TREATT PLC
Annual Report and
Financial Statements 2014
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a world of
difference
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
WHO WE ARE
Treatt was founded on ingredient sourcing and risk management. Over the last 128 years, we
have grown from a small merchant house trading in essential oils to become a world-leading
innovative ingredient solutions provider for the flavour, fragrance and consumer goods
industries, supplying customers globally.
WHAT WE DO
Our in-depth knowledge of flavour and fragrance ingredients provides a platform to partner
with our customers and give them direct access to unique ingredient solutions not found
elsewhere, allowing them to create signature products using Treatt’s specialties, which can
set their products apart from the competition. Provenance is of increasing importance and
a growing number of brands now choose to clearly communicate the source of the main
ingredients on their finished products, as shoppers show a heightened interest in knowing
where the food and drink they consume comes from. By sourcing raw materials sustainably,
we can ensure traceability and consistent product quality.
about the
group
OVERVIEW
FINANCIAL STATEMENTS
40 Group Income Statement
41 Group Statement of Comprehensive Income
42 Group and Parent Company Statements
of Changes in Equity
44 Group and Parent Company Balance Sheets
45 Group and Parent Company Statement
of Cash Flows
46 Group Reconciliation of Net Cash Flow
to Movement in Net Debt
47 Notes to the Financial Statements
77 Notice of Annual General Meeting
87 Financial Calendar
88 Parent Company Information
and Advisers
01 Strategy Map
What Makes Treatt Special
02 Our Products
Our Values
03 An Eye to The Future
04 2014 Review
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
GOVERNANCE
20 Corporate Governance Statement
25 Directors’ Remuneration Report
38 Independent Auditor’s Report to
the Members of Treatt plc
Designed and produced by corporateprm, Edinburgh and London. www.corporateprm.co.uk
Focused sales
approach
Market-driven
new product
development
Concentrated
product range
strategy
map
Cost control
Excellent quality
and service
Well motivated
and experienced
workforce
Setting
milestones
Targeted
customers and
segments
Innovation
Group
Growth
what makes
treatt special
Knowledge
People
Tailored ingredient solutions
ingredients and have a
We are experts in the field of flavour and
fragrance
long
tradition of sourcing natural raw materials
from all over the world. We travel the world
to build personal relationships with our
producers and farmers and so have the
first-hand in-depth knowledge to impart to
our customers.
We are proud of our people and empower
them to make their own decisions and set
goals, in line with our strategic objective. We
ensure that they feel valued and recognised
for their contribution to the success of our
business and we are rewarded by their passion
and commitment.
is central
research and development
to our success.
Innovation
Our
teams
are well-equipped to provide our customers
with the means to develop their products
to meet today’s
from
consumers
ingredients and
health-driven beverages, and to be ahead of
future trends.
increased demand
for natural
Customer partnerships
Operational excellence
Customer education
Treatt views its customers as true long-term
business partners and focuses on providing
solutions to meet their needs in a timely
and efficient manner. We understand that it
takes a delicate balance of service, quality
and innovation to provide our customers
with solutions for their products to make
their brands grow and stand out in the global
marketplace.
Treatt has manufacturing bases in the UK, the
USA and in Kenya, offering a geographical
spread of
to world
risk and access
markets and is flexible enough to adjust to
customers’ needs. Sharing of best practices
in technical and management processes
ensures production efficiencies.
look
We take pride in the knowledge that our
customers
to us because of our
understanding of the industry and market
conditions. We regularly hold training seminars
for our customers to educate them about many
of the raw materials we use such as essential
oils, how they are distilled, and the challenges
facing the flavour and fragrance industry.
01
TREATT PLCAnnual Report and Financial Statements 2014 our
products
Essential oils
Citrus
Treattarome®
Beverage specialities
Derived from a variety of origins.
Using our advanced
technical
expertise, we can ensure there is
a product available to match our
customers’ specific requirements.
We have always been known for
the quality of our citrus products
such as orange, lemon, lime and
grapefruit, which impart a natural,
zesty flavour and aroma to a
number of food, drink and personal
care products.
Our Treattarome® products are
100% natural specialties produced
from fruits and vegetables. Their
true-to-character profile makes
them ideal for use in soft drinks,
alcoholic drinks and juices.
Developed specifically for use in
beverage
offering
applications
enhanced flavour and improved
solubility and cost, amongst other
benefits, compared with standard
essential oils.
Fragrance ingredients
Wellness
Provides solutions to many allergen,
cost and stability issues associated
with natural ingredients in fragrance
applications such as fabric and
personal care.
Solutions for lower calorie and
health-conscious products, as
formulators seek to reduce the
sugar content in their products,
whilst maintaining mouthfeel and
sweetness.
Natural and Aroma
Chemicals
Our range of aroma, natural and
high impact specialty chemicals
work well in a number of flavour and
fragrance applications and offer
manufacturers a way of delivering
authentic, aromatic profiles.
Organic oils
diverse
product
Our
range
includes 100% organically-certified
ingredients for the flavour, fragrance
and personal care industries.
our
values
We are at our best when we:
Innovate
Excite
customers
Motivate
and engage
Do it the
right way
Work as
an enthused
team
Exemplify
quality
Are
profitable
Communicate
Go the
extra mile
02
TREATT PLC
Annual Report and Financial Statements 2014
an eye to
the future
We are seeing a number of interesting trends come to the fore,
with the emergence of stronger and more innovative flavour combinations
such as the use of heat and spice in beverages.
Treatt has been capitalising on the growth in demand for on-trend
vegetable-based beverages with a new application for its range of
100% natural vegetable distillates. This pairs them with herbal speciality
ingredients including basil, sage and ginger to give a herbal twist or spicy
kick when added to vegetable drinks. By pairing herbals with vegetable
drinks, Treatt’s in-depth knowledge of the essential oil market has been
used to create a new concept that will allow manufacturers to take the
vegetable-based beverages trend to the next level. The ingredients have
been carefully infused to allow the respective flavour profiles to shine
through the drink, while maintaining overall balance. This does not mean
that it is the end of the road for sweet products though. There is even
some crossover in certain food and beverage applications, with the
launch of new products featuring a salty-sweet flavour profile.
a straightforward removal of the sugar. Careful selection of alternative
ingredients or sweeteners and an understanding of how they interact with
other components in the mix is vital to produce a healthier beverage which
still delivers the sweet flavour profile that consumers crave. The arrival
of Stevia and other natural non-nutritive sweeteners in the marketplace
stimulated us to take a look at how some of our products might be used
in combination with natural sweeteners. This resulted in the launch of
some attractive new products, including some closely tailored to the
needs of the actual application.
Our innovation teams will continue to work on new and exciting concepts
and products to add to Treatt’s existing portfolio, giving even greater
solutions in the future.
Driven by concerns about rising obesity levels, more and more
consumers are now taking a pro-active role in maintaining their health and
wellbeing. Demand for low calorie, healthier beverages is increasing but
creating a good-tasting, low sugar beverage requires much more than
TREATT PLC
Annual Report and Financial Statements 2014
03
2014
review
Financial Performance
Revenue
Adjusted Profit Before Tax
Dividends Per Share (pence)
m
5
.
4
7
£
m
0
.
4
7
£
m
1
.
4
7
£
m
2
.
9
7
£
m
3
.
3
6
£
m
9
.
6
£
m
2
.
6
£
m
4
.
6
£
m
1
.
5
£
m
5
.
4
£
p
0
7
.
3
p
4
8
.
3
p
0
1
.
3
p
0
9
.
2
p
0
6
.
2
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
£79.2m
£6.9m
3.84p
Revenue represents the total sales of all
businesses in the Group, and reflects
both underlying business growth as well
as being impacted by movements in raw
material prices.
Adjusted earnings per share shows the
trend in profits after tax (but ignoring
exceptional items).
Dividends per share shows the total
dividend (interim plus final) per share
relating to each financial year.
Key Performance Indicators
Net Operating Margin
Return on Capital Employed
Average Net Debt to EBITDA
%
4
.
9
%
6
.
9
%
2
.
9
%
7
.
7
%
6
7
.
%
5
.
0
2
%
4
.
9
1
%
9
.
9
1
5
6
.
1
%
6
4
1
.
%
4
4
1
.
2
5
.
1
8
2
1
.
8
1
1
.
9
9
0
.
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
9.6%
19.9%
0.99
Net operating margin reflects the overall
profitability of
the business before
financing costs.
Return on capital employed is a measure
of the Group’s profitability relative to the
assets invested in the business.
Average net debt to EBITDA measures
the debt of the Group relative to its
profitability. The lower the ratio is, the
more manageable the level of debt.
04
TREATT PLC
Annual Report and Financial Statements 2014
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
2010
£’000
2011
£’000
2012
£’000
2013
£’000
2014
£’000
63,298
74,518
74,009
74,097
79,189
6,032
4,904
4,503
28.6%
8,032
6,864
6,372
41.5%
6,891
5,628
5,060
(20.6%)
8,278
6,938
6,227
23.1%
9,022
7,628
6,904
10.9%
(2,432)
—
(598)
(1,093)
(1,402)
2,071
6,372
4,462
5,134
5,502
(1,417)
(1)
(2,017)
(7)
(1,390)
—
(1,655)
—
(1,553)
—
Profit for the year attributable to owners of the Parent Company
653
4,348
3,072
3,479
3,949
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)
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)
1,075
684
11,718
(723)
586
38,340
(12,484)
(23)
(8,889)
(1,589)
(577)
(675)
1,075
726
10,994
(611)
586
43,590
(16,005)
(23)
(7,857)
(2,529)
(511)
(675)
Total equity
22,518
25,551
26,003
27,443
28,760
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
Movement in net debt
Total net debt
RATIOS
Net operating margin1
Return on capital employed2
Average net debt to EBITDA3
Growth in adjusted basic earnings per share
Dividend per share4,5
Dividend cover (adjusted to exclude exceptionals)5
Net assets per share4
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
9,250
(649)
(714)
(1,585)
(1,578)
(9)
91
(151)
3,528
(1,552)
(724)
(1,899)
(746)
—
91
12
(2,087)
2,987
(4,955)
4,655
(1,290)
(10,981)
(7,994)
(12,949)
(8,294)
(9,584)
7.7%
14.6%
1.65
23.6%
2.60p
2.32
43.0p
9.2%
20.5%
1.18
40.5%
2.90p
2.92
48.8p
7.6%
14.4%
1.52
(19.1%)
3.10p
2.22
49.6p
9.4%
19.4%
1.28
25.6%
3.70p
2.33
52.4p
9.6%
19.9%
0.99
15.2%
3.84p
2.58
55.0p
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 Restated following 5 for 1 sub-division of shares.
5 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.
05
TREATT PLCAnnual Report and Financial Statements 2014
Chairman’s
Statement
Profits up 11%
to £6.9m – a new
record; Adjusted
EPS up 15%
Results
Welcome to Treatt’s 2014 annual report. It is gratifying to record a further
year of progress for the Group with revenue up by 6.9% to £79.2m and
adjusted profit before taxation up by 10.9% to £6.9m. This double digit
profit growth reflects the success of our core strategy of growing sales
whilst keeping control of our costs. I am also pleased to report adjusted
basic earnings per share of 9.95p (15.2% growth in the year).
Cash flow has been a challenge for the Group in a year when many of
our key raw materials have increased in price. As a result, the Group
is reporting a net cash outflow of £1.3m with net debt increasing from
£8.3m to £9.6m. However, the net debt to adjusted EBITDA ratio has
improved to just under 1x – the third year in a row this ratio has declined
reflecting the increasing financial robustness of the Group. Given the raw
material price increases, we have focused on driving material reductions
in our aged inventory across the Group as a whole. The £4.4m increase
in inventory is really a function of recent price increases and the Group
taking strategic positions on specific products. However, as we grow the
relative size of our value-added product portfolio, the impact of fluctuating
raw material prices is becoming less significant over time.
The £1.4m exceptional charge for the year is made up of legal fees in
connection with the ongoing earnout dispute in relation to the acquisition
of the Earthoil Group (£0.3m) and a strategic decision to end a long-
standing agency arrangement (£1.1m). Whilst the Earthoil dispute sadly
continues, the agency termination referred to will enable the Group to
compete more effectively in certain key markets, with a shorter route to
market being of great significance in reshaping our business.
Investments have been made during the year in people, processes and
product development with notable progress made across all three. A root
and branch review has streamlined our processes to improve the speed
of delivery to our customers whilst reducing operating costs. Investment
in product development has centred on added-value products boosting
our confidence in future growth.
Employee and shareholder engagement
In my opening paragraph I highlighted record revenue and profits and I
look forward to reporting future growth in years to come. It will be our
people whose task it is to deliver the goals we strive for and, as ever,
they are our greatest strategic asset. We believe it is important that
the interests of all our stakeholders – including shareholders as well as
employees – are aligned so that delivering our current and future success
drives and sustains the future long-term growth for the Group.
All eligible employees in the Treatt Group will therefore receive a number
of free shares in December 2014 and continue to be encouraged to
participate in saving schemes across the Group in order to build further
share ownership amongst employees. During the year a resolution
approved by shareholders on 16 May 2014 enabled the share capital
of the Company to be sub-divided on a five for one ratio. We believe the
lower cost of each share is attractive to individual investors across the
stakeholder communities.
I would like to take this opportunity to thank our employees across the
Group for their hard work and dedication and look forward to many more
years of reporting success with them.
Tim Jones
Chairman
Dividends
The Board is proposing a final net dividend of 2.6p (2013 2.6p) increasing
the total dividend for the year to 3.84p (a 3.8% increase). If approved by
shareholders at the forthcoming AGM, the final dividend will be payable
on 3 April 2015 to all shareholders on the register at close of business on
27 February 2015. Shareholders who wish to participate in the dividend
re-investment plan for this and future dividends should elect to do so by
9 March 2015.
Board changes
During the year, Anita Haines retired as HR Director after twenty-six years
of dedicated service to the Group. Anita has been an enormous influence
in helping to transition the Group from a private business in the 1980s,
through flotation, to the successful Plc of today and we cannot thank her
enough for everything she has done over so many years. I was delighted,
therefore, when Anita agreed to stay on the Board as a Non-executive
Director so that we can all continue to benefit from her wise counsel and
intimate knowledge of Treatt.
Corporate Governance
During the course of the year the Board and its committees have
addressed the corporate governance requirements arising from the
changes in the regulations including increased disclosures on matters
affecting audit and remuneration.
The composition and performance of the Board and its committees is
kept under regular review to ensure that we are possessed not only of
the relevant skills and experience but also of the culture, values and ethics
appropriate for the long-term success of the Group.
Our risk management is regularly reviewed and takes into account current
market conditions and the Group’s activities. Significant risks, which are
identified by their size of impact and probability of occurrence, are detailed
on the Group risk register, which is reviewed by the Board.
Prospects
The first quarter of the financial year is traditionally our least busy time of
the year and this autumn is no exception. Although order books are up
on a year ago, it is of course too early in the financial year to be certain
of the eventual outcome. However, the Group’s strategic progress is
encouraging, with its increased focus on value-added and innovative
ingredient solutions, particularly in the beverage sector. The Board remain
confident that the Group will make further progress against its long term
strategic objectives over the coming year.
TIM JONES
Chairman
8 December 2014
06
TREATT PLC
Annual Report and Financial Statements 2014
Chief Executive Officer’s
Report
Our strategy is providing
the solid foundations for
the growth and success
of Treatt
Business overview
Building on solid foundations, enhancing the cultural environment for our
talented colleagues and working within the framework of shared values
and with a coherent strategy, has enabled Treatt to produce a set of
results which are gratifying and represent a record performance in our
128 year history. All three Treatt businesses reported solid performances
and it is encouraging that these successful financial results were
spread throughout the Group. However, we remain on a journey in our
business and there is much more work to do as we continue to transition
Treatt forward.
Financial performance
When we embarked on our new strategy in late 2012/early 2013, we set
ourselves some clear financial goals. Uppermost of those was to deliver
consistent, sustainable growth in profit. Too often in the past, Treatt
has announced one good set of results which was then followed by a
disappointing year. Therefore, for me, one of the most pleasing aspects of
the past year’s financial performance was that we did as we promised –
with profits increasing on a consistent basis and in line with expectations,
up by 11% to just short of £7m. Indeed, profits are now double what they
were five years ago.
Earthoil, our niche personal care division which sells ethically sourced,
mainly organic, vegetable oils and essential oils, continues to go from
strength to strength, with four years of consecutive profit growth, 2013/14
being its best ever for pre-tax profit. There has been new investment to
increase capacity in Kenya, and a strengthening of sales personnel in
the UK.
Product development
We continue to innovate, working in alignment with our strategic
customers, seizing opportunities for growth and increasing the efficiency
of our business processes.
Our strategy for growth is delivering for Treatt. It is our employees’
expertise, engagement and dedication to excellence through our values
and execution of our strategy that has resulted in positive progress, which
in turn gives us optimism for the future.
Focusing on those customers and ingredient solutions which can bring
us sustainable value, and maintaining effective cost controls, continue to
be a powerful combination at the core of our strategy. Controlling costs at
Treatt balances our cost base today with appropriate investment for the
future. Areas such as staff training and development, sales and R&D are
being given additional investment to drive our strategy forward with our
company-wide culture ensuring that potential savings are realised and
wastage is minimised.
Product innovation, particularly in the beverage space, continues
dynamically and this is providing opportunities for Treatt. This innovation
is increasingly global in nature. More traditionally conservative markets
such as Japan and South America are following the trend forged by North
America and parts of Western Europe. Treatt is well placed to meet its
customer needs across the globe. Sugar reduction remains a hot topic
in this field and Treatt’s ingredient solutions in this arena provide some
important technical solutions to customer requirements. Tea distillates for
iced tea products and vegetable essences designed to impart freshness
to vegetable juice based functional drinks have shown good growth
this year.
Daemmon Reeve
Chief Executive Officer
Deepening our relationships with key global accounts has also opened
doors at affiliates in other corners of the world. This has enabled us
to demonstrate our value proposition to new teams and work on new
opportunities. Becoming a more significant partner at these key accounts
is a fundamental part of our strategy. Our global sales team has been
strengthened in the year and with increased focus and attention in
markets such as China and other parts of Asia, we believe we will see
longer term benefits for the Group.
Our beer ingredient solution team is founded on a passion for beer
across a wide range of interests; as enthusiastic experimental brewers,
growers of hops, as brewing technicians and not least as consumers. Our
chemists, technicians, commercial teams and taste panels involved in the
team speak the language of brewing and brewers, on a deeper level than
merely understanding the process and where Treatt could add value. This
passion and expertise has enabled Treatt to engage and gain a footing
in this area, with innovation taking place in a growing market, presenting
valuable opportunities. Providing the environment for idea incubation to
thrive, and consequently solutions to be executed, unencumbered by
excessive bureaucracy has been a key element to the fledgling success in
this segment. Giving staff the space to develop solutions and run with their
ideas has been an exciting development in our culture of empowerment
– delighting customers has been the result.
Work is actively underway in areas of product engineering, reducing the
time and cost to make some of our higher volume and also higher value
ingredient solutions. Our teams are working hand in glove across the
business to cut away at inefficient processes or find alternative sources
for key materials. We are optimistic that the benefit of these projects will
result in margin improvements across our business on a sustainable
basis. Much of this work is centred on our existing product offering and
the benefits are contributing to our business today.
Chemical sales through our partner, Endeavour Specialty Chemicals,
continue to be strong with double digit growth year on year. This added-
value manufacture is an important growth driver for Treatt.
A culture of safety
Health and safety is of paramount importance to Treatt. We have
implemented a behavioural safety programme to embed the Treatt safety
culture and have intensified pro-active inspections by the workforce
and management. Our tenet of health and safety being a collective
responsibility has brought us many benefits and true engagement from
our teams, leading to increased awareness and ownership of safety.
The community
The communities in which we operate around the world are very important
to us and we are increasingly engaging with them. We have close ties
with local charities and this year made some of our facilities available for
the launch of a Male Family Carers Awareness and Support campaign.
Through our staff information exchange committees we are introducing
‘community spirit leave’ so that our employees can provide voluntary
support and services to a charity within the working day.
07
TREATT PLCAnnual Report and Financial Statements 2014 Chief Executive Officer’s Report continued
Aligning our organisation
During the year we added Quality Control and Human Resources to the
list of departments now operating on a structured, global platform. This
has enabled standardised training and development of staff with increased
coherence and capability. Further development towards alignment across
the Group will occur in the current year, with key areas such as improving
cross-communication, idea sharing and resource allocation being
optimised. To support our investment and the development of our staff,
we have appreciably increased our training budget to equip our teams
with the necessary skills to provide the best possible performance for
the Group. This not only drives efficiencies within the business but also
augments our service standards to our customers.
It is our employees who make the ultimate difference to Treatt. Investment
in an engaged and motivated team who are working to deliver success
every day for Treatt is not only central to achieving our goals but vital for
our prosperity. The work on our cultural transformation will continue. We
measure what our people say about working at Treatt through anonymous
staff engagement surveys which gauge our performance and indicate
where we must work to improve. We are now rolling these surveys out
to the USA but recent results from the UK show that employees are
well aware of company values, voting “very high” for clarity of vision,
customer focus, quality and teamwork, which were all marked above the
comparator group. It was also encouraging to read that motivation was
marked “very high”. We fell short on community projects, in which we
scored just below the comparator group, but we are now addressing this
with our “community spirit leave” and encouraging our staff to take part in
charitable fundraising, which is helping make Treatt a fun place to work as
well as building a unified Treatt team.
At Treatt we not only want our staff to enjoy working for us, but to help
drive the business forward. Constant engagement with our colleagues
throughout the Group ensures that we get the best out of our teams, and
thereby deliver the best possible success for Treatt.
On behalf of the Board, I thank and congratulate all of our employees for
their engagement, performance and dedication.
DAEMMON REEvE
Chief Executive Officer
8 December 2014
Treatt has raised its local profile significantly and we have been proud
to receive prestigious business awards recognising this contribution,
as well as being named a national champion in the European Business
Awards. We are privileged to be a stakeholder in our head office town
of Bury St Edmunds, Suffolk and we are active participants in local
Chamber of Commerce events with the aim of giving back to our local
community partners.
THE FuTuRE
Partnership with customers
In the last year we have welcomed customers and potential customers
alike to work with our innovation teams in our technical facilities. This close
association with customers is a prime example of how our strategy to
focus on key accounts is bearing fruit. Final modifications to our ingredient
solutions are then made with their direct input, speeding up the sales
cycle and providing technical engagement with the customer who can
then tailor the solution they require to their application. This process builds
customer confidence in Treatt’s capabilities, creating the opportunity for
further projects in the future.
Our marketing efforts continue to be appreciated by customers, and
our Market Intelligence report, where we provide critical information to
assist our customers in making key strategic sourcing decisions, receives
significant plaudits from target customers. This drives their understanding
of Treatt’s capability and insight, and in turn provides our salesforce with a
useful tool to engage with customers. Flavour trend data, commissioned
by Treatt, is enabling our customer base to view us as a much more
proactive organisation by helping them anticipate what consumers will
want not just now, but critically, next.
Potential uK site re-development or re-location
In order to successfully grow our UK-based business in the most efficient
and profitable manner, the leadership team, Executive Directors and the
Board have been reviewing a number of options in recent years. Having
been based at our current site in Bury St Edmunds, Suffolk for over forty
years, we need to either carry out a comprehensive re-development of
our existing site or locate to new premises within the area.
Our objective is to create a UK-based business which meets the needs
of our customers and will deliver our strategic objectives in a sustainable
manner for many decades to come. This in turn means that we need a site
which meets the highest modern standards in terms of technical and R&D
capabilities, operational efficiency, environmental standards, and above
all to provide a great place for our people to drive the entrepreneurial
success of this business.
We continue to explore a number of options from re-developing the
existing site to a brand new facility on a ‘greenfield’ site. The potential cost
of such a move is likely to be considerable, but we believe that the long-
term benefits to the business will be significant. We also recognise that,
if we chose to do nothing, we would still need to spend a significant sum
on infrastructure maintenance and investment in our current site anyway
over the next year or two in order to meet both the regulatory and growth
needs of the business.
08
TREATT PLC
Annual Report and Financial Statements 2014
Financial
Review
Income Statement
The Group’s revenue can fluctuate due to changes in product mix and
movements in raw material prices. Following three years of relatively little
movement, revenue for the year grew by 6.9% to £79.2m (2013: £74.1m)
as a consequence of an increase in sales of value-added products, in line
with Group strategy. With operating margins increasing slightly from 9.4%
to 9.6%, this resulted in a 9.9% increase in pre-exceptional operating
profit to £7.6m (2013: £6.9m).
Exceptional costs in the year of £1.4m were incurred in connection with
the strategic decision to terminate a long-standing agency arrangement
and the continuing legal costs relating to the Earthoil earnout dispute.
The agency termination costs (£1.1m) will enable the route to market to
be shortened, and in the process remove a significant layer of costs in a
key geographical market for the Group. Excluding these costs, earnings
before interest, tax, depreciation and amortisation for the year increased
by 9.0% to £9.0m (2013: £8.3m). Profit before tax after exceptional
items rose by 7.2% to £5.5m (2013: £5.1m). Further information on the
exceptional items is given in note 8.
The proposed total dividend per share for the year has been increased
by 3.8% to 3.84p per share, resulting in a dividend cover of 2.6 times
pre-exceptional earnings for the year and a rolling three year cover after
exceptionals of 2.0 times. The Board’s policy is to maintain dividend
growth on a consistent basis at between 2.0 and 2.5 times three year
rolling cover with this year’s dividend representing an increase of 60%
over the last five years. Although, therefore, the rolling cover is at the
bottom end of this range, this was caused by the agency termination
costs, without which the dividend cover would be comfortably within
policy. Basic earnings per share (adjusted to exclude exceptional items
– see note 11) for the year increased by 15.2% to 9.95p (2013 restated:
8.64p*). 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 the US Dollar and
to a more limited extent with the Euro. During the year the US Dollar
fluctuated considerably but ended the year where it started with a closing
balance sheet rate of £1=$1.62 (2013: $1.62). 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 and options. 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 small loss of £0.3m
in 2014 compared to a gain of £0.1m in 2013. There was an immaterial
currency loss of £0.02m (2013: loss of £0.18m) 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 11.2% to £0.72m
(2013: £0.65m) as a result of higher levels of debt in H1, before cash
flows then improved in H2. Although finance costs did increase, as a
consequence of the improvement in profitability, on a pre-exceptional
cost basis, interest cover for the year fell slightly to 10.5 times (2013:
10.7 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
Operating margins
increased to 9.6% and
the ratio of net debt to
EBITDA fell below 1x –
a solid achievement
on both fronts
Richard Hope
Finance Director
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 £0.4m (2013: £0.5m).
Group Tax Charge
The current tax charge of £1.5m (2013: £1.5m) represents an effective
rate (based on profit before tax and exceptional items) of 24.7% (2013:
26.5%), reflecting the continuing reduction in UK corporation tax rates.
After providing for deferred tax, the overall tax charge has decreased by
£0.1m to £1.6m (2013: £1.7m); an overall effective tax rate of 28% (2013:
32%). There were no significant adjustments required to the previous
year’s tax estimates. With corporation tax rates continuing to fall in the UK
until they reach an expected 20%, the Group’s overall effective rate of tax
is expected to fall for the next two years.
Balance Sheet
Group shareholders’ funds grew by £1.3m (2013: £1.4m) in the year
to £28.8m (2013: £27.4m), with net assets per share increasing by
5.8% to 55p (2013 restated: 52p*). Over the last five years, net assets
per share have grown by 27%. Net current assets now represent 96%
(2013: 94%) 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 £0.5m (2013: £0.6m) 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 2014 Group net debt increased by £1.3m to £9.6m (2013: £8.3m)
with a corresponding increase in the level of gearing from 30% to 33%.
The Group has a mix of secured and unsecured borrowing facilities
totalling £20.3m, of which £10.2m 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.
There was a material increase in cash tied up in working capital for the
year of £4.0m due to an overall increase in inventory levels of £4.4m,
being an increase of 18%. There were particular factors in the year relating
to higher citrus oil prices which had a material impact on the value of
inventories held by the Group. In any event, 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 typically
less than 5% is on average more than a year old.
09
TREATT PLCAnnual Report and Financial Statements 2014
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 and options as well. Consequently, during the year forward
currency contracts and options have indeed been entered into which
hedge part of R C Treatt’s foreign exchange risk. These contracts and
options 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.
As we enter the new financial year, we will continue our focus on balancing
the generation of good returns for our shareholders, with investing against
strict criteria in order to ensure the long-term success of the Group.
RICHARD HOPE
Finance Director
8 December 2014
* Restated following 5 for 1 sub-division of shares
Financial Review continued
The level of capital expenditure in the year was at the lower end of
expectations with a total spend of £0.8m compared to £1.6m in 2013.
There were no major projects in the year, whilst capex in the UK tended
to be related to on-going routine renewal and maintenance whilst
the potential site re-development or relocation options continue to
be explored.
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,
59,000 (2013 restated: 110,000*) market value options were granted to
Directors and senior management. Following approval at the 2014 Annual
General Meeting, certain key employees were granted 175,000 nil cost
share options which will vest after three years on a sliding scale, subject
to performance conditions. In total, options were granted over 468,000
(2013 restated: 261,000*) shares during the year, whilst 127,000 (2013
restated: 199,000*) were exercised.
The Employee Benefit Trust (EBT) currently holds 956,000 shares (2013
restated: 1,085,000*) 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. It is anticipated that going forward, all-employee
savings-related share schemes will continue to be satisfied by shares held
within the EBT, but that when necessary further shares will be issued to
the EBT by increasing the share capital of the Parent Company.
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 £1.3m to £2.0m. The principal cause of this increase was the
use of a lower discount rate to value the future liabilities of the scheme.
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.
10
TREATT PLC
Annual Report and Financial Statements 2014
Directors’ Report
Financial Statements
The Directors present their report and the audited financial statements for
the Group for the year ended 30 September 2014.
Results and Dividends
The results of the Group for the year are set out on page 40. Profit before
tax for the year excluding exceptional items was £6,904,000 (2013:
£6,227,000).
The Directors recommend a final dividend of 2.60p (2013: 2.60p) per
ordinary share. This, when taken with the interim dividend of 1.24p (2013:
1.10p) per share paid on 17 October 2014, gives a total dividend of 3.84p
(2013: 3.70p) per share for the year ended 30 September 2014.
Corporate Governance
The Corporate Governance Statement on pages 20 to 24 forms part of
this Directors’ Report.
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. 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.
Directors
The Directors of the Parent Company are shown on page 88.
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 21.
Details of the Executive Directors’ contracts and notice periods are
given in the Directors’ Remuneration Report on page 31. The Executive
Directors’ contracts are terminable by the Group giving the required
notice period of one year.
In accordance with the Parent Company’s Articles of Association and
as reported in the Corporate Governance Statement on page 21, in
recognition of Provision B.7.1 of the UK Corporate Governance Code
Richard Hope and Ian Neil retire by rotation. Both 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 35.
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 4 December 2014 (the latest practicable reporting date prior to
publication of this document).
Number
9,016,345
Schroder Investment Management
7,900,000
Discretionary Unit Fund Managers
3,350,000
Miton Capital Partners
1,907,349
Henderson Volantis Capital
1,849,530
James Sharp Stockbrokers
Barclayshare Stockbrokers
1,699,765
Allianz Global Investors Europe (Germany) 1,664,750
%
17.52
15.35
6.51
3.71
3.59
3.30
3.24
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 19. 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.
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.
11
TREATT PLCAnnual Report and Financial Statements 2014
Directors’ Report continued
Charitable Contributions
During the year the Group made charitable donations of £16,000 (2013:
£15,000) to local and national causes. Support is provided through
donations directly to charities and through a matching scheme, whereby
the Company donates a percentage of funds raised by staff in sponsored
events. This year staff have undertaken a number of sponsored and
fundraising events including organising cricket matches, skydiving,
walking and running.
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. Members of staff are appointed as Safety Champions across
the Group in various departments and provide additional monitoring
capability and support to staff on a day to day basis. These additional
responsibilities, for which Safety Champions receive payment, ensure that
safety remains a top priority in the business.
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 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 2014
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
• all new refrigerant systems installed, providing lower carbon emissions;
• scrap pallets recycled into briquettes;
•
reduction of methanol consumption by 25% reducing fugitive VOC
emissions;
• appointment of 3 Environmental Champions to drive continuous
improvements; and
reduced laboratory waste collected by 75%.
•
12
TREATT PLC
Annual Report and Financial Statements 2014
Treatt USA
•
reduced hazardous lab waste (samples, GC vials) by recycling citrus
material and disposing of empty vials as non-hazardous;
replaced all mercury thermometers to become mercury-free in all
laboratories;
•
• surveyed all compressed air lines, fixed leaks and consequently
reduced energy requirements for compressing and drying of plant air
supply; and
• properly disposed of all obsolete hazardous lab chemicals that have
accumulated over the years.
Earthoil
• dug a soak pit for factory waste water; and
• selling of macadamia nut process waste to a third party for recycling
Additionally, we have reduced the number of printed copies of the report
and accounts required to be posted to shareholders by giving them
the option to receive the annual report electronically through the Treatt
website. The seventy-five percent reduction has not only saved several
thousand pounds per year but it has reduced the environmental impact
of our financial reporting process.
During the year R C Treatt formed an Environmental Working Group, which
will meet quarterly to discuss the various elements of the business which
impact on the environment, such as energy use and waste. Minutes of
the meetings will be made available to all staff in order to raise awareness
of the impact of our business on the environment and to highlight any
particular issues or concerns.
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 2014 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
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. Data
has been accurately recorded from invoices, meter and mileage readings,
using opening data from 2013, the first year of recording.
2014
2013
Scope 1 – Direct CO2 emissions (tonnes CO2e)
1,645
1,428
Scope 2 – Indirect CO2 emissions (tonnes CO2e)
2,684
2,617
Total tonnes CO2e emissions
4,329
4,045
gCO2e emissions per kg of product shipped
451
408
GHG emissions detailed in this table have been calculated using the
appropriate 2014 DEFRA conversion factors.
Despite the overall increase in emissions, electricity usage at R C Treatt
decreased but was subject to an increased conversion factor resulting
in a rise of 103 tonnes of CO2e. Electric consumption also decreased at
Treatt USA, but increased at Earthoil Kenya due to higher utilisation of
the plant.
Overall vehicle emissions reduced across the Group and R C Treatt
suffered relatively high one-off emissions in respect of the replacement
of a particular chiller, resulting in decommissioning and installation
emissions. Gas usage increased at Treatt USA by 113 tonnes of CO2e as
a result of significantly higher still utilisation as focus continues to shift to
value-added manufactured products in accordance with the Group
strategy. Gas usage also increased at R C Treatt, but by a smaller degree.
The overall increase in emissions contrasts with a decrease in the number
of kgs of product shipped, resulting in higher emissions per kg. This results
from the strategic emphasis on manufactured products and movement
away from low margin, small volume products, which absorb resources
that can be more effectively utilised elsewhere.
Waste
Treatt USA aims to recycle as much of its waste as possible. Treattarome®
production generates a large amount of cardboard in which the raw
materials for the process are delivered; this is all recycled.
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 France
and China have been excluded on the basis that water usage is included
in the rent. Data has been accurately recorded from invoice information
and meter readings.
2014
2013
Total water used (m³)
38,515
39,708
Water efficiency (litres per kg of product shipped)
4.01
4.00
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 Committees (IECs) at R C Treatt and Treatt USA
exist in order to encourage a further exchange of ideas and information
between the Company and its employees. The IEC is chaired by the
CEO and the members of the Committee are all employees below
management level who represent all departments and areas of the
businesses in the UK and US. 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.
Following approval at the 2014 Annual General Meeting, the Group has
introduced a Share Incentive Plan for all UK employees, with a similar
plan having been introduced for US employees. Under these plans, all
eligible UK and US employees will receive free shares in December 2014
and will be able to buy additional partnership shares from their December
salary payment, in accordance with the rules of the plans. The Directors
believe that encouraging greater employee shareholding will further align
the interests of employees with those of shareholders.
Structure of share capital
Following the sub-division of shares approved by shareholders at the
Extraordinary General Meeting on 16 May 2014, as at 30 September
2014, the Parent Company’s share capital comprises 52,405,170
ordinary shares with a nominal value of 2 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 found on the Treatt website or 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.
13
TREATT PLCAnnual Report and Financial Statements 2014
Directors’ Report continued
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 2015, 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 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 2015 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 2016. 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 (2013: Nil) were purchased by the EBT during
the year ended 30 September 2014. 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 30 January
2015. The Notice of Meeting and explanatory notes are given on pages
77 to 86. 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 2014 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 Conduct 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.
14
TREATT PLC
Annual Report and Financial Statements 2014
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.
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.
Statement as to Disclosure of Information 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 8 December 2014.
ANITA STEER
Secretary
The Board
Ian Neil
Non-executive
Director
First appointed:
December 2009
Tim Jones
Non-executive
Chairman
First appointed:
February 2012
Anita Haines
Non-executive
Director
First appointed:
October 2002
Daemmon Reeve
Chief Executive
Officer
First appointed:
May 2012
David Johnston
Non-executive
Director
First appointed:
May 2011
Richard Hope
Group Finance
Director
First appointed:
May 2003
Jeff Iliffe
Non-executive
Director
First appointed:
February 2013
1 Nomination Committee 2 Remuneration Committee 3 Audit Committee
EXECUTIVE DIRECTORS
1
Daemmon Reeve
Daemmon joined R C Treatt & Co Ltd, the Group’s UK operating
subsidiary, in 1991 and has extensive industry experience and
knowledge gained from widespread understanding in technical,
operational, sales and purchasing disciplines. He was appointed CEO
of Treatt USA in July 2010, joined the Board of Treatt plc in May 2012
and became Group CEO in August 2012. Daemmon was recently
named Bury Free Press Business Person of the Year as part of the
2014 West Suffolk Business Festival.
NON-EXECUTIVE DIRECTORS
32
Tim Jones Chairman
1
Tim, appointed as Non-executive Chairman of Treatt in February 2012,
is CEO and Secretary of Allia. He brings experience in financial services,
SME start-ups and social entrepreneurship. His previous appointments
include Head of Marketing at Royal Insurance and European Managing
Director at Direct Marketing Corporation and he has worked across the
US, Middle East and Europe. Tim is also a Non-executive Director of
community support organisation SkillsBridge.
Jeff Iliffe Chairman
321
Jeff, a qualified Chartered Accountant, joined the Board in 2013 and is
Chief Financial Officer and Director of Abcam Plc, an AIM listed company.
He has widespread experience of the City, industry and internet-based
business. Between 1989 and 1996, Jeff was a corporate financier at
Panmure Gordon & Co, during which time he advised Treatt. He has also
held financial positions at Enviros Group Limited, Plethora Solutions plc
and St Minver Ltd.
Richard Hope
Richard, appointed as Finance Director in May 2003, qualified at PWC
as a Chartered Accountant in 1990. Prior to joining Treatt Richard held
senior finance positions in value-added manufacturing businesses for
almost 20 years including Hampshire Cosmetics Limited. Richard was
certified a Fellow of the Institute of Chartered Accountants in England
and Wales in 2010.
1
Anita Haines
Anita joined R C Treatt & Co Ltd as Company Secretary in 1988. In 2000
she was appointed as Human Resource Manager and HR Director for
the Group in October 2002. She retired as an Executive Director in
February 2014 but remains on the Board as a Non-executive Director.
3
21
Ian Neil Chairman Senior Independent Director
Ian, first appointed to the Treatt Board in 2009, is currently UK Director
of Perfortec BV and has 25 years’ experience with International Flavors
and Fragrances in a variety of international managerial roles including
Vice President Europe, Africa and Middle East (“EAME”) Flavors.
321
David Johnston
David joined the Board in 2011, has a PhD in Biochemistry and is
currently part owner of Natural Taste Consulting. He worked for
Firmenich, one of the leading global flavour and fragrance companies,
in a variety of roles for over 13 years including Vice President of
Innovation and Design and as a member of the flavour executive team.
David was Vice President of the European Flavour Association.
15
TREATT PLCAnnual Report and Financial Statements 2014 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
2014
2013
2012
2011
2010
10.9%
15.2%
9.6%
19.9%
0.99
23.1%
25.6%
9.4%
19.4%
1.28
(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
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
2014
3
3.39
2013
3
3.45
Whilst the average number of sick days per employee has only decreased marginally, new absence policies have had the desired effect of reducing
the number of incidences of short term absence. There has, however, been an increase in longer term absence caused by more serious illness.
16
TREATT PLC
Annual Report and Financial Statements 2014
Principal Risks and uncertainties
The Board has overall responsibility for setting the risk appetite within the
business and for Group risk management. It regularly reviews the risk
matrix, risk register and mitigation strategies in place to reduce risk as far
as possible. Day to day risk management responsibility is delegated to
the Executive Directors and they, together with the senior management
teams, compile Group risk registers considering the effects of risks on the
business and determining appropriate and proportionate risk mitigation
strategies. Detailed risk registers are reviewed twice a year and upon any
material change in the business, with any amendments being reported to
the Board. In addition, the Board formally reviews the risk register annually
and undertakes a review of the effectiveness of the Group’s system of
internal controls.
Risk Matrix
Probability
High
Medium
The principal risks and uncertainties fall within five categories, the overall
risk of which, post mitigation, can broadly be summarised as follows:
Low
C
O
S
F
L
Low
Medium
Impact
High
S Strategic F Financial O Operational C Commercial L Legal/Regulatory
Overall Risk
Low
Medium
High
The following details of the principal risks and uncertainties faced by the business is not exhaustive, but contains those that are of most concern to the
business at this moment in time and that have been the subject of most discussion or debate during the course of the year.
Risk
Strategic
Product Failure
Mitigation
Strong supplier qualification process
Supplier risk assessments to determine level of analysis required for raw materials received
Analysis of raw materials received for adherence to specification and to detect contamination
Regular review of risk matrix for every raw material handled
Use of barcode scanners for traceability
Maintenance of up-to-date information on all suppliers
Continuation of product recall insurance
Commoditisation of established Treatt
products
Innovation and development of new products
Broadening into other associated sectors
Growth of Earthoil
Customer diversity
Shortening value chain with customers
demonstrating increased competence
together with new entrants
Continued value-added in-house innovation
Rationalisation of product portfolio to eradicate low margin commoditised products
Strengthening of product knowledge/sourcing
Financial
Movements in commodity and essential oil
prices
Regular stock meetings and inventory control with experienced members of staff
Monitoring and communication of market conditions
Long term commodity contracts
Foreign exchange risk
Implementation of a foreign exchange risk management policy including maintenance of
forward contracts for hedging purposes
Rise in interest rates or availability and cost
of debt financing
Targeting long term and staggered debt maturity
Phasing of capital expenditure
Maintenance of relationships with a number of banks
17
TREATT PLCAnnual Report and Financial Statements 2014 Strategic Report continued
Risk
Operational
Mitigation
Structural damage to production facilities,
particularly at Treatt USA, which suffers from
hurricanes
Regularly inspect and maintain building components
Implement hurricane action plan when necessary
Sufficient spread of inventory between production facilities in UK and US
Failure of third party or regulatory audits
and damage to reputation as problem-free
supplier
Strong commitment Group-wide to disciplined compliance to internal quality programs
Commitment to permit third party auditing
Investment in rectification of any non-compliances noted
Age and inadequacy of buildings for modern
manufacturing business
UK site review on-going
Network hardware issues causing loss
of IT systems
Well-constructed network asset management database and processes
Continuous monitoring of network traffic, seeking anomalies and intentional attacks
Comprehensive network mapping
Built in resilience
Test failover systems
Strong network change control
Commercial
Increased visibility of supply chain with
customers and suppliers having improved
access to each other and increased supplier
awareness of customer requirements
Consolidation of suppliers at origin providing
less scope for negotiation
Suppliers without product liability insurance
Legal/Regulatory
Failure to comply with relevant
environmental, H&S and other applicable
legislation
Environmental spillage due to tanker spillage
on site, fire, drainage or valve failure,
sabotage, or other major disaster event.
Targeting specific suppliers to forge strategic relationships
Enhanced use of digital media
Increasing value-added manufacturing
Enhancing relationships with competitors/brokers and other supply channels
Contracting for material on a medium term basis
Supplier questionnaires required from all suppliers to enable an assessment of the risk of
buying, taking into account whether insurance cover is in place, type of product, quality
systems in place and previous relationship with supplier
Not placing too heavy a reliance on suppliers without insurance
Detailed understanding of legislative requirements with internal involvement, consultancy
support and capital investment
Pro-active role in ensuring the Group’s systems and procedures are adapted to ensure
compliance
Engagement with relevant authorities
Ensure compliance with relevant legislation
Compliance with site Standard Operating Procedures and relevant authority consents
Storage areas to remain adequately bunded
Regular weekly site inspections
Termination of existing long term agency
agreements resulting in payment of
compensation
Monitor performance of agents
Ensure agents have a robust agency agreement in place
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.
18
TREATT PLC
Annual Report and Financial Statements 2014
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.
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.
As a manufacturing business, few women apply for positions within the
production areas. However, women are well represented in other areas of
the business and account for 33% (2013: 29%) of the Group workforce
and 31% of Group senior management positions (2013: 29%).
Position
Male
Female
Total
Group Director
Senior Manager
Other Employees
Total Employees
6
24
169
199
1
11
87
99
7
35
256
298
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 8 December 2014.
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.
ANITA STEER
Secretary
19
TREATT PLCAnnual Report and Financial Statements 2014 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 2014
the Group has complied with the provisions set out in the UK Corporate
Governance Code1, except for clause D2.2 which, as explained in the
Directors’ Remuneration Report, the Board does not fully comply with,
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.
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 five Non-executive Directors, of which
Tim Jones is Chairman, and two Executive Directors, of which Daemmon
Reeve is Chief Executive Officer.
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 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.
1 A copy of the UK Corporate Governance Code can be obtained from www.frc.org.uk
20
TREATT PLC
Annual Report and Financial Statements 2014
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.
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,
to a candidate’s
experience and personality, without prejudice
characteristics.
The Board considers that, with the exception of Anita Haines, 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. Anita Haines is not regarded as independent,
as defined by the UK Corporate Governance Code, having recently
served as an Executive Director. Accordingly, Anita Haines does not
serve on either the Audit or Remuneration Committees. 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 in accordance with the
Remuneration Policy. 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 88. 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.
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. Additionally, this year 360
degree appraisals were undertaken for both Executive Directors, enabling
a more rounded assessment of their performance in respect of their day
to day responsibilities. 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 strategic leadership 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.
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
• 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 audit partner and manager to agree the
scope of audit work to be undertaken;
•
• a transparent long term fee structure, only permitting increases in line
with RPI, was agreed with the auditor;
21
TREATT PLCAnnual Report and Financial Statements 2014 Corporate Governance Statement continued
External Auditor
The Committee has oversight of the relationship with the external auditor
and is responsible for monitoring the auditor’s independence, objectivity
and compliance with professional and regulatory requirements. The
incumbent auditors, Baker Tilly UK Audit LLP, were appointed in 2009
following a full audit tender process. They are appointed on an annual
rolling contract but with a long-term agreement on fees, which was
renegotiated during the financial year. During the year the Committee has
monitored Baker Tilly’s effectiveness and performance and were satisfied
that Baker Tilly UK Audit LLP were providing the audit services agreed.
The Chairman of the Committee has communicated with the Audit
Partner throughout the year and having reviewed whether the position of
auditor should be put out to tender, the Committee decided that it was
not currently necessary. The Committee has therefore recommended to
the Board that Baker Tilly be reappointed in 2015.
fees and
their effect on
level of non-audit
the auditor’s
The
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 25 to 37. Members of the Remuneration Committee
throughout the year are shown on page 88. The Chief Executive Officer
attends meetings of the Remuneration Committee to discuss the
performance of the Finance Director 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.
• 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;
• consideration was given to any whistleblowing reports (of which there
•
•
were none during the year);
the Group’s annual report for 2014 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 confirmation from management; 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 2014
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 compensation relating to
the termination of a longstanding agency arrangement;
the treatment of the contingent consideration included within the
investment of the Earthoil Group;
the
inventories;
the level of onerous contract provisions made; and
the estimation of taxable profits in the jurisdictions in which the Group
operates to support the current tax liability.
level of provisions made against the carrying value of
•
•
•
•
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 second 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 88. The Committee has met twice since the approval of the 2013
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.
22
TREATT PLC
Annual Report and Financial Statements 2014
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
Richard Hope
Finance Director
6
6
5
Tim Jones
Non-executive Director and Chairman
6
Chairman
Jeff Iliffe
Non-executive Director
David Johnston
Non-executive Director
Ian Neil
Senior Independent Non-executive Director
Anita Haines
Human Resources Director
6
6
6
5
2
N/A
N/A
2
2
Chairman
2
2
1
—
N/A
1
Chairman
1
1
1
4
N/A
N/A
4
4
4
4
Chairman
N/A
—
N/A
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.
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 on Risk Management, Internal
Control and Related Financial and Business Reporting” which was issued
by the FRC in September 2014. The process is subject to regular review
by the Board and there were no significant internal control issues identified
during the year.
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 and five year forecast 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.
23
TREATT PLCAnnual Report and Financial Statements 2014
Corporate Governance Statement continued
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.
Relations with Shareholders
The Group places a great deal of importance on communication with its
shareholders. The Parent Company mails to all shareholders who have
elected to receive it, the 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.
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 pages 17 and 18.
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 8 December 2014.
ANITA STEER
Secretary
24
TREATT PLC
Annual Report and Financial Statements 2014
Directors’ Remuneration Report
ANNuAL STATEMENT
Introduction
As Chairman of the Remuneration Committee, I am pleased to present
our report on Directors’ remuneration for 2014.
This report has been prepared in accordance 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 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 Annual General Meeting of the Parent Company
on 30 January 2015. Whilst the Remuneration Policy was approved by
shareholders at the 2014 Annual General Meeting, a proposed change
to the Executive Director’s bonus scheme in order to make it more
stretching, requires further shareholder approval.
2014 Performance
As detailed elsewhere in this report, the Group performed well in 2014,
meeting expectations for adjusted pre-tax profit and earnings per share.
The Group’s strategic plan, although only approved in late 2012, continued
to show signs of success, contributing towards the year’s result. The base
salaries of Daemmon Reeve and Richard Hope were increased with effect
from 1 October 2014 by 2.5%, in line with the average increases received
by staff across the Group.
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 last year with the Group’s major
shareholders, a share retention policy was 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. Whilst not
at these levels currently, both Directors have continued throughout the
year to add to their shareholdings, details of which are on page 33 of the
Implementation Report.
Historically, the level of share-based incentives granted to Directors has
been relatively low but it is recognised that this is an important aspect
of remuneration, which encourages focus on the longer-term interests
of shareholders and Directors alike. Therefore, it is intended that the
grant of appropriate awards of share-based incentives, with stretching
performance conditions, will be considered annually. As a result of a
further consultation this year with major shareholders, any awards made
under the Long Term Incentive Plan will be subject to a one-year holding
period following vesting, save that a proportion of the shares will be
permitted to be sold in order to satisfy any tax liability arising upon either
vesting or exercise.
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 2013 Directors’ Remuneration Report;
• agreement of the bonuses payable for the 2013 financial year;
• grant of options to Directors under the Treatt 2005 Approved and
Unapproved Share Option Schemes and the setting of performance
conditions;
•
•
• grant of options to senior management and key employees under
the newly approved Long Term Incentive Plan 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 2015 financial year;
review and amendment of all bonus schemes across the Group,
including those of Executive Directors, to ensure that they incentivise
appropriately stretching performance; and
to propose renewal of the all staff Save As You Earn scheme and its
US equivalent the Employee Stock Purchase Plan to shareholders at
the 2015 Annual General Meeting.
•
•
During the year all elements of the packages of the Executive Directors
were reviewed and no significant changes have been made, although,
as previously stated, greater emphasis will be placed on share-based
incentives going forward.
I hope that shareholders will support the resolutions on Directors
remuneration; 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 88 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.
25
TREATT PLCAnnual Report and Financial Statements 2014
Directors’ Remuneration Report continued
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; and
• 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.
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 2015 financial year:
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
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
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
Performance
Metrics
Individual and
company
performance are
considered
Changes for 2015
financial year
No changes have
been made to
the salary review
process
Base salary
increases are
consistent with the
average increases of
Group employees
Not applicable
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
Life Assurance for
UK tax resident
Directors will be
provided by means
of a Lifetime Plus
Policy
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
26
TREATT PLC
Annual Report and Financial Statements 2014
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
Maximum
Opportunity
100% of salary
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
100% of salary based
on market value of
shares at date of grant
Share Options
(Note 2)
Incentivises Directors
to achieve returns for
shareholders over a longer
time frame
Aligns Directors’ interests
with shareholders
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 2015
financial year
For 2015, bonuses
are to be based
on the growth in
adjusted Group
profit before tax
compared to the
prior financial year
Bonus payments
range from 4% of
salary at threshold
level rising
incrementally to a
maximum of 100%
of salary where
growth in adjusted
Group profit before
tax exceeds prior
year by 15% or
more
No awards can be
made under these
schemes after
February 2015.
The schemes will
not be renewed
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
The Committee
has discretion 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
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
27
TREATT PLCAnnual Report and Financial Statements 2014
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
Operation
The LTIP was approved by 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
Maximum
Opportunity
Performance
Metrics
Changes for 2015
financial year
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
The performance
criteria over a 3
year period is the
average annual
growth in adjusted
basic EPS. 30% of
award vests where
average annual
growth equals
or exceeds 3%
rising incrementally
to 100% where
average annual
growth equals or
exceeds 10%
Awards will be
subject to a one
year holding period
following vesting net
of any tax liability
arising on either
vesting or exercise
Share Retention Policy
Holding requirements:
Not applicable
Not applicable
None
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
28
TREATT PLC
Annual Report and Financial Statements 2014
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)
Maximum
Opportunity
Performance
Metrics
Changes for 2015
financial year
Recruitment awards
are subject to the
maximum value of any
outstanding awards
forgone by the recruit
Based on existing
Treatt performance
conditions
Not applicable
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
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
Clawback
To ensure Executive
Directors do not benefit
from errors or misconduct
Provisions are 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
Not applicable
Not applicable
None
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.
Awards under the LTIP may be made to Senior Executives and other key employees 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, consistent
with those of Executive Directors.
29
TREATT PLCAnnual Report and Financial Statements 2014
Directors’ Remuneration Report continued
Non-executive Directors’ remuneration
Element —
Purpose and link
to strategy
Fees
To recruit high calibre Non-
executive Directors
Operation
Subject to an aggregate limit within the
Articles of Association, which was last
approved by shareholders at the AGM in
February 2014
To reward additional responsibility
by virtue of position as Chairman
of the Board or Chairman of a
Committee
Reviewed annually for each Non-executive
Director with changes taking effect from
1 October
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 2015
financial year
Fee increase for Tim Jones is
consistent with the average
increases of Group employees
Fee increases for the other Non-
executive Directors address the
misalignment with benchmarking.
Percentage increases range from
6.67% to 12.18%
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
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 25 to 37 and base salaries as at 1 October 2014. Although Daemmon Reeve is paid in US Dollars, the figures below are in
Pounds Sterling at an exchange rate of £1=$1.66, being the average rate over the preceding twelve months.
(£’000)
500
400
300
200
100
0
Remuneration Policy Illustration
1
1
1
218
109
17
1
17
1
1
17
5
5
16
5
90
16
179
16
218
218
218
179
179
179
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 2015 have been included and have been calculated as the difference in market value at
30 September 2014, being £1.405, and the option price.
30
TREATT PLC
Annual Report and Financial Statements 2014
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. The recently approved Share Incentive Plan 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 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.
Summary of Director’s service contracts as at 30 September 2014:
Daemmon Reeve
Richard Hope
Summary of the key elements of Directors’ service contracts:
Date of contract
Notice period
30 October 2012
1 October 2013
12 months
12 months
Provision
Notice period
Termination payment
Salary
Benefits
Summary
12 months by either party
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
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.
31
TREATT PLCAnnual Report and Financial Statements 2014
Directors’ Remuneration Report continued
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 Group 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 Group 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
proportion 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 Group 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 Group agreed to a fixed sum to provide future private medical insurance for Mr Bovill and his children. The annual premiums paid by the Group 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 Group’s
obligations will cease.
The Group may continue to provide private medical insurance to former Directors at the discretion of the Committee and currently provides this cover
to one former Director who retired in 2009.
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 2015 Annual General Meeting, shall be effective immediately.
32
TREATT PLC
Annual Report and Financial Statements 2014
Implementation Report
The following section of this report provides details of the implementation of the policy for the year ended 30 September 2014.
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*
2014
£’000
2013
£’000
2014
£’000
2013
£’000
2014
£’000
2013
£’000
212
2
203
2
17
436
201
14
171
4
16
406
175
—
135
4
16
330
142
21
118
5
14
300
* Remuneration shown for Anita Haines in 2014 includes remuneration as an Executive Director until 24 February 2014 and as a Non-executive Director thereafter.
Non-executive Directors:
Tim Jones
Jeff Iliffe
David Johnston
Ian Neil
Peter Thorburn (Until 25 February 2013)
69
10
—
—
8
87
121
20
118
5
26
290
Fees
2014
£’000
2013
£’000
51
31
30
31
—
42
20
29
29
15
143
135
* Anita Haines received remuneration in 2014 of £18,000 in respect of her role as a Non-executive Director from 24 February 2014 which is included in the table for Executive Directors.
Note 1: Taxable benefits provided to Executive Directors now only relate to private medical insurance. With effect from 1 October 2013, car allowances
and re-imbursement of fuel expenses were incorporated into basic salaries for all Executive 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 26.0%. 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
2014
95%
77%
2013
85%
83%
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
Basic Salary
Annual Bonus
2014
51%
56%
2013
54%
55%
2014
49%
44%
2013
46%
45%
33
TREATT PLCAnnual Report and Financial Statements 2014
Directors’ Remuneration Report continued
Performance Graph
This performance graph shows Treatt
Plc’s performance (restated following
5 for 1 sub-division), 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
9
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 2009-2014
Sep 09
Sep 10
Sep 11
Sep 12
Sep 13
Sep 14
CEO Remuneration
The following table provides historical data on remuneration in respect of the Director(s) performing the role of Chief Executive Officer for each of the
years covered by the performance graph:
Total remuneration (£’000)
Annual bonus as % of maximum1
Share options vesting as % of maximum4
2014
436
95%
100%
20132
2012
2011
405
85%
100%
274
11%3
100%
447
104%
100%
2010
281
47%
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
Employees1
Salaries
Bonus
5.7%
4.0%
19%
13%
1 The employees used for comparison are those UK and US employees who, for the salary comparison, were employed for the whole of the 2014 financial year, and for bonuses, for the whole of both
the 2013 and 2014 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.
2014
2013
Movement
10,586
1,899
1,458
10,837
1,585
1,496
-2%
+20%
-3%
34
TREATT PLC
Annual Report and Financial Statements 2014
Directors’ Interests (audited)
The Directors who held office at 30 September 2014 had the following interests in the shares of the Parent Company:
Shares held
outright or vested
2014
2013*
Unvested share
options with
performance conditions
2013*
2014
Unvested
all-employee
share options
2014
2013*
92,485
148,025
62,495
50,680
74,720
138,845
62,495
50,680
119,770
19,610
78,195
12,820
5,158
13,439
3,175
13,250
—
—
—
—
—
—
—
—
Executive Directors
Daemmon Reeve
Richard Hope
Non-executive Directors
Tim Jones
Anita Haines
* Restated following 5 for 1 sub-division of shares
Between 1 October 2014 and 4 December 2014, the latest date practicable to obtain the information prior to publication of this document the
following changes occurred:
Daemmon Reeve purchased 831 shares under a Dividend Reinvestment Plan.
Richard Hope purchased 1,296 shares under a Dividend Reinvestment Plan.
Tim Jones purchased 4,775 shares.
The table below shows the value of Executive Directors’ interests in shares as at 30 September 2014 as a percentage of their base salary:
Value of Shares Held
Outright or Vested
Base Salary1
Value of
Interest as % of
Base Salary
2014
£’000
130
208
2013
£’000
90
167
2014
£’000
212
175
2013
£’000
201
142
2014
%
61%
119%
2013
%
45%
118%
Daemmon Reeve
Richard Hope
1 Base salary is the average basic gross pay for the corresponding year.
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
Value
£’000
Min
Performance
Award
Performance
End date
Daemmon Reeve
Richard Hope
ESPP 20141
ISO 20142
All-staff
Individual
10 Jul 14
20 Dec 13
SAYE 20143
ASO 20134
All-staff
Individual
10 Jul 14
20 Dec 13
£1.470
£1.472
£1.380
£1.472
8
61
6
10
N/A
20%
N/A
20%
N/A
30/9/18
N/A
30/9/16
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 options 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%.
35
TREATT PLCAnnual Report and Financial Statements 2014
Directors’ Remuneration Report continued
The share options (restated where necessary following 5 for 1 sub-division) of the Directors in office during the year are as set out below:
Daemmon Reeve
Exercise
Dates
Exercise
Price
Jul 2014
Jul 2015
Dec 2017 – Dec 2022
Dec 2018 – Dec 2023
100.2p
147.0p
79.0p
147.2p
At
1 Oct
2013
3,175
—
78,195
—
Granted
During
the Year
—
5,158
—
41,575
(3,175)
—
—
—
Exercised
During
the Year
Expired
During
the Year
81,370
46,733
(3,175)
Richard Hope
Sep 2014 – Feb 2015
Sep 2015 – Feb 2016
Sep 2016 – Feb 2017
Sep 2017 – Feb 2018
Dec 2015 – Dec 2022
Dec 2016 – Dec 2023
68.0p
53.4p
97.8p
138.0p
78.0p
147.2p
4,245
6,065
2,940
—
12,820
—
—
—
—
4,434
—
6,790
(4,245)
—
—
—
—
—
26,070
11,224
(4,245)
At
30 Sep
2014
—
5,158
78,195
41,575
124,928
—
6,065
2,940
4,434
12,820
6,790
33,049
—
—
—
—
—
—
—
—
—
—
—
—
The aggregate amount of gains made by the Directors on the exercise of share options in the year was £6,000 (2013: £14,000).
There have been no further changes in the interests of the Directors to subscribe for or acquire shares between 1 October 2014 and 4 December 2014,
the latest date practicable to obtain the information prior to publication of this document.
The market price of the shares at 30 September 2014 was £1.405 and the range during the financial year was £1.192 to £1.765. 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:
Increase in Accrued
Pension During Year
(Excluding Inflation)
Transfer Value
in Respect of Increase
(Excluding Inflation)
Normal
Retirement Date
24 Sep 2036
6 Nov 2017
2014
£
—
—
2013
£
65
593
2014
£
—
—
2013
£
385
8,309
Accrued Total
Pension at
2014
£
20,719
45,213
2013
£
20,178
43,816
Daemmon Reeve
Anita Haines*
* Anita Haines retired before her Normal Retirement Age, during the year to 30 September 2014. The accrued total pension figure for Anita Haines relates to accrued pension amounts immediately
prior to her retirement under the scheme rules on 30 April 2014 (before the application of any early retirement factor and before allowance for cash commutation.
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.
36
TREATT PLC
Annual Report and Financial Statements 2014
In addition, contributions to defined money purchase pension plans were made as follows:
Daemmon Reeve*
Richard Hope
Anita Haines (Until 24 February 2014)*
2014
£’000
17
16
8
2013
£’000
15
14
14
* 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 24 February 2014, the votes cast in respect of the resolution to approve the Directors’ Remuneration Report,
were as follows:
For: 99.92% Against: 0.08% Votes withheld: 1,456
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 8 December 2014.
ANITA STEER
Secretary
37
TREATT PLCAnnual Report and Financial Statements 2014
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 40 to 76. 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/
auditscopeukprivate.
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 2014
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 20 to 24 is 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.
38
TREATT PLC
Annual Report and Financial Statements 2014
• under the Listing Rules we are required to review:
•
•
the Directors’ statement, set out on page 11, in relation to going
concern; and
the part of the Corporate Governance Statement on page 20
relating to the Parent Company’s compliance with the nine
provisions of the UK Corporate Governance Code specified for
our review.
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 determination of provisions against inventory
We reconfirmed our understanding of the basis for determining
provisions against obsolete, slow moving and defective inventory and
against items where expected net realisable value is lower than cost.
We considered the controls over this process, and 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 assess whether these
confirmed the provisions made and their completeness. We also
reviewed the outcome of prior year provisions.
•
the determination of provisions against onerous trading contracts
We reconfirmed our understanding of the basis for determining
onerous contract provisions and the controls over this process,
and considered whether these continued to be appropriate. We
tested a sample of the contract provisions, reviewed the supporting
documentation and considered the appropriateness of the supporting
calculations. We also reviewed post year end transactions to consider
whether there were further contracts against which provision ought to
have been made.
•
the accounting for and disclosure of exceptional items and related
matters
With regards to legal claim made by the vendors of the Earthoil
subsidiaries, in respect of the deferred consideration relating to their
earn-out, we reviewed the progress of the dispute and considered the
independent professional advice in connection with management’s
assessment of the Group’s liability in respect of the earn-out and the
disclosures relating to the contingent liability in respect of 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.
With regards to the termination of a longstanding agency agreement,
we reviewed the supporting documentation regarding the termination
and considered management’s assessment of whether a liability
should be recognised at the balance sheet date. We also reviewed
the evaluation of the liability and the disclosures in this regard.
In respect of both of these matters, 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 £425,000, 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 £15,000, 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 99% of Group revenue, 99% of Group profit before
tax, and 98% 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
8 December 2014
39
TREATT PLCAnnual Report and Financial Statements 2014
Group Income Statement
for the year ended 30 September 2014
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
Notes
2014
£’000
2013
£’000
4
79,189
74,097
(61,218)
(56,510)
17,971
17,587
(10,343)
(10,649)
7,628
6,938
—
1
(725)
(60)
85
(736)
6,904
6,227
(1,402)
(1,093)
5,502
5,134
5
7
7
8
9
(1,553)
(1,655)
Profit for the period attributable to owners of the Parent Company
3,949
3,479
Earnings per share
Basic
Diluted
Adjusted basic
Adjusted diluted
All amounts relate to continuing operations
Notes 1 - 29 form part of these financial statements
* Restated following 5 for 1 sub-division of shares
11
11
11
11
7.69p
7.66p
9.95p
9.91p
6.80p*
6.77p*
8.64p*
8.60p*
40
TREATT PLC
Annual Report and Financial Statements 2014
Group Statement of Comprehensive Income
for the year ended 30 September 2014
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
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
9
28
16
25
9
16
2014
£’000
3,949
20
(11)
16
(8)
17
2013
£’000
3,479
(180)
30
546
(135)
261
(1,170)
51
188
(1,058)
72
158
(931)
(828)
Other comprehensive expense for the period
(914)
(567)
Total comprehensive income for the period attributable to owners of the Parent Company
3,035
2,912
Notes 1 - 29 form part of these financial statements
41
TREATT PLCAnnual Report and Financial Statements 2014
Group and Parent Company Statements of Changes in Equity
for the year ended 30 September 2014
Group
Share
capital
£’000
Share
premium
£’000
Own
shares in
share
trust
£’000
Hedging
reserve
£’000
Foreign
exchange
reserve
£’000
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
—
—
—
—
1 October 2013
1,048
2,757
(622)
(487)
Profit for the period
Other comprehensive
income/(expense):
Exchange differences
Fair value movement on cash
flow hedge
Actuarial loss on defined
benefit pension scheme
Transfer between reserves
Taxation relating to items above
Total comprehensive income
Transactions with owners:
Dividends
Share-based payments
Movement in own shares
in share trust
Gain on release of shares
in share trust
Taxation relating to items recognised
directly in equity
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
73
—
—
—
—
16
—
102
(8)
110
—
—
—
—
—
Retained
earnings
£’000
Total
equity
£’000
23,332
26,003
3,479
3,479
30
(135)
(828)
(150)
411
(828)
635
—
(180)
—
—
(180)
2,546
2,912
—
—
—
—
455
—
20
—
—
(173)
(11)
(164)
—
—
—
—
—
(1,585)
22
(1,585)
22
—
(23)
114
(23)
24,292
27,443
3,949
3,949
—
—
(1,170)
71
239
20
16
(1,170)
—
220
3,089
3,035
(1,899)
47
(1,899)
47
—
18
43
73
18
43
30 September 2014
1,048
2,757
(549)
(377)
291
25,590
28,760
Notes 1 - 29 form part of these financial statements
42
TREATT PLC
Annual Report and Financial Statements 2014
Group and Parent Company Statements of Changes in Equity
for the year ended 30 September 2014
Parent Company
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
1 October 2013
Profit for the period
Total comprehensive income
Transactions with owners:
Dividends
Movement in own shares in share trust
Capital contribution to subsidiary undertakings
Gain 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
(736)
1,843
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
114
—
—
1,571
1,571
(1,585)
—
22
(23)
1,048
2,757
(622)
1,828
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
73
—
—
1,742
1,742
(1,899)
—
47
18
Total
equity
£’000
4,912
1,571
1,571
(1,585)
114
22
(23)
5,011
1,742
1,742
(1,899)
73
47
18
30 September 2014
1,048
2,757
(549)
1,736
4,992
Notes 1 - 29 form part of these financial statements
43
TREATT PLCAnnual Report and Financial Statements 2014
Group and Parent Company Balance Sheets
as at 30 September 2014
Registered Number: 1568937
Group
2014
£’000
2013
£’000
Parent Company
2014
£’000
2013
£’000
Notes
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 bank balances
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
726
10,994
—
396
586
—
1,075
684
11,718
—
278
586
—
13,777
14,341
28,020
14,509
340
92
629
23,669
13,207
128
219
1,117
43,590
38,340
—
—
—
5,285
—
586
1,350
7,221
—
45
—
—
—
45
—
—
—
5,238
—
586
1,350
7,174
—
454
—
—
—
454
57,367
52,681
7,266
7,628
(2,356)
(920)
(12,053)
(676)
(522)
(49)
(11,292)
(621)
(1,556)
—
(20)
—
(1,915)
—
(4)
—
(16,005)
(12,484)
(1,576)
(1,919)
27,585
25,856
(1,531)
(1,465)
(1,007)
(7,857)
(23)
(2,529)
(511)
(675)
(1,001)
(8,889)
(23)
(1,589)
(577)
(675)
(12,602)
(12,754)
—
—
(23)
—
—
(675)
(698)
—
—
(23)
—
—
(675)
(698)
(28,607)
(25,238)
(2,274)
(2,617)
28,760
27,443
4,992
5,011
1,048
2,757
(549)
(377)
291
25,590
1,048
2,757
(622)
(487)
455
24,292
1,048
2,757
(549)
—
—
1,736
1,048
2,757
(622)
—
—
1,828
5,011
Total equity attributable to owners of the Parent Company
28,760
27,443
4,992
Notes 1 - 29 form part of these financial statements
The financial statements were approved by the Board of Directors and authorised for issue on 8 December 2014 and were signed on its behalf by:
Tim Jones
Chairman
Richard Hope
Finance Director
44
TREATT PLC
Annual Report and Financial Statements 2014
Group and Parent Company Statement of Cash Flows
for the year ended 30 September 2014
Cash flow from operating activities
Profit before taxation
Adjusted for:
Depreciation of property, plant and equipment
Amortisation of intangible assets
Loss on disposal of property, plant and equipment
Gain on disposal of intangible assets
Loss on disposal of subsidiaries
Net finance costs
Share-based payments
Decrease/(increase) in fair value of derivatives
Decrease in post-employment benefit obligation
Group
2014
£’000
2013
£’000
Parent Company
2014
£’000
2013
£’000
Notes
5,502
5,134
1,715
1,560
14
13
15
7
24
28
1,222
172
17
(2)
—
724
46
115
(230)
1,219
181
3
—
60
714
22
(129)
(307)
—
—
—
—
—
36
—
—
—
—
—
—
—
—
44
—
—
—
Operating cash flow before movements in working capital
7,566
6,897
1,751
1,604
Movements in working capital:
Increase in inventories
(Increase)/decrease in trade and other receivables
Increase/(decrease) in trade and other payables, and provisions
Cash generated from operations
Taxation (paid)/received
(4,322)
(1,331)
1,615
3,528
(1,552)
(789)
876
2,266
9,250
(649)
Net cash from operating activities
1,976
8,601
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
Increase/(decrease) in bank loans
Interest paid
Dividends paid
Net sale of own shares by share trust
14
13
7
7
10
—
4
(538)
(212)
1
(9)
2
(1,433)
(147)
22
(745)
(1,565)
—
410
16
2,177
26
2,203
—
—
—
—
20
20
—
(397)
(29)
1,178
11
1,189
—
—
—
—
20
20
215
(725)
(1,899)
91
(2,223)
(736)
(1,585)
91
—
(56)
(1,899)
91
—
(64)
(1,585)
91
(2,318)
(4,453)
(1,864)
(1,558)
Net (decrease)/increase in cash and cash equivalents
(1,087)
2,583
359
(349)
Cash and cash equivalents at beginning of period
Effect of foreign exchange rates
1,095
13
(1,341)
(147)
(1,915)
—
(1,566)
—
Cash and cash equivalents at end of period
21
1,095
(1,556)
(1,915)
Cash and cash equivalents comprise:
Cash and cash equivalents
Bank borrowings
Notes 1 - 29 form part of these financial statements
19
20
629
(608)
1,117
(22)
—
(1,556)
—
(1,915)
21
1,095
(1,556)
(1,915)
45
TREATT PLCAnnual Report and Financial Statements 2014
Group Reconciliation of Net Cash Flow to Movement in Net Debt
for the year ended 30 September 2014
(Decrease)/increase in cash and cash equivalents
(Increase)/decrease in bank loans
Cash (outflow)/inflow 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
2014
£’000
(1,074)
(215)
(1,289)
2013
£’000
2,436
2,223
4,659
(1)
(4)
(1,290)
(8,294)
4,655
(12,949)
(9,584)
(8,294)
46
TREATT PLC
Annual Report and Financial Statements 2014
Notes to the Financial Statements
for the year ended 30 September 2014
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 88.
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 2014:
Annual improvements 2009-2011 – published May 2012
IFRS 7 Financial instruments: Disclosures – offsetting of assets and liabilities – published December 2011
IFRS 13 Fair value measurement – published May 2011
IAS 19 Employee benefits – amendments from post-employment benefits project – 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 (and in some cases had not yet been adopted by the EU):
Annual improvements 2010-2012
Annual improvements 2011-2013
Annual improvements 2012-2014
IFRS 7 Financial instruments: Disclosures (amendments)
IFRS 9 Financial instruments: Classification and measurement of assets and liabilities
IFRS 10 Consolidated financial statements
IFRS 11 Joint arrangements
IFRS 12 Disclosure of interests in other entities
IFRS 15 Revenue from contracts with customers
IAS 16 Property, plant and equipment (amendments)
IAS 27 Separate financial statements (amendments)
IAS 28 Investments in associates and joint ventures (amendments)
IAS 32 Financial instruments: Presentation (amendments)
IAS 36 Impairment of assets (amendments)
IAS 38 Intangible assets (amendments)
IAS 39 Financial Instruments: Recognition and measurement (amendments)
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, £1.7m (2013: £1.6m) 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.
47
TREATT PLCAnnual Report and Financial Statements 2014 Notes to the Financial Statements
for the year ended 30 September 2014 continued
3. SIGNIFICANT ACCOuNTING POLICIES (continued)
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”.
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.
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
affecting the Group’s results, was $1.62 (2013: $1.62) 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;
•
•
it is probable that the asset created will generate future economic benefits; and
the development cost of the asset can be measured reliably.
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.
48
TREATT PLC
Annual Report and Financial Statements 2014
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
49
TREATT PLCAnnual Report and Financial Statements 2014 Notes to the Financial Statements
for the year ended 30 September 2014 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.
50
TREATT PLC
Annual Report and Financial Statements 2014
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
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 and option 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”.
Hedge accounting
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. 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.
Cash flow hedges
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.
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.
For the year ended 30 September 2014, the Group has applied IAS 19 as amended in June 2011 which became effective for financial years beginning
on or after 1 January 2013. The effects of the amended standard are not material and therefore the prior year comparatives have not been restated.
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 net interest 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.
51
TREATT PLCAnnual Report and Financial Statements 2014
Notes to the Financial Statements
for the year ended 30 September 2014 continued
3. SIGNIFICANT ACCOuNTING POLICIES (continued)
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.
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
US, 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.
52
TREATT PLC
Annual Report and Financial Statements 2014
3. SIGNIFICANT ACCOuNTING POLICIES (continued)
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.
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. 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 2014 was £1,343,000 (2013: £1,361,000).
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.
The Group operates one global business segment engaging 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 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
2014
£’000
9,975
21,566
29,638
18,010
2013
£’000
10,016
19,837
26,661
17,583
79,189
74,097
All Group revenue is in respect of the sale of goods, other than property rental income of £17,000 (2013: £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
2014
£’000
7,274
5,893
214
2013
£’000
7,622
6,139
302
13,381
14,063
53
TREATT PLCAnnual Report and Financial Statements 2014
Notes to the Financial Statements
for the year ended 30 September 2014 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
Gain on disposal of intangible assets
Research and development costs
Operating leases
– plant & machinery
– land & buildings
Net exchange loss/(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
– 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)
2014
£’000
1,222
172
17
(2)
672
14
69
267
(17)
49,562
1,426
545
534
560
33
66
99
13
—
—
13
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
2014
Number
2013
Number
184
114
298
2014
£’000
9,918
957
668
46
182
122
304
2013
£’000
10,127
992
710
22
11,589
11,851
Directors
The information on Directors’ emoluments and share options set out on pages 33 to 37 form part of these financial statements.
54
TREATT PLC
Annual Report and Financial Statements 2014
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
– pension finance cost (see note 25)
8. EXCEPTIONAL ITEMS
The exceptional items referred to in the income statement can be categorised as follows:
Legal and professional fees
Corporate finance advisory and other costs
Agency termination
Less: tax effect of exceptional items
2014
£’000
1
—
1
(494)
(94)
(60)
(10)
(67)
(725)
2014
£’000
292
—
1,110
1,402
(244)
1,158
2013
£’000
22
63
85
(555)
(56)
(115)
(10)
—
(736)
2013
£’000
634
459
—
1,093
(108)
985
The exceptional items in the year all relate to non-recurring items. The legal and professional fees relate to the earnout dispute in relation to the
acquisition of the Earthoil Group, which remains on-going. The agency termination costs relate to statutory compensation due upon giving contractual
notice in respect of the strategic termination of a longstanding agency arrangement.
55
TREATT PLCAnnual Report and Financial Statements 2014
Notes to the Financial Statements
for the year ended 30 September 2014 continued
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
Total current tax
Deferred tax:
Cash flow hedges
Actuarial loss on defined benefit pension scheme
Total deferred tax
Total tax credit recognised in other comprehensive income
Analysis of tax credit/(charge) in equity:
Current tax:
Share-based payments
Deferred tax:
Share-based payments
Total tax credit recognised in equity
2014
£’000
2013
£’000
732
(111)
909
(72)
953
7
581
(45)
1,458
1,496
20
(27)
102
95
163
(3)
(1)
159
1,553
1,655
(11)
51
40
(8)
188
180
220
17
26
43
30
72
102
(135)
158
23
125
—
—
—
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 22% (2013: 23.5%).
The differences are explained below:
Profit before tax multiplied by standard rate of UK corporation tax at 22% (2013: 23.5%)
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
2014
£’000
1,210
70
354
(81)
2013
£’000
1,206
300
188
(39)
Total tax charge for the year
1,553
1,655
The main rate of UK corporation tax was reduced from 23% to 21% with effect from 1 April 2014. The Group’s effective UK corporation tax rate for
the year was therefore 22% (2013: 23.5%). The adjustments in respect of prior years relate to the finalisation of previous year’s tax computations.
56
TREATT PLC
Annual Report and Financial Statements 2014
10. DIvIDENDS
Parent Company and Group
Equity dividends on ordinary shares:
Interim dividend
Final dividend
Dividend per share for years
ended 30 September
20142
Pence
20131
Pence*
20121
Pence*
1.24p
2.60p
1.10p
2.60p
1.02p
2.08p
2014
£’000
565
1,334
3.84p
3.70p
3.10p
1,899
2013
£’000
521
1,064
1,585
1 Accounted for in the subsequent year in accordance with IFRS.
2 The declared interim dividend for the year ended 30 September 2014 of 1.24 pence was approved by the Board on 16 May 2014 and was paid on 17 October 2014. Accordingly it has not been
included as a deduction from equity at 30 September 2014. The proposed final dividend for the year ended 30 September 2014 of 2.60 pence will be voted on at the Annual General Meeting
on 30 January 2015. Both dividends will therefore be accounted for in the financial statements for the year ended 30 September 2015.
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)
2014
2013*
3,949
51,335
3,479
51,142
7.69p
6.80p
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)
* Restated following 5 for 1 sub-division of shares
2014
No (‘000)
2013*
No (‘000)
52,405
(1,070)
52,405
(1,263)
51,335
51,142
40
177
9
223
51,552
51,374
7.66p
6.77p
57
TREATT PLCAnnual Report and Financial Statements 2014
Notes to the Financial Statements
for the year ended 30 September 2014 continued
11. EARNINGS PER SHARE (continued)
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)
* Restated following 5 for 1 sub-division of shares
12. GOODWILL
Carrying amount
30 September 2014
30 September 2013
2014
£‘000
3,949
1,402
(244)
5,107
9.95p
9.91p
2013*
£‘000
3,479
1,093
(155)
4,417
8.64p
8.60p
Goodwill
£‘000
1,075
1,075
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 (2013: £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.
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 2014, 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 for the five years ending 30 September 2018.
Thereafter, a growth rate for pre-tax profit of 2% (2013: 2%) per annum is assumed into perpetuity. A rate of 12.5% (2013: 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 £7.5m (2013: £10.2m). The recoverable amount
is most sensitive to changes in the discount rate and sales growth. A 1% change in the discount rate or sales growth would change the recoverable
amount by £1m.
58
TREATT PLC
Annual Report and Financial Statements 2014
13. OTHER INTANGIBLE ASSETS
Group
Cost
1 October 2012
Additions
Disposals
1 October 2013
Exchange adjustment
Additions
Disposals
30 September 2014
Amortisation
1 October 2012
Charge for period
Disposals
1 October 2013
Exchange adjustment
Charge for period
Disposals
30 September 2014
Net book value
30 September 2014
30 September 2013
Lease
premium
£’000
Software
licences
£’000
Total
£’000
1,107
147
(73)
1,181
1
212
(105)
764
147
(73)
838
1
212
(105)
946
1,289
380
177
(73)
484
1
168
(107)
546
400
354
389
181
(73)
497
1
172
(107)
563
726
684
343
—
—
343
—
—
—
343
9
4
—
13
—
4
—
17
326
330
Intangible assets with a net book value of £27,000 (2013: £4,000) have been pledged as security in relation to the Industrial Development Loan
detailed in note 20.
59
TREATT PLCAnnual Report and Financial Statements 2014
Notes to the Financial Statements
for the year ended 30 September 2014 continued
14. PROPERTy, PLANT AND EQuIPMENT
Group
Cost
1 October 2012
Exchange adjustment
Additions
Disposals
Disposal of subsidiary
1 October 2013
Exchange adjustment
Additions
Disposals
30 September 2014
Depreciation
1 October 2012
Exchange adjustment
Charge for period
Disposals
Disposals of subsidiary
1 October 2013
Exchange adjustment
Charge for period
Disposals
30 September 2014
Net book value
30 September 2014
30 September 2013
Analysis of land & buildings
Net book value
Freehold
Long Leasehold
Land &
Buildings
£’000
Plant &
Machinery
£’000
6,259
(10)
12
—
—
6,261
(5)
—
—
11,512
(50)
1,421
(443)
(7)
12,433
(54)
538
(2,291)
Total
£’000
17,771
(60)
1,433
(443)
(7)
18,694
(59)
538
(2,291)
6,256
10,626
16,882
826
(4)
136
—
—
958
—
132
—
5,402
(26)
1,083
(439)
(2)
6,018
(39)
1,090
(2,271)
6,228
(30)
1,219
(439)
(2)
6,976
(39)
1,222
(2,271)
1,090
4,798
5,888
5,166
5,303
5,828
10,994
6,415
11,718
2014
£’000
4,427
739
5,166
2013
£’000
4,548
755
5,303
Included in plant and machinery are assets in the course of construction totalling £352,000 (2013: £516,000).
Property, plant and equipment with a net book value of £5.6m (2013: £5.8m) 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
60
TREATT PLC
Annual Report and Financial Statements 2014
2014
£’000
350
2013
£’000
134
15. INvESTMENTS IN SuBSIDIARIES
Parent Company
Cost
1 October 2012
Capital contribution to subsidiaries
1 October 2013
Capital contribution to subsidiaries
30 September 2014
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
5,216
22
5,238
47
5,285
2014
£’000
2013
£’000
2,350
2,318
1,860
1,845
923
923
152
152
5,285
5,238
Subsidiary
Country
Holding
Principal activity
R C Treatt & Co Limited
Treatt USA Inc
Earthoil Plantations Limited
Earthoil Kenya EPZ Pty Limited
Earthoil Extracts Limited
16. DEFERRED TAXATION
UK deferred tax asset
Overseas deferred tax liability
Net deferred tax liability
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
2014
£’000
396
(1,007)
2013
£’000
278
(1,001)
(611)
(723)
61
TREATT PLCAnnual Report and Financial Statements 2014
Notes to the Financial Statements
for the year ended 30 September 2014 continued
16. DEFERRED TAXATION (continued)
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
192
—
(17)
158
333
—
(16)
188
—
505
(195)
—
29
—
(166)
—
(52)
—
—
(218)
238
—
(27)
(135)
76
—
17
(8)
—
85
51
—
(16)
—
35
—
(37)
—
26
24
Fixed
assets
£’000
(1,000)
7
(111)
—
(1,104)
(1)
(69)
—
—
Other
temporary
differences
£’000
120
—
(17)
—
103
2
62
—
—
£’000
(594)
7
(159)
23
(723)
1
(95)
180
26
(1,174)
167
(611)
Group
1 October 2012
Exchange differences
(Charge)/credit to
income statement
Credit/(charge) to other
comprehensive income
1 October 2013
Exchange differences
(Charge)/credit to
income statement
Credit/(charge) to other
comprehensive income
Credit direct to equity
30 September 2014
At the balance sheet date, 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 been recognised.
The deferred tax rate applied to UK companies within the Group is 20% (2013: 21%) as legislation has been substantively enacted which reduces the
main rate of UK corporation tax from 21% in the 2014/15 tax year to 20% for the 2015/16 tax year.
17. INvENTORIES
Group
Raw materials
Work in progress and intermediate products
Finished goods
2014
£’000
11,463
12,267
4,290
2013
£’000
11,736
8,135
3,798
28,020
23,669
Inventory with a carrying value of £10.6m (2013: £8.1m) has been pledged as security in relation to the Industrial Development Loan detailed
in note 20.
62
TREATT PLC
Annual Report and Financial Statements 2014
18. TRADE AND OTHER RECEIvABLES
Current
Trade receivables
Amounts owed by subsidiaries
Other receivables
Prepayments
Non-current
Other receivables
Group
2014
£’000
13,203
—
470
836
2013
£’000
11,448
—
931
828
14,509
13,207
Parent Company
2014
£’000
2013
£’000
—
45
—
—
45
—
454
—
—
454
Group
2014
£’000
586
2013
£’000
586
Parent Company
2014
£’000
2013
£’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 57 days (2013: 59 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 £0.3m (2013: £0.2m), 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% (2013: 25%) 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
2014
2013
The ageing profile of impaired trade receivables is as follows:
Group
2014
2013
Number of days past the due date
Over 60
31-60
1-30
£’000
£’000
£’000
1,541
1,842
507
489
180
187
Number of days past the due date
Current
£’000
10
95
1-30
£’000
—
17
31-60
£’000
Over 60
£’000
5
1
294
51
63
TREATT PLCAnnual Report and Financial Statements 2014
Notes to the Financial Statements
for the year ended 30 September 2014 continued
18. TRADE AND OTHER RECEIvABLES (continued)
At 30 September 2014 £3.3m (2013: £3.2m) of trade receivables were denominated in Sterling, £8.5m (2013: £6.9m) in US Dollars and £1.4m (2013:
£1.5m) 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 9 and 10.
Trade receivables with a carrying value of £3.4m (2013: £2.6m) 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 (2013: £0.6m) as these amounts are contractually fully recoverable against
loan notes payable of £0.7m (2013: £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 BANK BALANCES
Group
Cash and bank balances of £629,000 (2013: £1,117,000) 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
2014
£’000
2013
£’000
—
—
1,556
1,556
—
—
1,915
1,915
Group
Group
2014
£’000
514
1,234
608
2,356
2014
£’000
2,306
5,551
7,857
2013
£’000
500
—
22
522
2013
£’000
2,096
6,793
8,889
uS loans and borrowings
US term loans include an industrial development loan of £1,120,000 (2013: £1,279,000) and equipment financing loans of £973,000 (2013: £1,317,000).
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 (based on the mark-to-market valuation provided by Bank of America) at the year-end was £102,000 (2013: £135,000) based on year 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 £748,000 (2013: £1,026,000) and £225,000 (2013: £291,000) 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 $4m 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.
64
TREATT PLC
Annual Report and Financial Statements 2014
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
2014
£’000
2,356
6,080
1,444
333
10,213
2013
£’000
522
1,749
6,647
493
9,411
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 2014, the Group had total borrowing facilities of £20.3m (2013: £19.9m) of which £10.2m (2013: £6.0m) expire in one year or less
and £10.7m (2013: £11.6m) were undrawn.
21. PROvISIONS
Group
Onerous contract provision:
At start of year
Utilised in year
Additional provision in year
Balance at end of year
2014
£’000
2013
£’000
49
(49)
920
920
—
—
49
49
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
Group
2014
£’000
7,326
—
514
4,213
2013
£’000
7,434
—
415
3,443
12,053
11,292
Parent Company
2014
£’000
2013
£’000
—
13
6
1
20
—
—
4
—
4
Group
2014
£’000
23
2013
£’000
23
Parent Company
2014
£’000
2013
£’000
23
23
65
TREATT PLCAnnual Report and Financial Statements 2014
Notes to the Financial Statements
for the year ended 30 September 2014 continued
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 2014 £1.4m (2013: £2.2m) of trade payables were denominated in Sterling, £5.0m (2013: £4.1m) in US Dollars and £0.4m
(2013: £0.9m) 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 9 and 10.
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
2014
£’000
2014
Number
2013
£’000
2013
Number
(Restated)
At start and end of period
1,048
52,405,170
1,048
52,405,170
During the year the Parent Company sub-divided its 10p ordinary shares, on a five for one basis, into 2p ordinary shares. The Parent Company has
one class of ordinary shares, now with a nominal value of 2p 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, senior management and other key employees 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 2p each in the capital
of the Parent Company. These 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 2014 for which a share-based payment charge of £47,000 (2013: £22,000) has been made are as follows:
Number
of shares
outstanding
Number
exercised
in year
Exercise
price per
share
Date option exercisable
12,820*
97,740*
6,790*
51,965*
265*
192,800*
126,420*
198,069
35,698
100,282
75,061
—
—
—
—
106,340
—
—
—
—
—
—
78.0p
79.0p
147.2p
147.2p
68.0p
53.4p
97.8p
138.0p
147.0p
Nil
Nil
Dec 2015 - Dec 2022
Dec 2017 - Dec 2022
Dec 2016 - Dec 2023
Dec 2018 - Dec 2023
Sep 2014 - Feb 2015
Sep 2015 - Feb 2016
Sep 2016 - Feb 2017
Sep 2017 - Feb 2018
Jul 2015
Jun 2017 - Jun 2024
Jun 2017
UK Executive Options 2012
US Executive Options 2012
UK Executive Options 2013
US Executive Options 2013
UK SAYE1 Scheme 2011
UK SAYE Scheme 2012
UK SAYE Scheme 2013
UK SAYE Scheme 2014
US ESPP2 scheme 2014
UK LTIP3 Scheme 2014
US LTIP scheme 2014
1 Save as you earn
2 Employee stock purchase plan
3 Long-term incentive plan
* Restated following 5 for 1 sub-division of shares
66
TREATT PLC
Annual Report and Financial Statements 2014
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:
All-employee share schemes:
SAyE 2012*
SAyE 2013*
SAyE 2014
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
Executive share schemes:
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
63.3p
3.5 years
3 years
21.1%
0.57%
4.7%
10.0%
10.0%
8.1p
123.5p
3.5 years
3 years
23.6%
1.30%
2.6%
10.0%
10.0%
26.4p
172.5p
3.5 years
3 years
23.4%
2.02%
2.2%
10.0%
10.0%
39.0p
uS ESPP
2014
172.5p
1 year
1 year
19.1%
2.02%
2.2%
10.0%
10.0%
25.2p
uK Exec
2012*
uS Exec
2012*
uK Exec
2013*
uS Exec
2013*
uK LTIP
2014
uS LTIP
2014
78.0p
10 years
3 years
21.1%
0.84%
4.0%
0.0%
25.0%
8.25p
78.0p
10 years
5 years
21.7%
0.84%
4.0%
0.0%
25.0%
8.45p
147.2p
10 years
3 years
23.6%
1.70%
2.5%
0.0%
25.0%
30.0p
147.2p
10 years
5 years
23.3%
1.70%
2.5%
0.0%
25.0%
29.6p
174.0p
10 years
3 years
23.4%
2.02%
2.2%
0.0%
35.0%
139.5p
174.0p
3.25 years
3 years
23.3%
2.02%
2.2%
0.0%
35.0%
162.1p
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
* Restated following 5 for 1 sub-division of shares
2014
Weighted
average
exercise
price
£0.73
£0.88
£0.64
£0.73
—
—
No of
options
570,890
467,865
(14,175)
(126,670)
—
—
No of
options*
556,640
260,865
(38,610)
(198,985)
—
(9,020)
897,910
£0.81
570,890
265
£0.68
—
2013*
Weighted
average
exercise
price
£0.54
£0.90
£0.56
£0.46
—
£0.61
£0.73
—
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 5.2 years (2013: 3.7 years). The weighted average actual market
share price on date of exercise for share options exercised during the year was 159.4 pence (2013 restated: 125.7 pence) and the weighted average
fair value of options granted during the year was 78.1 pence (2013 restated: 18.5 pence).
67
TREATT PLCAnnual Report and Financial Statements 2014
Notes to the Financial Statements
for the year ended 30 September 2014 continued
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 and
from 1 January 2013 was not subject to any further accruals. Instead members of the final salary pension scheme became eligible for 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 in relation to the defined benefit
pension scheme, amounting to:
Defined benefit scheme – current service cost
Defined contribution schemes
Other pension costs
2014
£’000
—
644
24
668
2013
£’000
112
574
24
710
Defined benefit pension scheme
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 2014. Scheme assets are stated at their
market value as at that date.
The scheme is subject to the Statutory Funding Objective under the Pensions Act 2004. A valuation of the scheme is carried out at least once every
three years to determine whether the Statutory Funding Objective is met. As part of the process the Group must agree with the trustees of the scheme
the contributions to be paid to address any shortfall against the Statutory Funding Objective. The Statutory Funding Objective does not currently impact
on the recognition of the scheme in these financial statements.
The scheme is managed by a board of trustees appointed in part by the company and part from elections by members of the Scheme. The trustees
have responsibility for obtaining valuations of the fund, administering benefit payments and investing the scheme’s assets. The trustees delegate some
of these functions to their professional advisers where appropriate.
The scheme exposes the Group to a number of risks:
Investment risk: The scheme holds investments in asset classes, such as equities, which have volatile market values and while these assets are
expected to provide the real returns over the long term, the short-term volatility can cause additional funding to be required if a deficit emerges.
Interest rate risk: The scheme’s liabilities are assessed using market yields on high quality corporate bonds to discount the liabilities. As the scheme
holds assets such as equities the value of the assets and liabilities may not move in the same way.
Inflation risk: A proportion of the benefits under the scheme are linked to inflation. Although the scheme’s assets are expected to provide a good hedge
against inflation over the long term, movements over the short-term could lead to deficits emerging.
Mortality risk: In the event that members live longer than assumed a greater deficit will emerge in the scheme.
Member options: Certain benefit options may be exercised by members without requiring the consent of the trustees or the company, for example
exchanging pension for cash at retirement. In this example, if fewer members than expected exchange pension for cash at retirement then a funding
strain will emerge.
The assets do not include any investment in shares of the Group and there were no plan amendments, curtailments or settlements during the period.
68
TREATT PLC
Annual Report and Financial Statements 2014
25. PENSION SCHEMES (continued)
The financial assumptions used to calculate scheme liabilities and assets under IAS 19 are:
Discount rate
Rate of inflation (RPI)
Rate of inflation (CPI)
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%
Revaluation in deferment
Mortality table
Commutation allowance
Rate of increase in salaries
Life expectancy for male aged 65 in 20 years’ time
Life expectancy for female aged 65 in 20 years’ time
Life expectancy for male aged 65 now
Life expectancy for female aged 65 now
2014
2013
4.10%
3.25%
2.25%
2.25%
2.10%
1.95%
2.25%
100% of S1PxA table with
CMI_2011 projections with a
long term average rate of
improvement of 1% pa
20%
N/A
23.5
26.0
22.2
24.4
4.65%
3.35%
2.35%
2.35%
2.20%
2.00%
2.35%
100% of S1PxA table with
CMI_2011 projections with a
long term average rate of
improvement of 1% pa
20%
N/A
23.4
25.9
22.1
24.4
Effect of the scheme on future cash flows
The Group is required to agree a schedule of contributions with the trustees of the scheme following a valuation which must be carried out at least once
every three years. The next valuation of the scheme is due as at 1 January 2015. In the event that the valuation reveals a larger deficit than expected the
Group may be required to increase contributions above those set out in the existing schedule of contributions. Conversely, if the position is better than
expected contributions may be reduced. The Group expects to make on-going contributions of approximately £306,000 to its defined benefit pension
scheme in 2015 (2013: £297,000). The weighted average duration of the defined benefit obligation is approximately 19 years.
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
Benefits paid
Remeasurement losses:
Actuarial loss arising from changes in financial assumptions
Balance at end of period
Changes in scheme assets
Balance at start of period
Interest on scheme assets
Employer contributions
Benefits paid
Remeasurement gains:
Return on plan assets (excluding amounts included in interest expense)
Balance at end of period
2014
£’000
9,143
5,544
3,454
36
2013
£’000
8,653
5,213
3,256
49
18,177
17,171
(20,706)
(18,760)
(2,529)
505
(1,589)
333
(2,024)
(1,256)
(18,760)
—
(858)
622
(16,436)
(112)
(747)
560
(1,710)
(2,025)
(20,706)
(18,760)
17,171
791
297
(622)
15,598
810
356
(560)
540
967
18,177
17,171
69
TREATT PLCAnnual Report and Financial Statements 2014
Notes to the Financial Statements
for the year ended 30 September 2014 continued
25. PENSION SCHEMES (continued)
Amount charged to operating profit
Current service cost (excluding employee contributions)
Amount credited to finance revenue
Interest on scheme assets
Interest on scheme liabilities
Net finance (expense)/revenue
Net expense recognised in income statement
Amount recognised in statement of comprehensive income
Return on plan assets (excluding amounts included in interest expense)
Actuarial loss arising from changes in financial assumptions
Remeasurement loss recognised in statement of comprehensive income
Actual return on scheme assets
Statement of comprehensive income
Actuarial gain on scheme assets net of interest
Actuarial loss from changes in financial assumptions
Actuarial loss recognised in statement of comprehensive income
2014
£’000
2013
£’000
—
(112)
791
(858)
(67)
(67)
810
(747)
63
(49)
540
(1,710)
967
(2,025)
(1,170)
(1,058)
1,331
1,777
540
(1,710)
967
(2,025)
(1,170)
(1,058)
Cumulative remeasurement loss recognised in statement of comprehensive income
(3,513)
(2,343)
Approximate effect of change of assumptions on liability values at 30 September 2014:
Change
Reduce discount rate by 0.25% pa
Increase inflation and all related assumptions by 0.1% pa
Increase life expectancy by one year
Increases liability by:
£’000
990
290
655
The above sensitivities are approximate and only show the likely effect of an assumption being adjusted whilst all other assumptions remain the
same. The assumptions used in preparing this sensitivity analysis are unchanged from the prior year.
70
TREATT PLC
Annual Report and Financial Statements 2014
26. COMMITMENTS uNDER OPERATING LEASES
The Group as lessee
As at 30 September 2014, the Group had total commitments for future minimum lease payments under non-cancellable operating leases which fall
due as follows:
Within one year
In one to two years
In two to five years
In more than five years
2014
£’000
38
38
83
14
173
2013
£’000
28
10
21
—
59
The Group as lessor
As at 30 September 2014, the Group had contracted with tenants for the following future minimum lease payments which fall due as follows:
Within one year
27. CONTINGENT LIABILITIES
2014
£’000
8
2013
£’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$1,815,000 (£1,120,000) (2013: US$2,070,000 (£1,279,000)).
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 £5,419,000 (2013: £4,322,000).
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 was subsequently 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 hearing of some
preliminary issues in November 2013 and February 2014, determination of the substantive issues has been stayed pending hearings at the Court of
Appeal on matters of legal interpretation. As with any litigation, there can be no certainty of the eventual outcome, but the Board remains of the view that
no sums are due to the sellers in respect of this claim. The costs of resolving the dispute currently total £939,000, of which the current year’s costs of
£292,000 have been included in exceptional items, on a consistent basis to the prior year. The total eventual legal and professional fees of the dispute
are currently unknown, but are likely to exceed £1.25m.
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.
71
TREATT PLCAnnual Report and Financial Statements 2014
Notes to the Financial Statements
for the year ended 30 September 2014 continued
28. FINANCIAL INSTRuMENTS (continued)
Parent Company and Group (continued)
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
2014
£’000
2013
£’000
Parent Company
2014
£’000
2013
£’000
—
13,203
629
92
—
11,448
1,117
219
13,924
12,784
675
7,326
608
6,785
2,093
511
675
7,434
22
6,793
2,596
577
17,998
18,097
1,350
—
—
—
1,350
675
—
1,556
—
—
—
2,231
1,350
—
—
—
1,350
675
—
1,915
—
—
—
2,590
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.
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)
72
TREATT PLC
Annual Report and Financial Statements 2014
2014
£’000
950
400
2013
£’000
950
400
1,350
1,350
28. FINANCIAL INSTRuMENTS (continued)
Parent Company and Group (continued)
Credit risk management (continued)
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$9m 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 2014 of £511,000 (2013: £577,000) 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 £13,000 (2013: £546,000) is shown in the ‘Statement
of Comprehensive Income’.
The derivative financial instrument for the interest rate swap described above is classified as level 2.
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
2014
£’000
472
1,422
45
1,939
675
2013
£’000
6,062
(106)
(258)
5,698
675
2014
£’000
7,644
—
—
7,644
—
2013
£’000
2,596
—
—
2,596
2014
£’000
8,116
1,422
45
9,583
2013
£’000
8,658
(106)
(258)
8,294
—
675
675
2,614
6,373
7,644
2,596
10,258
8,969
* Bank borrowings are shown net of positive cash balances as rights of set-off exist.
73
TREATT PLCAnnual Report and Financial Statements 2014
Notes to the Financial Statements
for the year ended 30 September 2014 continued
28. FINANCIAL INSTRuMENTS (continued)
Parent Company and Group (continued)
Interest rate risk management (continued)
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$1,815,000 (2013: US$2,070,000), equipment financing term loans of
$1,578,000 (2013: $2,133,000) 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
2014
£’000
475
200
675
2013
£’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, after taking account of rights of set off, 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 2014 would have decreased or
increased as follows:
Impact on profit before tax of 1% interest rate movement
Group
2014
£’000
102
2013
£’000
101
Parent Company
2014
£’000
2013
£’000
9
12
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.
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 foreign currency forward contracts and options.
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.
The following table details the forward and option contracts outstanding at the year end:
Average
Rate
Nominal
Currency
‘000
Contract
GBP
£’000
Fair value
Gain
£’000
1.659
$10,000
6,028
1.255
€3,000
2,391
8,419
—
53
53
US Dollars:
Option to sell US Dollars in 3 to 6 months
Euros:
Forward contract to sell Euros in 3 to 6 months
74
TREATT PLC
Annual Report and Financial Statements 2014
28. FINANCIAL INSTRuMENTS (continued)
Parent Company and Group (continued)
Foreign currency risk management (continued)
The derivative financial instruments for the foreign currency contracts and options described above are all held as cash flow hedges and are classified
as level 2. The fair value of the foreign currency contracts and options at the year end equate to the mark-to-market valuation of the contracts and
options provided by HSBC and represents the amount which the Group would expect to pay in order to close the contracts at the balance sheet date.
The gain/(loss) on foreign currency financial instruments during the year was as follows:
Income statement
Other comprehensive income
2014
£’000
360
(50)
310
2013
£’000
129
90
219
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 2014
At 30 September 2013
uS Dollar
£’000
Other
£’000
1,948
1,074
Total
£’000
3,022
(5,056)
1,077
(3,979)
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 gain on net monetary assets
or liabilities of £216,000 (2013: loss of £562,000). 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 25 to 37.
Salaries and other short-term employee benefits
Employers’ social security costs
Pension contributions to money purchase schemes
Share-based payments
2014
£’000
950
91
41
6
1,088
2013
£’000
1,070
111
42
3
1,226
During the year no Directors (2013: two) were members of a defined benefit pension scheme as the scheme was closed to future accrual with effect
from 31 December 2012. The aggregate accumulated total pension as at 30 September 2014 was £66,000 (2013: £64,000).
75
TREATT PLCAnnual Report and Financial Statements 2014
Notes to the Financial Statements
for the year ended 30 September 2014 continued
29. RELATED PARTy TRANSACTIONS (continued)
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
2014
£’000
2013
£’000
14
6
936
902
950
400
45
(13)
14
6
948
654
950
400
157
297
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.
76
TREATT PLC
Annual Report and Financial Statements 2014
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 30 January 2015 at 10.30 am at Treatt plc, Northern Way, Bury St Edmunds,
Suffolk, IP32 6NL is set out below.
At the AGM the Company will propose measures regarding historic dividends paid by it. This is a technical issue that has no impact on either the
historic or future trading and profitability of the Group.
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, PX51, 34 Beckenham Road, Beckenham, Kent, BR3 47F 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 30 January 2015, 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 2014.
2. To approve the Directors’ Remuneration Report.
3. To approve a final dividend of 2.60p per share on the ordinary shares of the Company for the year ended 30 September 2014.
4. To re-elect Richard Hope as a Director of the Company.
5. To re-elect Ian Neil as a Director of the Company.
6. 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.
7. 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 8 to 10 will be proposed as Ordinary Resolutions and Resolutions
11 to 13 will be proposed as Special Resolutions.
8. Approval of Remuneration Policy
THAT:
The Remuneration Policy be and is hereby approved.
9. 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 30 April 2016; 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.
10. Approval of Save As You Earn Share Option Scheme
THAT:
The Treatt plc 2015 Save As You Earn Share Option Scheme (‘SAYE’) , 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 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 rules as may be necessary to
take account of the requirements of HM Revenue & Customs and/or to do all other such acts as the Directors may consider necessary or
desirable to implement the SAYE; and
77
TREATT PLCAnnual Report and Financial Statements 2014
Notice of Annual General Meeting continued
b) to adopt further all-employee share plans based on the SAYE but modified to take account of local tax, exchange control or securities laws
in overseas territories provided that any shares made available under such further arrangements are treated as counting against the limits on
individual and overall participation in such schemes.
11. Disapplication of pre-emption rights for up to 5% of existing share capital
THAT:
(a) Conditionally upon the passing of Resolution 9 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:
(i)
the power hereby granted shall be limited:
(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
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);
(bb)
(ii)
(b) (i)
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 30 April 2016;
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.
12. 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 2p each in the capital of the Company (“ordinary shares”) provided that:
(a) the maximum number of ordinary shares authorised to be purchased is 5,240,510 (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 2p;
(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 2016, 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.
13. Proposed release of the Company’s rights in respect of certain dividends:
THAT:
(a) the Company be and it is hereby authorised to release, abandon and undertake not to pursue any and all rights and claims it has or may have
against shareholders on the register of members on the relevant dividend record dates arising out of:
(i) the payment of 0.74p* per ordinary share by way of an interim dividend on 2 October 2009;
(ii)
the payment of 0.82p* per ordinary share by way of an interim dividend on 15 October 2010;
(iii) the payment of 0.96p* per ordinary share by way of an interim dividend on 21 October 2011;
(iv) the payment of 1.94p* per ordinary share by way of a final dividend on 2 March 2012;
(v) the payment of 1.02p* per ordinary share by way of an interim dividend on 19 October 2012;
(vi) the payment of 1.10p* per ordinary share by way of an interim dividend on 18 October 2013;
(vii) the payment of 2.60p* per ordinary share by way of a final dividend on 4 April 2014;
(viii) the payment of 1.24p per ordinary share by way of an interim dividend on 17 October 2014;
together, the dividends referred to in sub-paragraphs (a)(i)-(viii) above being defined as the “Dividends” and each being an interim or final
“Dividend”;
* Restated following five for one sub-division of shares
(b) the Company be and it is hereby authorised to release, abandon and undertake not to pursue any and all rights and claims it has or may
have in respect of, the matters aforesaid against the directors of the Company (the “Directors”) in office at the time of the declaration and/or
payment of the Dividends or subsequently appointed;
(c) for the purpose of implementing paragraphs (a) and (b) of this resolution, any Director be authorised and instructed to execute a deed
substantially in the form produced to this meeting and initialled by the Chairman for the purposes of identification, to give effect to the above
provisions of this resolution, and any prohibition in the articles of association, as filed with the Registrar of Companies, on interested Directors
voting in respect of any contract, transaction or arrangement or proposed contract, transaction or arrangement or any other proposal in
which they may be interested shall be suspended to the extent necessary to enable the execution and delivery of such deed on behalf of the
Company; and
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(d) the Company ratifies:
(i)
(ii)
the entry in the audited accounts of the Company for the year ended 30 September 2010 whereby distributable profits of the Company
were appropriated to the payment of 0.74p per ordinary share by way of an interim dividend on 2 October 2009;
the entry in the audited accounts of the Company for the year ended 30 September 2011 whereby distributable profits of the Company
were appropriated to the payment of 0.82p per ordinary share by way of an interim dividend on 15 October 2010;
(iii) the entry in the audited accounts of the Company for the year ended 30 September 2012 whereby distributable profits of the Company
were appropriated to the payment of 0.96p per ordinary share by way of an interim dividend on 21 October 2011;
(iv) the entry in the audited accounts of the Company for the year ended 30 September 2012 whereby distributable profits of the Company
were appropriated to the payment of 1.94p per ordinary share by way of a final dividend on 2 March 2012;
(v) the entry in the audited accounts of the Company for the year ended 30 September 2013 whereby distributable profits of the Company
were appropriated to the payment of 1.02p per ordinary share by way of an interim dividend on 19 October 2012;
(vi) the entry in the audited accounts of the Company for the year ended 30 September 2014 whereby distributable profits of the Company
were appropriated to the payment of 1.10p per ordinary share by way of an interim dividend on 18 October 2013;
(vii) the entry in the audited accounts of the Company for the year ended 30 September 2014 whereby distributable profits of the Company
were appropriated to the payment of 2.60p per ordinary share by way of a final dividend on 4 April 2014; and
(viii) the entry in the audited accounts of the Company for the year ended 30 September 2015 whereby distributable profits of the Company
were appropriated to the payment of 1.24p per ordinary share by way of an interim dividend on 17 October 2014.
By order of the Board
Anita Steer
Secretary
12 December 2014
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 80 to 84 form part of this notice.
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TREATT PLCAnnual Report and Financial Statements 2014 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 28 January 2015 (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 30 January 2015 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.
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.
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Annual Report and Financial Statements 2014
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 4 December 2014 the Company’s issued share capital consists of 52,405,170 ordinary shares. The total number of voting rights in the Company
as at 4 December 2014 (the latest practicable reporting date prior to publication of this document) is 51,453,325.
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
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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 2014. You can find the
Implementation Section of the Directors’ Remuneration Report on pages 33 to 37.
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 2.60p 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 27 February 2015.
If approved, the date of payment of the final dividend will be 3 April 2015. An interim dividend of 1.24 pence per ordinary share was paid on 17 October
2014. This represents an increase of 0.14 pence per share, or 3.8 per cent, on the total 2013 dividend.
Re-election of Directors (Resolutions 4 and 5)
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, Richard Hope and Ian Neil will retire and stand for re-election as Directors. Short biographies of these Directors are given on
page 15. 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 6 and 7)
Resolutions 6 and 7 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 8)
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. Although the policy
was approved at the 2014 Annual General Meeting, the proposed revision to the Annual Bonus of the Executive Directors requires the approval of
Shareholders. Once approved, a Remuneration Policy only requires Shareholder approval every three years unless any revisions are required. The
policy, which is set out on pages 25 to 32, will apply to all payments made to Directors from the date the policy is approved by shareholders. In the
event that this resolution is not passed at the Annual General Meeting, the version of the Remuneration Policy approved by shareholders in 2014 will
continue in force.
Directors’ authority to allot securities (Resolution 9)
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 2016 or, if earlier, on 30 April 2016 (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 4 December 2014.
Approval of Save As You Earn Share Option Scheme (Resolution 10)
This resolution proposes the approval of the Treatt plc 2015 Save As You Earn Share Option Scheme (‘SAYE’) for employees and Directors.
A summary of the proposed rules of the SAYE is provided in Appendix A below.
Share plans complying with HMRC rules are a valuable mechanism for incentivising and engaging eligible UK employees, aligning their interests with
those of the Company’s shareholders. Shareholders approved an SAYE in 2005, which is now coming to the end of its ten year life. This resolution
seeks approval to introduce a new 10 year SAYE to replace the previous scheme with effect from the passing of the resolution. The new SAYE is similar
to the previous scheme, although it has been updated to reflect current market practice and legislative changes.
The resolution also permits the Company to adopt further all-employee share plans based on the SAYE for the benefit of staff overseas. It is intended
to renew the Employee Stock Purchase Plan (‘ESPP’) for US employees, which is coming to the end of its ten year life.
A full copy of the rules of the SAYE and ESPP are available on the Treatt website at www.treatt.com and will be available for inspection at the Annual
General Meeting.
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Annual Report and Financial Statements 2014
Disapplication of pre-emption rights (Resolution 11)
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 11 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 4 December
2014. 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 2016 or, if earlier, 30 April 2016 (the date which is
15 months after the date of passing of the resolution).
Authority to purchase own shares (Resolution 12)
In certain circumstances, it may be advantageous for the Company to purchase its own shares and resolution 12 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.
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 4 December 2014) 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 4 December 2014 (the latest practicable reporting date prior
to publication of this document) was 899,935. The proportion of issued share capital that they represented at that time was 1.72 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 1.90 per cent.
Resolution 12 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 2016 or, if earlier, 30 April 2016 (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.
Proposed release of the Company’s rights in respect of certain dividends (Resolution 13)
A technical issue has arisen in respect of the dividends paid by the Company to shareholders in March 2012, April 2014 and October 2009-2014,
(together, the “Dividends”). The Company has always filed its annual accounts on time as required by the Companies Act 2006 (“CA 2006”) and had
sufficient profits and funding in place to pay its dividends. However, under CA 2006, a public company can only pay a dividend out of its distributable
profits as shown in the last accounts filed with Companies House. A public company can file interim accounts with Companies House showing a more
recent distributable profit position if the last filed annual accounts do not show sufficient distributable profits. When the Company paid each of the
Dividends, although it had sufficient distributable reserves to make each payment at each payment date, interim accounts showing the requisite level
of distributable profits had not been filed with the Registrar of Companies and as a result, each Dividend was paid in technical infringement of CA 2006.
The Directors consider that it is in the best interests of the Company to take the necessary steps to regularise this position, since shareholders received
the dividends they were intended to receive, and the Company clearly would not wish to take any action it could technically take against the relevant
shareholders to recover any amounts in connection with the Dividends or against those Directors who participated in the meetings of the Board of
Directors at which the decision was taken to pay the Dividends.
This matter can be remedied by the shareholders passing a resolution which puts shareholders and Directors into the position in which they were
always intended to be. Resolution 13, which is proposed as a special resolution, is to waive any rights of the Company against the shareholders who
received the Dividends, to waive any rights of the Company against both past and present Directors in respect of the Dividends and to approve the
Company entering into a deed of release in favour of such shareholders and Directors. Copies of the form of the deeds of release will be available for
inspection at the Annual General Meeting and are available from the Company Secretary. Resolution 13 also proposes to ratify the entries made in the
relevant annual accounts in respect of the Dividends.
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TREATT PLCAnnual Report and Financial Statements 2014 Notice of Annual General Meeting continued
The tax position of UK shareholders is not affected by any irregularity in the original dividends and UK shareholders should therefore include these
dividends in their relevant tax returns on the basis of the information shown on the original tax vouchers as a dividend received on the relevant day.
Therefore, if shareholders approve the resolution submitted for their approval, this should have no effect on the amount of their taxable income or on
the period for which it is assessable to UK tax. If any non-UK resident shareholder has any doubts about his or her tax position, they should consult
their own professional adviser(s).
As a result of their interest in its subject matter, the Directors who are also shareholders (holding beneficially in aggregate approximately 0.69 per cent.
of the issued share capital of the Company as at 4 December 2014, the latest practicable date before publication of this notice) will not vote on this
resolution.
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Annual Report and Financial Statements 2014
APPENDIX A
SuMMARy OF PROvISIONS OF THE TREATT PLC 2015 SAvE AS yOu EARN SHARE OPTION SCHEME (the “Scheme”)
The Company proposes to renew the Scheme to incentivise employees.
The operation of the Scheme will be supervised by the Board of Directors of the Company (the “Board”). It is intended that the Scheme will meet the
requirements of Schedule 3 to the Income Tax (Earnings and Pensions) Act 2003 (“ITEPA”) as amended and re-enacted from time to time in order to
provide UK tax-advantaged options to UK employees. If, for any reason, the Scheme does not comply with the requirements of Schedule 3 to ITEPA
the Board may continue to operate the Scheme even without the associated tax advantages.
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 Scheme by the Company;
(ii) 42 days following the announcement of yearly, half yearly or other period financial results of the Company;
(ii) subject to the Model Code, any other date on which the Directors consider that exceptional circumstances justify the grant of options; or
(iii) in the event that any statute, order or regulation prevents the Company from making awards the award will be made within the relevant period
indicated above after that restriction is removed.
An option may not be granted more than 10 years after shareholder approval of the Scheme.
Options are not transferable, except on death.
Eligibility
Employees and Executive Directors of the Company and any designated participating subsidiary who are UK resident tax payers are eligible to
participate. The Board may require employees to have completed a qualifying period of employment of up to five years before the grant of options.
The Board may also allow other employees to participate.
Individual Participation
Monthly savings by an employee under all savings contracts linked to options granted under any sharesave Scheme may not exceed the statutory
maximum (currently £500 in aggregate per month). The Board may set a lower limit in relation to any particular grant.
Option Price
The price per share payable upon the exercise of an option will not be less than the higher of: (i) 80 per cent (or such lesser percentage as may be
permitted by the legislation) of the middle-market quotation of a share on the London Stock Exchange (or a preceding 3 day average price) on a date
specified in an invitation to participate in the Scheme (or the date immediately preceding the issue of an invitation); and (ii) if the option relates only to
new issue shares, the nominal value of a share.
Invitations may be issued:
• during the period of 42 days following the date of approval;
• during the period of 42 days beginning with the fourth dealing day following an announcement; and
• at any other time if, in the opinion of the Directors, the circumstances are exceptional.
Exercise of Options
Options will normally be exercisable for a six month period from the third anniversary of the commencement of the related savings contracts. Earlier
exercise is permitted, however, in the following circumstances:
•
•
following cessation of office or employment by reason of death, injury, disability, redundancy, retirement, the business or company that the
employee works for ceasing to be part of the Company’s group, a transfer within the meaning of the Transfer of Undertakings (Protection of
Employment) Regulations 2006, the office or employment of the participant being with a company of which the Company ceases to have control
or which ceases to be a related company, the participant’s office or employment being with a company which ceases to be an associated
company of the Company by reason of a change of control, or the business or part of the business that the employee works for being transferred
to a person who is not an associated company of the Company, nor a company of which the Company has control nor a related company of the
Company; and
in the event of a takeover, amalgamation, reconstruction or winding-up of the Company, except in the case of an internal corporate reorganisation
when the Board may decide to exchange existing options for equivalent new options over shares in a new holding company.
If a participant ceases to be an employee or officer of a participating company after the third anniversary of the date of grant of an option for any
reason other than dismissal due to misconduct, he may exercise his option within 6 months following such cessation. To the extent the option is not
exercised within this period, it shall lapse.
Except where stated above, options will lapse when a participant ceases to hold an office or employment within the Company’s group.
Shares will be allotted or transferred to participants within 30 days of exercise.
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TREATT PLCAnnual Report and Financial Statements 2014 Notice of Annual General Meeting continued
Overall Scheme Limits
The Scheme may operate over new issue shares, treasury shares or shares purchased in the market.
In any ten calendar year period, the Company may not issue (or grant rights to issue) more than 10 per cent of the issued ordinary share capital of the
Company under the Scheme and any other employee share plan adopted by the Company.
Treasury shares will count as new issue shares for the purposes of these limits.
variation of capital
If there is a variation in the Company’s share capital then the Board may make such adjustment as it considers appropriate to the number of shares
under option and the option price.
Rights Attaching to Shares
Any shares allotted when an option is exercised under the Scheme will rank equally with shares then in issue (except for rights arising by reference to
a record date prior to their allotment).
Alterations to the Scheme
The Board may amend the provisions of the Scheme in any respect, provided that the prior approval of shareholders is obtained for any amendments
that are to the advantage of participants in respect of the rules governing eligibility, limits on participation, the overall limits on the issue of shares or
the transfer of treasury shares, the basis for determining a participant’s entitlement to, and the terms of, the shares to be acquired and the adjustment
of options.
The requirement to obtain the prior approval of shareholders will not, however, apply to any minor alteration made to benefit the administration of the
Scheme, to take account of a change in legislation or to obtain or maintain favourable tax, exchange control or regulatory treatment for participants or
for any company in the Company’s group, any associated company of the Company or any related company of the Company.
Overseas Plans
The shareholder resolution to approve the Scheme will allow the Board, without further shareholder approval, to establish further plans for overseas
territories, any such plan to be similar to the Scheme, but modified to take account of local tax, exchange control or securities laws, provided that
any shares made available under such further plans are treated as counting against the limits on individual and overall participation in the Scheme.
Pensions
Benefits under the Scheme will not be pensionable.
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Annual Report and Financial Statements 2014
Financial Calendar
2013/14
Financial year ended
Results for year announced
Annual Report and Financial Statements published
Annual General Meeting
Final dividend for 2014 goes ‘ex-dividend’
Record date for 2014 final dividend
Last day for dividend reinvestment plan election
Final dividend for 2014 paid
2014/15
Interim results to 31 March 2015 announced
Interim dividend for 2015 goes ‘ex-dividend’
Record date for 2015 interim dividend
Last day for dividend reinvestment plan election
Financial year ended
Interim dividend for 2015 paid
Results for year to 30 September 2015 announced
Final dividend for 2015 paid
* These dates are provisional and may be subject to change
30 September 2014
9 December 2014
12 December 2014
30 January 2015
25 February 2015
27 February 2015
9 March 2015
3 April 2015
19 May 2015*
9 September 2015*
11 September 2015*
21 September 2015*
30 September 2015
16 October 2015*
8 December 2015*
15 April 2016*
87
TREATT PLCAnnual Report and Financial Statements 2014 Parent Company Information and Advisers
Directors
Tim Jones (Chairman and Non-executive Director)
Daemmon Reeve (Chief Executive Officer)
Richard Hope (Finance Director)
Anita Haines (Non-executive Director – from 24 February 2014)
Jeff Iliffe (Non-executive Director)
David Johnston (Non-executive Director)
Ian Neil (Non-executive Director)
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
Jeff Iliffe (Chairman)
David Johnston
Tim Jones
Ian Neil
Ian Neil (Chairman)
Jeff Iliffe
David Johnston
Tim Jones
Tim Jones (Chairman)
Daemmon Reeve
Anita Haines (from 24 February 2014)
Jeff Iliffe
David Johnston
Ian Neil
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).
88
TREATT PLC
Annual Report and Financial Statements 2014
WHO WE ARE
Treatt was founded on ingredient sourcing and risk management. Over the last 128 years, we
have grown from a small merchant house trading in essential oils to become a world-leading
innovative ingredient solutions provider for the flavour, fragrance and consumer goods
industries, supplying customers globally.
WHAT WE DO
Our in-depth knowledge of flavour and fragrance ingredients provides a platform to partner
with our customers and give them direct access to unique ingredient solutions not found
elsewhere, allowing them to create signature products using Treatt’s specialties, which can
set their products apart from the competition. Provenance is of increasing importance and
a growing number of brands now choose to clearly communicate the source of the main
ingredients on their finished products, as shoppers show a heightened interest in knowing
where the food and drink they consume comes from. By sourcing raw materials sustainably,
we can ensure traceability and consistent product quality.
about the
group
OVERVIEW
FINANCIAL STATEMENTS
40 Group Income Statement
41 Group Statement of Comprehensive Income
42 Group and Parent Company Statements
of Changes in Equity
44 Group and Parent Company Balance Sheets
45 Group and Parent Company Statement
of Cash Flows
46 Group Reconciliation of Net Cash Flow
to Movement in Net Debt
47 Notes to the Financial Statements
77 Notice of Annual General Meeting
87 Financial Calendar
88 Parent Company Information
and Advisers
01 Strategy Map
What Makes Treatt Special
02 Our Products
Our Values
03 An Eye to The Future
04 2014 Review
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
GOVERNANCE
20 Corporate Governance Statement
25 Directors’ Remuneration Report
38 Independent Auditor’s Report to
the Members of Treatt plc
Designed and produced by corporateprm, Edinburgh and London. www.corporateprm.co.uk
TREATT PLC
Annual Report and
Financial Statements 2014
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a world of
difference
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