
non-payment from customers. The amounts presented in the balance sheet are net of amounts that are individually determined to be impaired
of £0.2m (2012: £0.1m), estimated by the Group’s management based on prior experience and their assessment of the current economic
environment. The Group’s top five customers represent 25% (2012: 23%) of the Group’s turnover. These customers have favourable credit
ratings and consequently reduce the credit risk of the Group’s overall trade receivables. The Directors consider that the carrying amount of
trade and other receivables approximates to their fair value. The Group holds no collateral against these receivables at the balance sheet date.
The ageing profile of trade receivables which are past their due date but not impaired is as follows:
Group
2013
2012
The ageing profile of impaired trade receivables is as follows:
Group
2013
2012
Number of days past the due date
Over 60
31-60
£’000
£’000
1-30
£’000
1,842
1,471
489
780
187
285
Number of days past the due date
Current
£’000
1-30
£’000
31-60
£’000
Over 60
£’000
95
35
17
6
1
4
51
104
60 TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013
18. TRADE AND OTHER RECEIVABLES (continued)
At 30 September 2013 £3.2m (2012: £3.1m) of trade receivables were denominated in Sterling, £6.9m (2012: £8m) in US Dollars and £1.5m
(2012: £1.2m) in Euros. The currency risk in respect of trade receivables is managed in conjunction with the other currency risks faced by the
Group as part of its overall hedging strategy. For further details see note 28 and the Financial review on pages 69 to 72.
Trade receivables with a carrying value of £2.6m (2012: £2.8m) have been pledged as security in relation to the Industrial Development Loan
detailed in note 20.
There is no credit risk associated with non-current other receivables of £0.6m (2012: £0.6m) as these amounts are contractually fully recoverable
against loan notes payable of £0.7m (2012: £0.7m) when they fall due, and are recoverable at an earlier date if deferred consideration in respect
of Earthoil becomes payable.
19. CASH AND CASH EQUIVALENTS
Group
Cash and cash equivalents of £1,117,000 (2012: £927,000) comprise cash held by the Group and short term deposits with an original maturity
of one month or less. The carrying amount of these assets approximates to their fair value.
A detailed analysis of cash balances by currency is shown in note 28. All material cash balances are held with the Group’s main banks, being
Lloyds Banking Group, HSBC and Bank of America. The credit ratings of these banks are considered to be satisfactory.
20. BORROWINGS
Current
US term loans
UK revolving credit facilities
Bank borrowings
Non-current
US term loans
UK revolving credit facilities
Parent Company
2012
2013
£’000
£’000
—
—
1,915
1,915
—
—
1,566
1,566
Group
Group
2013
£’000
500
—
22
522
2013
£’000
2,096
6,793
8,889
2012
£’000
566
5,573
2,268
8,407
2012
£’000
2,311
3,158
5,469
US loans and borrowings
US term loans include an industrial development loan of £1,279,000 (2012: £1,440,000) and equipment financing loans of £1,317,000 (2012:
£1,438,000).
The industrial development loan is repayable by fixed quarterly instalments over 20 years ending on 1 July 2021. The rate of interest payable
has been fixed at 3.66% for ten years ending on 1 July 2021 by way of an interest rate swap which covers the full term of the loan. The fair
value of this interest rate swap at the year-end was £135,000 (2012: £196,000) based on yea- end exchange rates. The fair value of this swap
is not included on the balance sheet or through the income statement as the amount involved is not material. Similarly, the Directors do not
apply hedge accounting in respect of US borrowings due to the lack of materiality of the items involved.
The equipment financing loans of £1,026,000 (2012: £1,296,000) and £291,000 (2012: £142,000) are repayable by fixed monthly instalments
over five years ending on 30 March and 31 December 2017, with fixed interest rates of 4.36% and 2.89% respectively.
The US Dollar overdraft facility (‘line of credit’) of $4 million is a four year facility expiring in 2017. The US term loans and line of credit, both held
by Treatt USA Inc., are secured by a fixed and floating charge over Treatt USA’s current and non-current assets.
TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013 61
Notes to the Financial Statements
for the year ended 30 September 2013 continued
20. BORROWINGS (continued)
Other borrowings
The Group’s UK overdraft facilities are unsecured. UK borrowings of $9m are held on a three year revolving credit facility (RCF) which expires
in 2016, and £1.2m on a three year RCF expiring in 2015. The rate of interest on $9m of UK revolving credit facilities has been fixed for ten
years at a rate of 5.68% through an interest rate swap. Hedge accounting has been applied to the fair value of this swap, details of which are
provided in note 28.
Borrowings are repayable as follows:
– in one year or less
– in more than one year but not more than two years
– in more than two years but not more than five years
– in more than five years
2013
£’000
522
1,749
6,647
493
9,411
2012
£’000
8,407
436
4,383
650
13,876
Further information on Group borrowing facilities is given in notes 27 and 28, including a detailed analysis of cash balances by currency.
Borrowing facilities
At 30 September 2013, the Group had total borrowing facilities of £19.9m (2012: £20.1m) of which £6.0m (2012: £11.6m) expire in one year
or less and £11.6m (2012: £7.2m) were undrawn.
21. PROVISIONS
Group
Onerous contract provision:
At start of year
Utilised in year
Additional provision in year
Balance at end of year
2013
£’000
2012
£’000
—
—
49
49
79
(79)
—
—
Onerous contract provisions relate to losses which are or were expected to materialise in the following twelve months on fixed price contracts
as a result of significant increases in certain raw material prices.
22. TRADE AND OTHER PAYABLES
Current
Trade payables
Amounts owed to subsidiaries
Other taxes and social security costs
Accruals
Non-current
Other creditors and accruals
62 TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013
Group
Group
2013
£’000
7,434
—
415
3,443
11,292
2013
£’000
23
2012
£’000
5,275
—
580
3,083
8,938
2012
£’000
23
Parent Company
2012
2013
£’000
£’000
—
—
4
—
4
—
27
3
4
34
Parent Company
2012
2013
£’000
£’000
23
23
22. TRADE AND OTHER PAYABLES (continued)
Trade payables principally comprise amounts for trade purchases and on-going costs. The Directors consider that the carrying amount of trade
and other payables approximates to their fair values.
At 30 September 2013 £2.2m (2012: £1.2m) of trade payables were denominated in Sterling, £4.1m (2012: £2.5m) in US Dollars and £0.9m
(2012: £0.5m) in Euros. The currency risk in respect of trade payables is managed in conjunction with the other currency risks faced by the
Group as part of its overall hedging strategy. For further details see note 28 and the Financial Review on pages 69 to 72.
Non-current other creditors and accruals relates to the deferred consideration payable to the vendors in relation to the acquisition of Earthoil.
See note 12 for further information.
23. SHARE CAPITAL
Parent Company and Group
Called up, allotted and fully paid
At start and end of period
2013
£’000
2013
Number
2012
£’000
2012
Number
1,048
10,481,034
1,048
10,481,034
The Parent Company has one class of ordinary shares, with a nominal value of 10p each, which carry no right to fixed income.
24. SHARE-BASED PAYMENTS
Group
The Group has applied the requirements of IFRS2 “Share-based payments”.
The Group operates executive share option schemes for Directors and senior management within the Group in addition to issuing UK and US
approved savings-related share options for employees of certain subsidiaries. Options are granted with a fixed exercise price and will lapse
when an employee leaves the Group subject to certain ‘good leaver’ provisions.
Under the schemes listed below, options have been granted to subscribe for the following number of existing ordinary shares of 10p each in the
capital of the Parent Company. All share options are expected to be settled via the transfer of shares out of the “Treatt Employee Benefit Trust”.
The options outstanding at 30 September 2013 for which a share-based payment charge of £22,000 (2012: £25,000) has been made are as
follows:
UK Executive Options 2012
US Executive Options 2012
UK SAYE1 Scheme 2011
UK SAYE Scheme 2012
UK SAYE Scheme 2013
US ESPP2 scheme 2013
1 Save as you earn
2 Employee stock purchase plan
Number
of shares
outstanding
Number
exercised
in year
Exercise
price per
share
Date option exercisable
2,564
19,548
22,170
40,178
25,652
4,409
—
—
—
—
—
—
390.0p
395.0p
340.0p
267.0p
489.0p
501.0p
Dec 2015 – Dec 2022
Dec 2015 – Dec 2022
Sep 2014 - Mar 2015
Sep 2015 - Mar 2016
Sep 2016 - Mar 2017
July 2014
TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013 63
Notes to the Financial Statements
for the year ended 30 September 2013 continued
24. SHARE-BASED PAYMENTS (continued)
The fair value per option granted using the “Black-Scholes” model, and the assumptions used in the share-based payments calculations, are
as follows:
Share price at date of grant
Contractual life
Expected life
Expected volatility
Risk-free interest rate
Dividend yield
Expected cancellations
Expected forfeitures
Fair value per option at date of grant
SAYE 2011
SAYE 2012
SAYE 2013
UK Exec
2012
US Exec
2012
US ESPP
2013
422.5p
3.5 years
3 years
21.8%
1.83%
3.2%
15.0%
15.0%
76.5p
316.5p
3.5 years
3 years
21.1%
0.57%
4.7%
10.0%
10.0%
40.6p
617.5p
3.5 years
3 years
23.6%
1.30%
2.6%
10.0%
10.0%
131.8p
390.0p
10 years
3 years
21.1%
0.84%
4.0%
0.0%
25.0%
41.2p
390.0p
10 years
5 years
21.7%
0.84%
4.0%
0.0%
25.0%
42.2p
617.5p
1 year
1 year
26.8%
1.30%
2.6%
10.0%
10.0%
114.2p
Expected volatility was determined by calculating the historical volatility of the Group’s share price over a period equivalent to the vesting period
of the respective options prior to their date of grant.
The risk-free interest rate was based on the simple average of the historical daily gilt yields quoted for five year benchmark gilts during the
month in which a grant of options is made.
Details of movements in share options during the year were as follows:
Outstanding at start of period
Granted during the period
Forfeited during the period
Exercised during the period
Expired during the period
Cancelled during the period
Outstanding at end of period
Exercisable at end of period
2013
Weighted
average
exercise
price
£2.69
£4.50
£2.78
£2.30
—
£3.03
No of
options
111,671
52,173
(7,722)
(39,797)
—
(1,804)
No of
options
120,283
52,139
(3,038)
(46,531)
(7,716)
(3,466)
114,521
£3.64
111,671
—
—
—
2012
Weighted
average
exercise
price
£2.37
£2.69
£3.09
£1.70
£3.64
£2.50
£2.69
—
Forfeiture arises when the employee is no longer entitled to participate in the savings-related share option scheme as a consequence of leaving
the Group whereas cancellation arises when a participant voluntarily chooses to cease their membership of a scheme within the vesting period.
The options outstanding had a weighted average remaining contractual period of 3.7 years (2012: 2.4 years). The weighted average actual
market share price on date of exercise for share options exercised during the year was 628.4 pence (2012: 342.5 pence) and the weighted
average fair value of options granted during the year was 92.3 pence (2012: 39.7 pence).
64 TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013
25. PENSION SCHEMES
Group
The Group operates a wholly-funded defined benefit pension scheme for certain UK employees. The scheme’s assets are held separately
from the assets of the Group and are administered by trustees and managed professionally. From 1 October 2001 this scheme was closed to
new entrants. Pensionable salary for the remaining members of the scheme is based upon the lower of their actual salary upon retirement or
leaving the Group and their 2003 salary as increased by inflation. Following consultation with members, they agreed that the scheme will not
be subject to any further accruals after 31 December 2012 and instead members of the final salary pension scheme were offered membership
of a defined contribution pension plan with effect from 1 January 2013.
Defined contribution schemes are operated on behalf of eligible employees, the assets of which are held separately from those of the Group
in independently administered funds.
The pension charge for the year principally represents contributions payable to the defined contribution schemes, together with the current
service cost for the year (until 31 December 2012 as explained above) in relation to the defined benefit pension scheme, amounting to:
Defined benefit scheme – current service cost
Defined contribution schemes
Curtailment gain
Other pension costs
2013
£’000
112
574
—
24
710
2012
£’000
481
312
(188)
24
629
The Group accounts for pensions in accordance with IAS 19, “Employee Benefits”, details of which are as follows:
The valuation used for IAS 19 disclosures in respect of the defined benefit pension scheme (“the scheme”) has been based on the most
recent actuarial valuation at 1 January 2012 carried out by Barnett Waddingham and updated by Mrs L Lawson, a Fellow of the Institute and
Faculty of Actuaries, to take account of the requirements of IAS 19 in order to assess the liabilities of the scheme at 30 September 2013.
Scheme assets are stated at their market value as at that date.
The financial assumptions used to calculate scheme liabilities and assets under IAS 19 are:
2013
2012
Discount rate
Expected return on scheme assets
Rate of increase in salaries
Rate of increase in pensions in payment – CPI max 5%
Rate of increase in pensions in payment – CPI max 3%
Rate of increase in pensions in payment – CPI max 2.5%
Rate of inflation (CPI)
Rate of inflation (RPI)
Mortality table
Life expectancy for male aged 65 now
Life expectancy for male aged 65 in 10 years’ time
Commutation allowance
4.65%
6.17%
N/A
2.35%
2.20%
2.00%
2.35%
3.35%
100% of S1PxA table with
4.60%
5.23%
N/A
1.60%
1.55%
1.50%
1.60%
2.60%
100% of S1PxA table with
CMI_2011 projections with a CMI_2011 projections with a
long term average rate of
improvement of 1% pa
22.0
22.6
20%
long term average rate of
improvement of 1% pa
22.1
22.7
20%
TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013 65
Notes to the Financial Statements
for the year ended 30 September 2013 continued
25. PENSION SCHEMES (Continued)
The expected return on individual classes of pension scheme assets are determined by reference to external indices and after taking advice
from external advisers. The overall expected rate of return shown above is the weighted average of the returns allowing for anticipated balances
held in each asset class according to the scheme’s investment strategy. The Group expects to make on-going contributions of approximately
£297,000 to its defined benefit pension scheme in 2014 (2013: £389,000).
2013
£’000
8,653
5,213
3,256
49
2012
£’000
9,011
—
5,560
1,027
17,171
15,598
(18,760)
(16,436)
(1,589)
333
(838)
192
(1,256)
(646)
(16,436)
(112)
(747)
—
560
(2,025)
(14,477)
(481)
(788)
188
612
(1,490)
(18,760)
(16,436)
15,598
810
356
(560)
967
13,674
838
686
(612)
1,012
17,171
15,598
Scheme assets:
Equities
Target return funds
Bonds
Other
Fair value of scheme assets
Present value of funded obligations (scheme liabilities)
Deficit in the scheme recognised in the balance sheet
Related deferred tax
Net pension liability
Changes in scheme liabilities
Balance at start of period
Current service cost
Interest cost
Curtailment
Benefits paid
Actuarial loss
Balance at end of period
Changes in scheme assets
Balance at start of period
Expected return on scheme assets
Employer contributions
Benefits paid
Actuarial gain
Balance at end of period
66 TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013
25. PENSION SCHEMES (Continued)
Amount charged to operating profit
Current service cost (excluding employee contributions)
Curtailment
Total operating charge
Amount credited to finance revenue
Expected return on assets
Interest on scheme liabilities
Net finance revenue
Net expense recognised in income statement
Amount recognised in statement of comprehensive income
Actual less expected return on assets
Experience gains on liabilities
Effect of change in assumptions on liabilities
Total loss recognised in statement of comprehensive income
Actual return on scheme assets
Statement of comprehensive income
Actuarial gain from assets
Actuarial loss from liabilities
Actuarial loss recognised in statement of comprehensive income
2013
£’000
2012
£’000
(112)
—
(112)
810
(747)
63
(49)
(481)
188
(293)
838
(788)
50
(243)
967
—
(2,025)
1,012
41
(1,531)
(1,058)
(478)
1,777
1,850
967
(2,025)
(1,058)
1,012
(1,490)
(478)
Cumulative actuarial loss recognised in statement of comprehensive income
(2,343)
(1,285)
Movement in balance sheet net liability during the period
Net liability at start of period
Current service cost
Curtailment
Cash contribution
Other finance income
Actuarial loss
Net liability at end of period
History of scheme assets, liabilities, experience gains and losses:
(838)
(112)
—
356
63
(1,058)
(803)
(481)
188
686
50
(478)
(1,589)
(838)
Scheme assets
Scheme liabilities
Net liability
Difference between expected and actual returns
on scheme assets:
Experience gains/(losses) on scheme liabilities:
Total actuarial (loss)/gain:
2013
£’000
17,171
(18,760)
(1,589)
967
—
(1,058)
2012
£’000
2011
£’000
2010
£’000
2009
£’000
15,598
(16,436)
13,674
(14,477)
13,737
(15,333)
12,427
(14,427)
(838)
(803)
(1,596)
(2,000)
1,012
(1,099)
41
(478)
20
599
151
110
172
544
(190)
(1,821)
TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013 67
Notes to the Financial Statements
for the year ended 30 September 2013 continued
25. PENSION SCHEMES (continued)
Approximate effect of change of assumptions on liability values at 30 September 2013:
Change:
Reduce discount rate by 0.25% pa
Increase inflation and all related assumptions by 0.1% pa
Increase life expectancy by one year
26. COMMITMENTS UNDER OPERATING LEASES
Increases liability by:
£’000
880
255
540
The Group as lessee
As at 30 September 2013, the Group had total commitments for future minimum lease payments under non-cancellable operating leases
which fall due as follows:
Within one year
Within one to two years
In two to five years
2013
£’000
28
10
21
59
2012
£’000
40
18
31
89
The Group as lessor
As at 30 September 2013, the Group had contracted with tenants for the following future minimum lease payments which fall due as follows:
Within one year
27. CONTINGENT LIABILITIES
2013
£’000
8
2012
£’000
8
Parent Company
The Parent Company has guaranteed the Industrial Development Loan and ‘Line of Credit’ for Treatt USA Inc. At the balance sheet date the
liability covered by this guarantee amounted to US$2,070,000 (£1,279,000) (2012: US$2,325,000 (£1,440,000)).
The Parent Company has also guaranteed certain bank borrowings of its UK subsidiaries R C Treatt & Co. Limited and Earthoil Plantations
Limited. At the year-end the liabilities covered by this guarantee amounted to £4,322,000 (2012: £9,089,000).
Parent Company and Group
As previously reported, the sellers of the Earthoil Group, which was wholly acquired in April 2008 (see note 12), have filed a claim in the
Chancery Division of the High Court against the Parent Company for £1.8m which has subsequently been extended to £2.3m. The claim
relates to various matters in respect of the earnout, being the deferred consideration payable to the sellers in respect of the acquisition of the
Earthoil Group. Following the determination of some preliminary issues in November 2013, this matter may now proceed to be determined by
an independent expert, although there are still matters to be determined by the Court and there can, therefore, be no certainty of the eventual
outcome. The costs of resolving the dispute currently total £647,000, of which the current year’s costs of £634,000 have been included in
exceptional items. The total eventual legal and professional fees of the dispute are currently unknown, but are likely to exceed £1m.
68 TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013
28. FINANCIAL INSTRUMENTS
Parent Company and Group
Capital risk management
The Group and Parent Company manage their capital to ensure that entities in the Group will be able to continue as going concerns whilst
maximising the return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of
net debt and equity shareholders’ funds. The Group is not subject to any externally imposed capital requirements. Board policy is to operate
with a mix of short and medium term borrowings. In recent years the Group have converted £3.25m of committed one year borrowings and
$9m of overdraft in the UK into three year revolving credit facilities, and a $4m line of credit facility in the US into a four year facility. None of these
facilities expire in the same financial years and all bank facilities are operated independently and are therefore not syndicated. The Group’s net
debt position is monitored daily and reviewed by management on a weekly basis. Further details of the Group’s capital management are given
in the Chairman’s Statement, CEO’s Report and Financial Review on pages 6 to 10.
Categories of financial instruments
In the following table those financial instruments which are measured subsequent to initial recognition at fair value are required to be grouped
into levels 1 to 3 based on the degree to which the fair value is observable:
•
•
level 1 – fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;
level 2 – fair value measurements are those derived from inputs other than quoted prices included within level 1 that are observable for the
asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
level 3 – fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
•
Financial assets
Redeemable loan notes receivable from subsidiaries
Trade receivables
Cash and cash equivalents
Derivative financial instruments – forward currency contracts (level 2)
Financial liabilities
Redeemable loan notes payable
Trade payables
Bank borrowings
UK revolving credit facilities
US term loans
Derivative financial instruments – interest rate swap (level 2)
Group
2013
£’000
2012
£’000
Parent Company
2012
2013
£’000
£’000
—
11,448
1,117
219
—
12,368
927
—
12,784
13,295
675
7,434
22
6,793
2,596
577
675
5,275
2,268
8,731
2,878
1,033
18,097
20,860
1,350
—
—
—
1,350
675
—
1,915
—
—
—
2,590
1,350
—
—
—
1,350
675
—
1,566
—
—
—
2,241
Fair values of financial assets and liabilities
The estimated fair values of financial assets and liabilities is not considered to be significantly different from their carrying values.
Financial risk management objectives
The Group and Parent Company collate information from across the business and report to the Board on key financial risks. These risks
include credit risk, liquidity risk, interest rate risk and currency risk. The Group has policies in place, which have been approved by the Board,
to manage these risks. The Group does not enter into traded financial instruments as the costs involved currently outweigh the risks they seek
to protect against. Speculative purchases of financial instruments are not made.
TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013 69
Notes to the Financial Statements
for the year ended 30 September 2013 continued
28. FINANCIAL INSTRUMENTS (continued)
Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group or Parent
Company. The Group’s credit risk is primarily attributable to its trade receivables and details of how this risk is managed are explained in note
18. The credit risk on liquid funds is limited because the counterparties are banks with good credit ratings assigned by international credit
rating agencies as outlined in note 19. The Directors are of the opinion that there are no significant concentrations of credit risk. The carrying
amount of financial assets recorded in the financial statements, which is net of impairment losses, represents the Group and Parent Company’s
maximum exposure to credit risk.
The loan notes receivable by the Parent Company are made up as follows:
Variable Rate Unsecured Loan Notes 2015 (A)
Variable Rate Unsecured Loan Notes 2015 (B)
2013
£’000
950
400
2012
£’000
950
400
1,350
1,350
The loan notes are redeemable in full on 31 December 2015 or from 31 March 2009 on request from the issuer. Interest is receivable at 1%
above UK base rate. As disclosed in note 29, the loan notes are receivable by the Parent Company from two of its wholly-owned subsidiaries,
comprising the Earthoil Group. Although the Earthoil Group has access to the Group’s banking facilities, on a standalone basis there is
technically a credit risk attaching to the loan notes. However, given that the Earthoil Group is now trading profitably and the Parent Company
has control over when the loan notes are redeemed, this credit risk is not considered to be significant.
Further details of the Group’s credit risk management are given in notes 18 and 19.
Liquidity risk management
Liquidity risk refers to the risk that the Group may not be able to fund the day to day running of the Group. Liquidity risk is reviewed by the
Board at all Board meetings. The Group manages liquidity risk by monitoring actual and forecast cash flows and matching the maturity profiles
of financial assets and liabilities. The Group also monitors the drawdown of debt against the available banking facilities and reviews the level of
reserves. Liquidity risk management ensures sufficient debt funding is available for the Group’s day to day needs. Board policy is to maintain a
reasonable headroom of unused committed bank facilities.
The Group has a number of debt facilities, details of which, including their terms and maturity profile, are given in note 20.
The Board also monitors the Group’s banking covenants which are calculated under IFRS. There were no breaches during the year or prior
period.
Interest rate risk management
The Group is exposed to interest rate risk on short to medium term borrowings primarily with three major institutions being HSBC, Lloyds
Banking Group and Bank of America. The risk is managed by maintaining borrowings with several institutions across a number of currencies,
principally US Dollar and Sterling. Long term financing is primarily used to finance long term capital investment.
The Group hedges a portion of its interest rate risk through an interest rate swap which has the effect of fixing the interest rate on a notional
principal of US$9 million of borrowings. The interest rate swap is for a period of ten years ending in 2020 and swaps variable 3 month US LIBOR
for a fixed rate of 5.68%. The Group has complied with the requirements of IAS39, ‘Financial Instruments: Recognition and Measurement’ and
designated this interest rate swap as a cash flow hedge. The hedge was 100% effective during the period and is expected to be going forward,
and consequently the carrying value (which is the same as the fair value) of the interest rate swap has been taken to the hedging reserve,
and the corresponding liability as at 30 September 2013 of £577,000 (2012: £1,033,000) is shown under non-current liabilities – ‘Derivative
Financial Instruments’. The fair value of the interest rate swap equates to the mark-to-market valuation of the swap provided by HSBC and
represents the amount which the Group would expect to pay in order to close the swap contract at the balance sheet date. The gain for the
period of £546,000 (2012: £169,000 loss) is shown in the ‘Statement of Comprehensive Income’.
The derivative financial instrument for the interest rate swap described above is classified as level 2.
70 TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013
28. FINANCIAL INSTRUMENTS (continued)
Interest rate risk management (continued)
Interest rate risk is further diversified by having a mix of fixed and floating rate borrowings, as well as holding borrowings in a range of currencies
as follows:
Group
Financial liabilities
Bank borrowings:
US Dollars
Sterling*
Other*
Total Net Debt
Loan notes payable:
Sterling
Floating rate
financial liabilities
Fixed rate
financial liabilities
Total
2013
£’000
6,062
(106)
(258)
5,698
675
2012
£’000
6,052
(1,974)
562
4,640
675
2013
£’000
2,596
—
—
2,596
—
2012
£’000
8,309
—
—
8,309
2013
£’000
8,658
(106)
(258)
2012
£’000
14,361
(1,974)
562
8,294
12,949
—
675
675
6,373
5,315
2,596
8,309
8,969
13,624
* Bank borrowings are shown net of positive cash balances as rights of set-off exist.
The Parent Company bank borrowings were all held in Sterling.
Interest on floating rate bank deposits is based on UK base rates or currency LIBOR as applicable. Interest on bank overdrafts is charged at
1.35%-2.75% above bank base or currency LIBOR rates. The terms of the loan notes receivable are shown within this note.
Fixed rate financial liabilities comprise the Industrial Development Loan of US$2,070,000 (2012: US$2,325,000), equipment financing term
loans of $2,133,000 (2012: $2,093,000) and $9,000,000 revolving credit facility (see note 20).
The loan notes payable by the Parent Company and Group are made up as follows:
Series A Variable Rate Unsecured Loan Notes 2015
Series B Variable Rate Unsecured Loan Notes 2015
2013
£’000
475
200
675
2012
£’000
475
200
675
The loan notes are redeemable in full on 31 December 2015 or at an earlier date, once 50% of the corresponding loan notes receivable have
been redeemed. Interest is payable at 1% above UK base rate.
Interest rate sensitivity analysis has been performed on the floating rate financial liabilities to illustrate the impact on Group profits if interest
rates increased or decreased. This analysis assumes the liabilities outstanding at the period end were outstanding for the whole period.
A 100 bps increase or decrease has been used, comprising management’s assessment of reasonably possible changes in interest rates.
If interest rates had been 100 bps higher or lower, then profit before taxation for the year ended 30 September 2013 would have decreased
or increased as follows:
Impact on profit before tax of 1% interest rate movement
Group
2013
£’000
101
2012
£’000
146
Parent Company
2012
2013
£’000
£’000
12
9
It has been assumed that all other variables remained the same when preparing the interest rate sensitivity analysis and that floating rate short
term bank borrowings in the same currency are netted against each other for the purpose of interest rate calculation.
TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013 71
Notes to the Financial Statements
for the year ended 30 September 2013 continued
28. FINANCIAL INSTRUMENTS (continued)
Foreign currency risk management
Foreign currency risk management occurs at a transactional level on revenues and purchases in foreign currencies and at a translational level
in relation to the translation of overseas operations. The Group’s main foreign exchange risk is the US Dollar. Board policy is for UK businesses
to mitigate US Dollar transactional exposures by holding borrowings in US Dollars and Euros as well as by entering into forward currency
contracts. Further details of the Group’s foreign currency risk management can be found in the Chairman’s Statement, CEO’s Report and
Financial Review on pages 6 to 10.
At 30 September 2013, the notional principal amount of outstanding foreign currency contracts that are held to hedge the Group’s transaction
exposures was £6,361,000 (2012: £Nil). For accounting purposes, the Group has designated the foreign currency contracts as cash flow
hedges. At 30 September 2013, the fair value of the contracts was £219,000 (2012: £Nil). During 2013, a gain of £90,000 (2012: £Nil) was
recognised in other comprehensive income in respect of these contracts and a gain of £129,000 (2012: £Nil) was reclassified from equity to
profit or loss and included in operating profit.
The derivative financial instrument for the foreign currency contracts described above is classified as level 2.
The Group’s currency exposure, being those exposures arising from transactions where the net currency gains and losses will be recognised
in the income statement, is as follows:
Net foreign currency financial assets/(liabilities):
At 30 September 2013
At 30 September 2012
US Dollar
£’000
Other
£’000
Total
£’000
(5,056)
1,077
(3,979)
(2,772)
335
(2,437)
A currency sensitivity analysis has been performed on the financial assets and liabilities to sensitivity of a 10% increase/decrease in the
Pounds Sterling to US Dollar exchange rate. A 10% strengthening of the US Dollar has been used, comprising management’s assessment of
reasonably possible changes in US Dollar exchange rates. The impact on profit for the period in the income statement would be a loss on net
monetary assets or liabilities of £562,000 (2012: £308,000). In management’s opinion, the sensitivity analysis is unrepresentative of the inherent
foreign exchange risk since it is limited to the year-end exposure and does not reflect the exposure during the year.
29. RELATED PARTY TRANSACTIONS
The following transactions were carried out with related parties:
Group
Remuneration of key management personnel
The remuneration of the Directors, who are the key management personnel of the Group, is set out below in aggregate. Further information
about the remuneration of individual Directors is provided in the Directors’ Remuneration Report on pages 31 to 35.
Salaries and other short-term employee benefits
Termination benefits
Employers’ social security costs
Pension contributions to money purchase schemes
Share-based payments
2013
£’000
1,070
—
111
42
3
1,226
2012
£’000
852
586
132
12
2
1,584
During the year two Directors (2012: three) were members of a defined benefit pension scheme until the scheme was closed to future accrual
with effect from 31 December 2012. The aggregate accumulated total pension as at 30 September 2013 was £64,000 (2012:£157,000).
72 TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013
29. RELATED PARTY TRANSACTIONS (continued)
Director’s Loan
In 2010, two years before his appointment to the Board, Daemmon Reeve was granted an interest free loan of $50,000 (£31,000) by the Parent
Company to assist with relocating to the US upon his appointment as CEO of Treatt USA. The loan is being repaid in equal monthly instalments.
Having repaid $16,250 (£11,683) during the year, the balance outstanding at 30 September 2013 was $1,250 (£772).
Parent Company
Interest received from:
Earthoil Plantations Limited
Earthoil Kenya PTY EPZ Limited
Dividends received from:
R C Treatt & Co Limited
Treatt USA Inc
Redeemable loan notes receivable:
Earthoil Plantations Limited
Earthoil Kenya PTY EPZ Limited
Amounts owed to/(by) Parent Company:
Earthoil Plantations Limited
R C Treatt & Co Limited
2013
£’000
2012
£’000
14
6
948
654
950
400
157
297
31
6
1,491
641
950
400
45
(27)
The redeemable loan notes are redeemable in full on 31 December 2015 or from 31 March 2009 on request from the issuer. Interest is
receivable at 1% above UK base rate. Amounts owed to the Parent Company are unsecured and will be settled in cash.
TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013 73
Notice of Annual General Meeting
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. IF YOU ARE IN ANY DOUBT AS TO WHAT
ACTION TO TAKE YOU ARE RECOMMENDED TO CONSULT YOUR STOCKBROKER, SOLICITOR, ACCOUNTANT OR OTHER
INDEPENDENT ADVISER AUTHORISED UNDER THE FINANCIAL SERVICES AND MARKETS ACT 2000.
If you have sold or transferred all of your ordinary shares in Treatt plc, you should pass this document, together with the accompanying
form of proxy, to the person through whom the sale or transfer was made for transmission to the purchaser or transferee.
Notice of the Annual General Meeting which has been convened for 24 February 2014 at 10.30 am at Treatt plc, Northern Way, Bury St
Edmunds, Suffolk, IP32 6NL is set out below.
To be valid, forms of proxy must be completed and returned in accordance with the instructions printed thereon so as to be received by the
Company’s registrars, Capita Asset Services, The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU as soon as possible and in any
event not later than 48 hours (excluding weekends and public holidays) before the time appointed for holding the meeting.
Notice is hereby given that the Annual General Meeting of the Shareholders of Treatt plc (the “Company”) will be held at Treatt plc, Northern
Way, Bury St Edmunds, Suffolk, IP32 6NL on 24 February 2014, at 10.30 am for the transaction of the following business:
Ordinary Business
1. To receive the accounts and the reports of the Directors and the Auditors for the year ended 30 September 2013.
2. To approve the Directors’ Remuneration Report.
3. To approve a final dividend of 13.0p per share on the ordinary shares of the Company for the year ended 30 September 2013.
4. To re-elect Jeff Iliffe as a Director of the Company.
5. To re-elect Anita Haines as a Director of the Company.
6. To re-elect David Johnston as a Director of the Company.
7. To re-appoint Baker Tilly UK Audit LLP as Auditors of the Company, to hold office from the conclusion of this meeting until the conclusion
of the next Annual General Meeting.
8. To authorise the Directors to determine the remuneration of the Auditors of the Company.
Special Business
To consider and, if thought fit, to pass the following resolutions, of which Resolutions 9 to 13 will be proposed as Ordinary Resolutions and
Resolutions 14 and 15, will be proposed as Special Resolutions.
9. Approval of Remuneration Policy
THAT:
The Remuneration Policy be and is hereby approved.
10. Authority to allot securities
THAT:
(a) In accordance with Section 551 of the Companies Act 2006 (the ‘Act’) the Directors be and are hereby generally and unconditionally
authorised to exercise all the powers of the Company to allot shares in the Company and to grant rights to subscribe for, or to convert
any security into, shares in the Company (Rights) within the terms of the restrictions and provisions following; namely:
(i)
this authority shall (unless previously revoked, varied or renewed) expire on the earlier of the date of the next Annual General
Meeting of the Company following the passing of this Resolution and 23 May 2015; and
this authority shall be limited to the allotment of shares and the granting of Rights up to an aggregate nominal amount of £345,850
(representing approximately 33 per cent of the existing issued share capital of the Company).
(ii)
(b) For the purpose of sub-paragraph (a) above:
(i)
the said power shall allow and enable the Directors to make an offer or agreement which would or might require shares to be
allotted or Rights to be granted after such expiry and the Directors may allot shares and grant Rights in pursuance of such an offer
or agreement as if the power conferred hereby had not expired; and
(ii) words and expressions defined in or for the purpose of Part 17 of the Act shall bear the same meaning herein.
11. Increase in aggregate fees to Non-executive Directors
THAT:
the maximum aggregate fees permitted to be paid to the Non-executive Directors’ of the Company, pursuant to article 18.3 of the
Company’s articles of association, be and is hereby increased from £150,000 to £225,000.
74 TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013
12. Approval of Long Term Incentive Plan
THAT:
The Treatt plc Long Term Incentive Plan, the main terms of which are summarised in the explanatory notes accompanying this notice of
meeting, to be constituted by the rules produced to the meeting and signed by the Chairman for the purposes of identification, be and is
hereby approved and adopted for five years from the date of approval by shareholders.
13. Approval of Share Incentive Plan
THAT:
The Treatt plc Share Incentive Plan, the main terms of which are summarised in the explanatory notes accompanying this notice of meeting,
to be constituted by the trust deed and rules produced to the meeting and signed by the Chairman for the purposes of identification, be
and is hereby approved and adopted for ten years from the date of approval by shareholders and the Directors are hereby authorised:
(a) to do all acts and things necessary to carry the same into effect, including the making of any changes to the trust deed and rules
as may be necessary to obtain the approval of HM Revenue & Customs and/or such other approvals as the Directors may consider
necessary or desirable to obtain; and
(b) at their discretion, to adopt similar all-employee plans as they deem appropriate for the benefit of employees and Directors of the
Company and its subsidiaries, on identical terms, which are located outside the United Kingdom.
14. Disapplication of pre-emption rights for up to 5% of existing share capital
THAT:
(a) Conditionally upon the passing of Resolution 10 above and in accordance with Section 570 of the Act, the Directors be and are hereby
given power to allot equity securities pursuant to the authority conferred by Resolution 10 above as if Section 561 of the said Act did
not apply to any such allotment provided that:
the power hereby granted shall be limited:
(i)
(aa) to the allotment of equity securities in connection with or pursuant to an offer by way of rights to the holders of shares in the
Company and other persons entitled to participate therein, in the proportion (as nearly as may be) to such holders’ holdings
of such shares (or, as appropriate, to the number of shares which such other persons are for these purposes deemed to hold)
subject only to such exclusions or other arrangements as the Directors may feel necessary or expedient to deal with fractional
entitlements or legal or practical problems under the laws of or the requirements of any recognised regulatory body in any
territory; and
(ii)
(bb) to the allotment (otherwise than pursuant to sub-paragraph (i)(aa) of this proviso) of equity securities up to an aggregate
nominal amount of £52,400 (representing approximately 5 per cent of the existing issued share capital of the Company);
the power hereby granted shall expire on the earlier of the date of the next Annual General Meeting of the Company following the
passing of this Resolution and 23 May 2015;
the said power shall allow and enable the Directors to make an offer or agreement before the expiry of the said power which
would or might require securities to be allotted pursuant to the agreement as if the power conferred herein had not expired; and
(ii) words and expressions defined in or for the purpose of Part 17 of the Act shall bear the same meaning herein.
(b) (i)
15. Authority to purchase own shares
THAT:
The Company is hereby generally and unconditionally authorised to make market purchases (within the meaning of Section 693 of the Act)
of ordinary shares of 10p each in the capital of the Company (“ordinary shares”) provided that:
(a) the maximum number of ordinary shares authorised to be purchased is 1,048,000 (representing approximately 10 per cent of the
present issued share capital of the Company);
(b) the minimum price (excluding stamp duty, dealing or other costs) which may be paid for an ordinary share so purchased is 10p;
(c) the maximum price which may be paid for an ordinary share so purchased is an amount equal to 5 per cent above the average of
the middle market quotations shown for an ordinary share in The London Stock Exchange Daily Official List on the five business days
immediately preceding the day on which that ordinary share is purchased;
(d) the authority hereby conferred shall expire at the conclusion of the Annual General Meeting of the Company to be held in 2015, unless
such authority is renewed, varied or revoked prior to such time; and
(e) the Company may prior to the expiry of such authority make a contract to purchase ordinary shares under the authority hereby
conferred which will or may be executed wholly or partly after the expiry of such authority, and may make a purchase of ordinary shares
in pursuance of any such contract.
By order of the Board
Anita Steer
Secretary
19 December 2013
Registered Office:
Northern Way
Bury St Edmunds
Suffolk
IP32 6NL
The note on voting procedures and general rights of shareholders, together with explanatory notes on the resolutions to be put to the meeting,
which follow on pages 76 to 80 form part of this notice.
TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013 75
Notice of Annual General Meeting
continued
NOTE ON VOTING PROCEDURES AND GENERAL RIGHTS OF SHAREHOLDERS:
Only those persons entered in the Register of Members of the Company (the Register) as at 6.00pm on 20 February 2014 (the Record Date)
shall be entitled to attend or vote at the AGM in respect of the number of ordinary shares in the capital of the Company registered in their
names at that time. Changes to entries on the Register for certificated or uncertificated shares of the Company after the Record Date shall be
disregarded in determining the rights of any person to attend or vote at the AGM. Should the AGM be adjourned to a time not more than 48
hours after the Record Date, that time will also apply for the purpose of determining the entitlement of members to attend and vote (and for
the purpose of determining the number of votes they may cast) at the adjourned AGM. Should the AGM be adjourned for a longer period, to
be so entitled, members must have been entered on the Register by 6.00pm two days prior to the adjourned AGM (excluding weekends and
public holidays) or, if the Company gives notice of the adjourned AGM, at the time specified in such notice.
Voting at the meeting will be conducted by poll rather than on a show of hands, which the Board believes provides a more accurate reflection
of shareholder views and takes into account the number of shares held by each member. Those shareholders who are unable to attend the
meeting should submit a form of proxy as detailed below. Shareholders attending the meeting may also wish to vote in advance of the meeting
by submitting a form of proxy. Members who have done so will not need to vote at the meeting unless they wish to change their vote or the
way in which the proxy is instructed to vote.
A member entitled to attend and vote at this meeting may appoint a proxy or proxies to attend and vote instead of him or her. The proxy need
not be a member of the Company. A form of proxy is provided with this notice and instructions for use are shown on the form. Additional forms
of proxy can be obtained from the Company’s registrars on tel no 0871 664 0300 (calls cost 10p per minute plus network extras, lines are open
8.30 a.m. to 5.30 p.m. Monday to Friday). Instruments appointing proxies must be lodged with the Company’s registrars not less than 48 hours
before the time fixed for the meeting to be effective. Completion and return of a form of proxy will not preclude a member from attending and
voting in person at the meeting or any adjournment of the meeting.
An abstention option is provided on the form of proxy to enable you to instruct your proxy to abstain on any particular resolution, however, it
should be noted that an abstention in this way is not a ‘vote’ in law and will not be counted in the calculation of the proportion of the votes ‘For’
and ‘Against’ a resolution.
CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so for the Annual
General Meeting to be held on 24 February 2014 and any adjournment(s) of the meeting by using the procedures described in the CREST
Manual. CREST personal members or other CREST sponsored members, and those CREST members who have appointed a voting service
provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf.
Please note the following:
a)
In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a “CREST Proxy
Instruction”) must be properly authenticated in accordance with Euroclear UK & Ireland Limited’s (“EUI”) specifications and must contain
the information required for such instructions, as described in the CREST Manual. The message, regardless of whether it constitutes the
appointment of a proxy or an amendment to the instruction given to a previously appointed proxy must, in order to be valid, be transmitted
so as to be received by the issuer’s agent (ID RA10) by the latest time(s) for receipt of proxy appointments specified in this notice of the
Annual General Meeting. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the
message by the CREST applications host) from which the issuer’s agent is able to retrieve the message by enquiry to CREST in the manner
prescribed by CREST. After this time any change of instructions to proxies appointed through CREST should be communicated to the
appointee through other means.
b) CREST members and, where applicable, their CREST sponsors or voting service providers should note that EUI does not make available
special procedures in CREST for any particular messages. Normal system timings and limitations will therefore apply in relation to the
input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST
personal member or sponsored member or has appointed a voting service provider(s), to procure that his CREST sponsor or voting service
provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any
particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting service providers are referred
in particular to those sections of the CREST Manual concerning practical limitations of the CREST system and timings.
c) The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in regulation 35(5)(a) of the Uncertificated
Securities Regulations 2001.
76 TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013
The right to appoint a proxy does not apply to persons whose shares are held on their behalf by another person and who have been nominated
to receive communications from the company in accordance with section 146 of the Companies Act 2006 (“nominated persons”). Nominated
persons may have a right under an agreement with the registered shareholder who holds the shares on their behalf to be appointed (or to have
someone else appointed) as a proxy. Alternatively, if nominated persons do not have such a right, or do not wish to exercise it, they may have
a right under such an agreement to give instructions to the person holding the shares as to the exercise of voting rights.
A member of the Company which is a corporation may authorise a person or persons to act as its representative(s) at the AGM. In accordance
with the provisions of the Companies Act 2006 (as amended by the Companies (Shareholders’ Rights) Regulations 2009), each such
representative may exercise (on behalf of the corporation) the same powers as the corporation could exercise if it were an individual member
of the Company, provided that they do not do so in relation to the same shares. It is therefore no longer necessary to nominate a designated
corporate representative.
Pursuant to Section 319A of the Companies Act 2006, the Company must cause to be answered at the AGM any question relating to the
business being dealt with at the AGM which is put by a member attending the meeting, except in certain circumstances, including if it is
undesirable in the interests of the Company or the good order of the meeting that the question be answered or if to do so would involve the
disclosure of confidential information.
Members satisfying the thresholds in Section 338 of the Companies Act 2006 may require the Company to give, to members of the Company
entitled to receive notice of the AGM, notice of a resolution which those members intend to move (and which may properly be moved) at the
AGM. A resolution may properly be moved at the AGM unless (i) it would, if passed, be ineffective (whether by reason of any inconsistency with
any enactment or the Company’s constitution or otherwise); (ii) it is defamatory of any person; or (iii) it is frivolous or vexatious. The business
which may be dealt with at the AGM includes a resolution circulated pursuant to this right. A request made pursuant to this right may be in hard
copy or electronic form, must identify the resolution of which notice is to be given, must be authenticated by the person(s) making it and must
be received by the Company not later than 6 weeks before the date of the AGM.
Members satisfying the thresholds in Section 338A of the Companies Act 2006 may request the Company to include in the business to be
dealt with at the AGM any matter (other than a proposed resolution) which may properly be included in the business at the AGM. A matter
may properly be included in the business at the AGM unless (i) it is defamatory of any person or (ii) it is frivolous or vexatious. A request made
pursuant to this right may be in hard copy or electronic form, must identify the matter to be included in the business, must be accompanied by
a statement setting out the grounds for the request, must be authenticated by the person(s) making it and must be received by the Company
not later than 6 weeks before the date of the AGM.
In accordance with Section 311A of the Companies Act 2006, the contents of this notice of meeting details the total number of shares in
respect of which members are entitled to exercise voting rights at the AGM, the total voting rights members are entitled to exercise at the AGM
and, if applicable, any members’ statements, members’ resolutions or members’ matters of business received by the Company after the date
of this notice will be available on the Company’s website www.Treatt.com.
As at 19 December 2013 the Company’s issued share capital consists of 10,481,034 ordinary shares, The total number of voting rights in the
Company as at 19 December 2013 (the latest practicable reporting date prior to publication of this document) is 10,264,523.
A statement of Directors’ share transactions and copies of their service contracts and the letters of appointment of the Non-executive Directors
are available for inspection during usual business hours at the registered office of the Company from the date of this notice until the date of the
Annual General Meeting (Saturdays, Sundays and public holidays excluded) and will be available at the place of the meeting for fifteen minutes
prior to and during the meeting.
Except as provided above, members who wish to communicate with the Company in relation to the meeting should do so using the following
means:
Calling the Company Secretary on +44 1284 702500;
Emailing the Company Secretary on cosec@treatt.com; or
Writing to: The Company Secretary, Treatt plc, Northern Way, Bury St Edmunds, Suffolk, IP32 6NL.
TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013 77
Notice of Annual General Meeting
continued
EXPLANATORY NOTES
Report and Accounts (Resolution 1)
The Directors of the Company must present the accounts to the meeting.
Directors’ Remuneration Report (Resolution 2)
Changes to The Companies Act 2006, implemented by the Enterprise and Regulatory Reform Act 2013, provide that a quoted company may
not make a remuneration payment to a Director of the company unless the payment is consistent with the Company’s Remuneration Policy,
as approved by shareholders, or the payment is approved by a Shareholders’ Resolution. The legislation requires two resolutions to be put to
shareholders on separate sections of the Directors’ Remuneration Report. The first of these is an advisory resolution on the Implementation
Section of the Directors’ Remuneration Report, which details the remuneration packages paid to Directors during the year ended 30 September
2013. You can find the Implementation Section of the Directors’ Remuneration Report on page 31.
Declaration of a dividend (Resolution 3)
A final dividend can only be paid after the Shareholders at a general meeting have approved it. A final dividend of 13.0p per ordinary share is
recommended by the Directors for payment to Shareholders who are on the register of members at the close of business on 28 February 2014.
If approved, the date of payment of the final dividend will be 4 April 2014. An interim dividend of 5.5 pence per ordinary share was paid on 18
October 2013. This represents an increase of 3.0 pence per share, or 19.4 per cent, on the total 2012 dividend.
Re-election of Directors (Resolutions 4, 5 and 6)
In accordance with the Articles of Association, all Directors retire at least every three years and all newly appointed Directors retire at the first
Annual General Meeting following their appointment. Furthermore, any Non-executive Director having been in post for nine years or more is
subject to annual re-election.
At this meeting, Jeff Iliffe, Anita Haines and David Johnston will retire and stand for re-election as Directors. Short biographies of these Directors
are given on page 15. Anita Haines will retire as an Executive Director at the conclusion of the Annual General Meeting and is standing for
re-election as a Non-executive Director. Having considered the performance of and contribution made by each of the Directors standing for
re-election the Board remains satisfied that the performance of each of the relevant Directors continues to be effective and to demonstrate
commitment to the role and, as such, recommends their re-election.
Reappointment and remuneration of auditors (Resolutions 7 and 8)
Resolutions 8 and 9 propose the reappointment of Baker Tilly UK Audit LLP as Auditors of the Company and authorise the Directors to set
their remuneration.
Remuneration Policy Report (Resolution 9)
As referred to under Resolution 2 above, two resolutions are required to be put to Shareholders on separate sections of the Directors’
Remuneration Report. The second of these is a binding resolution, passed by a majority, to approve the Company’s Remuneration Policy. The
policy, which is set out on pages 23 to 30, will apply to all payments made to Directors from the date the policy is approved by shareholders.
Since the resolution is binding, it will be necessary for the Company to convene an Extraordinary General Meeting to put the resolution to
Shareholders again, in the event that it is not passed at the Annual General Meeting.
Directors’ authority to allot securities (Resolution 10)
Your Directors may only allot ordinary shares or grant rights over ordinary shares if authorised to do so by Shareholders. This resolution seeks
to grant authority to the Directors to allot unissued share capital of the Company and grant Rights and will expire at the conclusion of the next
Annual General Meeting of the Company in 2015 or, if earlier, on 23 May 2015 (the date which is 15 months after the date of passing of the
resolution). There is no present intention of exercising this authority, which would give Directors authority to allot relevant securities up to an
aggregate nominal value of £345,850 approximately 33 per cent of the Company’s issued ordinary share capital as at 19 December 2013.
Increase in aggregate fees payable to the Non-executive Directors’ (Resolution 11)
Article 18.3 provides that the ordinary remuneration of the Non-executive Directors shall not exceed £150,000 per annum in aggregate unless
a higher sum is determined by ordinary resolution of the Company. The limit was last increased at the Annual General Meeting in 2009.
Although Anita Haines’ resignation as an Executive Director will not affect the overall number of Directors on the Board, her appointment as
a Non-executive Director will have an effect on the aggregate fees of Non-executive Directors, taking them above the current maximum. The
proposed increase in the maximum aggregate fees to £225,000, will provide the Board with sufficient flexibility to ensure that the skills, expertise
and diversity of the Board remain appropriate for the future and that the Board is sufficiently balanced to enable it to fulfill its obligations to
Shareholders.
Shareholders should note that increasing the maximum aggregate fees for Non-executive Directors does not mean that Shareholders are
approving an increase in the fees payable to each current Non-Executive Director. Increases in individual Non-executive Directors fees will be
subject to the Remuneration Policy detailed under Resolution 9 above.
78 TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013
Approval of Long Term Incentive Plan (Resolution 12)
This resolution proposes the introduction of a Long Term Incentive Plan (‘LTIP’) for employees and Directors. A summary of the proposed rules
of the LTIP is provided in Appendix A below. A full copy of the rules is available on the Treatt website at www.Treatt.com and will be available
for inspection at the Annual General Meeting.
One of the key principles of the Remuneration Policy is to link rewards to Directors and key employees to the creation of longer term value
for Shareholders. Historically, few share-based incentives have been awarded to Directors but it is recognised that this is an important aspect
of remuneration and it is therefore intended that the grant of appropriate awards of share-based incentives, with stretching performance
conditions, will be considered annually. The Remuneration Committee believes that the introduction of the LTIP will:
• enhance the Group’s remuneration framework;
• assist in the retention and motivation of Directors and key employees who are focused on executing the business strategy;
• ensure that there is sufficient focus on driving Shareholder value by providing appropriate rewards for success;
• align the interests of participants with those of Shareholders; and
•
reflect developments in corporate governance and market practice.
Approval of Share Incentive Plan (Resolution 13)
This resolution proposes the introduction of a new Share Incentive Plan (‘SIP’) for employees and Directors. A summary of the proposed rules
of the SIP is provided in Appendix B below. A full copy of the rules and trust deed are available on the Treatt website at www.Treatt.com and
will be available for inspection at the Annual General Meeting.
The Company wishes to launch the SIP, which will run alongside the existing all employee Save As You Earn Share Option Scheme, under
which shares are purchased at the end of a three year savings period, in order to align the interests of all employees with those of Shareholders
and further foster employee share ownership. The Directors believe that the introduction of the SIP will provide employees with an opportunity
to further invest in the Company’s shares.
Disapplication of pre-emption rights (Resolution 14)
Under Section 561 of the Act, if the Directors wish to allot any of the unissued shares or grant rights over shares or sell treasury shares for
cash (other than pursuant to an employee share scheme) they must in the first instance offer them to existing Shareholders in proportion to
their holdings. There may be occasions, however, when the Directors will need the flexibility to finance business opportunities by the issue of
ordinary shares without a pre-emptive offer to existing Shareholders. This cannot be done under the Act unless the Shareholders have first
waived their pre-emption rights.
Resolution 14 asks the Shareholders to do this and, apart from rights issues or any other pre-emptive offer concerning equity securities, the
authority will be limited to the issue of shares for cash up to a maximum aggregate nominal value of £52,400 (which includes the sale on a
non pre-emptive basis of any shares held in treasury), which is equivalent to approximately 5 per cent of the Company’s issued ordinary share
capital as at 19 December 2013. Shareholders will note that this resolution also relates to treasury shares and will be proposed as a Special
Resolution.
This resolution seeks a disapplication of the pre-emption rights on a rights issue so as to allow the Directors to make exclusions or such other
arrangements as may be appropriate to resolve legal or practical problems which, for example, might arise with overseas Shareholders. If given,
the authority will expire at the conclusion of the next Annual General Meeting of the Company in 2015 or, if earlier, 23 May 2015 (the date which
is 15 months after the date of passing of the resolution).
Authority to purchase own shares (Resolution 15)
In certain circumstances, it may be advantageous for the Company to purchase its own shares and resolution 15 seeks the authority from
Shareholders to continue to do so. The Directors will continue to exercise this power only when, in the light of market conditions prevailing
at the time, they believe that the effect of such purchases will be to increase earnings per share and is in the best interests of Shareholders
generally. Other investment opportunities, appropriate gearing levels and the overall position of the Company will be taken into account when
exercising this authority.
Any shares purchased in this way will be cancelled and the number of shares in issue will be reduced accordingly, save that the Company
may hold in treasury any of its own shares that it purchases pursuant to the Act and the authority conferred by this resolution. This gives the
Company the ability to re-issue treasury shares quickly and cost-effectively and provides the Company with greater flexibility in the management
of its capital base. It also gives the Company the opportunity to satisfy employee share scheme awards with treasury shares. Once held in
treasury, the Company is not entitled to exercise any rights, including the right to attend and vote at meetings in respect of the shares. Further,
no dividend or other distribution of the Company’s assets may be made to the Company in respect of the treasury shares.
TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013 79
Notice of Annual General Meeting
continued
The resolution specifies the maximum number of ordinary shares that may be acquired (approximately 10 per cent of the Company’s issued
ordinary share capital as at 19 December 2013) and the maximum and minimum prices at which they may be bought.
The total number of options to subscribe for ordinary shares that were outstanding at 19 December 2013 (the latest practicable reporting date
prior to publication of this document) was 114,521. The proportion of issued share capital that they represented at that time was 1.09 per cent
and the proportion of issued share capital that they will represent if the full authority to purchase shares (existing and being sought) is used is
1.21 per cent.
Resolution 15 will be proposed as a Special Resolution to provide the Company with the necessary authority. If given, this authority will expire
at the conclusion of the next Annual General Meeting of the Company in 2015 or, if earlier, 23 May 2015 (the date which is 15 months after the
date of passing of the resolution).
The Directors intend to seek renewal of this power at subsequent Annual General Meetings.
80 TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013
APPENDIX A
SUMMARY OF PROVISIONS OF THE TREATT PLC LONG TERM INCENTIVE PLAN (“LTIP”)
The Company proposes to introduce the LTIP to incentivise Directors and employees.
The LTIP is capable of making awards of share options (which are unapproved for tax purposes in the UK) and Restricted Stock Units in the US.
It is intended that the LTIP will be used to make awards of “nil cost” share options to selected employees of the Company in the UK, and
Restricted Stock Units, which may at the discretion of the Company be satisfied by the transfer of shares, or payment in cash of equivalent
value, once vesting conditions have been met, to employees in the US, to allow them to share in the success of the Group and promote
motivation and retention.
All Awards will be made in accordance with the Company’s Remuneration Policy as approved by shareholders from time to time.
It is proposed that all options granted under the LTIP will have an exercise price equal to the nominal value of a share in the case of a
subscription option, and nil in the case of an option to acquire existing shares held in the Treatt Employee Benefit Trust. Restricted Stock Units
will similarly be awarded for the nominal value in the case of newly issued shares, and nil in the case of existing shares.
Grants of Awards
Awards may be granted to eligible employees at the discretion of the Board. Awards may be granted only during the period of:-
i) 42 days following the date of adoption of the LTIP by the Company;
ii) 42 days following the announcement of yearly, half yearly or other period financial results of the Company;
iii) 28 days after the person to whom it is granted first becoming an Employee;
ii) subject to the Model Code, any other date on which the Directors consider that exceptional circumstances justify the grant of options; or
in the event that any statute, order or regulation prevents the Company from making Awards the Award will be made within the relevant
iii)
period indicated above after that restriction is removed.
Eligibility
All full-time employees and Directors of the Group shall be eligible to participate in the LTIP at the discretion of the Board.
Performance Conditions
The Board will impose Performance Conditions applying over a period of at least three years that must be satisfied before Awards vest. The
Performance Conditions, which will be determined at the time of grant to ensure that they are sufficiently stretching, will be set in accordance
with the Remuneration Policy.
Clawback
In the event of a material misstatement of the Company’s published financial results used to determine the quantum of Awards granted or
assess the satisfaction of performance conditions, or in the event of an error made in calculation or an Award holder’s gross misconduct,
Awards may be reduced, adjusted or cancelled as determined by the Remuneration Committee (the ‘Committee’). To the extent that Awards
have already been exercised, the Committee may (having considered all the circumstances) require the Award holder to return any shares
received, or the amounts of any proceeds of sale of such shares (net of tax).
Limit of participation
The market value of shares over which Awards may be made under the LTIP, when added to the market value of shares, or rights or
opportunities to acquire them, provided under any other employee share scheme of the Company (except a tax approved savings-related
share option scheme), may not exceed 150% of the participant’s salary for the financial year in which the Award is made or, if greater, 150% of
the participant’s salary for the previous year.
Salary for this purpose is basic gross salary excluding bonuses, company pension contributions and any other benefits in kind. This limit may
be exceeded if the Committee considers that exceptional circumstances exist.
Total number of shares available
The total number of shares that may be newly issued by the Company under Awards made under the LTIP on any day, when added to the
total number of shares which remain issuable pursuant to rights or opportunities granted under any other employees’ share scheme in the 10
years before that day, will not exceed 10% of the total share capital in issue on that day.
For this purpose, newly issued shares will include shares issued out of treasury. It will not include rights or opportunities to subscribe for new
shares which are in fact satisfied by the transfer of existing shares by another shareholder.
Vesting of Restricted Stock Units and exercise of options
Awards will vest once Performance Conditions have been either satisfied or waived or are treated as satisfied under the provisions described
below.
TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013 81
Notice of Annual General Meeting
continued
Options shall generally be exercisable after a period beginning with the date on which it is established that a Performance Condition has been
satisfied and ending up to ten years from the date of grant. Restricted Stock Units may not be sold, exchanged, pledged or otherwise disposed
of until they vest. To the extent that they do not vest, Awards will lapse.
In the case of a takeover, demerger or a statutory reconstruction, the Committee may at its discretion, and acting fairly and reasonably,
determine the proportion or number of Awards that will vest, subject to whether and to what extent the Performance Conditions should be
deemed to be satisfied.
Award holders may be able to exchange their Awards under the LTIP for Awards over the shares of the company making any takeover or on
an internal reconstruction involving the Company coming under the control of another but remaining under the control of the person or persons
who had control of the Company before the reconstruction.
Employees leaving the company
If an Award holder ceases to hold office or employment with the Group as a Good Leaver, Awards shall vest at the date of cessation but shall
be pro-rated by reference to the amount of the Performance Period completed and subject to satisfaction, or deemed satisfaction, of the
Performance Conditions.
A Good Leaver is any employee leaving by reason of injury or disability, redundancy, death in service, the transfer of the employment outside
the Group, or the sale of a Company outside the Group. If an Award holder dies after having ceased to hold employment with the Group, the
Committee may determine the extent to which any unvested Awards vest.
If an Award holder leaves for any other reason, all Awards which have not by then vested will vest only to the extent determined by the
Committee, at its discretion, acting reasonably, shall determine.
Variation of share capital
In the event of a variation of share capital the Directors may adjust the number of shares under the Award and, where appropriate, the exercise
price to reflect such variation. This adjustment shall be subject to confirmation by the Auditors that such adjustment is fair and reasonable.
Alteration of the LTIP
The Directors may at any time alter or amend the provisions of the LTIP provided that no alteration may be made to the advantage of existing
or new Award holders without the approval of shareholders by ordinary resolution, except for any such alteration where the amendments are
minor, to benefit the administration of the LTIP, to take account of a change in legislation or to obtain or maintain favourable tax treatment.
Pensions
Benefits under the LTIP will not be pensionable.
82 TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013
APPENDIX B
SUMMARY OF PROVISIONS OF TREATT PLC SHARE INCENTIVE PLAN (“SIP”)
It is proposed that the Company will introduce an H M Revenue & Customs approved Share Incentive Plan (the “SIP”) to provide all UK
employees of the Group with the opportunity to acquire shares in the Company on a tax efficient basis.
The terms of the SIP are set out in below.
The SIP provides for the acquisition of shares. The SIP will be governed by a Trust Deed and Rules which will be submitted for approval to H
M Revenue & Customs. The SIP will be operated through a UK resident trust (the “Trust”). The trustees of the Trust (the “Trustees”) will buy or
subscribe for shares that are awarded to or acquired by employees under the SIP and will hold these shares in the Trust on their behalf under
the terms of the SIP.
The main features of the SIP are as follows:
Eligibility
All employees of the Group who are resident and ordinarily resident in the United Kingdom and who are determined by the Company to be
qualifying employees are eligible to participate in any offer made by the Company under the Plan. Non-UK resident employees may also be
invited to participate in the SIP.
The Company may require employees to have completed a minimum qualifying period of employment before they are eligible to participate,
but such period may not exceed 18 months ending on the date shares are awarded and/or purchased under the SIP.
Basis for participation
The SIP provides for the acquisition by participating employees of one or more of four categories of shares:
The Company may award “Free Shares” to participants and or allow participants to give up salary to purchase “Partnership Shares”, and to the
extent that they do so, the Company may award up to two “Matching Shares” for each Partnership Share purchased. Any dividends arising on
shares held in the SIP may also be reinvested to acquire further “Dividend Shares” under the SIP.
The Directors will determine in any year whether participation in the SIP will be offered and, if so, the basis on which each of the above
categories may be offered.
Free Shares
The Company may award Free Shares to participating employees (subject to the annual statutory Individual Limits).
The number of Free Shares awarded to participants will be determined by the Directors on the basis of objective criteria and may also be
subject to performance measures. Performance measures may be based on personal, team, or divisional targets and the relevant measure
selected will be notified to all qualifying employees.
Partnership Shares
The Company may invite applications from qualifying employees to enter into a contract under the SIP to buy Partnership Shares by deduction
from pre-tax salary (subject to the annual statutory Individual Limits). The Company may specify a maximum number of shares to be available
for purchase as Partnership Shares under any particular invitation.
As determined by the Directors, deductions may either be:
a)
transferred directly to the Trustees to be applied in the acquisition of Partnership Shares. Within 30 days of the deduction from salary, the
Trustees will acquire Partnership Shares which will then be held in the Trust on the participant’s behalf. The purchase price paid for the
Partnership Shares will be determined as the market value of the shares on the date of acquisition; or
b) accumulated over an accumulation period and held in an account until the end of an accumulation period not exceeding 12 months. Within
30 days of the end of the accumulation period the Trustees shall apply the accumulated funds to acquire Partnership Shares and hold
such Shares in the Trust on the participant’s behalf. The Directors will decide in respect of each offer whether the purchase price paid for
the Partnership Shares will be determined as the market value of the shares at the start of the accumulation period or the market value on
the day the shares are acquired or the lower of those two values.
TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013 83
Notice of Annual General Meeting
continued
Matching Shares
Where the Company decides to offer the opportunity for the acquisition of Partnership Shares it may also offer Matching Shares to those
participants who elect to buy Partnership Shares. Allocations of Matching Shares will be made on the same day as Partnership Shares are
acquired on behalf of participants by the Trustees.
The Company will decide the basis on which Matching Shares are allocated (subject to the statutory individual limits). Allocations of Matching
Shares will be made to all participants on the same basis. The maximum permissible number of Matching Shares according to the law is two
Matching Shares for each Partnership Share purchased.
Dividend Shares
Participants will be entitled to dividends paid on their Free Shares, Matching Shares and Partnership Shares while they are held in the Trust.
At the discretion of the Directors, dividends arising on shares held in the Trust under the SIP may either be paid directly to a participant in cash
or reinvested, subject to the individual limits, for the acquisition of further shares under the SIP on behalf of the participant.
Individual Limits
The value of Free Shares which may be awarded to a participant under the SIP in any year shall not exceed the statutory maximum which, with
effect from April 2014, will be £3,600 per annum.
The maximum amount which can be deducted from a participant’s salary for the purpose of buying Partnership Shares shall not exceed the
statutory maximum which, with effect from April 2014, will be the lower of 10% of salary or £1,800 per annum.
The number of Matching Shares which may be awarded to a participant purchasing Partnership Shares under the SIP shall not exceed the
statutory maximum which is currently two Matching Shares for every one Partnership Share purchased.
There is no limit on the number or value of shares that may be acquired in the Plan as Dividend Shares.
Holding Periods
Free Shares and Matching Shares must be held in the Trust by the Trustees for a holding period of between three and five years, or, if earlier,
until the employee leaves the Group. The Directors shall determine the applicable holding period at the time the offer is made.
Dividend Shares must be held in the Trust by the Trustees for a holding period of three years or, if earlier, until the employee leaves the Group.
Participants may withdraw their Partnership Shares from the SIP at any time.
Termination of employment and forfeiture provisions
On termination of employment with the Company or any company within the Group, a participant is required to withdraw all shares from the
SIP (other than those which are forfeited under the terms of any offer under the SIP).
The SIP may provide for Free Shares and/or Matching Shares to be forfeited if an employee terminates employment with the Group within a
specified period (the “Forfeiture Period”) unless the termination of employment is by reason of death, injury, disability or sale of the business for
which the participant works out of the Group or the participant’s employment is transferred out of the Group. The Forfeiture Period may not
exceed three years from the date the allocation of Free Shares/Matching Shares is made.
In addition the Directors may provide that Matching Shares may be subject to forfeiture if the corresponding Partnership Shares are withdrawn
within three years of purchase.
Voting Rights
The Directors will determine whether participants shall have the right to exercise any voting rights attaching to Shares held under the SIP.
Limits on the issue of shares
The SIP will be subject to a limit on the number of new shares in the Company that may be issued. In any rolling ten-year period not more than
10% of the issued ordinary share capital of the Company may be issued or issuable pursuant to the rights acquired in total under the SIP, the
Treatt plc Long Term Incentive Plan and any other employees’ share schemes adopted by the Company.
Adjustment of awards
On a variation of the capital of the Company, the number of Shares held under the SIP will be adjusted in such manner as the Directors
determine, subject to written confirmation from the Company’s auditors that the adjustment is, in their opinion, fair and reasonable.
84 TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013
Reconstructions and takeovers
In the event of any reconstruction or change in control of the Company, shares must be either withdrawn from the SIP, or, if certain circumstances
are met, exchanged for shares in the new holding which will continue to be held in the Trust under the SIP under the same terms and subject
to the same rights and restrictions as the original shares.
Alterations
The SIP may at any time be altered by the Directors in any respect, provided that the prior approval of the shareholders in general meeting
will be obtained for alterations or additions to the advantage of participants, except for minor amendments to benefit the administration of the
SIP, to take account of existing or proposed legislation or to obtain or maintain favourable tax, exchange control or regulatory treatment for
participants in the SIP or for the Company and or any member of the Group.
To the extent required by the law, H M Revenue & Customs approval will be sought in respect of any proposed amendment to a “key feature”
of the SIP (ie, being a feature which is necessary to meet the requirements of the relevant legislation governing the SIP).
Rights attaching to shares
Ordinary shares allotted under the SIP will rank equally with all other shares of the Company for the time being in issue and the Company will
apply for admission of any new shares issued under the SIP to any relevant exchange.
Funding the SIP
Each participating company within the Group may fund the Trustees of the Trust to subscribe for or buy shares in the market or privately. The
Company may only fund the Trust at such time that it has sufficient distributable reserves to do so. The acquisition price for private purchases
must not be materially more than the market price of a share at that time and the subscription of shares must be at market value or, if higher,
at nominal value.
General
Benefits under the SIP are not pensionable.
TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013 85
Financial Calendar
2012/13
Financial year ended
Results for year announced
Annual Report and Financial Statements published
Annual General Meeting
Final dividend for 2013 goes ‘ex-dividend’
Record date for 2013 final dividend
Last day for dividend reinvestment plan election
Final dividend for 2013 paid
2013/14
Interim results to 31 March 2014 announced
Interim dividend for 2014 goes ‘ex-dividend’
Record date for 2014 interim dividend
Last day for dividend reinvestment plan election
Financial year ended
Interim dividend for 2014 paid
Results for year to 30 September 2014 announced
Final dividend for 2014 paid
* These dates are provisional and may be subject to change
30 September 2013
9 December 2013
19 December 2013
24 February 2014
26 February 2014
28 February 2014
10 March 2014
4 April 2014
20 May 2014*
10 September 2014*
12 September 2014*
22 September 2014*
30 September 2014
17 October 2014*
9 December 2014*
3 April 2015*
86 TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013
Parent Company Information and Advisers
Directors
Tim Jones (Chairman and Non-executive Director)
Daemmon Reeve (Chief Executive Officer)
Anita Haines (Human Resources Director)*
Richard Hope (Finance Director)
Jeff Iliffe (Non-executive Director – from 25 Feb 2013)
David Johnston (Non-executive Director)
Ian Neil (Non-executive Director)
Peter Thorburn (Non-executive Director – until 25 Feb 2013)
* Anita Haines will retire as an Executive Director with effect from 24 February 2014 but will continue
to serve as a Non-executive Director thereafter.
Secretary
Anita Steer
Registered Office
Northern Way, Bury St Edmunds, Suffolk, IP32 6NL.
Tel: + 44 (0) 1284 702500. Email: cosec@treatt.com.
Website: http://www.treatt.com
Registered Number
1568937
Audit Committee
Remuneration Committee
Nomination Committee
Ian Neil (Chairman until 25 Feb 2013)
Jeff Iliffe (Chairman and committee member from 25 Feb 2013)
Tim Jones
David Johnston
Peter Thorburn (Until 25 Feb 2013)
Ian Neil (Chairman)
Jeff Iliffe (From 25 Feb 2013)
Tim Jones
David Johnston
Peter Thorburn (Until 25 Feb 2013)
Tim Jones (Chairman)
Daemmon Reeve
Jeff Iliffe (From 25 Feb 2013)
David Johnston
Ian Neil
Peter Thorburn (Until 25 Feb 2013)
Brokers
Auditors
Solicitors
Bankers
Registrars
Share Price
Investec Investment Banking, 2 Gresham Street, London, EC2V 7QP.
Baker Tilly UK Audit LLP
Abbotsgate House, Hollow Road, Bury St Edmunds, Suffolk, IP32 7FA.
Eversheds LLP, One Wood Street, London, EC2V 7QP.
Greene and Greene, 80 Guildhall Street, Bury St Edmunds, Suffolk, IP33 1QB.
HSBC Bank plc, 140 Leadenhall Street, London, EC3V 4PS.
Lloyds Banking Group, Black Horse House, Castle Park, Cambridge, CB3 0AR.
Bank of America, 5th Floor, 101 E. Kennedy Boulevard, Tampa, FL 33602.
Capita Asset Services, The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU.
Treatt Plc’s share price is available on www.ft.com. Annual and interim reports are available on the
Group’s website (www.treatt.com).
TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013 87
88 TREATT PLC ANNUAL REPORT AND FINANCIAL STATEMENTS 2013
TREATT IS A WORLD-LEADING
INNOVATIVE INGREDIENT SOLUTIONS
PROVIDER FOR THE FLAVOUR, FRAGRANCE
AND CONSUMER GOODS INDUSTRIES
Treatt places great emphasis on investing resources into developing first-hand
knowledge and relationships with growers and suppliers to ensure a sustainable,
fair and rewarding future for all its stakeholders; investors, customers, growers
and staff – across the globe.
The Group has manufacturing sites on three continents with sales offices in the
UK, USA, France and China. Our manufacturing sites are certified to the Global
Food Safety Initiative (GFSI) approved standard, which serves as a testament of
our commitment to quality and safety, and allows Treatt to supply across the globe.
By developing innovative solutions for multi-national customers and providing
unparalleled customer service, Treatt continues to create outstanding value for
both its customers and its shareholders.
About the
group
OVERVIEW
GOVERNANCE
FINANCIAL STATEMENTS
01 Group Strategy
02 What We Do
04 Highlights
05 Group Five Year Trading Record
06 Chairman’s Statement
07 Chief Executive Officer’s Report
09 Financial Review
11 Directors’ Report
16 Strategic Report
18 Corporate Governance Statement
23 Directors’ Remuneration Report
36 Independent Auditor’s Report to
the Members of Treatt plc
38 Group Income Statement
39 Group Statement of Comprehensive Income
40 Group and Parent Company Statements
of Changes in Equity
42 Group and Parent Company Balance Sheets
43 Group and Parent Company Statement
of Cash Flows
44 Group Reconciliation of Net Cash Flow
to Movement in Net Debt
45 Notes to the Financial Statements
74 Notice of Annual General Meeting
86 Financial Calendar
87 Parent Company Information and Advisers
TREATT PLC
Annual Report and
Financial Statements 2013
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A world of
difference
in the world of ingredient solutions,
we’re at the core of product innovation
Treatt plc
Northern Way,
Bury St Edmunds,
Suffolk, IP32 6NL UK
01284 702500
Tel:
Fax: 01284 703809
Email: enquiries@treatt.com
www.treatt.com
www.earthoil.com